E-FINANCE

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E-FINANCE
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INTRODUCTION

• The main aim of any business firm is to maximize
  the profit.
• Four Ms of any business
• Money
• Material
• Manpower
• Management
• Can Manage the money effectively and efficiently
  with the help of E-finance.
• Use of electronic payment system for
  transferring the money.
• To plan and control firms financial resources.
• Unbundling of services and promote
  disintermediation.

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WHAT IS FINANCE

• Art and science of managing the money.
• Concerned with the process, institutions,
  markets and instruments involved in transfer of
  money among individuals, business and government.
• Area of finance
• Financial services is concerned with design and
  delivery of advise and financial products to
  agencies and people.
• Financial management is concerned with the
  duties of financial manager, who perform various
  tasks, e.g., budgeting, financial forecast, cash
  management, credit administration, investment
  analysis and funds management, etc.

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E-FINANCE

• Finance anywhere, anytime, any place at the
  lowest cost with the help of hi-tech IT.
• E-Finance is defined as the provision of
  financial services and markets using electronic
  communication and computation with the help of
  internet and intranet by the use of hi-tech IT.
• E-Finance is concerned with the acquisition and
  use of funds by business firms, electronically,
  to maximize profit by cutting various cost.
• E-Finance by way of
• Use of electronic payment system
• Electronic operations of various financial
  services.
• Online operations in various financial markets.

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IMPORTANCE OF E-FINANCE

• E-Finance looks at all organizational business
  processes as interrelated activities.
• To eliminate all non-value added activities.
• Offer faster and more accurate financial
  transactions by processing at a lower cost.
• Quick and accurate external as well as internal
  reporting.
• Real time gross settlement.
• Proactive and strategic planning.
• Effective risk management.
• Ensuring compliance and control.
• E-Finance helps in Total Quality Management.
• Effective decision making as it offers ananlysis
  on a real time basis.

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COMPONENTS OF E-FINANCE

• Early warning system
• Real time operational financial analysis
• Business processes automation and improvement
• All business processes are a series of value
  added activities that aim to do more with less.

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FUNCTIONS OF E-FINANCE

• Long term assets mix on investment decision
• Capital Mix on financing decision
• Profit allocation on dividend decision
• Short term assets mix on liquidity decision

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OVERVIEW OF E-FINANCE
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ORGANISATION OF E-FINANCE FUNCTIONS
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FUNCTIONS

• Finance Manager
• Auditing
• Credit Management
• Cost control
• Retirement Benefit
• Obtaining finance
• Banking relationship
• Cash management
• Cash budgeting
• Finance Comptroller
• Planning and budgeting
• Inventory Management
• Performance evaluation
• Financial accounting
• Internal auditing
• Taxation
• Management accounting
• Management control

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GOAL OF E-FINANCE

• Maximization of profit
• Maximization of earning per share
• EPS Profit after tax
• No. of shares outstanding
• Maximization of return on equity
• ROE Profit after tax
• Net worth
• Maximize the wealth of the shareholder

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BENEFITS

• E-Finance is a good complement to existing
  financial and enterprise resource planning (ERP)
  system, as it enhance and make use of valuable
  information hidden inside with the help of
  hi-tech IT. Reduction in error by 99.8
• Reduction in the total cost of delivering
  financial process support to business unit.
  Reduction in transaction processing cost by 78
• Reduction in cycle time of business process.
  Reduction in process cycle time by 80
• Reduction in the percentage time that corporate
  financial organizations spend on transaction
  processing. Improvement in the delivery of
  operational financial analysis by 78
• Additional transaction process and analysis
  services offered to business units. Increase in
  process throughout by 50

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MEASURABLE BENEFITS OF E-FINANCE
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ADVANTAGES

• To increase the overall performance of the
  company.
• Faster and more accurate financial transaction
  processing.
• Real time analysis of key performance indicator.
• Quick and accurate external reporting.
• Compliance and control
• Effective risk management
• Proactive and strategic planning process that
  helps business managers.
• Computing at low cost.
• Reduce asymmetric information.
• Enhance the liquidity of any firm through better
  management of their assets and liabilities.

