Role of Information Technology in the UK Banking Sector - Essay Example

Research Proposal Table of Contents Overview of the Topic Area 3 Literature Review 4 Information Technology (IT) of the 21st Century 4 IT Adaptationsin Payment Services 6 IT Adaptation in Providing Insurance Services against Risks 8 IT Adaptation in Intermediation Services between Lenders and Borrowers 10 Research Questions and Explanation 11 Proposed Methodology 13 References 15 Working Title: Role of Information Technology in the UK Banking Sector Overview of the Topic Area Information Technology (IT) is no more considered as a complex and highly sophisticated practice restricted within the hands of a few of its fair usage. It has gained considerable attention in the commercialized areas as well as within the public domains for socialization and other communal areas. It is owing to these paradoxical practices that IT is today used by commercial organisations to reach their targeted response groups and make better use of social systems to strengthen their industrial presence (Thornton, 2012). It is no mere fact today that various industries, including the UK banking sector is also making vital use of IT networks in their processing of customer services (Ho & Mallick, 2006; Samakovitis, 2006). It is often argued that IT systems hold considerable significance in the building cooperative associations with customer groups that further facilitates better customer serving and hence, contributes to augmented customer loyalty. Both these spectrums, i.e. customer loyalty linked with better customer serving, have been many a time associated with the longevity and continuous expansion of any service sector today, and likely to be apparent in the banking sector as well. Keeping speculations aside, the UK service sector, which is the other dimension in focus of the title chosen for this study, has been reported as growing impressively over the past few years even if its particular drawbacks remain to be consistent (Mullineux, 2012). The three key dimensions of the UK financial sector, vis-à-vis, and its banking sector involve payment services, insurance services against risk and intermediation services between lenders and borrowers. While all these three dimensions present different challenges for the banking institutions in the UK, the continuously changing demands and shifts in the market functions have somewhat forced these banks to build a close and strong relationship with its customers (Davies & et. al., 2010). The particular problems presented by the UK banking services sector have thus been attempted to be resolved with the usage of IT innovations (Aliyu & Tasmin, 2012). Nevertheless, this topic yet remains as negligibly studied among the modern scholars, indicating a gap in the literature obtainable to test such speculations. Hence, emphasizing this gap currently present in the scholar society, the proposed study will aim at deriving firm conclusions on the strength of influences imposed by IT innovations and developments on the UK banking industry. Literature Review Information Technology (IT) of the 21st Century From a mere tool for communication, the rise of IT as a strategic concern has been quite evident in the recent decade of the 21st century. Not only does IT represent a completely independent and unique form of industry, but has also become an integral part of the financial system in any economy (Mallik, 2004). On one hand, IT has been of immense social value that allowed its users to overcome economic, cultural, ethnic as well as geographic limitations when communicating with others through the help of a virtual channel. Similarly, on the other hand, these features of IT in the social paradigm has proven to be of considerable significance to industrial sectors as it permitted almost unrestricted interaction between the consumers and the service providers (Samakovitis, 2006). As argued by Pardo & et. al. (2011), besides functioning as a social tool for communication, it is often used by the service industry to ensure that the services are delivered in an error free manner and at the convenience of the customers, adding to the sustainability of the industry. Also to be noted in this context, Pardo & et. al. (2011) argue that the adaptation of IT in financial sector has imposed a paradoxical effect to the efficiency of the dimension with continuous advancement in addressing the ever-changing customer demand, but simultaneously increasing complexities in its operative features. Dao & et. al. (2011) although addresses these issues but argue that IT has been worthwhile in raising sustainability rates for the banking institutions even if the complexities associated with the adaptation have restricted proper assessment and assurity to transparency of the entire service deliverance program (Pardo & et. al., 2011). Security, safety and transparency in data circulation using virtual channels of the IT sector have been debated since long, although attempts to reduce such drawbacks have only resulted in increased complexity of the process, as has been argued by Mallik (2004). The preliminary literature review constructed above is effective in delivering an idea regarding the complexities of IT adaptation in the financial sector along with the drawbacks that it has imposed besides virtually activating better interactions between the customers and the banks. Supposedly, to ensure that this complexity and vagueness observable through the study of the arguments by different scholars does not affect the comprehensibility of the study, implications of IT in the service sector will be studied on the basis of its three dimensions, i.e. (i) ‘payment services’, (ii) ‘insurance services against risks’ and (iii) ‘intermediation services between lenders and borrowers’ (Davies & et. al., 2010). In doing so, a few criteria that dwells with the usage of IT in the sector will be studied, which will include the issues of transparency and complexities simultaneously valuing its diverse contributions. Based on these considerations, the conceptual framework, which the proposed study will follow, shall be hereunder. IT Adaptations in Payment Services Similar to other industry sectors, banking sectors also strive for profit making – whether public or quasi-public. Traditionally, profit making for banks was very much inhibited by the costs involved through the service delivery process along with the heterogeneity of customer demands that required proportionate diversities within the sector. IT adaptations have undoubtedly enriched profit-making potentials of the banks when considering its paying services. As argued by Davies & et. al. (2010), transaction costs involved in the paying services have reduced considerably for the banks in the UK due to its exposure to the extensively diversified IT advancements. This has in turn augmented deposit-taking and lending services in the UK banks at a balanced rate and thus, has limited their risks of budgetary challenges. According to Davies & et. al. (2010), if the growth of the UK sector is to be compared with the developments in other banking industries of different economies, it becomes apparent that there has been a major shift in the economies of scale and interaction between the demand-side drivers with regulatory drivers of the UK in the recent decade. A major credit to such ignition in the UK banking sector is often rewarded to its outbound adaptation of IT innovations as a strategic measure (Davies & et. al., 2010). Overall, it can be asserted that IT adaptation has made it possible for the UK banking sector to shift its boundaries. However, as per the case study constructed by Scott & Walsham (1999), such shifts became apparent over the last decade of the 20th century and had been imposing considerable effects on the paying system followed by banks ever since. Such an inference makes it evident that IT adaptation has been taking place among the UK banks since the 1990s but has resulted with a blast of advantages only in the recent decade when virtual communication has become much common to banking customers (Aliyu & Tasmin, 2012). As Scott & Walsham (1999) argued, IT adaptation during the 1990s were limited to computer-based decision making system and was highly dependent on reflexive modernisation of the social world to be effective, which rationally addresses the speculation of the sudden boost witnessed by the UK banking sector. Reflexive modernisation herein can be referred to the changes in customer behavioural affects occurring due to the changes observable in the modern society today and thus, suffices the equation between IT adaptation, reflexive modernisation and growth of the banking sector (Bush & et. al., 2014; Aliyu & Tasmin, 2012). IT Adaptation in Providing Insurance Services against Risks As argued in Davies & et. al. (2010), insurance service delivery also constitutes a major facet to the banking industry in the modern world. Insurance services rendered by financial sectors have long been scrutinised on being transparent and responsible to a degree that it would restrict inhibition to the financial stability of the economy. While market constraints and statistical factors responsible for financial instability within the economy are measurable, it is supposed by Blakley & et. al. (2001), alike many other scholars, that safety of banks and consumers transacting insurance services depends largely on information safety. In lieu, with the adaptation of IT systems, information safety has emerged as a major concern for banks in the modern world. As Blakley & et. al. (2001) argues, within the past decade, banking organisations have emerged as highly depended on IT, especially when channelizing information to the borrowers and amid the lenders. It is particularly owing to the increase in the degree of dependency of banking organisations on IT, that information security has also become crucial for the sustainable performance of these entities. Emphasising the same relationship between organisational dependency on IT and information security aspects Brunnermeier & Oehmke (2012) expanded their research linking economic stability with illustration to the 2007-2008 financial crises. As per Brunnermeier & Oehmke (2012), extensive importance to IT, adaptation in the banking sector has augmented the chances of homogenous information circulation within the financial market, simultaneously fuelling the number of informed customers. This has in turn increased competition besides enhancing the gap between homogeneous information and heterogeneous needs of the borrowers. Hence, the relationship develops as a complex problem. A similar inference was also drawn by Flood & et. al. (2012) indicating that adaptation of an increasingly complex framework of IT system has to an extent, inhibited regulatory check on the process and therefore, contributed to information security issues. In such a scenario, tracking financial stability before time becomes a serious issue in the banking sector and a major drawback of IT adaptation in the industry (Tanna & et. al., 2011). Flood & et. al. (2012) further argued that firm’s exposure to information security risks also depend on factors such as the ‘firm-centric conception of risk’ based on which, the firm may respond to changes required internally and making the manpower equipped with all the necessary information. Frame & White (2014) also discussed a similar phenomenon wherein in order to make a viable adaptation of IT based infrastructures banks have taken a major leap in enriching their work force. However, solutions like