Banking

A bank is a financial intermediary that accepts deposits and channels those deposits
into lending activities, either directly by loaning or indirectly through capital markets. A bank links
together customers that have capital deficits and customers with capital surpluses.
Due to their importance in the financial system and influence on national economies, banks
are highly regulated in most countries. Most nations have institutionalised a system known
as fractional reserve banking. They are generally subject to minimum capital requirements based
on an international set of capital standards, known as the Basel Accords.

Definition
"banking business" means the business of receiving money on current or deposit account,
paying and collecting cheques drawn by or paid in by customers, the making of advances to
customers, and includes such other business as the Authority may prescribe for the
purposes of this Act; (Banking Act (Singapore), Section 2, Interpretation).

traditional Banking and modern banking
In Traditiional Banking, borrowing money from the public and lending them to busilness units
constituted the main functions of a bank. These were called the primary functionsof a bank in
oldern days.

When the banks became profit conscious and wanted to give more emphasis to profit generation,
they started focussing on fee-based business. As a result, they started rendering different types of
service oriented functions, which are called General Utility Services. These formed the subsidiary
services of the bank. These included provding of safe locker facilities, Issuing of Letters of Credit,
Dealing in Foreign Exchange, Underwriting loans floated by the Government, local bodiessss,
etc.The other functions included are factoring service, leasing of equipments, housing finance,
portfolio investments, etc.

Modern day banks have been using the technology based services or electronic banking. The
banking services are being rendered very fast and efficiently. The space and time constrainsts
are removed and the banking services are being provied 24 X 7, througout the yearon all days. A
customer is no longer a bank's branch customer, but a bank customer. The folloiwng services
are being provided by a modern bank to their customers.

1. Telebanking services.
2. Net banking Services.
3. Issue of Credit and Debit Card services.
4. Bankassurance.
5. ATMs pressed into services.
6. SMS Alert services.
7. Electronic Funds Tranfer system. (For ex. NEFT)
8. Electronic clearning srvices (RTGS)

Thus in traditional banking the services are slow, but personalllised; whereas in modern banking,
due to the introdcution of technology, the services are rendered fast.The physical and space
barrier are removed completely and one can do banking 24 X 7, that is all round the year
on all days from anywhere. The services are also rendered fast. One need not physically go to
a bank to withdraw money. One can draw money even at midnight.
These are the advantages of modern banking.
Modern Banking
The term modern banking refers to the use of sophisticated information and communication technologies
together with computer science to enable banks to offer better services to its customers in a secure, reliable and
affordable manner and sustain competitive advantage over other banks. Banking Technology also subsumes the
activity of using advanced computer algorithms in unraveling the patterns of customer behavior by sifting through
customer details such as demographic, psychographic and transactional data. This activity also known data
mining, helps banks achieve their business objectives by solving various marketing problems such as customer
segmentation, customer scoring, target marketing, market-basket analysis, cross-sell, up-sell, customer retention
by modeling churn etc. Successful use of data mining helps banks achieve significant increase in profits and
thereby retain sustainable advantage over their competitors. From theoretical perspective, Banking Technology is
not a single, stand-alone discipline, but a confluence of several disparate fields such as finance (subsuming risk
management), information technology, communication technology, computer science and marketing science.
Figure 1 depicts the constituents of Banking Technology. From the functional perspective, Banking Technology
has three important dimensions. They are as follows: (i) The use of appropriate hardware for conducting business
and servicing the customers through various delivery channels and payments systems and the associated
software constitutes one dimension of Banking Technology. The use of computer networks, security algorithms in
its transactions, use of ATM and credit cards, Internet banking, telebanking and mobile banking are all covered
by this dimension. The advances made in information and communication technologies take care of this
dimension. (ii) On the other hand, the use of advanced computer science algorithms to solve several interesting
marketing related problems such as customer segmentation, customer scoring, target marketing, market-basket
analysis, cross-sell, up-sell and customer retention etc. faced by the banks to reap profits and outperform their
competitors constitutes the second dimension of Banking Technology. This dimension covers the implementation
of a data warehouse for banks and conducting data mining studies on customer data. (iii) Moreover, banks
cannot ignore the risks that arise in conducting business with other banks and servicing their customers, for
otherwise, their very existence would be at stake. Thus, the quantification, measurement, mitigation and
management of all the kinds of risks that banks face constitutes the third important dimension of Banking
Technology. This dimension covers the process of measuring and managing credit risk, market risk and
operational risk. Thus, in a nutshell, in the word Banking Technology, banking refers to the economic, financial,
commercial and management aspects of banking while technology refers to the information and communication
technologies, computer science and risk quantification and measurement aspects.

ADVANTAGES:

It is cost-saving, time-saving and convenient way of banking.
It is accessible all the time and operative from anywhere.
Risks associated with stolen cheques and forged signatures are avoided.
Makes possible to do online shopping.
Generally online banks offer higher interest rates on deposits than brick and mortar banks as they
save fixed cost associated with the maintenance of buildings and manpower.
There is less chance of confidentiality of your account status and transactions being compromised
as there is minimum human interference with the transactions conducted online.
Transfer funds between your accounts of different classification so that you gain maximum
returns on your deposit.



DISADVANTAGES

Though online banking portal is secure and user friendly, there are people who are beginners in
using internet and therefore are exposed to the dangers of stolen passwords and website phishing.
This especially holds true when you are using public computers.
Many times you face issues conducting day to day banking activities. You feel the need to resolve
issues by discussing them with banker. Contacting representative of an online bank can be a hassle
as compared contacting banker in a brick and mortar bank who always have customer service desk
dedicated for this purpose.
Many type of online transactions take upto 3 to 4 days to settle, especially when you make
deposit by mailing cheques.
Before making an investment decision you need to gain in-depth knowledge of all the
saving/investment products on the offer with pros and cons of each one. Some banking
terminologies and concepts can be tricky to laymen and require elaboration. In such situations, you
get a satisfying reply from a professional banker by meeting him in personal rather than from faqs
available online.
When online link goes down, you cannot resort to any alternative system to get your transactions
processed.