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DEPLOYMENT OF E-FINANCE

• It requires reasonable amount of organizational
  change management mostly in terms of elimination
  of redundant and non-value added activities,
  shift in focus from transactional to self service
  oriented process automation, reliance on
  financial analysis and early warning system for
  supporting operations.
• E-Finance is aligned with Total Quality
  Management and continuous improvement.
• E-Finance can be implemented with commercially
  available software such as
• Portals
• Business Process Management software
• Business Intelligence
• Web services based integration product

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E-FINANCE IN THE IT LAND SCAPE
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PHASES OF DEPLOYMENT OF E-FINANCE

• PHASE 1
• Bring processes and activity orientation to
  operational business processes
• It eliminates all non-value added to use as few
  resources.
• PHASE 2
• Process improvement and real time financial
  analysis for everyday decision making.
• PHASE 3
• Early warning system to proactively monitor
  operational metrics of the firm.

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PHASE 1 QUOTE-TO-CASH BUSINESS PROCESS
Enquiry
Customer
Existing Customer
Lead Qualification
Create RFQ
Sales
New Customer
New Products
Production Management
Existing Products
Create New Routing
Provide ATP delivery date
Release production order
Delivery
Factory
Create New BOM
Billing
Collections
New Customer registration
New Customer Qualification
Credit Check and Qualification
Finance
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PHASE 2 CORPORATE CONTINUOUS OPERATIONAL
PERFORMANCE ANALYSIS
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PHASE 3EARLY OPERATIONAL RISK WARNING SYSTEM
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PAYMENT SYSTEM (1/2)?

• Important for economic growth
• Driven by innovation, convenience and economic
  benefits
• Payment and settlement system is an essential
  part of financial system of a vibrant economy.
• Uses electronic technologies
• EFT, NEFT, RTGS, Speed clearing, CBS, ATM Debit
  card and Global Credit cards, etc. were
  introduced as various payment system.
• Payment system consists of originating and
  receiving participants and transfer of funds take
  place through internet.

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PAYMENT SYSTEM (2/2)?

• The costs are borne by all the participants
• Innovation, incentives, convenience and legal
  framework are critical factors for deciding
  future payment system.
• RBI has taken several initiatives for
  implementing effective and efficient payment
  system through various measures, such as, SIPS
  (Systematically Important Payment System), NDS
  (National Dealing System), CFMS (Centralized
  Funds Management System), SEFT (Special
  Electronic Fund Transfer) and CCIL (Clearing
  Corporation of India)

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REAL TIME GROSS SETTLEMENT SYSTEM (RTGS) (1/2)?

• It was launched for setting up of integrated
  payment and settlement system in India by RBI
• Payment instructions between banks are processed
  and settled individually and continuously
  throughout the RTGS day through RBI server.
• It is a settlement process which minimizes the
  settlement risks by settling individual payment
  in real-time in the books of RBI and Individual
  Customer account.
• It ensures fast, secure, final and irrevocable
  settlement of payment transaction within two
  hours.

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REAL TIME GROSS SETTLEMENT SYSTEM (RTGS) (2/2)?

• Development of RTGS system is in response to
  growing awareness of the need of sound risk
  management in large value funds transfer system.
• It offers a powerful mechanism for limiting
  settlement and systematic risk in the Inter Bank
  settlement process.
• Timing of RTGS
• Weekdays 900 am to 430 pm for customer
  transaction
• 900 am to 600 pm for bank
  transaction
• Saturday 900 am to 1230 pm for customer
  transaction
• 900 am to 230 pm for bank
  transaction

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FEATURES OF RTGS

• Payment instructions are processed and settled
  simultaneously.
• Each payment instruction handled individually
• Processing and settlement continuous and
  throughout the RTGS day.
• Payment is final and irrevocable and the
  receiver can utilize the funds immediately.
• Funds for gt Rs. 100000/- to be transferred
  through RTGS and it improve the liquidity
  position of the business firm.
• RTGS comprises two components
• Inter bank funds transfer processors
• Settlement system
• Banks will route the payment instructions to
  RTGS system through the participant interface at
  banks payment gateway.

