NRB Computer Notes for Banking Notes

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IT and ICT in Banking

IT and ICT in Banking

ICT has become an indispensable factor in the modern life of every individual. The elements of information and communication technology related sources are perceived as essential parameters in day today operation of banking both in private and public nature while deal with customers and stakeholders. The applications of ICT are augmenting in every sphere of our action includes both consumption and services. In this aspect the banking service is an intangible element which requires an effective quality delivery process from the ends of both provider and taker. In order to enhance the quality of banking services both in private and public categories, the application of ICT becomes an imperative element. But today banking organization from both private and public background aims to offers better and enhanced services to the customer in the given sphere of competition. Due to the level of service extended by bank differs based on the customer and type of services with respect to availability of infrastructure. Even though the banks from private and public base aims to elevate sophisticated services towards the perception of customers and employees in order to identify the role of ICT towards effective services of banking sectors. The present survey has been conducted from 3 private and 4 public banks situated in Kanchipuram Town. The results have been evaluated using SPSS 18.0 and suggestions provided to improve the better applications of ICT resources.

Role of Information Technology (IT) in the Banking Sector

Banking environment has become highly competitive today. To be able to survive and grow in the changing market environment banks are going for the latest technologies, which is being perceived as an ‘enabling resource’ that can help in developing learner and more flexible structure that can respond quickly to the dynamics of a fast changing market scenario. It is also viewed as an instrument of cost reduction and effective communication with people and institutions associated with the banking business.

The Software Packages for Banking Applications in India had their beginnings in the middle of 80s, when the Banks started computerising the branches in a limited manner. The early 90s saw the plummeting hardware prices and advent of cheap and inexpensive but high powered PC’s and Services and banks went in for what was called Total Branch Automation (TBA) packages. The middle and late 90s witnessed the tornado of financial reforms, deregulation globalisation etc. coupled with rapid revolution in communication technologies and evolution of novel concept of convergence of communication technologies, like internet, mobile/cell phones etc. Technology has continuously played on important role in the working of banking institutions and the services provided by them. Safekeeping of public money, transfer of money, issuing drafts, exploring investment opportunities and lending drafts, exploring investment being provided.

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. Internet has significantly influenced delivery channels of the banks. Internet has emerged as an important medium for delivery of banking products and services.

The customers can view the accounts; get account statements, transfer funds and purchase drafts by just punching on few keys. The smart card’s i.e., cards with micro processor chip have added new dimension to the scenario. An introduction of ‘Cyber Cash’ the exchange of cash takes place entirely through ‘Cyber-books’. Collection of Electricity bills and telephone bills has become easy. The upgradeability and flexibility of internet technology after unprecedented opportunities for the banks to reach out to its customers. No doubt banking services have undergone drastic changes and so also the expectation of customers from the banks has increased greater.

IT is increasingly moving from a back office function to a prime assistant in increasing the value of a bank over time. IT does so by maximizing banks of pro-active measures such as strengthening and standardising banks infrastructure in respect of security, communication and networking, achieving inter branch connectivity, moving towards Real Time gross settlement (RTGS) environment the forecasting of liquidity by building real time databases, use of Magnetic Ink Character Recognition and Imaging technology for cheque clearing to name a few. Indian banks are going for the retail banking in a big way

The key driver to charge has largely been the increasing sophistication in technology and the growing popularity of the Internet. The shift from traditional banking to e-banking is changing customer’s expectations.


E-banking made its debut in UK and USA 1920s. It becomes prominently popular during 1960, through electronic funds transfer and credit cards. The concept of web-based baking came into existence in Eutope and USA in the beginning of 1980.

In India e-banking is of recent origin. The traditional model for growth has been through branch banking. Only in the early 1990s has there been a start in the non-branch banking services. The new pribate sector banks and the foreign banks are handicapped by the lack of a strong branch network in comparison with the public sector banks. In the absence of such networks, the market place has been the emergence of a lot of innovative services by these players through direct distribution strategies of non-branch delivery. All these banks are using home banking as a key “pull’ factor to remove customers away from the well entered public sector banks.

