Banking Applications | IGCSE Information and Communication Technology Preparation - Year 11 PDF Download

Automatic Teller Machines (ATM) 

An Automatic Teller Machine (ATM) is an electronic banking terminal that grants customers access to financial transactions.

Characteristics and uses of ATMs

• Withdrawing cash: Allows customers to obtain money from a bank account.
• Depositing cash or cheques: Enables adding funds to a bank account.
• Checking account balance: Permits viewing the current balance of a bank account.
• Mini statements: Provides a summary of recent transactions.
• Bill paying: Facilitates settling utility bills and other payments.
• Money transfers: Allows sending funds to another bank account.

Advantages of ATMs

• Convenient access to banking services: ATMs offer convenient access to various banking services such as cash withdrawals, deposits, balance inquiries, and fund transfers without the need to visit a bank branch.
• Available 24/7: ATMs operate round the clock, providing customers with access to banking services at any time of the day or night, including weekends and holidays, offering flexibility and convenience.
• Reduced waiting time: With ATMs, customers can perform banking transactions quickly and efficiently, reducing the need to wait in long queues at bank branches, thus saving time.
• Global access to funds: ATMs provide access to funds from anywhere in the world, allowing travelers to withdraw cash in foreign currencies and facilitating international transactions.

Disadvantages of ATMs

• Risk of theft or fraud: ATMs can be susceptible to theft, card skimming, and other fraudulent activities, posing risks to customers' financial security and privacy.
• Limited services compared to bank branches: While ATMs offer basic banking services, they may not provide the full range of services available at bank branches, such as personalized assistance from bank staff or complex financial transactions.
• Technical issues and machine downtime: ATMs may experience technical glitches, malfunctions, or maintenance downtime, leading to inconvenience for customers and disruption of banking services.
• Fees for transactions at non-network ATMs: Customers may incur additional fees or surcharges for using ATMs that are outside their bank's network, particularly when making withdrawals or other transactions at non-network ATMs, increasing the cost of banking services.

Electronic Funds Transfer (EFT)

Characteristics and Uses of EFT (Electronic Funds Transfer)

• Transfer of funds between bank accounts electronically: EFT enables the electronic transfer of funds from one bank account to another, allowing individuals and businesses to send and receive payments conveniently and securely.
• Utilized for bill payments, salary deposits, and online purchases: EFT is commonly used for various financial transactions, including bill payments, salary deposits, online purchases, and recurring payments such as utility bills and loan repayments.
• Utilizes NFC in contactless payments: EFT systems often utilize Near Field Communication (NFC) technology for contactless payments, enabling users to make transactions by simply tapping their cards or mobile devices on NFC-enabled terminals.

Process of EFT

• Data is read from the chip (using RFID / NFC if it's a contactless payment): When a payment is initiated, data is read from the payment card's chip, or in the case of contactless payments, through RFID or NFC technology.
• The business bank's computer contacts the customer’s bank's computer: The business's bank computer establishes communication with the customer's bank's computer to verify the transaction and initiate the fund transfer.
• The card is checked if it is valid: The validity of the payment card is verified by checking its credentials, including card number, expiration date, and security code.
• If the card is valid, the transaction continues: If the payment card is determined to be valid, the transaction proceeds to the authorization stage.
• If it is not valid, the transaction is terminated: If the payment card is found to be invalid or unauthorized, the transaction is terminated, and no funds are transferred.
• An authorization code is sent to the business: Upon successful verification and authorization, an authorization code is generated and sent to the business to confirm the transaction.
• The price of the item is deducted from the customer’s account: The agreed-upon amount for the purchase is deducted from the customer's bank account and transferred to the business's account, completing the transaction.

Advantages of EFT (Electronic Funds Transfer)

• Fast and Efficient: EFT enables swift transfer of funds between accounts, reducing processing time compared to traditional paper-based transactions, resulting in faster payments and settlements.
• Reduces Paperwork: EFT eliminates the need for physical checks, invoices, and paper-based documentation, streamlining administrative processes and reducing paperwork for businesses and financial institutions.
• Lower Transaction Costs: EFT transactions typically incur lower processing fees and transaction costs compared to traditional methods such as wire transfers or paper checks, resulting in cost savings for both businesses and consumers.

