CHAPTER

ATM
11 The Cash Machine

EVOLUTIONOFATM
e-banking started from the use of ATM, telephone
The evolution of payment,
bill EFT and online banking.
hanking (tele-banking), direct driven channels in
and self-service
One of the major technology a
Indian banking industry is ATM freestanding machine, which
the get cash, information and
other
customer can use with his card to
which is linked to the customer
services.It is an electronic machine, delivered exceptional
have
accounts and banks' records. Banks On most modern ATMs.
ATMs.
customer convenience deploying
customer is identified by inserting a plastic ATM card with a
the with a chip that contains a
magnetic stripe or a plastic smart-card
number and some security information. Authentication
unique card
entering a PIN.
is provided by the customer by
that has been achieved in
The invention of ATM is a milestone
George Simijian invented a
the banking industry. In 1939, Luther by the City Bank of New
cash dispenser and it was first established invented the first
York. Later, in 1960 Scot John Shepherd-Barron
first to deploy
ATM Machine. Barclays bank in London was the emerged as
an ATM in 1967. Since the mid 1970s, ATM gradually and North
Europe
a powerful channel of service delivery in West
restricted to cash
America. The early versions of the ATM were
Withdrawal only. In the 1967 model, patented by Shepherd-Barron,
'vouchers' with
e plasticcards did not exist and istead of that
cash.
Strip of radioactive substance were used for withdrawing
COnsequently, the vouchers were matched with a particular personal
rINNumber used by the bank to identify the customer.
Wetzel.
loher cO-patent to the invention of the ATM was Don issued
Though the Conceptualization began in 1968, the patent was
yn 1973. This cash disnenser was first used by the New YOIK
11.1
 11,2 Essentials of Banking Theory Law
annd
Practice
based bank, the Chemical Bank. The ATMs introduced
years were hardly multi-functional units.
based on any electronic system. Hence, the Further, theyduring hi,
from credit cards, were given to only selectivedebit cards, isinc,
track records. Thus, the service itself
took a clients with
1970s.. In India, the Hong Kong and Shanghai banking Co on
was the first bank to introduce ATM in Mumbai
stronghold
banking Corporata
1988, Citi bank introduced ATM. in 1987,.
Stand-alone ATMs
appearance first in India, in the early ATMS madeLatethr érin
on the location of ATMs has 1990s. Easing of
made them restricions
places such as airports, business centres,being installed at convenies
hospitals, etc. railway stations, baZaAr
The most visible, and perhaps most
the virtual banking revolution is the revolutionary, element of
cash machine or the Automatet
Teller Machine (ATM), as it is more
ATMs has greatly changed the lives of popularly known. The use of
introduction of ATM service has comemodern men and women. Tk
to change the entire gamu
of the way the banking and
world. ATMS are known for theirfinancial services are operated in the
hours access to bank customers to speed and convenience giving 2
physical environment with the helpoperate their bank account in i:
of machines. ATMs have gvad
an edge to the banks and
out their operations. ATMsfinancial institutions in efficiently carrymg
account of customers any timeprovide the advantage of accesSng u
anywhere.
CONCEPT OF ATM
Electronic equipment that allows cardholding customers to pertord
routine banking transactions without interacting with ahumantele
is called an
'Automated Teller Machine' Also called 'cash machine
it offers a range of services of
The machine is used to
modern banking.
banking
render certain
functions such as deposit taking, cash withdrawal,essential
account balact
verification, etc. with the help of aPersonal Identification Number
(PIN)system.
 ATM-The Cash Machine 11.3

FEATURES
tollowing features:
ATMshave the
1.AnywhereBanking
can be installed at any place where public
AutomaticTeller Machines
congregate in large
numbers for transacting business or availing
services. Accordingly, besides banks, ATMs can be installed at
banks,shopping centers,
offices, airports, railway stations, etc.
2. Anytime Banking
services to
Automatic teller machines offer round-the-clock banking
access banking
customers. This comes as b00n to those who cannot
work. The
services on normal working hours due to their nature of
henefits are innumerable where the banker is part of the common
sharing facility, called 'shared ATM'.
3. Anything Banking
Automatic Teller Machines offer an amazing range of banking
services such as cash withdrawal, balance enquiry, deposits, funds
transfer, etc., at the convenience of customers.
4. Satety
From the technical perspective, an ATM is simply a safe with an
clectro-mechanical input and output system which is itself controlled
by a(usually) fully electronic user interface.
5. User Interface

