The Automated Teller Machines

The Automated Teller MachinesAutomated Teller Machines ( atmospheric states) pick out gained prominence as a delivery channel for banking companying companying trans sufficeions in India. Banks control been deploying standard pressures to increase their reach. As at the end of December 2007 as per the run batted in circular, the number of ATMs deployed in India was 32,342. More people atomic number 18 straight moving towards using the automated teller railway cars (ATM) for their banking adopts. According to a survey by Banknet India, 95% people now prefer this modern channel to traditional mode of banking. Almost 60% people use an ATM at least once a week. increase ATM usage is also helped by the fact that customers have now the flexibility of using ATMs of new(prenominal) banks, as most of the banks are part of study interbank networks same(p) National Financial Switch (NFS), Mitr, BANCS, Cashtree and Cashnet. The interbank networks have brought together ATMs of seve ral banks so that consumers would gain recover to both of the participating banks ATMs. Banks find it cheaper to pay social rank fees to these networks as against forwardnessting up additional units in expensive-to-deploy areas. ATMs are now seen to be to a greater extent than mere cash in dispensing machines. Customers use ATMs to recharge their mobile auditory sensation pre-paid connections, pay their utility bills, raze mutual fund transactions making them at par with flexibility given in internet banking only more(prenominal) secure. Of the value-added function showd at ATMs, bill-payment is the most utilise service, followed by prepaid mobile talk-time recharges. However, quiet slightly one third of the respondents do not use any value added services at ATMs.The ATM market in India is not yet saturated. Though the concentration of ATMs is greater in metros, the demand is increasing for opposite cities and even rural areas. ATMs per million people approximately i s 33 units is very low. Experts forecast that the growth rate (CAGR) is expected to grow 18 percent up by 2013. Banks going into a self service mould can have huge saving potential for banks and may also increase the thingumajig for the customers. Following is a representative trend taking into account the growth in the number of ATMs in three of the largest Indian banksATM Supply kitchen stove of mountains Network ActivitiesFollowing are the study activities carried out as part of the ATM supply chain or in supporting the ATM services of a bankMaintenance ActivitiesSiteTelecommunication LinkCash RefillingATM MonitoringHandling Customer ComplaintsReconciliation of Cash And Interbank proceedingFollowing is a sample ATM Supply chain networkBank Head OfficeATM VendorsOutsourced AgentBank Branch 1Bank Branch 2ATMAs can be seen from the network above, the major participants in the ATM supply chain network areATM VendorsIf the bank ATM and the related IT infrastructure is outsource d then the ATM infrastructure is operated and retained by the ATM vendors for a fees. It provides the advantages of cost efficiency and scalability for the banksOutsourced livery agentsThey are the ones who supply cash to the ATMs. They either have a Vault Cash account where the vendors themselves maintain about cash balance or they have an Overdraft Account with the Bank itself, which gets debited subsequently each withdrawal and credited after the deposit at the ATM.Bank BranchesThese are the Bank branches in-charge of the various ATMs in a particular areaBank Head OfficeThis is the main office branch of a bank in a particular city or districtATM supply chain IT infrastructureATM Infrastructure Indata formattingion flowDelivery Channel CoordinatorSwitch NetworkOutsourced Delivery Agents mental capacity Issuers ServerATMInformation flow for cash withdrawal and for Credit CardsInformation flow for cash replenishmentMIS InfoATMIt interfaces with the tag on network to exchange ca sh withdrawal, cash replenishment and credit card infoOutsourced Delivery AgentsThey receive training from the delivery channel coordinators to replenish the ATM cashDelivery channel coordinatorThey receive cash replenishment and MIS information from the switching network. There is always more than one ATM under each Delivery channel coordinator to take advantage of the economies of scale. Also, the channel ordi people can be either manually managed or automated.Switch NetworkThe switch legion authenticates the user, as well as exchanges cash replenishment related information with the individual ATMsCard Issuers ServerThe banks host server interacts with the switch network to stupefy card withdrawal and credit card information while at the same authenticating the credit card transaction from the Card Issuers ServerDelivery conveyDelivery impart are medium for information transmission or cash transmission in a banking context. They are also known as touch-points, which deliver s ervice to the end-user in his convenience. The primary medium of touch-point was the brick-mortal form of banking. However as time passed, and information technology proliferated banks were fit to extend the touch-points to various separate forms such asAutomated Teller Machines (ATM)Point of Sale (POS)Mobile BankingInternet BankingThe delivery channel innovation was started by private banks foreign banks after the 1991 reforms when many banks were allowed to carry out operations in India.Advantages of Delivery ChannelsDeliver channels provide the following benefits to usersEasy access247 availability credentials measure, cut back transaction costsOptions of access per convenienceAcceptance ImplementationOld generation banks with little or marginal systems have driveance issues with the disruptive technologies of internet. The acceptance issue also comes with many of the old generation customers who believe in losing the personal touch of banking.Implementation issues center around the followingCentralization of selective informationMultiple technologies for different systemsSecurity