IT for ManagersElectronic fund transferKrutika MarneFT194037Problem definition:In the initial days, people used to transfer money directly through cash or through traditional banking services such as cheques, demand drafts, money order, etc. This traditional system was time consuming as for transferring money through cheques, demand drafts and money order it required people to physically visit banks and then transfer cheques or money order to the concerned party. It was also less secure as the cheques, money orders, etc can be mishandled, there can be a risk of theft or loss of cash while transferring money, or other external factors due to which the money cannot be successfully transferred. It was difficult to keep a track on the records especially in the case of direct cash transfers hence it led to ambiguity in the money transfers and people used to deceive others as it didn’t have proper tracking system in place. Traditional banking services were not customer centric and it wasn’t user friendly as an individual had to visit bank and stand in long queues and get help of the person in charge to submit the cheque or the money order.
This was having a wrong impact on the people who were unaware about the cheque transfer process and hence could be deceived by many thugs or fraud people in order to acquire money from them. Solution:Electronic fund transfer (EFT) was introduced to overcome the shortcomings of traditional banking services. Electronic fund transfer is the electronic transfer of money from one bank to another bank, either within single financial institution (intra-bank transfers) or across different institutions (inter-bank transfers), via computer systems, without the direct intervention of the bank.How it Works?EFTs include direct-debit transfers, wire transfers, direct deposits, online bill pay services, ATM withdrawals, point-of-sale (POS) transactions, etc. Transactions are processed through the Automated Clearing House (ACH) network which is the secure transfer system. For example: you use debit card to make a purchase online or at a store, the transaction is processed through an EFT system. This transaction is very similar to an ATM withdrawal which is near instantaneous process of payment to the merchant and deduction from your bank account.
Direct Deposit is another method of Electronic Fund Transfer. In this case, funds are directly transferred electronically from your employer’s bank account to your bank account without paper-based payment systems. Why is it important?EFTs are increasingly used for online bill payments, purchases and it is a paper free banking system where a large number of payments and invoices take place over digital networks. EFT systems play a vital role in future success with fast and secure transaction with seamless transfer of funds within and across financial institutions.Various Modes of Electronic Funds Transfers:NEFT or National Electronics Funds Transfer RTGS or Real Time Gross Settlement IMPS or Immediate Payment ServiceNEFT: It is a nation-wide money transfer system which allows customer to electronically transfer funds from their bank accounts to any other bank account of the same or different bank. In order to transfer funds via NEFT, you need to register the beneficiary and for that you require recipient’s name, recipient’s bank name, a valid account number and his respective bank’s IFSC code. The maximum transfer limit is of Rs. 10,00,000.
NEFT settles fund transfers in half-hourly batches with settlements occurring between 8:00 AM and 7:30 PM on week days and the 1st, 3rd and 5th Saturday of the calendar month. Transfers initiated outside this time period are settled at the next available window. No settlements are made on the second and fourth Saturday of the month, or on Sundays, or on public holidays.RTGS: It is a real time funds transfer system which allows a customer to electronically transfer funds from one bank to another in real time or on gross basis where the transaction is cleared out instantly without putting on the waiting list.
The minimum value that can be transferred through RTGS is Rs. 2,00,000 and above and there is no upper limit. The remitting customer needs to add beneficiary and his bank account details before transferring funds via RTGS.IMPS: It offer instant real time inter-bank electronic transfer service with secured transfer gateway and an immediate acknowledgement of fulfilment. Unlike NEFT and RTGS, the service is available 24/7 throughout the year.
Advantages of electronic payment systems:Time savingReduced risk of Loss and TheftUser-friendlyConvenienceE-wallet: -609607956550E-wallet or digital wallet basically refers to a prepaid virtual wallet which can be used for making online transactions. It is a virtual mobile based wallet where one can store cash for making online and offline payments. Wallets are growing rapidly as they increase the speed of transaction especially for the ecommerce marketplace.2095500127000Different types of E-wallets:PayTMPayUMoneyMobikwikCitrusState Bank BuddyICICI Pockets Citi MasterPassPayPalUnified Payments Interface (UPI):UPI is an instant real-time payment system facilitating inter-bank transactions and is regulated by the Reserve Bank of India and works by instantaneously transferring funds between two banks on a mobile platform. Being a digital payment system, it is available 24-7 throughout the year. Unlike traditional mobile wallets, which stores a specified amount of money from the user, UPI withdraws and deposits funds directly from the linked bank accounts. BHIM and Google Tez are the two best UPI Apps recently launched. Google Tez app and BHIM provides easy bank-to-bank money transfer.
Advantages:Speed: Gogle Tez and BHIM app both excel in speed as compared to the electronic fund transfer through bank (NEFT, RTGS, IMPS)Security: BHIM uses a 4-digit passcode while Google Tez uses Google PIN. Both these apps use UPI’s security mechanism for paymentsTransaction Limits: You can pay Rs. 20000 per day per bank account using BHIM app and Rs. 100000 per 24 hours per bank account using Tez app.Alignment with McFarlan Strategic Grid – I believe that Electronic Fund Transfer should fall in Strategic Quadrant of the McFarlan’s Grid.Electronic Fund Transfer has a great impact on increasing productivity in terms of time, cost, efforts, etc.
It reduces the mundane paper work which was prevalent in the traditional banking system of fund transfer. It is user friendly and secured which increases customer centricity and minimises the intervention of bank authorities in the process of funds transfer. This is why Electronic Fund Transfer is high in terms of “Impact on Business Operations”.
Business model completely changed from paper-based model to online-based model. Electronic Fund Transfer was implemented to reduce the maintenance cost in terms of availability of bank officials specifically to assist the queries of customers and help them in the process of fund transfer manually. This model focussed on proper tracking of the online transactions which is important in terms of customer satisfaction. Security focussed system helped in building trust and loyalty of customer and helped in increasing customer base which makes this model high in terms of “Impact on Strategy”.