e-banking elektronické bankovnictví bank services rendered to clients over the telephone or through a PC

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1 MODERN BANKING 11 G L O S S A R Y TERM TRANSLATION MEANING corporate banking korporátní bankovnictví bank services for large and medium companies e-banking elektronické bankovnictví bank services rendered to clients over the telephone or through a PC e-card virtuální platební karta credit card used for payment over the Internet GSM banking GSM bankovnictví bank services facilitated by mobile phone online order elektronický příkaz electronic instruction by a client to his/her bank to perform a specific financial operation private banking privátní bankovnictví specialized above-standard service to clients with substantial amounts on account retail banking drobné bankovnictví bank services to individuals and small businesses Part A FACTFILE LEAD-IN Under the existing legislation and in accordance with relevant licences most commercial and specialized banks, along with their subordinate organizational units, are allowed to engage in financial and investment activities both in domestic and foreign currencies and rank high among important economic subjects. Banks, too, had to find their 7appropriate responses to the 16 challenges coming from the fast-moving world of business, particularly in terms of a greater speed of operations and a larger scope of offered services. Improvements were needed 142

2 U N I T E L E V E N especially in the b-to-c commerce and were felt acutely by banks engaged in retail banking. As a result we are now dealing with two new phenomena in this sector: the extending range of bank products such as GSM, home or private banking, and the introduction of e-banking. It was the banking sector which actually pioneered the use of electronics in its transactions with large corporations, i.e. on the b-to-b level. This was done in the form of EDI, a pre-internet electronic system channelled through private networks, as already commented on in Unit 3. The following chapters, however, will first explain some of the basic terms currently used in the banking sector. bank product challenge engage in sth foreign currency pioneer sth rank high (among sb) scope 11.1 BANK PRODUCTS bankovní produkt (služba) výzva, (otevřený) problém angažovat se v čem cizí měna, deviza razit cestu čemu zaujímat vysoké postavení (kde, mezi kým) rozsah The bank product is another name for a bank service or facility. If we skim through the leaflets of most commercial banks, we find that the following bank products belong to the most frequently offered: opening and maintenance of current accounts acceptance of deposits execution of payment orders credits, loans and guarantees financing of imports and exports currency exchange. Consultation and information services are standard with most banks. acceptance of deposits consultation service execution guarantee leaflet loan přijímání vkladů poradenská služba vyřizování záruka reklamní leták půjčka 143

3 maintenance skim správa, vedení (např. účtů) zběžně listovat 11.2 SEGMENTATION OF CLIENTS Nowadays the activities of most banks are specialized so that some of them concentrate e.g. on investments, others focus on international trade or mortgages etc. Nevertheless, even in the prevailing category of general commercial banking there may be certain differences. The business policy of some institutions, for example, is the widest possible service to the largest possible circle of small clients, others focus on big companies. The main dividing line today actually seems to be lying between the retail and corporate banking. It is natural that the range of products offered to each of these segments differs accordingly. Moreover, in most cases the segmentation is even more sophisticated. One group of clients, for example, can be formed by individuals together with small businesses, another one includes medium-size firms, and still another is reserved for the largest corporations. The bank policies and organizational setup may then be structured to reflect the specific approach to each of these groups. These tendencies exist, of course, regardless of e-banking. The digitization, however, is likely to increase the efficiency of a rightly chosen policy more than the previous system. dividing line dělící čára efficiency účinnost general commercial banking všeobecné komerční bankovnictví organizational setup organizační uspořádání prevailing převládající segment segment (část trhu) 11.3 PRIVATE BANKING Private banking deserves only a few remarks because from a purely technical viewpoint, it does not bring any innovation to the system. Essentially, it is the name for a range of customized services which most banks are now ready to provide to their most prominent clients. This may include e.g. the cash management as a new form of appreciation of short-term funds in which bank experts choose the most advantageous individual and flexible solutions, or issuance of special kinds of payment and credit cards. Saving programmes in this framework usually 144

4 U N I T E L E V E N concern savings accounts and finally there are private pension schemes which are offered in cooperation with private pension funds. All these services are in line with efforts on the banks side to remain strong in the competitive environment and stress their allegiance to clients, but are not conditional on any electronic element. allegiance appreciation cash management competitive environment conditional on sth credit card issuance payment card private pension scheme saving programme savings account short-term 11.4 ELECTRONIC OPERATIONS loajalita zhodnocení správa hotovostních prostředků konkurenční prostředí závislý na čem kreditní karta vydávání (např. dokladů) platební karta soukromý penzijní plán program spoření účet spoření krátkodobý The introduction and use of electronic systems was a truly memorable step in traditional banking. With the rising demand for prompt, comfortable and reliable service in a wide range of bank products, it could not take the consumers, businesses and banks long to start handling their money transactions online. Today, all major banks run their own system of electronic operations to offer their clients competitive quality service. There are just two basic and common requirements to be met: round-the-clock access to the bank and ability to make payments from one s account within 24-hour, 365-day opening reacting to instructions from authorized persons who operate any kind of computer and are directly connected to the bank. If these two requirements are satisfied, the main advantages of online methods become immediately clear: considerable saving of time by eliminating personal visits to the bank more operativeness and freedom in decision-making. 145

