In the five decades since independence, banking in India has evolved through four distinct phases.

During Fourth phase, also called as Reform Phase, Recommendations of the Narasimham Committee (1991) paved the way for the reform phase in the banking. Important initiatives with regard to the reform of the banking system were taken in this phase. Important among these have been introduction of new accounting and prudential norms relating to income recognition, provisioning and capital adequacy, deregulation of interest rates & easing of norms for entry in the field of banking. 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. 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. In view of this, 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. The Software Packages for Banking Applications in India had their beginnings in the middle of 80s, when the Banks started computerising the branches in a limited manner. The early 90s saw the plummeting hardware prices and advent of cheap and inexpensive but high-powered PCs and servers and banks went in for what was called Total Branch Automation (TBA) Packages. The middle and late 90s witnessed the tornado of financial reforms, deregulation, globalisation etc coupled with rapid revolution in communication technologies and evolution of novel concept of 'convergence' of computer and communication technologies, like Internet, mobile / cell phones etc. MILESTONES In India, banks as well as other financial entities entered the world of information technology and with Indian Financial Net (INFINET). INFINET, a wide area satellite based network (WAN) using VSAT (Very Small Aperture Terminals) technology, was jointly set up by the Reserve Bank and Institute for Development and Research in Banking Technology (IDRBT) in June 1999. The Indian Financial Network (INFINET) which initially comprised only the public sector banks was opened up for participation by other categories of members. The first set of applications that could benefit greatly from the use of technological advances in

the computer and communications area relate to the Payment systems which form the lifeline of any banking activity. The process of reforms in payment and settlement systems has gained momentum with the implementation of projects such as NDS ((Negotiated Dealing System), CFMS (Centralised Funds Management System) for better funds management by banks and SFMS (Structured Financial Messaging Solution) for secure message transfer. This would result in funds transfers and funds-related message transfer to be routed electronically across banks using the medium of the INFINET. Negotiated dealing system (NDS), which has become operational since February 2002 and RTGS (Real Time Gross Settlement system) scheduled towards the end of 2003 are other major developments in the area. Internet has significantly influenced delivery channels of the banks. Internet has emerged as an important medium for delivery of banking products & services. Detailed guidelines of RBI for Internet Banking has prepared the necessary ground for growth of Internet Banking in India. The Information Technology Act, 2000 has given legal recognition to creation, trans-mission and retention of an electronic (or magnetic) data to be treated as valid proof in a court of law, except in those areas, which continue to be governed by the provisions of the Negotiable Instruments Act, 1881. As stated in RBI's Annual Monetary and Credit Policy 2002-2003: "To reap the full benefits of such electronic message transfers, it is necessary that banks bestow sufficient attention on the computerisation and networking of the branches situated at commercially important centres on a time-bound basis. Intra-city and intra-bank networking would facilitate in addressing the "last mile" problem which would in turn result in quick and efficient funds transfers across the country".

MILESTONES In India, banks as well as other financial entities entered the world of information technology and with Indian Financial Net (INFINET). INFINET, a wide area satellite based network (WAN) using VSAT (Very Small Aperture Terminals) technology, was jointly set up by the Reserve Bank and Institute for Development and Research in Banking Technology (IDRBT) in June 1999. The Indian Financial Network (INFINET) which initially comprised only the public sector banks was opened up for participation by other categories of members. The first set of applications that could benefit greatly from the use of technological advances in the computer and communications area relate to the Payment systems which form the lifeline of any banking activity. The process of reforms in payment and settlement systems has gained momentum with the implementation of projects such as NDS ((Negotiated Dealing System), CFMS (Centralised Funds Management System) for better funds management by banks and SFMS (Structured Financial Messaging Solution) for secure message transfer. This would result in funds transfers and funds-related message transfer to be routed electronically across banks using the medium of the INFINET. Negotiated dealing system (NDS), which has become operational since February 2002 and RTGS (Real Time Gross Settlement system) scheduled towards the end of 2003 are other major developments in the area. Internet has significantly influenced delivery channels of the banks. Internet has emerged as an important medium for delivery of banking products & services. Detailed guidelines of RBI for Internet Banking has prepared the necessary ground for growth of Internet Banking in India. The Information Technology Act, 2000 has given legal recognition to creation, trans-mission and retention of an electronic (or magnetic) data to be treated as valid proof in a court of law, except in those areas, which continue to be governed by the provisions of the Negotiable Instruments Act, 1881. As stated in RBI's Annual Monetary and Credit Policy 2002-2003: "To reap the full benefits of such electronic message transfers, it is necessary that banks bestow sufficient attention on the computerisation and networking of the branches situated at commercially important centres on a time-bound basis. Intra-city and intra-bank networking would facilitate in addressing the "last mile" problem which would in turn result in quick and efficient funds transfers across the country".

