finance

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CP3T17 WORD ASSIGNMENT

SCIENCE COMPUTER

TITLE :

HOW INFORMATION TECHNOLOGY IMPROVES FINANCE ?

NAME :

1. AFQAR BIN BAHARIN

2. ALDO JATENG BIN WILSON

3. KELCIE MAINTIM

4. NUR SABRINA BT. ROZMAN

5. NUR SAIYIDATUL AFIFAH BT. HALIM

6. HAFIZAH BINTI HASSAN

NO.MATRIKS

MS1315518237

MS1315519016

MS1315518221

MS1315519835

MS1315519175

MS1315602012

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Information Technology is the application of computers and

telecommunications equipment to store, retrieve, transmit and manipulate data,

often used in the context of a business or other enterprise.

This term is commonly used as a synonym for computers and computer

networks, but it also encompasses other information distribution technologies such

as television and telephones. Several industries are associated with information

technology, such as computer hardware, software, electronics, semiconductors,

internet, telecom equipment, e-commerce and computer services.

In a business context, the Information Technology Association of America

has defined information technology as ―the study, design, development,

application, implementation, support or management of computer-based

information system.‖

The responsibilities of those working in the field include network

administration, software development and installation, and the planning and

management of an organisation’s technology life cycle, by which hardware and

software is maintained, upgraded and replaced.

Humans have been storing, retrieving, manipulating and communicating

information since the Sumerians in Mesopotamia developed writing in about 3000

BC, but the term Information Technology in its modern sense first appeared in a

1958 article published in the Harvard Business Review, authors Harold J Leavitt

and Thomas L. Whisler commented that ―the new technology does not yet have a

single established name. We shall call it Information Technology.‖

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Based on the storage and processing technologies employed, it is possible to

distinguish four distinct phases of IT development like premechanical, mechanical,

electromechanical and electronic.

Finance on the other hand, is the study of how people allocate their assets

over time under conditions of certainty and uncertainty. A key point in finance,

which affects decisions, is the time value of money, which states that a unit of

currency today is worth more than the same unit of currency tomorrow. Finance

aims to price assets based on their risk level, and expected rate of return. Finance

can be broken into three sub categories which is public finance, corporate finance

and personal finance.

Personal finance may include paying for education, financing durable goods

such asreal estate and cars, buying insurance such as health and property insurance,

investing and saving for retirement.

It may also involve paying for a loan or debt obligations. Corporate finance

on the other hand is the task of providing the funds for a corporation’s activities

which if for a small business is referred to SME finance. Corporate finance

generally involves balancing risk and profitability, while attempting to maximize

an entity’s wealth and the value of its stock.

Public finance describes finance as related to sovereign states and sub-

national entitles like states or provinces, counties and municipalities and related

entities like school district or agancies.

An example of application is Online Banking. Online banking allows

customers of a financial institution to conduct financial transactions on a secure

website such as Maybank2u.com and Cimbclicks. Another example of application

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is Electronic Payment System. Electronic Payment System is making payment like

credit card bills or internet bills over an electronic network such as the internet.

Information Technology have improved finance in many ways. One of it is

Information Technology capability have improve bank performance. A

reportevidence from Turkey shows that, it is no doubt IT has become a key

element of firm capability and a source of sustainable competitive advantage. In

today’s rapidly changing business environment, information technologies (IT) has

become an essential component of firm capability and a source of sustainable

competitive advantage. IT is restructuring the basics of business and customer

service, operations, product and marketing strategies, and distribution are almost

entirely dependent on IT.

Considering the intrinsic nature of banking activities that include processing,

managing, and strategically using information, it has become much more

significant for banking and finance industry.

In accordance with the current IT developments and to remain competitive,

many financial institution have transformed their service delivery system. Many

banks prefer to deliver services using IT-based channels and reduce the reliance on

branch offices. Prior research has shown little or no correlation in support of the

relationship between IT investment and financial performance, which is often

referred as the IT productivity paradox.

This paradox also exist in the banking industry. For instance Chen et al.

(2007) searched the relationship between IT investment and bank performance and

found little relationship between IT investment and bank profitability or efficiency.

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IT investment is assumed to lead to better IT capabilities which in turn lead

to competitive advantage. A firm’s IT capability, involves its abilities to mobilize

and deploy IT-based resources in combination or co-present with other resources

and capabilities. Firms with higher IT capability take the increasing productivity,

and decreasing cost.

From a resource-based perspective it is certain that sustained competitive

advantage can accrue from ―a pool of human capital‖ which is larger than those

groups, such as senior managers and other elites, who are traditionally identified as

determining organizational success or failure. This is achieved by the human

capital adding value, being unique and imperfectly imitable. Edvinsson (1997)

addresses that it is mainly the human capital that determines the success of any

strategy including IT based approaches.

Thus a firm’s IT strategy should be supported with human dimension that

facilitates organizational learning as a main determinant of IT success. So, it is

important to consider the influential factors of human resources or human capital

when evaluating the contribution of IT to a firm’s performance. Therefore, human

capital supporting the IT capability is positively related with bank performance.