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TYPE OF RTGS TRANSACTIONS

• Inter Institutional Transaction
• Customer Transaction
• Delivery vs. Payment Transaction.
• Own Account Transfer Transaction.
• Multilateral Net Settlement Batches (MNSB)
  Transaction

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NATIONAL ELECTRONIC FUNDS TRANSFER SYSTEM (NEFT)?

• It was launched by RBI by replacing Special
  Electronic Funds Transfer (SEFT) system.
• It was established for carrying out inter bank
  funds transfer within India through NEFT centers
  connected by a network.
• Providing for settlement of payment obligations
  arising out of such funds transfer between
  customer of participating banks.
• NEFT clearing at RBI, Mumbai and comprises two
  parts Inter bank funds transfer processor and
  Settlement system.

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OBJECTIVE OF NEFT

• To facilitate an efficient, secure, economical,
  reliable and expeditious system of funds transfer
  and clearing in the banking sector throughout
  India.
• To relieve the stress on the existing paper
  based funds transfer and clearing system.
• NEFT would cover the branches of banks as
  identified by individual banks which are
  connected with network.
• A payment order issued for execution shall
  become irrevocable when it is executed by the
  sending bank.

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OVERVIEW OF NEFT

• Each NEFT member will have a payment gateway and
  NEFT service branch will route the payment
  instruction to NEFT clearing center.
• Payment instructions are flowing in the form of
  messages and networking of the branches are
  necessary.
• For message flow a message carrier in the form
  of core banking or Structured Financial Messaging
  System (SFMS) is necessary.
• Parties involved in NEFT are
• Sender
• Sending branch
• Service branch of sending bank
• RBI NEFT center
• Beneficiary bank
• Beneficiary

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TIMING OF NEFT

• NEFT take place throughout the day with interval
  of one hour.

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SWIFT

• Society for worldwide inter bank financial
  telecommunication
• SWIFT operates a world wide financial messaging
  network which exchange messages between banks and
  other financial institutions
• SWFIT also markets software and services to
  financial institutions, much of it for users on
  the SWIFT network
• Bank identifier code (BIC) are popularly known
  as SWIFT code
• Majority of international inter bank messages
  use the SWIFT network
• Presently, SWIFT linked about 8740 financial
  institutions in 209 countries
• SWIFT transport financial message in a highly
  secure way but does not facilitate fund transfer
• SWIFT provides a centralized store and forward
  mechanism with same transaction management
• SWIFT guarantee its secure and reliable delivery
  of messages from A to B, after the approved
  action by C

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SPEED CLEARING

• Refers to collection of outstation cheques
  through local clearing
• Facilitate collection of cheque drawn on
  outstation through core banking enabled branches
  or banks if they network branch locally
• It aims to reduce the time taken for realization
  of outstation cheque
• Speed clearing combines the advantage of MICR
  clearing with CBS
• Cheque drawn on outstations CBS branches of a
  drawee bank can be processed in local clearing
  under the speed clearing arrangement, if the
  drawee bank has a branch presences at the local
  centre
• The cheque is paid within T1 or T2 days
• Speed clearing is available in 64 MICR centre
• Maximum charges is Rs. 150 per cheque above Rs. 1
  lakh

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ELECTRONIC CLEARING SYSTEM (ECS)?

