Modern Banking Services – AHSEC Class 12 Finance Chapter 13

Here is a comprehensive study note for the AHSEC Class 12 Finance textbook, focusing on Chapter 13.

Chapter 13: Modern Banking Services

Summary Note

This chapter explores the modern, technology-driven services offered by banks that have revolutionized customer banking experiences. These services, enabled by information technology, provide convenience, speed, and 24×7 accessibility. The chapter focuses on five key services: Credit Card, Debit Card, E-banking, Mobile Banking, and ATM.

• 1. Credit Card:
  • Meaning: A small plastic card that allows the holder to buy goods and services on credit and pay for them later. The issuing bank makes the payment on behalf of the customer, who must repay the bank within a specified period.
  • Features: If the amount is repaid within the interest-free period, no charge is levied. If not, the bank charges interest on the outstanding amount. It requires a PIN for secure transactions.
• 2. Debit Card:
  • Meaning: A small plastic card linked directly to the holder’s bank account. It allows the holder to make payments for goods and services or withdraw cash from an ATM.
  • Features: The key difference from a credit card is that the transaction is only possible if there is a sufficient balance in the account. The amount is debited from the account immediately. It also requires a PIN for security.
• 3. E-banking (Electronic Banking):
  • Meaning: Also known as online or virtual banking, E-banking refers to conducting banking transactions over the internet. It allows customers to access their accounts and perform various activities 24×7 from any location.
  • Utilities: Services include settling financial transactions, transferring funds, obtaining account statements, verifying balances, and making online purchases.
  • Advantages: Convenience (anytime, anywhere), low cost, 24×7 service availability, and high security (with PIN/password protection).
  • Disadvantages: Not useful for technologically illiterate people, requires a stable internet connection, risk of internet fraud, and lack of a personal relationship with the bank.
• 4. Mobile Banking:
  • Meaning: A service provided by a bank that allows customers to conduct financial transactions remotely using a mobile device like a smartphone or tablet, typically through a dedicated application (app).
  • Features: It offers almost all the functions of E-banking. It requires a registered mobile number and a unique MPIN (Mobile Banking Personal Identification Number) for security. It has become a key tool for financial inclusion due to its low cost and wide reach.
• 5. Automated Teller Machine (ATM):
  • Meaning: An electronic banking outlet that allows customers to complete basic transactions without the aid of a branch representative. It is a menu-driven system accessed using an ATM/Debit card and a PIN.
  • Functions: Core functions include cash dispensing, balance enquiry, generating mini-statements, and depositing cash. Modern ATMs also allow fund transfers, utility bill payments, and PIN generation.
  • Advantages: 24/7 cash withdrawal, flexibility, reduces the need to visit a branch, and reduces the risk of robberies associated with carrying large amounts of cash.

Complete Textual Question Answers

Here are the answers to all the questions given at the end of Chapter 13.

A. Very Short Answer Questions (Choose the correct answer) (1 Mark each)

1. ‘ATM card is a debit card’- Whether True or False?
   Ans: True.
2. ‘Credit card can be used only if the customer has sufficient balance in his/her account’- Whether True or False?
   Ans: False. (This is a feature of a Debit Card. A credit card allows borrowing).
3. ‘Mobile banking is an example of E-banking’- Whether True or False?
   Ans: True.
4. Write the full form of ATM.
   Ans: The full form of ATM is Automated Teller Machine.
5. Write the extended form of PIN.
   Ans: The extended form of PIN is Personal Identification Number.
6. ‘A person who doesn’t has bank account may have Credit Card’- True or False?
   Ans: True. (Credit cards are issued based on creditworthiness, not necessarily on having a savings/current account with the issuing bank).
7. ‘E-banking improves the personal relationships between banker and the customers’- Whether True or False?
   Ans: False. (E-banking often leads to a lack of personal relationships as face-to-face interaction is reduced).
8. ‘E-banking facility is available 24 hours in a day’ – True or False?
   Ans: True.
9. ‘The holders of Credit Cards are required to pay charge to issuing bank’- True or False?
   Ans: False. (Charges, specifically interest, are typically applied only if the holder fails to repay the spent amount within the specified time frame. Annual fees may apply, but not always a charge per use).
10. ‘E-banking doesn’t require internet access’- True or False?
    Ans: False. (E-banking fundamentally relies on internet access to function).

