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Impact of information technology on Indian banking services

Conference Paper · March 2012

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Abstract—Technological innovations witnessed by the Automated Teller Machines (ATM). This facility was
banking sector during the nineties have changed the way further enhanced by the internet facility, which was an also
business needs to be conducted. IT has introduced new significantly influenced delivery channel of the banks.
business paradigms and is increasingly playing a Internet has emerged as an important medium for delivery
significant role in improving the services in the ban king of banking products and services. Detailed guideline of RBI
industry. The paper aims to explore some important and for Internet Banking as prepared the necessary ground for
popular IT enabled services of banking institutions, its growth of Internet Banking in India. In addition to this the
benefits and issues at present. IT Act, 2000 has provided more enhancement by giving a
legal recognition to creation, transmission and retention of
an electronic data.
Keywords- information; technology; banking; ATM; internet The IT Act, 2000 also provide for this electronic data to
banking; mobile banking; fund transfer be treated as a valid proof in a court of law in most of the
cases, except those cases, which continue to be governed by
I. INTRODUCTION the provisions of the Negotiable Instrument Act, 1881.
The changes after economic liberalization and RBI has also stressed the implementation of centralized
globalization process, initiated since 1991, have significant funds management system, which facilitates a centralized
impact on the financial institution. Information Technology viewing of balance positions of the account holders across
revolution is of entirely changing the way financial business different accounts maintained at various locations of
is done and has considerably widened the range of products Reserve Bank of India. This process was divided in two
and increased the expected demands of the customers. parts. The first part made the centralized funds enquiry
Financial sector reforms and banking sector reforms are the system available to the customers and the second part
part and parcel of economic reforms, which strengthen the arranged for a centralized funds transfer system by the end
economic reforms. IT Act of 2000 gave new dimension to of 2003.
the Indian financial sector. IT has created transformation in In order to enhance the information security on network,
banking sector: banking structure, business process, work Government of India has approved the Institute for
culture and human resource development. It affected the Development and Research in Banking Technology as a
productivity, profitability and efficiency of the banks to a Certification Authority for digital signatures. Electronic
large extent. Strengthening the financial sector and funds transfer is being enhanced in terms of security by
improving the functioning of financial market have been the means of implementation of digital signatures using the
core objective of the financial sector reforms. facilities offered by the certification authority. Further
It was in June 1999 that an IT revolution actually recognizing the need for technology based payment
appeared in the Indian financial institutions specially products a pilot project for multi-application smart cards in
banking sector when the world of IT seemed too wide open combination with a few banks, under the guidance of the
with introduction of Indian Financial Net. This Indian Ministry of Communications and Information Technology,
Financial Net included a wide area satellite based network, Government of India, has been initiated.
which used Very Small Aperture Terminals Technology. The All this technological advancement has changed the face
Reserve Bank of India jointly set it up with the Institute for of Indian Banking System. As explained above a number of
Development and Research in Banking Technology. The technologically advanced measures are provided to every
Indian Financial Network initially comprised only the public single customer of present day banks. But of a close analysis
sector banks but was later on opened up for participation by is made then one thing will come up that the present day
other categories of members including foreign banks as well. banking is made available to the customer at the finger tips
It was the payment system, which was the first segment of by the most valuable contribution of information technology
banking system, benefited a lot from the introduction of the is the Automatic Teller Machine Card of ATM. It will not
new technology. This segment being the lifeline of a bank be wrong if it is asserted that the biggest agent of change of
was later on fully mechanized with the introduction of the face of the banking system today is ATM. Internally, the
first ATM was installed on June, 1974 by Barclay Bank, introduction of new products and service by various
London. In India, the ATM service was introduced in 1987. financial institutions in India.
There are about 16, 00,000 ATMs throughout the world. Shapiro [6] studied the effects of cyberspace on
This ATM card could be used at the ATMs of other banks efficiency and productivity of banks. He also analyzed the
also. nature of bank transformation.
