Role Of IT In Banking Information Technology Essay
In the five decades since independence, banking in India has evolved through four distinct phases. During Fourth phase, also called as Reform Phase, Recommendations of the Narasimham Committee (1991) paved the way for the reform phase in the banking. Important initiatives with regard to the reform of the banking system were taken in this phase. Important among these have been introduction of new accounting and prudential norms relating to income recognition, provisioning and capital adequacy, deregulation of interest rates & easing of norms for entry in the field of banking.
Entry of new banks resulted in a paradigm shift in the ways of banking in India. The growing competition, growing expectations led to increased awareness amongst banks on the role and importance of technology in banking. The arrival of foreign and private banks with their superior state-of-the-art technology-based services pushed Indian Banks also to follow suit by going in for the latest technologies so as to meet the threat of competition and retain their customer base.
Indian banking industry, today is in the midst of an IT revolution. A combination of regulatory and competitive reasons, have led to increasing importance of total banking automation in the Indian Banking Industry.
ROLE OF TECHNOLOGY
Information Technology has basically been used under two different avenues in Banking. One is Communication and Connectivity and other is Business Process Reengineering. Information technology enables sophisticated product development, better market infrastructure, implementation of reliable techniques for control of risks and helps the financial intermediaries to reach geographically distant and diversified markets.
In view of this, technology has changed the contours of three major functions performed by banks, i.e., access to liquidity, transformation of assets and monitoring of risks. Further, Information technology and the communication networking systems have a crucial bearing on the efficiency of money, capital and foreign exchange markets.
Internet has significantly influenced delivery channels of the banks. Internet has emerged as an important medium for delivery of banking products & services. Detailed guidelines of RBI for Internet Banking has prepared the necessary ground for growth of Internet Banking in India.
The Information Technology Act, 2000 has given legal recognition to creation, trans-mission and retention of an electronic (or magnetic) data to be treated as valid proof in a court of law, except in those areas, which continue to be governed by the provisions of the Negotiable Instruments Act, 1881.
As stated in RBI’s Annual Monetary and Credit Policy 2002-2003: “To reap the full benefits of such electronic message transfers, it is necessary that banks bestow sufficient attention on the computerization and networking of the branches situated at commercially important centres on a time-bound basis. Intra-city and intra-bank networking would facilitate in addressing the “last mile” problem which would in turn result in quick and efficient funds transfers across the country”.
TECHNOLOGY PRODUCTS IN A BANKING SECTOR:
Credit Card Online
e-Monies Electronic Fund Transfer
Online Payment of Excise & Service Tax
Railway Ticket Booking through SMS
Prepaid Mobile Recharge
Smart Money Order
Card to Card Funds Transfer
Funds Transfer (eCheques)
Bank @ Home “Express Delivery”
USE OF Technology in Banks to:
Have your paycheck deposited directly into your bank or credit union checking account.
Withdraw money from your checking account from an ATM machine with a personal identification number (PIN), at your convenience, day or night.
Instruct your bank or credit union to automatically pay certain monthly bills from your account, such as your auto loan or your mortgage payment.
Have the bank or credit union transfer funds each month from your checking account to your mutual fund account.
Have your government social security benefits check or your tax refund deposited directly into your checking account.
Buy groceries, gasoline and other purchases at the point-of-sale, using a check card rather than cash, credit or a personal check.
Use a smart card with a prepaid amount of money embedded in it for use instead of cash at a pay phone, expressway road toll, or on college campuses at the library’s photocopy machine or bookstores.
Use your computer and personal finance software to coordinate your total personal financial management process, integrating data and activities related to your income, spending, saving, investing, recordkeeping, bill-paying and taxes, along with basic financial analysis and decision making.
TECHNOLOGY IS USED THROUGH:
Internet Banking lets you handle many banking transactions via your personal computer. For instance, you may use your computer to view your account balance, request transfers between accounts, and pay bills electronically.
