Information Technology Issues in the Banking Industry - Literature review Example

INFORMATION TECHNOLOGY ISSUES IN THE BANKING INDUSTRY Name Course Professor (Tutor) Institution Date Introduction The financial system of any country plays a very pivotal role in its economic growth and as such it is a key consideration in drafting of public policies and consequently has a bearing on the general business environment (Dr. Goyal et al, 2011). It therefore goes without saying that policy makers have an obligation to understand the banks and their business operations. This is because banks, in any country or state, form the core of complex credit cycles(American Banker’s Association, 2015).The banking system, at large, will remain sound when there are clear regulations to govern the safety of its operations. Modern-day Challenges Dr. Goyal et al. (2011) opines that modern-day challenges facing financial institutions are arguably of the highest order in the history of banking. He further notes that over the last few years, the regulatory burdens in this industry have been on an upward trend globally. He attributes this development of the rise and expansion of information technology. Though the regulatory framework was and is meant to guarantee customer safety, it has adversely limited the natural processes governing credit access (American Banker’s Association, 2015).Oftentimes, and in most countries, these attempts have been viewed as unnecessary efforts by governments to micromanage the banking sector. Digital age The American Banker’s Association (2015) observes that, world over, there is growing need for customer-centric products as a greater chunk of humanity has consistently sought to avoid the traditional manual processes. In a deliberate quest to retain the existing and even attract new customers, banks have gone ahead to invest dearly in the growing digital technology. Moreover, the association singles out the emergence of applications that facilitate on-the-move banking activities. It, however, warns that adapting to new technology has been quite an uphill task owing to existence of complexities in the decision making processes. According to Dr. Goyal et al. (2011) digital technology has posed a serious challenge to bankers who intend to seamlessly engage customers amidst increasing threat of exposing client privacy. He points out IT architecture and software’s associated with financial services as constantly being phased out by new modernization programs hence the incessant need to remain up to date. New iterations and applications are constantly coming up to challenge the status quo (American Banker’s Association, 2015). Non-bank competition American Banker’s Association (2015) explains mainstream banks as having recently complained of unfair competition from non-bank financial institutions that offer similar products but with little if any regulatory oversights. These ‘small’ financial institutions are allowed the leeway to introduce new products without much legal barriers. The bankers observe that these latest developments undermine the prevailing market regulations and as such consumer compliance is put at risk. Organized credit unions are found to enjoy tax privileges at the expense of the bankers. It is argued that, this state of affairs, has effectively transferred resources and financial activating to the non-banking sector considerably. Innovative products Economists, Michael and Gary(2012) explain that customers do not only value the services offered by banks, but also seek to have alternate, efficient and effective means with which such services can be delivered. Since this is a presents a real challenge in the industry, banks have very little choices rather than keeping abreast with the dynamic world of technology. It is against this backdrop, that banks have come up with and embraced Automated Teller Machines; online banking for customers and recently mobile banking as well (Michael and Gary, 2012). Secure environment Whereas significant breakthroughs have been realized in computing technology, the need for a customer to transact freely in a secure environment remains unaffected (American Banker’s Association, 2015).Goyal and Vijay (2011) note that the same customers expect to also have a variety of choices in deciding the channel through which to interact with their banker – may it be enhanced video call center, an office branch or a website. Further, clients have unflinching expectations that all these channels should work harmoniously and in real time. According to the works by Michael and Gary (2012) customers expect financial institutions to understand their individual problems and even provide tailored solutions as need may be. It in this setting, that banks have to strike a very delicate balance between effective service delivery and client’s security concerns. Legal and Cost implications Putting in new processes and organizational structures in quest to appease the digital savvy customer comes with unforeseen implementation and maintenance costs. Executives cannot stage a one-man show on this front but rather are bound to consult all the stakeholders’ involved (Fidelis International Institute, 2010). In addition, the efficacy and success such innovations remains tied to the existing policies and procedures related to that govern financial operations. For the strategic goals devised to work, an organization has got to thoroughly review the aspects that make up its business culture (Oracle Financial Services, 2012).Michael and Gary (2012)bring out a picture of possible exodus whereby a considerable number of banks based in western countries are now thinking of shifting their bases to countries