Role of Information Technology in Banking

Dr K.Suryanarayana1 Mrs Sk.Mabunni2 Mrs M. Manjusha3

Abstract:

Ever since the Nationalization of Banks in India, Banking Sector has been
growing with leaps and bounds and catering to the needs of various segments of the
society. In recent times, the Banking Sector has been making rapid straights by
using information technology as a platform and endeavouring to scale higher
heights. Commercial Banks in India are now becoming a one-stop Supermarket.
The focus is shifting from mass banking to class banking with the introduction of
value added and customized products. Technology allows banks to create what
looks like a branch in a business building‘s lobby without having to hire manpower
for manual operations. The branches are running on the concept of 24 X 7 working,
made possible by the use of Tele banking, ATMs, Internet banking, Mobile banking
and E -banking. Today, E-Banking is used as a strategic tool by the global banking
sector to attract and retain customers. An attempt has been made in this paper to
examine E-Banking and its implications in banking industry.

Introduction:

With the Globalization trends world over it is difficult for any nation big or
small, developed or developing, to remain isolated from what is happening around.
For a country like India, which is one of the most promising emerging markets, such
isolation is nearly impossible. More particularly in the area of Information technology,
where India has definitely an edge over its competitors, remaining away or uniformity
of the world trends is untenable. Financial sector in general and banking industry in
particular is the largest spender and beneficiary from information technology. The
technological evolution of the Indian banking industry has been largely directed by
the various committees set up by the RBI and the government of India to review the
implementation of technological change. No major breakthrough in technology
implementation was achieved by the industry till the early 80s, though some working
1
Associate professor, Dept. of Management Sciences, R.V.R & J.C. College of Engineering, Chowdavaram,
Guntur. [email protected]
2
Assistant professor, Dept. Of Management Sciences, R.V.R & J.C. College of Engineering, Chowdavaram,
Guntur. [email protected]
3
Assistant professor, Dept. Of Management Sciences, R.V.R & J.C. College of Engineering, Chowdavaram,
Guntur.

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groups and committees made stray references to the need for mechanization of
some banking processes. This was largely due to the stiff resistance by the very
strong bank employees unions. The early 1980s were instrumental in the
introduction of mechanization and computerization in Indian banks. Information
technology has improved the efficiency and robustness of business processes
across banking sector. India's banking sector has made rapid strides in reforming
itself to the new competitive business environment. Indian banking industry is the
midst of an IT revolution. Technological infrastructure has become an indispensable
part of the reforms process in the banking system, with the gradual development of
sophisticated instruments and innovations in market practices.

E-banking is the term that signifies and encompasses the entire sphere of
technology initiatives that have taken place in the banking industry. E-banking is a
generic term making use of electronic channels through telephone, mobile phones,
internet etc. for delivery of banking services and products. The concept and scope of
e-banking is still in the transitional stage. It increases efficiency in the sphere of
effective payment and accounting system thereby enhancing the pace of delivery of
banking services considerably. It allows customers to access banking services
electronically such as to pay bills, transfer funds, view accounts or to obtain any
banking information and advice. E-banking also facilitates new relationships with
customers, regulatory authorities, suppliers and banking partners with digital-age
tools. For example, customers and bank relationships will become more
personalized, resulting in new modes of transaction processing and service delivery.

Literature Review:

As discussed by Turner (2001)4, progress in information technology has

slashed the costs of processing information, while the internet has facilitated its
transmission, thus facilitating change is the very essence of the banking business.
Around the world, electronic banking services, whether delivered online or through
other mechanisms, have spread quickly in recent years. It must be noted that the
impact of e-banking is not limited to industrial and advanced emerging economies.
4
Turner, P (2001): ‘E-finance and Financial Stability’ in R Litan, P Masson and M Pomerleano (eds), Open
Doors: Foreign Participation in Financial Systems in Developing Countries, Brookings Institution, pp 389-410.

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Even in countries with underdeveloped banking systems, E-banking has offered
many new business opportunities. Sathye (1997) 5 reviewed the status of internet
banking. The study found that only two of the 52 banks started internet banking
services. He opined that education would be a crucial factor for expanding internet
banking. If customers are convinced about the various advantages of internet
banking they will start asking for this service from their banks, and will put pressure
on the banks to go ahead with internet banking. Mookerji (1998) 6 explored that
internet banking is fast becoming popular in India. Nevertheless, it is still in its
evolutionary stage. They expect that a large sophisticated and highly competitive
internet banking market will develop in future. Joseph et al. (1999) 7 examined the
influence of internet on the delivery of banking services. They found six primary
dimensions of e-banking service quality such as convenience and accuracy,
feedback and complaint management, efficiency, queue management, accessibility
and customization. Mols (1999) 8 acknowledged that the internet banking is an
innovative distribution channel that offers less waiting time and a higher spatial
convenience than traditional branch banking with significantly lower cost structure
than traditional delivery channels. Internet banking reduces not only operational cost
to the bank but also leads to higher levels of customer satisfaction and retention. As
a result internet banking is very attractive to banks and consumers, who now have
higher acceptance to new technology.