In order to investigate the relationship between It capability, human capital

support and bank performance, this study uses return on capital (ROA), return on

equity (ROE) and capital adequency ratio (CAR). Return on Capital (ROA) is

because it measures how effectively a bank has utilized its existing physical capital

to earn income.

This has been comprehensively used in past research on bank firms and non-

bank firms. Return on Equity (ROE) is used because it evaluates a firm’s ability to

generate profits from equity without regard to how those capital are financed. This

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ratio has also been widely used in past research on bank firms and non-bank firms.

Capital Adequancy ratio (CAR) measures how effectively a bank has utilized its

existing equities. Moreover it is a legal obligation to estimate CAR.

A method by using Data and Measures is used in order to investigate the

relationship of IT and Finance and how it improves bank performances. In order

to empirically investigate the hypothesis, bank employees were surveyed and bank

performance ratios (ROA, ROE, and CAR) are estimated using data from their

financial reports. 15 banks are identified as the target group because of the

availableness of their knowledge. Tools such as e-mail, letter, and face to face

interviews are used for gathering .

The relationships between the variables are tested using correlation,

reliability, regression and factor analyses through SPSS 13.0.Technically,

throughout the research done, we could say that Information Technology (IT) have

improve finance throughout bank performance as was proved in the research in

Turkey as said.

IT capability was measured using four items adopted from Benito’s study in

2007. Human capital support was measured using three items from Benito’s study

in 2007.

Since the scale were used with a new sample, 7 items were submitted to

exploratory analysis. Aprincipal component analyses and scree plot indicated that

three factors should be retained. The best fit of data was obtained with a principal

factor analysis with varimax rotation. There were several factor analyses for

independent variables.

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In IT capability, factors analyses was renewed information technologies,

systems, software and related tools, constantly improve information technologies,

system, software and related tools, constantly improve computers in order to take

the advantages of information technologies and focused on information and

communication technologies for improving customer relationships.

In human capital support, employees are submitted to training programs

about new software and systems, employees are submitted to training programs

about new equipments and tools and were hire qualified people who can

effectively use new technologies and system.

In conclusion, No doubt IT has become a key element of firm capability and

a source of sustainable competitive advantage. The increasing use of IT has

resulted with a need for evaluating the productivity impacts of IT in general,

banking and finance in particular. This study tries to find out whether IT capability

improves business profitability of banking firms. The findings of the study

demonstrates that IT capability and human capital support scales which are

developed in Western countries, are appropriate for an emerging economy and

eastern country, Turkey.

The findings also shows that human capital support for IT is positively and

directly related to ROA and ROE. This means that employing high qualified

people who can effectively use new technologies and system, submitting the

existing employees to training programs to enhance their skills to use new

software, system, equipment, and tools results with an increasing profitability for

banking firm.

On the other hand, we couldn’t find any direct statistical association between

human capital support and CAR. This may be because of the charactheristic of

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CAR. Indeed CAR is a legal obligation for banking firms from the authority of

Banking Regulation and supervision Agency (BRSA) rather than a performance

indicator. Suprisingly, the results provide no empirical evidence in support of the

relationship between IT capability has no relationship with bank performance

measures, rather it influence the bank performance via human capital support due

to the significant correlation among them. In a sense IT capability may trigger

human capital support.

The findings of this study cannot be taken as definite evidence because

several limitations to the study results deserve commentary. First, this study is

conducted on fifteen banking firms. Result may differ for a bigger sample. Second,

these results reported here emerge from a developing country, Turkey. Despite

these limitations, this study provides important implications from theoretical and

practical perspective. This study indicates that human capital support is an

important element of profitability for banking firms.

Therefore, it could be said that Information Technology have improves

finance through banking firms by their performances as proven in this study which

have just been explained. Information Technology have improve bank

performances in so many ways not just through the relationship of IT capability

with human capital support but also in paying all sorts of bills through the internet,

buying the things you desire online through your bank and many more.

Information Technology have help people to communicate through online

accordingly to their finance and for us to get access to our finance account without

having to go to the bank. Of course, information technology have also help in

making sure that those methods is not easily access by other people.

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By information technology improving bank performances, it has also get

the trust of the customers of the banking firm and other than that , it has made the

employees job better and easier for them to do and with more effiency.

Technically, Information technology is really important and without it,

finance couldn’t be improve as good as today’s banking firms.

On-line businesses also include in finance. It is because the internat functions

nicely as a way to facilitate communications both within and between company.

The internet also an excellent venue for advertising and conducting trade with

consumers. It is currently possible to shop for goods and services through on-line

catalogs; subscribe to on-line versions of magazines and newspapers;and purchase

software. This just a few types of business transactions taking place on the on-line

maeketplace.

