Information Technology is no longer a matter of choice. The question no longer is whether you would be computerized or not. Those who do not use IT will be out of business. Without computerization one will not be able to do business 10-15 years down the road. The need of the hour is to use the modern means of communication. What is more important from the banking point of view is that the use of Information Technology could produce tremendous results, speed up processes and eventually reduce costs. Banking and Financial Services industry is changing rapidly and the winners in the financial market place will be those that adopt new technology. Technology will be used not only as a channel to reach new and existing customers, but also to provide a structured framework for an efficient and profitable business.
The following few paragraphs describe in brief the impact of IT in the Banking and financial sector : Globalization, the impact of the Internet:
The opening of the economy and competition have forced banks and financial institutions to try and cut operational costs and to manage more information to re-engineer their business. This re-engineering process is creating new business opportunities for technology suppliers. Technology offers the path to a sustainable competitive advantage. No other industry is as dependent on technology, which is the foundation of every financial services product, from analysis and planning through to distribution and control.
The online revolution:
On-line is the buzzword today touching all facets of an enterprise not only the way transactions are made and processed but also the way messages are sent and received, data is managed and protected, systems are monitored and maintained and information is gathered, analysed and put to use.
Internet Banking and e-commerce:
These are the days of Internet banking and e-commerce activities, wherein IT has greatly influenced the entire banking and financial sector in a very big way. As use of the Internet continues to expand, more and more banks will be using the Web to offer products and services or otherwise enhance communications with consumers. The Internet offers the potential for safe, convenient new ways to shop for financial services and conduct banking business, any day, any time. On the other hand, using the same platform, any form of business transaction in which the parties interact electronically rather than by physical exchanges or direct physical contact is the much talked about e-commerce.
The impact of electronic commerce will be pervasive on banks and financial sector and those that fully exploit it’s potential, will benefit a lot; the electronic commerce offers the possibility of breakpoint changes – changes that so radically alter customer expectations that they re-define the market or create entirely new markets. The ones, who try to ignore the new technologies, will then be impacted by these changes in markets and customer expectations. Equally, individual members of society will be presented with entirely new ways of purchasing goods, accessing information and services, and interacting with banks and financial choice will be greatly extended, and restrictions of geography and time eliminated. Globally, many banks have offered on-line querying of accounts for quite some time and each one is vying with each other to offer their services over the net. This is true of our country too.
Computer Based Technologies:
The impact of technology on banking has been spectacular in the industrially advanced countries. Against the background of growing volume of transactions and the need to meet customer needs expeditiously, technology upgradation has become indispensable. To strengthen internal control, to improve accuracy of records and to facilitate provision of new products and services, banks will have to rely increasingly on computer based technologies. Apart from improving the functioning of banks at various levels, technology has a key role to play in developing a payments system network through which funds can be transmitted quickly and efficiently. It is expected that, in India too VSAT satellite based network will, facilitate this as RBI and banks have already done much groundwork in this regard.
Information flow:
With the computing and telecommunications capabilities, the pace of financial innovation does not appear to be slowing. Technological advance has expanded the scope and utility of our financial products and increased the ability to unbundle risks. It has also promoted the faster and freer flow of information throughout the financial system. We are able to quickly move to real-time systems, not only with transactions but also with knowledge.
Supervision and regulation:
The speed of transactions and the growing complexities of financial instruments have required a focus more on risk-management procedures. This is justified by the recent technological innovations and proposals attempting to harness and to simulate market forces in the financial system. This impact on financial services therefore emphasizes on supervision and regulation, which forms the critical issue that frames the supervisory agenda as we move into the twentyfirst century. In today’s more complex world, the
diversity of financial product choices facing consumers and businesses is truly astonishing.
The complexity has provided consumers with more choice but presented new challenges as well. In modernizing our banking laws and making them more consistent with marketplace realities, financial services industry can expand and innovate with far fewer artificial constraints.