MILESTONES In India, banks as well as other financial entities entered the world of information technology and with Indian Financial Net (INFINET). INFINET, a wide area satellite based network (WAN) using VSAT (Very Small Aperture Terminals) technology, was jointly set up by the Reserve Bank and Institute for Development and Research in Banking Technology (IDRBT) in June 1999. The Indian Financial Network (INFINET) which initially comprised only the public sector banks was opened up for participation by other categories of members. The first set of applications that could benefit greatly from the use of technological advances in the computer and communications area relate to the Payment systems which form the lifeline of any banking activity. The process of reforms in payment and settlement systems has gained momentum with the implementation of projects such as NDS ((Negotiated Dealing System), CFMS (Centralised Funds Management System) for better funds management by banks and SFMS (Structured Financial Messaging Solution) for secure message transfer. This would result in funds transfers and funds-related message transfer to be routed electronically across banks using the medium of the INFINET. Negotiated dealing system (NDS), which has become operational since February 2002 and RTGS (Real Time Gross Settlement system) scheduled towards the end of 2003 are other major developments in the area. Internet has significantly influenced delivery channels of the banks. Internet has emerged as an important medium for delivery of banking products & services. Detailed guidelines of RBI for Internet Banking has prepared the necessary ground for growth of Internet Banking in India. The Information Technology Act, 2000 has given legal recognition to creation, trans-mission and retention of an electronic (or magnetic) data to be treated as valid proof in a court of law, except in those areas, which continue to be governed by the provisions of the Negotiable Instruments Act, 1881. As stated in RBI's Annual Monetary and Credit Policy 2002-2003: "To reap the full benefits of such electronic message transfers, it is necessary that banks bestow sufficient attention on the computerisation and networking of the branches situated at commercially important centres on a time-bound basis. Intra-city and intra-bank networking would facilitate in addressing the "last mile" problem which would in turn result in quick and efficient funds transfers across the country".

An Assignment OnServices Marketing (The role of technology in improving/impeding services quality, in a banking and financial sector.)Submitted by Saurabh Goel08bs0003002INTRODUCTION In the five decades since independence, banking in India has evolved through four distinct phases. During Fourth phase, also called as Reform Phase, Recommendations of the Narasimham Committee (1991) paved the way for the reform phase in the banking. Important initiatives with regard to the reform of the banking system were taken in this phase. Important among these have been introduction of new accounting and prudential norms relating to income recognition, provisioning and capital adequacy, deregulation of interest rates & easing of norms for entry in the field of banking.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.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.ROLE OF TECHNOLOGY 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.In view of this, 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.Internet has significantly influenced delivery channels of the banks. Internet has emerged as an important medium for delivery of banking products & services. Detailed guidelines of RBI for Internet Banking has prepared the necessary ground for growth of Internet Banking in India.The Information Technology Act, 2000 has given legal recognition to creation, trans-mission and retention of an electronic (or magnetic) data to be treated as valid proof in a court of law, except in those areas, which continue to be governed by the provisions of the Negotiable Instruments Act, 1881.As stated in RBI's Annual Monetary and Credit Policy 2002-2003: "To reap the full benefits of such electronic message transfers, it is necessary that banks bestow sufficient attention on the computerisation and networking of the branches situated at commercially important centres on a time-bound basis. Intra-city and intra-bank networking would facilitate in addressing the "last mile" problem which would in turn result in quick and efficient funds transfers across the country". ADVANTAGES OF TECHNOLOGY 1.From both customer and banking perspectives it shows that the Internet is a convenience tool available whenever and wherever customers need it. It is also found that the Internet has improved the factors in service quality like responsiveness, communication and access. It is concluded that the Internet has an important and positive effect on customer perceived banking

services and the service quality has been improved since the Internet has been used in banking sector. 2. It's generally secure. But make sure that the website you're using has a valid security certificate. This lets you know that the site is protected from cyber-thieves looking to steal your personal and financial information. 3. It gives twenty-four-hour access. When the neighborhood bank closes, you can still access your account and make transactions online. It's a very convenient alternative for those that can't get to the bank during normal hours because of their work schedule, health or any other reason. 4. It allows us to access our account from virtually anywhere. If we're on a business trip or vacationing away from home, we can still keep a watchful on our money and financial transactions regardless of our location.5.Conducting business online is generally faster than going to the bank. Long teller lines can be time-consuming, especially on a Pay Day. But online, there are no lines to contend with. You can access your account instantly and at your leisure. 6. Many features and services are typically available online. For example, with just a few clicks you can apply for loans , check the progress of your investments , review interest rates and gather other important information that may be spread out over several different brochures in the local bank.7.Technology has opened up new markets, new products, new services and efficient delivery channels for the banking industry. Online electronics banking, mobile banking and internet banking are just a few examples. 8. Information Technology has also provided banking industry with the wherewithal to deal with the challenges the new economy poses. Information technology has been the cornerstone of recent financial sector reforms aimed at increasing the speed and reliability of financial operations and of initiatives to strengthen the banking sector. 9.

