1
THE ROLE OF COMPUTER TECHNOLOGY IN
BANKING AND FINANCIAL TRANSACTIONS:
A LEGAL APPRAISAL
BY
KOLAWOLE DAMILOLA KAYODE
MAT...
2
CERTIFICATION
This is to certify that this long essay: THE ROLE OF COMPUTER
TECHNOLOGY IN BANKING AND FINANCIAL TRANSACT...
3
ABSTRACT
Computer technology has been a scientific invention which has obviously had
series of effect on all spheres of ...
4
TABLE OF CONTENTS
TITLE PAGE……………………………………………………………..I
CERTIFICATION………………………………………………………II
ABSTRACT ….……………………………………………...
5
3.1.0. BACKGROUND OF COMPUTER TECHNOLOGY IN BANKING
TRANSACTIONS
3.2.0. USES OF COMPUTER TECHNOLOGY IN BANKING
TRANSACTI...
6
DEDICATION
To the Glory of GOD under whose canopy of love and mercy I have thrived,
and to whom I dedicate this project ...
7
ACKNOWLEDGEMENT
I returned, and came under the sun; that the race is not to the swift, nor the battle to the
strong, nei...
8
TABLE OF CASE
See Haddock v. The Generous Bank Ltd[Dallas bar fd.1981]
9
TABLE OF STATUTES
Information technology policy for Nigeria
Electronic Financial Transaction Act of South Korea
Evidence...
10
CHAPTER ONE
GENERAL INTRODUCTION
1.0.0. INTRODUCTION
Computer technology on the whole is a welcome mechanical advanceme...
11
Computer technology has created significant benefits for banking and
financial sectors. This has helped in reducing the...
12
More so, secondary sources were also considered which includes:
a) History of the computer{article written by Onifade}
...
13
safeguard information and information systems. It discusses issues such as
Change Control Mechanism, Separation of Deve...
14
country economy, in fact the level of development of a countries payment
system is a reflection of the state or conditi...
15
vi) Finance
vii) Role.
I. COMPUTER
This is defined as ‘a mechanical device which accepts data as input processes
it and...
16
II. Computer Technology
The term ‘Computer technology’ means ‘computers, ancillary equipment,
software and firmware (Ha...
17
IV. BANKING
This is defined as ‘the business conducted by banks’17
and also ‘the occupation
of a banker’18
. More so, i...
18
installment paper arising from the sale of consumer durables ‘on
time’—also termed Acceptance Company.25
VI. FINANCE
Fi...
19
1.6.0 CONCLUSION
It is pertinent to note that computer technology has actually brought
immeasurable development to all ...
20
CHAPTER TWO
COMPUTER TECHNOLOGY
2.0.0 INTRODUCTION
The word ‘computer’ is an old word that has changed its meaning seve...
21
objective.
A computer is an electronic device, which executes software programs. It is
made up of two parts - hardware ...
22
instrumental to this development.
III METALS: Metals were used in the early machines of Pascal, Thomas,
and the product...
23
I. MICROCOMPUTERS
The Microcomputer has the lowest level capacity. The machine has memories
that are generally made of ...
24
Minicomputers usually have from 8k to 256k memory storage location, and
relatively established application software. Th...
25
terms of nanosecond, as compared to small computers where speed is
measured in terms of microseconds. Expandability to ...
26
Using this classification technique, computers can be divided into Analog,
Digital and Hybrid systems. They are explain...
27
III. HYBRID COMPUTERS
These are machines that can work as both analog and digital computers.
2.2.0 USES OF COMPUTER
Com...
28
conferencing tools are becoming readily available to the common
man.
 Digital video or audio composition- Audio or vid...
29
 Defense- There is software embedded in almost every weapon.
Software is used for controlling the flight and targeting...
30
 Electronic gadgets run with the help of computers. There are various
software which are used to increase the efficien...
31
were capable of addition,
subtraction, multiplication, and division included. The first multi-purpose or
programmable c...
32
could solve 29 simultaneous equations with 29 unknowns. However, the
machine was not programmable, and was more of an e...
33
basic circuits to the programming languages used to write scientific
applications. Electronic switches in this era were...
34
units that could operate simultaneously and 32 independent memory banks,
the CDC 6600 was able to attain a computation ...
35
per gate. Core memories were replaced by semiconductor memories. Large
main memories like CRAY 2 began to replace the o...
36
Parallel processing started in this generation. The Sequent Balance 8000
connected up to 20 processors to a single shar...
37
operation and networking capabilities have kept developing tremendously.
Personal computers (PCs) now operate with Giga...
38
Information Technology Law (or IT Law) is a set of recent legal enactments,
currently in existence in several countries...
39
President to provide guidance and oversight for the Association's technology
initiatives.
Under-listed are some of the ...
40
law to assess the impact of those changes on academic information technology
policy.
3. Digital Signature Legislation
L...
41
6. National Institute of Standards and Technology - Computer Security
Division
The E-Government Act [Public Law 107-347...
42
9. United Nations Information and Communication Technologies Task
Force
In March 2001, the United Nations Economic and ...
43
 Electronic Frontier Foundation (EFF)
From the Internet to the iPod, technologies are transforming our society and
emp...
44
The Mission of LEITSC is to foster the growth of strategic planning and
implementation of integrated justice systems. T...
45
designed each issue to foster critical discourse on the technological
breakthroughs impacting the legal landscape. The ...
46
CHAPTER THREE
THE ROLE OF COMPUTER TECHNOLOGY IN BANKING
TRANSACTIONS
3.0.0 INTRODUCTION
The business operations in the...
47
clearinghouse in the early 1970s, electronic funds transactions were made
possible, and the ATM was introduced.35
Banks...
48
Computer Technology (CT) is at the centre of this global change curve.
Laudon and Laudon, (1991) contend that managers ...
49
online. It assists customers to validate their account numbers and receive
instruction on when and how to receive their...
50
old and new generation banks and discovered variation in the rate of adoption
of the automated devices.
3.2.0 USES OF C...
51
offered. Without the use of computers, it would be difficult to keep track of
this information.
3. REPORTS AND PROFITS
...
52
customers who are 30-, 60-, 90-days delinquent on their accounts. When a 30-
day delinquency report is generated, a col...
53
Banking services.
It has been generally accepted that the adoption of CT products in banking
facilitates accurate recor...
54
searching out potential legal considerations in banking mechanization. The
legal frameworks regulating use of computer ...
55
generally involve suits relating to contracts or suits for damages because of
harmful conduct, the latter known as tort...
56
Matters Act
IV. PRIVATE CONTRACTS
The specific agreements and understandings that banks enter into with their
customers...
57
make banking transactions has allowed banks to reduce the number of costly
transactions made with human tellers. Subseq...
58
CHAPTER FOUR
THE ROLE OF COMPUTER TECHNOLOGY IN FINANCIAL
TRANSACTIONS
4.0.0 INTRODUCTION
Computer technology has been ...
59
clearing system still predominates
4.2.0 FORMS OF COMPUTER TECHNOLOGY IN FINANCIAL
TRANSACTIONS
Computer technology has...
60
finance comprising both mobile banking and mobile payment may be a natural
evolution of electronic commerce. Furthermor...
61
This is a Short Message Service (SMS) that mainly provides information
about the status of bank account. Short messages...
62
disadvantage of WAP browser is that WAP browser implementation is not
consistent across mobile devices manufacturers.
3...
63
through OTA (over the air) technology. Customers do not need to change
chips each time they use different applications....
64
operators, TSM could bridge multiple banks and operators ensuring complete
security of customer information.45
B. Solut...
65
Mobile payment is a new and rapidly-adopting alternative payment method.
Instead of paying with cash, check or credit c...
66
(2) Mobile Electronic Money
Mobile electronic money means any certificate of transferable monetary value
issued and sto...
67
Direct mobile billing service allows customers to purchase goods and services
online by charging their regular mobile p...
68
II. Legal Issues Arising from Mobile Finance
A. Participants
Mobile finance has enabled companies from different indust...
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  1. 1. 1 THE ROLE OF COMPUTER TECHNOLOGY IN BANKING AND FINANCIAL TRANSACTIONS: A LEGAL APPRAISAL BY KOLAWOLE DAMILOLA KAYODE MATRIC NO. 07/40IA107 BEING A LONG ESSAY SUBMITTED TO THE FACULTY OF LAW, UNIVERSITY OF ILORIN, ILORIN, NIGERIA, IN PARTIAL FULFILMENT OF THE REQUIREMENTS FOR THE AWARD OF THE DEGREE OF BACHELOR OF LAW (LL.B HONS.) IN COMMON LAW. MAY 2012
  2. 2. 2 CERTIFICATION This is to certify that this long essay: THE ROLE OF COMPUTER TECHNOLOGY IN BANKING AND FINANCIAL TRANSACTIONS: A LEGAL APPRAISAL was written by KOLAWOLE DAMILOLA KAYODE. It has been read and approved as meeting part of the requirements for the award of Bachelor of law (LL.B Hons.), Degree in Common Law in the Faculty of Law, University of Ilorin, Ilorin, Nigeria. MRS ADIMULA DATE SIGNATURE Supervisor ----------- ------------------- DR. M.M. AKANBI DATE SIGNATURE HOD of Host Dept. Dept. of ----------------- ----------- ------------- ----- DR. I.A. YUSUF DATE SIGNATURE HOD of Graduating Dept. Dept. of ----------------- ------------- ------------ ------ DR .I.A. Abdulqadr DATE SIGNATURE Ag. Dean, Faculty of Law -------------- ------------------ ………………………… DATE SIGNATURE EXTERNAL EXAMINER ------------- -------------------
  3. 3. 3 ABSTRACT Computer technology has been a scientific invention which has obviously had series of effect on all spheres of life. The advent of computer technology has obviously aided in different areas i.e. it has provided a further enabling environment for all works. During the course of this study, we will pay more attention to the role of computer technology in banking and finance transaction and the legal implications of such transactions. More so, this project aims at solely setting a guide-line and a frame-work enlightenment towards the effects of computer in banking and finance transactions and the role it has obviously played in improving the face of businesses in banking and finance transactions. The concept of this project is to allay all fears as regards computer functionality in banking finance transactions. It should be noted that in the course of this project all areas in which computer technology affects banking and finance transactions would be examined critically, leaving no stone unturned. Following the advent of banking and financial transactions in Nigeria, computer technology became a necessary mechanical device to be used in banks to ease all transactional difficulties relating to banking or finance for fast processing and attendance to any likely problem or for easy dissemination of information as regards banking details transactions.
