Role of IT in Banking

ABSTRACT

Electronic banking is generally an extension of traditional banking, using the internet as an

electric delivery channel for banking products and services. The banking today is redefined
and re-engineered with the use of IT and it is sure that the future of banking will offer more
sophisticated services to customers with the continuous product and process innovations.
Thus there is a paradigm shift from seller‟s market to buyer‟s market. So banks also change
their approach from “Conventional Banking to Convenience Banking” and “Mass banking to
Class Banking”. The study examines various relevant issues relating to role of IT in banking
and recommends to ensure privacy and confidentiality of data‟s, implement IT and other
Cyber laws properly. This will ensure the developmental role of IT in the banking industry.
INTRODUCTION
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
microprocessor 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.
The banking industry hasn’t always been a pioneer of tech innovation. Restricted by
regulations and siloed organizational structures, banks have often seen innovation in
traditional service offerings as too complex or risky. But the world’s most tech-savvy
generation is all grown up, and they demand smarter, faster, and easier experiences —
especially when it comes to their money. This, combined with a slew of fintech
 competitors, has driven banks to revamp their business strategies for a digital era. No
one department plays a greater role in this banking revolution than IT.
In recent years, we’ve seen new advancements in banking tech, ranging from mobile
banking apps and customer service chatbots to digital banking providers without physical
locations. But it’s still not enough. As mobile, artificial intelligence (AI), and Internet of
Things (IoT) consolidate consumers in a digital space, IT is increasingly central to
banking’s business performance.

E-Banking:

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 Europe 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 private 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
equipment’s. 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)

But this process is continuous running which are shown in the diagram given below: -
 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, 7days 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 individualised and customised 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.
Digital customer onboarding:
Building valuable customer experiences
through digital bank channels

A recurring theme we see among banks is process digitization. Digital transformations

have proven to reduce operating costs while also enabling banks to be nimble and more
responsive to customer needs. They also allow banks to create innovative engagement
models through digital channels.

The bank’s goals are to initiate a positive, long-term relationship, maximize product use,
and automate as much as possible.

The onboarding landscape: What is the industry standard?

According to a recent American Banker article1, “Customer experience in financial services
continues to lag significantly below other verticals, and the opportunity to invest in the
underlying infrastructure is massive.” Banking institutions are racing to keep up with an
increasingly mobile and multi-device customer base. Customers have become accustomed
to a higher level of customer service and expect service to be fast, easy, and seamless.

While many banks have made improvements in customer experience, the customer
onboarding workflow is still one that is often disruptive and unlike all other digital
touchpoints. For example, checkbooks have been replaced with tap-to-pay, yet pen-and-
paper and fax continue to play a critical role in receiving and processing a new customer
application.

How are you building your customer relationship from the

beginning?

The first step to fully embracing a thoughtful onboarding customer experience is to align
your perspective to that of a new customer. Set aside the complexities of regulations,
back-office workflow, and organizational structure for a moment and view the experience
from the customer’s perspective.

• What workflow is required to become a customer?

• What tasks and challenges must someone overcome before they can be your customer?

• Are there areas where you ask the customer to make a leap of faith or complete a
disruptive step to an otherwise seamless digital experience?
Let’s take a look at the customer onboarding experiences across these channels:
• Walk In
• Tab Banking
• Online Account opening

Walkin is the traditional approach adopted in bank where the customer visits to branch
to open the account branch assigned RM to collect the document and scan under the
Bank system to open the account

The driver behind these innovations, in what essentially is an application with common information,
is the need to deliver a full experience to your customer. The coffee shop on the corner with the long
line is easily disrupted by a new shop with an efficient operation. People want to move on to the
next task in their day, and will follow the path of least resistance to accomplish their goal. When
evaluating your bank’s onboarding experience, consider if it is set up for the ease of the business, or
the delight of the customer. The strongest onboarding experiences understand the customer’s goals
and validate their understandings through research. You can leverage data-driven decisions to
inform your priority and efforts. By having a cohesive technical approach, you can determine small,
valuable releases. These iterations will allow you to effectively deliver a service-driven customer
onboarding experience.
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

The banking industry hasn’t always been a pioneer of tech innovation. Restricted by
regulations and siloed organizational structures, banks have often seen innovation in
traditional service offerings as too complex or risky. But the world’s most tech-savvy
generation is all grown up, and they demand smarter, faster, and easier experiences —
especially when it comes to their money. This, combined with a slew of fintech
competitors, has driven banks to revamp their business strategies for a digital era. No
one department plays a greater role in this banking revolution than IT.
In recent years, we’ve seen new advancements in banking tech, ranging from mobile
banking apps and customer service chatbots to digital banking providers without physical
locations. But it’s still not enough. As mobile, artificial intelligence (AI), and Internet of
Things (IoT) consolidate consumers in a digital space, IT is increasingly central to
banking’s business performance.

1. Banks Must Live Up to High Digital Expectations

Banks have traditionally centered their focus around the branch and in-person customer
experiences. But today’s customers want faster, more accessible banking experiences
that are just as personalized in the digital realm as they are in the physical world. The
industry has a lot to gain if they adapt — and a lot to lose if they don’t. While technology
makes it easier than ever for customers to take their business elsewhere, 72% of
Millennial consumers are optimistic about tech advancements in banking, saying they
will positively impact their relationships with banks by 2020.
Banking IT leaders’ central function has become enabling these 1-to-1 experiences by
supporting their partners across sales, service, and marketing. But despite the fact that
IT banking leaders have prioritized the creation of a single customer view (perhaps due
to demand from their business unit partners), only 32% of IT banking leaders say they’ve
integrated 75% or more of their data sources. Unless banks can invest in new data
solutions, lack of visibility into customers and their needs will prohibit them from meeting
customers’ increased expectations for connected experiences.

2. Banking IT Leaders Focus on Speed and Innovation

While the pace of change within banking as a whole traditionally has been slow, banking
IT teams are taking a more ambitious approach to transforming the customer experience.
Over the next 12–18 months, 72% of banking IT leaders say transforming customer-
facing tech is a critical or high priority.
To meet demand for these projects, speed is crucial as a key performance indicator
among the majority of banking IT leaders. To speed up their development cycles, teams
are turning to low-code development (point-and-click or visual tools suitable for non-
technical users) to help them share the app development workload with partner business
units. It’s clear the low-code revolution is in full swing, as 91% of banking IT leaders use
or plan to use low-code development in the next 12–18 months.
3. Emerging Tech Will Transform Banking

Banking IT leaders have their sights set on three up-and-coming technologies to have a
transformational impact on their business by 2020:

 Cloud computing
 Artificial intelligence (AI)
 Mobile technologies for customers

While banking IT leaders admit they’re still in the early stages of AI planning, their current
use of AI exceeds other industries. Seventy-two percent of banking IT leaders have
already adopted AI in some capacity, whereas only 60% of IT leaders in other industries
have.
But these aren’t the only technologies that banking IT leaders have come to value. From
business intelligence/analytics to chatbots, banking IT leaders are more likely than any
other IT leaders to classify six different big-bet technologies as critical or high priorities.