issues (Customer end/Banking end)Multiple interface for different channelsSynchronization of information across channelsCurrency disseminationBanks need to maintain a certain level of cash in order to service its passing(a) withdrawals. There is an entire supply-chain in lead which helps in ensuring the same. below is a diagram of how money travels from the press to the various banksATMPresses/MintsPublicPress-linked officesCurrency Chest offices (Banks)An overview of the supply-chain of BanksThe presses and mints where notes and affects are printed are under the RBI. The money from the mints and presses is moved daily to the 19 press-linked offices. These are sent to the nearby zonal currency-chest banks, essentially Banks which store current called as Chest offices. There are in all 4279 chests and 4040 coin depots.Functions of the Chest officeFulfills the requiremen t of peoples fundsWithdrawal and acceptance of unfit notesPayments to GovernmentsOperates with minimum balance at all timesEach day the records are maintained for the issue/acceptance of currency. It also has to maintain the asset-liability position in cash attention.Currency in CirculationJust as a manufacturing supply chain deals with product varieties also known as SKUs, the currency supply chain also has its SKUs done various denominations. The shift towards higher denominations was observed since the wide-usage of ATMs.Various move were also taken to phase out Rs .5/- notes and replacing with coins for many such low denominationsSourceRBI Docs, Currency Management, Section VIII, Dt. 27/08/2009Clean-Note PolicyTo keep in line the life of currency notes, RBI issued a leading to all bank offices to cease the stapling of notes and instead band them and the soiled notes be returned to RBI. But devalued stapled notes were still lying with banks.IT systems were used to create a C urrency Verification Processing (CVP) system. This categorized notes into Fit, Unfit, Reject and Suspect categories. A Citizens charter was also issued providing guidelines on how to send soiled notes and steps to be taken to return to RBI. However due to implementation issues kept the proportion of soiled notes in circulation from 15.9 million pieces (2002-03) to 10.9 million (2008-09).Logistics Distri stillion ChallengesEach bank generally arranges for personal logistics service with police protection. Security vans are used for short-distances and train for longer distances. The extent and size of the country poses a significant problem in meeting need for currency at various pockets in India. Following are some of the issues faced in statistical distributionSecurity availability of railway wagonsPolitical boundaries that inefficiently defining legal power of Issue offices which lead to suboptimal logistic servicesMoving currency across touch-points an example that is avoi dable is generally carried outPrivate warranter is not desirable and police cant be dedicated for this exerciseVarious quick distribution systems of milk-cooperatives, post-offices, coin-dispenser mechanisms and a directive to issue bulk users with a certain proportion of coins was made.Supply ChallengesWith 4 printing presses, supply after 1999 was not a problem, but the pace of notes knock backment made tint of notes deteriorate. Since the notes that were returned came unsorted at that place were inefficiencies in understanding the outflow of currency from system. In order to develop capacities to free-up vault dummy in banks various measures like shredding systems in all offices were setup.Demand-forecasting among banksBanks carry out demand-forecasting using statistical analysis using long-term historical demands to calculate forecasts. These guide to serve the following needsIncremental needs As and when money is needed by RBI, the presses supplyReplacement needs Mone y is needed to replace circumstantial notes, which are soiled or disfiguredReserve needs Emergency requirements to fulfil reserve requirements by banksTechnology in Currency trading operationsWith such a vast network of banks, the Reserve Bank established Integrated Computerized Currency Operations and Management Systems (ICCOMS) which helped in error-free reporting and accounting of chest-level transactions.Security in distribution and ATMSecurity is increasingly becoming more significant in network environment with the emergence of the internetworking technology. The internetworking technology can act as or provide the communication channels across networks so that machines in different networks can talk to each other. But such flesh of technologies like ATM is exposed to all kinds of attacks in such an accessible environment. Most of the network technologies, without integrating with credentials system mechanism originally, are being redesigned to provide some security serv ices.ATMs attempts to be secure by keeping the customers personal identification number (PIN) and other information safe by using encoding software product such as Triple DES (Data Encryption Standard)Threats to ATM networksLike other such networks, ATM networks suffer a lot of threats like eavesdropping, spoofing, service denial, VC stealing and traffic analysis etc. And VC stealing and traffic analysis happen only in ATM networks.EavesdroppingEavesdropping refers to the threat that the attacker connects or taps into the transmission media and gain an unauthorized access to the data. It is one of the most common attacks to the network.Service DenialATM technology is a connection-oriented technique managed by a set of signals. By sending some anti-signals frequently, the attacker can disturb the communication between user A and user B to a great extent which can disable the Quality of Service(QoS) in ATM. Combining this technique with other tricks like eavesdropping, the attacker c an even completely abash one user from another.Stealing of VCsIf two switches in an ATM network compromise, the attacker can even steal a VC from another user. Some deal that possibility of compromising of the switches