these, which focused on making internal changes as a response to the paradoxical effects of IT innovations affecting the socio-economic ambience, raised complexities rather than providing any viable way out (Frame & White, 2014). The supposition drawn from this study thus infers that adaptation of IT in the banking sector is subjected to various limitations, which might be affected by both the complexities of the financing industry as well as the independent characteristics of IT. Measurement and management of these challenges also provokes another speculation, i.e. whether IT adaptation is actually a cost-effective strategic option. IT Adaptation in Intermediation Services between Lenders and Borrowers The discussion provided above delivers a succinct understanding to the significance and role of IT in augmenting communication between the service providers and the consumers. As Samakovitis (2006) remarks, the first and foremost usage of IT in the banking sector took place following the intention of building a one to one or a well-defined route of communication with the consumers. Gradually, IT became almost necessary to suffice the competitive needs as well as the sustainability requisites of the banks in the modern world, wherein IT was not only used to inform and communicate with the consumers but was also in use as a tool to obtain information about the market. Taking note of the inferences drawn by Frame & White (2014) it can also be asserted that asymmetries in the information delivered as the actual scenario of technology change through financial innovation in the sector gives rise to various issues, which shall be termed as ‘information friction’. To be specific, the banking industry has been traditionally performing as an intermediary between financial lenders and borrowers. Therefore, while banks can be treated as the adopters of IT innovation, lenders on one hand and borrowers on the other might be treated as its users. It is in this context, that Frame & White (2014) argued that interactions between lenders and borrowers through banks are often jeopardized or rather affected by the technology changes and diffusion of asymmetric information to its users. Although regulatory norms pertain to ensure transparency throughout the process, the diffusion of asymmetric information often leads to irregular financial performance of an economy (Frame & White, 2014). Nevertheless, it is to suffice their intermediation responsibilities that banks have adopted innovative measures such as the establishment of Asynchronous Transfer Mode (ATM) and online banking (Frame & White, 2014). A major virtue of these inventions in the banking sector was further identified as enhanced anonymity of the users that further contributes to information security in the industry. As Ho & Mallick (2006) argued, these adaptations have further increased the degree of independency among the users to access and manage their accounts, maintain anonymity, which in turn indicate their augmented satisfaction and brand loyalty. From a demand-side perspective, these adaptations have increased cost-efficiency for the consumers, contributing to the effective minimization of operation costs in banks (Dao & et. al., 2011). Hence, it has further provided an opportunity to the banks to differentiate between their low value-added services and high value-added services, allowing better assistance to consumers as per their priorities and needs (Ho & Mallick, 2006). With such aids, banks are today much emphasized on building clients for their high value-added services in addition to their screening requirements, especially when lending (Laeven & et. al., 2012). Research Questions and Explanation Observable from the above literature review conducted is the fact that both the paradoxes of banking services sector and the IT industry are complex in their own nature and presents a vital challenge for their academic study. The vagueness in transuding deductions as to the role of IT in the banking sector was also noticeable in the addressal provided by the scholars until date. The reason for such inhibitions in the academic literatures studied recently can certainly be the involvement of the many factors in influencing industry performances of banks in the 21st century context, when it is no more limited to mere lending and borrowing functions but extends to economic health and financial consultations. Undoubtedly, information system forms a crucial part to the banking functions today, which contributes to the significance and the scope of this study. In accordance, this study will aim at answering the following questions with the principle aim to conclude that whether IT involvements have indeed increased value for banking operations when considering the dimensions of its cost functions and sustainability aspects. How and in what ways do the dimensions of the UK banking industry and the IT industry collide in the current scenario? What are the factors causing frictions in this collision in the 21st century context of the UK banking sector? Who are the most benefitted parties of IT adaptation in the UK banking industry? The first question noted in the above list emphasizes the commonness in the features of the UK banking industry and the IT industry, which is also expected to develop certain deductions concerning the interdependency of these industries upon each other. It is also expected that while answering this question, the study will be helpful to address the frictions that persist when the two industries are linked indicating challenges and opportunities as well, for the UK banking industry. Correspondingly, the study will lead to the identification of influencing factors in the UK banking sector when attempts are made to adapt IT innovations. Drivers to the same will also be taken