The IT revolution has set the stage for unprecedented increase in financial activity across the globe. The progress of technology and the development of worldwide networks have significantly reduced the cost and time of global funds transfer.10.It is information technology which enables banks in meeting such high expectations of the customers who are more demanding and are also more techno-savvy compared to their counterparts of the yester years. They demand instant, anytime and anywhere banking facilities.11.IT has been providing solutions to banks to take care of their accounting and back office requirements. This has, however, now given way to large scale usage in services aimed at the customer of the banks.12. IT also facilitates the introduction of new delivery channels--in the form of Automated Teller Machines, Net Banking, Mobile Banking and the like. 13.Use of de-mat account and online trading enables a person to buy and sell shares any time. The share trading companies and AMCs can give improved and faster service with help of technology.14.There are many useful features and services available online besides for the usual transactions. For example, you can apply for credit cards, manage investments, and pay bills through your online account portal. You can also perform more mundane tasks such as ordering new checks, requesting additional deposit slips, or reporting a lost or stolen debit card.Certainly the above mentioned advantages if technology have improved the quality of service in a banking and financial sector.TECHNOLOGY PRODUCTS IN A BANKING SECTOR: 1.Net Banking 2. Credit Card Online 3. Instant Alerts4.Mobile Banking5.e-Monies Electronic Fund Transfer6.Online Payment of Excise & Service Tax7.Phone Banking8.Bill Payment9.Shopping10.Ticket Booking11.Railway Ticket Booking through SMS12.Prepaid Mobile Recharge13.Smart Money Order14.Card to Card Funds Transfer15.Funds Transfer (eCheques)16.Anywhere Banking17.Internet Banking18.Mobile Banking 19. Bank @ Home Express DeliveryDISADVANTAGES OF TECHNOLOGY 1. Yes, online banking is generally secure, but it certainly isn't always secure. Identity theft is running rampant, and banks are by no means immune. And once your information is compromised, it can take months or even years to correct the damage, not to mention possibly costing you thousands of dollars, as well. This generally does not happen in case of traditional method of banking.

2. Some online banks are more stable than others. Not all online setups are an extension of a brickand-mortar bank. Some operate completely in cyberspace, without the benefit of a branch that you can actually visit if need be. With no way to physically check out the operation, you must be sure to thoroughly do your homework about the bank's background before giving them any of your money. 3. Before using a banking site that you aren't familiar with, check to make sure that their deposits are FDIC -insured. If not, you could possibly lose all of your deposits if the bank goes under, or its major shareholders decide to take an extended vacation in Switzerland.4.Customer service can be below the quality that you're used to. Some people simply take comfort in being able to talk to another human being face-to-face if they experience a problem. Although most major banks employ a dedicated customer service department specifically for online users, going through the dreaded telephone menu can still be quite irritating to many. Again, some are considerably better (or worse) than others.5.Not all online transactions are immediate. Online banking is subject to the same business-day parameters as traditional banking. Therefore, printing out and keeping receipts is still very important, even when banking online.6.If your bank operates only online or simply does not have a branch office in your local area, you will not be able to reach a representative in person for discussion of account issues. Normally this is not a problem, but sometimes customer service by telephone or email can be spotty and may prove to be more of a hassle if you have a serious issue that is not easily resolved. Some banks are better than others in this department, so you will need to do some research if this is an important consideration for you.7.Using online banking effectively requires some basic computer literacy and familiarity with navigating the Internet. While this is not a problem for people like me, those who are afflicted with technophobia or are simply inexperienced with this particular genre may not be comfortable with this concept. There are also a significant number of people who are suspicious of anything having to do with the Internet because it is outside of their comfort zone. Others are simply too stubborn to acquire the relevant knowledge and skills.

INFORMATION TECHNOLOGY IN THE BANKING ANDFINANCIAL SECTORSMARCH 25, 1996 BACKGROUND BREIFING PAPER OF THETELECOMMUNICATIONS INFOTECHNOLOGY FORUM(please attribute any quotation)Information Technology in the Banking and Financial ServicesSector Smartcards, banks and telephones A brief historical introduction; what this suggests about the future Banks first started using computers linked to telecommunications systems in a big way inthe 1970s and 1980s, when local area networks allowed them to start automatingaccountsand thus to introduce automatic teller machines (ATMs) which customerscould use to find out how much money was in their accounts and make cash withdrawals.ATMs appeared to offer two things: A competitive advantage: better service for customers. Savings on staff costs, as tellers were replaced with machines.The first of these is undoubtedly true. A network of ATMs operating 24 hours a daytakes the necessity out of planning when to get money for individualsit is hard toimagine anyone accepting a bank without an ATM network for their day-to-day financialneeds (though judging by the queues in some banks, some people do not seem to haverealised quite what can be done with an ATM card).The second, however, has not really happened, at least in the way it was originallyimagined. What has happened is that on the one hand staff have been freed up for otherthingssuch as handling the huge array of financial services banks now offer comparedwith a couple of decades agoand on the other IT has taken on a life of its own asbanks think of new ways to wire themselves and their customers. In Hong Kong this hasmeant people being able to pay everything from their electricity to their tax bill byphonejust press in the numbersor pay for goods with money direct from theiraccountsthe EPOS system, now widely available. Although banks still talk aboutreducing the number of their branchesperhaps in Hong Kong because of itsaggressively high rents, rather than staff coststhis does not appear to be happening(those queues again).With further technological advantages banks can now take ATM cards a step furtherenter the smartcard, a card with a chip on it, that can store much more information on it,and do much more with this information. The world's best-known smartcard is Mondex. Tell me about Mondex. What is it, apart from a portentous name? Mondex is a smartcard system that aims at replacing cash, developed by British banksNatWest and Midland (owned by HSBC) and telecoms operator BT. Most of itstechnology is developed by Japan's Hitachi, which manufactures the card's chips andbalance readers. Transactions are handled off-linewith the money being stored on thecards and transferred off them direct to another party. In theory the card will also be ableto do all sorts of other transactions: giving other cards money either through anaccompanying electronic wallet, down telephone lines or via personal computers.Mondex is being tested in the English town of Swindon, with 30,000 people, and manyshops, car parks and phone boxes wired to handle the card. New uses for the card arebeing added, the latest being local buses in January this year.Just this month (March 1996) computer company Unisys and card and related equipmentmaker Keycorp joined the party, signing an agreement with Mondex to provide servers,card readers, point of sales equipment and the software needed to use all these.BT plans eventually to stop using conventional phonecards and replace them withsmartcards. If Mondex takes off, then it would probably be linked to this system.

