Ch.

10: Banking Applications s  I.C.T.

 

Chapter 10
Banking Applications

Eng. Mustafa El-Komy 161 Theory Notes

Eng.   Omar El Safty
Ch.10: Banking Applications s  I.C.T.
 

10.1 Computer processing modes

Computers are generally used for various tasks and used by many types of users.
For example, some computers are embedded in systems that control things such as
factories, or aircrafts. Concerning users, the user can be normal end users,
businessmen, office workers, etc. Consequently, the computer has different modes
at which it operates.

Batch  Processing  
Sometimes we have a lot of data to process and it is all of a similar form (e.g.
calculating the pay for 10,000 employees; the calculations we have to do for each
employee are very similar). In cases like this, we can prepare the data into a set or
'batch' and hand it over to the computer to be processed in one go. Once we have
prepared the batch of data, no user input is required - the computer works its way
through the data automatically.
This type of data processing is known as batch processing.
An advantage of this type of system is that the processing can occur when the
computer is not being used for anything else (e.g. overnight). The job is setup,
people go home, and when they return the next morning the work will be done.

Typical application where batch processing can be used:

• Payroll processing.
• Processing bank cheques.
• Printing of bank statements.
• Updating of a stock database.

Real-­‐Time  Processing  
Sometime we need to process data immediately - we cannot wait and process it later
(e.g. using batch processing). For example, if we want to book a seat on a flight, the
booking must be processed immediately. We can't put it in a pile and do it later,
because other people might be trying to book the same seat.
If an item of input data must be processed immediately, and the result is ready
before the next input data is accepted, this is known as a real-time system.

Typical application where real-time processing must be used:

• Monitoring systems (e.g. hospital patient monitoring).
• Computer control systems (e.g. an automatic production line, an aircraft auto-
pilot, the system controlling a nuclear power station, etc.).
• Traditional booking systems (e.g. flight booking, cinema seat booking, etc.).

Eng. Mustafa El-Komy 162 Theory Notes

Eng.   Omar El Safty
Ch.10: Banking Applications s  I.C.T.
 

On-­‐Line  Processing  
An on-line system is one where the user is directly interacting with the computer - the
user is 'on-line' with the computer.
So, any system where the user is entering data directly into the computer must be an
online system. If data is being entered and then processed, it's an on-line processing
system.

Examples of on-line processing systems:

• Online booking systems (e.g. online flight booking, online cinema seat
booking, etc.).
• Online Payment systems (e.g. online banking).
• EFTPOS.
• Withdrawing money from an ATM.

10.2 Payment cards

We have two main credit/debit cards: Magnetic stripe cards and Chip and PIN
cards.
 

Magnetic  stripe  card  

It is a type of card that stores information on the
magnetic stripe found on its back. The stripe contains
useful information, for example: account number, sort
code (bank’s code), expiry date, start date.

Chip  and  PIN  card  

Most payment cards no longer rely on a magnetic strip to
store customer account details. Instead the cards use a
chip, which contains a small amount of computer
memory, in which the account information stored inside.
When a customer wishes to pay for goods in a store, the
customer inserts the Chip and PIN card into a Chip and
PIN reader, and then types in a PIN using the keypad to confirm that they are the
true owner of the card. The reader also has a small screen, which gives instructions
to the operator. Once the PIN is verified, the customer can remove the card.

Eng. Mustafa El-Komy 163 Theory Notes

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Ch.10: Banking Applications s  I.C.T.
 
Advantages of using Chip and PIN card over Magnetic strip cards
• More secure system, as the PIN typed must match up with PIN stored on
chip.
• More robust system than magnetic stripe cards.
• Data in chip is encrypted.
• Presence of editable memory.
• More Reliable as it is not affected by magnetic fields.
The main disadvantage of using Chip and PIN cards is fraud. The user needs to be
careful to ensure that PIN isn’t read by somebody else while typing it in.