Indian Banks have always proved beyond doubt their
II. LITERATURE REVIEW
adaptability to change and it would be possible for them to
The study by Awasthi & Sharma [2] reveals that mould themselves into agile and resilient organizations by
advances in technology are set to change the face of the adopting fine-tuned CRM strategies, operations based on
banking business. Technology has transformed the delivery asset-liability and risk management systems, the required
channels by banks in retail banking. The study also explored technological capabilities and developing human resources
the challenges that banking institution and its regulatory to meet the challenges of the paradigm shift.
face. Uppal and Jatana [8] concluded that there is a need to
Janki [3] analyzed that how technology is affecting the manage the cost of partially IT oriented bank groups in
employee’s productivity. There is no doubt technology has cooperation with their profits
changed the operating efficiency and customer services. The The review of literature on various aspects of bank
focus on technology will increase new products, strengthen transformation concludes that transformation is taking place
risk management etc. The study concluded that tech and IT is playing vital role in bringing this transformation
Technology is the only tool to achieve their goals. and it is need of the hour to manage this transformation with
Rao [5] analyzed the impact of new technology on IT.
banking sector. The technology is changing the way the
business is done and open new vistas for doing the same III. BANK TRANSFORMATION AND INFORMATION
work differently in most cost –effective manner. Tele TECHNOLOGY
banking and internet-banking are making forays such that The term transformation in Indian Banking Industry
branch banking may give to home banking. related to intermediately stage when the industry is passing
Bhasin [4] analyzed the impact of IT on financial sector. from the earlier social banking era to the newly conceived
It has transformed the repetitive and overlapping systems technology based customer-centric and competitive
and procedures, into simple single key pressing technology banking. The activities of banks have grown in multi-
resulting in speed, accuracy and efficiency of conducting directional as well as in multi dimensional manners. During
business and enabling them to enter into the new activities. transformation, all known parameters of the earlier regime
Sabnani [7] analyzed the importance of ―Universal continuously change.
Banking‖ in India. The developments in IT and The virtual financial services can be largely categorized
telecommunications are allowing international pooling of as follows:
financial resources thereby spreading the risk across more
A. Automated Teller Machines
than one market. He feels that Universal Banking System
will increase in India. Cash withdrawals
Vageesh [9] highly appreciated the new private sector Details of most recent balance of account
banks which have adopted IT. The new private sector banks Mini statement
with their state-of –the –art technology and grandiose plans Statement ordering facility
to make in -roads into e-Banking. Banks are foraying into Deposit facility
net banking offering great convenience to the customers on Payments to third parties.
one hand and results in lower transaction cost for the banks
cost for the banks on the other hand. B. Remote Banking Services
Verma [10] analyzed the impact of IT on public sector Balance enquiry
banks and new private sector banks and observed that IT is a Statement ordering
threat for public sector banks whereas strength of new Funds transfer (payment) to third parties
private banks. New private banks are fully computerized Funds transfer between customer’s different
and providing services on internet, especially ICICI Banks accounts
and HDFC Bank very active on this front and concentrating Order traveler’s cheques and other financial
on Internet and e-Commerce to offer their clientele a whole instruments.
range of products under one roof. Public sector banks have
to do a lot on improving their productivity and efficiency. C. Smart Cards
Arora [1] highlighted the significance of bank (i) Stored value cards
transformation. Technology has a definitive role in (ii) As a replacement for all types of magnetic
facilitating transactions in the banking sectors and the stripes cards like ATM Cards, Debit Cards,
impact of technology implementation has resulted in the Charge Cards etc.
 One smart card to carry out all these beneficiary account within 30 seconds after initiating the
functions transaction. In case the IMPS transaction is not completed
One smart card can contain the due to any technical reason, the reversal of funds will take
functionality of several different types of place immediately. If the status of transaction cannot be
cards issued by different banks while determined immediately, the reversal of funds will be done
running different types of networks on the next working day. The limit is defined by RBI in the
Smart card a truly powerful financial Mobile Payment guidelines issued to Banks This limit
token, giving user access amount is fixed up to Rs. 50,000 per customer for all
STM transactions under IMPS .
Debit facility IV. BENEFITS OF IT IN BANKING SERVICES
Charge facilities
Credit facilities The following are the benefits extended to the various
parties with the use of IT:
Electronic purse facilities at National and
International level A. To the Individuals:
D. Internet Banking Anytime banking- e banking providers 24 hours,
The latest wave in IT is Internet banking. It is becoming all days service to the customers for cash
more obvious that the Internet has unleashed a revolution withdrawal from any branch.
that is affecting every sphere of life. Internet is an Anywhere banking – no matter wherever the
interconnection of computer communication networks customer is in this world, on line banking is used to
spanning the entire globe, crossing all geographical get the services.
boundaries. Touching lifestyles in every sphere the Net has Online purchase of goods and services and
redefined methods of communication, work, study, payment can be arranged for various purposes
education interaction, health, trade and commerce. The Net through cards.
is changing everything, from the way we conduct Customer can also make some permitted
commerce, to the way we distribute information. Being an transactions from his office or house or while
interactive two way medium, the net, through innumerable traveling via mobile phone.
website, enables participation by individual in B2B and Customers can receive relevant and detailed
B2C commerce, visits to shopping malls, books stores, information in seconds, rather than days or weeks.
entertainment sides, and so on cyberspace.