Is it going to happen anywhere outside a dismal West country town, last heard ofmaking steam engines about 150 years ago? Europe is leading the way at the momentfor two reasons. First, telecommunicationscosts are far lower in the USA, so there is less commercial pressure for companies todevelop a means of offline transaction there. And second, credit cards are ubiquitous inthe USAand competition makes them cheap.Interestingly France is leading the way in Europe, with about 85% of all the smartcardsthere; perhaps that investment in Mintel systems was worth it. What about Asia? Mondex is also getting a fair amount of international exposure, not least through HSBC,which has plans to get the system running through Hongkong Bank and Hang Seng Bank(both of which it owns) in 1997,. or maybe earlier? Hongkong Bank is also currentlytalking with Bank of China in Hong Kong about getting it in on the party, and also hasrights to franchise the system in other countries around the region. China is another likelyadvocate of some form of smartcard. Its Golden Card project is the most ambitious of allits various Golden projects aimed at building a nationwide series of information networks.The Chinese government's motive for rolling out these networks is principally because itbelieves it can gain greater control over even the most far-flung corners of the country.That is to say, it takes very seriously the idea that telecommunications will soon bedistance insensitiveofficials will be able to monitor and control events in Guangdong aswell as in Beijing. Could smartcards make cash and/or credit cards redundant? Smartcards could replace cash for many transactions involving small amounts of money.But then you have to ask what is the disadvantage of cash. Why carry a card aroundwhen you can carry a few hundred Hong Kong dollars? Fair enough, but why are creditcards so useful? The answer is they aren't if you don't travel a lot. A card which candeduct money straight from your account (such as Hong Kong's EPOS) works very well,and involves none of the extra costs of a credit card (the insurance, the risk of forgettingto pay your bill on time and having to hand over all that interest, etc). Combined withcash, readily available from an ATM on your same card, it is possible to see how asmartcard could fall flat on its face.Where credit cards come into their own is going abroad, where a Visa card, MasterCard,American Express or Diners Card saves all the hassles of having to change money,apart from small trivial amounts for taxis, cups of coffee, etc. And the transaction cost issmall.What about phone cards? Well, what about mobile phones? Which threatens phoneboxesmore?Think about it: what makes a smartcard attractive? Lower transaction costsimportantwhere you have to pay for phone calls for verification (eg Britain), but less so where localcalls are free (eg Hong Kong). And just think how much the minimum charge is whenyou stuff a credit card into a phone in an airport. In the latter case the competitiveadvantage a smartcard would offer would be cost: no need to verify the card, and soincur the cost of making the phone call to the card centre.Then there is the business related to loyalty cards, ie cards tied to storesMarks &Spencer, Lane Crawford, Park N Shop, Wellcome. In Britain, loyalty cards are provingpopular and successful with merchants, particularly when they are tied in to specialoffers. One organization that is doing particularly well in this area is the CooperativeSocietywhich not only is as a chain of stores, but also is a bank: the perfect tie in for asmart card. Could smartcards make banks redundant?