In additions to lowering transcations costs, the internet is transforming into a

global environment in which businesses and consumers are no longer restricted by

their geographical locations. For companies, this means more potential customers;

for consumers,this means a greater selection of services and products. This

revolution is literally changing the way a lot of companies do business. Here are a

few of the new and interesting business models on the internet.

ADVERSTING

- example; Altavista.

- -Altavista is a search engine.

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- -Adverstisers pay for the search service, and consumers can be targeted

for specific types of ads on the basic of their search requests. This

specialized type of adversting is very effective at reaching target markets.

MARKETING

- Example; AmericaNet.

- This service helps businesses get started on the Web and also has a

section for classified ads.

- Businesses can either purchase Web presentations or advertise through

AmericaNet.

PARTNERSHIP

- Example; FedEx eBusiness Tools

- fedEx offers eBusiness Tools as away to partner with businesses who

want an online presence.the tools provide ways to build and manage

on-line stores and catalogs, process orders and payments, and ship and

track orders.

RETAIL

- Example; L L Bean.

- L L Bean sells outdoor gear and clothing.

- Consumers can view, select, order and pay for their menchandise online.

SERVICE

- Example; Travelocity.com

- This is a full service travel agency (great for comparing airline fares.

- Travels can examine, reserve, and pay for tickets on-line as well as book

hotel rooms, reserve rental cars, and book vacations and cruises.

SOFTWARE

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- Example; Netscape.

- Buyers are able to download software, use it an pay for it on-line. One of

the key features here is that potential buyers can try a product out for a

month or so before purchasing it.

SUBSCRIPTION

- Example; The Wall Street Journal Interactive Edition.

- This is an electronic newspapaer. Some features are available to non-

subscribes.

- Subscribe can view continuously updated version of the newspapers on-

line 24 hours a day. This is the fastest method for getting the most current

news. Since many business investments are timecritical, having the latest

available information can be paramount.

Notice that in each situation, business costs are reduced by using the Internet, and

the convenience afforded the customer over the traditional method of conducting

business is significant. This combination will lead to many more successful

businesses and satisfied customers.

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E-COMMERCE

E-commerce is the term used to describe conducting business

transactions-generally financial transactions—via communications technology. It

was originally performed via private network; for instance, the banking industry

has carried out electronic funds transfers (EFT) via private networks for many

years. Today, however, e-commerce is most often performed via Web sites.

Business that sell goods and service via only the Web are often called dot-coms

because they typically have a .com top-level domain in the URLs used to access

their Web sites. Many business today have both an online stores and abrick-and-

mortar store (a physical store); this business are sometimes reffered to as click-

and-mortar stores or brick and clicks.

Both computers and mobile devices are frequently used for e-commerce. In

addition to buying conventional goods and services online, mobile devices can be

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used to buy fast food, pay for a cab or parking, buy theater tickets, or send money

to other individuals while you are on the go. E-commerce performedvia mobile

phone or other mobile device is referred to as e-commerce and it is going rapidly-

according to one estimste, mobile payments in the U.S will total $214bilion

annually by 2015. M-commerce includes buying goods and services from online

stores using a mobile device, as well as other mobile financial transactions , such

as redeeming mobile coupons,paying bills, or transferribg money between accounts

or individuals. M-commerce transactions can take place via a mobile Web

page,mobileapp,or text message. If a proof of purchase is needed for the

transaction (such as a movie or plane ticket that must be presented for admittance),

it usually appears on the mobile phone screen as a barcode that can be scanned by

a barcobe reader when it is needed. An emerging m-commerce option is Near Field

Communications (NFC) technology, which uses RFID to facilitate

communications between devices including transferring payment information

receipts, boarding passes, and other information wirelessly between payment

terminals and mobile phone. Worldwide, vending machines are increasingly going

cashless-supporting only NFC, credit cards and other electronic payment

methods,instead of cash-particularly in locations where theft is an issue.The

collection of hardware,software,people,policies and strategies used to perform and

support e-commerce is reffered to as an e-commerce system.

But it also have disadvantages to the businesses and the customers ;

For businesses ;

Must have an effective,always working Web sites.

Lost businesses,since some people will never perform online transactions.

Higher rate of fraudulent transactions.

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Recurring threat of new competitors offering lower prices

For customers;

Potential for fraud.

Buying goods without seeing them in person

Possible expensive returns.

ONLINE PAYMENT SERVICE AND OTHER TYPES OF DIGITAL

CASH.

Online payment methods that electronically transrer money from a buyer to the

seller have become increasingly popular-esspecially for online auction payment.

These payment options are sometimesreffered ta as digital cash. The most common

way of exchanging digital cash is via an online payment service; other forms of

digital cash include digital gift certificates, digital gift card, and digital coupons.

There are a numbers of services available online to help shoppers electronically

pay for purchases. One of the most widely used is paypai-an online payment

service that allows individual to transfer money easily from their online payment

account to someone else. Oline payment services are often used to pay for online

auction purchases , but other e-commercesites can accept payPal payment as well.