Consolidation and reorganization needs:
The banks in India, which grew by leaps and bounds by increasing their branch network, have to think on consolidation and reorganization of such network by enforcing on stricter reporting system and head office controls over the branches. Control over such a large network of branches would require extensive use of Information Technology. If we recall, to bring in better internal controls and monitoring standards for sensitive transactions.
Asset Liability Management & Risk Management:
If we also look into the recent guidelines issued by the RBI, IT infrastructure upgradation along with early adoption of Asset
Liability Management system and Risk Management guidelines would facilitate Indian banking to migrate to better operational
standards on par with global ones, and enhance their MIS capabilities for optimization of
earnings.
Changing with environment:
It is widely accepted worldwide that the banks and financial institutions have to reorient their policies, practices, procedures, products and clientele in tune with the changing global environment without losing focus on their core competencies. It is also a well known fact that, globally the bank mergers are taking place among equally strong institutions to expand the reach and coverage through retail banking, in pursuit of investment and wholesale banking, treasury services and such other activities which may not necessarily fit into the accepted tenets of banking business in the traditional sense. Such synergies aimed at maximizing profits and expansion of assets will be possible only if such institutions have an open mind towards reforms and especially in the IT sector.
Impact of developments in Information and Communications Technology (ICT).
It is a subject that is of increasing interest to bankers and central bankers around the world. There is increasing recognition of the enormous potential for these developments to transform the financial industry in a manner that will bring tremendous gains to businesses and consumers. There is also mounting evidence that ICT is not only creating new alternative delivery channels, but is bringing about compelling changes to the financial landscape that may threaten the very existence of the traditional financial institutions. Whether or not such developments do in fact take place, it is of paramount importance that financial institutions and central banks are well placed to manage the challenges and opportunities brought about by developments in Information and
Communication Technology. Essentially, the potential benefits from the new technology need to be exploited without undermining the security and stability of the financial system.
Computer Based Training (CBT) or e-learning:
Last but not the least IT has influenced training in a radical way. Today learning is better achieved through CBTs, regardless of whether a person is trained at his/her workplace or in a designated learning centre. In fact technology oriented learning is the novel methodology of distance learning across the globe today. It is becoming an important option because it imbibes the advantage of the same very technology that businesses are using to gain competitive advantage in the current competitive scenario. However design of the course and the intellectual matter/ contents thereof are critical for such platforms to be successful.
As far banking system is concerned, in the area of education and training substantial amount of money is spent each year and resources have been already spent to computerize major branches and plans are in force to implement and use VSAT technology in a big way. In this connection,
Computer Based Training (CBTs), popular world wide, supports on-line education in all areas that would facilitate reading and self-development through interactive process built on advanced technology platforms on the WEB. Banks are thus enabled to put to use this advanced CBT technology and implement this mode of training at all levels across diverse locations in more than one way especially considering the large scale human resource employed by this sector. Popularly also referred as e-learning, it will be possible to reach large number of personnel at a lower cost providing quality learning online, anytime anywhere learning year around.
It is therefore very clear that, the need to align technology with business strategy is a pillar of Banks and financial institutions of 21st-century strategy. The impact of IT on the financial sector is so forceful that, our survival on the evolving needs of businesses and consumers amidst the process of change poses real challenges to adapt to. Given the rapidity of innovation and technological change it is impossible to predict with any certainty about tomorrow. Accordingly, developing an optimal model either for financial services providers or for financial regulators is extremely difficult.
If proceeded cautiously facilitating and participating in prudent innovation the financial sector can reap the maximum benefits out of technological revolution allowing markets to signal the winners and losers among competing technologies and market structures. And this is more so with the ability of an organisation to adapt to the change happening in the IT sector. The financial sector should learn how to use IT, and use it sooner than later for its own survival. The banks and financial sector in future may have to be a lot more oriented to customer needs.
One can appreciate the initiatives of central bank providing technological infrastructure required, particularly in terms of externalities for banks. Now the time has come for Banks to take the full advantage of the IT infrastructure and its positive impact on our country.
Last updated on August 3, 2020