• It was introduced by RBI
• To provide an alternative method of effecting
  bulk transaction which would obviate the need for
  issuing and handling paper instrument.
• To facilitate improve customer service by the
  bank, companies, corporations and government
  departments, effecting the payment.
• The parties involved in ECS are
• Users
• Sponsor bank
• National Clearing Cell
• Destination Account Holder
• Destination Bank Branches

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COVERAGE OF ECS

• Bulk payment transaction, e.g., periodic payment
  of interest, salary, pension, commission,
  dividend, refund by companies, corporations,
  government departments.
• Other transaction to move from a single user
  source to a large number of destination account
  holder.
• Individual credit item without any ceiling on
  the amount or as specified by the user

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TYPES OF ECS (1/2)?

• ECS credit
• ECS debit
• ECS Credit
• Electronic fund transfer from one account to
  many transactions transfers.
• Value in three days.
• Date is to be fixed in advance for bulk payment
  only after the cycle is complete.
• To be used to distribute the funds to large set
  of customers, e.g., salary, dividends, IPO
  refunds etc.
• Beneficiaries are mostly retail customers.
• There is single debit and multiple credit.

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TYPES OF ECS (2/2)?

• ECS Debit
• Date to be fixed in advance for bulk debit
• Only after the cycle is complete, finality of
  the settlement could be known.
• Wholesale customers who have to receive the
  funds from retail customer, e.g., BSNL bill
  payment, LIC premium collection etc.
• There is multiple debit from vast section of
  people and corresponding single credit entry.
• To be lodged by individual customer in favor of
  any company on a specified date for a specified
  amount during each month upto a certain period.

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STRUCTURED FINANCIAL MESSAGING SYSTEM (SFMS)?

• SFMS is a software package which enables the
  transmission of financial messages between intra
  bank and inter bank.
• SFMS is a modularized web enabled software
  solution for financial message communication in
  highly secure environment.
• Features of SFMS
• Creation of message as per message format
  published by RBI
• Communication of message created from one end to
  another.
• Security features such as, authentication,
  message integrity. no repudiation and encryption
  at each node in the message path.
• Facilities to generate at all nodes in SFMS.
• Operator to create the message through user id,
  verifier to verify the message and authorizer to
  authorize the message.

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ELECTRONIC FUND TRANSFER (EFT)?

• Funds are transferred electronically on one to
  one basis and through deferred net settlement
  system.
• Amount to be credited within 24 hours, once the
  transaction is uploaded to RBI system
• Inward EFT is mandatory for all banks, whereas,
  outward EFT is optional.
• Electronic bill payment service can be provided
  by the bank for payment of several bills through
  EFT also.
• It is mostly used by NRE customers for remitting
  the funds in their accounts maintained in India
  from their overseas accounts.

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CORE BANKING SOLUTIONS (CBS)?

• To cater bouquet of financial services to
  customers as a well organized, anytime, anywhere
  financial super market.
• Customer expects a host of financial services,
  such as, online remittance, instant fund
  transfer, internet banking, unified view, bill
  payment, e-ticketing and online trading etc. at a
  single access point.
• Transformation is driven by technological
  advancement, enhanced customer requirement and
  market forces.
• Core market software is evolved software over
  the existing generation software which provides
  seamless support for online inter branch
  transactions, online remittances and other
  contemporary services.
• Almost all the banks have implemented the CBS to
  leverage from this technological advancement and
  to sustain market leadership, retain customer
  base, improve customer experience and widen
  portfolio of income generating avenues.

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BENEFITS OF CBS

• Anywhere, anytime, any device, any service
  banking.
• Real time online status and unified view of
  accounts through multiple touch point, such as,
  telephone, mobile, internet, ATM for any CBS
  branch.
• Investment and training opportunities through
  introduction of new services, like, online
  trading integrated with DP and SB, IVRS, Call
  Center etc.
• Online and instant intra and inter bank funds
  transfer across the country through associated
  delivery channels, like, ATM, internet etc.
• Customized product and services specifically
  designed for a customer based on the customer
  profiling.
• In todays competitive market, CBS is the only
  approach to edge out competition and earn the
  rewards of customer loyalty and trust for each
  one of us.