Not at their core businesslending money. But what about retail services? An electroniccash system such as Mondex does not require a centralized clearing facility to handletransactions: the "money" goes direct from card to recipient.Does this threaten jobs in banks? Not necessarily look at automatic teller machinesasmentioned above, their introduction freed up staff to do other things. (Ironically,smartcards could make ATMs redundant: if you can load your card at homeor indeedanywherethrough a telephone/computer, then you would not need to go out onto thestreet and push it into a machine.)Also, remember that people will still want to do something with their money: it will notearn interest on a card. Smartcards are ideal for regular small cash transactions, and theoccasional large one. Could smartcardsor at least the technology they incorporatemake bankingcentres redundant? Or: Are Hong Kong's days numbered? And if they are, whyshould Shanghai benefit? Here the answer is to think of what consumers want, rather than what they need, andwhat are the facilities that will provide this.Shanghai is building a brand new stock exchange building in Pudong - replacing its currentstock exchange, housed in the former ballroom of a colonial hotel as part of its bid toreestablish itself as the financial centre of Asia. Ironically, the reason the currentexchange can operate at all, despite the makeshift nature of its facilities, is because it is ahighly wired exchangetrading is electronic, so it does not need a trading hall at all, letalone the building of large, new premises. Most people who trade on the exchange do sofrom remote sitesthough ones still in Shanghai. Of course, they need not be inShanghai, but that is where people want to be. In other words, the technology alone willnot determine what people want and set out to achieve. If Shanghai does emerge as afinancial centre it will be because people believe they can do business there. (In much thesame way, it is not technology that has made companies move out of Central in HongKong to other areas, but technology that allows them to. What has driven them outorpersuaded them to leaveis above all high rents.) Smartcards and privacy; or could smartcards make governments redundant? If information can be stored on a smartcard, why would it need to be stored elsewhere?Take, for example, medical information about an individual: if this could be stored in acard, and only accessed by a hospital when someone visited a doctor there, not onlywould the individual be able to visit any hospital near at hand when they needed to (sayon holiday) but their privacy could be preserved.Looked at another way, transactions direct from one card to another would beuntraceableprivacy would be protected, but so would illegal acts, such as moneylaundering, as would legal transactions liable to be taxed. Issues here include the amountof money that could be stored on a card (Hongkong Bank is in discussion with the HongKong Monetary Authority on this issue concerning Mondex cards). Also, who else wouldbe able to get access to money. Would it be much easier to transfer it to another countryand take advantage of better interest rates? Would tax evasion become an even biggerproblem if people could transfer money at will around the world without governmentsbeing able to track them?Wired magazine has speculated that on-line gambling could be the killer entertainmentapplication of the future: already this is happening. Football magazines in Asia advertisebetting in Europe that can be conducted with a credit card: at least such transactions gothrough the bank that issued the card and so could be subjected to monitoring; if thetransaction was done directly with a smartcard there would be no separate record.Similarly without restrictions on currency transfers (and there are few in many countries:the biggest being the impracticality of changing moneyie a trip to the bank, plus thetransaction fees) then it is possible to see how individuals using smartcards tied tocomputers and automated currency trading could deal fruitfully on forex markets.(An interesting point to bear in mind is that taxation has traditionally been tied to thingsgovernments can easily find, ie

property and jobspatches of land and factories cannotmove, therefore it is easy for tax officials to locate the owners and take taxes off them;electronic commerce is far harder to monitor: someone living in Britain, say, could tradeon the Hong Kong stock exchange, realize capital gains and dividends, without theauthorities in Britain either being aware or even being in much of a position to find out.)The probability is that a lot of governments would want to regulate the use of smartcardsvery closely. Indeed it is this possibility that makes them so attractive to the Chinesegovernment. In a closed system this would seem a possibility. But how closed will futuresystems be? Could a country restrict access? Given China's growing integration into theinternational economy it would certainly have to accept payments from smartcardnetworks, and the desire to transform cities like Shanghai into international bankingcentres means that sooner or later Chinas ability to police channels of funds transfer willbe undermined. This would effectively end a countrys ability to pursue a domesticmonetary policy independent of world market forces.Can, or should, a Government attempt to put off the day when it has to abandon specifiedmonetary goals? Imagine also an Internet packed with virtual malls where some peoplecould only window shopwhy? Because their government told them so. Is on-line security really an issue? If someone is cracking the code of your smartcard, or intercepting your credit cardnumber, yes security is a problem. But how many of us already cash in our pockets readyto be picked, and easily give our card numbers to merchants and by telephone and by mailwithout further thought? Probably the greater risk issue concerns legally bindingtransactions, such as commercial contracts, letters of credit, etc. Encryption technology isthe sophisticated way to tackle the problem, cryptographic technology the simplest, andpossibly the safest, but maybe not sophisticated enough for the major commercial deals.Visa International and MasterCard are racing each other to establish an industry standardfor encryption, Visa in conjunction with Microsoft and MasterCard in a pact withNetscape. He who controls the little black encryption box controls the monopoly rent orroyalties on every little transaction that passes through the network. (Mr Rupert Murdockhad similar ideas for cable TV in China!). Cryptography or blinding technology is lessexciting but rather more practical for the average consumer. The cardholder registerswith the issuer and receives a PIN number in exchange. The PIN enables the issuingbank to certify an electronic payment or e-cash without reference to whom it was issued.E-cash becomes as anonymous as paper money or coins. The European-based DigiCash,is an example. The European Commission has sponsored its own version, CAFE.Mondex and other smart cards use similar principles. Its as safe as houses, which ofcourse get broken into from time to time. What telecom facilities are banks looking for? High-speed 64 Kbts and above, all the way to 2 Mbts, readily leased circuits with lots ofredundancy, packet switching and frame relay, compensation service agreements andabove all a telco that goes out of the way to serve the customer. Not much really, oh butjust one more thing. A regulator that permits the bank to self-provision, by-pass, callbackand anything else. In short, telcos and the regulator should treat the banks with the sameflexibility and understanding that the banks have traditionally shown their own customers... no, rephrase that, just like the banks are learning to treat their own customers.

