The Impact of Technology on Bank Operations - Essay Example

Examine the impact of technology on bank operations. Has technology reduced costs in banking? 1. Introduction Technology has an important role in the development of human activities worldwide; in the case of bank operations, technology has helped to improve the quality of customer services but also to reduce the time required for the completion of various banking transactions. The involvement of technology in banking operations has been also related with a series of additional benefits – as analyzed below; however, the role of technology in the limitation of costs of banking has not been clearly proved. This paper aims to explore the potential effects – if any – of technology on the limitation of costs in banking; the overall impact of technology in banking will be also examined – at the level that it helps to identify the relationship between costs and technology in the banking sector. 2. Impact of technology on bank operations Bank operations are heavily based on information technology systems; in fact, without these systems the development of banking activities would be impossible – at least under current social conditions; in the past, the independency of banking transactions from technology was high – referring to the period before the development of IT systems; however, even in this case, technology intervened in banking activities – for instance through machines which were used in the transmission of information related with financial transactions – referring to the initial types of phones and machines of similar functionality. Currently, banking operations play a key role in the development of human activities; banks intervene in the payment of salaries, the exchange of money and the transfer of money within a country or internationally. The level of intervention of technology on banking activities is the most important criterion for deciding on the dependency of bank operations on technology; in accordance with Sullivan (2000) the impact of technology on banking operations has been increased after the appearance of Internet. Therefore the high impact of technology on bank operations is verified through the above two facts: a) the extensive use of technology in the development of various banking activities – the use of financial technologies for making appropriate investment decisions is included in this category (Berger, 2003, p.2) and b) the online activities of banks – including their advertising. The potential use of technology in the banking industry is explained in Figure 1, Appendix. 2.1 Technology and reduction of costs in banking The last years, the costs in banking activities have been increased; the reason for that could be possibly identified to the changes in banks’ charging policies; indeed, almost all banks have increased their fees in regard to various banking activities; for this reason it is necessary for the prospective bank customers to search carefully before they decide on the bank that they will use for their transactions; this is a case where technology can be proved particularly valuable; through the Internet consumers can search among the banks operating in a particular market and choose the one that keeps its fees at low levels; in this context, technology can be considered as reducing the costs of banking activities – more accurately, technology helps consumers to save money in their transactions with the banks (Worthington, 2007, p.3). The use of Internet as a tool for the reduction of costs in banking is also highlighted in the study of Centeno (2004, p.2). Costs in banking could be also reduced by using other features of technology available in most banks worldwide – referring mostly to the phone-banking but also the machines supporting the deposit and the withdrawal of money; the e-banking schemes – online schemes – developed by most banks worldwide are also technology – related schemes that lead to the limitation of costs – again indirectly – in banking transactions (for instance, elimination of cost of visiting the bank branch, of cost of fees related to a transaction, and so on); in this context, the investment on information technology – and technology in general – in the banking sector is considered as supporting the increase of quality in customer services but also the limitation of costs – both referring to the customer and the bank – in the development of banking transactions (Beccalli, 2007, p.2). 3. Conclusion The role of technology in the limitation of costs in banking activities has been proved to be important; however, the exact level at which technology reduces the costs of banking transactions depends on the level at which each bank uses technology in its daily operations; customers of banks would be benefited by the use of technology in their banking transaction but it would be necessary that they search for the bank that keeps its costs at low levels – most commonly this target is achieved by using technology in the development of most of its transactions and to its communication with its customers. References Beccalli, E., 2007. Does IT investment improve bank performance? Evidence from Europe. Journal of Banking & Finance 31 (2007) 2205–2230 Berger, A., 2003. The Economic Effects of Technological Progress: Evidence from the Banking Industry. Journal of Money, Credit, and Banking, Volume 35, 2003 Centeno, C., 2004. Adoption of Internet services in the Acceding and Candidate Countries, lessons from the Internet banking case. Telematics and Informatics 21 (2004) 293–315 Sullivan, R., 2000. How Has the Adoption of Internet Banking Affected Performance and Risk in Banks? Federal Reserve Bank of Kansas City FINANCIAL INDUSTRY PERSPECTIVES 2000 Worthington, A., 2007. Personal bank account access and awareness: An analysis of the technological and informational constraints of Australian consumers. Faculty of Commerce – Papers. University of Wollongong Year 2007 Appendix Figure 1 – Technology in the banking industry (source: Centeno, 2004, p.4) Read More