is quite low but that is true only if the ATM network is owned by one organization. But this is not the mooring today since in ATM internetworking, in which case cells travel through different ATM networks, it becomes very easy for two switches to compromise.Traffic AnalysisIts a kind of threat in which a hacker can get information by collecting and analyzing the information (not the actual content of communication) like the timing, flashiness and about the parties communicating through a Virtual Circuit. Encryption effects only the content and not the timing and volume of the communication. So gaining access to even these can reveal a great deal of information to an attacker. Generally this attack doesnt happen but can happen when ATM is used in a highly stringen t and securitised environment.Major requirements/functions of an ATM security systemUser Identity Verification The system should have the installation to establish and drift the identity of all the users and players in an ATM network.Controlled Access and Authorization The system should check up on that any player without authority to gain access to some information or resources should not be able to access it. aegis of Confidentiality Every data that is stored or used in communication should be kept classified.Protection of Data Integrity Guarantee regarding the integrity of the stored communicated data should be given by the Security system.Strong Accountability The system should ensure that No entity is able to deny the responsibility of its any of the actions or efforts carried out by her.Activities Logging The security system should support the capability to retrieve information about security activities in the Network Elements with the possibility of tracing this informati on to individuals or entities.Alarm reporting Provision of generation of alarm notifications regarding certain selective events related to security. canvas Provision of analysing of data logged into the system in case of any security violation so that required measures can be used and checks can be installed.Security Recovery Provisions of recovery from successful or attempted security violations.Security Management Proper management of the security services required as a part of above requirements.Suppliers of cash main source Central bankThe most important requirement of an ATM is one major motive behind the technology i.e. making money easily visible(prenominal) to the customers. Traditionally there have been a number of suppliers of cash starting from unorganized money modifyers in the past to the modern banks today.A bank is a financial intermediary that accepts deposits and gives loans to customers using those deposits. Can be mercantile or sell banking or the money can be lend either directly to the customer or also through the use of markets.Banking channelsApart from their branches, bank offers many different channels to access their banking and other services. Among these, few channels help the customers in carrying out transactions without the involvement of sincere cash. These are E- Mail, Telephone, discover banking, Mobile and Video banking etc. In addition to all these channels, banks provide a source of real cash called ATM through a machine that dispenses cash and sometimes takes deposits without the need for a human representative from bank side.Major source of money Central BankA central bank is a banking institution with an exclusive privilege to lend to its brass. It behaves both as a normal commercial bank wherein it charges interest on the loans made to borrowers, majorly the government of the country the bank exists for and also as a lender of last resort wherein it lends to the banks when situation is not too good or as a par t of the statutory requirements. But Central bank has a monopoly on creating the currency of that nation and it is the kind of bank that can lend money to other banks in times of need. It is the major source of money in a market and acts as the regulator of money supply too.Security in scattering on and ATMSecurity is increasingly becoming more significant in network environment with the emergence of the internetworking technology. The internetworking technology can act as or provide the communication channels across networks so that machines in different networks can talk to each other. But such kind of technologies like ATM is exposed to all kinds of attacks in such an accessible environment. Most of the network technologies, without integrating with security mechanism originally, are being redesigned to provide some security services.ATMs attempts to be secure by keeping the customers personal identification number (PIN) and other information safe by using encryption software su ch as Triple DES (Data Encryption Standard)Major requirements/functions of an ATM security systemUser Identity Verification The system should have the facility to establish and verify the identity of all the users and players in an ATM network.Controlled Access and Authorization The system should ensure that any player without authority to gain access to some information or resources should not be able to access it.Protection of Confidentiality Every data that is stored or used in communication should be kept classified.Protection of Data Integrity Guarantee regarding the integrity of the stored communicated data should be given by the Security system.Strong Accountability The system should ensure that No entity is able to deny the responsibility of its any of the actions or efforts carried out by her.Activities Logging The security system should support the capability to retrieve information about security activities in the Network Elements with the possibility of tracing this inf ormation to individuals or entities.Alarm reporting Provision of generation of alarm notifications regarding certain selective events related to security.Audit Provision of analysing of data logged into the system in case of any security violation so that required measures can be used and checks can be installed.Security