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To accept PayPal payments, many e-commerce sites simply add a PayPal payment

button to their order form; this button typically brings the buyer to the PayPal

siyes,where the buyer can sign in to his or her account and then enter the necessary

data to finalize the transaction. A new option for embedded payments will allows

e-commerce sites to process PayPal payment from their checkout page. PayPal

payments can also be made directly through Facebook pages.

HOW THE INFORMATION TECHNOLOGY IMPROVES OUR FINANCE ?

Information Technology (IT) enhance companies to develop with the demands

and changes in global market by provider information of financial market

data to give clients a competitive advantages.

Information technology (IT) is a growing field and is very important in almost all

professional office and financial. This field got the fast pace more than any other

invented technology; last few years were growing years for this useful technology.

It is believed that business growth is correlated with the IT advancement; many

believe that business can flourish with a good IT system. Information technology

focuses on the development of electronic networks that exchange information.

Because all financial transactions involve the exchange of information, the

increasing popularity of online finance coincided with advances in information

technology. According to Professor Jane K. Winn of the University of Washington

School of Law, "Financial institutions were at the forefront in creating the global

information economy as it exists today." Finance today relies on information

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technology. With strong signs that the IT industry will continue to grow across a

range of industries. IT is quickly becoming a very important component which

ensures businesses can run effectively and efficiently. One key growth area is the

financial industry where IT opportunities will increase.

Information technology has many uses in finance. Companies nowadays use I.T in

many different ways from financial trading to reporting the earnings of a business.

A company has the financial services industry in Ireland and uses its Information

System on a daily basis. Information technology allows such companies in this

industry to quickly calculate‖ financial statistics‖, as well as for the use in

electronic transfers of money, but in Ireland at present the major key area within

the financial sector is funds, A good IT system in funds is ofmajor benefit to

companies and allows them compete for new business . There are many businesses

which are in need of the software packages for satisfying their operational as well

as functional needs. For fulfilling this requirement, these companies sign deals

with the software manufacturing companies. Information technology is useful in

ensuring the smooth functioning of all the departments in a company such as the

human resource department, finance department, manufacturing department and in

security related purposes. The companies in the automobile manufacturing sector

are able to get rid of any sort of errors or mistakes in the proper functioning of the

tools used for designing and manufacturing purposes. Due to the development of

the information technology sector, the companies are being able to keep

themselves aware of the changes in the global markets. The software applications

and the hardware devices are known to be the main elements of the use of

information technology. The web browsers, the operating systems, ERP's and

special purpose applications are the software which are used in information

technology. IT plays an important role in easily solving the mathematical problems

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and in the project management system. It has a great use in the automated

production of sensitive information, automated upgradation of the important

business processes and the automated streamlining of the various business

processes. It has also played an important role in the areas of communication and

automated administration of entire systems.Companies typically prefer to do

business with banks or financial institutions that offer many different services that

they can access through some kind of technology based device. The ability by a

customer to access their information quickly and securely through there

information system allows many banks to increase their customer base and thus

showing the high importance of the I.T in Finance. Information Technology (IT)

very important to enables companies to cope with demand and changes by provider

of financial market data, charting solutions, trading platforms, mobile solutions and

custom services and also help to find the solutions and services for brokerages,

banks, financial websites & investor relations websites. 500,000 active end users

worldwide. More than 300 servers under management in multiple data centers.

Ultra-low latency market data provided from direct connections to the world's

largest exchanges high performance and high-availability solutions with a strong

focus on security with more than 10 years of industry experience, we can propose

solutions which will provide a competitive advantage to businesses of any size.

Besides, our corporate vision are also provide easy-to-use, fast reliable and

affordable data, trading & charting solutions to give our clients a competitive

advantage to maintain constant communication with our customers during

development and integration phases. Provide full support and advice after delivery

employ highly qualified in-house developers, engineers and project managers

innovate and improve our offer based on feedback of our customers and end users

customers can easily transfer and complete online transaction. Instead of people

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using checks which are quickly becoming outdated for example, a company with a

good information technology can clear a transaction at a click of a button. A debit

or credit card purchase can be very quickly compared with the customers account

balance, this either then allows the transaction or not. But a lot of big Finance

companies that are in funds area develop they information systems for use in

producing NAVs as quick and accurate as they can, good I.T systems within a

company of this nature provides the company the most up to date information on

market prices on stocks and also the system itself must be user friendly and

accurate. Convenience a person looking after the own finance can received great

value from information technology in finance and with the development of IT this

has made personal finance so much easier and quicker . Banks provide data on

current and savings accounts on line as well as with drawals. A customer can

download all there account transactions and if the need arises can store them in

records on a home computer, companies can also nowadays do the same and nearly

always have they own accounting system built into the Information system

network to make things even easier for them and it also make things more accurate.

