Digital Banking Systems and Sustainability Lecture Notes

Flashcards covering the digitisation of banking, technical infrastructure, blockchain, sustainability frameworks, and changing competitive dynamics.

Image Clearing System (ICS)

A system incorporated by main clearing banks in the UK into mobile apps and branch networks to send images of paid-in cheques between banks, reducing environmental impact compared to transporting paper.

Clearing

The process where banks exchange paid-in cheques and settle the net difference in total money owed via their accounts at a central bank; a cheque is 'cleared' once debited from the payer's account.

Bank giro credits

A method of crediting an account, as opposed to debiting one, that often appears on utility bills, credit card bills, and tax demands.

Customer-facing systems

Digital user interfaces that allow customers to access banking services, including call centres, mobile phones, online banking portals, digital voice assistants, and cash machines.

Back-office systems

Hidden infrastructure vital for bank functions, including payment processing ($1950\text{s}$), accounting software ($1960\text{s}$), CRM systems ($1980\text{s}$), and POS systems.

Networking systems

Collaborations between banks and multi-national bodies that facilitate the transfer of payments and securities through national, regional, and global systems.

Automatic Teller Machines (ATMs)

Cash machines introduced in the $1960\text{s}$ that changed the concept of 'banking hours' by allowing customers to access cash at any time.

Bank kiosks

Evolved ATMs that facilitate a wide range of services beyond withdrawals, such as accepting deposits, cashing cheques, taking loan applications, and providing bank statements.

M-PESA

A mobile banking service in Kenya that allows users to send airtime credit via text message to be cashed in at convenience stores, effectively turning a SIM card into a debit card.

Application Programming Interfaces (APIs)

Technologies that allow different legacy and de novo systems to communicate and share data securely.

Accounting System

A database that holds information about customer transactions, account balances, and payment types to aggregate the bank's overall financial position.

Processing System

Digital infrastructure designed to support payments and communicate with the accounting system so banks can determine their daily liquidity position.

Point-of-Sale (POS) Systems

Systems used by merchants to accept digital payments from customers via plastic cards or mobile wallets.

Customer Relationship Management (CRM) Systems

Databases containing searchable customer records, including static info (names, addresses, IDs) and preferences, used to inform product development and marketing.

SWIFT

The Society for Worldwide International Financial Transactions, founded in $1973$, which allows banks to authenticate and send money across borders.

SEPA

The Single Euro Payments Area, which covers digital Euro payments and includes some non-EU/Eurozone countries like the United Kingdom.

CHAPS

Clearing House Automated Payments System; used in the UK for high-value same-day transfers, such as house purchases.

BACS

Bankers Automated Clearing System; used in the UK for smaller payments like salaries, operating on a three-day payment cycle.

Universal Payments Interface (UPI)

A real-time, mobile-accessible payment system in India that increases financial inclusion by working on older, non-touchscreen phones.

Electronic money institutions (EMIs)

Digital organizations that help people make and receive payments, often storing user funds in third-party bank accounts or transacting on their behalf with consent.

Digital Wallets

Smartphone-based applications, such as Apple Pay or Google Pay, that store bank card details to initiate payments via APIs without a physical card.

Faster payment

A real-time payment that arrives almost instantly or within a few hours, departing from traditional multi-day cycles.

Debit Card

A plastic card that allows a user to spend funds directly from their bank account.

Credit Card

A card allowing the user to borrow money up to a limit, with the option to repay an amount between a minimum and the full balance each month.

Charge Card

A card allowing a user to borrow money up to a limit that must be repaid in full every month.

Near Field Communication (NFC)

Wireless technology used for contactless payments by holding a card or device in proximity to a reader.

Interchange fees

Handling fees levied by card-issuing banks, scheme providers, and EMIs, which are passed to the merchant and ultimately the consumer.

Prepaid cards

Stored-value cards not necessarily linked to a bank account or credit facility, used to store money for future transactions without credit risk.

FileAct

A part of the SWIFT network that enables global interbank file transfers containing bulk payment details and operational data.

CREST

The system in the UK used to settle trades in equities, government bonds, and corporate bonds.

London Clearing House (LCH)

A clearing system that settles commodity-based derivative transactions.

Blockchain

A distributed ledger or database stored on a network of computers across many locations; also known as distributed ledger technology.

Cryptocurrency

A blockchain network used specifically as a currency system, such as Bitcoin.

Public and Private keys

Cryptographic tools for transacting: the public key acts like an address to receive tokens, while the private key acts like a password to send tokens.

Immutability

A feature of many blockchain systems where transactions are permanent and cannot be reversed without central authority intervention.

Miners

Computers in a blockchain network that log, verify interactions, and maintain a copy of the ledger, often rewarded with fees or tokens.

Crypto asset

Digital representations of value or contractual rights based on a blockchain network.

Non-fungible tokens (NFTs)

Blockchain tokens containing digital files used to track ownership and create digital scarcity, often for art or digitised physical assets.

Smart contract

Software that automatically performs the terms of a contract when specific conditions are met.

Letter of credit

A bank guarantee in trade finance where a bank promises to pay an exporter if the importer fails to do so.

Contour

A private blockchain network used by $17$ global banks to digitise and process trade finance transactions and letters of credit.

Proof-of-work

A reconciliation mechanism in permissionless networks like Bitcoin where miners must consume computing power to find a random number to add a block.

Proof-of-stake

A reconciliation model where miners 'stake' network tokens to earn the right to add blocks to the blockchain.

Fiat currency

Currency backed by the force of law as legal tender rather than a commodity, with $90\%$ of the world’s supply currently held in digital form.

Central Bank Digital Currencies (CBDCs)

A digitised form of fiat currency that represents a direct claim on a country’s central bank rather than a commercial bank.

Principles for Responsible Banking (PRB)

A UNEP FI framework requiring signatory banks to align strategies with UN Sustainable Development Goals and the Paris Climate Agreement.

Net-Zero Banking Alliance (NZBA)

A group of over $130$ leading global banks committed to financing the transition to net zero by $2050$ and limiting global warming to $1.5^{\circ}\text{C}$.

Kunming-Montreal Global Biodiversity Framework (GBF)

A non-legally binding landmark agreement set to protect and restore ecosystems by $2050$, requiring alignment of financial flows.

Physical risks

Risks to banks from the direct impacts of natural hazards, such as floods damaging offices or storms causing power loss at data centres.

Transition risks

Risks arising from the shift to a sustainable economy, including regulatory changes, obsolete carbon-intensive assets, or shifts in consumer sentiment.

Liability risks

Risks involving compensation seekers for damages caused by climate change, pollution, or biodiversity loss.

Just transition

A controlled process of moving to net zero that is fair and avoids major disruptions to livelihoods and social structures.

Bundling

The legacy practice of packaging different financial products into a single service proposition to maximize per-customer revenue.

Unbundling

The trend where digital interfaces allow customers to easily switch providers for specific products, reducing loyalty and spreading use across multiple institutions.

Disintermediation

A process where lenders and borrowers deal directly with each other via digital platforms, circumventing the traditional intermediary role of banks.

P2P lender

An online platform connecting savers and borrowers without holding the loans in its own name or earning interest income, instead generating fee income.

Crowdfunding platform

A web interface connecting finance providers with projects in exchange for equity investment or future goods, rather than debt.

Banking as a Platform (BaaP)

A model where banks use their customer relationships to distribute third-party financial services via APIs.

Banking as a Service (BaaS)

A model where banks provide their infrastructure, like payment processing, to non-bank institutions such as retailers.

White labelling

The practice where a financial product is manufactured by one institution but sold under a different brand name.