Many banks have modernized their services with the facilities of computer and electronic equipments. The electronics revolution has made it possible to provide ease and flexibility in banking operations to the benefit of the customer. The e-banking has made the customer say good-bye to huge account registers and large paper bank accounts. The e-banks, which may call as easy bank offers the following services to its customers:

  • Credit Cards/Debit Cards
  • ATM
  • E-Cheques
  • EFT (Electronic Funds Transfer)
  • DeMAT Accounts
  • Mobile Banking
  • Telephone Banking
  • Internet Banking
  • EDI (Electronic Data Interchange)

Benefits of E-banking:

To the Customer:

  • Anywhere Banking no matter wherever the customer is in the world. Balance enquiry, request for services, issuing instructions etc., from anywhere in the world is possible.
  • Anytime Banking – Managing funds in real time and most importantly, 24 hours a day, 7 days a week.
  • Convenience acts as a tremendous psychological benefit all the time.
  • Brings down “Cost of Banking” to the customer over a period a period of time.
  • Cash withdrawal from any branch / ATM
  • On-line purchase of goods and services including online payment for the same.

To the Bank:

  • Innovative, scheme, addresses competition and present the bank as technology driven in the banking sector market
  • Reduces customer visits to the branch and thereby human intervention
  • Inter-branch reconciliation is immediate thereby reducing chances of fraud and misappropriation
  • On-line banking is an effective medium of promotion of various schemes of the bank, a marketing tool indeed.
  • Integrated customer data paves way for individualized and customized services.

Impact of IT on the Service Quality:

The most visible impact of technology is reflected in the way the banks respond strategically for making its effective use for efficient service delivery. This impact on service quality can be summed up as below:

  • With automation, service no longer remains a marketing edge with the large banks only. Small and relatively new banks with limited network of branches become better placed to compete with the established banks, by integrating IT in their operations.
  • The technology has commoditising some of the financial services. Therefore the banks cannot take a lifetime relationship with the customers as granted and they have to work continuously to foster this relationship and retain customer loyalty.
  • The technology on one hand serves as a powerful tool for customer servicing, on the other hand, it itself results in depersonalising of the banking services. This has an adverse effect on relationship banking. A decade of computerization can probably never substitute a simple or a warm handshake.
  • In order to reduce service delivery cost, banks need to automate routine customer inquiries through self-service channels. To do this they need to invest in call centers, kiosks, ATM’s and Internet Banking today require IT infrastructure integrated with their business strategy to be customer centric.

Impact of IT on Banking System:

The banking system is slowly shifting from the Traditional Banking towards relationship banking. Traditionally the relationship between the bank and its customers has been on a one-to-one level via the branch network. This was put into operation with clearing and decision making responsibilities concentrated at the individual branch level. The head office had responsibility for the overall clearing network, the size of the branch network and the training of staff in the branch network. The bank monitored the organisation’s performance and set the decision making parameters, but the information available to both branch staff and their customers was limited to one geographical location.

Traditional Banking Sector

The modern bank cannot rely on its branch network alone. Customers are now demanding new, more convenient, delivery systems, and services such as Internet banking have a dual role to the customer. They provide traditional banking services, but additionally offer much greater access to information on their account status and on the bank’s many other services. To do this banks have to create account information layers, which can be accessed both by the bank staff as well as by th customers themselves.

The use of interactive electronic links via the Internet could go a ling way in providing the customers with greater level of information about both their own financial situation and about the services offered by the bank.

The New Relationship Oriented Bank

Impact of IT on Privacy and Confidentiality of Data:

Data being stored in the computers, is now being displayed when required on through internet banking mobile banking, ATM’s etc. all this has given rise to the issues of privacy and confidentially of data are:

  • The data processing capabilities of the computer, particularly the rapid throughput, integration, and retrieval capabilities, give rise to doubts in the minds of individuals as to whether the privacy of the individuals is being eroded.
  • So long as the individual data items are available only to those directly concerned, everything seems to be in proper place, but the incidence of data being cross referenced to create detailed individual dossiers gives rise to privacy problems.
  • Customers feel threatened about the inadequacy of privacy being maintained by the banks with regard to their transactions and link at computerized systems with suspicion.