  4. 4. 4 TABLE OF CONTENTS TITLE PAGE……………………………………………………………..I CERTIFICATION………………………………………………………II ABSTRACT ….………………………………………………………......III TABLES OF CONTENTS ……………………………………………....IV DEDICATION …………………………………………………………....VI ACKNOWLEDGEMENT……………………………………………VII TABLE OF CASES………………………………………………………VIII TABLE OF STATUTES……………………………………………….IX CHAPTER ONE GENERAL INTRODUCTION 1.0.0. INTRODUCTION……………………………………………….. 1.1.0. BACKGROUND TO THE STUDY…………………………… 1.2.0. OBJECTIVES OF STUDY…………………………… 1.3.0. METHODOLOGY………………………………………………… 1.4.0. LITERATURE REVIEW………………………………………. 1.5.0. DEFINITION OF TERMS………………………………………… 1.6.0. CONCLUSION………………………………………………… CHAPTER TWO COMPUTER TECHNOLOGY 2.0.0 INTRODUCTION ……………………………………………. 2.1.0 CLASSIFICATIONS OF COMPUTER ………………………. 2.2.0 USES OF COMPUTER…………………………………….. 2.3.0 COMPUTER EVOLUTION………………………………………… 2.4.0 COMPUTER LAW…………………………………………….. 2.5.0 CONCLUSION…………………………………………… CHAPTER THREE THE ROLE OF COMPUTER TECHNOLOGY IN BANKING TRANSACTIONS 3.0.0. INTRODUCTION…………………………………………….
  5. 5. 5 3.1.0. BACKGROUND OF COMPUTER TECHNOLOGY IN BANKING TRANSACTIONS 3.2.0. USES OF COMPUTER TECHNOLOGY IN BANKING TRANSACTIONS………….. 3.3.0. IMPORTANCE OF COMPUTER TECHNOLOGY IN BANKING TRANSACTIONS 3.4.0. LEGAL FRAME-WORK REGULATING COMPUTER TECHNOLOGY IN BANKING TRANSACTIONS 3.5.0. CONCLUSION…………………………………………… CHAPTER FOUR THE ROLE OF COMPUTER TECHNOLOGY IN FINANCIAL TRANSACTIONS 4.0.0. INTRODUCTION…………………………………………………… 4.1.0. BACKGROUND OF COMPUTER TECHNOLOGY IN FINANCIAL TRANSACTIONS 4.2.0. FORMS OF COMPUTER TECHNOLOGY IN FINANCIAL TRANSACTIONS 4.3.0. USES OF COMPUTER TECHNOLOGY IN FINANCIAL TRANSACTIONS 4.4.0. IMPORTANCE OF COMPUTER TECHNOLOGY IN FINANCIAL TRANSACTIONS 4.5.0. LEGAL FRAME-WORK REGULATING COMPUTER TECHNOLOGY IN FINANCIAL TRANSACTIONS 4.6.0. CONCLUSION……………………………………………… CHAPTER FIVE GENERAL CONCLUSION AND RECOMMENDATIONS 5.1.0 INTRODUCTION 5.2.0 CONCLUSION 5.3.0 RECOMMENDATIONS REFERRENCES
  6. 6. 6 DEDICATION To the Glory of GOD under whose canopy of love and mercy I have thrived, and to whom I dedicate this project work. In extension this essay work is also dedicated to my loving parents.
  7. 7. 7 ACKNOWLEDGEMENT I returned, and came under the sun; that the race is not to the swift, nor the battle to the strong, neither yet the bread to the wise, nor yet riches to men of understanding, nor yet favor to men of skill; but time and chance happeneth to them all. (Eccl 9:11) It is in consideration of this that I give thanks to God for the time and chance He has ever given me since I was conceived. I owe my being and existence to you, Lord. My appreciation goes to my darling parent, Mrs. G.I. Ebidunmi for her love and long suffering. I cannot thank you enough. To my siblings, Omolayo and Omotayo, growing up with you has been worthwhile. You have always seen the best in me. I sincerely thank my supervisor Barr. Adimula for her motherly advice throughout the course of writing this essay. Your direction and tolerance of my mistakes during my work ma, only gives credence to your worthiness as a true mother and lecturer. I say a big thank you for all your contributions. To all my friends, the likes of Shawn Carter, Larry-king, Shurler, Moh, Tony, Sodiq, Lord Bay, Wale, Amanyi, Mark, Idoko, Tomilola, Nike and generally all CLASFONITES to mention a few, you are all wonderful. My time with you on campus has been worth every moment. My appreciation also goes to the Awodun’s and the Olawoye’s (you have been more than family). To all C9 boys:- you are wonderful. To my very special baby, Sobiye Oluwadamilola Rita Amoke, knowing you has been worth the while, I love you so much. For everyone who out of the joy of finishing this project, I have failed to remember, I say I love you all.
  8. 8. 8 TABLE OF CASE See Haddock v. The Generous Bank Ltd[Dallas bar fd.1981]
  9. 9. 9 TABLE OF STATUTES Information technology policy for Nigeria Electronic Financial Transaction Act of South Korea Evidence act LFN 1990
  10. 10. 10 CHAPTER ONE GENERAL INTRODUCTION 1.0.0. INTRODUCTION Computer technology on the whole is a welcome mechanical advancement which has actually given rise to high level development as regards to banking and financial institutions. The developments in Computer Technology have a tremendous impact on auditing. Computer Technology has facilitated re-engineering of the traditional business processes to ensure efficient operations and improved transactional activities within the organization and between the organisations and its customers. Auditing in a computerized and networked environment is still at its nascent stage in India and established practices and procedures are evolving. Well planned and structured audit is essential for risk management and monitoring and control of Information Systems in any organization. The deployment of Information Technology in banks and financial institutions, both in the front and back office operations, has facilitated greater systemic efficiency in the banking and financial sector. It has, at the same time, introduced new areas of risk. Risk is inherent in the traditional banking and financial activities. However, risk in a computerized and networked environment is multifarious such as operational risk, reputational risk, legal risk, credit risk, liquidity risk, interest rate risk, foreign exchange risk etc., as briefly discussed and implementation of security policies and procedures, adopted in an electronic banking system. Network security, database security, data integrity, appropriateness of the security policies and practices and the likely misuse of the information and information resources by the employees, customers and third parties are some of the factors, which require to be addressed for risk measurement in a computerized and networked environment in the banking and financial sectors.
  11. 11. 11 Computer technology has created significant benefits for banking and financial sectors. This has helped in reducing the lead time needed by accountants to prepare and present financial information to the management and stakeholders. Not only has computer technology shortened the lead time required to present financial information, but it has also improved the overall efficiency and accuracy of the information. 1.1.0 BACKGROUND TO THE STUDY Before the emergence of modern banking system, banking operation was manually done which led to a slowdown in settlement of transactions. This manual system involves posting transactions from one ledger to another which was handled manually. Figures or counting of money which should be done through computers or electronic machine were computed and counted manually which were not 100% accurate thereby resulting to human errors. Most banks then use only one computer in carrying out transactions which aided in reducing the sluggish nature of banking transactions. 1.2.0 OBJECTIVES OF STUDY This work takes into pertinent consideration the emergence of Computer technology in the banking and financial sector, the effects it has on transactional activities in the sector and also how it tends to affect the relationship between the bank and its customers. This project aims at x-raying the importance of computer technology in the banking and financial sectors. 1.3.0 METHODOLOGY In the bid to delve into researching my work in-depth, due to its analytical and evaluative nature, I have decided to make use of certain sources to draw attention to the tremendous effects that computer technology has had on the banking and financial sectors. These sources include the primary sources which are: a) Information technology policy for Nigeria b) Information systems audit policy for the banking and financial sector
  12. 12. 12 More so, secondary sources were also considered which includes: a) History of the computer{article written by Onifade} b) Blacks’ law dictionary— Eight edition 1.4.0 LITERATURE REVIEW The business operations in the banking and financial sector have been increasingly dependent on the computerized information systems over the years. It has now become impossible to separate Information Technology (IT) from the business of the banks and the financial institutions. There is a need for focused attention on the issues of the corporate governance of the information systems in computerized environment and the security controls to safeguard information and information systems. The application of Information Technology has brought about significant changes in the way the institutions in the banking and financial sector process and store data and this sector is now poised to countenance various developments such as Internet banking, e-money, e-cheque, e-commerce etc., as the most modern methods of delivery of services to the customers. The telecommunication networks have played a catalytic role in the expansion and integration of the Information Systems (IS), within and between the institutions, facilitating data accessibility to different users. In view of the critical importance of IS, there is a need to exercise constant vigilance for the safety of the financial systems. Structured, well defined and documented security policies, standards and guidelines lay the foundation for good IS security and each institution is required to define, document, communicate, implement and audit IS Security to ensure the confidentiality, integrity, authenticity and timely availability of information, which is of paramount importance to business operations. Under the ‘Information Systems Security Guidelines’, the report discusses IS Security Controls relating to computer hardware, software, network, Telecommuting/Teleworking, Mobile Computing, Computer Media Handling, Voice, Telephone and related equipment and Internet and the procedures/methodologies to be adopted to
  13. 13. 13 safeguard information and information systems. It discusses issues such as Change Control Mechanism, Separation of Development and (Production) Operational Facilities, Information Handling and Back-up, Electronic Mail and Financial Services/Products. It emphasises the use/implementation of Firewall, Digital Signature, Cryptographic Controls, Business Continuity Planning (BCP), Framework/Disaster Recovery Planning (DRP) including Cryptographic Disasters. It also discusses various other issues relating to Certification Authorities (CAs)/Trusted Third Parties (TTPs), Compliance with Legal Requirements, Intellectual Property Rights (IPR), Review of IS Security Policy and Human Resources. Electronic banking has long been recognized to play an important role in economic development on the basis of their ability to create liquidity in the economy through financial intermediation between savers and borrowers. It also offers financial services and products that accelerate settlement of transactions and in the process reduce cash intensity in the financial system, encourage banking culture, and catalyses economic growth. However, for the effective functioning of the financial system, the payment systems must be safe and efficient; otherwise they can be a channel for the transmission of disturbances from one part of the economy or financial system to others. This is why central bank have been active in promoting sound and efficient payments system and in seeking the means to reduce risks associated with the system. Nigeria historically operated a cash-driven economy particularly in the consumer sector, however the system has witnessed improvements over the years, and particular in recent times has moved from its rudimentary level of the early years of banking business to the current state of sophistication comparable to other economies at the same level of development. One important reason for financial liberalization and deregulation is the need to develop a good payment system which promotes an appropriate mechanism for efficiency in mobilizing and allocating financial resources in the economy. The payment system occupies an important place in the development of a
  14. 14. 14 country economy, in fact the level of development of a countries payment system is a reflection of the state or condition of the country’s economy. Nigeria payment system is paper-based and this accounts for the high level of cash in the economy (cash outside bank), the concept ‘payment system’ has different meanings among writers the definition range from a more simple to a more complex definition. According to Report on the survey of developments in the e-payments and services products of banks and other financial institutions in Nigeria payment system is defined as a system which consists of net works which link members, the switches for routing message and rules and procedures for the use of its infrastructure. According to Anyanwaokoro1 M. (1999), in his book titled, theory and policy of money and banking, payment system is defined as a system where settlement of financial obligations are done by the use of credit cards or even pressing some bottoms that transfer the amount in their bank to the account of another person through the computer. According to element of banking by Orjih, J. (1999), payment system is defined as a system which consists of different methods of payments which are cheques, credit cards, Bankers drafts, standing order, documentary credits swift etc for the settlement of transactions. 1.5.0 DEFINITION OF TERMS Under this sub-heading we shall be examining the basic words in this course of study. The basic words to be examined are notably said to be the basic conceptual words in this study. This includes the following, namely: i) Computer ii) Computer technology iii) Bank iv) Banking v) Financial company 1 Anyanwaokoro M, Theory and Policy of Money and Banking, (University of Ibadan, Nigeria, 1999) P.10
  15. 15. 15 vi) Finance vii) Role. I. COMPUTER This is defined as ‘a mechanical device which accepts data as input processes it and produces information as output’. The word ‘computer’ is an old word that has changed its meaning several times in the last few centuries. Originating from the Latin, by the mid-17th century it meant ‘someone who computes’2 . The American Heritage Dictionary3 gives its first computer definition as ‘a person who computes.’4 The computer remained associated with human activity until about the middle of the 20th century when it became applied to a ‘programmable electronic device that can store, retrieve, and process data’ as Webster’s dictionary5 defines it. Today, it refers to computing devices, whether or not they are electronic, programmable, or capable of ‘storing and receiving’ data.6 More so, computer is defined as ‘a general purpose machine that processes data according to a set of instructions that are stored internally either temporarily or permanently.’7 Furthermore, computer is defined as ‘the contribution of major individuals, machines, and ideas to the development of computing.’8 This implies that the computer is a system. A system is a group of computer components that work together as a unit to perform a common objective. More so, computer has been defined as ‘an electronic device that can store large amounts of information and be given sets of instructions to organize and change it quickly’.9 2 Onifade, History of the computer, University of Ibadan, Nigeria 3 Morris, William. ed. The American Heritage Dictionary. (Boston: Houghton Mifflin Company 1980) 4 Ibid 5 Layman, Thomas. eds. The Pocket Webster School & Office Dictionary. (New York: Pocket Books1990) 6 Onifade, History of the computer ,pg 2 7 Techencyclopedia (2003). http://www. techweb.com/encyclopedia, The Computer Language Company(accessed 20th june,2011) 8 Encyclopedia Britannica (2003) http:// www.britannica.com. (accessed 20th june,2011) 9 Morris, William (1980). ed. The American Heritage Dictionary. Boston: Houghton Mifflin Company.
