Information and Communication Technology in the banking sector

                      Information and Communication Technology in the Banking Sector.


My first blog is about the role played by Information and Communiction Technology (ICT) in the Banking Sector. It provides a general guide to a layman about the various aspects of Information Technology pertaining to banking services.

Today’s business environment is very dynamic and undergoes rapid changes as a result of technological innovation, increased awareness and demands from customers. Business organisations, especially the banking industry of the 21st century operates in a complex and competitive environment characterized by these changing conditions and highly unpredictable economic climate. Information and Communication Technology (ICT) is at the centre of this global change curve. Laudon and Laudon, (1991) contend

that managers cannot ignore Information Systems because they play a critical role in contemporary organisation. They point out that the entire cash flow of most fortune 500 companies is linked to Information System.

The application of information and communication technology concepts, techniques, policies and implementation strategies to banking services has become a subject of fundamental importance and concerns to all banks and indeed a prerequisite for local and global competitiveness. ICT directly affects how managers decide, how they plan and what products and services are offered in the banking industry. It has

continued to change the way banks and their corporate relationships are organized worldwide and the variety of innovative devices available to enhance the speed and quality of service delivery.

Harold and Jeff (1995) contend that financial service providers should modify their traditional operating practices to remain viable in the 1990s and the decades that follow. They claim that the most significant shortcoming in the banking industry today is a wide spread failure on the part of senior management in banks to grasp the importance of technology and incorporate it into their strategic plans accordingly.

Woherem (2000) claimed that only banks that overhaul the whole of their payment and delivery systems and apply ICT to their operations are likely to survive and prosper in the new millennium. He advises banks to re-examine their service and delivery systems in order to properly position them within the framework of the dictates of the dynamism of information and communication technology.

Indian Banking sector has seen tremendous increase in advancements in Information and Communication Technology in the past decade. The quest for survival, global relevance, maintenance of existing market share and sustainable development has made exploitation of the many advantages of ICT through the use of automated devices imperative in the industry.

Information Technology (I.T.) has been defined as the usage of computers , digital technology in various fields of production and service.Here in the banking sector it is used in concepts like Internet Banking , Automated Teller Machine (A.T.M) and Debit & Credit card, etc. It is a general term used for utilising of electronic technology for business information processes at all levels.

List of some of the processes of banking revolutionised by I.T. and Telecommunication technology  are account opening, customer account mandate, and transaction processing and recording. Information and Communication Technology has provided self-service facilities (automated customer service machines) from where prospective customers can complete their account opening documents direct online. It assists customers to validate their account numbers and receive instruction on when and how to receive their chequebooks, credit and debit cards.

Communication Technology deals with the Physical devices and software that link

various computer hardware components and transfer data from one physical

location to another.

ICT products in use in the banking industry include Automated Teller Machine,

Smart Cards, Telephone Banking, MICR, Electronic Funds Transfer, Electronic Data

Interchange, Electronic Home and Office Banking. Several authors have conducted investigation on the impact of ICT on the banking sector of the Indian economy.

Some of the advancements made by ICT in the Banking sector are as follows -

(i)   Bankers Automated Clearing Services: This involves the use of Magnetic Ink

       Character Reader (MICR) for cheque processing. It is capable of encoding,

       reading and sorting cheques.

(ii)  Automated Payment Systems: Devices used here include Automatic Teller

       Machine (ATM), Plastic Cards and Electronic Funds Transfer.

(iii)  Automated Delivery Channels: These include interactive television and the

        Internet.

Let me briefly review the current status of IT in the financial sector. More than most other industries, banks and financial institutions rely on gathering, processing, analyzing and providing information in order to meet the needs of customers. Given the importance of information in banking, it is not surprising that banks were among the earliest adopters of automated information processing technology. The visible benefits of IT in day-to-day banking in India are quite well known. There’s ‘Anywhere Banking’ through Core Banking Systems, ‘Anytime Banking’ through new, 24/7/365 delivery channels such as Automated Teller Machines (ATMs), and Net and Mobile Banking. In addition, IT has enabled the efficient, accurate and timely management of the increased transaction volume that comes with a larger customer base. It has also facilitated the movement from class banking to mass banking.






One of the important and significant parts of Information Technology as far as banking is concerned is the concept of Mobile Banking. This feature is used by most of us in our daily lives but still some of us are still unaware about how much importance does this have in our lives.

Over the last few years, the mobile and wireless market has been one of the fastest growing markets in the world and it is still growing at a rapid pace. Mobile phones have become an essential communication tool for almost every individual. Advent of mCommerce has managed to take mobile VAS to next level, adding tremendous value to telecommunication industry. Mobile banking which is an integral part of mCommerce has become very popular among mobile users ever since its existence in 2007. It creates new, convenient communication and fast financial transactional channel for mobile users which is accessible from anywhere, anytime. 

