TECHNOLOGICAL DEVELOPMENT IN BANKING SECTOR

• A. Prabhu

BANKING

The origin of banking, in the modern era, is traced in Italy. The word bank also seems to
have originated from Italy. The word bank is supposed to have been derived from the German
language ‘banck’, meaning a mound or heap from which Italians adopted ‘banco’ which means a
bench at which the money changers used to change one kind of money into another and transact
their banking business.

The bank of Venice, founded in 1157, was the first public banking institution. The bank
of Barcelona and the bank of genoa were established in1401 and 1407 respectively. Banking is a
business like any other business. An indication of the financial position of a business concern
may be obtained by examing its statement of liabilities and assets, called the ‘balance sheet’.

DEFINITION OF A BANK

According to prof. Kinley-“a bank is an establishment which makes to individual such

advances of money as may be required and safely made, and to which individuals entrust money
when not required by them for use”.

The banking companies act – 1949 of India defines bank as-“a bank is a financial
institution which accepts money from the public for the purpose of lending or investment
repayable on demand or otherwise withdrawable by cheques, drafts or order or otherwise”.

TECHNOLOGICAL ADVANCEMENT

After the industrial revolution, the information revolution has been hailed as the most
significant development in this country. Some of the developments in the information technology
revolutions were the invention of the microprocessor, invention of the personal computer,
evolution of the software and the rapid advances in the field of telecommunications.

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 Financial institutions including banks have used Information Technology to achieve the
followings are ability to handle large volumes of business with the desired level of efficiency,
Maximizing profitability of operations and Exercising a strict vigil on costs. International banks
have achieved the objectives. Now they are engaged to get returns from the investments in IT.
Computers and communications technologies enable international banks and financial
institutions to expand their reach and to offer technology based products to a wide spectrum of
clientele.

During the current decade, banks in India are exploiting the political of IT in some areas.
They are collection, storage and processing of information in administrative office, Toning up
book keeping efficiency at branches by computerizing back office operations, Full branch
computerization and Setting up Automatic Teller Machines.

In the Indian scenario, the private banks have adopted a strategy to get the quality
business in the retail segment. A conventional lending business was of no use, they have started
exploiting technology advancements to capture the business of customers in the urban and
metropolitan centers. A well established player in the banking area has started taking serious
note of these developments.

In the context, it is worthwhile to trace the changing expectations of customers over the
last few years. In the olden times the account holders were largely satisfied with the services
dispensed by the branch of a bank. They are Receipt and payment of cash as and when needed,
Collection of instruments, local as well as outstation, Remittance facilities such as Demand
Draft, Advances against securities such as gold and Safe deposit locker facility.

To-day the customers of the urban and metro areas who are well informed expect the
some services. They are Faster remittance facilities, Automatic Teller Machines, Telephone
banking, Home banking, Credit card facility, Personal loans including car loans, housing loans
etc and Internet banking. Technology plays a prominent role in the design, development and
implementation of new products. Therefore the role of technology in the delivery of the services
is explained below.

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1. FASTER REMITTANCE FACILITIES

Electronic Fund Transfer (EFT) has accelerated the movement of funds across the world.
E-cash knows as cyber cash plays a predominant role in business world. SWIFT (Society for
World Wide Interbank Financial Telecommunication) is a classic example of EFT. The reasons
for the success of an EFT system are speed, reliability, security and accuracy. It is an efficient
mode of fund transfer across various banks. It significantly reduces the number of outstation
cheques issued by customers. Consequently service load on bank could be reduced over a period
of time. Further this technique makes reconciliation automatic.

2. AUTOMATIC TELLER MACHINES

ATM called electronic equipment allows card holdings customers to perform routine
banking transactions without interacting with a human teller. It offers a range of services of
modern banking namely deposit taking, cash withdrawal, and account balance verification etc
with the help of Personal Identification Number (PIN) system. It offers round the clock banking
services to customers. It is safe with an electro-mechanical input and output system which is
itself controlled by a fully electronic user interface. It prevents an unauthorized user of the card
from gaining access to the machine’s functions.