10.3 Payment systems/processes

Let’s assume that a person goes to a supermarket and buys things that worth $100.
There are different ways for that person to pay the money to the supermarket:
• Pay in cash.
• Use credit/debit card.
• Withdraw money from ATM.
• Write a bank cheque.
Paying money in cash is the easiest approach and doesn’t involve many steps.
However, the days for carrying a lot of cash money in wallets/bags has passed. We
will discuss three main payment processes other than paying money in cash:
1. Electronic Fund Transfer at Point of Sale (EFTPOS).
2. Withdraw money from ATM.
3. Clearing of cheques.

1.    EFTPOS  
Before going through the process of EFTPOS, we need to introduce two main
terminologies: Electronic Fund Transfer and Point of Sale.

Electronic Fund Transfer (EFT)

EFT is a system that allows money transfer instructions to be
sent directly to a bank's computer system. Upon receiving
one of these instructions, the computer system automatically
transfers the specified amount from one account to another.
Transfer instructions can come from other banks or from
businesses.
A very common use of EFT is when a large business pays
its employees' salaries. On payday, the businesses tell the bank to move money
from the business account to the employees' bank accounts.
 

Eng. Mustafa El-Komy 164 Theory Notes

Eng.   Omar El Safty
Ch.10: Banking Applications s  I.C.T.
 
Point of Sale (POS)
The Point-of-Sale (POS) in a store is the place that you pay for your purchases. It is
usually where the cash register (till) is located.
A typical POS has:
• A method of inputting the codes of goods
purchased (usually a bar-code scanner). The
codes are then used to search for more
information about the goods, such as price,
from a database.
• A system to accept electronic payments or
EFTPOS (see below).
• A system to update the stock-level of goods
whenever they are sold, and possibly to
automatically re-order goods that have low
stock-levels (see below).
• A method of producing a receipt for purchases (usually a small dot-matrix
printer).
Now we go back to the EFTPOS process of paying money to the supermarket. As
mentioned earlier, EFTPOS stands for Electronic Fund Transfer at Point Of Sale.
This basically means the process of transferring money electronically at a POS
terminal. Using the above example of paying $100 to the supermarket, the steps for
EFTPOS process using Chip and PIN card are listed bellow:
1. The card is inserted into Chip and PIN reader to make contact with the
customer’s bank computer.
2. The card is checked to see if it’s valid (check on expiry date, whether stolen
card, etc.).
3. The customer is requested to enter their PIN.
4. The PIN is read from the chip on the card and is compared to the one just
keyed in by the customer.
5. If they are the same, then the transaction will proceed, otherwise the system
will ask the user to re-enter the PIN. If this is the third attempt at entering the
PIN, the transaction is terminated.
6. The cashier enters the value of purchase, which is $100 in our case.
7. A check is made on whether the customer has sufficient funds to pay $100 or
not.
8. If there are enough funds available, then the transaction is authorized and an
authorization code is sent to the supermarket. Otherwise, the transaction will
terminate.
9. The price of the goods is deducted from the customer’s bank account and the
same amount of money is added to the supermarket’s bank account.
10. A receipt is produced as proof of purchase.

Eng. Mustafa El-Komy 165 Theory Notes

Eng.   Omar El Safty
Ch.10: Banking Applications s  I.C.T.
 

Automatic  re-­‐ordering  of  stock  

It is important to keep track of the amount of stock for each good in a store. Before
using computers, this was done manually using paper based systems. Obviously,
these old systems were not efficient or accurate. After the introduction of computers
and computerized databases, things became much easier to control the stock in
markets and stores.
The following are the steps for automatic update/re-ordering of stock:
• Before payment, the barcode of each good is scanned to calculate the total
price and amount of all goods purchased.
• The barcode is then searched in the database of the stock control system
record by record until a match is found.
• The ‘number in stock’ of the matching record is read.
• The ‘number in stock’ is subtracted by the quantity sold to the customer.
• The new ‘number in stock’ is compared with the re-order number (it is a pre-
set value for the minimum allowable stock for a good before ordering more
stock from suppliers).
• If the new ‘number in stock’ of the searched good is lower than re-order
number, then more stock is automatically re-ordered from the suppliers.
• The new value for ‘number in stock’ (the updated number after subtracting
what the customer has purchased) is written back to the file and the database
is updated.