B. To the Merchants, Traders etc.
E. Interbank Mobile Payment Service (IPMC)
Assured immediate settlement and payment to the
IPMC is an instant internet electronic fund transfer various transactions made by the traders.
service through mobile phones. The customers can use Providing various services to the businessmen at
mobile phone devices as a channel for accessing their bank par with the international standards with low
accounts, remitting funds from the accounts and making transaction cost.
payments at shops and commercial establishments. This is
Avoid all the cost and risk problems involved in
envisaged as a safe, secure, 24 x 7, convenient payment
handling cash, which are very high in business
mechanism for Indian for domestic transactions. The
transactions.
customer, who is a remitter, should enroll for Mobile
Development of global and local clients’ base can
Banking service with the bank where he/she has an
be possible with the development of the IT in
account. The bank provides Mobile Money Identifier
Banking.
(MMID) and Mobile Banking Personal Identification
Other benefits include improved image, improved
Number (MPIN) to the customer. The customer has to
customer service, eliminating paper, reduced
download and activate the mobile banking application in the
mobile phone or use SMS or Unstructured Supplementary waiting costs and increased flexibility.
Service Data (USSD) based application provided by the C. To the Banks
bank. MMID is a seven digit random number issued by the E-banking provides competitive advantage with
bank and it is allocated for each account of the mobile unlimited network to the banks.
phone banking customers. Remitter and Beneficiary both
Online banking – an effectiveness medium of
should have MMID for doing fund transfer. The beneficiary
promotion of various schemes of the bank, and
of the transaction has to register mobile number with the
indeed acts as a marketing tool.
bank to link to the account.
By connecting ATM and PO terminals, risk of
IPMC transaction can be sent and received at any time and
over-drawl of cash can be eliminated in case of
any day. There are no timings or holiday restrictions on
ATM credit and debit cards.
IMPS remittances. The funds are credited into the
 E-Banking site can act as a revenue earner through
promotional activity by the consumer corporate. Building–up of skilled personnel: There is need to
Help in establishing better customer relationships, building up a pool of software application
attracting and retaining the customers. developers and database administrators who can
handle e- business application under proper
D. To the Nation supervision.
Globalization of trade can be achieved effectively
though e-banking. Educating customers for IT enabled services: The
Provision of global market to the domestic technological transformation has also created a fear-
products and services is easy with the development factor among customers due to security,
of e-banking. unawareness and unfamiliar with the use of
E-banking promotes more exports so that the flow technology, especially in country like India. This is
of foreign exchange increases. also a major concern for the banks which is
E-banking provides more transparency in business preventing the expected level of penetration in the
transactions and creates good business relations market and desired return on the investment in
banking technology. In India, with the diverse base
among nations.
of customers, making customers aware and
E-banking enabled more individuals to work from comfortable with technological products is also a
home and to do less traveling for banking, resulting major concern.
in less traffic on the roads and lower air pollutions.

In the nutshell, the IT has many benefits over traditional VI. CONCLUSION
banking, which is listed below: The banking industry has implemented information
To business organization, it provides paperless technology for improving different areas like customer
transactions, quick settlement of bill, less cost of services and CRM, managing its operation, house-keeping,
transactions, elimination of middlemen, lower monitoring and controlling, risk management, managing its
manpower costs and quicker order execution. human resource etc. The transformation in banking services
To customers, it provides flexibility of time, place is providing various advantages to customers with anytime,
and distance, and wider choice of selection. anywhere access to their accounts as well as power to
Easy to get in touch with customers, globally and operate their accounts. Although the change is good but still
settle their accounts quickly and thus promote the banks in India are required to address the important issues to
business. get the full benefits of information technology
implementation.
Thus the use of IT has resulted in an increase of speed,
accuracy and efficiency of operations, giving rise to REFERENCES
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