Disadvantages of EFT

• Risk of Online Fraud: EFT transactions are vulnerable to online fraud, including unauthorized access to accounts, phishing scams, and identity theft, posing risks to individuals' financial security and privacy.
• Technical Issues: EFT systems may experience technical glitches, software malfunctions, or connectivity issues, leading to transaction delays, errors, or disruptions in service, which can impact the reliability and usability of the system.
• Requires Internet Connection: EFT transactions rely on internet connectivity for communication between banking systems and electronic devices, requiring users to have access to a stable internet connection, which may not be available in all locations or circumstances.

Credit/Debit Card Transactions

Characteristics and Uses of Credit/Debit Card Transactions

• Payment or Withdrawal Using a Bank Card: Credit/debit card transactions involve the use of a plastic card issued by a financial institution, which allows users to make payments for purchases or withdraw cash from automated teller machines (ATMs).
• Accepted by Most Merchants and Service Providers: Credit/debit cards are widely accepted by a vast network of merchants, retailers, online stores, and service providers globally, making them a convenient and versatile payment method for various transactions.

Advantages of Credit/Debit Card Transactions

• Convenient and Easy to Use: Credit/debit cards offer a convenient and hassle-free payment method, eliminating the need to carry cash and allowing users to make purchases quickly and easily.
• Widely Accepted: Credit/debit cards are widely accepted by merchants, retailers, and service providers globally, enabling users to make payments both online and in-person at a wide range of locations.
• Secure with Fraud Protection: Credit/debit card transactions are typically secured with advanced security features and fraud protection measures, providing users with peace of mind against unauthorized transactions and identity theft.

Disadvantages of Credit/Debit Card Transactions

• Risk of Theft or Loss: Credit/debit cards are susceptible to theft, loss, or unauthorized use, exposing users to the risk of financial loss and identity theft if their cards are stolen or compromised.
• Potential for Overspending: Credit cards, in particular, can encourage overspending and debt accumulation due to the ease of making purchases on credit without immediate payment, leading to financial strain and debt problems for users who fail to manage their spending responsibly.
• Transaction Fees: Credit/debit card transactions may be subject to various fees and charges, including transaction fees, foreign exchange fees, and ATM withdrawal fees, which can increase the overall cost of using credit/debit cards for payments.

Cheques

Characteristics and Uses of Cheques

• A Written Order to a Bank: A cheque is a written order issued by an account holder to their bank, instructing the bank to pay a specified amount of money to a designated person or entity.
• Versatile Payment Method: Cheques can be used for various payments, including bills, services, personal transactions, and business transactions, providing flexibility and convenience for both payers and recipients.

How to Deposit a Cheque at an ATM

• Insert Debit Card: The customer inserts their debit card into the ATM to initiate the transaction.
• Contact Bank Computer: The ATM establishes communication with the customer's bank computer to process the cheque deposit.
• Card Verification: The ATM verifies the validity and status of the customer's debit card, checking for expiration, theft reports, and other security measures.
• Enter PIN: The customer enters their Personal Identification Number (PIN) to authenticate the transaction.
• Cheque Deposit: The customer selects the option to deposit a cheque and inserts the cheque into the designated slot on the ATM.
• Cheque Validation: The ATM scans the cheque to validate its authenticity, including checking for security features and ensuring it meets banking standards.
• Amount Verification: The ATM scans and verifies the amount written on the cheque to ensure accuracy.
• Funds Availability Check: The ATM checks the customer's bank account to confirm that sufficient funds are available to cover the cheque amount.
• Transaction Confirmation: Once the cheque deposit is validated and approved, the ATM deducts the cheque amount from the payer's account and adds it to the recipient's account.
• Receipt Printing: Finally, the ATM prints a receipt confirming the cheque deposit transaction, providing the customer with a record of the transaction for their records.

Advantages of Cheques

• Secure and Traceable: Cheques provide a secure and traceable method of payment, as each transaction leaves a paper trail, allowing for easy tracking and verification of payments.
• No Need for Physical Cash: Cheques eliminate the need for carrying large sums of physical cash, reducing the risk of loss, theft, or robbery during transactions.
• Useful for Large Transactions: Cheques are particularly useful for large transactions, such as real estate purchases or business payments, where carrying or transferring large amounts of cash may be impractical or unsafe.