Recovery Provisions of recovery from successful or attempted security violations.Security Management Proper management of the security services required as a part of above requirements.Suppliers of cash main source Central bankThe most important requirement of an ATM is one major motive behind the technology i.e. making money easily available to the customers. Traditionally there have been a number of suppliers of cash starting from unorganised money lenders in the past to the modern banks today.A bank is a financial intermediary that accepts deposits and gives loans to customers using those deposits. Can be commercial or retail banking or the money can be lend eit her directly to the customer or also through the use of markets.Banking channelsApart from their branches, bank offers many different channels to access their banking and other services. Among these, few channels help the customers in carrying out transactions without the involvement of real cash. These are E- Mail, Telephone, Call banking, Mobile and Video banking etc. In addition to all these channels, banks provide a source of real cash called ATM through a machine that dispenses cash and sometimes takes deposits without the need for a human representative from bank side.Major source of money Central BankA central bank is a banking institution with an exclusive privilege to lend to its government. It behaves both as a normal commercial bank wherein it charges interest on the loans made to borrowers, majorly the government of the country the bank exists for and also as a lender of last resort wherein it lends to the banks when situation is not too good or as a part of the statutor y requirements. But Central bank has a monopoly on creating the currency of that nation and it is the kind of bank that can lend money to other banks in times of need. It is the major source of money in a market and acts as the regulator of money supply too.nation and it is the kind of bank that can lend money to other banks in times of need. It is the major source of money in a market and acts as the regulator of money supply too.Demand Projections for ATMsMost ATMs are connected to international bank networks, enabling people to withdraw and deposit money from machines not belonging to the bank or country where they have their account. Serving the ATMs network is a costly task it takes employees time to supervise the network and make decisions about cash management and it involves high operating costs (financial, transport, handling, insurance etc.). As interest rate rises and greater operating efficiencies become par bill. Some banks typically maintain as much as 40% more cash at their ATMs than whats needed, even though many experts consider cash excess of 15% to 20% to be sufficient. Cash related costs represent about 35-60 % of the overall costs of running an ATM. Through currency management optimization, banks can avoid go into the trap of maintaining too much cash and begin to profit by mobilizing idle cash. Effective currency management and take in starts with an automated solution that uses modernistic algorithms to accurately predict currency supply and demand, allowing banks to forecast demand and pro-actively manage currency throughout their network. Transportation and servicing cost increase can be substantial for banks. To achieve the lowest cost of distribution based on accurate supply and demand forecasting and optimization procedures is critical for a bank to lower its operational expenses and improve the return on its cash assets.What is expected of a forecast model of the ATM network is that it simulates historical demand by using data from actual cash-in transactions and cash-out transactions. The historical demand model is overlaid with additional factors, such as paydays, holidays, and seasonal demand in a specific area. Analytical models are aligned with the experience of resources that have intimate knowledge of the banks daily operations and are used to determine the optimum cash amount for each ATM by calculating the transport and money upload costs against interest rates. Cash drawings are subject to trends and generally follow weekly, periodical and annual cycles. An appropriate model for a bank and its branches or ATMs should estimate optimal amount of stocked money plus efficiently manage and control day-to-day cash handling, transportation with reducing of currency transportation and servicing costs. The system should be flexible enough to allow the bank to reforecast future demand, finish WHAT IF analyses, and optimize the network as the cash distribution environment evolves.Cash demand forecast f or every ATM is based on linear lapsing models with seasonality coefficients. The development of such models is relatively complicated and differs for various ATM. Therefore preparation of forecasting models for whole ATM network is difficult task for owners of machines. The parameters of forecasting models are determined in the system implementation stage and are held constant during the operation phase. However, business environment changes continually in real world and, therefore, the model parameters must be also adapted to the changing environment.A recent paper on the optimization techniques proposes the use of artificial neural networks combined with existing what-if analysis tools and simulation modelling procedures. This advanced method will handle the drawbacks of simple regression models but will be more accurate in projecting the demand. Off-late a few advanced software packages developed by traditional financial network giants like Visa are also available that provide powerful cash management facility. Publicly available data regarding these software packages suggest that they also use multi-regression models for prediction purposes.Network optimization models for cash distribution to various ATMs are also important to reduce the costs across the supply chain. In the first instance, it can be very valuable to coordinate cash uploading and service procedures while visiting the