The Finance Industry can use Information Technology to create benefits from the

likes of the social media. Social Media sites on the Internet provides financial

institutions with useful information on their customers. By trying to get online

communities associated with their products, companies in the financial industries

not only received information but it can also encourage ― brand loyalty‖, it also

allows finance companies to contact the‖ younger demographics‖ that will be their

future customers according to this side. These are common fields of many

businesses; many fields may vary from business to business. Information

technology can assist all fields. In this age of globalization information technology

becomes a part and parcel of all business types. It development enables companies

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to cope up with demands and changes in global market. Use of proper software and

developing the solutions to problems are main elements of IT use in business. It

helps to deduce the problems and solving them. IT is a technology and it gives the

best result if handles by highly professionals and genius staff members. Before

hiring IT staff, make sure that this staff will be productive for you and your

investment will not be wasted. Many companies provide staff for IT department.

To search the companies around your area you may use the internet such as, write

IT staffing Philadelphia or your area name and hit the search on Google, you may

find many companies providing IT staff, go for appropriate. IT performs a

significant part in effortlessly resolving the mathematical problems and in the

management. Remember that as IT is important for your business, IT professionals

are also important. This research explores the concept of the information

technology (IT) competence of business managers, defined as the set of IT-related

explicit and tacit knowledge that a business manager possesses that enables him or

her to exhibit IT leadership in his or her area of business. A manager's knowledge

of technologies, applications, systems development, and management of IT form

his or her explicit IT knowledge. This domain further extends to include knowing

who knows what, which enables the manager to leverage the knowledge of others.

Tacit IT knowledge is conceptualized as a combination of experience and

cognition. Experience relates to personal computing, IT projects, and overall

management of IT. Cognition refers to two mental models: the manager’s process

view and his or her vision for the role of IT. The outcomes expected from IT-

competent business managers are chiefly two behaviors an increased willingness to

form partnerships with IT people and an increased propensity to lead and

participate in IT projects. More than that, Financial Service providers banks,

savings and loan associations, and credit unions probably will concentrate on

http://www.insourcenow.com/solutions/professional-staffing/

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transaction processing and place less emphasis on gathering deposits and providing

financing. Emphasis will be placed on computer and telecommunication-based

systems for delivering financial services. Included in the services offered will be

data processing, securities brokerage, and, possibly, insurance. In the future,

branches will be dominated by a variety of machines the consumer will use to

directly interact with financial service systems. Institutional personnel will serve

more of an advisory role and handle customer transactions, such as payments and

withdrawals, only in exceptional cases. Securities broker/ dealers, long providers

of transaction services, will compete directly with banks, savings and loan

associations, and credit unions in many areas. Today they already offer a variety of

services such as money market funds that are designed to give the customer ease of

access to financial assets. This trend will continue, and the future is likely to see

higher levels of activity by securities broker/dealers in processing an increasingly

broad variety of transactions. Retailers of food and general merchandise and

possibly other types of organizations will be attracted to the financial service

industry. They will see opportunities to profitably apply technological resources

which are in hand or within reach to offer transaction processing services. Firms

that have established information processing and telecommunication facilities are

likely to be particularly active in the financial service industry. New entrants into

the industry will have roots in such varied areas as retail food and dry goods

merchandising, petroleum production and distribution, and communications.

Traditional providers of financial services are likely to continue the present trend

toward diversifying their offerings, often entering into areas that have been closed

to them in the past. Users of Financial Services will be delivered to the customer at

a convenient location with little need for clients to visit the offices of a financial

service provider. The present tendency of corporate financial officers to use

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terminals in their offices to manage funds will extend to smaller businesses.

Although the trend is not yet clearly established, individual consumers are likely to

use home terminals to interact with financial service delivery systems. Consumer

financial services packages are likely to be offered in conjunction with other

information-based consumer services such as home shopping, investment

advisories, recreational services such as computer games, travel reservations, and

the purchase of tickets to sporting and theatrical events. Financial service

institutions may develop and operate the network used to distribute these services

or they may participate in networks assembled and operated by others. Consumers

may use terminals to order banks to pay bills or to purchase securities. They may

enjoy more flexibility in services used. For example, rather than carrying a fixed

amount of insurance, a terminal could be used to vary it in response to changing

needs (e.g., increasing coverage for theft while jewellery is kept at home rather

than in the bank vault). Orders to buy or sell stocks and bonds could be entered

from home and executed on an automated exchange. Consumers may use home

information systems to analyze their financial positions and to help make decisions

on investment opportunities. Using these and other capabilities will give the

consumer greater personal control over his assets. Consumers may find that they

need an account with a financial institution to have access to a variety of services.

Some employers may require direct deposit of payroll checks. Alternatively,

employers may offer employees the option of writing checks against salary held in

a company account in return for being paid daily. Consumers may need an account

to be able to use shop at home and travel reservation services. Although technical

differences will remain, operational distinctions between services offered by

various classes of providers will diminish. It will be more difficult for users to

differentiate between them. For example, though a money market fund offered by a

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securities dealer is quite different from a demand deposit offered by a bank, both

meet similar needs for consumers as accounts from which funds can easily be

withdrawn. As a conclusion, IT helps clients get what they want in improves their

finance by using data collected from customer to analyze their preferences.