Organizations that manufacture ATMs are Fujitsu, IBM, NCR,

Siemens, etc. These organizations spend great effort on the user
interface aimed at maximizing the speed of the entire customer
Interaction and keeping the language used for the interaction process
as clear and straightforwardas feasible. Most ATMs nowadays use
aCathode-Ray Tube (CRT) for the visual interface. Some ATMs of
an older design make use of a system whereby the different interface
pages are scrolled mechanically behind a glass screen.
6. Visual Messages
The 'user interface' of an ATM is designed to ensure that the
minimalrequired activities such as obtaining cash; obtaining receipt
and retrieving the card, etc., are performed. To facilitate the
 Te the to hes also LOmer hasme
the cash retrieve
hascustomer the card, provide ser en wiA
been not going to beespecialyiysualf the to his cat
ATMThe Cash Machine
Tmeresmafoveugnescdtion reint
is
card is posted to acustomer first and 115
7.ManySwalwithin
card
lotimewed
a
a
it
Cardisdpensed.
happens that theof
lingering by the
macine uni
later, usually 'after
This would
obtaining
also help prevent an
card sO as to gain knowledge of
then the PIN
acknowledgement
theillicit
In order to ensure safe use of card's PIN.
postedthe few days
from
user from
a

interceptcustinogmer.
the
the certain
the
swallows'
This would card afterseconds customer
a short time. In forgets to
such cases, the
that the secret code. the PIN, is
This way the security hazard
not
involved
ATM
facility, imperative
revealed to
anyone,
it is

officea in orderrequire period, in the use

anytime.
that
from the
that
to havethethe
customer may be in card customer
returned. normaly about retievmeachie
applies to the e
can be prevented and the
ATMs can be curbed. It is so-called
therefore
necessary
cardcalls for alertness on the part of
the
of
the ATM
"phantomthatwithdrawals made at
the use of an
card

get back the it is bank

However,
a
customer. ATM
the same branch manager ofposition
problem associated with the use of
to ATM Another commnon
premises the bank, quite pos may forget the PIN and to overcome
this
card is that the

funct'swioansl o.welodcated
8. ATMs Security where the bank branchwhere the choose a PIN that suggests malady the customer
also ATM is such as birthday etc. The PINsomething about an customer may
The written anywhere. must importantandeventnot
always be remembered
for overriding the
objective of operating an ATMisthat it BIOMETRICS
dispensing
user. The required functions to the
of the card mechanismn should should Biometrics constitute a kind of an
therefore
from gaining access bonafide and proie to identify the genuine user of authorizationin system, used in
to the prevent an authoriza a
transaction an electronic order
ATM PIN unauthorized
machine's functions environment. Under this
takes place on the basis oftechnique, effective customer
the biological
banking
authorization
nerson., A variety of biometrics is used for attributes of the bonafde
The Personal Identification Number (PIN) is the Iser. They include identification of the true
to etc. which are digitized thumbprints, face prints, retina prints.
access the functions of an code that i compared
system. However, the biggestto the sample record
number used for authenticatingATM. The PIN is a four-ioit is that it is
expensive. problem with thisalready, stored in the
type of mechanism
facility by a customner. The use and authorizing the use of the AT Moreover,
being caused to the ATMs and there are
use of the ATM
of PIN entails
authorization for te for ATMs. hence are notpossibilities of damage
really suitable for use
transactions. The user
and the bank's staff cannot know this. must keep the PIN seo
Therefore,
method to use in the PIN appears to be most reliable and
This is because: as soom 8 ATM ambience. easy
customer inputs the PIN into the system it will be encrypted and ON AND
OFFLINE OPERATION
decryption takes place anywhere in the system. Furthermore, PN "On-and off-line operation refers to the
are generated within the system by an automatic prOcess; they
line made computerized connection
across a data
printed inside the PIN-issuing envelope. bank's centralcommunications
computer. This assumes between the ATM and the
The most important security aspect concerning the use da perspective. The central computer issignificance from the security
ATM card with the help of PIN is that the secret number fals
process. The central computer helps theused for the authorization
customer' s account can bear the ATM know whether the
the hands of an unauthorized person while the card is issuea the use of ATM transaction.
facility and the need for safetyTheof the
proliferation of
and the PIN replai
prevent this from happening, the plastic cardsAccordingly, necessitated the use of magnetic process has
the stripe on a
to them are posted separately to a customer. plastic-card.
11.6
Essentials of Banking Theory Law and ATM--The Cash Machine 11.7

The traditional offline system of Practice

and improper use of the ATM card. TheATM esulted card and opening of the lobby door, the
Verification of the particularly useful for security reasons
*onlinkine system' of
operations facilitated direct and simultaneous 4 entrance lobbies
are
the customer complete
the transaction without any

systbetThiewmseenwolensurded
and the host computer. Furthermore, an online the theylet
in theimmediate vicinity.
as or thief being
the daily cash withdrawal limit was maintained. potential mugger ATM card in the insertion point of the
the benefit for the bank by way of preventing insert the
Customer to
to cashtoo quickly. Similarly, it also ensured that ATM being 5
ATM.
the confidential PIN, the correct
PIN lets the
sufficient cleared funds in his account to bear the the Customer to type
t custOmer process of ATM.

