Innovation in Banking - Essay Example

Innovation in Banking Introduction Technology has been considered as a key driver of social change and has significantly altered every aspect of human behaviour. Creativity, increasing consumer awareness and technological innovation has combined to create a dynamic business environment which provides both opportunities and challenges to the firms. Organizations that provide financial services, especially banks have had to adopt technological advancements in order to remain competitive. The use of information technology by banks to provide superior services to the customers has also altered the expectations of the customers significantly. This is because the use of internet technology in the banking practices is increasing the level of participation of customers in the process of service delivery. The purpose of this paper is to explore the technological determinist view of banking and the way in which it is causing changes in the society and customer behaviour. The paper first provides an overview of technological determinism and then integrates this concept in the banking activities like clearance of cheques and opening of savings account via mobile phones both from the point of view of the bankers and the customers. Technological Determinism The term technological determinism was first coined by Veblen, a sociologist in America and had later recurred in the works of a number of researchers. The fundamental idea behind technological determinism is that technology cannot be influenced by cultural and political forces as it has its own predictable and traceable path. Researchers have also suggested that once a technology has been introduced then it begins to show its effect on the society and the society supports further technological development (Brette, 2003). Though technological determinism has received its own share of criticisms, it remains as one of the most popular concepts of the 19th century. Technological determinism has been pointed as the key source that is driving competition in the global market in the present era. According to the research conducted by Chandler (1996) it has been found that technological determinism is the main reason that causes historical and social changes at a macro and social level. It was also pointed out in his research that technological determinism has the power to produce psychological influences on the minds of the consumers. According to the research conducted by Smith and Marx (1994) it was established that technology can act as a major driver leading the path in which organizations and society are expected to behave in the future as successive innovations are introduced in the society. According to researchers of technological determinism there are two main ways in which it can be interpreted namely hard determinism and soft determinism. The proponents of hard determinism are of the view that a society organizes itself according to the requirements of the technology and has no power to regulate the outcome that follows from the adaptation of the technology (Lawson, 2007). However, the proponents of the soft view of technological determinism are of the notion that society has some power to determine the outcome that is expected to occur from the evolution of technology. Hard technological determinism can be treated as a case where there is one strong technological factor which is causing drastic changes. In case of soft technological determinism however, the technology merely acts as a facilitating factor. This implies that the change which occurs in the society itself is not the singular product of technology but multiple external forces that works on the society to change it. The study of Ong (1982) has shown that the concept of writing to show that people who could write had completely transformed the way they think. In this case the outcome was determined from the setting and can be treated as an example of hard determinism. In case of soft determinism however, the societal change is treated more moderately and other factors in association with technology are considered as well. Technological Determinism and Banking The banking sector is one of the oldest forms of business that have had a long history. Over the past two decades, especially with the development of the information technology the banking sector has transformed itself in a significant manner and customers are expecting improved services from them. The banking industry can be considered as one which has been heavily driven by technological improvements and this has significantly changed the way in which people conduct their banking (M. Joseph, McClure and B. Joseph, 1999). The banking industry has incorporated modern technologies like broadband and telecommunications which have greatly enhanced the speed of banking (Gabberty and Vambery, 2011). The first attempt to integrate the concepts of technological determinism and banking was first made by Nelson (2007) before the use of internet technology in banking became rampant. The researcher had pointed out that it would become very easy for banks to provide superior service based on new technological innovations in the future. The expectations of the customers will increase as a result and the banks will have to come up with newer technologies in order to fulfil those expectations, and the process is like a virtuous cycle. The concept of personal banking strategy that is being increasingly propagated by banks is not a choice that is being exercised by them. It is rather a response to the advanced technology that is being adopted by the organizations. Though the internet had not become popular during this time but the research remains relevant as technology has indeed shaped the course of the banking sector. Use of Technology in Clearance of Cheques The use of technology has transformed the way customers and bankers interact. Technology have modified the behaviour of the bankers and eliminated the use of physical cheque clearing method which could involve days. Once the system of electronic scanning of cheques was introduced they immediately took over the traditional method and changed the ways employees worked. For the customers it meant additional comfort and convenience and the footfall in banks fell drastically with this process. Same argument can also be extended for opening of savings account which does not require physical visit on the part of a person ((Agboola, 2007)). It has been observed that in both developing and developed countries banks operate in a business environment which is highly competitive. Use of innovation through IT skills is one of the key way in which banks are expected to outperform their rivals. Use of technologies like remote deposit capture in cheque clearance is being introduced by banks to add higher value to customers. This process is one of the newest ones that are expected to change banking sector in the most recent times. This process allows the customers to scan the cheques on their computers, mobiles or laptops and send the same image to the bank for the purpose of clearance (Capgemeni, 2013). The process is extremely simple and just requires the use of an internet connection, scanner and personal computers. Customers are being able to save considerable time by using this process compared to the previous way where they had to physically carry the cheque to physical branches of bank (RDC, 2014). The cheques are cleared electronically almost on a real time basis and this provides additional value to the customers. The research conducted by Irechukwu (2000 cited in Flichy, 2008) had pointed out that the banking industry uses information technology in almost all of its operational activities which includes opening of an account, obtaining mandates from customers and conducting transactions on a web based platform. Introduction of technology in the banking