Note that checking for reordering stock from suppliers is done before updating the
database with the new value of stock.

2.  Automatic  Teller  Machines  (ATMs)  

Automatic teller machines (ATMs) are places where
customers can get cash (or carry out other banking activities)
using their Chip and PIN credit/debit card.

The following sequence is for withdrawing cash using ATM:

Sequence for withdrawing cash
Customer puts card into ATM
PIN is entered using the keypad
A number of options are given:
• Change PIN
What goes behind the scenes
Contact made with the bank’s computer
and card is checked to see if card
expiration date is exceeded or card is
reported stolen
PIN is checked to see if it is correct

Eng. Mustafa El-Komy 166 Theory Notes

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Ch.10: Banking Applications s  I.C.T.
 
• Top up mobile phone
• See account balance
• Pay in cheques
• Receipt required?
• Pay a bill
• Make a money transfer
• Withdraw cash
The customer selects the withdraw cash
option
A number of cash amounts are shown
• Customer’s account is accessed to
The customer accepts one of the options see if they have sufficient funds
or types in a different amount • Check is made to see if daily limit
exceeded
The customer is then asked if they want
a receipt
The card is returned from the ATM Transaction is OK
Money is dispensed Customer’s account is updated
 

3.  Clearing  of  cheques  

The third way to pay for the purchased goods is to write a cheque for the
supermarket with the amount $100.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
The previous image shows a typical bank cheque. As shown, a typical bank cheque
has:
• Place to write the amount.
• The code line, which consists of cheque number, sort code (unique, six digit
numbers that are used to identify each bank or building society) and account
number.

Eng. Mustafa El-Komy 167 Theory Notes

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Ch.10: Banking Applications s  I.C.T.
 
• Name/logo of the paying bank.
• Place for signature.
• Place write to whom the cheque is written to.
• Place to write the date.
 
Note that the following information are pre-printed on the cheque:
• Name/logo of the paying bank.
• Cheque number.
• Account number.
• Sort code.
The last three items form the code line, as mentioned earlier, and are printed in
magnetic ink characters to be scanned by the MICR.
   
This remaining of this section discusses how banks clear cheques using a
centralized clearing center.
Suppose that Ahmed uses HSBC Bank and he pays a cheque for 10,000 LE to
Omar who banks with CIB.
The following steps are done to clear this cheque:
1. First of all, Omar delivers the cheque given by Ahmed to his bank, CIB.
2. The cheque is sent by CIB to a centralized clearing center.
3. The cheque is processed by the clearing center by doing the following:
a. The cheque is passed through MICR to automatically read the amount
on the cheque (10,000 LE in this case) and the code line (containing
account number, sort code and cheque number).
b. The data from the cheque, which has been read, is converted into an
encrypted file known as IBDE file (Inter-Bank Data Exchange).
c. Every IBDE is signed with a digital signature so that the receiving bank
can be sure that the data hasn’t been tampered with.

4. All cheques sent by CIB to the centralized clearing center are sent back to
CIB after processing them.
5. CIB then delivers all processed cheques to an exchange center.
6. The exchange center passes all cheques to their corresponding paying
banks (HSBC Bank in this case).
7. HSBC receives the cheque and sends it to its own clearing center to be
checked.
8. At HSBC’s clearing center, the digital signature is first checked and then the
cheque is passed through HSBC’s own MICR to scan the cheque and to
make sure that the data matches with that on the IBDE file.

Eng. Mustafa El-Komy 168 Theory Notes

Eng.   Omar El Safty
Ch.10: Banking Applications s  I.C.T.
 