Aside from any constitutional aspect, many nations deem privacy to be a subject of human right and consider it to be the responsibility of those who concerned with computer data processing for ensuring that the computer use does not revolve to the stage where different data about people can be collected, integrated and retrieved quickly. Another important responsibility is to ensure the data is used only for the purpose intended.

THE IMPACT OF INFORMATION AND COMMUNICATIONS TECHNOLOGY IN BANKING SECTOR INTRODUCTION There are so many definitions of a bank given by various authorities.But,summarizing all the definitions,a bank is simply a financial institution that accepts deposits from surplus economic units of the society and advances it to deficit units through the process of financial intermediation.Banks are the institutions that assist in managing financial system of a country.The financial systems are the totality of financial arrangement,agents,institutions etc that interact with each other and the rest of the world to develop,foster and enhance economic growth and development of a country.A robust financial sytem is very vital to the health of any economy.(Ekezie,1997).So the role banking institutions play cannot be over emphasized.And that is why any thing that affects the institution has both local and international consequences.The effective regulation of this institution helps the government to manage the monetary,political,and fiscal policies of the nation. There are divergents views on the impact of Information,Communication and Technology (ICT)in the banking sector as we have seen in our earlier discussions.Some of my colleaques agreed with me that ICT have impacted greatly the banking sector,while others disagree on the grounds that ICT have created some distortions by replacing human capital with machine capital so to say(example in comments made by Anthony). Some believe that the advantages far out weigh the disadvantages(example in comments made by Segun).Much as it has put a lot of people out of job,at the same time it has contributed significantly to creation of jobs.One can easily see examples among the likes,of VODACOM,MTN,AIRTEL,ETISALAT,IBM,FACEBOOK,MICROSOFT,HP,APPLE,SAMSU

