Benefits of IT in Banking Sector

This paper develops and tests a model to examine the effects of information technology (IT) in the banking industry. It is believed that IT can improve bank’s performance in two ways: IT can reduce operational cost (cost effect), and facilitate transactions among customers within the same network (network effect). Information Technology infrastructures have various advantages for business organizations like financial institutions, and more particularly banks. They assist to improve their service quality, increase speed of service delivery, minimize cost, increase profitability, offer convenience in providing anytime and anywhere banking. Hence, adoption of such technologies is highly appreciated. However, the implementations of the technologies depend on the attitude of customers towards the technology to be adopted. Therefore, this research is concerned with investigating the factors affecting attitude of customers towards Information Technology adoption in the banking sector; because, customers are the ultimate users of the technology to be adopted. The attitude of the banks’ staff to technology adoption is also important; since they are stakeholders of the technology adoption, and it is assessed that they have positive attitude towards technology. Similarly, descriptive statistics is used to examine the existing status of the banks in Information Technology adoption and most commercial banks are found lagging behind in adopting Information Technologies that can provide them with multi-directional benefits.

Keywords:
Information technology in banks, Customer attitude towards information technology.

1. Introduction: Information technology is, nowadays, affecting the daily activity of individuals and organizations. Information is an input for every activity of organizations, without which organizations cannot function efficiently. Organizations should apply information technologies in such a way that can help them to achieve their goals. The usage of information technology (IT), broadly referring to computers and peripheral equipment, has seen tremendous growth in service industries in the recent past. The most obvious example is perhaps the banking industry, where through the introduction of IT related products in internet banking, electronic payments, security investments, information exchanges  banks now can provide more diverse services to customers with less manpower. Seeing this pattern of growth, it seems obvious that IT can bring about equivalent contribution to profits.

In general, existing studies have concluded two positive effects regarding the relation between  IT and banks’ performance. First, IT can reduce banks’ operational costs (the cost advantage). For example, internet helps banks to conduct standardized, low value-added transactions (e.g. bill payments, balance inquiries, account transfer) through the online channel, while focusing their resources into specialized, high-value added transactions (e.g. small business lending, personal trust services, investment banking) through branches. Second, IT can facilitate transactions among customers within the same network (the network effect).

2. Benefits of Information Technology
Operational Excellence:
The use technology for efficiency doing things Wright in the least amount of time, with the fewest number of errors, and son on.
Major Business Initiative:
The use of technology to support initiatives such as customer relationship management, enterprises resources planning, sales for automation, and supply change management.
Supply Change Management(SCM):
An IT system that supports supply chain management activities by automating the tracking of inventory and information among business processes and across companies.
Customer Relationship Management(CRM):
CRM consists of the processes a company uses to track and organize its contacts with its current and prospective customers. CRM software is used to support these processes; information about customers and customer interactions can be entered, stored and accessed by employees in different company departments.
Business Intelligence:
The knowledge about your customers, your competitors, your business partners, your competitive environment, and your own internal operations – that gives you the ability to make effective, important, and often strategic business decisions.

3. Literature Review
3.1 Definition of Information Technology
Information Technology is data resource management, hardware, and software and telecommunications technologies, used in computer based information systems (Obrien, 1996).
               Information technology is a technology that deals with the physical devices and software that link various computer hardware components and transfer data from one physical location to another (Laudon and Laudon, 1991).
Anderson (2006) has defined information technology as hardware and software technologies used to create information system.

3.2 The Business Value of Information Technology
According to (Kraemer et. al., 1994) business value of information technology refers to the contribution of information technology to organizational performance. Information technology adds value for business organizations to perform well. Different organizations operating in different environments, apply different information technology products, and thus attain values form the applied information technology.
As studies indicate, information technology has positive influence on the productivity and profitability of organizations (Brynjolfsson and Hitt 1996). Information
technology is changing the way organizations do their activities. It uses computer technologies, telecommunication technologies and other software and
hardware technologies to facilitate the activities of business organizations (Obrien, 1996).

3.3 Benefits of Information Technology in Banking Sector
Like any other organization information technology has business values for banks. Benefits of information technology for bank is three directional:- to the customer, to the bank and to the employees.
3.3.1 Benefit of IT for the Customer:
Banks are aware of customer's need for new services and plan to make them available. IT has increased the level of competition and forced them to integrate the new technologies in order to satisfy their customers. They have already developed and implemented a certain number of solutions among them:
i)Self-inquiry facility: Facility for logging into specified self-inquiry terminals at the branch to inquire and view the transactions in the account.
ii) Remote banking: Remote terminals at the customer site connected to the respective branch through a modem, enabling the customer to make inquiries regarding his accounts, on-line, without having to move from his office.
iii) Anytime banking- Anywhere banking: ATMs which offer non-stop cash withdrawal, and inquiry facilities. Networking of computerized branches inter-city and intra-city, will permit customers of these branches, when interconnected, to transact from any of these branches.
iv) Telebanking: A 24-hour service through which inquiries regarding balances and transactions in the account can be made over the phone.
v) Electronic Banking: This enables the bank to provide corporate or high value customers with a Graphical User Interface (GUI) software on a PC, to inquire about their financial transactions and accounts, cash transfers, cheque book issue and inquiry on rates without visiting the bank. vi) As information is centralized and updates are available simultaneously at all places, single-window service becomes possible, leading to effective reduction in waiting time.