Objectives of the study:

1. To study the implementation and usage of E-Banking in Indian Banking

Industry.

5
Sathye M (1997), “Internet Banking in Australia”, Journal of Internet Banking and Commerce, Vol. 2, No. 4.

6
Mookerji N (1998), “Internet Banking Still in Evolutionary Stage”,
www.financialexpress.com/fe/daily/19980714/19555264.html (15 Sept. 2010)

7
Joseph et al. (1999), “Service quality in the banking sector: the impact of technology on service delivery”,
International Journal of Bank Marketing, Vol. 17, No.4, pp. 182-191.

8
Mols N P (1999), “The Internet and banks’ strategic distribution channel decision”, International Journal of Bank
marketing, Vol.17, No.6, pp.295-300.

3
 2. To identify various E-banking services/products adopted by State Bank of
India (SBI).

Research Methodology & Database:

In this study secondary data is used the sources of secondary data are
internet, journals and magazines, apart from this sources SBI website is also used to
provide insight into the services provided by E-Banking.

E-Banking:

E-banking came into being in UK and USA in 1920s. It became prominently

popular during 1960’s through electronic fund transfers and credit cards. The
concept of web-based banking came into existence in Europe and USA in the
beginning of 1980s. It has been estimated that around 40 percent of banking
transaction would be done through Net.

E-Banking in India:

In India e-banking is of fairly recent origin. The traditional model for banking
has been through branch banking. Only in the early 1990s there has been start of
non-branch banking Services. The good old manual systems on which Indian
Banking depended upon for Centuries seem to have no place today To cope with the
pressure of growing Competition, Indian commercial banks have adopted several
initiatives and e-banking is one of them. The competition has been especially tough
for the public sector banks, as the newly established private sector and foreign
banks are Asia Pacific Journal of Marketing & Management leaders in the adoption
of e-banking.
E-Banking now offers banking and financial services over the Internet.
throughout the country, the Internet Banking is in the nascent stage of development
(more than 50 banks are offering varied kind of Internet banking services).In general,
these Internet sites offer only the most basic services. 55% are so called 'entry level'
sites, offering little more than company information and basic marketing materials.
Only 8% offer 'advanced transactions' such as online funds transfer, transactions &
cash management services. Foreign & Private banks are much advanced in terms of
the number of sites &their level of development

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Usage of E-Banking in India:

As many as 7% of account holders in the country are using the Internet

for banking transactions, while branch banking has fallen by a full 15 percentage
points, according to a report by global management consultancy McKinsey &
Company. "Use of the Internet for banking has seen a massive rise in the 2010-11
survey, taking the overall number of bank consumers who use the Net to close 7% of
the total bank account holders -- a seven-fold jump since 2007 -- even as for the first
time in the past 13 years, branch banking has come down by a full 15 percentage
points during the same period," McKinsey & Company India partner and head of its
retail banking services Renny Thomas said. The percentage of online users of
banking transactions was just about 1% in the agency's 2007 survey.
In 2007, the number of times Indian respondents visited bank branch for doing
transactions was 0.58 while the same in 2011 was 0.49, showing a fall of 15
percentage points. Branch usage has dropped by 27% on an average across Asia
between 2007 and 2011, while usage of the Internet and mobile banking have
increased by 28% and 83%, respectively, when it comes to digital banking, the
survey said, "India leads growth in Asia in mobile and Internet usage for banking.
While there was a 15% decline in branch usage here, the growth in usage of the
Internet and mobile banking has almost tripled.
There was a marked shift away from using branches as a main channel for
interaction in many markets. This is a fundamental shift in consumer behaviour, and
has significant implications for banks. The scale of branch network is a less decisive
factor for capturing customers now. There were number of changes in consumer
mindset when it comes to accessing financial services after the global financial crisis.
The worst casualty is loyalty as there is a full 40 percentage point drop in loyalty
since 2007, though 95% are seemingly satisfied with their main banks. The average
number of banking relationships across the country rose 19% from 1.4 in 2007 to 1.7
in 2011.

While the consumers say they want to consolidate their banking relationships,
they continue to shop around because banks are not delivering the products and
services, such as frontline services, that can lock them in," it said. When it comes to

5
financial planning too, there is a marked progress with the percentage of consumers
using financial planners soaring from 14% in 2007 to 43% in 2011, while the
percentage of consumers willing to take risks on capital growth rose by 20% to 44%,
up from 24%. At the same time, the dissatisfaction too rose with their financial
planners. On an average, only 51% are satisfied with their financial planners in 2011,
as compared to 73% in 2007. The following chart shows the transactions done online
and their growth from 1999 to 2008.