ATM network. Coordinated route planning for maintenance of various ATMs could also reduce the ATM networks management costs significantly.Issues in Currency Identification falsify currency notes is one of the biggest problems that are currently plaguing the cash distribution network. A lot of people suffer from this while withdrawing cash from an ATM when they inadvertently receive a fake note in a bundle of proper bills. It is difficult to prove right in case of such an incident and fix blame. Of the 48,963 million pieces of currency in circulation in 2009 398,111 pieces were found to be counterfeit. RBI has come with a set of recommendations to be implemented across the distribution network that forms the supply chain of cash distribution to check counterfeit, maintain quality of notes in circulation, strengthening of security systems and procedures and fixing accountability in case of human error. These recommendations are as given below (A) Measures for facilitating detecting of counterfeit notes and maintaining quality of notes in circulation(i) Note compartmentalisation Machines (NSMs) / Desktop Sorters may be installed in all bank branches in a phased manner for early detection of counterfeit notes.(ii) Banks may ensure the quality of the notes fed in ATMs. They may conduct periodic audit of the agents used for outsourcing this body process viz. the CIT companies. Banks may switch over to the cassette swap system for alimentation the ATMs. New ATMs installed may be provided with in built note detectors. Over a period existing ATMs may also be required to have in built note detectors.(iii) Performance parameters of NSMs may be standardized by RBI to ensure that all NSMs installed adhere to the laid down standards for detection of counterfeit notes.(iv) RBI may ensure that the plan for withdrawal of notes of old series is implemented strictly as formulated and that the new series of banknotes with more robust security features be introduced as early as possible. RBI may also facilitate R and D efforts for development of new security features.(v) Where any person inadvertently in possession of counterfeit notes upto five (5) pieces tenders the same at a bank counter, the requirement of filing FIR may be done away with. A simple report may be filed with the branch which in turn may include this in the Counterfeit Currency Report (CCR) to FIU-IND / RBI.(vi) RBI may check up on the system of incentives and disincentives for detection and disclosure of counterfeit notes while assisting the enforcement agencies in dealing ap propriately with those involved in making and distribution of counterfeit notes.(B) Measures relating to cash holding and distribution(vii) RBI may stipulate suitable cash holding limits for all currency chests beyond which the cash should necessarily be moved to a chest with larger limits or to RBI.(viii) Each RBI office may undertake a review of the requirement of currency chests in their jurisdiction based on the volume and nature of transactions, accessibility of the chest and other factors including security so as to dilute the number of chests and upgrade the facilities thereat for better security and efficiency.(ix) To tap advantages arising out of economies of scale, minimize overnight cash risks at bank branches and to benefit from sophisticated logistics techniques banks may be encouraged to establish Currency Processing Centres, which should be permitted to charge other banks for processing services.(x) As NSMs have to be installed at all branches for sorting notes to b egin with dispensation, banks will have to make necessary investments. The cost of such investments will need to be recovered from the bulk tenderers of cash. Banks may put in place a transparent policy for such charges of cash handling/processing with the approval of their respective boards as already advised by RBI vide its DBOD directive DIR.BC.86 / 13.10.00 dated September 7, 1999.(xi) RBI may take initiatives in promoting use of cards and electronic means of payment.(C) Measures for strengthening security systems and procedures(xii) RBI may seek enlisting the services of a specialized and dedicated force / other approved agencies to provide security at chests and for movement of treasure.(xiii) RBI may research upgradation of the security systems in currency chests and RBI vaults incorporating electronic bio-metric access, electronic locking of bins, and surveillance through Closed Circuit Television (CCTVs). Networking of CCTVs at chests within the jurisdiction of a controlli ng office of the bank may be explored for better surveillance.(xiv) Tamper-proof shrink wrapping of soiled notes with bar coding of details of the branch remitting them may be introduced.(xv) A system of quarterly security audit of currency chest branches by controlling offices may be introduced. Comprehensive guideline / format may be prepared by RBI /IBA.(xvi) A system of risk based inspection of currency chests may be introduced by banks / RBI taking into account various parameters for evaluating the extent of risk.(xvii) Banks may draw up a contingency plan / disaster management plan in reference work with local police.(xviii) RBI may explore the possibility of introducing a defacing system of self inking / marking of banknotes in transit or in chests, which would automatically trigger-in if there is an attack / attempted robbery/ theft etc.(D) HR Measures(xix) Banks may modify their transfer pricing policy or equivalent policy so as to pass on the benefit on account of having a currency chest to the branch where the chest is maintained.(xx) Rotation of staff posted at currency chests may be ensured to prevent vested interest and entrenched non adherence of laid down systems and procedures.(xxi) Where deviations and irregularities are found, controlling offices may take immediate punitory action after fixing accountability.(xxii) Bank may accord recognition to currency handling operations as a sensitive and skilled activity and provide necessary incentives and training.A. Dis