into consideration when addressing this question. Finally, leading through these questions, the most important question of the study will be addressed, which will allow an inference to be drawn as to the benefits of IT adaptation to the banks and its users. Proposed Methodology The few but most crucial inferences drawn from the study depicts that the proposed study will deal with two complex industrial functions in the modern world. Presumably, there are many factors, which might impose strong impacts on the integration of these two industries in the UK and thus require considerable attention. In context to conduct an academic research on the subject however, stresses on the essentiality of assuring simplicity throughout the mode adopted for the study. In accordance, this study will opt for a two-way approach through the application of a mixed approach. To be precise, the study will be divided in two sections based on the exploratory research philosophy. The study will simultaneously incorporate the deductive research design to draw inferences as relevant for the accomplishment of the determined aim. In the first section, a case-study analysis method will be conducted with reference to real life examples. It is in this context that two banks will be selected from the UK, i.e. Lloyds Banking Group and Barclays and their performances before the adaptation of IT and after its adaptation will be examined. The differences identified thereon are expected to help in obtaining critical insights to the subject matter of the study. Subsequently, in the next section of the research, data will be collected based on the insights developed through the case study analysis. In this section, the proposed study will incorporate a regression analysis, examining the benefits of IT adaptation in the UK banking sector for both the customers and the service providers. While the insights obtained through the case study will be used to design structured questionnaires, data required for the regression analysis will be gathered using these questionnaires. Expectedly, 200 online banking customers will be surveyed through the questionnaire in order to assess the benefits they are able to retain due to IT adaptation by their banks. Therefore, the first section will provide an organizational point of view to the study issue and the second will assure a reliable assessment of customers’ perspective to the same. For time limitations and convenience issues, the survey will be conducted online once the respondents provide their free informed consent to respond. Concerning the ethical issues associated with the involvement of human participants in controlled environment for any social research, this study will also be depended on the required approvals for its progression. In addition, personal information of the respondents will be kept confidential when collecting data as per requirement to assure ethical soundness of the entire process. To be noted in this context, when conducting the case study assessment as well, data will be gathered through company reports and industrial reports and/or from news articles. Thus, it is expected that with due consideration to the mentioned factors, generalisability can be maintained in the study along with reliability that would help in deriving comprehensive inferences to the subject. References Aliyu, A. A. & Tasmin, R. B. H. J., 2012. The Impact of Information and Communication Technology on Banks’ Performance and Customer Service Delivery in the Banking Industry. International Journal of Latest Trends in Finance & Economic Sciences, Vol. 2, No. 1, pp. 80-90. Blakeley, B. & et. al., 2001. Information Security is Information Risk Management. Cloudcroft, pp. 97-104. Brunnermeier, M. K. & Oehmke, M., 2012. Bubbles, Financial Crises, and Systemic Risk. NBER Working Paper Series, Working Paper 18398. Bush, O. & et. al., 2014. Why Is The UK Banking System So Big And Is That A Problem? Quarterly Bulletin, pp. 385-394. Dao, V. & et. al., 2011. From Green to Sustainability: Information Technology and an Integrated Sustainability Framework. Journal of Strategic Information Systems, Vol. 20, pp. 63–79. Davies, R. & et. al., 2010. Evolution of the UK Banking System. Research and Analysis, pp. 321-332. Flood, M. D. & et. al., 2012. Monitoring Financial Stability in a Complex World. Office of Financial Research, pp. 1-51. Frame, W. S. & White, L. J., 2014. Technological Change, Financial Innovation, and Diffusion in Banking. The Oxford Handbook of Banking. Ho, S. J. & Mallick, S. K., 2006. The Impact of Information Technology on the Banking Industry: Theory and Empirics. University of London, pp. 1-19. Laeven, L. & et. al., 2012. Financial Innovation and Endogenous Growth. University of California, Berkeley, pp. 1-49. Mallik, A., 2004. Technology and Security in the 21st Century: A Demand-Side Perspective. SIPRI Research Report No. 20, pp. 1-166. Mullineux, A., 2012. UK Banking After Deregulation. Routledge. Pardo, T. A. & et. al., 2011. Computing and Information Technology Challenges for 21st Century Financial Market Regulators. IFIP International Federation for Information Processing, pp. 198-209. Samakovitis, G., 2006. UK Banking Experts as Decision-Makers: A Historical View on Banking Technologies. Journal of Technology Research, pp. 1-20. Scott, S. V. & Walsham, G., 1999. Shifting Boundaries and New Technologies: A Case Study in the UK Banking Sector. Working Paper Series, pp. 1-15. Tanna, S. & et. al., 2011. The Effect of Board Size and Composition on the Efficiency of UK Banks. International Journal of the Economics of Business, Vol. 18, Iss. 3, pp. 441-462. Thornton, C. D., 2012. An Examination of the Impact of Resources and the External Environment amongst Providers of U.K. Banking Services. Loughborough University. Read More