  16. 16. 16 II. Computer Technology The term ‘Computer technology’ means ‘computers, ancillary equipment, software and firmware (Hardware) and similar procedures, services (including support services) and related resources’10 or The term ‘Computer technology’ includes any equipment or interconnected system or subsystem of equipment, that is used in the automatic acquisition, storage, manipulation, management, movement, control, display, switching, interchange, transmission or reception of data or information’11 . III. BANK A bank is a financial establishment for the deposit, loan, exchange or issue of money for the transmission of funds’.12 In furtherance, a bank is also said to be ‘a quasi-public institution, for the custody and loan of money, the exchange and transmission of the same by means of bills and drafts, and the issuance of its own promissory notes, payable to bearer, as currency, or for the exercise of one or more of these functions, not always necessarily chartered, but sometimes so, created to sub serve public ends, or a financial institution regulated by law.’13 A bank is wholly a creature of statute doing business by legislative grace and the right to carry on a banking business through the agency of a corporation is a franchise which is dependent on a grant of corporate powers by the state14 .Also a bank has been defined as ‘a financial institution and a financial intermediary that accepts deposits and channels those deposits into lending activities, either directly or through capital markets.’ A bank connects customers that have capital deficits to customers with capital surpluses.15 A bank can also be defined to be ‘an organization that holds money belonging to others, investing and lending it to get more money, or the building in which the organization is situated.16 10 Information technology policy for Nigeria 11 Information technology policy for Nigeria 12 Blacks’ law dictionary, (8th ed. Thomson business, 610 opperman drive, U.S.A 2004) p. 154 13 Blacks’ law dictionary, P. 154 14 Blacks’ law dictionary, P. 154 15 www.Wikipedia.com(accessed 20th june,2011) 16 Morris, William. ed. The American Heritage Dictionary. Boston: Houghton Mifflin Company(1980)
  17. 17. 17 IV. BANKING This is defined as ‘the business conducted by banks’17 and also ‘the occupation of a banker’18 . More so, it is also defined as ‘the business of a bank’19 . Banking is furthermore defined as ‘engaging in the business of keeping money for savings and checking accounts or for exchange or for issuing loans and credits’20 . Banking is also said to be ‘the act of transacting business with a bank, depositing or withdrawing fund or requesting a loan’21 .this could be done in diverse ways which includes home banking which is defined as ‘a form of banking in which transactions are conducted by means of electronic communication(via telephone or computer).’22 This has also been defined as the ‘business of operating a bank’.23 V. FINANCE COMPANY This is defined as ‘a non-bank company that deals in loans either by making them or by purchasing notes from another company that makes the loans directly to borrowers’. This is also known as ‘a company concerned primarily with providing money e.g. for short term loans’.24 It’s also defined as ‘a company that makes loans to clients’. This has been sub-divided into the following:  COMMERCIAL FINANCE COMPANY: - a finance company that makes loans to manufacturers and wholesalers—also termed Commercial Credit Company.  CONSUMER FINANCE COMPANY: - a finance company that deals directly with consumers in extending credit—also termed Small Loan Company.  SALES FINANCE COMPANY: - a finance company that does not deal directly with consumers but instead purchases consumer 17 www.Wikipedia.com(accessed 20th june,2011) 18 www.Dictionary.com(accessed 20th june,2011) 19 www.freedictionary.com(accessed 20th june,2011) 20 www.Thesaurus.com(accessed 20th june,2011) 21 www.thesaurus(accessed 20th june,2011) 22 www.thesaurus(accessed 20th june,2011) 23 Morris, William. ed. The American Heritage Dictionary. Boston: Houghton Mifflin Company(1980) 24 www.Answers.com(accessed 20th june,2011)
  18. 18. 18 installment paper arising from the sale of consumer durables ‘on time’—also termed Acceptance Company.25 VI. FINANCE Finance is defined as ‘the management of money and credit and banking and investments’26 . Also finance is defined as ‘the commercial activity of providing funds and capital’. Finance is also defined as:  The aspect of business concerned with the management of money, credit, banking and investments27  The science or study of the management of money28 This is also defined as:  The act or process of raising or providing funds29  Funds that are raised or provided30  The management of money, or the money belonging to a person, group or organization VII. ROLE This is defined as ‘the function assumed or part played by a person or thing in a particular situation.’31 This is also known as ‘the function, purpose, usefulness, utility of a particular thing’32 . This is also defined as ‘the duty or use that someone or something usually has or is expected to have’. 25 Blacks’ law dictionary, p. 662 26 www.thesaurus.com (accessed 20th june,2011) 27 Blacks’ law dictionary, p. 662 28 Blacks’ law dictionary, p. 662 29 Blacks’ law dictionary, p. 662 30 Blacks’ law dictionary, p. 662 31 Blacks’ law dictionary, p. 1354 32 www.answers.com (accessed 20th june,2011)
  19. 19. 19 1.6.0 CONCLUSION It is pertinent to note that computer technology has actually brought immeasurable development to all spheres of life. In adjudging the role of computer technology, the aforementioned is of utmost importance and preponderant in understanding this project analysis.
  20. 20. 20 CHAPTER TWO COMPUTER TECHNOLOGY 2.0.0 INTRODUCTION The word ‘computer’ is an old word that has changed its meaning several times in the last few centuries. Originating from the Latin, by the mid-17th century it meant ‘someone who computes’. The American Heritage Dictionary (1980) gives its first computer definition as ‘a person who computes.’ The computer remained associated with human activity until about the middle of the 20th century when it became applied to ‘a programmable electronic device that can store, retrieve, and process data’ as Webster’s Dictionary (1980) defines it. Today, the word computer refers to computing devices, whether or not they are electronic, programmable, or capable of ‘storing and retrieving’ data. The Techencyclopedia (2003) defines computer as ‘a general purpose machine that processes data according to a set of instructions that are stored internally either temporarily or permanently.’The computer and all equipment attached to it are called hardware. The instructions that tell it what to do are called ‘software’ or ‘program’. A program is a detailed set of humanly prepared instructions that directs the computer to function in specific ways. Furthermore, the Encyclopedia Britannica (2003) defines computers as ‘the contribution of major individuals, machines, and ideas to the development of computing.’ This implies that the computer is a system. A system is a group of computer components that work together as a unit to perform a common
  21. 21. 21 objective. A computer is an electronic device, which executes software programs. It is made up of two parts - hardware and software. The computer processes input through input devices like mouse and keyboard. The computer displays output through output devices like a monitor and printer. The size of a computer varies considerably from small personal computers to gigantic supercomputers which require an entire building to host them. The speed of computers also has a very large range. Computers have become indispensable in today's world. Let us take a look at some of the uses of computers. 2.1.0 CLASSIFICATIONS OF COMPUTER Computing machines can be classified in many ways and these classifications depend on their functions and definitions. They can be classified by the technology from which they were constructed, the uses to which they are put, their capacity or size, the era in which they were used, their basic operating principle and by the kinds of data they process. Some of these classification techniques are discussed as follows: A. CLASSIFICATION BY TECHNOLOGY This classification is a historical one and it is based on what performs the computer operation, or the technology behind the computing skill. I FLESH: Before the advent of any kind of computing device at all, human beings performed computation by themselves. This involved the use of fingers, toes and any other part of the body. II WOOD: Wood became a computing device when it was first used to design the abacus. Shickard in 1621 and Polini in 1709 were both
  22. 22. 22 instrumental to this development. III METALS: Metals were used in the early machines of Pascal, Thomas, and the production versions from firms such as Brundsviga, Monroe, etc IV ELECTROMECHANICAL DEVICES: As differential analyzers, these were present in the early machines of Zuse, Aiken, Stibitz and many others V ELECTRONIC ELEMENTS: These were used in the Colossus, ABC, ENIAC, and the stored program computers. This classification really does not apply to developments in the last sixty years because several kinds of new electro technological devices have been used thereafter. B. CLASSIFICATION BY CAPACITY Computers can be classified according to their capacity. The term ‘capacity’ refers to the volume of work or the data processing capability a computer can handle. Their performance is determined by the amount of data that can be stored in memory, speed of internal operation of the computer, number and type of peripheral devices, amount and type of software available for use with the computer. The capacity of early generation computers was determined by their physical size - the larger the size, the greater the volume. Recent computer technology however is tending to create smaller machines, making it possible to package equivalent speed and capacity in a smaller format. Computer capacity is currently measured by the number of applications that it can run rather than by the volume of data it can process. This classification is therefore done as follows:
  23. 23. 23 I. MICROCOMPUTERS The Microcomputer has the lowest level capacity. The machine has memories that are generally made of semiconductors fabricated on silicon chips. Large- scale production of silicon chips began in 1971 and this has been of great use in the production of microcomputers. The microcomputer is a digital computer system that is controlled by a stored program that uses a microprocessor, a programmable read-only memory (ROM) and a random- access memory (RAM). The ROM defines the instructions to be executed by the computer while RAM is the functional equivalent of computer memory. The Apple IIe, the Radio Shack TRS-80, and the Genie III are examples of microcomputers and are essentially fourth generation devices. Microcomputers have from 4k to 64k storage location and are capable of handling small, single-business application such as sales analysis, inventory, billing and payroll. II. MINICOMPUTERS In the 1960s, the growing demand for a smaller stand-alone machine brought about the manufacture of the minicomputer, to handle tasks that large computers could not perform economically. Minicomputer systems provide faster operating speeds and larger storage capacities than microcomputer systems. Operating systems developed for minicomputer systems generally support both multiprogramming and virtual storage. This means that many programs can be run concurrently. This type of computer system is very flexible and can be expanded to meet the needs of users.
