Automated Teller Machines (ATMs)

An ATM (Automated Teller Machine) is an electronic banking device that allows customers
to perform financial transactions such as cash withdrawals, deposits, balance inquiries, bill
payments, or fund transfers without the need for a bank teller or representative. ATMs are
typically found at banks, shopping centers, airports, and other public places, offering
convenient, 24/7 access to basic banking services.

Operation
 ATMs are electronic banking outlets that allow customers to perform financial
transactions without visiting a branch.
 Cash Withdrawals: The bread and butter of ATMs, get cash directly from your account.
 Balance Enquiry: Check your current account balance in real-time.
 Mini-Statement Printing: Print a record of your recent transactions for your reference.
 Deposits (on select ATMs): Skip the teller line and deposit cash or checks (depending on
the ATM) into your account.
 Fund Transfers: Move money between your own accounts or send funds to someone
else’s account within the same bank.
 Bill Payments: Pay your utility bills, phone bills, or even top up your mobile phone credit
– all directly from the ATM.
 Open Fixed Deposits: Start a fixed deposit account for your savings goals.
 Apply for Loans: Initiate the loan application process conveniently.

Advantages

To Customers
 Accessibility
ATMs are available in many locations, so customers can access banking services outside of
regular banking hours.
 Convenience
ATMs offer quick and easy transactions, which can save time.
 Reduced wait times
ATMs can help reduce the need to visit a bank branch, which can cut down on wait times.
 Enhanced security
Modern ATMs have security measures like encryption and anti-skimming technology to
ensure safe transactions.
 Wide range of services
ATMs offer a variety of banking services, including cash withdrawals, deposits, balance
inquiries, and account transfers.
 Financial inclusion
ATMs can provide access to banking services in areas where bank branches are scarce.
 Improved efficiency
ATMs can increase efficiency by reducing the workload of staff, which can help to increase
accuracy and speed.
 Contactless ATMs
When used with a bank or credit union mobile app, contactless ATMs can allow customers to
plan transactions from their phones and collect their cash without touching anything at the
ATM

To Banks
 Reduced need for bank branch visits : ATMs allow customers to perform transactions without
visiting a bank branch, which can reduce the number of customers in the bank.
 Enhanced security : ATMs use encrypted communication channels and PINs to authenticate
customers and process transactions securely. GPS tracking systems can also be installed on ATMs
to increase security.
 Waived ATM fees : Banks can waive ATM fees to ensure that digital banking customers can still
withdraw or deposit cash.
 Upgraded ATMs : Upgraded ATMs can eliminate the need for customers to carry their cards,
which can help prevent card theft and card skimming.

Credit Cards

Credit cards are financial instruments issued by banks that allow customers to borrow funds
within a credit limit for purchases and payments. A credit card is a payment card, usually
issued by a bank, allowing its users to purchase goods or services, or withdraw
cash, on credit. Using the card thus accrues debt that has to be repaid later.

Operation

 Credit cards are linked to an account with a predefined credit limit.

 Customers can use them for online/offline purchases, bill payments, and cash advances.
  Banks charge interest on outstanding balances and offer grace periods for payments.
 Transactions are authenticated via PIN or OTP for security.

Advantages

To Customers

1. Convenience: Enables cashless transactions and easy online/offline payments.

2. Flexibility: Offers the option to pay in installments.
3. Rewards: Includes benefits like cashback, reward points, discounts, and travel perks.
4. Emergency Access: Useful for immediate financial needs when cash is unavailable.
5. Building Credit History: Timely payments help improve credit scores.

To Banks

1. Revenue Generation: Banks earn through annual fees, interest on overdue payments,
and merchant processing fees.
2. Customer Loyalty: Offering attractive rewards and benefits encourages customer
retention.
3. Data Insights: Transactions provide valuable customer behavior data for tailored
offerings.

Banking Instruments and Services

Banks provide a variety of instruments and services to facilitate financial transactions and
enhance customer convenience. Below is a detailed explanation of commonly used tools and
services:

1. Debit Card :A debit card is linked directly to the user’s bank account, allowing them to
spend money or withdraw cash only to the extent of their account balance.Transactions are
instantly debited from the account.

Features

 Instant fund transfer or payment.

 Can be used for withdrawals at ATMs and for online/offline purchases.
 PIN or OTP security for transactions.

