A Seminar Report Titled Technology & Banking

Master of Business Administration

Submitted To: Mrs. Alka Swami !ecturer "MBA #e$tt.%

Submitted By:Swati anwar MBA && Sem

2008-2010

TABLE OF CONTENTS
S.No. 1. 2. 3. 4. 5. 6. Topic Introduction Evolution of Technology in Ban ing !ole of Technology in Ban ing Benefit" of Technology Negative Effect" of Technology in Ban ing# and Solution" Conclu"ion Page No. 1 3 5 8 10 12

Introduction
The term banking technology refers to the use of so histicate! information an! communication technologies together "ith com uter science to enable banks to offer better ser#ices to its customers in a secure$ reliable$ an! affor!able manner$ an! sustain com etiti#e a!#antage o#er other banks. %n the fi#e !eca!es since in!e en!ence$ banking in %n!ia has e#ol#e! through four !istinct hases. &uring 'ourth hase$ also calle! as (eform )hase$ (ecommen!ations of the *arasimham +ommittee ,1--1. a#e! the "ay for the reform hase in the banking. %m ortant initiati#es "ith regar! to the reform of the banking system "ere taken in this hase. %m ortant among these ha#e been intro!uction of ne" accounting an! ru!ential norms relating to income recognition$ ro#isioning an! ca ital a!e/uacy$ !eregulation of interest rates 0 easing of norms for entry in the fiel! of banking. 1ntry of ne" banks resulte! in a ara!igm shift in the "ays of banking in %n!ia. The gro"ing com etition$ gro"ing e2 ectations le! to increase! a"areness amongst banks on the role an! im ortance of technology in banking. The arri#al of foreign an! ri#ate banks "ith their su erior state3of3the3art technology3base! ser#ices ushe! %n!ian 4anks also to follo" suit by going in for the latest technologies so as to meet the threat of com etition an! retain their customer base. %n!ian banking in!ustry$ to!ay is in the mi!st of an %T re#olution. 5 combination of regulatory an! com etiti#e reasons has le! to increasing im ortance of total banking automation in the %n!ian 4anking %n!ustry. %nformation Technology has basically been use! un!er t"o !ifferent a#enues in 4anking. 6ne is +ommunication an! +onnecti#ity an! other is 4usiness )rocess (eengineering. %nformation technology enables so histicate! ro!uct !e#elo ment$ better market infrastructure$ im lementation of reliable techni/ues for control of risks an! hel s the financial interme!iaries to reach geogra hically !istant an! !i#ersifie! markets. %n #ie" of this$ technology has change! the contours of three ma7or functions erforme! by banks$ i.e.$ access to li/ui!ity$ transformation of assets an! monitoring of risks. 'urther$ %nformation technology an! the communication net"orking systems ha#e a crucial bearing on the efficiency of money$ ca ital an! foreign e2change markets.

The 8oft"are )ackages for 4anking 5

lications in %n!ia ha! their beginnings in the mi!!le of

80s$ "hen the 4anks starte! com uteri9ing the branches in a limite! manner. The early -0s sa" the lummeting har!"are rices an! a!#ent of chea an! ine2 ensi#e but high3 o"ere! )+s an! ser#ers an! banks "ent in for "hat "as calle! Total 4ranch 5utomation ,T45. )ackages. The mi!!le an! late -0s "itnesse! the torna!o of financial reforms$ !eregulation$ globali9ation etc cou le! "ith ra i! re#olution in communication technologies an! e#olution of no#el conce t of :con#ergence: of com uter an! communication technologies$ like %nternet$ mobile ; cell hones etc.