  24. 24. 24 Minicomputers usually have from 8k to 256k memory storage location, and relatively established application software. The PDP-8, the IBM systems 3 and the Honeywell 200 and 1200 computer are typical examples of minicomputers. III. MEDIUM-SIZE COMPUTERS Medium-size computer systems provide faster operating speeds and larger storage capacities than mini computer systems. They can support a large number of high-speed input/output devices and several disk drives can be used to provide online access to large data files as required for direct access processing and their operating systems also support both multiprogramming and virtual storage. This allows the running of variety of programs concurrently. A medium-size computer can support a management information system and can therefore serve the needs of a large bank, insurance company or university. They usually have memory sizes ranging from 32k to 512k. The IBM System 370, Burroughs 3500 System and NCR Century 200 system are examples of medium-size computers. IV. LARGE COMPUTERS Large computers are next to Super Computers and have bigger capacity than the Medium-size computers. They usually contain full control systems with minimal operator intervention. Large computer system ranges from single- processing configurations to nationwide computer-based networks involving general large computers. Large computers have storage capacities from 512k to 8192k, and these computers have internal operating speeds measured in
  25. 25. 25 terms of nanosecond, as compared to small computers where speed is measured in terms of microseconds. Expandability to 8 or even 16 million characters is possible with some of these systems. Such characteristics permit many data processing jobs to be accomplished concurrently. Large computers are usually used in government agencies, large corporations and computer services organizations. They are used in complex modeling, or simulation, business operations, product testing, design and engineering work and in the development of space technology. Large computers can serve as server systems where many smaller computers can be connected to it to form a communication network. V. SUPERCOMPUTERS The supercomputers are the biggest and fastest machines today and they are used when billion or even trillions of calculations are required. These machines are applied in nuclear weapon development, accurate weather forecasting and as host processors for local computer, and time sharing networks. Super computers have capabilities far beyond even the traditional large-scale systems. Their speed ranges from 100 million-instruction-per- second to well over three billion. Because of their size, supercomputers sacrifice a certain amount of flexibility. They are therefore not ideal for providing a variety of user services. For this reason, supercomputers may need the assistance of a medium-size general purpose machines (usually called front-end processor) to handle minor programs or perform slower speed or smaller volume operation. C. Classification by their basic operating principle
  26. 26. 26 Using this classification technique, computers can be divided into Analog, Digital and Hybrid systems. They are explained as follows: I. ANALOG COMPUTERS Analog computers were well known in the 1940s although they are now uncommon. In such machines, numbers to be used in some calculation were represented by physical quantities - such as electrical voltages. According to the Penguin Dictionary of Computers (1970), ‘an analog computer must be able to accept inputs which vary with respect to time and directly apply these inputs to various devices within the computer which performs the computing operations of additions, subtraction, multiplication, division, integration and function generation….’ The computing units of analog computers respond immediately to the changes which they detect in the input variables. Analog computers excel in solving differential equations and are faster than digital computers. II. DIGITAL COMPUTERS Most computers today are digital. They represent information discretely and use a binary (two-step) system that represents each piece of information as a series of zeroes and ones. The Pocket Webster School & Office Dictionary (1990) simply defines Digital computers as ‘a computer using numbers in calculating.’ Digital computers manipulate most data more easily than analog computers. They are designed to process data in numerical form and their circuits perform directly the mathematical operations of addition, subtraction, multiplication, and division. Because digital information is discrete, it can be copied exactly but it is difficult to make exact copies of analog information.
  27. 27. 27 III. HYBRID COMPUTERS These are machines that can work as both analog and digital computers. 2.2.0 USES OF COMPUTER Computers have leapfrogged the human society into another league. It is used in each and every aspect of human life. They will spearhead the human quest of eradicating social problems like illiteracy and poverty. It is difficult to imagine a world bereft of computers. This revolutionary technology is indeed a boon to the human race. Computer has been known to serve different functions and purposes, among the diverse uses of computer are the following:-  Word Processing - Word Processing software automatically corrects spelling and grammar mistakes. If the content of a document repeats, you don't have to type it each time. You can use the copy and paste features. You can print documents and make several copies. It is easier to read a word-processed document than a handwritten one. You can add images to your document.  Internet- It is a network of almost all the computers in the world. You can browse through much more information than you could do in a library. That is because computers can store enormous amounts of information. You also have very fast and convenient access to information. Through E-Mail, you can communicate with a person sitting thousands of miles away in a few seconds. Chat software enables one to chat with another on a real-time basis. Video
  28. 28. 28 conferencing tools are becoming readily available to the common man.  Digital video or audio composition- Audio or video composition and editing have been made much easier by computers. It no longer costs thousands of dollars of equipment to compose music or make a film. Graphics engineers can use computers to generate short or full-length films or even to create 3D models. Anybody owning a computer can now enter the field of media production. Special effects in science- fiction and action movies are created using computers.  Desktop publishing- With desktop publishing, you can create page layouts for entire books on your personal computer.  Computers in Medicine- You can diagnose diseases. You can learn the cures. Software is used in magnetic resonance imaging to examine the internal organs of the human body. Software is used for performing surgery. Computers are used to store patient data.  Mathematical Calculations- Thanks to computers, which have computing speeds of over a million calculations per second we can perform the biggest of mathematical calculations.  Banks- All financial transactions are done by computer software. They provide security, speed and convenience.  Travel- One can book air tickets or railway tickets and make hotel reservations online.  Telecommunications- Software is widely used here. Also all mobile phones have software embedded in them.
  29. 29. 29  Defense- There is software embedded in almost every weapon. Software is used for controlling the flight and targeting in ballistic missiles. Software is used to control access to atomic bombs.  E-Learning- Instead of a book it is easier to learn from an E-learning software.  Gambling- You can gamble online instead of going to a casino.  Examinations- You can give online exams and get instant results. You can check your examination results online.  Business- Shops and supermarkets use software, which calculate the bills. Taxes can be calculated and paid online. Finance is done using computers. One can predict future trends of business using artificial intelligence software. Software is used in major stock markets. One can do trading online. There are fully automated factories running on software.  Certificates- Different types of certificates can be generated. It is very easy to create and change layouts.  ATM Machines- The computer software authenticates the user and dispenses cash.  Marriage- There are matrimonial sites through which one can search for a suitable groom or bride.  News- There are many websites through which you can read the latest or old news.  Robotics- Robots are controlled by software.