Internet banking system and method in which a personal computer is connected by a network service provider directly to a host computer system of a bank such that customer service requests can be processed automatically without need for intervention by customer service representatives. The system is capable of distinguishing between those customer service requests which are capable of automated fulfillment and those requests which require handling by a customer service representative. The system is integrated with the host computer system of the bank so that the remote banking customer can access other automated services of the bank. The method of the invention includes the steps of inputting a customer banking request from among a menu of banking requests at a remote personnel computer; transmitting the banking requests to a host computer over a network; receiving the request at the host computer; identifying the type of customer banking request received; automatic logging of the service request, comparing the received request to a stored table of request types, each of the request types having an attribute to indicate whether the request type is capable of being fulfilled by a customer service representative or by an automated system; and, depending upon the attribute, directing the request either to a queue for handling by a customer service representative or to a queue for processing by an automated system.
AUTOMATED TELLER MACHINES (ATM):
An unattended electronic machine in a public place, connected to a data system and related equipment and activated by a bank customer to obtain cash withdrawals and other banking services. Also called automatic teller machine, cash machine; Also called money machine.
An automated teller machine or automatic teller machine (ATM) is an electronic computerized telecommunications device that allows a financial institution’s customers to directly use a secure method of communication to access their bank accounts, order or make cash withdrawals (or cash advances using a credit card) and check their account balances without the need for a human bank teller (or cashier in the UK). Many ATMs also allow people to deposit cash or cheques, transfer money between their bank accounts, top up their mobile phones’ pre-paid accounts or even buy postage stamps.
On most modern ATMs, the customer identifies him or herself by inserting a plastic card with a magnetic stripe or a plastic smartcard with a chip, that contains his or her account number. The customer then verifies their identity by entering a passcode, often referred to as a PIN (Personal Identification Number) of four or more digits. Upon successful entry of the PIN, the customer may perform a transaction.
If the number is entered incorrectly several times in a row (usually three attempts per card insertion), some ATMs will attempt retain the card as a security precaution to prevent an unauthorised user from discovering the PIN by guesswork. Captured cards are often destroyed if the ATM owner is not the card issuing bank, as non-customer’s identities cannot be reliably confirmed.
The Indian market today has approximately more than 17,000 ATM’s.
Undertaking a host of banking related services including financial transactions from the convenience of customers chosen place anywhere across the GLOBE and any time of date and night has now been made possible by introducing on-line Telebanking services. By dialing the given Telebanking number through a landline or a mobile from anywhere, the customer can access his account and by following the user-friendly menu, entire banking can be done through Interactive Voice Response (IVR) system. With sufficient numbers of hunting lines made available, customer call will hardly fail. The system is bi-lingual and has following facilities offered
Automatic balance voice out for the default account.
Balance inquiry and transaction inquiry in all
Inquiry of all term deposit account
Statement of account by Fax, e-mail or ordinary mail.
Cheque book request
Stop payment which is on-line and instantaneous
Transfer of funds with CBS which is automatic and instantaneous
Utility Bill Payments
Renewal of term deposit which is automatic and instantaneous
Voice out of last five transactions.
A smart card usually contains an embedded 8-bit microprocessor (a kind of computer chip). The microprocessor is under a contact pad on one side of the card. Think of the microprocessor as replacing the usual magnetic stripe present on a credit card or debit card.
The microprocessor on the smart card is there for security. The host computer and card reader actually “talk” to the microprocessor. The microprocessor enforces access to the data on the card.
The chips in these cards are capable of many kinds of transactions. For example, a person could make purchases from their credit account, debit account or from a stored account value that’s reload able. The enhanced memory and processing capacity of the smart card is many times that of traditional magnetic-stripe cards and can accommodate several different applications on a single card. It can also hold identification information, which means no more shuffling through cards in the wallet to find the right one — the Smart Card will be the only one needed.
Smart cards can also be used with a smart card reader attachment to a personal computer to authenticate a user.
Smart cards are much more popular in Europe than in the U.S. In Europe the health insurance and banking industries use smart cards extensively. Every German citizen has a smart card for health insurance. Even though smart cards have been around in their modern form for at least a decade, they are just starting to take off in the U.S.
Debit cards are also known as check cards. Debit cards look like credit cards or ATM (automated teller machine) cards, but operate like cash or a personal check. Debit cards are different from credit cards. While a credit card is a way to “pay later,” a debit card is a way to “pay now.” When you use a debit card, your money is quickly deducted from your checking or savings account.