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CHEQUE TRUNCATION

• It is a process of stopping the flow of the
  physical checks issued by a drawer to the drawee
  branch.
• The physical instrument will be truncated at
  some point en-route to the drawee branch.
• Electronic image of the cheque would be send to
  the drawee branch along with the relevant
  information, like, MICR field, date of
  presentation, presenting bank etc.
• Need to move the physical instruments across
  branches would not be required except in
  exceptional circumstances.
• It effectively reduce the time required for
  payment of cheques, the associated cost of
  transit and delay in process.
• Speeding the process of collection and
  realization of cheques

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E-FINANCE IN FINANCIAL SERVICE INDUSTRY

• Financial service industry includes
• Banking institutions
• Depository institutions
• Insurance companies
• Security companies
• E-Finance technologies have reshaped the role
  and structure of the financial services sector.
• Used systematically for lending to small, medium
  and large businesses and using the customer
  credit rating model on various parameters as risk
  management tool.
• Depository institutions developed website, as
  means to distribute their product to retail
  customer.
• Almost all banks have adopted E-finance
  technologies very aggressively with relatively
  high efficiency and widely using for all types of
  banking product.

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E-FINANCE IN INSURANCE SECTOR

• In India, almost all the insurance companies
  have switched over to E-Finance technologies for
  issuing insurance policies with greater speed and
  100 accuracy.
• Customer can see the position of his insurance
  policy online and can pay the insurance premium
  through internet banking.
• LIC of India was able to control their
  voluminous work with the help of E-Finance.
• Insurance companies tend to buy and hold
  securities, mainly, debt securities, RBI bonds
  etc. issued or originated.
• Can manage their assets and liability side more
  effectively and efficiently and having better
  control and good return on them.
• Policy holders can interact with their insurer
  through E-Finance technologies, and can file the
  claim online.

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E-FINANCE IN SECURITY FIRMS

• E-Finance used by various security firms,
  particularly by brokers and dealers in secondary
  security market.
• Now brokerage business rapidly gained market
  shares due to heavy investment in stock and
  equity market and allowing the individuals to
  trade securities online.
• E-Finance technologies resaved the primary
  security market and involved Book Building
  process, by which investment banks assess the
  demand for security.
• Allowed information to be collected more
  efficiently with less cost and with much
  accuracy. It also reduced the time in allotment
  of shares and refund of the amount.
• Online auction of the securities are possible by
  the use of E-Finance.

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E-FINANCE IN MUTUAL FUNDS AND CAPITAL MARKET

• E-Finance technology reduced asymmetric
  information because they lower the cost of
  communication, computation and data processing.
• Buyers and sellers of financial assets to have
  more equal access to information as per their
  requirement.
• Mutual funds and pension funds have increased
  their market shares due to better and safe
  return, and can be managed more effectively and
  efficiently.
• Mutual funds hold mainly marketable security as
  assets, commercial papers, corporate debts,
  mortgage backed securities and government
  securities without much paper work.
• Mutual funds and Capital markets are able to
  declare their instant NAV for any product and any
  customer can take the benefit for the same.
• Banks website allow the customer to invest in
  shares, mutual funds and other financial products
  online.

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ONLINE TRADING IN SHARES

• Customer can undertake online trading in shares
  in secondary market and can trade directly at a
  recognized stock exchange through his bank.
• Customer can do an intra settlement trading upto
  four times of the available funds, where he can
  take long buy/short sale position in stock and on
  selling shares through online, the money is
  credited to his account on the same day.
• Customer can invest in IPO online and can get an
  in-depth analysis of new IPOs. IPO calendar,
  recent IPO listing, prospectus, offer document
  and IPO analysis are available online.
• Customer can also invest in Mutual Fund online
  and bank funds are automatically debited or
  credited as per the instruction of the customer.
• E-Finance is also used in trade of derivatives
  (option and future).