  30. 30. 30  Electronic gadgets run with the help of computers. There are various software which are used to increase the efficiency of these devices. Timers, self-controlled switches - these ensure that the machines ask for minimum human effort.  Planning and Scheduling- Software can be used to store contact information, generating plans, scheduling appointments and deadlines.  Plagiarism- Software can examine content for plagiarism.  Greeting Cards- You can send and receive greetings pertaining to different occasions.  Sports- Software is used for making umpiring decisions. There is simulation software using which a sportsperson can practice his skills. Computers are also to identify flaws in technique.  Airplanes- Pilots train on software, which simulates flying.  Weather analysis- Supercomputers are used to analyze and predict weather. 2.3.0 COMPUTER EVOLUTION The computer evolution is indeed an interesting topic that has been explained in some different ways over the years, by many authors. According to The Computational Science Education Project, US, the computer has evolved through the following stages: I. The Mechanical Era (1623-1945) Trying to use machines to solve mathematical problems can be traced to the early 17th century. Wilhelm Schickhard, Blaise Pascal, and Gottfried Leibnitz were among mathematicians who designed and implemented calculators that
  31. 31. 31 were capable of addition, subtraction, multiplication, and division included. The first multi-purpose or programmable computing device was probably Charles Babbage's Difference Engine, which was begun in 1823 but never completed. In 1842, Babbage designed a more ambitious machine, called the Analytical Engine but unfortunately it also was only partially completed. Babbage, together with Ada Lovelace recognized several important programming techniques, including conditional branches, iterative loops and index variables. Babbage designed the machine which is arguably the first to be used in computational science. In 1933, George Scheutz and his son, Edvard began work on a smaller version of the difference engine and by 1853 they had constructed a machine that could process 15-digit numbers and calculate fourth-order differences. The US Census Bureau was one of the first organizations to use the mechanical computers which used punch-card equipment designed by Herman Hollerith to tabulate data for the 1890 census. In 1911 Hollerith's company merged with a competitor to found the corporation which in 1924 became International Business Machines (IBM). II. First Generation Electronic Computers (1937-1953) These devices used electronic switches, in the form of vacuum tubes, instead of electromechanical relays. The earliest attempt to build an electronic computer was by J. V. Atanasoff, a professor of physics and mathematics at Iowa State in 1937. Atanasoff set out to build a machine that would help his graduate students solve systems of partial differential equations. By 1941 he and graduate student Clifford Berry had succeeded in building a machine that
  32. 32. 32 could solve 29 simultaneous equations with 29 unknowns. However, the machine was not programmable, and was more of an electronic calculator. A second early electronic machine was Colossus, designed by Alan Turing for the British military in 1943. The first general purpose programmable electronic computer was the Electronic Numerical Integrator and Computer (ENIAC), built by J. Presper Eckert and John V. Mauchly at the University of Pennsylvania. Research work began in 1943, funded by the Army Ordinance Department, which needed a way to compute ballistics during World War II. The machine was completed in 1945 and it was used extensively for calculations during the design of the hydrogen bomb. Eckert, Mauchly, and John von Neumann, a consultant to the ENIAC project, began work on a new machine before ENIAC was finished. The main contribution of EDVAC, their new project, was the notion of a stored program. ENIAC was controlled by a set of external switches and dials; to change the program required physically altering the settings on these controls. EDVAC was able to run orders of magnitude faster than ENIAC and by storing instructions in the same medium as data, designers could concentrate on improving the internal structure of the machine without worrying about matching it to the speed of an external control. Eckert and Mauchly later designed what was arguably the first commercially successful computer, the UNIVAC; in 1952. Software technology during this period was very primitive. III. Second Generation (1954-1962) The second generation witnessed several important developments at all levels of computer system design, ranging from the technology used to build the
  33. 33. 33 basic circuits to the programming languages used to write scientific applications. Electronic switches in this era were based on discrete diode and transistor technology with a switching time of approximately 0.3 microseconds. The first machines to be built with this technology include TRADIC at Bell Laboratories in 1954 and TX-0 at MIT's Lincoln Laboratory. Index registers were designed for controlling loops and floating point units for calculations based on real numbers. A number of high level programming languages were introduced and these include FORTRAN (1956), ALGOL (1958), and COBOL (1959). Important commercial machines of this era include the IBM 704 and its successors, the 709 and 7094. In the 1950s the first two supercomputers were designed specifically for numeric processing in scientific applications. IV. Third Generation (1963-1972) Technology changes in this generation include the use of integrated circuits, or ICs (semiconductor devices with several transistors built into one physical component), semiconductor memories, and microprogramming as a technique for efficiently designing complex processors and the introduction of operating systems and time-sharing. The first ICs were based on small-scale integration (SSI) circuits, which had around 10 devices per circuit (or ‘chip’), and evolved to the use of medium-scale integrated (MSI) circuits, which had up to 100 devices per chip. Multilayered printed circuits were developed and core memory was replaced by faster, solid state memories. In 1964, Seymour Cray developed the CDC 6600, which was the first architecture to use functional parallelism. By using 10 separate functional
  34. 34. 34 units that could operate simultaneously and 32 independent memory banks, the CDC 6600 was able to attain a computation rate of one million floating point operations per second (Mflops). Five years later CDC released the 7600, also developed by Seymour Cray. The CDC 7600, with its pipelined functional units, is considered to be the first vector processor and was capable of executing at ten Mflops. The IBM 360/91, released during the same period, was roughly twice as fast as the CDC 660. Early in this third generation, Cambridge University and the University of London cooperated in the development of CPL (Combined Programming Language, 1963). CPL was, according to its authors, an attempt to capture only the important features of the complicated and sophisticated ALGOL. However, like ALGOL, CPL was large with many features that were hard to learn. In an attempt at further simplification, Martin Richards of Cambridge developed a subset of CPL called BCPL (Basic Computer Programming Language, 1967). In 1970 Ken Thompson of Bell Labs developed yet another simplification of CPL called simply B, in connection with an early implementation of the UNIX operating system). V. Fourth Generation (1972-1984) Large scale integration (LSI - 1000 devices per chip) and very large scale integration (VLSI - 100,000 devices per chip) were used in the construction of the fourth generation computers. Whole processors could now fit onto a single chip, and for simple systems the entire computer (processor, main memory, and I/O controllers) could fit on one chip. Gate delays dropped to about 1ns
  35. 35. 35 per gate. Core memories were replaced by semiconductor memories. Large main memories like CRAY 2 began to replace the older high speed vector processors, such as the CRAY 1, CRAY X-MP and CYBER. In 1972, Dennis Ritchie developed the C language from the design of the CPL and Thompson's B. Thompson and Ritchie then used C to write a version of UNIX for the DEC PDP-11. Other developments in software include very high level languages such as FP (functional programming) and Prolog (programming in logic). IBM worked with Microsoft during the 1980s to start what we can really call PC (Personal Computer) life today. IBM PC was introduced in October 1981 and it worked with the operating system (software) called ‘Microsoft Disk Operating System (MS DOS) 1.0. Development of MS DOS began in October 1980 when IBM began searching the market for an operating system for the then proposed IBM PC and major contributors were Bill Gates, Paul Allen and Tim Paterson. In 1983, the Microsoft Windows was announced and this has witnessed several improvements and revision over the last twenty years. VI. Fifth Generation (1984-1990) This generation brought about the introduction of machines with hundreds of processors that could all be working on different parts of a single program. The scale of integration in semiconductors continued at a great pace and by 1990 it was possible to build chips with a million components - and semiconductor memories became standard on all computers. Computer networks and single-user workstations also became popular.
  36. 36. 36 Parallel processing started in this generation. The Sequent Balance 8000 connected up to 20 processors to a single shared memory module though each processor had its own local cache. The machine was designed to compete with the DEC VAX-780 as a general purpose Unix system, with each processor working on a different user's job. However Sequent provided a library of subroutines that would allow programmers to write programs that would use more than one processor, and the machine was widely used to explore parallel algorithms and programming techniques. The Intel iPSC-1, also known as ‘the hypercube’ connected each processor to its own memory and used a network interface to connect processors. This distributed memory architecture meant memory was no longer a problem and large systems with more processors (as many as 128) could be built. Also introduced was a machine, known as a data-parallel or SIMD where there were several thousand very simple processors which work under the direction of a single control unit. Both wide area network (WAN) and local area network (LAN) technology developed rapidly. VII. Sixth Generation (1990 – till date) Most of the developments in computer systems since 1990 have not been fundamental changes but have been gradual improvements over established systems. This generation brought about gains in parallel computing in both the hardware and in improved understanding of how to develop algorithms to exploit parallel architectures. Workstation technology continued to improve, with processor designs now using a combination of RISC, pipelining, and parallel processing. Wide area networks, network bandwidth and speed of
  37. 37. 37 operation and networking capabilities have kept developing tremendously. Personal computers (PCs) now operate with Gigabit per second processors, multi-Gigabyte disks, hundreds of Mbytes of RAM, colour printers, high- resolution graphic monitors, stereo sound cards and graphical user interfaces. Thousands of software (operating systems and application software) are existing today and Microsoft Inc. has been a major contributor. Microsoft is said to be one of the biggest companies ever, and its chairman – Bill Gates has been rated as the richest man for several years. Finally, this generation has brought about micro controller technology. Micro controllers are ’embedded’ inside some other devices (often consumer products) so that they can control the features or actions of the product. They work as small computers inside devices and now serve as essential components in most machines. 2.4.0 COMPUTER LAW Computer Law is concerned with controlling and securing information stored on and transmitted between computers. Computer networks contain and store a great deal of private digital information: data on identities, internet access and usage; credit cards; financial information and information for electronic commerce; technical, trade and government secrets; mailing lists; medical records; and much more. It is illegal to maliciously erase this type of data; acquire proprietary information; manipulate said data to obtain funds illegally, through bank withdrawals and transfers, identity theft and credit card use; and to access and use any of this data for any other reason, without authorization.
  38. 38. 38 Information Technology Law (or IT Law) is a set of recent legal enactments, currently in existence in several countries, which governs the process and dissemination of information digitally. These legal enactments cover a broad gamut of different aspects relating to computer software, protection of computer software, access and control of digital information, privacy, security, internet access and usage, and electronic commerce. These laws have been described as ‘paper laws’ for ‘paperless environment’. What is computer Law? We see it as an obvious convergence of intellectual property doctrine, communications regulation, First Amendment norms, and new technology. As information becomes the most precious commodity of the 21st century, the law surrounding it will have to evolve. That’s what we want to talk and think about here — along with various related and not-so-related threads (‘information’ covers a lot of ground!). Information Technology Law (or IT Law) is a set of recent legal enactments, currently in existence in several countries, which governs the process and dissemination of information digitally. These legal enactments cover a broad gamut of different aspects relating to computer software, protection of computer software, access and control of digital information, privacy, security, internet access and usage, and electronic commerce. These laws have been described as ‘paper laws’ for ‘paperless environment’. The Committee was created in 1997 as a successor to the Coordinating Commission on Legal Technology (CCOLT) and is comprised of representatives from a number of Association entities selected by the ABA
  39. 39. 39 President to provide guidance and oversight for the Association's technology initiatives. Under-listed are some of the computer laws relevant to this project:- 1. Computer Security Act of 1987 In 1987, the U.S. Congress, led by Rep. Jack Brooks, enacted a law reaffirming that the National Institute for Standards and Technology (NIST), a division of the Department of Commerce, was responsible for the security of unclassified, non-military government computer systems. Under the law, the role of the National Security Agency (NSA) was limited to providing technical assistance in the civilian security realm. Congress rightly felt that it was inappropriate for a military intelligence agency to have control over the dissemination of unclassified information. 2. Cornell Institute for Computer Policy and Law (ICPL)33 The EDUCAUSE / Cornell Institute for Computer Policy and Law provide leadership to colleges and universities in developing information technology policies. Founded in 1996 at Cornell University, the Institute incorporates experts from a wide variety of fields, including chief information officers, student judicial-affairs administrators, librarians, attorneys, policy officers, and many others. The Institute supports the professional development of information technology, policy and legal professionals within higher education to facilitate the creation and administration of effective information technology policies. It also monitors and analyzes changes in technology and 33 www.hg.org/compute.html(accessed 15 th May,2011)
  40. 40. 40 law to assess the impact of those changes on academic information technology policy. 3. Digital Signature Legislation Legislators and business leaders long recognized that the passage of some kind of digital legislation was of central importance to the development of e- commerce. However, for several years Republicans and Democrats in the U.S. Congress haggled over what should be included in such a bill. In the meantime, several states passed their own legislation allowing some forms of digital signatures to be legally binding in certain situations. When a major piece of national legislation went into effect in 2000, it was heralded as a giant step toward the harmonization of interstate and international laws, and was expected to help propel e-commerce forward in the early 2000s. 4. E-Sign Laws and Regulations On June 30, 2000 President Clinton signed the ‘Electronic Signatures in Global and National Commerce Act’ (ESIGN) using his electronic signature ID, and thereby established the validity of electronic signatures for interstate and international commerce. 5. Health Information Technology Act of 2009 This bill encourages the use of clinical health care informatics systems and services by offering monetary incentives to health care providers in order to offset the related costs of such technology. It would also seek to develop national standards regarding data and communication health information technology, working towards the goals of efficient data exchange and improved health care quality while protecting patient privacy and security.