Debit cards are accepted at many locations, including grocery stores, retail stores, gasoline stations, and restaurants. You can use your card anywhere merchants display your card’s brand name or logo. They offer an alternative to carrying a checkbook or cash.
An e-Cheque is the electronic version or representation of paper cheque.
The Information and Legal Framework on the E-Cheque is the same as that of the paper cheque’s.
It can now be used in place of paper cheques to do any and all remote transactions.
An E-cheque work the same way a cheque does, the cheque writer “writes” the e-Cheque using one of many types of electronic devices and “gives” the e-Cheque to the payee electronically. The payee “deposits” the Electronic Cheque receives credit, and the payee’s bank “clears” the e-Cheque to the paying bank. The paying bank validates the e-Cheque and then “charges” the check writer’s account for the check
ADVANTAGES OF TECHNOLOGY
From both customer and banking perspectives it shows that the Internet is a convenience tool available whenever and wherever customers need it. It is also found that the Internet has improved the factors in service quality like responsiveness, communication and access. It is concluded that the Internet has an important and positive effect on customer perceived banking services and the service quality has been improved since the Internet has been used in banking sector.
It’s generally secure. But make sure that the website you’re using has a valid security certificate. This lets you know that the site is protected from cyber-thieves looking to steal your personal and financial information.
It gives twenty-four-hour access. When the neighborhood bank closes, you can still access your account and make transactions online. It’s a very convenient alternative for those that can’t get to the bank during normal hours because of their work schedule, health or any other reason.
It allows us to access our account from virtually anywhere. If we’re on a business trip or vacationing away from home, we can still keep a watchful on our money and financial transactions – regardless of our location.
Conducting business online is generally faster than going to the bank. Long teller lines can be time-consuming, especially on a Pay Day. But online, there are no lines to contend with. You can access your account instantly and at your leisure.
Many features and services are typically available online. For example, with just a few clicks you can apply for loans, check the progress of your investments, review interest rates and gather other important information that may be spread out over several different brochures in the local bank.
Technology has opened up new markets, new products, new services and efficient delivery channels for the banking industry. Online electronics banking, mobile banking and internet banking are just a few examples.
Information Technology has also provided banking industry with the wherewithal to deal with the challenges the new economy poses. Information technology has been the cornerstone of recent financial sector reforms aimed at increasing the speed and reliability of financial operations and of initiatives to strengthen the banking sector.
The IT revolution has set the stage for unprecedented increase in financial activity across the globe. The progress of technology and the development of worldwide networks have significantly reduced the cost and time of global funds transfer.
It is information technology which enables banks in meeting such high expectations of the customers who are more demanding and are also more techno-savvy compared to their counterparts of the yester years. They demand instant, anytime and anywhere banking facilities.
IT has been providing solutions to banks to take care of their accounting and back office requirements. This has, however, now given way to large scale usage in services aimed at the customer of the banks.
IT also facilitates the introduction of new delivery channels–in the form of Automated Teller Machines, Net Banking, Mobile Banking and the like.
Use of de-mat account and online trading enables a person to buy and sell shares any time. The share trading companies and AMC’s can give improved and faster service with help of technology.
There are many useful features and services available online besides for the usual transactions. For example, you can apply for credit cards, manage investments, and pay bills through your online account portal. You can also perform more mundane tasks such as ordering new checks, requesting additional deposit slips, or reporting a lost or stolen debit card.
Certainly the above mentioned advantages if technology have improved the quality of service in a banking and financial sector.
Price- In the long run a bank can save on money by not paying for tellers or for managing branches. Plus, it’s cheaper to make transactions over the Internet by using technology.
Customer Base- The technology allows banks to reach a whole new market- and a well off one too, because there are no geographic boundaries with the help of Internet. The Internet also provides a level playing field for small banks who want to add to their customer base.
Efficiency- Banks can become more efficient than they already are by providing Internet access for their customers. With the use of technology the banks almost become paper less system.