Different constituents of banking technology

Evolution of Technology in Ban ing

&es ite the enormous changes the banking in!ustry has un!ergone through !uring the ast 20 years let alone since 1-43 one factor has remaine! the same< the fun!amental nature of the nee! customers ha#e for banking ser#ices. =o"e#er$ the frame"ork an! ara!igm "ithin "hich these ser#ices are !eli#ere! has change! out of recognition. %t is clear that eo le>s nee!s ha#e not change!$ an! neither has the basic nature of banking ser#ices eo le re/uire. 4ut the "ay banks meet those nee!s is com letely !ifferent to!ay. They are sim ly stri#ing to ro#i!e a ser#ice at a rofit. 4anking ha! to a!7ust to the changing nee!s of societies$ "here eo le not only regar! a bank account as a right rather than a ri#ilege$ but also are a"are that their business is #aluable to the bank$ an! if the bank !oes not look after them$ they can take their business else"here. %n!ee!$ technological an! regulatory changes ha#e influence! the banking in!ustry !uring the ast 20 years so much so that they are the most im ortant changes to ha#e occurre! in the banking in!ustry$ a art from the ones !irectly cause! by the changing nature of the society itself. %n this book$ technology is use! interchangeably "ith information an! communication technologies together "ith com uter science. The relationshi bet"een banking an! technology is such that no"a!ays it is almost im ossible to think of the former "ithout the latter. Technology is as much art of the banking in!ustry to!ay as a shi >s engine is art of the shi . Thus$ like a shi >s engine$ technology !ri#es the "hole thing for"ar!. Technology in banking cease! being sim ly a con#enient tool for automating rocesses. To!ay banks use technology as a re#olutionary means of !eli#ering ser#ices to customers by !esigning ne" !eli#ery channels an! ayment systems. 'or e2am le$ in the case of 5T?s$ eo le reali9e! that it "as a "rong a roach to ro#i!e the ser#ice as an a!!itional con#enience for ri#ilege! an! "ealthy customers. %t shoul! be offere! to the eo le "ho fin! it !ifficult to #isit the bank branch. 'urther$ the cost of !eli#ering the ser#ices through these channels is also less. 4anks then "ent on to create collaborati#e 5T? net"orks to cut the ca ital costs of establishing 5T? net"orks$ to offer ser#ices to customers at con#enient locations un!er a unifie! banner.

)eo le interact "ith banks to obtain access to money an! ayment systems they nee!. 4anks$ in fact$ offer only "hat might be terme! as a secon!ary le#el of utility to customers$ meaning that customers use the money access that banks ro#i!e as a means of buying the things they really "ant from retailers "ho offer them a rimary le#el of utility. +ustomers$ therefore$ naturally "ant to get the interaction "ith their bank o#er as /uickly as ossible an! then get on "ith !oing something they really "ant to !o or "ith buying something they really "ant to buy. That e2 lains "hy ne" ty es of !eli#ery channels that allo" ra i!$ con#enient$ accurate !eli#ery of banking ser#ices to customers are so o ular. *o"a!ays$ customers en7oy the fact that their banking chores are !one /uickly an! easily. This !oes not mean that the brick3an!3mortar bank branches "ill com letely !isa ear. @ust as increasing roliferation of mobile hones !oes not mean that lan!line tele hone kiosks "ill !isa ear$ so also the o ularity of high3tech !eli#ery channels !oes not mean that hysical branches "ill !isa ear altogether. %t has been foun! that cor orate an! ol!er ersons refer to con!uct their business through bank branches. The kin! of enormous an! far3reaching !e#elo ments !iscusse! abo#e ha#e taken lace along "ith the blurring of !emarcations bet"een !ifferent ty es of banking an! financial in!ustry acti#ities. 'i#e reasons can be attribute! to it< 1. Ao#ernments ha#e im lemente! hiloso hies an! olicies base! on an increase in com etition in or!er to ma2imi9e efficiency. This has resulte! in the creation of large ne" financial institutions that o erate simultaneously in se#eral financial sectors such as retail$ "holesale$ insurance$ an! asset management. 2. *e" technology creates an infrastructure allo"ing a layer to carry out a "i!e range of banking an! financial ser#ices$ again simultaneously. 3. 4anks ha! to res on! to the increase! ros erity of their customers an! to customers> !esire to get the best !eal ossible. This has encourage! banks to e2ten! their acti#ities into other areas. 4. 4anks ha! to !e#elo ro!ucts an! e2ten! their ser#ices to accommo!ate the fact that their customers are no" far more mobile. Therefore !emarcations are breaking !o"n. 5. 4anks ha#e e#ery moti#ation to mo#e into ne" sectors of acti#ity in or!er to try to !eal "ith the roblem that$ if they only offer banking ser#ices$ they are con!emne! fore#er to ro#i!e only a secon!ary le#el of utility to customers.