  41. 41. 41 6. National Institute of Standards and Technology - Computer Security Division The E-Government Act [Public Law 107-347] passed by the 107th Congress and signed into law by the President in December 2002 recognized the importance of information security to the economic and national security interests of the United States. Title III of the E-Government Act, entitled the Federal Information Security Management Act of 2002 (FISMA), included duties and responsibilities for the Computer Security Division in Section 303 ‘National Institute of Standards and Technology.’ 7. Computer Law Association (CLA) The Computer Law Association (CLA) is one of the world’s largest international organizations of information technology law professionals. With members on all continents except Antarctica, and with 70 percent of new members joining from countries other than the United States, CLA enjoys a unique position in bringing together the world’s information technology law community. 8. Global Alliance for ICT and Development (GAID) The Global Alliance for Information and Communication Technologies and Development (GAID), an initiative approved by the United Nations Secretary- General in 2006, was launched after comprehensive worldwide consultations with governments, the private sector, civil society, the technical and Internet communities and academia.
  42. 42. 42 9. United Nations Information and Communication Technologies Task Force In March 2001, the United Nations Economic and Social Council requested the Secretary-General to establish an Information and Communication Technologies (ICT) Task Force. This initiative is intended to lend a truly global dimension to the multitude of efforts to bridge the global digital divide, foster digital opportunity and thus firmly put ICT at the service of development for all. ORGANIZATIONS RELATED TO COMPUTER LAW  Canadian IT Law Association The Canadian IT Law Association (‘IT.CAN’) was founded in 1997 by a group of Canadian information technology lawyers from across the country. It was intended to provide a national forum for Canadian practitioners to discuss the uniquely Canadian aspects of IT law and related fields of e-commerce and intellectual property.  Computer Professionals for Social Responsibility - CPSR CPSR is a global organization promoting the responsible use of computer technology. Founded in 1981, CPSR educates policymakers and the public on a wide range of issues. CPSR has incubated numerous projects such as Privaterra, the Public Sphere Project, EPIC (the Electronic Privacy Information Center), the 21st Century Project, the Civil Society Project, and the CFP (Computers, Freedom & Privacy) Conference. Originally founded by U.S. computer scientists, CPSR now has members in 26 countries on six continents.
  43. 43. 43  Electronic Frontier Foundation (EFF) From the Internet to the iPod, technologies are transforming our society and empowering us as speakers, citizens, creators, and consumers. When our freedoms in the networked world come under attack, the Electronic Frontier Foundation (EFF) is the first line of defense. EFF broke new ground when it was founded in 1990 — well before the Internet was on most people's radar — and continues to confront cutting-edge issues defending free speech, privacy, innovation, and consumer rights today. From the beginning, EFF has championed the public interest in every critical battle affecting digital rights.  International Association for Artificial Intelligence and Law (IAAIL) IAAIL is a nonprofit association devoted to promoting research and development in the field of AI and Law, with members throughout the world. IAAIL organizes a biennial conference (ICAIL), which provides a forum for the presentation and discussion of the latest research results and practical applications and stimulates interdisciplinary and international collaboration.  ITechLaw ITechLaw is a not-for-profit organization established to inform and educate lawyers about the unique legal issues arising from the evolution, production, marketing, acquisition and use of information and communications technology. We provide a forum for the exchange of ideas and in-depth examination of information technology and telecommunications law issues.  Law Enforcement Information Technology Standards Council (LEITSC)
  44. 44. 44 The Mission of LEITSC is to foster the growth of strategic planning and implementation of integrated justice systems. Together, participants from these organizations represent the voice of law enforcement as a whole on information technology standard issues.  International Journal of Law and Information Technology The International Journal of Law and Information Technology provides cutting edge and comprehensive analysis of Information Technology, communications and cyberspace law as well as the issues arising from applying Information and Communications Technologies (ICT) to legal practice. International in scope, this journal has become essential for legal and computing professionals and legal scholars of the law related to IT.  John Marshall Journal of Computer and Information Law The John Marshall Journal of Computer & Information Law is an international law review dedicated to current issues in information technology and privacy law. As one of the first of its kind, the Journal fills a unique niche among legal academic publications, addressing cutting-edge topics with input from scholars around the world.  Rutgers Computer and Technology Law Journal First in its field, the Rutgers Computer and Technology Law Journal strives to keep judges, policymakers, practitioners and the academic community abreast of the dynamic legal issues arising from society's interaction with computers and emerging technologies. Rutgers law students founded the Journal in 1969, far in advance of the ubiquity of computers and networking technology. Since its inception, the Journal has maintained a tradition of excellence and has
  45. 45. 45 designed each issue to foster critical discourse on the technological breakthroughs impacting the legal landscape. The Journal's success is reflected in a subscription base of about four hundred national and international subscribers, as well as in its citation in numerous texts, articles and judicial opinions, including those of the United States Supreme Court.  Bit-Law Legal Resource Bit-Law is a comprehensive Internet resource on technology and intellectual property law. In this site, you will find complete copies of the United States Patent, Copyright, and Trademark statutes, as well as the relevant regulations from the Code of Federal Regulations. Bit-Law also includes converted versions of the TMEP and MPEP (the office manuals created by the United States Trademark and Patent Offices, respectively). Each of these documents includes links to the relevant statutory and regulatory sections. Finally, BitLaw contains a great deal of custom written descriptions of how these areas of the law affect the computer and technology industries. 2.5.0 CONCLUSION Computer on the whole has had diverse impact on several aspect of life and it has actually brought about several developmental growths in all industries. However, it should be noted that infringements upon the rights of others through the use of computers would be deemed as a crime and a critical offence. The sole aim of computer law is to regulate the use of computers and to further propel adequate strict compliance with all laws regarding computer law.
  46. 46. 46 CHAPTER THREE THE ROLE OF COMPUTER TECHNOLOGY IN BANKING TRANSACTIONS 3.0.0 INTRODUCTION The business operations in the banking sector have been increasingly dependent on the computerized information systems over the years. It has now become impossible to separate Information Technology (IT) from the business of the banks and the financial institutions. Commercial banking is evolving into a highly competitive and technologically innovative industry and its managing. Commercial banking is evolving into a highly competitive and technologically innovative industry and is managing growing assets with fewer workers. To better compete in a changing market, banks use computer technology to provide new services and attract customers. One of the most significant technological investments made by commercial banks is the automated teller machine (atm). ATM’s introduced the power of computer technology to the general public and made banking convenient for consumers. Today, ATMs deliver banking services 24 hours a day, 7 days a week to a lot of people. The use of computer technology in banking first began in the early 1950s, when the first large computer was built for Bank of America.34 Initially, computers were used to process check transactions through magnetic ink character recognition. With the introduction of the first automated 34 Martin Mayer, ‘The Humbling Of Bank America,’ The New York times, May 3,1987
  47. 47. 47 clearinghouse in the early 1970s, electronic funds transactions were made possible, and the ATM was introduced.35 Banks increasingly have turned toward ATM and other computer technology to reduce the high costs associated with maintaining traditional ‘brick and mortar’ branches staffed by tellers. Atm transactions, along with transactions made by telephone, have replaced transactions formerly made with human tellers. The developments in Computer Technology have a tremendous impact on auditing. Information Technology has facilitated re-engineering of the traditional business processes to ensure efficient operations and improved communication within the organization and between the organisations and its customers. Auditing in a computerized and networked environment is still at its nascent stage in India and established practices and procedures are evolving. Well planned and structured audit is essential for risk management and monitoring and control of Information Systems in any organization. 3.1.0 BACKGROUND OF COMPUTER TECHNOLOGY IN BANKING TRANSACTIONS Today’s business environment is very dynamic and undergoes rapid changes as a result of technological innovation, increased awareness and demands from customers. Business organisations, especially the banking industry of the 21st century operates in a complex and competitive environment characterized by these changing conditions and highly unpredictable economic climate. 35 Technology and Labor in Oil and Gas Extraction and Commercial Banking, Bulletin 2432 (Bureau of Labor Statistics, October 1993)
  48. 48. 48 Computer Technology (CT) is at the centre of this global change curve. Laudon and Laudon, (1991) contend that managers cannot ignore Information Systems because they play a critical role in contemporary organisation. They point out that the entire cash flow of most fortune 500 companies is linked to Information System. The application of information and communication technology concepts, techniques, policies and implementation strategies to banking services has become a subject of fundamental importance and concerns to all banks and indeed a prerequisite for local and global competitiveness. CT directly affects how managers decide, how they plan and what products and services are offered in the banking industry. It has continued to change the way banks and their corporate relationships are organized worldwide and the variety of innovative devices available to enhance the speed and quality of service delivery. Information Technology (IT) is the automation of processes, controls, and information production using computers, telecommunications, software and ancillary equipment such as automated teller machine and debit cards (Khalifa 2000). It is a term that generally covers the harnessing of electronic technology for the information needs of a business at all levels. Irechukwu (2000) lists some banking services that have been revolutionized through the use of CT as including account opening, customer account mandate, and transaction processing and recording. Computer Technology has provided self-service facilities (automated customer service machines) from where prospective customers can complete their account opening documents direct
  49. 49. 49 online. It assists customers to validate their account numbers and receive instruction on when and how to receive their chequebooks, credit and debit cards. Computer Technology deals with the Physical devices and software that link various computer hardware components and transfer data from one physical location to another (Laudon and Laudon; 2001). CT products in use in the banking industry include Automated Teller Machine, Smart Cards, Telephone Banking, MICR, Electronic Funds Transfer, Electronic Data Interchange, Electronic Home and Office Banking. Several authors have conducted investigation on the impact of CT on the banking sector of the Nigeria economy. Agboola et al (2002) discussed the dimensions in which automation in the banking industry manifest in Nigeria. They include: Bankers Automated Clearing Services: This involves the use of Magnetic Ink Character Reader (MICR) for cheque processing. It is capable of encoding, reading and sorting cheques. Automated Payment Systems: Devices used here include Automatic Teller Machine (ATM), Plastic Cards and Electronic Funds Transfer. Automated Delivery Channels: These include interactive television and the Internet. Agboola (2001) studied the impact of computer automation on the banking services in Lagos and discovered that Electronic Banking has tremendously improved the services of some banks to their customers in Lagos. The study was however restricted to the commercial nerve center of Nigeria and concentrated on only six banks. He made a comparative analysis between the
