Banking and Information Technology

1. Banking and Information Technology Group 1 – DeKalb Lori Wonser Henry Fischer Greg Johnson Aaron Boehm Mia Hannon

2. Check Clearing Lori Wonser

3. 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

4. “Clearing” checks is a two part process • Clearance • Settlement

7. 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

8. 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

9. 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

10. Electronic Check Conversion • Intermediate Step • EFT Processed through ACH (Automated Clearing House)

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

12. Will we become paperless?

13. E-Banking Mia Hannon

14. 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

15. 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

16. 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

17. 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

18. ATM, Automated Teller Machine • Money moves electronically from user’s account to host account to merchant’s account. • New innovations: machines that verbally prompt

19. 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

21. 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

22. 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

23. Other Forms of Electronic Banking • Direct Deposit • Pay-by-Phone • Electronic Bill Payment • Debit Cards • Electronic Check Conversion • eChecks • Cash Value Stored

24. Technology in Loan and Credit Processing Henry Fischer

25. Loan and Credit Processing is Labor Intensive • Because they both rely heavily on the: • Gathering of Information • Processing of Information • Analyzing of Information

26. A Challenge for Financial Institutions • Streamline and Standardize the Loan Origination and Credit Approval Process

27. 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

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

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

30. 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

31. 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

32. Physical Security Aaron Boehm

33. 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.

34. Physical Security Devices • Non-traditional • Micro-Branch systems • Drive-up Pneumatic systems • Traditional • Vaults • Safes • Bullet-resistive products

35. 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.

36. Electronic Security Greg Johnson

37. Understanding the Risks • Unauthorized Access • Data Alteration • Monitoring • Spoofing • Service Denial • Repudiation

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

39. 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.