Waves In Banking Technology

Published Date: 02 Nov 2017

CHAPTER 2

LITERATURE REVIEW

INTRODUCTION

Indian banking industry has witnessed a remarkable development in the Informational Technology (IT) in last few years. Banking transactions are become easier and customer friendly due to the technological improvements. To play a supportive and key role, banks are providing with lots of services which are the combination of electronics and information technology, like, Automatic Teller Machines (ATMs), plastic money i.e. credit card, debit card and smart cards, phone banking, e-banking which is called by net-banking, etc. ATMs have emerged as the most favoured channel for offering banking services to the customers in the world (Mittal & Dhingra, 2007). RBI has also adopted IT in endorsing the payment system's functionality and modernization on an ongoing basis to improve the efficiency of banking sector. There is a noticeable improvement in the performance of financial institutions and the service sector by incorporating IT into their functionality. It shows an increasing share, enhanced competitiveness at the global surface because of adopting IT culture (Vittaldas Leeladhar). The advancements in information and telecommunication technologies (IT) since past 25 years clearly indicate a positive impact on banking and financial institutions (Rishi & Saxena, 2004).

REVIEW OF LITERATURE

The study conducted by Gotlieb, and Denny (1993), is one of the studies which deal with the impact of investment in IT on output, input and productivity of banks. Automation is one of the factors which improve the efficiency of the banking transactions. They concluded that there is significant improvement in performance levels without corresponding increase in the number of employees. Also, it has been possible for Public Sector Banks and Old Private Banks to improve their productivity and efficiency by using IT.

Verma (2000) analyzed the impact of IT on public sector banks and new private sector banks and observed that IT is a threat for public sector banks whereas strength of new private sector banks are fully computerized and providing services on internet. Especially ICICI and HDFC Bank are very active on this front and concentrating on internet and e-commerce to offer their clientele a whole range of products under one roof. New banks like GTB, BOP, IDBI & UTI bank are not lagging behind while some of them are concentrating on expansion and modernization, some are focusing on mergers and acquisitions for their growth and hence, public sector banks have do a lot on improving their productivity.

Federick & Phil. (2000) analyzed the E-Loyalty. According to them, the unique economics of e-business make customers loyalty more important than ever.

Pikkarainen, Karjaluoto & Pahnila (2004) studied the acceptance of online banking amongst private bank customers. They found that information about online banking services and its benefits are the crucial factor influencing the acceptance. Surprisingly, they found that security and privacy were relatively less crucial factor influencing acceptance of online banking services. They highlighted two major reasons underlying online banking development and penetration. First, banks get significant cost savings in their operation through e-Banking services and secondly, that banks have reduced their branch networks and downsized the number of service staff. It was also indicated that electronic banking services delivery are the cheapest, the most profitable and wealthiest delivery channel for banking products. Internet banking services are crucial for long-term survival of banks in the world of electronic commerce (Burnham 1996). The market for internet banking is forecast to grow sharply in the next few years, affecting the competitive advantage enjoyed by traditional branch banks (Duclaux 1996; Liao, Shao & Chen, 1999). It was also argued that internet banking would help banks present a potentially low cost alternative to brick and mortar branch banking (Margaret & Thompson 2000).

According to Jim Bruene (2006), 'online banking is the best thing to happen to personal finance management since the invention of the paper statement. In many countries, half or more of online users routinely visit their bank to check account activities, verify deposits, and just see if everything is in order. According to a report by Mintel International Group Ltd (June 1, 2006), the forces driving the growth of the Internet-increased broadband access, new innovations that provide a secure environment, and the coming-of-age of more tech savvy people-will combine to propel online banking as well. Mintel expects that online banking will continue to grow and become more profitable for financial institutions, particularly as the Internet matures and subsequent generations become more technologically literate. Factors impacting online banking include the trend within the industry and the socioeconomic forces behind changing demographics.

Kamakodi, N. (2007) examines how computerization has influenced the banking habits and preferences of Indian customers and which factors influence these preferences. Changing of residence, salary account and non- availability of the technology based services were given as the three main reasons for changing the bank.

