the clearing processes

7/29/2019 the clearing processes

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UNIT III


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The Payments ProcessThe payments process can be facilitated by evolving appropriateinstitutional arrangements.

Cash payment is best facilitated, for example, by the Reserve Bankissuing bank notes at all its offices and by the Reserve Bank providing acurrency chest (to store currency on its behalf) in the premises of theagent (commercial banks, Government treasuries, sub-treasuries) wherethe Reserve Bank offices do not exist.

Other institutional arrangements include agencies like the clearing house,settlement accounts with a major bank or (more often) the Central Bankand a framework of rules and procedures that are accepted by allconcerned.

Traditional arrangements involved the exchange of cheques, computationof net payment obligations among the participating banks and settlementof claims through funds transfers in the books of the settling bank. Theplace where the exchange of instruments occurs and the claims aresettled is known as the Clearing House.


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In India, the clearing system is local and confined to a defined

jurisdiction covering all the banks and branches situated in the area

under a particular zone.

The Clearing House is a voluntary association of banks under the

management of a bank where the settlement accounts are maintained.

Wherever RBI has its office (and a banking department), the clearing

house is managed by it. In the absence of an office of the Reserve

Bank, the clearing house is managed by the State Bank of India, itsassociate banks and in a few cases by public sector banks.


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All payment instructions made through the medium ofcheques are debit transactions. A debit transaction occurswhen the intended recipient initiates the payment

transaction by depositing the instrument in his bank.

During the course of a business day a number ofinstruments are deposited with a bank for collection by itscustomers. These instruments may be drawn on different

branches of various banks and a collecting bank has tophysically present the instruments for collection to eachdrawee bank/branch.

The clearing system provides a convenient and well

established institutional mechanism to take care of theproblem of physical delivery of instruments as well asfunds transfer between different banks.


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Clearing Houses in India:

There are 860 Bankers clearing houses in India, of which 840 aremanaged by State Bank of India and its Associates, 14 by Reserve Bankof India, and the rest 6 by nationalised banks.

Reserve Bank of India manages 14 clearing houses at Ahmedabad,Bangalore, Bhubaneshwar, Mumbai, Calcutta, Chennai, Guwahati,Hyderabad, Jaipur, Kanpur, Nagpur, New Delhi, Patna andThiruvananthapuram. These cover most of the major urban and semi-urban centres of economic activity.

Other than the major cities and metropolitan centres, the volume andvalue of cheques cleared are very low. The cheques cleared in theclearing houses managed by RBI account for 62% in terms of volumeand 86% in terms of value of the total cheques cleared in the country.

State Bank of India (SBI) has the widest network of branches in thecountry and acts as an agent of the RBI in centres where the RBI doesnot have its offices. It is therefore, natural that a vast majority of theclearing houses in the country are managed by the SBI. The rest of theclearing houses are managed by the associate banks of the SBI in theareas of their operation and in some cases by other public sector banks.


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The membership of the clearing house includes both direct

members and sub-members. All the branches of a member

bank within the clearing house jurisdiction are eligible to

present and receive cheques drawn on any other member

bank/branch within the jurisdiction.

The sub-members, who are sponsored by a member bank,

participate in clearing in the same way as a branch of a

member bank. The membership to the clearing house is

through a joint decision of the general body of the clearinghouse.


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Clearing Structure

The dominant feature of the Indian Banking system is its branch-centered banking. The vast network of branches implies that thelogistics of collection and delivery of paper payment instrumentsbecomes formidable.

The Mumbai Bankers' Clearing House, for instance, has over 110members, 261 sub-members and extends over 2400 branches. Theclearing infrastructure is designed to address the movement ofinstruments between the presenting and drawee branches.

Each member bank in a centre is represented in the clearing house byits service branch which collects all the instruments from variousbranches and consolidates them for presentation to all the banks inthe clearing house. Similarly, it receives and distributes among itsbranches all the instruments drawn upon its branches by other banksin the clearing house. The service branch of a bank performs a crucialintermediary role between the clearing house and the branch of abank.