Examples :Visa Debit, Mastercard Debit, Maestro, RuPay Debit.

2. Gift Card : A gift card is a preloaded payment card that can be used as a substitute for cash.
  Typically issued by banks or retailers, it is often used for gifting purposes.

Features

 Fixed preloaded balance.

 Valid for a specific period.
 Non-reloadable and non-transferable.

Examples :Amazon Gift Cards, Visa Prepaid Gift Cards.

3. Smart Card : A smart card is a physical card embedded with a microprocessor or memory
chip that stores and processes data securely.

 Commonly used in banking, healthcare, and telecommunications for secure

identification and transactions.

Features

 Enhanced security with encrypted data.

 Can store more data than magnetic stripe cards.
 Used for transactions, access control, and secure identification.

Examples: Chip-based debit or credit cards, ID cards.

4. Mobile Banking Services: Mobile banking enables customers to conduct financial

transactions using a mobile device through an app or SMS-based services.

Features

 Access to account details, fund transfers, bill payments, and mobile recharges.
 Available 24/7 with secure login protocols.
 Alerts and notifications for transactions.

Examples: UPI apps like Google Pay, Paytm, and proprietary bank apps like SBI YONO, ICICI
iMobile.

6. Telebanking

Telebanking is a banking service conducted over the telephone. Customers can perform certain
banking transactions or get account-related information without visiting the bank branch.

Features

 Balance inquiries and mini-statements.

  Request for checkbooks or stop payment instructions.
 Fund transfers between accounts.

Examples : Bank-provided toll-free telebanking services.

7. Internet Banking : Internet banking allows customers to access their bank accounts and
perform transactions via a secure online portal.

Features

 Fund transfers (NEFT, RTGS, IMPS).

 Online payments for bills, shopping, and taxes.
 Investment services like fixed deposits, mutual funds, and trading.

Examples : Net Banking portals like HDFC NetBanking, SBI Online.

Ancillary Services
Ancillary services in banking refer to additional offerings beyond the core financial products, aimed at enhancing
the overall customer experience

 Insurance: Insurance products are an example of an ancillary service.

 Financial advisory services: Banks can offer financial advisory services to their customers.

 Foreign exchange services: Banks can offer foreign exchange services to their customers.

 Remittance services: Banks can transfer funds between branches of the same bank or to a different bank.

 Custodial services: Banks can offer safe deposit lockers, also known as custodial services, where customers can
store valuables and important documents.

 Online banking: Banks can offer online banking services, such as debit-cum-ATM card services, cheque book
services, and demand draft services.

 eSIM: eSIM is a service that allows customers to access data plans across multiple countries without incurring
roaming charges

Draft and Travel’s Cheque

A draft, also known as a demand draft (DD), is a type of payment that is written out by a bank and funds
are deducted from the customer's account at the same time. A banker's draft is similar to a cheque, but
it cannot bounce. Banks typically charge a fee for this service and may require 24 hours' notice.
 A traveler's check is a type of payment that is issued by a financial institution and is often used by
travelers to pay for goods and services or exchange for cash. Traveler's checks are similar to old-
fashioned banknotes, but they have some differences:

 They must be endorsed by their users

 They can only be used for one transaction

 After the transaction, they are redeemed and retired

 They do not expire and can be used for future trips

 If your traveler's check is lost or stolen it can readily be replaced

Traveler's checks are no longer as widely used as they once were and have been largely replaced by
prepaid debit cards and credit cards.

Electronic Fund Transfer (EFT):

Electronic Fund Transfer (EFT) refers to the process of transferring money from one bank
account to another electronically without the need for manual intervention by bank staff. EFT
systems are secure, efficient, and widely used for financial transactions globally.

Key features of EFT:

1. Speed: Faster than traditional methods like checks or demand drafts.

2. Convenience: Available 24/7 (in most cases) and can be initiated from mobile apps, net
banking, or ATMs.
3. Cost-Effective: Lower transaction fees compared to manual transfers.
4. Security: Uses encryption and authentication protocols to ensure safe transactions.