Customer Service and Satisfaction- Banking on the Internet not only allow the customer to have a full range of services available to them but it also allows them some services not offered at any of the branches. The person does not have to go to a branch where that service may or may not be offer. A person can print of information, forms, and applications via the Internet and be able to search for information efficiently instead of waiting in line and asking a teller. With more better and faster options a bank will surly be able to create better customer relations and satisfaction.
Image- A bank seems more state of the art to a customer if they offer Internet access, e-banking, telebanking. A person may not want to use these but having the service available gives a person the feeling that their bank is on the cutting image.
Bill Pay: Bill Pay is a service offered through Internet banking, e-banking that allows the customer to set up bill payments to just about anyone. Customer can select the person or company whom he wants to make a payment and Bill Pay will withdraw the money from his account and send the payee a paper check or an electronic payment
Other Important Facilities: E- banking gives customer the control over nearly every aspect of managing his bank accounts. Besides the Customers can, Buy and Sell Securities, Check Stock Market Information, Check Currency Rates, Check Balances, See which checks are cleared, Transfer Money, View Transaction History and avoid going to an actual bank. The best benefit is that Internet banking is free. At many banks the customer doesn’t have to maintain a required minimum balance. The second big benefit is better interest rates for the customer.
Benefits of technology platform
Banks adopting technologies see a number of other benefits, including:
Increased employee satisfaction Technology empowers bank employees to better serve customers. With quick and complete access to customer data, they spend less time searching for information and more time cross-selling and retaining customers.
Lower total cost of ownership Banking solutions built on the technology platform can be deployed faster than those based on competing infrastructures-and its solutions can cost less to manage over time. Training and other costs can be minimized if employees already know how to use required technology.
Greater return on investment The use of technology helps banks get more value out of legacy systems.
Reduced operations risk
CONCERNS WITH E-BANKING
As with any new technology new problems are faced.
Customer support – banks will have to create a whole new customer relations department to help customers. Banks have to make sure that the customers receive assistance quickly if they need help. Any major problems or disastrous can destroy the banks reputation quickly an easily. By showing the customer that the Internet is reliable you are able to get the customer to trust online banking more and more.
Laws – While Internet banking does not have national or state boundaries, the law does. Companies will have to make sure that they have software in place software market, creating a monopoly.
Security: customer always worries about their protection and security or accuracy. There is always a question whether or not something took place.
Other challenges: lack of knowledge from customers end, sit changes by the banks, etc
INFORMATION TECHNOLOGY: A GLOBAL PERSPECTIVE
The advent of Internet has initiated an electronic revolution in the global banking sector. The dynamic and flexible nature of this communication channel as well as its ubiquitous reach has helped in leveraging a variety of banking activities. New banking intermediaries offering entirely new types of banking services have emerged as a result of innovative e-business models. The Internet has emerged as one of the major distribution channels of banking products and services, for the banks in US and in the European countries.
Initially, banks promoted their core capabilities i.e., products, services and advice through Internet. Then, they entered the e-commerce market as providers/distributors of their own products and services. More recently, due to advances in Internet security and the advent of relevant protocols, banks have discovered that they can play their primary role as financial intermediates and facilitators of complete commercial transactions via electronic networks especially through the Internet. Some banks have chosen a route of establishing a direct web presence while others have opted for either being an owner of financial services centric electronic marketplace or being participants of a non-financial services centric electronic marketplace.
The trend towards electronic delivery of banking products and services is occurring partly as a result of consumer demand and partly because of the increasing competitive environment in the global banking industry. The Internet has changed the customer’s behaviors who are demanding more customized products/services at a lower price. Moreover, new competition from pure online banks has put the profitability of even established brick and mortar banks under pressure. However, very few banks have been successful in developing effective strategies for fully exploiting the opportunities offered by the Internet. For traditional banks to define what niche markets to serve and decide what products/services to offer there is a need for a clear and concise Internet commerce strategy.
Banking transactions had already started taking place through the Internet way back in 1995. The Introduction of technology promised an ideal platform for commercial exchange, helping banks to achieve new levels of efficiency in financial transactions by strengthening customer relationship, promoting price discovery and spend aggregation and increasing the reach. Electronic finance offered considerable opportunities for banks to expand their client base and rationalize their business while the customers received value in the form of savings in time and money.