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The Clearing Process

The clearing process begins with the deposit of a cheque in a bank.

The cheque (along with other cheques) is delivered to thebank/branch where it is drawn.

The cheque is passed for payment if the funds are available and thebanker is satisfied about the genuineness of the instrument.

The cheques that are unpaid are returned to the presenting bankthrough another clearing called the Return Clearing.

The realisation of the funds occurs after the completion of returnclearing and by the absence of an unpaid cheque.


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Settlement of Funds

The settlement of funds in clearing occurs at several levels. Theaggregate amount or value of cheques presented by a bank onother banks represents the claim by that bank on other banks.Similar claims are made by all the banks on every other bank in theclearing.

A net settlement is arrived at the clearing house and the debit orcredit position of the bank is determined. These are booked in theircurrent accounts maintained by the settling bank. This representsthe inter- bank settlement.

The settlement of funds between the service branch and the branchconcerned represents the transfer of funds to the branch level. Thepayment process is completed only when the funds are debited fromthe drawer's account and credited to the payee's account. Thisoccurs after the completion of the return clearing mentioned earlier.


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Return Clearing: Realisation of a cheque i.e. payment occurs afterthe cheque that is returned unpaid takes place in this clearing. Theaggregate of all items unpaid is debited to the original presenting bankand credited to the drawee bank. The same process is mirrored in the

inter-branch settlement at the service branch of a bank. The creditgiven to the payee on account of the cheque is reversed.

Inter-branch clearing: Cheques presented by customers drawn ondifferent branches of the same bank need not be sent to the clearinghouse as the transfer of funds is internal to the bank. The service

branch usually acts as a settlement branch for the branches and theinstruments are sent to the drawee branches while the inter-branchaccounts are credited or debited internally.

Time lag: The total clearing cycle including the return clearingintroduces a time lag in the payments process. The need for physical

presentment of the cheque at the branch where it is drawn on,requires the movement of cheques from one place to another. As aresult, the recipient of payment has to wait until the collecting bankeris fully satisfied that the cheque has been paid. This time lag willcontinue irrespective of the level of technology and improvements inprocess, so long as the physical presentment of the cheque isnecessary as per the banking law.


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Updated Info

There are over 1047 clearing houses in the country today. RBIthemselves manage 16 such clearing houses, SBI Group managesthe bulk of the clearing houses numbering about 1000 and a fewother public sector banks, manage the remaining clearing houses.

The banks managing the clearing houses also act as the settlementbanks.

Cheque clearing is done by MICR technology at over 40 centres andmanually at other centres. These MICR centres are run by RBI, SBI,PNB and a few other PSU banks.

The electronic clearing facilities like ECS, EFT and NEFT aregaining importance. The Electronic Clearing Service (ECS) isprovided through a clearing house for bulk payments/ receiptselectronically. This facility is extended at 47 centres of which 15 aremanaged by RBI and the rest by SBI. The EFT and NEFT systemsare wholly managed by RBI and facilitate same day account toaccount funds transfer from one bank to another. These aretransacted through 15 RBI clearing centres and 3000 bank branches

respectively.


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RTGS

The acronym 'RTGS' stands for Real Time Gross Settlement, whichcan be defined as the continuous (real-time) settlement of fundstransfers individually on an order by order basis (without netting).

'Real Time' means the processing of instructions at the time they are

received rather than at some later time.

'Gross Settlement' means the settlement of funds transferinstructions occurs individually (on an instruction by instructionbasis).

The RTGS system is primarily meant for large value transactions.The minimum amount to be remitted through RTGS is Rs.1 lakh.There is no upper ceiling for RTGS transactions.


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Under normal circumstances the beneficiary branches are expectedto receive the funds in real time as soon as funds are transferred bythe remitting bank. The beneficiary bank has to credit the

beneficiary's account within two hours of receiving the funds transfermessage.