sector has made it easier for customers to obtain self-service in areas like receiving cheque books, clearing cheques and receiving information regarding their deliverables. In another study that was conducted by Woherem (2000 cited in Agboola, 2007) it was established that technological innovation has become such an important aspect in the banking sector that only those managers who realizes the importance of this are likely to survive in the new millennium and others are likely to perish. This research had also suggested that majority of the banks would leverage the use of technology in the delivery of their service. Impact of Society There are numerous examples of organizations which prove that technological advancement is indeed a permanent aspect that provides companies with competitive advantage. In a study that was conducted by Akinuli (1999) it has been found that there are three major channels which have produced significant benefit for the banks namely the innovation achieved in terms of new products and the way in which this is delivered; enhancement in the speed of a given operation and activity; and the reduction in both total and marginal costs that directly influences financial performance. The impact of society on banking is formidable. There has been a great change in the way people’s perception has changed. There has been a marked change in the cognitive behaviour of the customers. It has been observed that the customers have undergone alternations in terms of perceived value, perceived usefulness, normative changes and credibility. Consumers believe that clearance of cheques via traditional methods is a process that is no longer acceptable as it involves spending considerable amount of time. It can also be argued that technology is not the only factor which is causing the change in banking practices. Broader socio-economic factors like education, improving social conditions, rising disposable income and diffusion of technology in the use of day-to-day activities of people are important regulatory factors that are influencing people the way in which they live their lives. People find the idea of using mobile phones for clearance of cheques as a highly useful activity that have significantly changed their perception. Therefore it can be argued that the introduction of technology in banking activities is a part of overall process of technological revolution in the society. A look into the future In an empirical study that has been recently conducted by Capgemini (2013) it has been found that the expectations of customers from the service that they expect from their banks is changing rapidly in favour of using superior technology. According to the report produced by Capgemini, 60% of the customers are expected to use mobile banking by the end of 2015 and more than 90% are expected to use mobile based banking. This implies that the incorporation of information technology into the banking system is also changing the ways in which the customers are interacting with the banks. The very essence of technological determinism which indicates that technology drives changes in the societal norms is therefore vindicated in these examples. The following graph shows the percentage of customers who uses online and mobile banking. Figure 1: Future of online and mobile banking (Source: Capgemeni, 2013) It can be seen from the above graphs that the customers are increasingly using web-based technologies to conduct their banking transactions in the future indicating the importance of technology as a main driver of consumer behaviour in banking. In general it has been found that banks in Europe, the U.S.A. and Asia specific region are spending large amounts in promoting mobility banking (Pennings and Harianto, 1992). It is an attempt of multiple channel integration to serve the customers in a better manner. The research conducted by Broderick and Vachirapornpuk (2002) had based their research on the expectations of customers on account of the rise of internet and mobile based banking. Their study had suggested that customers expect formal education from their bankers so that they can deal with their own problems during transactions and other banking related service. This implies that customers are expecting timely service, query resolution and adequate support from the online channels. On account of increasing customer demand and expectations the spending incurred by commercial banks on mobile and online technologies are increasing constantly. It has been estimated that banks are expected to invest 9.8 billion dollars on internet banking and 3.7 billion dollars in mobile banking in the forthcoming times. A recent example is Japan’s e bank. It is a virtually set up enterprise with no branches or ATMs. It is essentially a modern age digital enterprise that provides around the clock real time based service that ranges from opening of savings accounts to clearance of cheques and from creating banker’s cheque to application of loans. At present the bank has less than 200 employees in total but manages customers close to 3 million (Flinders, 2014). The biggest names in the banking industry, such as Barclay’s, Santander, Lloyd’s Banking Group and HSBC, all are using applications that are compatible with Android phones to keep up with the revolution of mobile phone banking. Banks like Clydesdale and Yorkshire have launched applications which allow customers to not only check their balances on mobile phones but also allow them to transfer funds (Winch, 2013). A new technology called contactless technology is used by credit and debit card users to use their cards for payment without inserting. Conclusion The hints at technological determinism in banking first appeared in the decade of 80’s and the proliferation of computer technology in the decade of 90’s have materialized the hypothesis that technology is indeed a determinant in the banking sector. The banking sector is being heavily dominated by the use of information technology and this trend is extremely dynamic. The use of mobile phones and internet as a medium of banking is strongly dominating the customer’s banking transactions. The banks are putting considerable effort in creating high value of customer service not because they are willing but they are bound to. In contemporary times customer expect very high level of virtual service and the failure to do so will result in the shift of consumers from one bank to another. This is a risk that the banks are not willing to take and this explains the constant investments in upgrading their use of technology. Majority of the banks in Europe, America and Asia have launched applications that can be used on Smartphone’s to improve customer relationships. Therefore, it can be argued that technological determinism is still relevant as a concept and technology is a key driver of social change. Soft technological determinism has been observed in the case of banking as broader factors in society, such as improvement of education and lifestyle, are also external forces that are impacting the behaviour of people. Reference List Agboola, A., 2007. Information and communication technology (ICT) in banking operations in Nigeria– An evaluation of recent experiences. African Journal of Public Administration and Management, 18(1), pp. 1-14. Akinuli, O. M., 1999. Information Technology in Nigeria’s Banking Industry: Operational Applications, Problems and Future Challenges. CBN Bullion, 23(3), pp. 71-75. Brette, O., 2003. Thorstein Veblen's theory of institutional change: beyond technological determinism. European Journal of the History of Economic Thought, 10(3), pp. 455-477. Broderick, A. J. and Vachirapornpuk, S., 2002. Service quality in internet banking: the importance of customer role. Marketing Intelligence & Planning, 20(6), pp. 327-335. Capgemeni, 2013. 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