NG,etc. Again many agreed that other employment opportunities abound in other sectors like agriculture,manufact uring,construction,etc,can be exploited by those affected(example in comments made by Loretta).The botton line being that one should equip himself or herself with others skills and knowledge as adaptive measures. Some believe that ICT is a welcome development in the banking industry or sector and there is no going back.That was why Paul O’Neil Chairman and CEO of Alcoa once said that “I don’t see information technology as a stand alone system.I see it a great facilitator.”(Bill,1999) LITERATURE REVIEW The arguments or controversies whether the ICT have made impact in the banking sector or not is still on going.While some agree,some others disagree each school of thoughts have their own points to back up their claims.Bill Gates in his book ‘Businees @ the speed of thought ‘likened the way businesses are carried out in this generation like digital nervous system.At the click of a botton,the response rate is unimaginable.(Bill,1999).In the banking sector,the speed of revolution in bank processes via ICT is such that people are wondering whether robots will not take over the banking operations soonest. A lot of research is still going on and the kind of competition taking place in telecommunications sector is amazing.A new invention quickly become obsolete in just a matter of two(2) to three(3) years as a result of fast development.Many banks are constantly upgrading their software.A case in point is First Bank Plc which recently upgraded their software from finnacle 7 to finnacle 10.This development disrupted the normal banking operation for 3 days.About four(4)years ago finnacle 7 was taken to be a robust software capable of supporting any large data base.Other banks are equally upgrading their various softwares every now and then.Nigeria like many countries have been making effort through many policies and strategies to accelerate the pace of economic and infrastructural development.To achieve this,a number of factors are involved including entrepreneurship,good corporate governance,competent management systems, modern techniques and application of information and communications technology(ICT).(Ekezie,1997). DISCUSSION The banking industry or sector provides financial services to individuals,organizations,institutions etc and have been totally revolutionized by the impact of Information and Communications Technology(ICT) in virtually all areas of its operations.Many years ago a lot of tasks were carried out manually.These include,preparation of cashbooks,journals,general ledgers,final accounts and reports.These however accounted to greater extent the long delays in providing financial services to customers,long queues experienced in banking halls,long turnaround time in meeting customers requests like cheque books requisition, raising drafts, processing of loan requests,withdrawal/deposit of cash,trade payments etc But today,the story have changed significantly due to the impact of Information and Communication Technology.Unlike before where you have many paying and receiving tellers in the banking hall, you have fewer tellers nowadays and many Automated Teller Machines(ATM) in many strategic locations both within and outside bank premises.These days many banks even have e-branches and ATM galleries with highly reduced human activities.Loan processing have equally improved.Approvals can be obtained from various approving authorities via computer system. The clearing system of bank instruments like,cheques,managers cheque,bank drafts, etc have been reduced from four(4) working day to two(2) with chances of further improvement.In security area, electronic revolving doors have practically replaced the manually operated types.Surveillance cameras of various types are in vogue.Computerized system of monitoring custom duties,excise duties,import duty,movement and payment of goods,taxes is now the order of the day.Today in Nigeria financial inclusion strategy appears to be gaining ground.These involves using electronic means including handsets to facilitate payment of goods and services especially in areas that were not exposed to bank services.This strategy assists in mobilizing money that was not in the banking system.Thus improving the workability of monetary policy of the government.The various banking software being used in the banking system have further improved the processes of generating reports ,accounting,internal controls,human resource management,corporate governance and other processes in the system.The notable softwares include finnacle,globus,phoenix,bankmaster,etc.Internet banking services have greatly contributed in revolutionizing the banking sector.The internet creates a new universal space for information sharing,collaboration,and commerce.(Bill,1999).Today through the platform(internet) you can easily pay your utility bills,recharge your cards,transfer funds to various accounts,make payments with your electronic cards in commercial websites and you can even open accounts without necessarily going to the banking hall (GTB).Also,you can request for cheque books and stop your cheques through the internet and using your internet enabled handsets a good number of banking applications can be done.The list is endless so to say and more innovations are still on their way. However,the impact of information and communications technology have not been without its challenges.So many people have lost their jobs because of the replacement of some tasks and services by machines and computer systems.The unemployment situation have worsened such that,the percentage of unemployed youths have risen to worrisome level.Some banks have reduced the number of their branches as a result of improvement in technology.Banks like GTbank Plc and Zenithbank Plc have some branches with greater part of their operations carried out by machines and computer system.The cost of deploying the technology have impacted negatively to the profitability figures of many banks.As at today some banks are still behind others in competition because of associated cost of deploying some of the machines,computer systems and other electronic channels.The structure of banking halls are now different from what we used to know before.The computer systems,machines and other tools used are now more effectively, efficiently and strategically deployed to enhance banking operations. Many changes are still very much on their way and the impact will continue. SUMMARY Summarising the discussion above,one can see that ICT have totally revolutionized the banking industry or sector and thereby changing the manner business is conducted nowadays.There is virtually no unit that does not have ICT innovations.And the situation will continue many years to come.The effect or impact have the positive side of it as well as the negative side as we can deduced from the discussion.Whichever school of thought you belong,it is obvious that there is a cause and effect situation.No doubt,the arguments,discussions,debates etc will still continue because researches,experiments etc are still on and the results will in one way or the order affect the sector positively or negatively.The solution to its negative impact still remain in my own mind in development of oneself in other skill of human endeavour by way of seminars, training, workshops,formal and non formal education,specialized training programs,conferences etc such that you can easily adapt to changes when the need arise. CONCLUSION In conclusion, the impact of Information and Communications Technology in banking sector is enormous and has global impact.It has equally affected leading organizations all over the world.The effect is not only in the banking sector because virtually all sectors of human endeavour have experienced the revolution.Again,the speed of change is fast and in many years to come the impact will continue to cut across all areas of human endeavour going by the Research and Development(R&D) taking place all over the world presently.Change is a constant phenomenon and banking sector is not exempted.As such one needs to prepare himself or herself to such changes whenever the situation calls for it.

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