I T IN BANKING
By
Dr. R. Rajeswari, Reader in Commerce & Principal,
Sri Sarada College for Women (Autonomous), Salem-16.
INTRODUCTION
India’s banking sector has made rapid strides in reforming and aligning itself to the new competitive business environment. Indian banking industry is in the midst of an IT revolution. Technological infrastructure has become an indispensable part of the reforms process in the banking system, with the gradual development of sophisticated instruments and innovations in market practices.
AN OVERVIEW OF IT IN BANKING
Indian banking industry, today is in the midst of an IT revolution. A combination of regulatory and competitive reasons have led to increasing importance of total banking automation in the Indian Banking Industry. Information Technology has basically been used under two different avenues in Banking. One is Communication and Connectivity and other is Business Process Reengineering. 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.
Entry of new banks resulted in a paradigm shift in the ways of banking in India. The growing competition, growing expectations led to increased awareness amongst banks on the role and importance of technology in banking. The arrival of foreign and private banks with their superior state-of-the-art technology-based services pushed Indian Banks also to follow suit by going in for the latest technologies so as to meet the threat of competition and retain their customer base.
With the fierce competition and liberalized policies, the banks have diversified into non-traditional areas like:
- Merchant banking.
- Lease Finance.
- Project Finance.
- Trust and Pension Management.
- Executor / Trusteeship Business.
- Free Based Services.
- Investment Banking.
- Cash Management Product.
- Real Estate Financing, especially Housing Finance.
- Negotiating and Syndicating borrowings for Corporate Customers in international markets.
- Forex Loans.
- Securities Operations.
- Gold and gold related Products.
- Management Consultancy for Corporate Customers.
- Mergers, Acquisition and Divestitures.
- Factoring Forfeiting.
Today, technology has changed the contours of three major functions performed by banks, i.e., access to liquidity, transformation of assets and monitoring of risks. Further, Information technology and the communication networking systems have a crucial bearing on the efficiency of money, capital and foreign exchange markets.
TECHNOLOGY IN BANKING SERVICES
Many of the world’s biggest and successful banks have grown out of the technological changes which they are able to identity early. The Indian banking industry has a long way to go before it can compete globally. The state of affairs has been perpetuated mainly because of late introduction of communication technology in Indian banks. Our information technology has to be geared to compete with information technology elsewhere in the World and unless we are very fast in the area, it may be difficult for us to take advantage of the liberalization process.
The bank which used the right technology to supply timely information will see productivity increase and thereby gain a competitive edge. To compete in an economy which is opening up, it is imperative for the Indian Banks to observe the latest technology and modify it to suit their environment. Not only banks need greatly enhanced use of technology to the customer friendly, efficient and competitive existing services and business, they also need technology for providing newer products and newer forms of services in an increasingly dynamic and globalised environment. Information technology offers a chance for banks to build new systems that address a wide range of customer needs including many that may not be imaginable today.
On-line banking, for example, promises to let customers carry out transactions via a direct connection to the bank’s core customer-account functions. Customers will review all of their data, all their date, all their cheques, all their credit-card details.
In the future, banks will be freed of the constraints of a single delivery channel. They will be able to create, package, market and deliver products for niche segments, and, because the price of technology in tumbling, they will be able to do so cost-effectively.
Technology will allow banks to be closer to customers, to deliver a wider range of services at lower costs, land to streamline interest systems so that all data is together in one place where it can be used to spot trends that can lead rapidly to new products. Electronic delivery of banking services will allow data to be gathered and analyzed. Interactivity will give consumers a opportunity to register their preferences, actually steering to development of new products.
RECENT DEVELOPMENT IN BANKING SERVICES
The following services rendered by the banks are:
- Automatic Teller Machine (ATM)
An ATM is a computerized telecommunications device that provides a financial institution’s customers a secure method of performing financial transactions in a public space without the need for a human clerk or bank teller. ATMs are linked to bank’s central computer and identify the customer through magnetic coding on the card provided to customer and Personal Identification Number (PIN), keyed in by the customer. It updates the account of the customer after the completion of the transaction. The transaction using ATM can range from simple transactions involving cash withdrawals and deposits to making hotel reservations etc.,
2. Electronic Funds Transfer – Point of Sales Terminals (EFTPOS)
EFTPOS can be installed at Airlines, Hotels, Railways, Super Bazaars and other commercial centers. Customer will get rid of the botheration of carrying cash, as the payments can be made through cards backed by the security features of personal identification numbers (PIN) or password etc., at selected installations where POS terminals are installed. Point of Sales Terminals can be linked to the bank’s host computer.
3. Electronic Funds Transfer System
To transfer funds instantly among various branches at various locations in the country; by connecting these branches through a network using the latest communication technology which includes satellite, leased lines, dial-up lines etc.
4. Electronic Clearing Service (ECS)
In April 1995, the RBI introduced electronic clearing service between selected metro centres in the country under which transfer of funds from one centre to another could be done quickly. ECS is essentially a more effective method of handling bulk payment transactions and inward remittances, like pension, interest, dividend, salary or commission cheques. It adds 3 benefits to customer’s inwards remittances: Speed, Safety & Convenience. As a subscriber to ECS, customer’s bank account would be directly credited on every due date.
5. Credit Cards/Debit Cards
These cards are used to store information related to customer’s account and can be used to perform many functions involving purchase of goods and services. These reduce cash-handling expenses and the risk involved in handling cash. Hence, enhance customer safety and convenience. Debit card is similar to credit card with some important exceptions. While the process is fast and easy, a debit card purchase transfers money to the store’s account. So, it’s important that you have funds in your account to cover your purchase.