!ole of Technology in Ban ing

Technology is no longer being use! sim ly as a means for automating rocesses. %nstea! it is being use! as a re#olutionary means of !eli#ering ser#ices to customers. The a!o tion of technology has le! to the follo"ing benefits< greater ro!ucti#ity$ rofitability$ an! efficiencyB faster ser#ice an! customer satisfactionB con#enience an! fle2ibilityB 242C o erationsB an! s ace an! cost sa#ings. =arrison @r.$ chairman an! chief e2ecuti#e officer of +hase ?anhattan$ "hich ioneere! many inno#ati#e a lications of %+T in banking in!ustry$ obser#e! that the %nternet cause! a technology re#olution an! it coul! ha#e greater im act on change than the in!ustrial re#olution. Technology has been use! to offer banking ser#ices in the follo"ing "ays < D ATMs are the cash !is ensing machines that can be seen at banks an! other locations "here cro"! ro2imity is more. 5T?s starte! as a substitute to a bank to allo" its customers to "ith!ra" cash at anytime an! to ro#i!e ser#ices "here it "oul! not be #iable to o en another hysical branch. The 5T? is the most #isite! !eli#ery channel in retail banking$ "ith more than 40 billion transactions annually "orl!"i!e. %n fact$ the !eli#ery channel re#olution is sai! to ha#e begun "ith the 5T?. %t "as in!ee! a leasant change for customers to be in charge of their transaction$ as no longer "oul! they nee! to !e en! on an in!ifferent bank em loyee. 5T?s ha#e ma!e banks reali9e that they coul! !i#ert the huge branch traffic to the 5T?. The benefits hence "ere mutual. 6nce banks reali9e! the con#enience of 5T?s$ ne" ser#ices starte! to be a!!e!. D The henomenal success of 5T?s ha! ma!e the banking sector !e#elo more inno#ati#e !eli#ery channels to buil! on cost an! ser#ice efficiencies. 5s a conse/uence$ banks ha#e intro!uce! telebanking$ call centers$ %nternet banking$ an! mobile banking. Telebanking is a goo! me!ium for customers to make routine /ueries an! also an efficient tool for banks to cut !o"n on their man o"er resources. The call center is another channel that ca ture! the imagination of banks as "ell as customers. 5t these centers$ enormous amount of information is at the fingerti s of traine! customer ser#ice re resentati#es. 5 call center meets a bank>s infrastructural$ as "ell as customer ser#ice re/uirements. *ot only !oes a call center cut !o"n on costs$ it also results in customer satisfaction. ?oreo#er$ it facilitates 242C "orking an! offers the human touch that customers seek. The call center has large otential !i#i!en!s by "ay of im ro#e! customer relationshi management ,+(?. an! return on in#estment ,(6%..