The remitting bank receives a message from the Reserve Bank thatmoney has been credited to the receiving bank. Based on this theremitting bank can advise the remitting customer that money has

been delivered to the receiving bank.

The RTGS service window for customer's transactions is availablefrom 9.00 hours to 16.30 hours on week days and from 9.00 hoursto 13.30 hours on Saturdays for settlement at the RBI end. However,the timings that the banks follow may vary depending on the

customer timings of the bank branches.


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With a view to rationalize the service charges levied by banks foroffering various electronic products, a broad framework has beenmandated as under:

a) Inward transactions Free, no charge to be leviedb) Outward transactions :

Rs.1 lakh to Rs.5 lakh - not exceeding Rs.25 per transaction.

Above Rs.5 lakh not exceeding Rs.50 per transaction

The remitting customer has to furnish the following information to a bankfor effecting a RTGS remittance:

1. Amount to be remitted

2. Remitting customers account number which is to be debited

3. Name of the beneficiary bank

4. Name of the beneficiary customer

5. Account number of the beneficiary customer

6. Sender to receiver information, if any

7. The IFSC Number of the receiving branch


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Payment Settlement System

Payment Systems are the key component of any financial system.They facilitate the movement of money in the economy. The efficientfunctioning of the payment system makes a key contribution tooverall economic performance by allowing safe and timelycompletion of financial transactions.

Recognising the importance of payments systems to thedevelopment the economy, Reserve Bank of India, has takennumber of steps during the last few years to build a robust paymentssystem. The steps taken include building the necessary paymentsinfrastructure and develop a strong institutional framework for thepayment and settlement systems in the country.


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Retail Payments System

Retail payments are transactions which can typically be classified as,

(i) Person to Person,

(ii) Person to Business - (eg. bill payments),

(iii) Currency withdrawals (ATM/debit cards) and

(iv) Advances (credit cards).

These payments generally refer to obligations arising from retail commercial andfinancial transactions which can be either one-time person to person (or business)payments or recurring bill payments (or domestic remittances from person topersons) or payments to Governments. These transactions need not be of smallvalue alone, but are generally of low average transaction value but high transactionvolumes. They also involve a much broader range of payment instruments andtransaction systems.

The instruments used to effect these payments differ based on the requirements.They can be currency, paper based instruments like cheque and demand drafts,electronic message based systems, cards based systems and off-late ShortMessaging System of mobile phone. These instruments (excluding currency) alongwith the systems and procedures of clearing and settlement arrangements for theseinstruments constitute the retail payment systems


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The developments in technology resulted in numerous innovationsin the payment system area. These innovations resulted in systems

which are more efficient in terms of the time and effort needed toprocess payment instructions. The innovations started withprocessing of payment instructions stored in electronic formats intheir storage media's, which were manually transported toprocessing centers (clearing houses) which further graduated to thetransmission of electronic messages in secured formats throughsecured communication channels.

These innovations have resulted in the payment instruments likeelectronic funds transfer systems and card based systems; the latestinnovation being mobile phone based payment systems


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Role of Reserve Bank of India in the

Retail Payments

The process of infrastructure building started with the mechanisationof cheque clearing operations through the introduction of MICRbased clearing at the four metros cities and thereafter covering theother important centers.

The foray of the country into electronic payments arena started withthe introduction of Electronic Clearing Service (ECS) and ElectronicFunds Transfer System. Though, the system was initially confined toRBI managed clearing houses, it made a good beginning of the eraof electronic payment mechanism in the country. While ECSfacilitated settlement of bulk payment instructions, EFT facilitated

one-to-one remittances. RBI introduced the National ElectronicFunds Transfer System (NEFT), a modified EFT systemincorporating PKI based security features and centralized settlementfacility in 2005.