B. Short Answer Questions (2 Marks each)

1. What is Debit Card?
   Ans: A debit card is a small plastic card issued by a bank that allows the holder to make payments or withdraw cash directly from their bank account. The transaction is processed only if there are sufficient funds, and the amount is immediately deducted from the account.
2. What is Credit Card?
   Ans: A credit card is a small plastic card that enables the holder to purchase goods and services on credit. The issuing bank pays the merchant, and the cardholder repays the bank at a later date.
3. What is Mobile banking?
   Ans: Mobile banking is a service provided by a bank that allows its customers to conduct financial transactions remotely using a mobile device like a smartphone or tablet, usually through a dedicated app.
4. What is E-Banking?
   Ans: E-banking (Electronic Banking) is a service that enables customers to carry out banking transactions online from any place and at any time using the internet. It is also known as online banking or virtual banking.
5. What is ATM card?
   Ans: An ATM card is a plastic card issued by a bank that allows an account holder to access an Automated Teller Machine (ATM) to perform transactions like cash withdrawal, balance enquiry, and mini-statement requests. It is most commonly a debit card.
6. Write two functions of ATM.
   Ans: Two primary functions of an ATM are:
   i. Cash dispensing: Allowing customers to withdraw cash 24×7.
   ii. Enquiring balance in Account: Allowing customers to check their account balance.

C. Long Answer Questions (Type-I) (5 Marks each)

1. Differentiate between Debit card and Credit Card.
   Ans: The key differences between a Debit Card and a Credit Card are:
   • Source of Funds: A debit card uses funds directly from the user’s bank account. A credit card uses a line of credit offered by the issuing bank, which is essentially a loan.
   • Payment: With a debit card, money is deducted from the account immediately. With a credit card, the user pays the bank back at a later date.
   • Prerequisite: A debit card requires the user to have a bank account with sufficient funds. A credit card requires the user to have a good credit history and is not necessarily linked to a savings account.
   • Interest: No interest is charged on debit card transactions. Interest is charged on credit card balances if not paid in full by the due date.
   • Effect on Account: A debit card transaction reduces the bank balance. A credit card transaction creates a liability (debt) for the user.
2. What is E-banking? State the utilities of E-banking?
   Ans: E-banking (Electronic Banking) is a service delivery system adopted by banks that enables customers to perform banking transactions from any place and at any time through the internet. It is a safe, fast, and efficient electronic service providing 24×7 access to one’s bank account.
   The utilities of E-banking are:
   • We can settle financial transactions online.
   • We can transfer funds from one account to another, across different banks.
   • We can obtain statements of our transactions and account history.
   • We can verify balances in our bank account or check the loan balance due.
   • We can make instant payments for online purchases, utility bills, etc.
   • We can place orders for cheque books, ATM cards, etc.
3. Write the functions that may performed by using Mobile banking.
   Ans: Mobile banking allows a user to perform almost all the functions of traditional and online banking through a mobile app. The key functions are:
   • Fund Remittance: Transferring money to other accounts within the same bank or different banks (using NEFT, IMPS, RTGS).
   • Enquiries: Checking account balance, viewing mini-statements, and tracking transaction history.
   • Bill Payments: Paying utility bills like electricity, phone, and DTH recharge.
   • Service Requests: Ordering a new cheque book or stopping payment on a cheque.
   • Loan and Insurance Applications: Applying for loans or insurance services offered by the bank.
   • Account Management: Viewing details of all linked accounts, including deposits and loans.
4. What is ATM? State the advantages of ATM service.
   Ans: An ATM, or Automated Teller Machine, is an electronic banking product that allows customers to perform financial transactions like cash withdrawals, deposits, and balance enquiries at any time without needing to visit a bank branch. It is accessed using a plastic card (ATM/Debit card) and a secure Personal Identification Number (PIN).
   The advantages of ATM service are:
   • 24/7 Availability: It allows withdrawal and deposit of cash round the clock.
   • Flexibility and Convenience: It eliminates the need for visiting a bank branch physically for basic transactions, saving time and effort.
   • Nationwide Access: A cardholder can use the ATM of other banks, providing access to cash across the country.
   • Reduced Risk: It reduces the need to carry large amounts of cash and thus lowers the risk of robberies and theft.
   • Instant Information: A customer can get a mini-statement of recent transactions or check their account balance instantly.
5. Explain the functions of Mobile banking.
   Ans: (This answer is the same as the textual Long Answer Question C.3. Please refer to that answer above).

