It Usage in Banking Industry

1. The Usage of IT in The Banking Industry

Information technology has dramatically changed the way banking is done over the last 15 years or so. The era of change banking in Canada began from the establishment of Interac's national Automated Teller Machine (ATM) network in 1986. National Debit Card network was introduced in 1994. First full service virtual bank came into being in 1997. Most recently voice recognition banking has begun to emerge in the Canadian business scene. One of the enabler of this Information technology revolution in Canadian financial service industry is Automated Teller Machine, which is essentially a date terminal with two input and four output devices. The two input devices are Keypad and card reader. The four output devices are speakers, display screen, receipt printer, and cash dispenser.

The user inserts the card in the card reader and key in the PIN number via the keypad. The receipt printer prints the receipt and the cash dispenser ejects the cash out. All the operations are displayed on the screen along with the instructions to carry out the necessary steps. Like any other data terminal ATM has to connect and communicate through a host processor, which acts as a gateway. ATMs are connected to the host processor via leased telephone lines or dial up connections. Leased telephone lines have higher date rate transfer and are preferred at high transaction volume places. Banks themselves or independent service providers may be the owners of the host processors.

Security is the biggest issue of the transactions done electronically. According to the TIMES magazine issue dated March 7, 2005 there were 10 million people were affected by identity theft in US in 2005 with a total loss of US$ 5 Billion. ATM technology is turning to Biometrics to reduce the probability of the identity theft. The word 'biometric' means to measure life and to recognize an individual biometrics employs a biological trait unique to that person. The traits can be finger prints, iris patterns, retinal scans. For a biometric system to work first of all the individuals have to provide the samples of the unique trait such as finger prints to the organization planning to run the system.

This voluntary deposit of the samples can be a hurdle in the setting up of the system because some individuals may not like the idea of handing over their finger prints to some organization. Once the samples of the unique character are collected, they are arranged in a data base. When a customer intends to utilize the ATM then instead of entering the PIN he/she will present a finger to the machine and the finger will be scanned to get the finger print. The finger print will be processed in a manner similar to the verification of the PIN. "False Acceptance' and "False Rejection' are the major limiting problems of biometric systems. In systems using finger prints the incidence of such problems is practically zero but in the system based on face recognition the rate of true recognition is only 47%.

So the systems based on finger prints are gaining acceptance while the use of face recognition system awaits the improvement in information technology. Bancafe Bank of Colombia has installed finger prints recognition system on three-quarter of its 484 ATMs. Progress and convergence in the fields of Information Technology, Genomics, Nanotechnolgy, Robotics may disrupt every industry and may indeed redefine the humanity in the long run. In the next 20 years or so we are looking at peta bytes/sq.cm storage devices, microprocessors with 5 billion transistors, real time genome sequencing, and universal networks. In such environment the network of powerful hand held devices will mean that there may not be any need of carrying debit cards or credit cards and money may change ownership on the networks without any ATMs.

2. The change of The Nature of Competition By IT Usage

Over the last many years information technology has turned banking industry on its head.

Changes in the internal environment such as the increased workload and cost pressures as well as the external environment such as globalization and capital mobility has led the banking industry to introduce ATM and subsequently develop new products, services, delivery channels that include home banking via phone and personal computer ATM networks and allowed banks to reach markets which were considered far and away earlier. What started as a mean to increase cost effectiveness has moved through several stages including a tool of strategic significance, a facilitator for new services and products and is now poised to break new barriers as it is set to dismantle the advantages of local banks and intensify the price competition within the industry. The 1960's saw unprecedented growth in the banking industry and that in turn created a need for more personnel and to automate data processing.

This was the time when courtesy the genie of information technology, salaries and wages were first received directly in the bank accounts. This had a two-fold effect on the market; it facilitated banking for the existing customers and also it introduced the industry to a whole new segment of people. As the new products and services expanded and the margins shrank in the 70's it put more pressure on the banks to automate and to convert to real time systems. The decade saw the emergence of ATM's and direct electronic deposit and withdrawal for large automated users. The increased mobility of capital, globalization, and the menace of population and rush hour pressures further necessitated the need for automation and in the 1980,s the ATM's flourished and self-service became the fad. The multi nationals increased