3. TELEPHONE BANKING

Of late, this product introduced initially by a few foreign banks has started attracting the
fancy of the urban customer for the sheer convenience of the facility. Any branch of a
commercial bank which has computerized its operations should be able to offer this facility to its
customers with the help of suitable software for this purpose. Digitization of voice has enabled
the introduction of this technological marvel. Elsewhere, organizations such as Airline, Indian
Railways etc have already implemented voice response system based on this technology.
Facilities offered through telephone banking can include a range of services such as balance
enquiries, enquiries about collections or specific credits / debits, transfer of funds, request for
statements of account or account opening forms etc. telephone banking services by the foreign
banks include a wide spectrum of services such as opening accounts, ordering for demand drafts
etc. such services, however, would include a suitable levy towards service change. Telephone

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banking is appealing to the urban customers who faces several constrains in day-to-day living
such as transport bottlenecks, traffic jams, non-availability of time to visit the branch, etc.

4. HOME BANKING

This is an extended and versatile version of telephone banking. The customer is able to
access his branch for availing a variety of services through home banking. This facility is made
available through the customer’s personal computer attached to a telephone line and modem.
Online banking facilities including normal transactions can be handled through this arrangement.
Corporate customers can avail benefits through PC terminal and handle their documentary credit
related transaction through this arrangement. The application software used this facility should
incorporate security features such as encryption to protect the data over telephone lines.

5. CREDIT CARD FACILITY

All major banks have introduced the credit card facility with a tie-up arrangement with
Visa or Master card. The tie-up is needed to facilitate usage of the credit card at a large number
of establishments. The business credit card is handled by banks through a separate strategic
business unit for better focus. Branches serve as marketing outlets. They act as collection agent
for credit card dues of the customer.

As this is a high volume, low value business with potential to breakeven only beyond
certain volume of credit card issued, dependence on technology is inevitable to keep the costs to
the minimum. All services such as the issue of credit cards, the processing of transactions, issue
of statements, calculation and levy of overdue interest, service charges etc are totally automated.
The regional offices of the credit card unit located at metros and major centers provide on-line
validation of merchant transactions. This is helpful in preventing fraudulent transactions. A
combination of Smart Card technology computers and communication has enabled this kind of
on-line validation possible.

6. PERSONAL LOANS

Loans such as housing loans, car loans etc are offered by private banks to prospective
customers for their personal use. Application packages for handling these products are available.
Since the accounting part is totally automated, more attention can be paid on services and
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marketing. Some banks provide the required focus on this segment of business through their
branches set up for this purpose only.

7. INTERNET BANKING

The commercial transaction through internet has increased due to widespread popularity
and cost effectiveness. Banks worldwide have launches their banking sites on the Internet World
Wide Web (WWW). The main attraction of internet is the cost effectiveness. Banking
transactions connected through internet has 24 hour availability. Banks can offer their market
service from any part of the globe at a fractional of the cost compared to traditional marketing
channels. The Internet banking services adds more value to NRI’s who can view their balance
online and also effect funds transfer just at the click of a mouse. Moreover, Internet banking has
no time zones. It is accessible round the clock without restricting it to any geographical
boundary.

CONCLUSION

New technology facilities the banks to introduction of new products in banking and helps
bankers in the number crunching work involved in consolidations of returns, reconciliation etc.
However, the rate of success of these new products will depend on the suitability of the
technology selected for introduction in banks. Besides, well trained in house manpower, proper
succession planning of staff and planned implementation strategy supported by adequate
marketing thrust will facilitate the success of these products. In a net worked environment
involving telecommunication lines, the computer security issues assume a more critical
dimension. A well defined computer security and audit plan will ensure the long term success of
IT plans of banks.