bortrroanwisancugon,
6
where there were insufficient cleared funds, a customerin the carried out
existed to cover the withdrawal. Moreover, online ATM to depictthe list of functions waiting to be
The
customer, such as cash withdrawal,
etc.
enables the bank to offer a much wider range of
possible when operation is in offline mode.
CoNnection
functionality a
8.
for the
Customer to select the relevant operation to be performed in the
ATM. selected by the
ATM TYPES
The ATM
carrying out the relevant operation as
9
customer.
ATMs broadly fàll into two categories. They are
below: briefly exlain The entire mechanism of
ATM operation is exhibited
below:

1. Lobby ATMs ATM Mechanism

These are the. ATMs that are installed in branch lobbies Making Application by ATM Card
Issue of ATM Card Bank
concerned bank. Customner
AllowingAccess

2. Through-the-wallATMs Gaining Access

locio
These are the ATMs that are installed in wide range of
too, They
spread over the country and sometimes overseas
ATM
malk
located not only in bank branches but also in shopping kiost
and in small,
alongside department stores and supermarkets, Gaining Accounts ATM Lobby
which are frequented by more and more peopk
type' mini-branches stations to shoni
railway
They are found in places ranging from
ship, with the link between te ATM Card Insertion
malls, airports and even on board maintained by radiotelepho:
ATM and the host computer being Customer Identification through PIN
ATM MECHANISM
thrvoy
using the ATM facility is to go ATM Depicting List of Transaction
Any one who is desirous of
the following steps: card.
application for the ATM Customer Selecting and Carrying Out
1. Customer of a bank making "
issuing the ATM card, fixing
Transaction
the bank-branch
2. Manager of etc.
maximum cash withdrawal limits, cardthro Closure of Transaction
the ATM byswiping the
3. Customer to gain access
to
outside.
acard-swipe located
11.8 e
Essentials of Banking
Theory Law and
ATM FUNCTIONS
The major functions performed by the e
Praci e
types as described below:
1. Basic Functions
ATMs worldwide.
Basic functions are:
a. Cash withdrawal.

b. Balance enquiry (whether displayed

statement-ordering facility. on
2. Additional Functions
screen or prnted
Additional functions are:
a.
Chequebook request facility.
b. Deposit, the facility being
institutions running confined
the ATM in
to
customers of the fino
available via a shared ATM network. question which is not uuE
C.
Funds transfer facility,
initiated transfer of which usually involves a custoner
funds to a
a utilities
account.
company account to pay prearranged
a bill or todestination, sud1z
another custon=
d.
Mini-statement
out, and typicallyfacility, which is usually available as aptu
covers the last 10
on the accounts. transactions or movemkt
e.
PIN change facility.
f.
8.
Passbook update facility.
Dispensing traveler's cheque, although a fairly
facility, available at unco
In international airports.
more addition the above, ATMs can also be used toprovidt
to
they functions
could be than are currently available on them. Forinstank
as used for a wide of communication serv purN
emergency measures to alert police, ambulance or fire
Similarly,
range
sharing of ATMs too
and other service providers suchbe aspossible
might airlinesintofuture amonghun
obtainticketst
other important documents via ATMs, This could be arealitygi
the
partiprolcipatifieratng ioparties
n and
in the use of Smart cards,
which
linksu
Wouldprovi

excellent customers. Therefore. ATMS batb

revolution.opportunity and pave for the growth of the

Virtual
 CHAPTER

14 Credit Cards,
Debit Cards and
Smart Cards

CREDITCARDS

GENESIS
The phenomenal growth witnessed globally in the 20h century in
the manufacturing industries sector helped fulfil man's physiological
needs like food, shelter and clothing in a big way. Increasing
demand for satisfaction of these needs engineered the proliferation
of companies involved in their manufacture of variations to the
same product. Simultaneously, economic, social, cultural and
technological development of society led to the growth of the service
industry. Further, society exhibited increasing affluence combined
withgrowing complexity of life. All these factors have contributed
to the phenomenon of CREDIT CARDS.
Credit cards provide convenience and safety to the buying
process. One of the important reasons for credit cards to become
popular is the sea change witnessed in consumer behaviour. Credit
cards enable an individual to purchase certain products/services
wihout paying immediately. The buyer only needs to present the
creditcard at the cash counter and to sign the bill. Credit cards can,
erefore, be considered as a good substitute for cash and cheques.
However, these cards are accepted only by those establishments,
which have consented to entertain them. These establishments are
Known as Merchant Establishments.
During the past decade, plastic cards have become increasingly
Popular in India. The reason for their Popularity has nowshifted focus
from being astatus symbol to offering convenience and security with
wor ldwide acceptance. Of late, banks have been permitted into the
Credit card business without even the prior approval of the Reserve
Bank of India. Although the setting up of an independent subsidiary
14.1
 have Uerbeentake the credit Ang Theory Smart Cards
14.3
giorvenin the card
themselves as ociation busines
theresult, many Indian freedom witoth startteqtuhieres
credit card banksin other cardcard
(dit
Carts,