CHART 1 : TRANSACTIONS ONLINE

400
T
r
a 350
n 335.36
s 316.95
a 300 291.42
c
t 250
i 233.68
o
n 200 205.18
s
i
n 160.05
150 145.25
m
i 110.34
100 92.01
l
l
i 5056.97
o
n
s 0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
years

There is a tremendous growth in the number of online transactions from 1999

to 2008 that is from 56.971 to 335.359. This growth was caused due to reduction in
the cost and size of the computer and also due to the various services provided by
the banks. The following section discusses about the services provided by the E-
Banking which led to the growth of E-Banking

Services provided by E- Banking:

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 Online banking (or Internet banking or E-banking) allows customers of a
financial institution to conduct financial transactions on a secured website operated
by the institution, which can be a retail bank or a virtual bank. Online banking
facilities offered by various financial institutions have many features and capabilities
in common, which are discussed in the following sections.

Bill payment service 

Facilitate payment of electricity and telephone bills, mobile phone, credit card
and insurance premium bills as each bank has tie-ups with various utility companies,
service providers and insurance companies, across the country. To pay bills, all one
need to do is complete a simple one-time registration for each biller. Standing
instructions can also setup to pay recurring bills, automatically. Generally, the bank
does not charge customers for online bill payment.

Fund transfer

Transfer any amount from one account to another of the same or any another
bank. Customers can send money anywhere in India and also to international
destinations. Once you login to your account, you need to mention the payee's
account number, his bank and the branch. The transfer will take place in a day or
so, whereas in a traditional method, it takes about three working days.

 Credit card customers 

With Internet banking, customers can not only pay their credit card bills online
but also get a loan on their cards. If you lose your credit card, you can report lost
card online. 

Railway ticketing

This is something that would interest all the aam janta. Indian Railways has
tied up with banks and make payment s for the railway tickets which can be
purchased through irctc.co.in.

Investing through Internet Banking 

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 Open an FD online through funds transfer, investors with interlinked demat
account and bank account can easily trade in the stock market and the amount will
be automatically debited from their respective bank accounts and the shares will be
credited in their demat account. Moreover, some banks even give the facility to
purchase mutual funds directly from the online banking system. Nowadays, most
leading banks offer both online banking and demat account. However if a demat
account is available with independent share brokers, then the customer need to sign
a special form, which will link the two accounts.

 Recharging your prepaid phone

Top-up prepaid mobile cards by logging in to Internet banking. By just selecting

your operator's name, entering your mobile number and the amount for recharge,
phone is again back in action within few minutes.

 Shopping 
  With a range of all kind of products, customer can shop online and the payment
is also made conveniently through customer account. Customer can also buy railway
and air tickets through Internet banking. 

E-Banking services provided by State Bank of India:

The website for state bank of India is www.sbi.co.in, State Bank of India is
India's oldest and the largest Bank in terms of balance sheet size, number of
branches, market capitalization and profits. SBI provides all banking services
through its network of 11875 branches spread across the country and through
alternate channels like ATM (a network of 14000 ATMs, one of the highest in the
world), internet banking and mobile banking. Various services are provided by the
banks through online few of the features are given below

Account information

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 Through e-banking the account information for the last ten transactions or for
a particular period can be accessed. Screen shot 1 provides a view of the facility
through online baking of State Bank of India.

Screen shot 1
.

Transfer of funds
Through e-banking the transfer of funds of the customer own accounts and to
the accounts of the third party is possible through online banking. Screen shot 2
provides a view of the facility through online baking of State Bank of India

Screen shot 2

Pay Bills

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 Through e-banking the customer can pay bills like electricity, insurance,
telephone etc., this will not only reduce the transaction cost but also increases the
speed of processing the transactions.

Screen shot 3

E-Services
Cheque books delivery, standing instructions to pay for the loans and other
kind of services can be provided through this facility. A Screen shot of the facility is
provided below

Screen shot 4

Fixed Deposits

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 Services like viewing complete Portfolio with the bank, Creating Fixed
Deposit, Applying for IPO etc. can be done through this facility. Screen shot of that
facility is provided below.

Screen shot 5

Conclusion:
E-banking has become essential for the bankers and the customers in order
to gain advantage. There are many services offered by banks online it is the
customers who have to explore the services and take the advantage of the reduction
of cost and time. Even there is a shift of users from normal to traditional it is only
nominal. SBI facilitates to its customers regarding their account information, transfer
of funds, pay bills, E-services and fixed deposits through its E-Banking services.

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7. www.worldjute.com

8. www.onlinesbi.com

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