Electronic banking. Many banks have modernized their check-handling facilities with computers and other electronic equipment. An advanced technological system called electronic funds transfer (EFT) moves funds from one account to another without the use of checks. EFT includes five types of facilities and systems: (1) automated teller machines, (2) telephone-banking systems, (3) computer-banking systems, (4) automated clearinghouses, and (5) point-of-sale terminals.

Automated teller machines (ATM's), also called cash machines or cash dispensers, are computer terminals at banks, airports, shopping centers, and many other locations. A customer inserts a special ATM card into the machine and uses a keypad (set of buttons or keys) to enter a personal identification number (PIN). People use automated teller machines primarily to make deposits, transfer funds between accounts, and withdraw limited amounts of cash. ATM's enable people to do their banking at many locations any hour of the day or night, seven days a week.

Telephone-banking systems enable customers to pay bills and transfer funds from one account to another by calling a special telephone number. Typically, the customer requests a transaction by pressing a sequence of buttons on the telephone in response to recorded messages. In this way, the customer gives instructions to a bank computer, which carries out the transaction.

Computer-banking systems also allow people to pay bills and transfer funds from one account to another at any time. Many banks offer online banking through the Internet. People simply visit their banks' Web sites to do their banking.

Automated clearinghouses are computer centers for the automatic deposit of regular income and the automatic payment of many bills. An employer or the government, for example, instead of issuing paychecks or social security checks, directs the computer to credit a person's account with the person's pay. People can also arrange for insurance premiums, mortgage installments, and other regular payments to be transferred from their bank accounts to the billers' accounts.

Point-of-sale (POS) terminals are computer terminals in retail stores. To pay for a purchase, a customer presents a debit card, which a clerk puts into a terminal. In seconds, the system transfers the amount of the purchase from the customer's bank account to the store's bank account.

In France and other countries, smart cards are widely used for purchases. These cards have one or more embedded computer chips that store information about the user's bank balance and purchases. Smart cards store more data than magnetic-stripe cards do, but they cost more to issue and require special terminals.

During the 1990's, many banks in Europe began to use electronic money, also called e-money or e-cash. To make purchases in stores or over computer networks, users simply present proof of stored money value. In one e-money system, banks electronically transfer the customer's stored value onto his or her smart card or other device.


MAKING LOANS. Banks receive funds from people who do not need them at the moment and lend them to those who do. For example, a couple may want to buy a house but have only part of the purchase price saved. If one or both of them have a good job and seem likely to repay a loan, a bank may lend them the additional money they need. To make the loan, the bank uses funds other people have deposited. A major obligation of a bank is to permit depositors to withdraw their funds upon demand. But no bank has enough cash readily available to satisfy its depositors if all were to demand their funds at the same time. Banks know from experience, however, that such a demand-called a run-rarely occurs. If people are confident they can withdraw their funds at any time, they will leave them on deposit at the bank until needed. As a result, banks can loan and invest a large percentage of the funds deposited with them. In most countries, the government limits the percentage of a bank's funds that can be used for loans and investment. The government simultaneously sets a minimum percentage that must be kept on reserve for meeting withdrawals.

A major obligation of a bank is to permit depositors to withdraw their funds upon demand. But no bank has enough cash readily available to satisfy its depositors if all were to demand their funds at the same time. Banks know from experience, however, that such a demand-called a run-rarely occurs. If people are confident they can withdraw their funds at any time, they will leave them on deposit at the bank until needed. As a result, banks can loan and invest a large percentage of the funds deposited with them.