9. HSBC checks to see if Ahmed has enough money in his account to cover the
cheque, and also it has been signed, dated, and written correctly and is
genuine.
10. Based on this information, HSBC finally decides whether to:
a. Pay Ahmed’s cheque to Omar.
b. Return it unpaid to CIB.
Note that the cheque may be returned unpaid for many reasons, such as:
• The customer has not got enough money in their account to pay the cheque.
• It has not been signed, dated or written correctly.
• It is fraudulent for some reason.
This whole process, known as ‘clearing a cheque’, takes three working days.

10.4 Internet banking

It is now very common for bank customers to access
their bank accounts from home using on-line banking
services.
Customers use a computer and connect to the bank's
secure (encrypted) website where they login (usually
with a username and a password).
Customers can use the on-line banking system to:
• Check the balance of bank accounts.
• Pay bills.
• Transfer money between accounts (using EFT).
• Apply for loans.
• Other services.
The following notes give a comprehensive list of the advantages and disadvantages
of using internet banking.

Advantages to the customers

• Disabled and elderly people can now access any bank without the need to
leave home.
• Because it is online, banking can be done at any time on any day of the week
(i.e. 24/7). This is particularly helpful to people who work as the banks would
normally be closed when they finish work.
• There are often long queues at the banks, so internet banking saves time.
• As it is less time consuming, it allows people to spend more time doing other
things.
• Many people find it less embarrassing to ask for bank loan using the internet
rather than enduring a face-to-face discussion with bank staff.

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Ch.10: Banking Applications s  I.C.T.
 
• The banks save money by not having as many staff working (reduced wage
bill) for them or hiring of high street premises (reduction in rental costs).
These savings are often passed on to customers in the form of lower interest
rates or higher interest rates on interest for savers.

Advantages to the banks

• Banks can save costs here since fewer staff need to be paid and it isn’t
necessary to have as many banks in high streets to deal with potential
customers.
• Because the internet is global, potential customer base is increased.
• Robberies are less likely due to the decrease in the number of high street
banks.
• Banks need to employ fewer security staff, which has a cost benefit.

Disadvantages to the customers

• Possibility of isolation and lack of socialization.
• There are possible health risks associated with online banking because of
lack of exercise.
• Security issues are a major concern (e.g. hacking, stealing credit card details,
etc.) as are viruses and other malware.
• Accidently using fraudulent bank websites is always a risk and this is linked to
security issues.
• It is necessary to have a computer and to pay for the internet to take part in
online banking.
• High street banks are closing because of the increase in online banking and
this is leading to ‘ghost towns’ forming.
• It is easier to make errors with online banking and transfer money incorrectly
to different accounts.

Disadvantages to the banks

• There will be increased costs because of the need to retrain staff.
• There are costs due to the setting up and maintaining of websites to enable
online banking.
• Since there is very little or no customer-employee interaction, this could lead
to a drop in customer loyalty, which could lead to loss of customers.

10.5 Telephone banking

It is similar to internet banking. The main difference is that it uses the telephone
rather than a computer.

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Ch.10: Banking Applications s  I.C.T.
 
With this system, the customer calls the bank using a
telephone. The sequence is as follows:
1. The customer keys in their account number.
2. They are then requested to enter a four-digit
PIN or selected numbers from their PIN.
3. The customer will then hear various options,
which might include:
a. Press ‘1’ for your balance.
b. Press ‘2’ to carry out a money transfer.
c. Press ‘3’ to pay a bill.
d. Press ‘0’ to talk to one of our representatives.
4. The customer chooses one of the options (either by pressing the correct key,
or some systems ask the customer to speak the number – this relies on voice
recognition).

Similarities with internet banking

As with internet banking, customers are able to:
• Check their balances anywhere in the world.
• Pay bills or transfer money to another account.
• Talk with a bank representative.

Advantages over internet banking

• No need to have a computer and Internet service, thus cheaper.
• It is possible to talk to an actual human being, which is more attractive
proposition for many people.
• Quicker in case your computer isn’t switched on at the time and you only want
a balance enquiry.

