The transformative role of information technology in the banking sector has accelerated economic growth worldwide. This massive shift is evident by the increase in e-retail sales, which exceeded 4.2 trillion US dollars in 2020. Moreover, it is not just the retail sector that has benefitted from the digitization of the banking sector but the entire global economy. For example, concepts like outsourcing and employee arbitrage became possible largely due to seamless cross-border transactions.
Collectively, these developments have increased trade and commerce across the globe, with billions of transactions taking place each day. At present, India alone processes over 41 million real-time transactions daily, which highlights the significant role of information technology in the banking sector. These transactions include salaries, wages, insurance premiums, investments, and more which used to be tedious and time-consuming processes.
From lengthy queues to just a few taps on a mobile device, information technology has changed the way customers interact with their banks forever. These changes have been positive in many ways, but like any other progressive technology, it brings along certain challenges also. We shall now discuss some of those advancements and challenges that information technology has brought about.
1: Information technology Helps in Improving Security.
For ages, bank robberies and other physical security concerns made in-person high-value transactions difficult. Digitization has changed this by facilitating the electronic transfer, which eliminates the need to carry fiat money. Nevertheless, electronic transfers bring along a different set of challenges that can only be confronted with the right technologies.
Why? In 2018, over 18.3 million US dollars were lost by the financial services sector, and later on, in 2020, the banking sector again made headlines for a 238% rise in cybercrime. Since most cyberattacks are geared towards stealing login credentials and personal information, this issue needs immediate attention. The best way to prevent this is by bolstering the security of the banking website or application through encryption, which refers to the process of making data illegible to unauthorized parties. An SSL certificate does just that, as it encrypts the communication that transpires between the web server and client browser.
To trigger encryption, banks must contact a reliable SSL provider such as ClickSSL and install one on their web server. Premium certs such as GeoTrust SSL certificates, AlphaSSL certs are good choices. However, remember to check its validity and renew it periodically to prevent security and compliance issues. After all, a valid SSL is essential for your business to remain compliant with the PCI DSS guidelines, GDPR, and several other regulations.
2: Convenient Transactions
Before digitization, making payments was a cumbersome process that required physical presence. It was not uncommon for people to take time off from work to clear their utility bills or procure their bank statements for a loan application.
All of this now takes place in just a couple of seconds and can be done from almost anywhere with a mobile device or a PC connected to the internet. You can even schedule monthly bill payments, apply for loans, and do much more from a banking application. This minimizes the need to run about to make petty payments which can be difficult and time-consuming.
The importance of information technology in the financial market goes beyond banking and can also be seen in other sectors. For example, you can now compare insurance policies from tens of service providers and pick one in just a few minutes. The premium payment and other formalities can also be completed online.
3: Easy Documentation
One of the key benefits of digitization is creating a paperless or near-paperless ecosystem in a sector that requires lengthy documentation. Everything from account opening formalities to loan processing is done online by collecting customer data through e-forms. The data collected is then stored directly into a database and validated by someone at the bank.
So, there are no more physical files being vetted or maintained. Since all the data is provided directly by the customer, the level of accuracy is much higher, and the need for revisions is minimal. This reduces the overall operating costs of the bank and makes documentation a whole lot easier and convenient for the customer.
4: Ease of Providing Other Services
Digitization has enabled several banks to maximize their revenues by offering additional services to their existing customers. This includes facilitating investments in bonds, mutual funds, IPOs, etc., which helps the banks earn more in commissions through strategic partnerships.
The customer can then invest in the desired financial instrument by allocating funds directly from their bank account. Also, the returns are directly credited to the bank account, which makes the process seamless and hassle-free for everyone involved — the bank, the customer, and the financial service provider.
5: Prompt Customer Support
A study revealed that seven out of every ten US consumers are willing to spend more for superior customer service. That reflects the mindset of the present-day customer who attaches greater significance to time and efficiency rather than money. Unless such customers receive outstanding service, they are bound to switch their service provider.
However, providing impeccable service is not an easy task and requires highly trained staff, which will not be cheap because banks receive thousands of queries every day. The key here is to provide resources that can help reduce the volume of queries and provide instant support. Therefore, you get to see many banks offering chatbots, FAQs, instructional videos, and other self-help resources.
Furthermore, banks also use other advanced technologies like AI-based ticket management systems, which take customer service to another level. These tools are capable of automatically identifying available resources based on pre-defined parameters and assigning the query. So, the queries are attended to by available resources in a prompt and timely manner.
6: Fraud Detection
Financial frauds are on the rise, with 4.8 million identity thefts and frauds reported in 2020, 44% higher than the previous year. These security incidents can be prevented using advanced security tools that can detect anomalous behavior and report them. Such tools can identify devices from which the user logs in frequently and require additional authentication in case of irregularities. It can also be used to limit the number of login attempts and impose restrictions on the account. Other useful measures include setting strong password rules, mandatory password resets, and the option to freeze credit cards.
7: Ensure Compliance
Banks are supposed to remain compliant with the AML/CFT regulations, which mandate customer due diligence. This requires the banks to perform background verification of their customers to know who their customers are. Furthermore, the banks must closely track politically exposed persons to avoid being part of a money-laundering scam. Also, banks must detect and report unusual transactions such as those involving huge amounts or those made with enemy nations. This is possible by setting a threshold and restricting online transactions, and imposing other restraints.
The importance of information technology in a financial market is clear by the economic progress that has been achieved due to electronic transactions. These are fast, efficient, and provide an instant record of the transaction being completed by the payer to the payee. Also, it makes individual financial management a whole lot easier by allowing customers to keep track of their bank statements and transactions effortlessly.