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IMPACT OF E-FINANCE ON FINANCIAL MARKET

• Now all the stock exchanges, bond markets,
  foreign exchange markets and financial markets
  have moved to electronic trading to avoid the
  risk of fluctuation.
• There is great impact of electronic
  communication and competition on stock market,
  bond market, foreign exchange market and other
  financial markets.

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IMPACT OF E-FINANCE ON STOCK MARKETS AND MUTUAL
FUNDS

• Electronic trading systems allow the dealers to
  makeover the counter trades on an electronic
  system of linked screens.
• There are many Electronic Communication Network
  (ECN) in the online trading of various trades
  stocks.
• These electronic systems allow a wider set of
  participant to view limit orders (orders to buy
  or sell specific amount of stock at various
  prices) as well as allowing for the possibility
  of executing trades electronically.
• BSE and NSE have implemented various automated
  order application system either to trade small
  order, supplementing their floor based trading
  system or as the primary means of trading.
• ECN allows traders to transact directly with
  each other at a small fee. ECN allow traders to
  view the bids and offers in their order limit
  book and to allow traders to route orders to the
  dealers that offers the best price for the order.
• It has reduced the cost significantly and
  improved the liquidity with more transparency in
  the trading system and have greatly increased the
  intra day volatility.

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IMPACT OF E-FINANCE ON FOREIGN EXCHANGE MARKET

• NOW foreign dealers are able to observe the best
  bid and offer in the market.
• Market has rapidly performed the transition from
  a telephonic market to an electronic market.
• The index dealer of foreign exchange has largely
  become electronic which reduces the risk on
  exchange rate fluctuation.

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IMPACT OF E-FINANCE ON BOND MARKET

• Bond market mainly deals with government
  securities and these are large in volumes.
• Inter dealer brochures provide dealers with
  electronic screens that post bid and offer price.
• The bonds, government bonds are traded in the
  dealer market and not in exchange.
• The E-Finance hi-tech technology used for
  trading and auctioning of various types of bonds
  issued mainly by Central government as well as
  State government at attractive rate with lower
  cost.

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E-COMMERCE AND ONLINE BANKING

• Increase in profitability and productivity in
  banking industry. Most convenient way to transact
  all banking business.
• We can pay bills, transfer money from one
  account to another account and take care of all
  our business without walking into bank branch
  with the help of internet banking. It gives
  complete access to our bank account.
• Business to Business (B2B) or Business to
  Consumer (B2C) E-commerce take off more and more
  business services online.
• Financial institution must employ variety of
  best of breed of solution to help prevent
  unauthorized access to the network, to ensure
  full confidentiality and reliability of all types
  of E-commerce transaction

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E-COMMERCE

• E-Commerce helps in conduct of traditional
  commerce through new ways of transferring and
  processing information with the help of hi-tech
  IT.
• E-banking and electronically providing financial
  services are branches of E-Commerce and
  E-Finance.
• Security of online transaction
• Authentication validates identity of each party
  or user in the transaction.
• Authorization allows rules to dictate who uses
  what resources under what conditions.
• Confidentiality protect confidentiality of
  sensitive information while stored or in transit.
• Integrity ensure the message has not been
  altered or tampered while in transit or stored in
  online database.
• Non repudiation prevents any party or user from
  denying a transaction after the fact that digital
  signatures are associated with the transaction
• Audit control provides audit trials and
  recourse for all users.

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ONLINE BANKING

• IT provide customers with advantages and
  convenience of being able to control their
  finance at any time and anywhere.
• Internet banking is a convenient way to manage
  money and finances, because it is possible to pay
  bills, book the tickets, view the balances and
  transaction in the account, transfer the money
  between accounts, buy or sell mutual funds online
  and any other investment at anytime and any place
  with low cost.
• Benefits
• Any time banking
• Any where banking
• Enhanced banking services
• Low cost banking
• Quality banking
• By the use of online banking any business firm
  can manage their supply chain network effectively
  by using its online funds transfer mechanism on a
  real time basis across any bank location which
  will enhance the liquidity of the business firm

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