6. Electronic Pass Book
For the issuer, the system provided low cost, security and easy adaptation to the existing system through two real-life systems which were operating in the country.
7. Home Banking
The first commercial in-home banking system in the UK was launched by a building society in 1983. Offering a two-way communication system to any subscriber. Two-thirds of European banks now offer home banking systems which provide account interrogation, payment of bills, inter-account transaction, loan generation and other banking facilities.
8. Corporate Electronic Banking
Banks have established electronic based products for their corporate customers. The system provides customers with control over financed twenty-four hours a day as well as a diverse range of market information and reporting. Corporate customers can dial into local access points in the data network through personal computers and modems. They are thus connected instantly to the group’s mainframe system
9. Anywhere Banking
“Anywhere Banking” is done by linking of metro branches through satellite linked communication network using VSATs and on-line computer network. Inter-connectivity through satellite-based communication channels are far more reliable and efficient than the ground-based leased lines.
Complete networking of all branches on all India basis has been introduced for the first time in the country by Centurion Bank Ltd. By offering these services, customer becomes customer of the entire bank, rather than a branch, as all the branches are connected via-satellite. A marriage between computers and modern communications. Systems has thrown open the gate to the technological super highway.
10. Telebanking
Telebanking is the round-the-clock, ‘bank-on-phone’ service to allow customer to interphase via telephones. It results in improved customer satisfaction within available infrastructure facilities. Customer calls up his bank, utter his password and effect the transfer. NRIs can also make queries and issue instructions at convenient time in their respective countries, i.e. 24 hours banking.
Facilities offered by telebanking are information on balance, getting the statement of account on any fax machine of his choice directly from bank’s computer which may also feature the last three transactions of his accounts, cheque book requisition, money transfer branch to branch, request for drafts, stop-payment instructions, queries on new schemes, rates, general details of interest rates, information on customers deposit maturities, etc.
11. Extension Counter (Personal Banking e.g. NRI Services)
This has basically been done to attract foreign exchange deposits through NRI specialized revenue like portfolio management and custodian services. Technology adopted includes additional for terminals. If banks are to provide the quality of service their customers are increasingly demanding, they have to know them better. Customer information system can provide this ability and help banks focus their marketing campaigns. The technology to do this is already available.
12.SMS Banking
It is a technology-enabled service offering from banks to its customers, permitting them to operate selected banking services over their mobile phones using SMS messaging. SMS Banking services are operated using both Push and Pull Messages:
Push messages are those that the bank chooses to send out to a customer’s mobile phone, without the customer initiating a request for the information, these are either Mobile Marketing messages or messages alerting an event which happens in the customer’s bank account, such as a large payment using the customer’s credit card, etc.
Pull messages are those that are initiated by the customer, using a mobile phone, for obtaining information or performing a transaction in the bank account. Pull messages include an account balance enquiry, or requests for current information like deposit interest rates, as published and updated by the bank.
13. Internet Banking
Banks and financial services firms are now waking up to the tremendous potential of internet. Internet banking may be done through a bank’s website where bank also has a physical structure or user can choose a “virtual” bank or financial institution that has no public building and exists only online. Internet banking is usually conducted through a personal computer (PC) that connects to a banking web site via the Internet. Internet banking also can be conducted via wireless technology through both Personal Digital Assistants (PDAs) and Cellular Phones. Internet banking, apart from providing general banking facilities to customers, provides following additional services:
a) eTAX
Banks like IDBI have eased the process of tax payment by implementing the eTAX project. Payment of excise and customs duty over the Internet is also possible. SBI e-tax is an online payment facility. This facility saves time, is convenient, hassle free and paperless. It is available on a 24 x 7 basis and enables user to pay taxes online, with ease and simplicity.
b)Online Remittances
Another example of how well IT has been aligned with banking, and is providing value to customers, is better online remittances from around the world. Beneficiaries in India are credited with remittance money within hours.
c)Online Bancassurance
It is a package of financial services involving distribution of insurance products through bank’s branch network. Online Bancassurance facilitates customer to pay insurance premium, at a low cost, by visiting the concerned bank’s website. This has, led to the migration of customers from high cost branch transaction to low-cost online interfaces, bringing down the total cost per transaction.
d)Electronic Bill Payment
Electronic bill payment is a feature of online banking, allowing a depositor to send money from his demand account to a creditor or vendor such as a public utility or a department store to be credited against a specific account. The payment is optimally executed electronically in real time, though some financial institutions or payment services will wait until the next business day to send out the payment.
e) Shop online
Now user can choose product and pay using Internet Banking Facility. Banks like ICICI Bank facilitate customer to buy variety of products online from partner shopping websites. Payment can be made conveniently using customer’s ICICI Bank Account.
f) Other Value Added Services
Some banks also offer value added services in the areas of Railway reservation. The facility has been launched w.e.f. September 1, 2003 in association with IRCTC. The scheme facilities Booking of Railways Ticket Online. Thus, customer doesn’t have to stand in queues. Now user can recharge Prepaid Mobile anytime, anywhere in just a few minutes by logging into Internet Banking.
CONCLUSION
We can say that IT has moved to the core of banking functions. No doubt, Indian banks are not as technologically advanced as their counterparts in the developed world, but they are following the majority of international trends on the IT front to rise up to expectations from all quarters. The new generation banks showed the way and others had no option but to follow the tech infusion to retain and attract profitable customers.
However, Joseph D. Giarraputo, Publisher of Global Finance, remarks, “ The continuing improvements in internet offerings represented by this year’s entries show that more significant internet banking developments are still ahead of us.”
About the Author:
Dr. R. Rajeswari, Reader in Commerce & Principal,
Sri Sarada College for Women (Autonomous), Salem-16.