with less judicial regulations. Such decisions are based on the feeling that heavy regulations in their current markets translates to higher operational costs due to beauracratic procedures that accompany any organizational changes Continuous update of Operation Models The corporate offices, call centers and even branches have to keep realigning the operational strategies to adjust to the ever-changing world of technology. Oracle Financial Services (2012) explains that such business realignments, at times, will have optimal results or in some cases yield very disastrous results. It is therefore imperative, that management of business operations is occasionally examined and enhanced for customer satisfaction. Outsourcing policies also, have to be re-evaluated, widened and deepened in line with the existing legal provisions. In most cases, these banks have been found to invest in products in which they’ve very little understanding thereby casting a blind eye on the potential risks all in pursuit of perceived customer satisfaction (Goyal and Vijay, 2011).The two argue that, for banks to meet the raft of financial needs globally, regionally or locally then innovation will be irresistible. Management of customer information Oracle Financial Services (2012) cautions that business intelligence in analysis of customer information and data can never be wished away by any organization that endeavors to remain competitive. It is out of careful analysis that a business will be able to gauge the possible risks associated with new technology and even manage costs associated with regulatory compliance. Michael and Gary (2012) warn that the design of a customer management system should be highly secure and protected from possible manipulation by malicious parties. On the same note, it should also be flexible enough to facilitate link with other support systems as need may arise. Missed Launches According to America Bankers Association (2015) a whopping 58% of the banks has had to indefinitely call off the launch of new products as a result of legislative burden that is perceived as too rigid. This has majorly been due to alleged risks and regulatory costs expected to arise thereof. In addition, an estimated 44% had to cut down on the already existing customer services and products just to reduce the impact of compliance burden. Arguably, supervision and careful oversight is an essential component of the banking business world over. However, any attempts that limit or constrain the banking sector from innovating especially in light of technological advancements is likely to be counterproductive in the long run(Oracle Financial Services, 2012). Cyber criminals According to Gruenberg (2013) cyber criminals are always on the lookout for ways of making away with clients money. For them to succeed in their schemes, they will try through whatever means possible to either steal or collude with corrupt staff to access or get customer information. High standards of cyber security are employed by commercial banks to protect customer information but non-bank parties remain prone to possible breaches thereby imposing huge operational costs to the former(Gruenberg, 2013).Oracle Financial Services (2012) explains that it’s imperative to subject all parties to a level playing field in which case they’re compelled to practice high standards of professionalism and accountability. This will be the only sure way of keeping members of the public in the know and consequently protecting data of bank customers. Original storage systems and legacy servers call for a complete overhaul or thorough review if storage, access and security of data is to be optimized (Oracle financial services, 2012).In addition, to better transaction rates and a high throughput, they are easy to manage and cost-saving. Through cloud computing, organizations will be able to integrate external and internal information management across departments e.g. sales, finance, manufacturing etc. Though cloud computing comes, with its drawbacks including low security levels, it’s not a solid reason to ignore it (Gruenberg, 2013).A viable solution could be found by going for customized and more private cloud solutions. Conclusion Information technology remains an indispensable pillar as far as banking operations are concerned. There is no doubt that a careful management of IT applications and infrastructure would go a long way in enhancing security and quality of banking services. Owing to the complexity of coming up with new operational strategies, organizations will surely need to have their IT support systems supported by world class vendors who are industry oriented in terms of technological infrastructure data storage and related applications. In sum, banks have no other option but to innovate so as to remain competitive. In this case to innovate means to wholly embrace and utilize positively the ever changing aspects of information technology! References Fidelis International Institute (2010). [Research note] © Fidelis International, Inc Michael, P. & Thornton, P.(2010).The global banking sector: current issues(3st Ed.) London: Chartered Institute of Management Accountants America Bankers Association (2015). 2015 Key Banking Issues. 1120 Connecticut Avenue, NW | Washington, DC 20036 Oracle Financial Services (2012).Modernize or Fail: The Modernization Challenges Facing Banks, and the Technology Implications. Redwood Shores, CA 94065 U.S.A Federal Deposit Insurance Corporation (2015).Overview of the Banking Industry. Exchequer Club, Washington, DC A Platform Approach to Banking Transformation: You Can Have it All http://www.oracle.com/go/?&Src=7053921&Act=48&pcode=WWFI10059546MPP080 Read More