Vijay M. Kumbhar (2011) attempted to examine a contribution of various dimensions of service quality in customers’ satisfaction. Result of the study indicates that, all 13 variables were found significant and were good predictors of overall satisfaction in e-banking. However, A result of principle component analysis indicates that, Perceived Value, Brand Perception, Cost Effectiveness, Easy to Use, Convenience, Problem Handling, Security/Assurance and Responsiveness are important factors in customers’ satisfaction in e-banking. Responsiveness, Easy to Use, Cost Effectiveness and Compensation are predictors of brand perception in e-banking and Fulfillment, Efficiency, Security/Assurance, Responsiveness, Convenience, Cost Effectiveness, Problem Handling and Compensation are predictors of perceived value in e-banking. Therefore, banker and e-banking service designers should think over these dimensions and make possible changes in the e-banking services according to the customers’ expectations and need of the time. It will be helps to enhance service quality of e-banking and increase the level of customers’ satisfaction in e-banking.

Namita Rajput and Monica Gupta, (2011) made an attempt to map the impact of IT on banking sector for scheduled commercial banks operating in India including public, private and foreign sector banks in India. The study uses a nonparametric linear programming based technique. The results convey that all SCBs have shown a significant and improving trend in their performance due to the adoption of IT. This adoption is required mandatory to take the country into the 21st century.

A research conducted by Joao Dias, Debashish Patnaik, Enrico Scopa, and Edwin van Bommel (2012) indicates that a significant opportunity exists to increase the levels of automation in back offices. By reworking their IT architecture, banks can have much smaller operational units run value-adding tasks, including complex processes, such as deal origination, and activities that require human intervention, such as financial reviews.

Karimzadeh, Majid; Alam, Dastgir. (2012) provided a possible six factor model centered upon the following: infrastructure, knowledge, legal-security, socio-cultural, economic and management and banking issues. The results of the study indicated that legal and security, socio-cultural, and management and banking issues are accepted as challenges for the development of e-banking but that there is less awareness regarding new technologies and unsuitable software which are ranked respectively as the highest and lowest obstacles in India.

WAVES IN BANKING TECHNOLOGY

As per the Reports of RBI, the first wave in banking technology began with the use of Advanced Ledger Posting Machines (ALPM) in the 1980s. The RBI advised all the banks to go in for huge computerization at the branch level. There were two options: automate the front office or the back office. Many banks opted for automating the front office in the first phase. Whereas banks like State Bank of India also concentrated on the back office automation at the branch level.

The Second wave of development was in Total Branch Automation (TBA) which came in late 1980s. This automated both the front-end and back-end operations within the same branch. TBA comprised of total automation of a particular branch with its own database.

In the third wave, the new private sector banks entered into the field of automation. These banks opted for different models of having a single centralized database instead of having multiple databases for all their branches. This was possible due to the availability of good network infrastructure. Earlier, banks were not confident of running the whole operation through a single data center. However, when a couple of private sector banks showed that it can be done efficiently, other banks began to show interest and they also began consolidating their databases into a single database. The banks followed up on this move by choosing suitable application software that would support centralized operations.

The fourth wave started with the evolution of the ATM delivery channel. This was the first stage of empowerment of the customer for his own transactions. The second stage was the Suvidha experiment in Bangalore. This showed the power of technology and how the reach can be increased amazingly at a great pace. Seeing these, all the banks started revamping their retail delivery channels. Their core focus became increasing the number of customers they can service at a lower cost. The main channels for these were internet banking and mobile banking. After this, came the alliances for payment through various other gateways. The third important development happening now is the real-time gross settlement system of the RBI. Once this was in place, transactions between banks could be done through the settlement system, online, electronically thereby, ensuring faster collection. The process of computerization had started from Back Office Application, after that Total Branch Automation and nowadays it is the period of implementation of Core Banking Solutions (CBS).

A key trend in the last couple of years has been the focus on core banking systems. With the implementation of core banking systems across the banks, the usage level of IT for customer management has increased. Core banking systems have enabled banks to launch new products and services targeting specific customer segments after understanding their banking and investment requirements.

ATM, internet banking and mobile banking have improved customer convenience by providing anywhere any time banking services. The utility bill presenting and payment has helped customers to pay their bills online at the click of a button. Electronic clearing system and electronic funds transfer have facilitated faster funds movement and settlement for the customers of different banks and different centers. The electronic data interchange and cash management service facilities have enabled better funds management for the customer.

Very few banks offered customers the ability to access their accounts and perform at least simple money transactions using internet banking. Advancements in information technology have made it possible for the banks to use the internet as a delivery channel for banking services. Technological developments have introduced tremendous changes in the ability of financial and non-financial firms to efficiently collect, store, use and sell information about their customers.