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Retail payment instruments

Cheque : Cheques as payment instrument is most popular mode of payment in thecountry. The clearing and settlement of cheques drawn on different banks require thecoming together of the banks in that area for transfer of instruments and the finalsettlement of funds. This process is facilitated by the clearing houses at these centers.Currently, 1064 clearing houses are operational in the country. Of these, at 59 centersthe clearing and settlement process has been mechanised by the introduction ofMagnetic Ink Character Recognition (MICR) based sorter machines. Eighty percent ofthe total cheque clearing volume and value in the country are accounted for by thesecenters. To further bring in efficiency and automating the settlement obligation MagneticMedia Based Clearing System (MMBCS) is being implemented at centers with morethan 15 bank branches, where, currently the process is being carried out manually.Atthe remaining centers where the volumes of cheques are low, manual clearing

continues.

The clearing and settlement cycle in the country is two days one Day-1 the chequesare presented at the clearing house and Day-2 the funds settlement and return clearingare accounted for.

Cheques continue to be predominant mode of non-cash payment in the country. Of the

total cheque processed the MICR based clearing system accounts for more than 80% ofthe volume and value of transactions. While on absolute terms the volume of chequesissued in the country is still substantial and increasing, it is observed that the rate ofgrowth has decreased during the last few years. The growth rate which was 14.1% in2004-05 to has decreased to 6.5% in 2006-07.


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The retail electronic payment systems in the country are National Electronic FundsTransfer System and the Electronic Clearing System.

National Electronic Funds Transfer (NEFT): This is a message based fundstransfer system. The system provides secure one-to-one funds transfer facility forcustomers of banks. Unlike its precursors the EFT system which provided settlementfacility only at few centers, the NEFT facilitates national coverage, with centralizedclearing and settlement facility. Further, to provide sound legal basis to the system,the system is provided with Public Key Infrastructure (PKI) based security system.There are six settlements during a day in this system, thereby facilitating same daysettlement of funds, for customers using this facility.

The NEFT, was introduced in 2005. Since its inception the coverage of NEFT hasincreased. Currently it is available in 28000+ bank branches, through 67 banks at3000+ centers. The target is to cover all branches with RTGS facility, initially andthen, further expand it to all computerized bank branches in the country. The systemalso envisages extending it to non-computerised rural branches as well through theproject, NEFT extended. As per this project the transaction will be routed to thenearest NEFT branch, and the last mile would be covered manually.


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Electronic Clearing Service (ECS): ECS is a retail payment system which facilitatesbulk payments, that facilitate payments from one-to-many and receipts that are frommany-to-one. The two components of this system are ECS (credit) and ECS (Debit).This facility is now available at 67 major centers in the country.

ECS (Credit): ECS (Credit) facilitates the bulk payments whereby the account of theinstitution remitting the payment is debited and the payments remitted tobeneficiaries' accounts. This facility is mostly used for making bulk payments, likepayment of dividend to investors, payment of salaries of employees by institutionsetc. For this purpose, the company or entity making the payment has to have thebank account details of the individual beneficiaries.

ECS (Debit): ECS (Debit) facilitates the collection of payments by utility companies.

In this system the account of the customers of the utility company, in different banksare debited and the amounts are transferred to the account of the utility company.The company providing this facility has to receive the mandate to collect funds fromits customer. On receipt of the mandate the company advices the consumers bank todebit the payment due from the account on the due dates. A copy of the advise isalso send to the customer.

The clearing and settlement transactions through ECS occur at the respective

centers. A centralized facility is available at RBI Mumbai to receive the ECS (credit)files meant for credit at other 14 RBI centres. State Bank of India (SBI) and PunjabNational Bank (PNB) have been advised to commence such service of centralizedreceipt of ECS (credit) files for 20 SBI centres and 13 PNB centres where the ECSfacility is provided by the respective banks.


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Choice of payment instruments

The adoption of new payment instrument depends upon the incentives thenew mode provides to the customer. In the absence of incentives thecustomer prefers using the traditional modes to which they have beenhabitually attached, despite its inefficiency.

The incentives could be, increase in customer convenience, cost savingsetc. The main advantage of currency vis--vis other payments instrumentare its universal acceptance, immediate final settlement and zero cost to

the payee for upfront payment.

