Literary review (autosaved)

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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

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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 ------------- -------------------

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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.

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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…………………………………………….

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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

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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.

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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.

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TABLE OF CASE
See Haddock v. The Generous Bank Ltd[Dallas bar fd.1981]

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TABLE OF STATUTES
Information technology policy for Nigeria
Electronic Financial Transaction Act of South Korea
Evidence act LFN 1990

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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.

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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

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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

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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

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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

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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.

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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
11
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)

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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)

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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
28
29
30
31
32
www.answers.com (accessed 20th
june,2011)

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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.

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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

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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

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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:

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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
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
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
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
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
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
 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
 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
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
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
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
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
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
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
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
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
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
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
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
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
 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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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

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

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
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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