Global E-banking industry is covered by the following four sections:
E-banking Scenario: It discusses the actual state, prospects, and issues related to E-banking in Asia with a focus on India, US and Europe. It also deals with the impact of E-banking on the banking industry structure.
E-banking Strategies: It reveals the key strategies that banks must implement to derive maximum value through the online channel. It also brings guidance for those banks, which are planning to build online businesses.
E-banking Transactions: It discusses how Internet has radically transformed banking transactions. The section focuses on cross border transactions, B2B transactions, electronic bill payment and presentment and mobile payments. In spite of all the hype, E-banking has been a non-starter in several countries.
E-banking Trends: It discusses the innovation of new technologies in banks.
The banking industry is expected to be a leading player in E-business. While the banks in developed countries are working primarily via Internet as non-branch banks, banks in the developing countries use the Internet as an information delivery tool to improve relationship with customers.
In early 2001, approximately 60 percent of E-business in UK was concentrated in the financial services sector, and with the expected 10-fold increase of the British E-business market by 2005, the share of the financial services will further increase. Around one fifth of Finish and Swedish bank customers are banking online, while in US, according to UNCTAD, online banking is growing at an annual rate of 60 percent and the number of online accounts has approximately reached 15 million by 2006.
In Asia, the major factor restricting growth of E-banking is security, in spite of several countries being well connected via Internet. Access to high-quality E-banking products is an issue as well. Majority of the banks in Asia are just offering basic services compared with those of developed countries. Still, E-banking seems to have a future in Asia. It is considered that E-banking will succeed if the basic features, especially bill payment, are handled well. Bill payment was the most popular feature, cited by 40 percent of respondents of the survey. However, providing this service would be difficult for banks in Asia because it requires a high level of security and involves arranging transactions with a variety of players.
In 2001, over 50 percent of the banks in the US were offering E-banking services. However, large banks appeared to have a clear advantage over small banks in the range of services they offered. Some banks in US were targeting their Internet strategies towards business customers. Apart from affecting the way customers received banking services; E-banking was expected to influence the banking industry structure. The economics of E-banking was expected to favor large banks because of economies of scale and scope, and the ability to advertise heavily. Moreover, E-banking offered entry and expansion opportunities that small banks traditionally lacked.
In Europe, the Internet is accelerating the reconfiguration of the banking industry into three separate businesses: production, distribution and advice. This reconfiguration is being further driven by the Technology, due to the combined impact of:
The emergence of new and more focused business models
New technological capabilities that reduces the banking relationship and transaction costs.
High degree of uncertainty over the impact that new entrants will have on current business models.
Though E-banking in Europe is still in the evolutionary stage, it is very clear that it is having a significant impact on traditional banking activities. Unlike in the US, though large banks in the Europe have a competitive edge due to their ability to invest heavily in new technologies, they are still not ready to embrace E-banking. Hence, medium-sized banks and start-ups have an important role to play on the E-banking front if they can take concrete measures quickly and effectively.
ROLE OF RBI IN COMPUTERIZATION OF BANKS IN INDIA
Computerization became popular in the western countries right from the Sixties. Main Frames were extensively used both by the Public Institutions and Major Private Organizations. In the Seventies Mini Computer became popular and Personal Computers in early Eighties, followed by introduction of several software products in high level language and simultaneous advancement in networking technology. This enabled the use of personal computers extensively in offices & commercial organisations for processing different kinds of data.
However in India organized Trade Unions were against introduction of computers in Public Offices. Computerization was restricted to major scientific research organizations and Technical Institutes and defense organizations. Indian Railways first accepted computerization for operational efficiency.
The Electronics Corporation of India Ltd. was set up in 1967 with the objective of research & development in the fields of Electronic Communication, Control, instrumentation, automation and Information Technology. CMC Ltd (Computer Maintenance Corporation of India Ltd.) was established in 1976 to look after maintenance operations of Main Frame Computers installed in several organizations in India, to serve the gap, when IBM left India, due to the directive of the then Central Government.