Checking account information, balance available, credit/debit card information, cheque status, setting alerts , payment reminders, locating ATMs and bank branches, accessing mini statement, accessing loan and equity statements, insurance policy management, placing orders for cheque books etc via mobile phones are some of the services offered in mobile banking. With multiple access channels such as SMS, downloadable client, mobile Internet (WAP) mobile banking is encouraging mobile users more to explore the service.


There are some figures that I collected from the internet which give us a detailed description about the significance of mobile banking in our daily lives.

Based on data gathered in April 2009 for Feb/March mobile banking urban Indian customers checking account balance is the most frequently cited reason for using mobile banking. 40 million Urban Indians used their mobile phones to check their bank account balances followed by viewing last three transactions. ICICI bank continues to maintain its leadership extending in mobile space, 42% of all mobile banking users bank with ICICI, followed by HDFC (25.3%).

Now we would diversify the data available and derive which income group of people in the country make more use of mobile banking services. Mobile banking is most used by subscribers falling in Rs. 1 Lakh to Rs. 2.99 Lakhs income bracket followed by less than Rs 1 Lakh income bracket , as depicted by the graph given below.

All the features of mobile banking and cell phones have just started to be utilized as said by many individuals. Every day new services are launched by the service providers to provide easier ways to make use of mobile banking services and to provide safety and security in the solutions. The data transfer rate and convience has tremendously increased in the country with the launch of Third Generation internet technology (popularly called as 3G services). In India, where mobile subscribers far exceed fixed line subscribers because of better mobile infrastructure in comparison to fixed line infrastructure has made mobile banking much more appealing in India today. Various players involved in providing mobile banking services (banks, financial institutions, service providers, operators etc) are therefore expecting a potential growth in mobile banking industry in India.

Now let us discuss another aspect of Banking Information Technology, which is Internet Banking.

Banks in India are providing online banking to catch up with a new breed of tech-savvy generation, demanding modern technology based services. This is fast changing the way you bank. Educated middle class youth with access to the internet is in the forefront of this technology driven revolution.

With most of the major banks providing Internet Banking or online banking, it is possible to do most of your banking from the comfort of your home or office. All you need is a computer with internet access. More than 22% of the internet users in India use online banking. If you are new to online banking, it is worthwhile to know some facts about it.

There are certain advantages of Internet Banking which are discussed below-

1.Internet banking provides you with 24 hour banking facility, which helps you to access your account    anytime. You can now skip the long queues and the endless wait to get things done in a bank.

2. You can access your account from anywhere by just logging into the bank’s site and entering your id and password. You can check your account information and perform transactions from anywhere via a smartphone, laptop, or any other Internet-accessible device.

3. You can apply online for a majority of the services such as loans, credit cards, savings accounts, and mortgages. Also, insurance products can be bought using internet banking.

4. Some banks provide online portfolio management services. Stocks, bonds, and other investments can be managed with online banking at your convenience, independent of a financial intermediary like a stockbroker. For example, through HDFC Securities customers can trade in the stock market or keep track of the portfolio.

5. Booking Railway tickets through online banking has become a widely used service by customers. This is because, in India a huge population use trains to travel across the country.

6. Another area where online banking is making headway is in the Online Shopping industry. The market size of online shopping industry in India is estimated at Rs. 2000 crores and is expected to reach Rs. 7000 crore by 2015. One of the important reasons for this huge growth will be the increase in internet banking.

7.Online banking also helps you to pay your utility bills like electricity, telephone, and satellite tv. This is turning out to be a great service for those who are short on time.

8.Now you can also make insurance payments over the net. What’s more, you can even recharge your mobile through online banking.

However there are also certain drawbacks prevalent in  the system of Internet Banking, which are discussed below-

1. A major drawback for online transaction is its security. Since all information gets encrypted, the possibility of an account getting hacked is slight, but sometimes it does happen.

2. The worst, your account cannot be accessed if there is a failure in the internet connection. Moreover, internet connection costs should be met by the customer while using the service.

3. Online banking does not free you totally from going to a bank.  You need to go to your bank to deposit physical cash in your account. Such is the case to avail loan or mortgages. You can only apply online for it. To get it, you must go to the bank and interact with the concerned people.

4. Another disadvantage of internet banking is that a lot of personal interaction is lost. For a banker, we are reduced to just a customer, while for us the banker turns out to be a computer screen and not the elderly gentleman with a warm smile.

Some of these drawbacks can be take care of, while others stay forever.

I recommend some measures that one should take while using the feature of Internet Banking-

1. Always make sure that you do not give out your personal information to people you do not know over the internet, and remember to alter your password occasionally.

2. Verify the banks privacy policy and information sharing policy and check if the bank’s website has encryption software.

3. Internet banking has changed the way our country banks. A whole new outlook has emerged about the concept of banking. With an estimated 65 million internet users in India, the future of internet banking is huge. And banks are fast adapting to the changing trends and demand of the customers.

Thus this was a simple and detailed explanation of what Information Technology has helped human beings to achieve in the field of banking. It ensures accuracy, speed, reliability and convenience to the users.

I hope that through this blog I was capable of providing some knowledge and enlighten you about the topic.

                                                               THANK YOU.