  50. 50. 50 old and new generation banks and discovered variation in the rate of adoption of the automated devices. 3.2.0 USES OF COMPUTER TECHNOLOGY IN BANKING TRANSACTIONS Computers are used in banks for a variety of reasons and purposes. They help bank personnel operate more efficiently and effectively. Computers are used to track certain transactions and they help process other customer information as well. Without computers, it would be very hard for a bank to offer good customer service day-in and day out. Computers help a bank to save time and money and can be used as an aid to generate profits. Among the several uses of computer technology, the following have been shortlisted: - 1. CUSTOMER INFORMATION Banks use computers to track customer information such as name, address, phone number, date of birth, social security number and place of employment. This information is used to stay in touch with customers and notify them of any change in bank policy. A customer address is needed to send out statements on a monthly basis. A customer’s account number is also stored in the computer, which gives the bank employees the ability to access customer information efficiently. 2. PRODUCTS The number of products and services a customer has is also stored in computers. Bank personnel will periodically call customers at home to offer them a product or service, such as a home equity line of credit. It helps to know which products a customer already has before any new products are
  51. 51. 51 offered. Without the use of computers, it would be difficult to keep track of this information. 3. REPORTS AND PROFITS Through the use of a computer, banks can analyze aging reports and track the customers who have had checks returned due to non-sufficient funds. This report can be used by the sales associate to call these customers and offer them a product called overdraft protection, which prevents a customer from over drafting their account. Also, computers help bank personnel generate income by targeting certain customers for sales activity. 4. TRANSACTIONS AND GOALS Computers help tellers keep a record of all transactions for the day. When customers make deposits and withdrawals, cash checks, open checking accounts or apply for mortgage loans, a computer will store and track all of the information once a teller or bank employee keys it into the system. After tabulating all of the information, a branch manager can print the report at the end of the day to see if the branch hits its goals and objectives. Branches have goals for lending and new accounts. 5. CREDIT APPLICATION A bank can use computers for new loans applications and credit card applications; chex-systems verification; and opening new accounts such as checking, savings or certificate of deposit accounts. 6. DELINQUENCY Computers can be used to track customers who are delinquent on their loans and credit card payments. Computers can generate separate reports for
  52. 52. 52 customers who are 30-, 60-, 90-days delinquent on their accounts. When a 30- day delinquency report is generated, a collection representative can contact the customer for resolution, which helps keep delinquency under control. 7. MISCELLANEOUS Computers can keep a record of all communications that a bank employee may have with a bank customer including collection activity. A bank can also use a computer to see which safety deposit boxes are available and they can keep a record of customers who have safety deposit boxes.36 3.3.0 IMPORTANCE OF COMPUTER TECHNOLOGY IN BANKING TRANSACTIONS There are various ways through which computers are widely used in the banking industry. It can be used to carry out from simple to complex tasks of the banks. For example instead of making manual records, and then storing the files, all data is stored on the computer. It is more quick and productive. More data can be stored in this way. Moreover, data can be easily stored, and retrieved from computers. Computers have saved the banking industry millions. It ultimately allows for greater efficiencies by enabling the banks to phase out legacy ‘paper’ processes for streamlined computerized processes through customized software programming. Computer technology has also aided the facilitation of accurate records, enhancement of convenient business hour, facilitation of prompt and fair attention, enhancement of faster services and availability of Home and Office 36 Use of Computers by Tellers,www.extract.com (accessed 20th june,2011)
  53. 53. 53 Banking services. It has been generally accepted that the adoption of CT products in banking facilitates accurate records. Similarly, the customers believe that the adoption enhanced convenient business hour, facilitates prompt and fair attention, enhances faster services, and makes Home and Office Banking available to customers. 3.4.0 LEGAL FRAME-WORK REGULATING COMPUTER TECHNOLOGY IN BANKING TRANSACTIONS The introduction of computers into the banking business has a wide variety of legal implications that merit careful attention at this early stage. The industry is highly regulated by government and, hence, is subject to many statutes and regulations. It also is affected by important common law rules established by courts. The legal ramifications involve not only the mechanization itself, but also the very significant, economically attractive phenomenon of off premises processing. It is essential to identify and provide for many legal aspects right now, before systems and practices crystallize in order to avoid the later impact of unanticipated physical complications and expense. The legal aspects of computerization in the banking business are especially diverse. This project undertakes to provide a set of guidelines as regards the use of computer technology as regards banking transactions. Legal rights and obligations pertinent to the mechanization of the banking business, like such rights and obligations generally have a variety of different sources. However, none is of greater significance than the others. Each must be considered and respected with equal care. All have to be examined in
  54. 54. 54 searching out potential legal considerations in banking mechanization. The legal frameworks regulating use of computer technology in banking transactions includes the following:- I. STATUTES Statutes enacted by legislatures probably are the first source of legal rules normally thought of. The banking business is highly regulated because of its importance to society and the grave dangers inherent in the possible abuses that might be practiced. Hence, statutory enactments pertinent to banking are extensive and cover a wide range of its aspects, and many of them are relevant in this discussion. One example of such enactments is the Nigerian National policy for information technology. Its objectives are as follows:-  To cultivate a culture of electronic commerce, which makes business transactions easy, quick and cost effective, for both national and international transactions37  Establish a high profile National Electronic Commerce Council (NECC), to govern all the electronic commerce (e-commerce) affairs in Nigeria, and facilitate international trade through an e-commerce infrastructure. The NECC will be operated and supervised by NITDA with the cooperation of relevant Ministries and organisations.38 II. COMMON LAW RULES Exercising their inherent powers under the law, courts formulate legal rules in areas not covered by statutes, as they decide specific cases. These cases 37 Chapter 8, article 8.2,para ii 38 Chapter 8, article 8.3,para vii
  55. 55. 55 generally involve suits relating to contracts or suits for damages because of harmful conduct, the latter known as tort suits. A substantial body of legal rules has been built up in this fashion. Like statutes, they cover a very wide range of subjects and situations. Although, in the main, common law rules apply generally and are, in that respect, relevant to banking operations, some few have peculiar application to situations in that business.39 III. REQUIREMENTS OF ADMINISTRATIVE AGENCIES Requirements established by government regulatory agencies with jurisdiction over banks constitute a very important source of rules with the force of law. Those requirements might be formalized as published regulations. They might, however, also stem from less formally determined ways of performing administrative functions, like bank examinations or audits. Normally, administrative agencies are given merely general responsibilities by the legislative bodies that set them up and are expected, by means of their rules and regulations, to furnish the details that give meanings to the underlying policies and to apply them to specific fact situations. A unique characteristic of administrative agencies is their power to decide specific cases involving the applications of their regulations, as well as to promulgate those regulations in the first instance. Hence, agency decisions and rulings relating to particular fact situations also disclose important legal rules. As stated, the banking business is highly regulated. This is indicated superficially, by the number of agencies involved in the process, all of whose regulations are pertinent. They include the regulations of the Central Bank of Nigeria, Company and Allied 39 See Haddock v. The Generous Bank Ltd.
  56. 56. 56 Matters Act IV. PRIVATE CONTRACTS The specific agreements and understandings that banks enter into with their customers or with outside data processors also reflect legal considerations highly pertinent in connection with bank mechanization. Although, such contracts usually are in writing and always should be, they might be oral. And written contracts might consist of an exchange of correspondence as well as a single formal document executed by both parties. Those contracts constitute, for the parties to each transaction separately, a body of special and frequently very important rules of law. They might, for example, define the extent to which each of the parties will suffer any losses, either by paying out damages or by foregoing the receipt of damages as compensation, where economic harm flows from improper acts in the course of the relationship. It should be borne in mind that contracts normally cannot limit liability that exists to other persons. In a few types of situations, parties may not alter their liabilities by contract. For example, under Pennsylvania’s version of the Uniform Commercial Code, a bank may not escape liability, in connection with its handling of bank deposits and collections, for its own lack of good faith or failure to exercise ordinary care, or limit the amount of damages it must pay for harm resulting from such conduct40 3.5.0 CONCLUSION Computer technology is used by commercial banks to reduce costs and survive the competition. Consumer acceptance of ATM’s and touch telephones to 40 Title 12a Purdon’s Penna. Stat.Sec 4 - 103
  57. 57. 57 make banking transactions has allowed banks to reduce the number of costly transactions made with human tellers. Subsequently, banks have reduced the employment of tellers and have converted many of the remaining teller positions into part-time jobs. In the future, commercial banks are expected to achieve a rise in real output, while providing more services with fewer employees.
  58. 58. 58 CHAPTER FOUR THE ROLE OF COMPUTER TECHNOLOGY IN FINANCIAL TRANSACTIONS 4.0.0 INTRODUCTION Computer technology has been an essential behind-the-scenes partner in the financial services industry, providing the innovative incremental advances necessary for the industry to upgrade and expand its services. Improvements in storage capacity and processing speed, for example, have had a profound impact on data management and transactional capabilities, with accompanying reductions in cost. Yet despite these and other advances, the industry has struggled to fully leverage the power and promise of technology, with market participants eager for solutions that are not only faster and cheaper but that also offer greater security and efficiency. 4.1.0 BACKGROUND OF COMPUTER TECHNOLOGY IN FINANCIAL TRANSACTIONS The use of electronic communication in finance, in fact, goes back much further than the 1970s as long ago as 1918; the Fed wire payment system allowed electronic settlement of payments between banks over the telegraph. This use of electronic communications in payments systems has steadily increased over time. Now virtually all large payments between banks and corporations are done electronically. In some countries, such as those in Scandinavia, electronic payments systems are becoming increasingly widely used at the consumer level. In the U.S., however, the paper-based check
  59. 59. 59 clearing system still predominates 4.2.0 FORMS OF COMPUTER TECHNOLOGY IN FINANCIAL TRANSACTIONS Computer technology has been held to be involved in financial transactions in the following forms:- 1) E-finance E-finance is defined as ‘The provision of financial services and markets using electronic41 .E-finance is the use of electronic means to exchange information, transfer signs and representations of value, and execute transactions in a commercial environment. E-finance comprises four primary channels: electronic funds transfers (EFTs), electronic data interchange (EDI); electronic benefits transfers (EBTs), and electronic trade confirmations (ETCs). Although e-finance offers developing market economies an opportunity to leapfrog, it is not without potential risks. Most of the crimes that take place over the Internet are not new— fraud, theft, impersonation, denial of service, and related extortion demands have plagued the financial services industry for years. But technology opens up new dimensions of depth, scope, and timing, enabling perpetrators to engineer with flexibility and specificity much greater disruption or theft than ever before. All four channels of e-finance are susceptible to fraud, theft, embezzlement, pilfering, and extortion. 2) MOBILE FINANCE Technological development of mobile devices and electronic commerce has enabled mobile devices to be used for financial transaction purposes. Mobile 41 E-finance : an introduction by Franklin Allen, James McAndrews, Philip Strahan, www.