In the Private Sector the first major venture was TCS (Tata Consultancy Services) which started functioning from 1968. In the year 1980 a few batch-mates of IIT Delhi pioneered the effort to start a major education centre in India to impart training in Information Technology and their efforts resulted in the setting up of NIIT in 1981. Aptech Computer Education was established in 1986 following the experiment of NIIT.
Before large scale computerization, computer education became popular in India and coveted by bright students, when several Engineering Colleges and Technical Institutes introducing Post Graduate Degree courses in Computer Engineering. The booming hardware and software industry in the West attracted Indian students and many of them migrated for better opportunities to the U.S.A. and settled there. We have today the paradox of India being one of the major powers possessing diverse talents in fields of software development, but at the same time, we are still a decade back to the using computerized service extensively in the country and bringing the facility to the realms of the common man.
Rapid development of business and industry brought manual operations of data, a saturation point. This acted as a overload on the growing banking operations. Government owned banks in general found the “house-keeping” unmanageable. Several heads of accounts in particular inter-bank clearing and inter-branch reconciliation of accounts went totally out of control.
Low productivity pushed cost of wages high and employees realized that unless they agreed for computerization further improvement in their wage structure was not possible.
In the year 1993, the Employees’ Unions of Banks signed an agreement with Bank Managements under the auspices of Indian Banks’ Association (IBA). This agreement was a major break through in the introduction of computerized applications and development of communication networks in Banks.
The first initiatives in the area of bank computerization, however, stemmed out of the landmark report of the two committees headed by the former Governor of the Reserve Bank of India and currently Governor of Andhra Pradesh, His Excellency, Dr.C.Rangarajan. Both the reports had strongly recommended computerization of banking operations at various levels and suggested appropriate architecture.
In the ‘seventies, there was a four-fold increase in the number of branches, five-fold increase in advances and a six-fold increase in deposits’. Mechanization was seen as the best solution to the “problems inherent in the manual system of operations, their adverse impact on customer services and the grave dangers to banks in the context of increasing incidence of frauds.
The first of these Committees, viz. the Committee on the Mechanization of the Banking Industry (1984) was set up for the first time to suggest a model for mechanization of bank branches, regional / controlling offices and Head Office necessitated by the explosive growth in the geographical spread of banking following nationalization of banks in 1969.
In the first phase of computerization spanning the five years ending 1989, banks in India had installed 4776 ALPMs at the branch level, 233 mini computers at the Regional/Controlling office levels and trained over 2000 programmers/systems personnel and over 12000 Data Entry Terminal Operators. The Reserve Bank too had embarked upon an ambitious program to bring about state-of-the-art technology in the clearing process and had introduced MICR clearing at 4 centres and computerized clearing settlement at 9 centres.
Against this backdrop, the Committee on Computerisation in Banks was set up once again under Dr.Rangarajan’s Chairmanship to draw up a perspective plan for computerisation in banks. In its report submitted in 1989, the Committee acknowledged the gains of the initial efforts and sought to move away from the stand-alone dedicated systems to an on-line transaction processing environment in branch banking. It recommended that the thrust of bank computerisation for the following 5 years should be to fully computerise the operations at both the front and back offices of large branches then numbering around 2500.
RECOMMENDATIONS OF COMMITTEE ON TECHNOLOGY UPGRADATION
The Reserve Bank continued to be involved in shaping the technology vision of the banking system. Following the recommendations of the Committee on Financial Sector Reforms, (which is popularly known as the second Narasimham committee), a Committee on Technology Upgradation was set up by the RBI for the Banking Sector in 1994. This committee has representation from banks, Government, technical institutions and the RBI. Among other things, this committee looked into issues relating to
Encryption of Public Switching Telephone Network (PSTN) lines
Admission of electronic files as evidence
Modalities for a satellite based WAN for banks and financial institutions with the necessary security systems by banks and other financial institutions, to ultimately develop a sound and an efficient payments system
Methods by which technological upgradation in banks and financial institutions could be effected and in the context study the feasibility of establishment of standards, designing payments system backbone and standards relating to security levels, messages and smart cards.
