E-FINANCE

INTRODUCTION The main aim of any business firm is to maximize the profit. Four M’s 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.

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 finance1. Financial services: is concerned with design and delivery of

advise and financial products to agencies and people.2. 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.

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.

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.

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.

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

OVERVIEW OF E-FINANCE

ORGANISATION OF E-FINANCE FUNCTIONS

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

GOAL OF E-FINANCE Maximization of profit Maximization of earning per share

EPS = Profit after tax No. of shares outstanding

Maximization of return on equityROE = Profit after tax Net worth

Maximize the wealth of the shareholder

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%

MEASURABLE BENEFITS OF E-FINANCE

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.

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

E-FINANCE IN THE IT LAND SCAPE

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.

EnquiryCustomer

SalesLeadQualification

Create RFQExistingCustomer

NewCustomer

NewProducts

ExistingProducts

Create NewRouting

Create New BOM

Provide ATP delivery date

Release production order

Delivery

NewCustomerregistration

NewCustomer Qualification

Credit Check and Qualification

Billing Collections

Production Management

Factory

Finance

PHASE 1: “QUOTE-TO-CASH BUSINESS” PROCESS

PHASE 2: CORPORATE CONTINUOUS OPERATIONAL PERFORMANCE ANALYSIS

PHASE 3:EARLY OPERATIONAL RISK WARNING SYSTEM

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.

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)

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.

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 RTGSWeekdays: 9:00 am to 4:30 pm for customer transaction 9:00 am to 6:00 pm for bank transactionSaturday: 9:00 am to 12:30 pm for customer transaction 9:00 am to 2:30 pm for bank transaction

FEATURES OF RTGS1. Payment instructions are processed and settled simultaneously.2. Each payment instruction handled individually3. Processing and settlement continuous and throughout the RTGS day.4. Payment is final and irrevocable and the receiver can utilize the funds

immediately.5. Funds for > Rs. 100000/- to be transferred through RTGS and it improve

the liquidity position of the business firm.6. 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.

TYPE OF RTGS TRANSACTIONS1. Inter Institutional Transaction2. Customer Transaction3. Delivery vs. Payment Transaction.4. Own Account Transfer Transaction.5. Multilateral Net Settlement Batches (MNSB)

Transaction

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.

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.

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

TIMING OF NEFT NEFT take place throughout the day with interval of

one hour.

SWIFTSociety for worldwide inter bank financial telecommunication SWIFT operates a world wide financial messaging network which

exchange messages between banks and other financial institutionsSWFIT 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

SPEED CLEARINGRefers to collection of outstation cheques through local clearingFacilitate 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 chequeSpeed clearing combines the advantage of MICR clearing with CBSCheque 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 T+1 or T+2 daysSpeed clearing is available in 64 MICR centreMaximum charges is Rs. 150 per cheque above Rs. 1 lakh

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

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

TYPES OF ECS (1/2)1. ECS credit2. ECS debit ECS Credit

1. Electronic fund transfer from one account to many transactions transfers.

2. Value in three days.3. Date is to be fixed in advance for bulk payment only after the

cycle is complete.4. To be used to distribute the funds to large set of customers, e.g.,

salary, dividends, IPO refunds etc.5. Beneficiaries are mostly retail customers.6. There is single debit and multiple credit.

TYPES OF ECS (2/2) ECS Debit

1. Date to be fixed in advance for bulk debit2. Only after the cycle is complete, finality of the settlement

could be known.3. Wholesale customers who have to receive the funds from

retail customer, e.g., BSNL bill payment, LIC premium collection etc.

4. There is multiple debit from vast section of people and corresponding single credit entry.

5. 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.

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.

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.

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.

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 today’s 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.

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

E-FINANCE IN FINANCIAL SERVICE INDUSTRY Financial service industry includes

1. Banking institutions2. Depository institutions3. Insurance companies4. 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.

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.

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.

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.

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).

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.

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.

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.

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.

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

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.

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