The dominance of cheque as a payment instrument again can be attributedto the cost advantage for the customers' vis--vis the existing electronicpayment instruments, as well as the convenience of using a cheque ascompared to making an electronic payment

The factors affecting the choice of a payment instrument can be classifiedunder three main headings:

(i) Sociological

(ii) Instrument specific issues and

(iii) The service provider


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SociologicalAt the society level the choice of payment instruments can be attributed to

Infrastructure: New payment instruments require adequate infrastructure facilities. Thelack of power, proper communication channels etc, can inhibit the growth of paymentinstruments. The shortage of power has been observed as one of the major factors for

creation of payment infrastructure in remote areas. In the absence of power the cost forproviding, power support for the systems were found to be un-economical.

Disposable income: The income of customers influences the choice of paymentinstruments. The low income customers prefer the use of currency for most of theirpayment needs. As the income level increases the utilization of other paymentinstruments increases. Higher income individuals prefer efficient modes of paymentsand shifting of payments to more efficient electronic modes are more noticeable in this

segment.

Educational level:All new payment instruments leverage highly on technologicaldevelopments taking place. In this respect it is observed that, technologically savvyindividuals are faster in accepting new payment modes. The education level ofcustomers would also determine whether they adopt electronic payments or not. Highlyeducated individuals are more likely to use newer electronic payment products.

Accessibility: The ease of using the instrument also determines the migration to newpayment instruments. The use of currency and cheques requires the physical presenceat the point of payment or point of deposit. With the technology facilitated by newpayment instruments it is possible to make payments using internet banking facilities ormobile banking facilities. The use of these facilities would again be determined by theeducation and income level of the customers. Nevertheless, even for these customers,this ease and convenience of usage would be a deciding factor in migration to new

payment modes.

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Instrument Specific IssuesOn payment instrument level the factors which determine the choice of a particular instrument can beclassified as:

(a) Cost, (b) Security (c) Acceptability and (d) Type of payments.

Cost: From the perspective of individuals, currency is the cheapest mode of payment

instrument. Being the legal tender it has relatively lowest cost to the payee for upfrontpayment (cost would be involved when the payment has to made at a particular location).Next to currency, for local payments cheque have no cost to the customer. The only costinvolved would be the cost of maintaining funds in the accounts (collection of outstationcheques would involve costs). Migration to any new payment mode by customers would bebased on their assessment of the incentives of the new instruments vis--vis their existingpayment modes. A higher transaction cost in comparison to their advantages would ditheraway customers from opting from new instruments. The cost of using a payment instrumentincludes the service charges and the cost of carrying out a transaction include, the cost oftransportation, opportunity cost etc.

Service Charges: Services charge constitute the charge levied by banks on theircustomers who avail payment services. Since 1999, the decision to prescribe the servicecharges was left to the discretion of the Boards of individual banks. Banks were thenadvised that, they should ensure that the service charges were reasonable and were notout of line with the average cost of providing the services and the customers with low

volume of activities were not penalized. Presently the Reserve Bank has prescribed thelevying of service charges only for cheque clearing operations. An amount of Rs.2/- iscollected per paper instrument (Re.1/- each to be collected from the collecting and payingbank) cleared by the MICR Cheque Processing Centres. In case the paper instruments areprocessed manually, the clearing houses are required to add up all the expenditureincurred and then recover them from the members (banks) of the respective clearinghouses. The levying of cheque collection and electronic payment processing charges bybanks from customers is left to the respective banks. But it was observed that instead ofprescribing judicious charges a number of banks levy heavy fees for the use of electronicpayment systems like RTGS / NEFT/ ECS systems


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The Reserve Bank in order to ensure fair practices in banking services hasissued instructions to banks making it obligatory for them to display andcontinue to update, in their offices/branches as well as on their websites thedetails of various service charges levied by them. Further, in 2005, Reserve

Bank collected the details of service charges being levied by banks for variouselectronic payment services from banks and placed them on RBI website sothat the general public can have comparison of the charges being levied bydifferent banks and the resulting competition would bring down the servicecharges.