D. Long Answer Questions (Type-2) (8 Marks each)

1. What is E-banking? Explain the merits and demerits of E-banking.
   Ans: (First, provide a detailed definition of E-banking as in C.2. Then, explain its merits and demerits).
   Merits (Advantages) of E-banking:
   • Convenient: Transactions can be done from anywhere, anytime, saving time and labour.
   • Low cost: It reduces the operational cost for banks, which can translate to lower fees for customers.
   • 24×7 services: Banking services are not limited by banking hours and are available throughout the week.
   • Safety: Transactions are secured with PINs and passwords, providing greater safety than manual transactions if precautions are taken.
   • Wide Range of Services: Customers can perform a large number of functions, from fund transfers to bill payments.
     Demerits (Disadvantages) of E-banking:
   • Not useful for all: It is difficult for people who are not comfortable with technology, especially illiterate persons, to use.
   • Internet Requirement: It requires a stable and reliable internet connection to function. Bank server downtime can also affect services.
   • Internet Fraud: Customers can become victims of online fraud like phishing and hacking, leading to financial loss.
   • Lack of a personal relationship: It reduces face-to-face interaction, leading to a loss of the personal relationship between the banker and the customer.
   • Limited services: Certain complex transactions, like submitting loan applications or large cash withdrawals, still require a physical visit to the branch.
2. Write a brief note on modern services offered by Banks to their customers.
   Ans: (This is a comprehensive question. For the answer, you should write a brief note on each of the five modern services discussed in the chapter: Credit Card, Debit Card, E-banking, Mobile Banking, and ATM. For each service, explain its meaning, key features, and primary use, as outlined in the chapter summary).

Previous Year AHSEC Question Answers (2015-2025)

Short Questions (1-2 Marks)

• What is a Credit Card? (AHSEC 2015, 2019)
  Ans: A credit card is a plastic card that allows the holder to buy goods and services on credit, with the promise to pay the issuing bank back at a later date.
• Write the full form of ATM. (AHSEC 2016, 2020)
  Ans: The full form of ATM is Automated Teller Machine.
• What is E-banking? (AHSEC 2017, 2022)
  Ans: E-banking (Electronic Banking) is a service that enables customers to perform banking transactions online from any place and at any time using the internet.
• What is a Debit Card? (AHSEC 2018)
  Ans: A debit card is a plastic card linked to a bank account that allows the holder to make payments or withdraw cash, with the amount being immediately deducted from the account balance.

Long Questions (5-8 Marks)

• Differentiate between a credit card and a debit card. (AHSEC 2017)
  Ans: (This answer is the same as the textual Long Answer Question C.1. Please refer to that answer above).
• What is E-banking? Explain its advantages and disadvantages. (AHSEC 2018, 2021)
  Ans: (This answer is the same as the textual Long Answer Question D.1. Please refer to that answer above).

10 Most Important Questions

1. What is the fundamental difference between a credit card and a debit card?
   Ans: The fundamental difference is the source of funds: a debit card uses your own money from your bank account, while a credit card uses borrowed money (a loan) from the bank.
2. What is a PIN and why is it important?
   Ans: A PIN (Personal Identification Number) is a secret numeric password used to authenticate the user of a card or service. It is important for security, as it prevents unauthorized access to accounts and funds.
3. How has E-banking provided 24×7 service to customers?
   Ans: E-banking uses the internet, which is always active, allowing customers to access their accounts and perform transactions at any time of the day or night, beyond the traditional 10 am to 4 pm banking hours.
4. What is an MPIN in mobile banking?
   Ans: An MPIN (Mobile Banking Personal Identification Number) is a secret password, usually six digits long, that a customer generates to securely access and authorize transactions through their mobile banking app.
5. Can you use an ATM of a different bank? Is there any limitation?
   Ans: Yes, a holder of an ATM card can use the ATM of other banks. However, this is subject to limitations, such as a fixed number of free transactions per month, after which a fee may be charged.
6. What is the biggest risk associated with E-banking?
   Ans: The biggest risk is internet fraud, where hackers or scammers use techniques like phishing to steal passwords and other sensitive information to gain unauthorized access to a user’s bank account and steal money.
7. How does mobile banking promote financial inclusion?
   Ans: Mobile banking promotes financial inclusion because of its low cost structure and wide reach. Since many people in remote areas have access to mobile phones but not bank branches, it allows them to access banking services easily.
8. Name two functions that can be done with an ATM but not with a basic debit card swipe machine.
   Ans: Two functions are: (i) Cash withdrawal and (ii) Cash deposit.
9. Why is a credit card holder not always charged interest?
   Ans: A credit card holder is not charged interest if they repay the entire outstanding amount spent within the interest-free period (usually around 45-50 days) provided by the bank.
10. What are the basic requirements to use E-banking services?
    Ans: The basic requirements are a bank account with a bank that offers the service, registration for the service, a device like a computer or smartphone, and a stable internet connection.