Banking and IT John Ure Director of the Telecommunications Research Project University of Hong Kong Banking and Financial Services iin Shanghai Workshop 18th March 1996 The Evolution of Banking and Financial Information Technology 1. The first applications of the computer age within banking were the use of mainframes, and later minicomputers, to process data such as customer accounts, bank inventories, personnel records, and accounting packages - which ultimately evolved into spreadsheets. Although 70% of banking applications expenditure in the US remain mainframe based, this reflects an old embedded base. Client/server systems expenditure are the fastest growing at 29% p.a. 2. The idea of direct customer services was less clear, but the first ATM (Automatic Teller Machine) came into commercial use in 1968. By 1995 in Europe over 100,000 were in use. In Hong Kong there are two networks, the Hong Kong Bank system which had around 800 ATMs in September 1994 ( Business Asia Survey) and the Jetco network linking the other clearing banks with about 1,150 ATMs. These are private or corporate wide -area networks run over leased circuits. If we denote these networks as C for corporate we can describe the ATM system as: C - C that is transactions, such as EFT (Electronic Funds Transfer) or communications take place just within the corporate WAN. 3. The next step in providing direct customer services came logically in the extended use of debit and credit cards in the shops of merchants through EPOS (Electronic Point of Sale) technology. In Hong Kong there are over 5,000 terminals, an increasing number of them handheld wireless applications. The authentication and direct debit functions of EPOS use the PSTN (Public Switched Telephone Network) to connect into the corporate networks of banks and credit card companies. If we denote the PSTN as P then we can describe the interconnection of merchant system to the corporate system as: C - P - C 4. The latest step is the introduction of smartcard technology. Here, for example, money can be downloaded from the ATM into the card, and then transferred by smartphone across the PSTN to another persons smartcard and finally transferred to a merchant or into another bank account. A description of this process would be as follows: C-P-P-C 5. We do not have time here to develop this model further, although it would interesting to see how it enters the general model of the circulation of commodity money and capital. What we can point out is that the opportunities for entry into this extended system of transactions opens up the logical possibility of new financial service providers offering specialist services at different points in the chain, especially where the chains cross (nodal points) and the need for specialist carrier networks and for specialist network management. We could begin to model this as follows: C-C CP-P-C C-P-P-C C-C The Shape of Things To Come

1. Two diametrically opposed views have been put forward concerning the future shape of the banking business. Everyone agrees that information technology will change its shape. Deloitte Touche Tohmatsu International The Future of Retail Banking argues that because branch banking is so expensive and telephone banking so cheap by comparison - around 40% per customer cheaper - retail banks will cut the number of branches by 50% by the year 2000. In contrast, Dominic Casserley, director, McKinsey & Co. (HK)has argued that technology will be used to maximize revenues rather than to minimize costs, and foresees direct banking services as complementary to rather than as a substitutes for branches. Support for this view may come from past experience. Technology freed up bank labour, but to extend personal customer services - such as direct enquiries, processing loan requests, etc - rather than cut staffing costs. 2, An alternative analysis is to consider the economics of the banking market. The DTT study found that profitability of small and large banks in the UK was similar. This was explained by the fact that while economies of scale exist in some operations, a large branch network is very expensive to maintain. Some activities, such as cheque clearing and credit card and debit card authentication and settlements, are most efficiently handled in volume and at national level. Other activities, such as personal banking services and correspondence, either require individual attention by a professional bank manager or are labour intense and are better handled at the local branch level. Electronic banking, such as telephone banking, is typically half the cost per customer to the bank than branch service, and also has marketing advantages. Hence it will proliferate. The shape of banking in the future will involve direct banking in the form of telephone banking, personal and commercial banking and financial management using home or office PC, kiosk banking where the public can access a telephone line, a PC, a fax machine, a smartphone all in one location to carry out their transactions. 3. Increasingly, electronic commerce will take over from cash transactions and paper-based contract signing. This is a major challenge for banks, but it could also be a major threat. Non-banking institutions - ie. those which do not have authorization to issue new money - already have the potential to create e-cash or electronic money and create extended credit. For example, merchants issue Loyalty Cards which provide credit to their customers. The rise of Internet combined with the smartcard and an international telephone circuit offers the scope for e-money and credit creation beyond the control of nation states, far less within the control of banks. 4. To become competitive in the global market banks will have to develop rapidly their capabilities in electronic money matters and electronic commerce. But they have opportunities. The first is they have, or are building out, their own highly reliable networks. Without wishing to do so, they are becoming quasitelecommunications companies. The second, is they can provide a high level of professional support for customer services, which perhaps remains their key advantage, but only if they develop it before new entrants attract customers away. Making It All Work 1. This brings me to the final issue: how can banks develop their customer services to the point where customer loyalty is strong and where customer switching costs are high? As banks lose their monopoly - either by de-regulation or as a consequence of technology - how can they remain the dominant players? And how can a city like Shanghai regain its competitive advantage as a world banking and financial centre? 2. Building the infrastructure is obviously the first critical step, but two questions follow: (a) does it all work together? are the networks well integrated within banks, between banks, between banks and customers? (b) who can use these networks? for example, can foreign banks utilize these networks, and will they be able to use them to access

customers when the rules and regulations of China permit foreign banks to compete for renminbi deposit taking? This is a question to be asked of foreign banks as well as the Shanghai authorities, because Shanghais goal of achieving world status as a banking and financial centre can be helped by foreign banks explaining their needs and requirements in terms of telecoms facilities and data communications available, and in terms of what they are permitted to do with those facilities and what services they can offer over them. 3. Some idea of what needs to be done to make it all work can be got from looking at the experience of other successful places. Expenditure patterns provides a clue. In the US the fastest growing category of expenditure on IT is on network services, with a compound annual growth rate or CAGR of 19%. This is followed by outsourcing at CAGR 18%. The largest market by year 2000 is forecast to be software applications ($68 billion) followed by professional services ($48 billion). Manufacturing, banking and finance are the leading sectors, spending $43 billion and $33 billion respectively by the year 2000. (INPUT forecast)