Types of Electronic Fund Transfers in India

1. National Electronic Funds Transfer (NEFT):

o Definition: NEFT is a nationwide payment system facilitating one-to-one
transfers of funds between accounts in India.
o Features:
 Operates in batches every 30 minutes (24x7, including holidays).
 Ideal for non-urgent, low-value transfers.
 No minimum transfer limit; the maximum depends on the bank's policies.
 Transfer times range from a few minutes to a couple of hours.
o Use Cases: Paying bills, transferring funds for small to medium transactions.

2. Real-Time Gross Settlement (RTGS):

o Definition: RTGS allows for real-time and gross settlement of funds, meaning
transactions are processed individually as they occur.
 o Features:
 Real-time processing ensures immediate transfer.
 Minimum transfer limit: ₹2 lakhs.
 No maximum transfer limit (depends on the bank).
 Used for high-value, time-sensitive transactions.
o Use Cases: Large business payments, real estate transactions.

3. Immediate Payment Service (IMPS):

o Definition: IMPS is an instant payment system that operates 24x7, including
holidays.
o Features:
 Funds are transferred in real-time, typically within seconds.
 No minimum transfer limit; the maximum varies (often ₹2 lakhs for
individuals).
 Accessible through mobile banking, net banking, and ATMs.
o Use Cases: Retail payments, urgent personal fund transfers.

4. Unified Payments Interface (UPI):

o Definition: UPI is a mobile-based payment system that allows for instant fund
transfers using a Virtual Payment Address (VPA), phone number, or QR code.
o Features:
 Operates 24x7, including holidays.
 No minimum transfer limit; the maximum is typically ₹1–5 lakhs per day
(depending on the bank).
 Allows peer-to-peer (P2P) and peer-to-merchant (P2M) transactions.
 Supports features like bill payments, split bills, and recurring payments.
o Use Cases: Everyday transactions, paying merchants, splitting bills among
friends.

Payment of Dividend/Interest

Banks facilitate the disbursement of dividends (profits shared with shareholders) or interest
(earned on bonds or debentures) on behalf of companies or organizations. They ensure timely
and accurate distribution to the rightful beneficiaries.

 Role of the Bank: Acts as an intermediary between the company and the recipient.
 Methods: Payments are processed through Electronic Clearing System (ECS), NEFT, or
by issuing checks/demand drafts.

Procedure:
 1. Company Request: The company deposits the total amount with the bank and provides
a list of beneficiaries along with payment details.
2. Verification: The bank verifies the details of shareholders or bondholders.
3. Payment Execution: The bank credits funds to the recipients' accounts or sends physical
checks.
4. Confirmation: A payment report is shared with the company.

Agency Services

Agency services are specialized banking services provided to governments, businesses, or

organizations. The bank acts as an agent to perform activities such as tax collection, bill
payments, and pension disbursements.

 Examples: Collecting taxes for the government, making salary payments on behalf of
organizations, and acting as an agent for public bond issues.
 Importance: Reduces administrative burden for principals while ensuring secure and
efficient transactions.

Procedure:

1. Agreement Formation: The bank enters into a formal agreement with the government
or organization.
2. Instructions Provided: The principal provides specific guidelines for the service.
3. Execution: The bank processes the required collections or payments as instructed.
4. Reporting: A detailed report of the transactions is provided to the principal.

Locker Services
Banks offer secure lockers for customers to store valuables like jewelry, important documents,
or other assets. These lockers are highly secure and are available in various sizes.

 Security: Dual access control (bank key + customer key).

 Rental Charges: Annual rent based on the size of the locker and bank policies.
 Access: Customers can access lockers during bank working hours.

Procedure:

1. Application: The customer submits an application form, proof of identity, and address.
2. Verification: The bank verifies the customer's details and assigns a locker.
3. Rental Payment: The customer pays an annual rental fee.
4. Access Protocol: The customer can access the locker using their key in combination with
the bank's master key. An entry is recorded in the bank's logbook or system.
Cash Management Services (CMS):

Cash Management Services (CMS) in banking refer to a set of specialized financial solutions
designed to optimize the handling, control, and utilization of an organization's cash flow. These
services aim to streamline the collection, payment, and overall management of funds to
improve liquidity and operational efficiency.

Key Objectives of Cash Management Services:

1. Efficient Fund Utilization: Ensures timely availability and optimal usage of funds.
2. Improved Liquidity Management: Balances inflows and outflows to maintain adequate
liquidity.
3. Minimized Costs: Reduces transaction and operational costs through automation and
effective processes.
4. Secure Transactions: Provides robust mechanisms for secure and accurate handling of
large volumes of cash flows.
5. Enhanced Customer Experience: Simplifies transactions for customers and vendors
through seamless payment and collection solutions.