D Eith the %nternet boom$ banks reali9e! that Internet banking "oul! be a goo! "ay to reach out to customers. +urrently$ some banks are attem ting to harness the benefits of %nternet banking$ "hile others ha#e alrea!y ma!e %nternet banking an im ortant an! o ular ayment system. %nternet banking is on the rise$ as is e#i!ent from the statistics. )re!ictions of %nternet banking to go the 5T? "ay ha#e not materiali9e! as much as antici ate!B many reasons can be cite! for this. &uring 2003$ the usage of the %nternet as a banking channel accounte! for 8.5F. 4ut this "as !ue to the false$ unrealistic e2 ectations tie! to it. 8ome of the factors that "ere !etrimental in bringing !o"n$ or rather$ not being su 5n! lack of a truste! en#ironment. D Mobile banking ho"e#er is being regar!e! in the in!ustry as the !eli#ery channel of the future for #arious reasons. 'irst an! foremost is the con#enience an! ortability affor!e!. %t is 7ust like ha#ing a bank in the ocket. 6ther key reasons inclu!e the higher le#el of security in com arison to the %nternet an! relati#ely lo" costs in#ol#e!. The ossibility that customers "ill a!o t mobile banking is high$ consi!ering the e2 onential gro"th of mobile hone users "orl!"i!e. ?obile banking ty ically ro#i!es ser#ices such as the latest information on account balances$ re#ious transactions$ bank account !ebits an! cre!its$ an! cre!it car! balance an! ayment status. They also ro#i!e their online share tra!ing customers "ith alerts for re3market mo#ements an! ost3market information an! stock rice mo#ements base! on triggers. 'allout of the %+T3!ri#en re#olution in the banking in!ustry is the +entrali9e! 4anking 8olution ,+48.. 5 +48 can be !efine! as a solution that enables banks to offer a multitu!e of customer3centric ser#ices on a 242C basis from a single location$ su orting retail as "ell as cor orate banking acti#ities$ as "ell as all ossible !eli#ery channels e2isting an! ro ose!. The centrali9ation thus affor!e! makes a one3sto sho for financial ser#ices a reality. Gsing +48$ customers can access their accounts from any branch$ any"here$ irres ecti#e of "here they hysically o ene! their accounts. %nformation technology has not only hel e! banks to !eli#er robust an! reliable ser#ices to their customers at a lo"er cost$ but also hel e! banks make better !ecisions. =ere a !ata "arehouse lays an e2tremely im ortant role. %t essentially in#ol#es collecting !ata from se#eral !is arate sources to buil! a central !ata "arehouse to store an! analy9e the !ata. 5 !ata "arehouse in a orti#e$ are lo" %nternet enetration$ high telecom tariffs$ slo" %nternet s ee! an! ina!e/uate ban!"i!th a#ailability$ lack of e2ten!e! a lications$

bank ty ically stores both internal !ata an! !ata ertaining to its com etitors. &ata mining techni/ues can then be a lie! on a !ata "arehouse for kno"le!ge !isco#ery ,="ang$ Hu$ Ien$ 0 +heng$ 2004.. &ata "arehousing also allo"s banks to erform time series analysis an! online analytical rocessing ,6J5). to ans"er #arious business /uestions that "oul! ut the banks ahea! of their com etitors. Technology Product"$ ,1.. *et 4anking ,2.. +re!it +ar! 6nline ,3.. 6ne Kie" ,4.. %nsta5lerts ,5.. ?obile 4anking ,6.. *et 8afe ,C.. e3?onies 1lectronic 'un! Transfer ,8.. 6nline )ayment of 12cise 0 8er#ice Ta2 ,-.. )hone 4anking ,10.. 4ill )ayment ,11.. 8ho ing

,12.. Ticket 4ooking ,13.. (ail"ay Ticket 4ooking through 8?8 ,14.. )re ai! ?obile (echarge ,15.. 8mart ?oney 6r!er ,16.. +ar! to +ar! 'un!s Transfer ,1C.. 'un!s Transfer ,e+he/ues. ,18.. 5ny"here 4anking

,1-.. %nternet 4anking ,20.. ?obile 4anking ,21.. 4ankL=ome ,i. 12 ress &eli#ery ,22.. +ash on Ta < ,ii. *ormal &eli#ery

Benefit" of Technology
Co%petition & 8tu!ies sho" that com etiti#e ressure is the chief !ri#ing force behin!