Current Bank IT Spending: Retail Banking = 55% - (a) consumer & branch automation = $1 billion, but only 7% p.a. (b) Call center automation services have a growth rate of 26% p.a. Wholesale = 25%- (a) $315 million, growing at 10% p.a. Admin & Support in both = 20% By year 2000 it is forecast that banking applications expenditure will reach $800 million p.a. The fastest growth area however is outsourcing of systems and project installation and data communications and management. Systens integration is a key component of outsourcing business. Appendix 3 Types of Systems Integration 3 (a) Solutions support: the systems integrator provides delivery of service and may take responsibility for selecting, buying and installing equipment.This is the fastest growing area, especially as banks merge and grow in size, in business scope and geographical location. (b) Team project support: the systems integrator has responsibility for project implementation, but this is only one part of an overall system. As banks extend the scope of their business and IT networks they are tending to cut down on the total number of systems integrators they use on service contracts to avoid too many problems of project co-ordination - integrating the integrators! (c) Individual development support: where banks want a specialist to advise and assist them. The most popular type ($451 million in 1995) This is the slowest growth at around 7% p.a. Another way of looking at it: 1. Staff supplement approach: hiring individuals or assigning responsibilities to staff for short durations, leaving the implementation of systems to the bank. The advantage to the bank is the low cost involved in switching between staff for different expertise and services, and the ease of cutting back on expenditure (by ending the contract or reassigning staff responsibilities) when required. Spending in 1995 totalled $695 million and was growing at 6% p.a. 2. Project based approach: where the service provider/systems integrator assumes responsibility, working under contract for periods of months to several years. This occurs where work is usually of critical importance to an entire LOB (line of business) or department within the bank. Switching costs are higher if the bank wants to change service providers, but an integrated system approach is assured. Spending in 1995 totalled $878 million and was growing at 13% p.a. 3. Ongoing services approach: this is typically a long-term relationship, say 10-15-20 years. The service provider-bank relationship becomes a working partnership, but the switching costs to the bank are high.This approach is more popular. Spending in 1995 totalled $1.4 billion and was growing at 12% p.a. Article by Diogo Teixeira,

The A mercan Banker , 1996 Outsourcing and service contracts $969 million (<33%) Systems Integration, applications and maintenance > $1 bn (>33%) 18% p.a Key buying criteria (a) technical skills of hardware/software vendors, and (b) track record/experience As banks devote greater resources to planning IT systems prior to implementation this expenditure, which constitutes 8% of total IT system expenditure, is rising at 20% p.a. Services connected with systems implementation constitute 49% of IT expenditure, and this grows at 15% p.a, with expenditure on services for systems modification grows at only 8% annually. Maintenance expenditures are growing very slowly. Outsourcing 90% on mainframes and 10% on minicomputers; spending on networking technologies is fastest such as data warehousing (25% p.a.) document management (19% p.a.) and image processing (18% p.a) Systems Integration 3 types (a) Solutions support: the systems integrator provides delivery of service and may take responsibility for selecting, buying and installing equipment.This is the fastest growing area, especially as banks merge and grow in size, in business scope and geographical location. (b) Team project support: the systems integrator has responsibility for project implementation, but this is only one part of an overall system. As banks extend the scope of their business and IT networks they are tending to cut down on the total number of systems integrators they use on service contracts to avoid too many problems of project co-ordination - integrating the integrators! (c) Individual development support: where banks want a specialist to advise and assist them. The most popular type ($451 million in 1995) This is the slowest growth at around 7% p.a. Another way of looking at it: 1. Staff supplement approach: hiring individuals or assigning responsibilities to staff for short durations, leaving the implementation of systems to the bank. The advantage to the bank is the low cost involved in switching between staff for different expertise and services, and the ease of cutting back on expenditure (by ending the contract or reassigning staff responsibilities) when required. Spending in 1995 totalled $695 million and was growing at 6% p.a. 2. Project based approach: where the service provider/systems integrator assumes responsibility, working under contract for periods of months to several years. This occurs where work is usually of critical importance to an entire LOB (line of business) or department within the bank. Switching costs are higher if the bank wants to change service providers, but an integrated system approach is assured. Spending in 1995 totalled $878 million and was growing at 13% p.a. 3. Ongoing services approach: this is typically a long-term relationship, say 10-15-20 years. The service provider-bank relationship becomes a working partnership, but the switching costs to the bank are high.This approach is more popular. Spending in 1995 totalled $1.4 billion and was growing at 12% p.a.