The Reserve Bank of India also took the initiative in setting up the BankingCodes and Standards Board (BCSBI). It is an autonomous and independentbody, adopting the stance of a self-regulatory organization in the largerinterest of improving the quality of customer service by the banking system inIndia. Banks register themselves with the Board as its members and provideservices as per agreed standards and codes. The Board in turn, monitors andassesses the compliance with codes and standards which the banks haveagreed to.


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Security: Security will address the issues relating to confidence, withspecific reference to the users of these systems. Security of the instrumentis of paramount interest in ensuring the confidence of the customer for useof the instrument. The payment systems like NEFT and RTGS ensures thisby the use of Public Key Infrastructure (PKI) based security arrangements.

The frauds related to credit cards and debit cards had been a matter ofinternational concern. The issuers of credit cards and debit cards wereensuring the security of the transactions undertaken using these instrumentby encryptions. To further ensure further safety of transactions undertakenusing cards, the card issuing companies have adopted chip based cards.

Acceptability: The point of acceptance in case of cheques, RTGS, NEFT

and ECS would be the bank branches providing these facilities. Whilecheques are accepted at all bank branches in the country, extending theavailability of NEFT and RTGS depend upon the technological level of thebanks. While the reach of payment systems like RTGS and NEFT hasexpanded to cover more and more bank branches, their further expansion islimited by the presence of bank branches.


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Type of Payments:

The type of payment also decides the preference for a payment instrument.Currency continues to be the most preferred mode of payment for micropayments. While RTGS is mainly used by the large value transactions,

NEFT is used for low value payments.

Cheques continue to be a preferred mode of payment which is issued byindividuals and trades for their payment obligations. The advantage ofcheque vis--vis other payment instruments is that they can be issued forany denomination, with no cost to the issuer(local issuance).

Some banks have facilitated the use of NEFT for all small valuetransactions, by offering these services free of cost. The migration to thesemodes would depend on the issues like infrastructure and accessibility ofpayment modes. While credit cards and debit cards are retail paymentinstruments, the use of these instruments for micro payments are oftendiscouraged at the point of sale.

ECS (Credit and Debit) is the most appreciated electronic payment mode.Its utility for bill payments (ECS Debit) and direct credit of salary, dividendsetc (ECS credit) has brought in efficiency and reduced the burden of bothindividuals and trade and industry effecting these payments.


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Service Provider:

Banks are the main providers of payment services to the customers inIndia. They provide the payment instruments i.e. cheques, paymentcards and electronic payment facilities. Clearing and settlement

services are also provided by banks. As a result the banks can be saidto have a monopoly of the payment services available to thecustomers.

At the service provider level the factors which affect the choice ofpayment instruments can be classified as (a) Marketing (b) Level of

technology (c) Competent employees, and (d) Customer service.

Marketing:Awareness of a payment instrument would depend on themarketing campaigns of the service providers. The marketingcampaigns educate the customers on the advantages, convenienceand safety of the payment instrument. The level of transparency of thecampaigns and the confidence gained by the customers during thecampaign would facilitate large scale migration to these paymentmodes.


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Level of Technology:

The level of technological adoption in the banks would also decide thelevel of promotion of new payment products by banks. Banks whichhave implemented Core Banking Solutions are observed have

provided the customers multiple delivery channels like ATMs, internetbanking and mobile banking systems for initiation and receipt ofpayments. Substantial usage of new payment instruments areobserved in these banks. These banks have also recorded costsavings from the migration of payments to electronic modes from thetraditional cash and cheques.