The Committee realised the urgent need for training, research and development activities in the Banking Technology area. Banks and Financial Institutions started setting up Technology based training centres and colleges. However, a need was felt for an apex level Institute which could be a Think-tank and Brain Trust for Banking Technology.
The committee recommended a variety of payment applications which can be implemented with appropriate technology upgradation and development of a reliable communication network. The committee also suggested setting up of an Information Technology Institute for the purpose of Research and Development as well as Consultancy in the application of technology to the Banking and Financial sector of the country. As recommended by the Committee, IDRBT was established by RBI in 1996 as an autonomous centre for Development and Research in Banking Technology at Hyderabad.
An old Chinese saying goes: If you don’t know where you are going – you will never get there. Globally, the financial sector is metamorphosing under the impact of competitive, regulatory and technological forces. The banking sector is currently in a transition phase with re-alignment, mergers and entry of new players from different industry is becoming common. Many countries including India are de-regulating their banking sector and government policies no longer form an entry barrier to banks competitors. ICICI Bank, IDBI Bank, HDFC Bank and recently Kotak Mahindra Bank are prime examples of these.
Technology has leveled the playing field: the bargaining power of consumers is increasing, switching costs are becoming lower and consumer loyalties are harder to retain. Primary goal of the banking sector including every Bank is mainly to make profit, which in turn is ploughed back to increase business and reach, and pay dividends or share profits to the stakeholders. This is perfectly correct, yet generic goal. More over the product (schemes) differentiation is very difficult for banks as most of the products sold are constrained by legal or industry regulations. Now, if you are already thinking about Technology as a tool in Banking you could probably set some of these goals:
Selling financial products and services
Cutting operational costs
Branding & Market recognition
Keeping profitable customers
Every day more and more people are turning to the Technology for their personal banking. It is a safe, convenient way to shop for financial services, maintain bank accounts and conduct business 24 hours a day. Every one of us has always enjoyed a special relationship with their neighborhood bank. Why are so many people suddenly choosing their personal computers as the new way to view and manage their money? Quite simple – because it is a valuable option to have. Bank customers can save time by banking online. There is no need to stand in one more line to perform the most basic transactions when they can be done quickly from the desktop PC anytime, day or night. But even with more complicated transactions or investment decisions, people like having direct control over their finances themselves. They find it convenient to access all of their financial information in one place. Ease of use is one of the most important factors. Navigation through online banking should be simple and intuitive. Banks need to appeal to customers who may not be technologically sophisticated, and should not require an engineering degree to get started or use the service. Customers also choose banks whose online services are reliable. Most Banks now offers a comprehensive range of financial products and services, including a FREE checking account and internet bill paying services. In addition, an array of checking accounts is available in which you may also request a FREE check card. Hence most Banks of following Electronic Banking or Internet Banking FREE have following services:
Get your balance details, Obtain your last 3 transaction details, Request a cheque book, Stop a cheque payment, Enquire cheque status, Request an account statement, Get Fixed Deposit details, Bill payment details for electricity, mobile phone and telephone services, Convenience of setting an operative account, Designate a particular account linked to your customer id as the operative account. Customer Service available 24 hours a day, 7 days a week E-banking Benefits
Benefits for the bank should always reflect benefits for the customer of banking services.
Review of literature
1. Offline and online banking – where to draw the line when building trust in e-banking?
Kenneth B. Yap, David H. Wong, Claire Loh, Randall Bak. The International Journal of Bank Marketing. Bradford: 2010. Vol. 28, Iss. 1; pg. 27
The purpose of this paper is to examine the role of situation normality cues (online attributes of the e-banking web site) and structural assurance cues (size and reputation of the bank, and quality of traditional service at the branch) in a consumer’s evaluation of the trustworthiness of e-banking and subsequent adoption behaviour. Data were collected from a survey and a usable sample of 202 was obtained. Hierarchical moderated regression analysis was used to test the model. Traditional service quality builds customer trust in the e-banking service. The size and reputation of the bank were found to provide structural assurance to the customer but not in the absence of traditional service quality. Web site features that give customers confidence are significant situation normality cues. Bank managers have to realise that good service at the branch is a necessary condition for the promotion of e-banking. They cannot rely on bank size and reputation to “sell” e-banking. This is the first study that examines how traditional service quality and a bank’s size and reputation influences trust in e-banking.