Gaining insights into your business from customer data so you can more

effectively target marketing. Streamlining and automating business processes to

improve efficiency and keep costs low. Finding ways for customers to interact with

your business when they want and encouraging your staff to embrace new ways

improving customer treatment by providing tools and training to deliver better

service. The information technology that runs social media on the Internet provides

financial institutions with valuable information on their customers. By encouraging

online communities associated with their products, finance companies not only

acquire information but also encourage brand loyalty. For example, websites such

as TradeKing allow online stock traders to discuss their picks and advise

newcomers. Socially driven information technology allows finance companies to

contact the younger demographics that will be their future customers.

Besides that , the information technology also improves the banks , savings

and loan association and credit . It will concentrate on transaction processing and

place less emphasis on gathering deposits and providing financing. Emphasis will

be placed on computer and telecommunications-based system for delivering

financial service.Then , included in the services offered will be data processing

securities brokerage , and possibly , insurance. In the future, branches will be

dominated by a variety of machines the consumer will use to directly interact with

financial service system. The institutional personnel will serve more of an advisory

role and handle customer transaction , such as payments and withdrawals, only in

exceptional cases.

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Securities broker/ dealers, long providers of transaction services will

compete directly with banks , savings and loan association and credit unions in

many areas. Today, they are already offer a variety of services such as money

market funds that are designed to give the customer ease of access to financial

assets. This trend will continue and the future is likely to see higher levels of

activity by securities broker / dealers in processing an increasingly broad variety of

transaction . Retailers of food and general merchandise and possibly other types of

organizations will be attracted to the financial service industry. They will see

opportunities to profitably apply technological resources which are in hand or

within reach to offer transaction processing services.

After that , firms that have establish information processing and

telecomminucation facilities are likely to be particularly active in the financial

service industry. New entrants into the industry will have roots in such varied areas

as retail food and dry goods merchandising petroleum production and distribution,

and communications. Traditional providers of financial services are likely to

continue the present trend toward diversifying their offerings, often entering into

areas that have been closed to them in the past.

Furthermore , financial services will be delivered to the customer at a

convenient location with little need for clients to visit the offices of a financial

service provider. The present tendency of corporate financial officers to use

terminals in their offices to manage fund will extend to smaller businesses.

Although the trend is not yet clearly established, individual consumers are likely to

use home terminals to interact with financial service delivery systems.

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Consumer financial service packages are likely to be offered n conjunction

with other information-based consumer services such as home shopping ,

investment advisories, recreational services such as computer games, travel

reservations, and the purchase of tickets to sporting and theatrical events .

Financial service institutions may develop and operate the network used to

distribute these services or they may participate in networks assembled and

operated by others.

Consumer may use terminals to order banks to pay bills or to purchase

securities. They may enjoy more flexibility in services used. For example, rather

than carrying a fixed amount of insurance, a terminal could to be used to vary it in

response to changing needs.Orders to buy or sell stocks and bonds could be entered

from home and executed on an automated exchange. Consumers may use home

information system to analyze their financial positions and to help make decisions

on investment opportunities. Using these and other capabilities will give the

consumer greater personal control over his assets.

Consumers may find that they need an account with a financial institution to

have access to a variety of services. Some employers may require direct deposit of

payroll checks.Alternatively, employers may offer employers the option of writing

checks against salary held in a company account in return for being paid daily.

Consumers may need an account to be able to use shop at home and travel

reservation services.

Other than that, information technology(IT) financial management helps an

IT organization determine the financial value of IT service provided to its

customers.ITIL refers to this activity as service valuation, whereby each service

provider and the customer’s own assets.

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Service-based IT financial management aligns the basic activities,

accounting, charging and budgeting with other customer facing ITIL processes.For

example, the IT organization tracks expenses against the service catalog on a

continuous basis multiyear effort that measures existing financial commitments

and estimates future expenses related to its service. Because most IT organizations

need to recover costs or generate a profit, they implement a charging process, and

customers are billed for the IT services that they consume.

Accounting , charging and budgeting activities provide critical outputs and

improve service through investing in the high value services through rigorous

services investment analysis, business cases, and portfolio management. Similarity

, these outputs can lower costs through monitoring expenses related to a given

services and determine whether it can be provided more effectively , referred to as

service provisioning optimization in ITIL. We first define these basic financial

management activities in the following subsection.

Furthermore, information technology also helps an organization monitor IT

expenses against budgeted goals and prevent budget deficts and losses. IT

accounting also providesthe information with data to value a given services, an

organizationcan conduct service valuation analysis and optimize its investmentsin

the highest value services.Finally, IT accounting provides an organization with a

standard language that internal and external customers business partners , and IT

can use to evaluate the cost and benefits of IT services. This standard language

includes a standard basis for estimating costs across services , standard rates , and

standard approaches to measuring utilization or consumption of services. This

common framework improves customers satisfaction.