3.3.2 Benefits of IT for the Bank:
During the last decade, banks applied bank-related information technologies to a wide range of back and front office tasks in addition to a great number of new products. The major advantages for the bank to implement IT are:
i)Availability of a wide range of inquiry facilities, helping the bank in business development.
ii) Immediate replies to customer queries.
iii) Generation of various reports and periodical returns on due dates.
iv)Fast and up-to-date information transfer enabling speedier decisions, by interconnecting computerized branches and controlling offices.
v) Reduce cost by improving the efficiency of employees by automate business processes.

3.3.3 Benefits of IT for the Employees:
IT has increased their productivity through the followings:
i) Accurate computing of cumbersome and time-consuming jobs such as balancing and interest calculations on due dates.
ii) Automatic printing of covering schedules, deposit receipts, pass book / pass sheet (transaction documents), freeing the staff from performing these time consuming jobs, and enabling them to give more attention to the needs of the customer.
iii) Signature retrieval facility, assisting in verification of transactions, sitting at their own terminal.
iv) Avoidance of duplication of entries due to existence of single-point data entry.

3.4 Attributes determining adoption of innovations:
The successfulness of adoption of innovation is determined by different factors that influence the attitude of such ultimate users. Rogers (2003) theorizes that about 49-87% of the successful diffusion of new technologies is determined by five attributes namely relative advantage, ease of use (simplicity), compatibility, trial ability and observability. This theory is called “Diffusion of Innovation (DOI) Theory”. According to him innovation is an idea, practice, or object that is
perceived as new by an individual or other unit of adoption.
Relative advantage – that is the degree of which an innovation is perceived to have better advantage than the idea it supersedes.
Compatibility – that is the degree to which an innovation is perceived to be consistent with the existing values, past experience and needs of potential adopters. The greater the compatibility, the faster is the rate of technology adoption.
Simplicity – that is the degree to which the innovation is perceived to be simple to understand or to use. In other words the simpler the innovation for understanding it will be more rapidly adopted than innovation that requires more complex understanding.
Trial ability – that is the degree to which an innovation may be experimented on a trial basis before it really convince large majority of the adopters. If the innovation is not tested it is likely that the innovation will not succeed as expected. If an innovation can be broken down into parts and tried small portions at a time, the innovation has a greater chance for adoption.
Observability – that is the degree to which the results of an innovation are visible to others. The easier for individuals to see the results of an innovation the more convincing the innovation to be adopted.
A search of the banking literature reveals that banks are moving rapidly to take advantage of recent and new customer service and cost reduction opportunities that new technologies offer.

4. MAJOR IT PRODUCTS USED IN BANKING SECTOR: Information Technology enables new product development, better market infrastructure, implementation of right techniques for control of risks and helps banks to extend their markets geographically. There are so many Information Technology products that can be applied in the banking industry. Among others the following are most important:
AUTOMATED TELLER MACHINE(ATM) TECHNOLOGY: ATM technology is an information technology product that replaces human tellers. It runs automatically through ID like card and password, PIN (personal Identification Number), which is uniquely provided by the bank. If people insert their visa card in to the machine, it verifies the password and makes it open for the user to access the service delivered by the machine. It allows all visa card holders to withdraw cash and ask their balance. It allows 24-hours cash withdrawal facilities using debit/ credit cards, fast cash, fund transfer, Personal Identification Number (PIN) change, mini-statement request etc.

INTERNET BANKING TECHNOLOGY: It is the use of internet technology as a channel for providing service directly for customers. Using internet banking technology, customers who have access to internet, can conduct transaction from wherever they are. Account balance enquiry, fund transfer among the accounts of same customer, opening or modify of term deposit account, pay order request, bills payment, account summary, account details, account activity, standing instructions, loan repayment, loan information, statement request, refill prepaid card, password change, bank guarantee application, lost card (debit/credit) reporting, pay credit card dues, view credit card statement or check balance are some of the services that can be provided by banks through internet banking technology.

POINT OF SALE (POS) TERMINAL: It is an electronic machine that can sense a special plastic card that is encoded with information on a magnetic slip. Actually, the device functions as a receiving desk of cash counter of a bank branch. Allows debit cards, credit cards, visa cards etc for making transactions. POS provides a number of services such as, payment for products purchased or services rendered at different merchant locations using debit/ credit cards etc.

TELE BANKING TECHNOLOGY: Tele Banking Technology is a banking technology that enables customers to get banking service by dialing to particular telephone number of the banks form the place they are. It provides detail account information, balance inquiry, information about products or services, ATM card activation, bills payment, credit card service etc.