5 It has to be mentioned that electronic operations are not necessarily subject to the use of the Internet. If we closely follow the development of e-banking, we can easily discern its two stages: One of the systems has already embraced the electronic means, but it is only a PC and a telephone line which do the job The other form of e-banking is fully Internet-based, i.e. the operating computers are logged in to the Internet. account authorized decision-making demand discern meet the requirements money transactions opening operate operativeness round-the-clock satisfy saving subject to sth take long 11.5 ELECTRONIC SERVICES účet oprávněný rozhodování požadavek rozlišit (s)plnit požadavky peněžní transakce otvírací doba, návštěvní hodiny obsluhovat (např. počítač) operativnost, akceschopnost nepřetržitý uspokojit, splnit (např. požadavky) úspora závislý na čem trvat dlouho The basic scheme of current e-banking can be best demonstrated by the following diagram: electronic banking via telephone via PC classic mobile (GSM) off-line in real time (online) Banks often use their specific names for different services to which they usually add the figure 24 indicating the day-and-night availability. 146

6 U N I T E L E V E N E-banking via telephone Clients of most banks can now communicate, i.e. obtain information from, or give orders to their bank over the telephone. The service is either automated (by reciting the menu) or arranged through a call centre where operators are ready to answer the clients questions GSM banking In GSM banking, the bank application implements the terms and services on a SIM card of the client s mobile phone. The name is derived from the GSM (originally Groupe Spécial Mobile, now also translated as Global System of Mobile Communication) within which most mobile phones, both foreign and domestic, currently operate. Constituting a fully digitized cellular network where a large territory (e.g. that of a country) is divided into smaller cells, GSM is undoubtedly a part of the global electronic world and in this sense financial operations carried out there are a part of e-banking. bank application call centre cell cellular implement recite bankovní aplikace (program) telefonní centrum / středisko buňka buňkový, celulární promítnout, zrealizovat vyjmenovávat, vypočítávat E-banking via PC If a client decides to use an e-banking program on his/her PC, (s)he can work either off-line or online. The latter method constitutes genuine Internet-based procedures which involve starting formalities display of information payment instructions security measures. In order to start an online communication via the Internet, the banks require signing a contract where the terms of the given bank service are stipulated. Under 147

7 the contract, the bank particularly undertakes to perform passive and active transactions concerning the client s accounts with the bank up to a mutually agreed limit. The most usual information which the banks offer to display on their clients PCs are: survey of all client s accounts serviced under the existing contract balances still available history of transactions (a list of payments made, dating back to three months) payment order to be carried out. Banks may also offer consultations concerning savings, investment, financing or insurance. As regards the payment instructions, it is important to remember that any payment arrangement has two discernible sides: payment instruments as the technical means by which payments are effected, such as money orders, cheques, bills or payment cards payment methods or forms which prescribe (in accordance with the agreement or contract between two or more parties) the terms and ways of how a specific payment is to be made, e.g. by opening a letter of credit or in cash against presentation of certain documents. A bank client is free to use any instrument and method which suits him/her best at the time of making his/her payment, provided (s)he has so agreed with his/her business partner and on condition that both the chosen instrument and method are recognized and acceptable to the bank. (S)he gives his/her instructions regarding payment to his/her bank accordingly. It is obvious that there is a whole range of ways and methods how money can flow between payers and payees. One of them is a bank transfer from one account to another which the bank carries out according to the payment order it receives from an authorized person who usually is the account s owner. These operations do not require any special instruments except for electronic identification (the private key or password, or their combination) which is needed because there are no handshakes in cyberspace. The only difference from previous paper-based procedures is that now they proceed online. 148