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As IT accounting and charging methods improve, the organization may use

them to forecast demand for the services defined in the services catalog or in the

underlying services pipeline. This information can then be used to develop

appropriate capacity within the capacity management process. ITIL refers to this

practice as demand modelling, which helps to ensure that an adequate level of

service can be provided to customers. It also helps customers budget for specific

services.

Demand modelling used in conjunction with charging can help also the IT

organization to influence customer behaviour. For example , you can use lower

―off-peak‖ billing rates to encourage customers to use IT services at specific

times in the day. This influence can help IT service providers work with customers

to avoid costly spikes in cost, for either the customer or the service provider. These

practices are summarized in the charging discussion later in this chapter.

Mature IT financial organizations also use this financial management

information to determine the benefits of financial investments made in IT projects

through service portfolio management , sevice and business cases.By

understanding, tracking and budgeting for sufficient resource , time and budget for

the project.

Other than that , information technology has changed the way companies

conducy business domestically and internationally . The banking and finance

industry has made great strides in implementing current technology in their

business operations.

The banking industry has used business technology to create several new

options for consumers including online banking , instant access to retirement

accounts , electronic wire transfer capabilities.Then, consumer typically prefer to

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do business with banks that offer a wide variety of services. The ability to access

their information quickly and securely through the Internet allows banks to

increase their customer base , increasing overall profitability.

Furtherrmore , the information technology can improves finance by

security.Security is always a concern when individuals use the Internet to access

personal information .Identifications and passwords limit access to confidently

information.Instead of binders and papers lying around , security can be greatly

enhanced with the proper computer programs.Using a program, accounting

information can be encrypted in a way to prevent unauthorized use, making it quite

safe. Banks must be able to use technology to protect consumers while allowing

them virtual access to their information. A lost , stolen or misplaced laptop or

desktop computer can be tracked using security software that cab be activated

remotely.

Banks can improve the transaction time it takes to transfer money and move

financial information between accounts or other banks using technology . This

improvement allows banks to collect funds from consumers and business quicker,

earning the bank higher interest rates on their funds.

Besides , banks can operate multiple locations in several or countries using

business technology . Information can be quickly transmitted to other branch

locations regarding funds and financing paperwork, allowing managers to make

better business decisions. Information technology allows finance to function on a

global level. ― Financial markets can be thought of as the first organized, global

information markets operating though networked computers,‖ Winn says. Without

information technology , financial markets couldn’t react to global developments

and finance companies couldn’t consistently acquire information at the same time

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as their competitors . For example, the Internet allows continuous access to credit

scores and credit ratings to all lenders , insurance companies and businesses that

need financially responsible customers.

Information technology focuses on the development of electronic networks

that exchange information. Because all financial transaction involve the exchange

of information , the increasing popularity of online finance coincided with advance

in information technology . According to Professor Jane K. Winn of the University

of Washington School of Law , ― Financial instituitions were at the forefront in

creating the global information economy as it exists today.‖ Finance today relies

on information technology.

The social media is also improve the information technology by finance. The

information technology that runs social media on the Internet provides financial

instituitions with valuable on their customers. By encouraging online communities

associated with their products , finance companies not only acquire information but

also encourage brand loyalty . For example , websites such as TradeKing allow

online stock trades to discuss their picks and advise newcomers. Socially driven

information technology allows finance companies to contact the younger

demographics that will be their future customers.

During the financial , information technology has impacted accounting

processes in a very good way.It is difficult to find anbody doing manual

accounting with paper and pencil these days. Since accounting department , from

the old days of the battery operated calculator to the fast computers of day.

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The most obvious impact of technology in accounting is the presence of

computers , printers , scanners and faxes . Information technology ( IT )

transformed the accounting world – no more green papers sheets andpencils. The

good news is that prices are affordable on most of the equipment easily and at a

reasonable cost. The machines are sophisticated, fast and easy to use.

Besides the equipment , accountants appreciate the software . For example ,

spreadsheet programs are highly efficient at helping accountants with calculations

and reporting . There are accounting programs in the market that are easy to use

and affordable , making them very popular with small businesses. Software can

help accountants in their daily tasks , such as paying bills , recording transaction

and reporting. The program keeps all data organized and in a centralized location.

Besides that , the internet opened many doors and made life easier in many

ways , especially in the accounting area where documents can be shared , research

can be conducted and taxes can be filed – all online . Connection to the internet can

be wireless and simple. Business don't have to buy software to run

some programs . Instead , some sites host the programs online , where files also

can be saved.

After that , because of the close synergy between accounting and

information system , many universities have started offering four-years degrees in

accounting and information system.Quite a few universities offer a major in

accounting and a minor in information system. The program usually includes the

typical accounting concepts and information technology ( IT ) .The accountant of

the present and future must be technologically savvy to be relevant and the

universities are preparing new graduates for this challenge.