CREDIT CARD TECHNOLOGY: A special plastic card that is encoded with information on a magnetic strip linked with credit accounts with access to ATM or POS terminal located at merchant outlet, restaurant, 5 star hotels, hospitals etc. It provides 24-hours cash access within the sanctioned limit to customer’s credit account through ATM, POS, merchant shop window, and payment counter, making payment to merchant against purchase of goods and services, availing cash advances, withdrawal of cash from ATM, SMS banking, internet banking etc.

DEBIT CARD TECHNOLOGY: A special plastic card that is encoded with information on a magnetic strip linked with deposit accounts with access to ATM or POS terminal. It provides 24-hours cash access to customer’s savings or current account through ATM and POS terminals, balance enquiry, mini statement printing in ATM, cash withdrawal from ATM, fund transfer to linked accounts of respective customer, PIN change, utility bills payment, cash deposit, cheque deposit, purchase of goods and services through POS terminal, transaction details, etc While using the debit card, cash will be subtracted from the account from which the debit card is linked. Unlike the credit card, debit cards purchase doesn’t incur interest. However, it has usage charges.

MOBILE BANKING TECHNOLOGY: According to Andrew (2009) Mobile banking is defined as ‘the provision of banking and financial services with the help of mobile telecommunication devices’.
About two billion people worldwide are using a mobile phone. As the number of mobile phone increases there has been a pervasive impact on people's lives. Mobile banking helps to cover wide geographical area. They can reach remote area at low cost. In developing countries where financial services are scarce, mobile banking provides an inexpensive and secure way to transfer funds. It also offers improved access to savings accounts.

5. FACTORS AFFECTING STAFF’S ATTITUDE TOWARDS BANKING TECHNOLOGY: Attitude and expectation of bank staff’s plays very important role in the development of successful banking technologies implementation. Because so long as they are the users of the technology, the adoption of technology is in part dependent up on their attitude. If banks’ staff’ have positive attitude, it will be easy to adopt the technology and on the other hand if they have negative attitude towards the technology, they will resist the adoption of the technology. There are various factors affecting the attitude of bank staff’s towards the application of banking information technologies. Some of them are fear of new responsibilities, fear of job losses, fear of losing customer relationship, lack of strategic IT plan, lack of appropriate technical knowledge amongst bank staff, IT terminology , availability of IT funds, confidentiality and privacy, system integration problem, system technical difficulties etc.
 
FEAR OF NEW RESPONSIBILITIES: when new technologies are applied, it is obvious that they will come up with new way of doing things, which employees assume it as new responsibilities. Employees fear such responsibility and as a result develop negative attitude towards new technology adoption.

FEAR OF JOB LOSSES: bank’s staff might have negative attitude towards the application of new banking technology anticipating it as a threat to their jobs. Because they perceive that application of modern banking technology reduces the labor force of the banks.

FEAR OF LOSING CUSTOMER RELATIONSHIP: employees argue that the benefits of face of face interaction with their customers will be lost as result of banking technology implementation.

LACK OF STRATEGIC INFORMATION TECHNOLOGY PLAN: lack of strategic IT plan in the bank implies lack its attention to banking technologies. If the bank doesn’t give due attention for banking technology, employees similarly might not worry about the implementation of banking technology.

LACK OF TRAINING: absence of Information Technology related training for employees make them passive about the use and application of banking technologies. As a result bank’s staff will not give value for banking technologies and as a result might develop negative attitude towards such
technologies.

COMPATIBILITY (SYSTEM INTEGRATION PROBLEM): bank’s staff perceives that banking technology might not compatible with their existing banking systems.
COMPLEXITY (SYSTEM TECHNICAL DIFFICULTIES): Banks’ staffs fear that new banking technology might be complex to adopt in many ways.
CONFIDENTIALITY AND PRIVACY: Less standard security measures expressed by those responsible for IT are not up to the standard required in the banking industry.

LACK OF APPROPRIATE TECHNICAL KNOWLEDGE AMONGST BANK STAFF: Bank’s staff with poor IT backgrounds will show a negative attitude towards banking technology application.

AVAILABILITY OF INFORMATION TECHNOLOGY FUNDS: this is related with lack of strategic plan. If there is no strategic plan for Information technology, there will not be budget for Information technology.

6. STRATEGY FOR THE FUTURE: Banks face a serious challenge. The basic structure of the bank is increasingly in conflict with the changing product, delivery, and service needs of the customers The future belongs to financial service providers not traditional banks. The vast majority of large banks, will create value networks. Doing so presents tremendous challenges. Banks will have to first develop a comprehensive distribution system that will enable customers to touch them at multiple points. Banks must also create performance measurement systems to assure the mix products and services they offer are beneficial to both the customer and the bank. They must determine whether to deploy new technologies themselves or with other service providers. Nevertheless, technology alone will not solve issues or create advantages. This technology needs to be integrated in an organization, with the change management issues linked to people resisting new concepts and ideas. It also needs to support a clearly defined and well communicated business strategy.

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