Components of Cash Management Services:

1. Collection Services:
Facilitates efficient collection of receivables from various sources.
o Features:
 Lockbox Services: Banks collect checks or payments directly at
designated post-office boxes, speeding up processing.
 Electronic Collections: Payments are routed electronically via NEFT,
RTGS, or ECS.
 Check Clearing: Efficient processing of physical checks through
clearinghouses.
o Benefits: Accelerates cash inflows, reduces delays, and enhances cash
availability.
2. Payment Services:
Handles disbursement of funds to vendors, employees, and stakeholders.
o Features:
 Automated payments through RTGS, NEFT, IMPS, or UPI.
 Bulk payment solutions for payroll, vendor payments, and utility bills.
 Scheduled payments to ensure timely disbursement.
o Benefits: Streamlines outflows, ensures timely payments, and avoids penalties.
3. Liquidity Management:
Ensures the organization has sufficient liquidity to meet operational requirements.
o Features:
 Cash Pooling: Centralizes balances across multiple accounts to optimize
liquidity.
  Sweeping Accounts: Automatically transfers excess funds to interest-
earning accounts.
o Benefits: Maximizes interest income and reduces borrowing costs.
4. Account Reconciliation:
Provides detailed reports on cash transactions to help organizations reconcile their
accounts.
o Features:
 Periodic statements and automated reconciliation reports.
 Customized MIS (Management Information System) reports.
o Benefits: Simplifies tracking of inflows and outflows, reduces discrepancies.
5. Investment Services:
Helps clients park excess funds in short-term or long-term investment products.
o Features:
 Fixed deposits, treasury bills, or mutual funds.
 Advisory services for better financial planning.
o Benefits: Generates returns on idle funds and strengthens financial health.

 APIs and ERP (Enterprise Resource Planning) integrations streamline processes.

Benefits of Cash Management Services for Businesses:

1. Operational Efficiency: Reduces manual workload and administrative overhead.

2. Improved Cash Flow: Timely collections and disbursements enhance cash flow
management.
3. Cost Reduction: Automation and centralized control lower processing and transaction
costs.
4. Financial Insights: Detailed reports and analytics aid in strategic decision-making.
5. Risk Mitigation: Secure processes reduce the risk of fraud and financial errors.

Example Applications in Banking:

 A retail chain uses CMS to manage payments to suppliers and consolidate collections
from various stores.
 A manufacturing firm automates payroll disbursements for thousands of employees
using a bank's bulk payment services.
 Government agencies streamline tax collections and welfare disbursements through
banks' CMS solutions.

Third-Party Services in Banking

In addition to core banking services like deposits and loans, banks offer third-party services to
provide customers with diverse financial solutions. These services are offered in partnership
with external entities, enhancing customer convenience and expanding revenue streams for
banks.

1. Mutual Funds : Banks distribute mutual fund schemes as agents of Asset Management
Companies (AMCs). Customers can invest in equity, debt, or hybrid mutual funds through the
bank.

 Banks simplify investment by offering multiple fund options on their platforms.

 They provide tools like risk assessment and investment advice.
 Banks earn commission from AMCs for mutual fund sales.
 Convenient for customers as it integrates mutual fund investment with banking.
 Offers systematic investment plans (SIPs) for disciplined investing.

Example:
A customer can purchase mutual fund units via internet banking or by visiting the bank.

2. Insurance : Banks partner with insurance companies (Bancassurance) to sell life, health, and
general insurance products.

 Banks act as intermediaries, promoting and distributing policies.

 They provide advisory services, policy renewals, and claim assistance.
 Banks earn a commission on premiums collected.
 Wide reach through bank branches and online channels.
 Simplified premium payments through direct debit from accounts.

Example:
A customer purchasing health insurance during a bank visit and linking premium payments to
their savings account.

3. Trading Account : Banks offer trading accounts to customers for buying and selling stocks
and other securities in partnership with stockbroking firms.

 Includes a Demat Account for storing securities electronically.