Smartcards Europe vs USA - telco costs less in USA, therefore authentication costs less. France has around 85% of all smartcards in use. Smartcard Forum in USA has around 200 members Worldwide Semiconductor Revenues in Smartcards 1994 = $45 million 2000 (E) = $1,065 million Banking 45% 38% Mobile Phone 27% 19% Pay TV 22% 6% Pay phonecards 2% 2% ID Cards 2% 14% Transport 2% 7% Health 9% Road Tolls 5% [ Electronic Business Today Dec. 1995] Security Issues 1. Personal savings and consumption - cryptography/PIN numbers/electronic 2. Corporate and state commercial transactions - encryption techniques 3.

Faking credits on smartcards = a loss to the banks 4. Stealing PINs and codes = a personal loss 5. Biometrics (finger print; voice-recognition; even eyeball measurements)

Trust

in

e-Commerce:

New

Perspectives

Researchers in the fields of management, information systems, organizational psychology, marketing, and social science are showing an increasing awareness of how trust contributes towards the success of many types of virtual environments. In fact, it has been contended that the influence of trust on interactions is even more crucial in global electronic commerce than in the physical marketplace as by its very nature electronic commerce environments inhibit the development of trust. Consequently, academics, vendors, government bodies, and consumer groups desire to understand the factors that influence the development of consumer trust in electronic commerce, as such understanding can contribute substantially towards the success of the online environment. more...

Internet Banking: Theoretical & Strategic Perspective

The banking sector occupies a critical position in the global economy. In the recent years a fundamental

force for change in the financial services sector is information technology (IT), which is breaching geographical, industrial, and regulatory barriers, creating new products, services, market opportunities, and developing more information and system oriented business and management processes. Coupled with innovative business thinking, technology is rapidly changing the way personal financial services are designed and delivered. The famous quote by Bill Gates that banking is vital to a healthy economy but banks themselves are not, highlights the crucial nature of the electronic forces that are affecting the banks more than any other sector. The question arises as to whether this sector will be able to take advantage of new significant opportunities resulting from these developments, or whether it will have to struggle to maintain its current principal role in the economy? more...

e-business Impact on Supply Chain and Business Process: Analysis and Best Practice

The phenomenal growth of the Internet has lead businesses around the globe to believe in the promise of

utilizing the Internet to manage their supply chains and to facilitate procurement processes. Electronic supply chain, or e-supply chain, is the utilization of electronic means and information technology, specifically the Internet, to bring together widely dispersed buyers and suppliers, to improve coordination, and to manage upstream and downstream channels. E-business allow companies to move toward realtime operation by sharing information and interlacing processes with trading partners more...

Advancing @ the Speed of Technology:E-Business Strategies for Modern Corporations

The Internet promises unprecedented opportunities for businesses. Given the intense competition in the

business world, the effective coordination and efficient maintenance of information exchange take on increased importance. Most organizations have implemented several strategies to improve effectiveness and enhance efficiencies through the utilization of IT. However, E-business application has given companies new means to can expand their markets and attract and retain more customers while providing better customer service in an enhanced coordination organizational environment. more...

Information Technology and Banking in the 21 st Century

Information Technology

Information is a key operational factor of any organisation. How it is collected, collated, stored, and retrieved is critical to the survival of a business - especially in the banking industry. In recent times, changes have occurred in the banking industry creating increased opportunities as well as additional risks for the banks. Areas that were traditionally considered to be the domains of the banks are increasingly coming under pressure from non-bank financial institutions. In addition, customers are now better informed and demand a wider range of high quality products - as well as prompt and effective services. Ideally, each financial institution should be able to support its operations with an application system that utilises the most advanced technology available today and is designed from bottom-up to be fully integrated. Who are getting left behind? The continued use of banking software systems that were developed over a decade ago, based on technology that is at the end of their lifecycle indicates that a number of banks have failed to develop I.T. strategies to keep up with the environment in which they now have to operate. Significant progress in I.T. methodology and development tools has dramatically reduced the costs of developing and deploying I.T. solutions. Financial institutions can now deploy customised solutions that anticipate changes in the market and cater for their objectives as opposed to the one size fits all solutions currently being marketed by a number of vendors. The New Players The use of innovative I.T. solutions by smaller organisations like credit unions and building societies would allow them to mitigate the competitive advantage the bigger banks with bigger I.T. budgets have. By being able to bring new products and services to market quickly and at a lower cost, the smaller organisations can win and retain a larger share or the customers wallet. Credit unions and building societies are changing from transaction facilitators to providers of a broad range of financial services. They have responded to the changing market by focusing on building better personal relationships with their customers. This means they now require better I.T. solutions that support their product and service offerings aimed at retaining the loyalty of its customer base. Credit unions and building societies now face strategic decisions on how to:

Improve existing products and services, as well as introducing innovative new ones

Develop or acquire technology that support these products and services

Grow their customer base organically or merge with other institutions The Way Forward Decision makers in the financial services sector have come to realise that in an increasingly homogenised marketplace, innovation and forward-thinking are the best ways to increase market-share and overall success. Choosing the right technology, product and I.T. partner is a crucial step in realising these goals.