Key factors that have changed the nature of financial services: the ways in which they are created, delivered, priced, received, and used. Relationships between and among users and providers of financial services are changing Information processing and communication technologies are being used to * Enhance existing services, * Implement new ones * Make them available in new ways. Technology is a key factor responsible for the rapidity and magnitude of change in the financial service industry.
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However, other factors such as the legal/regulatory environment general economic conditions and the demands of users have also have a significant impact on the industry The changes that have taken place in the financial service industry affect a number of areas including * Industry structure * The legal/ regulatory environment, * Financial service delivery systems, consumer interests * The safety and soundness of the industry. Faster and effective communication is the key to delivering financial services efficiently.
Networks are used to connect shared systems of automated teller machines and also to provide the basis of systems permitting electronic initiation of fund transfers from the merchant’s counter. Access to funds from virtually any place in the Nation regardless of where they are deposited is possible now. Advanced communication technologies including satellite relays, video cable, fiber optics and cellular radio have found wide application in the financial service industry.
Decreasing computer costs has created the opportunity for large numbers of individual consumers and managers of small businesses to take advantage of technology in using financial services. Large computers are being used to support the data bases and the communication processing needed to operate the large, interactive financial service delivery systems adopted by the banks and other financial service providers. Computers that accept voice inputs and recognize fingerprints may become cost effective for financial service delivery systems by the turn of the century.
Small, inexpensive personal computers in both home and office have made it possible for customers to interact with a multiplicity of financial service offerors. Computer processor and memory chips imbedded in plastic cards are in wide spread use in the financial service industry. Role of information Technology in the Banking Industry: Banks are the bloodline of any economy and Indian banks are no exception. Banks in India have a long way adopting technology in a big way which has transformed the way banking services were provided.
The entry of private banks has given an edge to the banking sector, introducing the much needed competitive edge. The private banks have adopted technology right from the beginning and the public sector banks are also following suit. The following paragraph gives a brief idea about the use of technology in Indian Banks Present and Future Technologies Supporting the Banking Industry The application of technology in banks and other financial services are described in the following paragraphs: The initial applications of technology “automated’ existing processes.
For example, the application of computers to account maintenance simply translated existing manual processes into automated ones. The adoption of MICR encoding on checks has done little to change the way checks are used. Thus, early application of automation in the financial service industry had little, if any, direct effect on the users of financial services. Mechanized cheque processing using MICR technology has brought in its wake quicker realization of cheques, improved customer service and more effective housekeeping at banks.
On the other hand, systems now being deployed are changing the fundamental character of the financial services consumed by users. Automated teller machine (ATM) networks, for example, enable users to obtain cash at locations that cannot be served directly by the financial institution holding the account. Moreover, funds are accessible around the clock. 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 computerizing 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. The following section describes the basic technologies that are and could be applied for delivering financial services provided by companies in the area of banking and the security market
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.