  60. 60. 60 finance comprising both mobile banking and mobile payment may be a natural evolution of electronic commerce. Furthermore, constantly increasing rate of mobile subscription worldwide has made mobile devices an efficient tool to offer safe and convenient financial services to subscribers. Especially as mobile finance solutions allow customers to perform various financial transactions while on the move, mobile finance in micro-transactions may fully replace computer-based financial transactions in the near future by offering application integrating both mobile banking and mobile payment solutions. Mobile finance has created huge business opportunities for merchants, mobile network operators, mobile device manufacturers, financial Institutions and software providers. Those mobile finance participants have added new financial transaction forms to make their services available through mobile devices. Mobile finance business has been fairly successful especially in South Korea, Japan and other Asian countries. The continuous growth of mobile finance depends on not only user- friendliness of services but also legal framework for mobile finance. To some extent, the traditional legal framework of financial transaction could be applied to the mobile finance as well. But distinctive features of mobile finance, especially the fact that mobile finance is performed in a non-facing and automated manner without any direct contact, require creation of a new legal environment complying with various needs from those participants. I. Development of Mobile Finance A. Technologies for Mobile Finance 1. SMS-based Application
  61. 61. 61 This is a Short Message Service (SMS) that mainly provides information about the status of bank account. Short messages containing information about the bank account are transmitted to customer’s mobile phone by SMS center server of mobile network operator which is connected to the mobile banking server of bank. As SMS-based application uses insecure encryption, SMS banking is not intended to be used for high-risk transactions. SMS-based banking service is operated using both push and pull messages. Push messages are those that banks choose to send out to a customer's mobile phone without the customer’s request for the information. Typically push messages could be either mobile marketing messages or messages alerting an event which happens in the customer's bank account. Pull messages are those that are initiated by customers using a mobile phone to obtain information about the bank account. Examples of pull messages include an account balance inquiry, currency exchange rates and deposit interest rates. 2. WAP Browser-based Application Wireless Application Protocol (WAP) browser and Mobile Explorer (ME) browser are commonly used standard web browser for mobile devices which allow conversational data exchange between the client and the server. Similar to a PC requiring an internet browser installed in order to access content online, a mobile device requires a WAP browser installed in order to access information on WAP sites. By adopting WAP browser, mobile network operators and banks could offer not only information-based banking service but also transaction-based banking service including payments, deposits, withdrawals and transfers. The
  62. 62. 62 disadvantage of WAP browser is that WAP browser implementation is not consistent across mobile devices manufacturers. 3. IC Chip-based Application Integrated Circuit (IC) Chip is a miniaturized electronic circuit that has been manufactured in the surface of a thin substrate of semiconductor material. Mobile network operators partnered with banks to launch IC Chip-based mobile banking service. Customers could get access to mobile banking service by inserting IC Chip, which is controlled by banks, into a mobile device.42 Furthermore, mobile network operators collaborated with credit card companies to operate IC Chip-based credit card service. A SIM-sized credit card certified by credit card companies can be inserted into a mobile device to enable credit card payments. However, because each IC Chip should be issued by each bank or credit card company, customers have to change IC Chip whenever they use IC Chip from a different issuer. 4. USIM-based Application A Universal Subscriber Identity Module (USIM) is an application running on a UICC (Universal Integrated Circuit Card) smartcard which is inserted in a WCDMA 3G mobile phone. The equivalent of USIM on GSM 2G mobile networks is SIM. Like SIM, USIM stores subscriber information, authentication information and provides storage space. Furthermore USIM enables its subscribers to download various mobile banking applications, credit card applications and public transportation applications onto USIM 42 In South Korea, the third-largest mobile network provider LG Telecom with the largest bank Kookmin Bank launched the first IC-Chip based mobile banking service in 2003. IC- Chips were issued and controlled by Kookmin Bank and LG Telecom p
  63. 63. 63 through OTA (over the air) technology. Customers do not need to change chips each time they use different applications.43 5. NFC-based Application Near Field Communication (NFC) is the most recently developed technology for mobile finance. NFC is a short-range high-frequency wireless communication technology which enables the exchange of data between devices over about 10cm distance by combining the interface of a smartcard and a reader into a single device. NFC device is also compatible with existing contactless infrastructure already in use for public transportation and payment. There are three specific features for NFC: NFC device behaves like an existing contactless card (Card emulation), NFC device is active and reads a passive RFID tag (Reader mode) and two NFC devices are communicating together and exchanging information (P2P mode). These features of NFC make mobile devices even more suitable for financial transaction purpose. Standardization of NFC has been achieved mainly by GSMA (GSM Association) and Mobey Forum, and Both GSMA and Mobey Forum have recently emphasized the important role of Trusted Service Manager (TSM).44 TSM works behind the scenes to make the entire process of downloading mobile finance applications onto mobile device efficient and secure. As TSM clearly understands security systems of both banks and mobile network 43 In South Korea, the largest mobile network provider SK Telecom launched USIM and OTA based mobile finance service in 2007 which enabled its subscribers to download various mobile banking service applications, credit card applications and public transportation applications over the air onto a USIM card. Available from http://www.sktelecom.com/ (accessed 16th august,2011) 44 Available from http://www.mobeyforum.org/Press-Documents/Press-Releases/Research- Lays-Groundwork-for-Global-Mobile-Financial-Services-Standards/Introducing-the-Mobey- Forum-White-Paper-Best-Practices-for-Mobile-Financial-Services-Enrolment-Business- Model-Analysis (accessed 16th august,2011)
  64. 64. 64 operators, TSM could bridge multiple banks and operators ensuring complete security of customer information.45 B. Solutions of Mobile Finance 1. Mobile Banking Mobile banking service is performing balance checks, account transactions, payments, credit applications etc. through mobile devices. The earliest mobile banking service was based on SMS and limited to information-based service. Since the introduction of WAP browser, banks started to offer transaction- based mobile banking services to their customers such as payments, deposits, withdrawals, transfers and investments. 2. Mobile Payment 45 In South Korea, mobile network operators, mobile device manufacturers, banks and credit card companies have been collaborating to launch NFC-based application in 2010. Available from http://www.nfctimes.com/news/korean-telco-plans-nfc-commercial-launch-2010 (accessed 16th august,2011) Merchant Customer Bank & TSM 1. purchase 2. mobile banking 3. make payment Mobile network operator
  65. 65. 65 Mobile payment is a new and rapidly-adopting alternative payment method. Instead of paying with cash, check or credit cards, customers can use a mobile phone to pay for a wide range of services and digital or hard goods. Mobile payment solutions could be categorized in many ways according to the type of payment method or the technology adopted to implement the solution. There are three different categories for mobile payment solutions on the basis of payment method. (1) Mobile Credit Card Since the appearance of IC Chip-based application, customers have been making payments with their SIM-sized credit card inserted in mobile phones or credit card downloaded over the air onto mobile phones. When the customer makes a payment transaction with a merchant (merchants can read credit card information through IrFM technology, RFID technology or NFC technology), the credit card is charged and the value is credited to the merchant account. Merchant Customer Credit card company & TSM 1. purchase by mobile credit card 1. 3. pay the bill 2. make payment Mobile network operator
  66. 66. 66 (2) Mobile Electronic Money Mobile electronic money means any certificate of transferable monetary value issued and stored in electronic form and installed in mobile device. Issuers of mobile electronic money issue mobile electronic money in exchange for the same value of cash or deposit by downloading mobile electronic money over the air onto mobile devices and have duty to exchange mobile electronic money for cash or deposit. Mobile electronic money has been used mainly for the payment of public transportation system and other micro-payment.46 (3) Direct Mobile Billing Service 46 In South Korea, T-money has been used for this purpose. It started with pre-paid RF smartcard embedded with CPU to enable self-calculation for the payment at public transportation such as bus, subway and taxi. T-money has enlarged its services to all parking fees, tunnel fees and payment at convenient stores and has also introduced new payment media enabling download T-money onto mobile phone. Available from http://eng.t- money.co.kr/ Merchant Customer Issuer of mobile e-money & TSM 2. purchase and pay by mobile e-money 1. purchase mobile e-money 3. exchange mobile e-money Mobile network operator
  67. 67. 67 Direct mobile billing service allows customers to purchase goods and services online by charging their regular mobile phone bills. This does not require the use of credit/debit cards or pre-registration at an online payment solution. This service is suitable for online micro-payment. In direct mobile billing service process, a payment gateway usually facilitates the transfer of information between an online merchant and a mobile network operator.47 If a customer purchase goods or uses services from a payment gateway-enabled merchant, the payment gateway transmits or receives transaction information in electronic form between the customer and the mobile network operator and then the mobile network operator charges the customer’s mobile phone bill and executes the payment of the bill as proxy or mediate for the merchant. Unlike the credit card company, the mobile network operator does not execute the payment for the merchant until the customer pays the mobile phone bill, and even if the customer does not pay the bill, the mobile network operator is not bound to pay the bill for the merchant. 47 South Korean company Danal Co., Ltd. is credited with being the first provider of direct mobile billing service globally. The amount of bill charged through the direct mobile billing service in South Korea in 2010 was about 2 billion USD. Danal has established a company named BilltoMobile in the US to offer customers the ability to safely charge online purchases to their mobile phone bill. BilltoMobile signed a contract for direct mobile billing service with Verizon Wireless in May 2009 and with AT&T in October 2010. Available from http://www.danal.co.kr/ (accessed 16 august,2011)
  68. 68. 68 II. Legal Issues Arising from Mobile Finance A. Participants Mobile finance has enabled companies from different industries to collaborate and has been provided by various participants. Customers, merchants, mobile network operators, financial institutions, issuers of mobile electronic money, payment gateways and TSMs are main participants in the process of mobile finance. As these participants have different interests, these participants may face conflicts each other that require legal solutions. Especially regulating liabilities of participants in case of unauthorized financial transaction is important. Since the appearance of USIM-based application system, TSM has offered secure delivery and activation of the mobile banking and payment applications by establishing highly secure, encrypted connection between bank and TSM Merchant Customer Mobile network Operator & PG 1. Purchase 2. Pay the bill 3. Make payment

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