 Integrated with savings accounts for seamless transactions.
 Banks may provide stock market insights, research reports, and investment tools.
 Convenient for customers to manage banking and trading under one platform.
 Real-time updates and secure transactions.

Example:
A customer can execute stock market trades directly through the bank’s mobile or internet
banking platform.

4. Selling of Gold Coins : Banks sell certified gold coins to customers, usually in small
denominations, to promote gold as an investment.
  Banks sell high-purity gold coins (often 24 karats) with official certification.
 Coins are available in varying weights (e.g., 5g, 10g, etc.).
 Slightly higher prices than market rates due to certification and purity assurance.
 Customers trust banks for authentic gold.
 Gold coins can be used for gifting or investment purposes.

Example:
A customer buying a 10g gold coin from the bank as a Diwali investment.

5. Advisory Services
Banks provide financial advice to individuals and businesses on investments, retirement
planning, or managing wealth.

 Wealth management services for high-net-worth individuals (HNIs).

 Portfolio management and risk assessment for personalized investment strategies.
 Professional expertise in financial planning.
 Helps clients achieve financial goals effectively.

Example:
A bank advisor guiding a client to invest in a mix of mutual funds and fixed-income instruments.

6. Underwriting:Banks underwrite financial instruments like shares or bonds during public

issues, guaranteeing the issuer that the issue will be fully subscribed.

 Banks take on the risk of buying unsold securities.

 They charge underwriting fees for this service.
 Provides stability to capital market transactions.
 Helps companies raise funds efficiently.

Example:
A bank underwrites the IPO of a company, ensuring the issue is fully subscribed.

Benefits of Third-Party Services in Banking

1. Convenience for Customers: One-stop solution for banking, investment, and insurance
needs.
2. Enhanced Revenue for Banks: Generates additional income through commissions and
fees.
3. Customer Retention: Increases customer engagement and satisfaction by offering
diverse services.
4. Trust and Reliability: Customers trust banks for secure and authentic third-party
products.

Demat Account
A Demat Account (short for Dematerialized Account) is an electronic account used to hold
securities like stocks, bonds, mutual funds, and exchange-traded funds (ETFs) in a digital
format. It eliminates the need for physical certificates, making securities transactions seamless
and secure.

 Securities are stored in electronic form.

 Facilitates trading in stock markets.
 Linked with a trading account for buying and selling securities.

Benefits of a Demat Account

1. Elimination of Physical Certificates:

o Avoids issues like loss, theft, or damage of certificates.
2. Ease of Trading:
o Enables quick and secure buying/selling of securities through online platforms.
3. Reduced Transaction Costs:
o Cuts down costs related to stamp duty and handling of physical certificates.
4. Convenience:
o Allows easy transfer and settlement of securities.
o Offers consolidated account statements for better tracking.
5. Access to Multiple Securities:
o Hold stocks, bonds, mutual funds, ETFs, and other securities in a single account.
6. Nomination Facility:
o Allows the account holder to nominate a beneficiary for the account.
7. Dividend and Benefits Management:
o Automatically credits dividends, interest, or bonuses to the account.
8. Loan Facility:
o Securities in a Demat account can be pledged as collateral for loans.

Documentation for Opening a Demat Account

1. Identity Proof (any one):

o PAN Card (mandatory)
o Aadhaar Card
o Voter ID
o Passport
o Driving License
2. Address Proof (any one):
o Aadhaar Card
o Utility Bills (Electricity/Telephone/Water)
o Passport
o Driving License
o Rent Agreement
3. Bank Proof:
 oCancelled cheque
oBank passbook or statement (showing account number and name)
4. Income Proof (for trading in derivatives):
o Salary slip
o Income tax returns
o Form 16
5. Passport-sized Photograph:
o Recent photographs for KYC documentation.
6. KYC Documents:
o Self-attested copies of the above documents.

Additional Steps:

 Fill out the account opening form with a Depository Participant (DP) like NSDL or CDSL.
 Provide your trading account details for integration.
 Complete the in-person verification (IPV), either physically or online.

Process of Opening a Demat Account

1. Choose a depository participant (DP) like a bank, broker, or financial institution.

2. Submit the application form along with KYC documents.
3. Complete the in-person verification process.
4. Once approved, receive your account details (ID and login credentials).
5. Start trading and managing securities digitally.

Demat accounts simplify investment processes and are essential for trading in the modern
financial market.