ysa dMsstercard
Debit Cards and

ORIGIN AND busiHISnTORY ess ianchudibig wayng StdurateingBanktheof Froin

Natina
year
Bank. USA
i952
issued the first ever

which was generated

general-purpose
accepted by
and it was widely using the card,
local

last ia in the
cales slp which wouid then credit the merchant's
Sellibeen
has ng goodsthe on o the
bank,
cards was that
cardholders could
a
system practicredi
ce oft, relying imitation of these
geograpaical area, and oniy with those nerchants
credit cardshelped both the the upon he
The successfui
their
banks. Further, for the
with an aim ofwere merchant
consumer
introduced viable
as a ands the
from h
y in
a
areements with their
credit cards, the
geratknof system. Accordingly. in 1960. Bank
of
need for
card issuing banks felt the America

expanding sales and means merchant copabie

credit card operating system. This system was
Non-bank
The use of
Cards building strong cusre a
of
kvkpedthe
sutseuently
present
licensed o some other
US. banks, which led to the
internationai bankcard system called Visa

indiviualto firms,creditsuchcardsas oiloriginated in the USA in he

them
hiishrnent of an
hterTRtional
neinai
Competition
hankcard
amongst the U.S. banks resulted in another
Mastercard.
system being introduced, known as Americard
folandlowitheng custtheoSecond
mers for purchasescompani es which were left out of the Bank
and hotel 1920h of 16 banks, (CA)
made at chai
World War saw the USAtheir outets. The n s, bezn Agrop
nse combined and formed the Interbank Card AssociationToday
the growth largest "service New York. This later became the
Mastercard Intermational.
and economy". This factorbecome the wotyfn command the buik of the credit card
devel
Mobil Oil issued the opment of the credit greatly conribtesa
card business later.
Visa and Mastercard together
business in the world.
Initially, the
regular customers,
world' s first
company,issuedin order to givecredit card in the year 194 Cards in Europe
increase customner base. the card.theThisspecihelped alizedboostservicsalese a The successful operation of the bankcards system in the U.S. saw
various organizations suchFollowing as the success of the Mobile Cat. buncing growth in other parts of the wortd too. In the year
1966, the Barclays Bank. UK, launched Barclay Card with aVisa
and Carte Blanche Diners Chub, American Expes
travel, leisure, etc. started issuing cards, for different purposes ie
ie-up. The Access Card was launched in the year 1962 in the UK
by aconsortium of British and Scottish banks with a Mastercard
Bank Cards Te up. With the astounding success of credit card system in UK, the
Eurocard was introduced in most of the West European countries
The origin of the bank credit with a tie-up with Access.
launching of acredit plan calledcard"Charge-It
concept can he traced
in 1946 by Jotn C Electronke Cards
Biggins, a consumner card specialist at the Flatbush
Brooklyn, New York. The bank issued a scrip that National Bank As the Visa and Mastercard
local merchants for small purchases. Afer was axceptnd Sanks became membets of associations gained prominence, most
the two organizations
the merchants deposited the scrips with the completion
of the uk e both types of cards The and started to
bank, which beiied e of seventies witnessed the evoution
customer for the total scrips issued. clectronic catd authorization systems, electronic clearing and
iement systems, and
Sale (POS) terminalsElectronic Data Capture (EDC) at the Point
This virtually eliminated
ghafeantty speeded up the process. The card paper work and
n A industry is presently
he
inhx tiontechneslogical revoution and is fast
ot 'Smart" cards, moving
which uses computertowards
Niomerre, ctt chip[,
14.4 Essentials of Banking Theory Law and
Special Purpose Cards
Practice
The eighties saw the
special purpose cardsdevelopment of special purpose cards, Ahoe
were issued by
oil departmental stores, airines
companies etc. For instance, the International
Hong Kong, launched the first Bank of Asia in
the year 1988. A highly "women only' card, 'My Carï i
potential of such special encouraging
purpose cardsmembership
led to
and increaig
the launch of te
Ladys Card' in Malaysia. In 1990, the Green Card was launchedi
the UK and Europe to promote
of the environment. contributions towards the protecin

FEATURES OF MODERN CREDIT CARD

Any card that is used as a payment device to access a cardn
mey
financial resources is referred to as aa credit card. The
or at the
De used during travel, at home. for purchasestransactions. l9