Competent employees:

Competency of employees manning the public interface arrangementsof the banks is a critical factor in encouragement of new paymentproducts. While marketing can encourage customers to attempt newpayment instruments, it is necessary that all the banks branchesbrought on to the electronic payment platforms are adequately manned

by trained employees. It would be the responsibility of theseemployees to ensure that the payments are processed seamlessly.Inadequately trained / motivated employee can lack the confidence tooperate the new systems and therefore may not encourage the use ofnew payment instruments in their interactions with bank customers


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Customer Service:

The customer service is the main stepping-stone of any service

industry. The payment systems are no exception to this. Customerservices include

(1) service level at the point of service

(2) information dissemination and

(3) grievance redressal.

For gaining the confidence of a customer it is necessary that the

service providers address these issues adequately.


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Internet BankingThe Internet banking is changing the banking industry and is having the major effects

on banking relationships. Even the Morgan Stanley Internet research emphasisedthat Web is more important for retail financial services than for many other industries.Internet banking involves use of Internet for delivery of banking products & services.

It falls into four main categories, from Level 1 - minimum functionality sites that offeronly access to deposit account data - to Level 4 sites - highly sophisticated offeringsenabling integrated sales of additional products and access to other financialservices- such as investment and insurance. In other words a successful Internet

banking solution offers

Advantages previously held by large financial institutions have shrunk considerably.The Internet has leveled the playing field and afforded open access to customers inthe global marketplace. Internet banking is a cost-effective delivery channel forfinancial institutions. Consumers are embracing the many benefits of Internetbanking. Access to one's accounts at anytime and from any location via the WorldWide Web is a convenience unknown a short time ago. Thus, a bank's Internetpresence transforms from 'brouchreware' status to 'Internet banking' status once thebank goes through a technology integration effort to enable the customer to accessinformation about his or her specific account relationship. The six primary drivers ofInternet banking includes, in order of primacy are:


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Benefits of Internet Banking


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Global Reach: The net being inherently global, reaching global customers is relatively easy on the netcompared to the world of bricks

Cost of acquiring, serving and retaining customers. It is relatively cheaper to acquire new customersover the net; thanks to 24 x 7 operations and its global reach.

An extended enterprise is easy to build. In todays world every enterprise is a part of the connectedeconomy; as such, you need to extend your enterprise all the way to your suppliers and businesspartners like distributors, retailers and ultimately your end-customers.

Disintermediation: Using the internet, one can directly approach the customers and suppliers, cutting

down on the number of levels an in the process, cutting down the costs.

Improved customer service to your clients: It results in higher satisfaction and more sales.

Power to provide the best of both the worlds: It benefits the traditional business side-by-side with theinternet tools.

A technology-based customer interface: In a brick-and-mortar business, customers conducttransactions either face-to-face or over the phone with store clerks, account managers, or other individual.

The customer controls the interaction: At most websites, the customer is in control during screen-to-face interaction, in what the web largely employs a self service model for managing commerce orcommunity-based interaction. The customer controls the search process, the time spent on various sites;the degree of price/product comparison, etc.

Advantages


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Knowledge of customer behaviour: While the customer controls the interaction, thefirm has unprecedented access to observe and track individual consumer behaviour.Companies, through a third-party measurement firm such Vividness and Accrue; cantrack a host of behaviours on web sites visited, length of stays on a site, page viewson a site

With the ability to view your account at anytime, it is easier to catch fraudulentactivity in your account before much damage is done.

As soon as you log into your account, you will quickly see whether there is anythingamiss when you check on your deposits and debits. If anyone writes a check orwithdraws funds from your account and you know it wasn't you, you will see it rightaway. This lets you get started on correcting the problem immediately rather than

having to wait a month to even have a clue it is happening as would be the case witha traditional bank.

Bouncing a check (accidentally) should be a thing of the past because you canmonitor your account online any time, day or night. You can track your balance daily,see what checks have cleared and when and know when automatic deposits andpayments are made. This is all possible by simply going online to the banks website

and logging into your account

Comparing on the internet banks to get the best deal is easy.


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Disadvantages

Impersonal

Lack of trust

Difficult for first timers

Security frauds Bank site changes

Constant technology up-gradations needed at the

customer end

Documents

the clearing processes