increasing use of %nternet banking technology$ ranking ahea! of cost re!uction an! re#enue enhancement$ in secon! an! thir! lace res ecti#ely. 4anks see %nternet banking as a "ay to kee e2isting customers an! attract ne" ones to the bank. Co"t Efficiencie" & *ational banks can !eli#er banking ser#ices on the %nternet at transaction costs far lo"er than tra!itional brick3an!3mortar branches. The actual costs to e2ecute a transaction "ill #ary !e en!ing on the !eli#ery channel use!. 'or e2am le$ accor!ing to 4oo9$ 5llen 0 =amilton$ as of mi!3 1---$ the cost to !eli#er manual transactions at a branch "as ty ically more than a !ollar$ 5T? an! call center transactions cost about 25 cents$ an! %nternet transactions cost about a enny. These costs are e2 ecte! to continue to !ecline. *ational banks ha#e significant reasons to !e#elo the technologies that "ill hel them !eli#er banking ro!ucts an! ser#ices by the most cost3effecti#e channels. ?any bankers belie#e that shifting only a small ortion of the estimate! 1-3billion ayments maile! annually in the G.8. to electronic !eli#ery channels coul! sa#e banks an! other businesses substantial sums of money. =o"e#er$ national banks shoul! use care in making ro!uct !ecisions. ?anagement shoul! inclu!e in their !ecision making the !e#elo ment an! ongoing costs associate! "ith a ne" ro!uct or ser#ice$ inclu!ing the technology$ marketing$ maintenance$ an! customer su their business #enture. ort functions. This "ill hel management e2ercise !ue !iligence$ make more informe! !ecisions$ an! measure the success of

'eographical !each & %nternet banking allo"s e2 an!e! customer contact through increase! geogra hical reach an! lo"er cost !eli#ery channels. %n fact some banks are !oing business e2clusi#ely #ia the %nternet M they !o not ha#e tra!itional banking offices an! only reach their customers online. 6ther financial institutions are using the %nternet as an alternati#e !eli#ery channel to reach e2isting customers an! attract ne" customers. Branding & (elationshi buil!ing is a strategic riority for many national banks. %nternet banking technology an! ro!ucts can ro#i!e a means for national banks to !e#elo an! maintain an ongoing relationshi "ith their customers by offering easy access to a broa! array of ro!ucts an! ser#ices. %nternet 4anking 4 +om troller>s =an!book 4y ca itali9ing on bran! i!entification an! by ro#i!ing a broa! array of financial ser#ices$ banks ho e to buil! customer loyalty$ cross3sell$ an! enhance re eat business. Cu"to%er (e%ographic" M %nternet banking allo"s national banks to offer a "i!e array of o tions to their banking customers. 8ome customers "ill rely on tra!itional branches to con!uct their banking business. 'or many$ this is the most comfortable "ay for them to transact their banking business. Those customers lace a remium on erson3to3 erson contact. 6ther customers are early a!o ters of ne" technologies that arri#e in the market lace. These customers "ere the first to obtain )+s an! the first to em loy them in con!ucting their banking business. The !emogra hics of banking customers "ill continue to change. The challenge to national banks is to un!erstan! their customer base an! fin! the right mi2 of !eli#ery channels to !eli#er ro!ucts an! ser#ices rofitably to their #arious market segments.

Negative Effect" of Technology in Ban ing# and Solution"

Ehile %+T ro#i!es so many a!#antages to the banking in!ustry$ it also oses security

challenges to banks an! their customers. 1#en though %nternet banking

ro#i!es ease an!

con#enience$ it is most #ulnerable to hackers an! cyber criminals. 6nline frau! is still big business aroun! the "orl!. 1#en though sur#eillance cameras$ guar!s$ alarms$ security screens$ !ye acks$ an! la" enforcement efforts ha#e re!uce! the chances of a criminal stealing cash from a bank branch$ criminals can still enetrate the formi!able e!ifice like the banking in!ustry through other means. Gsing %nternet banking an! high tech cre!it car! frau!$ it is no" ossible to steal large amounts of money anonymously from financial institutions from the comfort of your o"n home$ an! it is ha ening all o#er the "orl!. 'urther$ i!entity theft$ also kno"n as hishing$ is one of the fastest gro"ing e i!emics in electronic frau! in the "orl!. %!entity theft occurs "hen frau!sters gain access to ersonal !etails of unsus ecting #ictims through #arious electronic an! non3electronic means. This information is then use! to o en accounts ,usually cre!it car!.$ or initiali9e loans an! mobile hone accounts or anything else in#ol#ing a line of cre!it. 5ccount theft$ "hich is commonly mistaken for i!entity theft$ occurs "hen e2isting cre!it or !ebit car!s or financial recor!s are use! to steal from e2isting accounts. 5lthough account theft is a more common occurrence than i!entity theft$ financial losses cause! by i!entity theft are on a#erage greater an! usually re/uire a longer erio! of time to resol#e. 8 am scams in#ol#e frau!sters sen!ing s am e3mails informing customers of some seemingly legitimate reason to login to their accounts. 5 link is ro#i!e! in the e3mail to take the user to a login screen at their bank siteB ho"e#er the link that is ro#i!e! actually takes the user to a ghost site$ "here the frau!ster can recor! the login !etails. This information is then use! to ay bills an! or transfer balances for the frau!ster>s financial re"ar!. +ar! skimming refers to the use of ortable s"i ing !e#ices to obtain cre!it car! an! 1'T car! !ata. This !ata is re"ritten to a !ummy car!$ "hich is then usually taken on elaborate sho ing s rees. 5s the frau!ster can sign the back of the car! himself or herself$ the merchant "ill