2. E-Banking makes financial transactions easer
The Financial Daily. Karachi: Apr 27, 2010. Vol. 3, Iss. 262
Muhammad Kamran Shahzad, Deputy Governor State Bank (SBP), in his address said that the banking sector is now more innovative by using the technology and banks are providing a variety of products and services to the customer and by e-Banking these products and services are available across the country.
3. Innovations in Indian Banking Sector
The caselet gives an overview of the innovative services offered by the banks in India to stay ahead of the competition. Most of these banks took the help of proprietary processes and technology to launch innovative products to woo customers and differentiate themselves from the competition. Banks also started using their ATMs as a means of differentiating their services, making them more accessible and attractive to consumers. They added bill payment and credit card payment options at the ATMs. In addition, the banks used service personnel as a means of differentiation.
4. Innovations in the Banking Industry in India
In the 1990s, the banking sector in India saw greater emphasis being placed on technology and innovation. Banks began to use technology to provide better quality of services at greater speed.
Internet banking and mobile banking made it convenient for customers to do their banking from geographically diverse places. Banks also sharpened their focus on rural markets and introduced a variety of services geared to the special needs of their rural customers.
Banking activities also transcended their traditional scope and new concepts like personal banking, retailing and banc assurance were introduced.
The sector was also moving rapidly towards universal banking and electronic transactions, which were expected to change the way banking would be perceived in the future.
5. Feeling Safe Online — To keep consumers’ trust and keep them banking online, try tokens and smart cards, analysts say.
Michael Singer, InformationWeek. Bank Systems & Technology. New York: Mar 2007. Vol. 44, Iss. 3; pg. 19
Banks and other financial institutions should adopt stronger authentication measures, such as security tokens and smart cards, if they want to increase customer satisfaction with Internet banking, according to a panel of industry analysts. The panel – which was comprised of security advisers from Yankee Group, TowerGroup and Gartner – was made available recently on a media call arranged by RSA, the Bedford, Mass.-based security division of EMC.
DISADVANTAGES OF TECHNOLOGY
Yes, online banking is generally secure, but it certainly isn’t always secure. Identity theft is running rampant, and banks are by no means immune. And once your information is compromised, it can take months or even years to correct the damage, not to mention possibly costing you thousands of dollars, as well. This generally does not happen in case of traditional method of banking.
Some online banks are more stable than others. Not all online setups are an extension of a brick-and-mortar bank. Some operate completely in cyberspace, without the benefit of a branch that you can actually visit if need be. With no way to physically check out the operation, you must be sure to thoroughly do your homework about the bank’s background before giving them any of your money.
Before using a banking site that you aren’t familiar with, check to make sure that their deposits are FDIC-insured. If not, you could possibly lose all of your deposits if the bank goes under, or its major shareholders decide to take an extended vacation in Switzerland.
Customer service can be below the quality that you’re used to. Some people simply take comfort in being able to talk to another human being face-to-face if they experience a problem. Although most major banks employ a dedicated customer service department specifically for online users, going through the dreaded telephone menu can still be quite irritating to many. Again, some are considerably better (or worse) than others.
Not all online transactions are immediate. Online banking is subject to the same business-day parameters as traditional banking. Therefore, printing out and keeping receipts is still very important, even when banking online.
If your bank operates only online or simply does not have a branch office in your local area, you will not be able to reach a representative in person for discussion of account issues. Normally this is not a problem, but sometimes customer service by telephone or email can be spotty and may prove to be more of a hassle if you have a serious issue that is not easily resolved. Some banks are better than others in this department, so you will need to do some research if this is an important consideration for you.
Using online banking effectively requires some basic computer literacy and familiarity with navigating the Internet. While this is not a problem for people like me, those who are afflicted with technophobia or are simply inexperienced with this particular genre may not be comfortable with this concept. There are also a significant number of people who are suspicious of anything having to do with the Internet because it is outside of their comfort zone. Others are simply too stubborn to acquire the relevant knowledge and skills.
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