Disadvantages compared to internet banking

• It can be much slower (there may be a long queue before you can talk to
somebody).
• Options can be a little more complex to navigate using telephone banking.

10.6 Internet Shopping (e-Commerce)

In the last few years, Internet shopping has become very
popular. Stores like Amazon and the iTunes Store are
some of the largest retail businesses in the world. Online
you can buy anything from air flights to fresh eggs.  

Eng. Mustafa El-Komy 171 Theory Notes

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Ch.10: Banking Applications s  I.C.T.
 
Advantages to the customers
• There is no longer a need to travel into the town center, thus reducing costs
(money for fuel, bus fares, etc.) and time wasting. It also helps to reduce town
center congestion and pollution.
• Users now have access to a worldwide market and can thus look for products
that are cheaper. Users also have access to a much wider choice of goods.
• Because it is online, shopping can be done at any time on any day of the
week (i.e. 24/7).
• There are often long queues at the shops, so internet shopping saves time.
• People can spend more time doing other things. For example, going shopping
to the supermarket probably takes a lot of time; by doing this online people
are can be free to do more leisure activities.

Advantages to the business companies

• Companies can save costs here since fewer staff need to be paid and it isn’t
necessary to have as many shops in high streets to deal with potential
customers.
• Because the internet is global, potential customer base is increased.

Disadvantages to the customers

• Possibility of isolation and lack of socialization.
• There are possible health risks associated with online shopping because of
lack of exercise.
• Security issues are a major concern (e.g. hacking, stealing credit card details,
etc.) as are viruses and other malware.
• Accidently using fraudulent shopping websites is always a risk and this is
linked to security issues.
• It is necessary to have a computer and to pay for the internet to take part in
online shopping.
• High street shops are closing because of the increase in online banking and
this is leading to ‘ghost towns’ forming.
• Unlike traditional shopping, it is only possible to see a picture of the goods,
which might not portray the real thing before buying them.
• Goods arrive after several days.
• Returning goods is expensive.

Disadvantages to the business companies

• There will be increased costs because of the need to retrain staff.
• There are costs due to the setting up and maintaining of websites to enable
online shopping.
• Since there is very little or no customer-employee interaction, this could lead
to a drop in customer loyalty, which could lead to loss of customers.

Eng. Mustafa El-Komy 172 Theory Notes

Eng.   Omar El Safty
Ch.10: Banking Applications s  I.C.T.
 

10.7 Online booking systems

Online booking systems rely on the ability to update
files immediately thus preventing double booking which
could happen if the system response time was slow.
Booking systems are used in many things, but we will
consider only transport (flights, trains and buses),
cinemas and theatres.

Advantages of online booking systems

• They prevent double booking (which could happen in paper based systems
that do not update the system fast enough).
• The customer gets immediate feedback on the availability of seats and
whether or not their booking has been successful.
• The customer can make bookings at any time of the day.
• The customer’s email address allows the booking company to attach ‘special
offers’ to them and inform them of such offers automatically.
• It is usually easier to browse the seating plans (especially on flights) to
choose the best seat available at the price.
• Very often there are no printed tickets, which saves postal costs and also
allows ‘impulse’ booking only a few hours in advance.

Disadvantages of online booking systems

• The setting up and maintenance of online booking systems is expensive.
• All customers using the service need access to a computer and a reliable
internet connection.
• It is often more difficult to cancel the booking and get your money back using
online systems.
• If the server is down for maintenance or if the system breaks down, it
becomes impossible to book seats.
• If the websites are not well designed, it can be difficult to make exactly the
booking you want or can lead you to make mistakes (in flight booking system,
mistakes can cost the customer to pay for additional fees).
• Booking online does not allow you to a build a personal relationship with the
travel agent who might offer free upgrades or special offers, which may not be
available to online bookings.

Eng. Mustafa El-Komy 173 Theory Notes

Eng.   Omar El Safty