Disadvantages of Cheques

• Slow Processing Time: Cheque transactions often involve a longer processing time compared to electronic payments, as they require physical transportation and manual processing by banks, resulting in delays in fund availability.
• Not Widely Accepted: Cheques are not universally accepted by all merchants, retailers, or service providers, particularly in the era of electronic payments, limiting their convenience and usability in certain situations.
• Risk of Cheque Bouncing: There is a risk of cheques bouncing due to insufficient funds in the payer's account or other issues, resulting in penalties, fees, and potential legal consequences for both the payer and the payee.

Online Banking

Characteristics and Uses of Internet Banking

• Online Access to Banking Services: Internet banking provides customers with convenient access to a wide range of banking services through a secure website or mobile application, allowing them to manage their accounts from anywhere with internet connectivity.
• Secure Platform: Internet banking platforms utilize advanced security measures such as encryption, multi-factor authentication, and secure connections to protect customers' personal and financial information from unauthorized access or fraud.
• Variety of Services: Internet banking offers a comprehensive suite of services, including fund transfers between accounts, bill payments, account balance inquiries, transaction history viewing, account management (e.g., updating personal information), setting up recurring payments, applying for loans or credit cards, and more.
• Convenience and Accessibility: Internet banking provides customers with round-the-clock access to banking services, eliminating the need to visit physical bank branches during limited operating hours. Customers can conveniently perform banking transactions at any time and from any location with internet access, saving time and effort.
• Real-Time Transactions: Internet banking enables real-time or near-real-time processing of transactions, allowing customers to transfer funds instantly between accounts, pay bills immediately, and receive instant notifications for transactions, ensuring timely and efficient banking operations.
• Customization and Personalization: Internet banking platforms often allow customers to customize their banking experience according to their preferences, such as setting up alerts for account activities, creating personalized savings goals, categorizing transactions, and accessing financial management tools and resources.
• Remote Assistance and Support: Internet banking platforms typically offer online customer support channels, including live chat, email support, and FAQ sections, enabling customers to seek assistance, resolve queries, and access banking services remotely without the need for in-person visits to bank branches.

Advantages of Internet Banking

• Convenience and 24/7 Access: Internet banking offers convenient access to banking services anytime, anywhere, allowing customers to manage their accounts, make transactions, and access financial information at their own convenience.
• Easy Account Management: Internet banking platforms provide intuitive interfaces and user-friendly features for easy account management, including fund transfers, bill payments, account balance inquiries, and transaction history viewing, simplifying financial management tasks.
• Reduced Need for Branch Visits: Internet banking reduces the dependence on physical bank branches, saving customers time and money by eliminating the need for in-person visits to perform routine banking transactions.
• Better Interest Rates: Some online banks or internet-based financial institutions may offer competitive interest rates on savings accounts, CDs, or other financial products compared to traditional brick-and-mortar banks, potentially increasing the returns on customers' deposits.
• Ease of Shopping Around: Internet banking enables customers to easily compare and shop around for the best banking products, interest rates, fees, and features from various financial institutions, empowering them to make informed decisions and maximize their financial benefits.

Disadvantages of Internet Banking

• Security Concerns: Internet banking transactions may be vulnerable to security threats such as hacking, phishing scams, malware, and identity theft, posing risks to customers' personal and financial information and potentially leading to financial losses or fraud.
• Reliance on Internet Connection: Internet banking requires a stable and reliable internet connection for accessing banking services and performing transactions, making customers susceptible to disruptions in internet connectivity or technical issues.
• Risk of Fraud: The convenience of internet banking also increases the risk of fraud, as cybercriminals may exploit vulnerabilities in online banking systems or trick users into disclosing sensitive information, leading to unauthorized access to accounts or fraudulent transactions.
• Potential for Errors: Human error, such as typing mistakes or entering incorrect information, can occur more easily when conducting transactions online, potentially resulting in unintended errors, mispayments, or failed transactions.
• Limitations on Cash Transactions: Unlike traditional bank branches, internet banking may not offer the same level of convenience for depositing or withdrawing physical cash, limiting customers' ability to access cash-based transactions or services.