8 U N I T E L E V E N Security measures Banks use various security systems to safeguard electronic operations and services: Private key or code (usually the client s number, a password, or their combination) is the basic security element. It serves for electronic identification (see above) and the bank confirms it to the client after (s)he has signed the Internet service contract Electronic signature is required in some systems for the client s authorization to perform active operations. The signature is certified by a certification authority Chip card is another security instrument which the bank assigns to its client if the Internet service contract so stipulates. The card also contains the certificate of electronic signature and is needed for access to the service. SMS key is used by some banks for communication with their clients particularly on the basis of GSM banking. The relevant SIM card first invites the client to key in his/her code number and/or PIN. Upon verification, the bank approves the procedure by its own special SMS response Electronic Data Interchange (EDI) As mentioned in chapter , EDI is, firstly, one of the most typical representatives of the pre-internet era communication systems and, secondly, a method with some features strong enough to win recognition and ensure its own continuance even under the present Internet competition. EDI has also proved to be a system not defying modifications. One of them called FEDI (financial EDI) handles money matters involving banks and their corporate clients (primarily large and medium-sized organizations). The Praguebased ČSOB, for example, runs its EDI service regularly within its Internet offerings under the commercial name of Edifact 24, emphasizing its advantage of easy adaptability to the clients accounting operations. accounting operation balance bank transfer chip card continuance účetní operace zůstatek (např. na účtu) bankovní převod čipová karta pokračování 149

9 corporate client defy sth discernible effect a payment in exchange money matters money order offering password payment instrument payment order payments made security measures serviced sign a contract SMS key stipulate korporátní klient (velká n. střední organizace) vzpírat se čemu rozeznatelný uskutečnit / provést platbu výměnou peněžní záležitosti peněžní poukázka nabídka heslo platební nástroj platební příkaz provedené platby bezpečnostní opatření obsluhovaný podepsat smlouvu SMS klíč přesně stanovit 11.6 ELECTRONIC INSTRUMENTS Let us now focus our attention on transactions where adaptations to e-commerce are integrated in the whole business process and represent an inseparable part of the relevant software program. Needless to say, these transactions are conducted over the Internet, not through private networks. Naturally, this kind of e-commerce in combination with e-banking also assumes that the customer is equipped with a PC through which (s)he can place his/her order, using a web browser. The program also allows an option from three possible forms of payment: digital cash credit card electronic cheque Digital cash Traditionally, cash payments were used mainly for two purposes: first, they were convenient in case of small, over-the-counter purchases. Second, they 150

10 U N I T E L E V E N offered privacy and confidentiality, because after completing a particular transaction, there was no paper evidence left, except perhaps a nameless receipt. In any case, the buyer could no longer be traced and identified through the purchased item. The digital cash system (or e-cash, as it is sometimes called) involves the use of auxiliary instruments called tokens into which payments have first to be converted. The procedure, therefore, is not quite effective. For this reason, the use of digital cash is likely to remain limited to areas typical of small outlays, such as paying for various pieces of information or for time (in playing games, renting software etc.). auxiliary instrument cash payment denomination digital cash exchange rate outlay over-the-counter receipt token trace Credit and payment cards pomocný nástroj platba v hotovosti označení; hodnota (např. bankovky) digitální hotovost směnný kurz výdaj přespultový (prodej) stvrzenka zúčtovací peníz zjistit (vysledovat) Generally, credit and payment cards are instruments used for personal finance, mostly during travels. Both are issued on the basis of individual agreements by the financing bank where the card holder has opened his/her account. Payment cards enable withdrawals of cash from one s account through automated teller machines (ATMs) and can also be used for payments in selected shops, restaurants etc. Credit cards replace cash payments in all establishments that declare the cards acceptance, including airports, hotels, petrol stations etc. The use of a credit card, for example, proceeds in the following steps: The merchant verifies the validity of the card through his/her computer If everything is O.K., (s)he issues along with a purchase slip a receipt of payment to be signed by the customer 151

11 The customer gets a copy of the receipt and the merchant presents the original to the bank for collection At regular intervals, e.g. monthly, the customer also receives statements from his/her bank where all purchases are recorded. Purchases over the Internet follow the same procedure, but instead of sending his/her credit card number to the merchant in an unencrypted form, the seller may opt for an additional protection and have the number encrypted. There are various encryption systems; one of them involves the services of a trusted third party who issues a virtual PIN to the customer for his/her use in place of the actual credit card number. The SET system developed by VISA and Eurocard / MasterCard is based on digital certificates of all participants and practised under the commercial name of e-card. automated teller machine (ATM) collection declare sth establishment participant personal finance practise purchase slip SET (= Secured Electronic Transaction) statement trusted unencrypted validity verify withdrawal peněžní / bankovní automat inkaso deklarovat, ud(áv)at co, hlásit se k čemu zařízení účastník osobní finance praktikovat, provozovat účtenka, nákupní stvrzenka zabezpečená elektronická transakce výpis (např. z účtu) důvěryhodný nezašifrovaný platnost ověřit výběr (např. peněz z účtu) Electronic cheques A cheque is a popular payment instrument, especially in the U.K. and the U.S.A., which has to show certain substantials as described in specialist literature. By a private paper cheque, the drawer (payer) instructs his/her bank to pay a cer- 152