usually be una"are that they ha#e fallen #ictim to the frau!. 6ne can curb these hi3tech frau!s by using e/ually hi3tech security mechanisms such as biometrics an! smart car!s. The key focus in minimi9ing cre!it car! an! electronic frau! is to enable the actual user of the account to be correctly i!entifie!. The notion of allo"ing a car! to ro#e your i!entity is fast becoming anti/uate! an! unreliable. Eith this in min!$ using biometrics to !e#elo i!entification a more accurate rocess coul! greatly re!uce frau! an! increase con#enience by allo"ing alm rint i!entification$ facial recognition$ iris recognition$ #oice

consumers to mo#e closer to a no "allet society. The main forms of biometrics a#ailable are finger rint i!entification$ recognition$ an! com uter3recogni9e! han!"riting analysis. ?any in!ustry analysts such as the 5merican 4ankers 5ssociation are ro osing that the smart ayment car!s are finally oise! to change the future of electronic ayments. The smart car! combines a secure ortable ayment latform "ith a selection of ayment$ financial$ an! nonfinancial a lications. The reach of the smart car! otentially goes beyon! the !ebit an! cre!it car! mo!el. %nstea! of a smart car!$ %86 uses the term Nintegrate! circuit car!> ,%++.$ "hich inclu!es all !e#ices "here an integrate! circuit is containe! "ithin the car!. The benefits ro#i!e! by smart car!s to consumers inclu!e< con#enience ,easy access to ser#ices "ith multi le loa!ing oints.$ fle2ibility ,high;lo" #alue ayments "ith faster transaction times.$ an! increase! security. The benefits offere! to merchants inclu!e< imme!iate guarantee! cash flo"$ lo"er rocessing costs$ an! o erational con#enience.

CONCL)SION

This re ort !escribes in a nutshell the e#olution of banking an! !efines banking technology as a +onsortium of se#eral !isci lines$ namely finance subsuming risk management$ information an! communication technology$ com uter science$ an! marketing science. %t also highlights the /uintessential role laye! by these !isci lines in hel ing banks< ,1. run their !ay3to3!ay

o erations in offering efficient$ reliable$ an! secure ser#ices to customersB ,2. meet their business ob7ecti#es of attracting more customers an! thereby making huge rofitsB an! ,3. rotect

themsel#es from se#eral kin!s of risks. The role laye! by smart car!s$ storage area net"orks$ !ata "arehousing$ customer relationshi management$ cry togra hy$ statistics$ an! artificial

intelligence in mo!ern banking is #ery "ell brought out. The re ort also highlights the im ortant role laye! by !ata mining algorithms in hel ing banks achie#e their marketing ob7ecti#es$ frau! !etection$ anti3money laun!ering$ an! so forth.

%n summary$ it is /uite clear that banking technology has emerge! as a se arate !isci line in its o"n right. 5s regar!s future !irections$ the roliferating research in all fiel!s of Technology an! com uter science can make stea!y inroa!s into banking technology because any ne" research i!ea in these !isci lines can otentially ha#e a great im act on banking technology.

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