Banking and Information Technology

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Banking and Information Technology

• Group 1 DeKalb
• Lori Wonser
• Henry Fischer
• Greg Johnson
• Aaron Boehm
• Mia Hannon

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Check Clearing

• Lori Wonser

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Checks

• Next to cash, checks are the most frequently used
  method of payment in the U.S.
• Account for about 70 of the total number of
  payments

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Clearing checks is a two
part process

• Clearance
• Settlement

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Federal Reserve System

• Commonly called the "Fed"
• Created by Congress in 1913 to serve as central
  bank of the U.S.
• Made up of 12 regional Reserve Banks and the
  Board of Governors in Washington D.C.
• One of the major reasons for creating the Federal
  Reserve was to ensure that the nation had a safe
  and efficient means for transferring funds within
  the banking system

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Technology Changes Over Time

• Manual operation - all paper records and courier
  service
• Check encoding, machine readable
• Small banks to larger banks
• Larger banks to Fed
• Proofing machines Mag-card readers
• PC's and software for sending electronic files.
• Imaging machines
• MICR standardization

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Fed's Check Modernization Initiative Four Key
Points

• A standard item-processing platform
• A standard image platform with a national archive
• A streamlined adjustments process using a
  national adjustments system
• Nationally delivered Check Services via FedLine
  for the Web

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Electronic Check Conversion

• Intermediate Step
• EFT Processed through ACH (Automated Clearing
  House)

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Automated Clearing House

• Transfers funds electronically without the paper
  trail
• Almost 8 billion payments through ACH in 2001
• Amount expected to double by 2006

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Will we become paperless?
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E-Banking

• Mia Hannon

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Electronic Banking

• Provides enormous benefits
• Has been around for a long time as ATMs and
  telephone transactions
• Transformed by the Internet
• Internet services are cost-efficient
• Customers can compare banks services
• Allows banks to expand geographical reach

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Internet Banking

• Concentrated in the largest U.S. banks
• Mid-2001, 44 of national banks maintained
  transactional websites
• In 2001 only 6 percent of U.S. consumers that had
  internet bank services used them

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PC Banking

• Computer hardware, software and telecommunication
  systems needed to access bank information through
  a personal computer
• Telecommunication links may include
• Private networks
• Public networks
• Handles many bank transactions
• View account balance
• Request transfer between accounts
• Pay bills electronically

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ATM, Automated Teller Machine

• Simple data terminal communicating through a host
  processor
• Can be connected through
• a dedicated telephone line
• dail-up modem
• Internet service provider

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ATM, Automated Teller Machine

• Money moves electronically from users account to
  host account to merchants account.
• New innovations machines that verbally prompt

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Credit Cards

• 3 ways credit card purchases are conducted
• merchant uses voice authentication
• or electronic data capture/magstripe-card swipe
  terminals
• or virtual terminals on the Internet

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Smart Cards

• Contains an embedded microprocessor
• Microprocessor enforces access to the data on the
  card
• Identity of card user must be confirmed for each
  transaction
• Card and card reader verify that each is
  legitimate
• Then transaction is carried
  out in an encrypted format

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Smart Cards Cont.

• Most common smart card applications are
• Credit cards
• Electronic cash
• Computer security systems
• Wireless communication
• Loyalty systems (frequent flyers points)
• Banking
• Satellite TV
• Government identification

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Other Forms of Electronic Banking

• Direct Deposit
• Pay-by-Phone
• Electronic Bill Payment
• Debit Cards
• Electronic Check Conversion
• eChecks
• Cash Value Stored

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Technology in Loan and Credit Processing

• Henry Fischer

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Loan and Credit Processing is Labor Intensive

• Because they both rely heavily on the
• Gathering of Information
• Processing of Information
• Analyzing of Information

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A Challenge for Financial Institutions

• Streamline and Standardize the Loan Origination
  and Credit Approval Process

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How can this be done?

• The Use of Technology to automate the workflow of
  the Loan Process
• Technology to shorten the length of the Credit
  Approval Process

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• Automating The Loan Process
• Workflow Management Systems Application Software
  allows Loan Officers and the Loan Team to
• Manage
• Prioritize
• Measure
• New Mortgages and Loans

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Credit Processing

• Successful financial institutions must be able to
  make rapid, accurate, and successful credit
  decisions
• To do this financial institutions must embrace
  technology

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• The ever-increasing emergence of
  E-commerce, demands that financial institutions
  be more efficient and better meet customers
  needs
• To do this
• There are several web-based applications
  available to lenders and financial institutions
  to assist in credit decisions

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• Web-based applications allow loan processing
  teams to be more competitive by
• Offering flexible, real-time credit decisions
  systems
• Customizable lender guidelines
• Generation of instant loan pre-qualification
• Connectivity to third-party providers
• Response time within minutes, 24/7

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Physical Security

• Aaron Boehm

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Introduction

• Physical security in the bank goes beyond the
  traditional armed security guards.
• Physical security devices are as important inside
  a bank as protection software is to
  e-banking.

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Physical Security Devices

• Non-traditional
• Micro-Branch systems
• Drive-up Pneumatic systems
• Traditional
• Vaults
• Safes
• Bullet-resistive products

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Security guard duties/training

• The oldest form of security in banks is the
  security guard.
• Security guard duties include the protection of
  people and property from harm, theft, or unlawful
  activity, deterring, detecting, observing, and
  reporting unlawful or unauthorized activity, and
  responding to security alarm systems.
• Security guards must pass a 47-hour firearm
  training course in order to have the
  authorization to carry a firearm while on duty.
  
• Guards undergo training in camera systems and
  alarm systems.
• While the security guard is the oldest form of
  bank security but they are still proven to be
  effective.

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Electronic Security

• Greg Johnson

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Understanding the Risks

• Unauthorized Access
• Data Alteration
• Monitoring
• Spoofing
• Service Denial
• Repudiation

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Suggested Items

• Smart Cards
• Encryption
• Behavior Software
• Informing Employees
• Removing Instant Messengers
• Subvert Antivirus Wear
• File Swapping
• Piggy Backing/Access

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Conclusion

• From all of this, we have learned that
  information technology has spurred competition
  from nonbanks, encouraged financial innovations
  that have allowed firms to directly access
  financial markets, and empowered customers and
  businesses with information needed to make better
  investment decisions. At the same time, IT is
  allowing banks to offer new products, operate
  more efficiently, raise productivity, expand
  geographically and compete globally. A more
  efficient, productive banking industry is
  providing services of greater quality and value.