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The Department of Finance & Information Technology provides financial

and computer support services to for all County operations and is responsible for

the maintenance and dissemination of reliable and accurate financial data and

reports. Duties include payroll, accounts payable, purchasing, budgeting, general

accounting, personnel and financial reporting. The Finance Director coordinates

and assists in the preparation of the annual financial report. The department is also

responsible for establishing policies and guidelines specific to these functions.

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Technology support services oversees the centralized computer and network

systems, provides strategic planning of County technology needs, maintains and

supports integrated systems ( telephone, electronic mail, financial software

system), provides technical support for computers and other devices and

coordinates the Web site for the County.

Finance can improve in banking system in nowadays. It is disheartening that

some of human being in this world using this opportunities to hack the bank to use

in criminal disease. Information technology has changed the way companies

conduct business domestically and internationally. The banking and finance

industry has made great strides in implementing current technology in their

business operations.Information technology has many uses in finance. From

trading financial instruments to keeping records of personal budgets to reporting

the earnings of a business, computer technology is used by financial companies

daily. Information technology allows the rapid calculation of financial statistics, as

well as electronic transfers of money.Information technology (IT), as defined by

the Information Technology Association of America (ITAA), is "the study, design,

development, implementation, support or management of computer-based

information systems, particularly software applications and computer hardware."

But in today's society, the term has grown to encompass not only technology,

telecommunications and computing, but has expanded to comer everything related

to processing and transfer of data as well. In this respect, the role of IT in the

finance industry certainly is an important one.

In nowadays, this paper develops and tests a model to examine the effects of

information technology (IT). It is believe that IT can improve banking in two

ways: IT can reduce operational cost (cost effect), and facilitate transactions among

customers within the same network (network effect). The empirical studies,

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however, have shown inconsistency on this hypothesis; some agree with the Solow

Paradox, some are against. Since most empirical studies have adopted the

production function approach, it is difficult to identify which effect has dominated,

hence the reasons attributed have been the difference in econometric methodology

and measurement. This paper attempts to explain the inconsistency by stressing the

heterogeneity in banking services; in a differentiated model with network effects,

we characterize the conditions to identify these two effects and the conditions for

the two seemingly positive effects to turn negative in the equilibrium. The results

are tested on a panel of 68 US banks over 20 years, and we find that the bank

profits decline due to adoption and diffusion of IT investment, reflecting negative

network effects in this industry.

The usage of information technology (IT), broadly referring to computers

and peripheral equipment, has seen tremendous growth in service industries in the

recent past. The most obvious example is perhaps the banking industry, where

through the introduction of IT related products in internet banking, electronic

payments, security investments, information exchanges (Berger, 2003), banks now

can provide more diverse services to customers with less manpower. Seeing this

pattern of growth, it seems obvious that IT can bring about equivalent contribution

to profits. In general, existing studies have concluded two positive effects regarding

the relation between IT and banks’ performance. First, IT can reduce banks’

operational costs (the cost advantage). For example, internet helps banks to

conduct standardized, low value-added transactions (e.g. bill payments, balance

inquiries, account transfer) through the online channel, while focusing their

resources into specialized, high-value added transactions (e.g. small business

lending, personal trust services, investment banking) through branches. Second, IT

can facilitate transactions among customers within the same network (the network

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effect) (see Farrell and Saloner, 1985; Katz and Shapiro, 1985; Economides and

Salop, 1992). Let us consider the case of automated teller machines (ATMs) by

banks. If ATMs are largely available over geographically dispersed areas, the

benefit from using an ATM will increase since customers will be able to access

their bank accounts from any geographic location they want. This would imply that

the value of an ATM network increases with the number of available ATM

locations, and the value of a bank’s network to a customer will be determined in

part by the final network size of the bank. Indeed, Saloner and Shepard (1995),

using data for United States commercial banks for the period 1971-1979, showed

that the concern of network effect is important in the ATM adoption of United

States commercial banks (see also Milne, 2006). In view of these two effects

above, it should be surprising to know that the evidence, however, shows some

inconsistency in concluding the contribution of IT to banks’ profit. 2Some studies

echo the so called Solow Paradox in concluding that IT will actually decrease

productivity. As stated by Solow (1987), "you can see the computer age

everywhere these days, except in the productivity statistics". Shu and Strassmann

(2005) studied 12 banks operating in the US for the period of 1989-1997 and found

that although IT has been one of the most marginal productive factors among all

inputs, it cannot increase banks’ profits. On the other hand, there are some studies

agreeing with the positive influence of IT spending to business value. Kozak

(2005) examines the impact of the progress in IT on the profit and cost efficiencies

of the US banking sector during the period of 1992-2003. The research shows a

positive correlation between the level of implemented IT and both profitability and

cost savings. The inconsistency in empirical results can be attributed to differences

in measurement and econometric methodologies (Berger, 2003; Tam, 1998).

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Alternatively, the current paper attempts to provide an interpretation by stressing

the heterogeneity in banking services.

Indeed, compared to manufacturing industries or agriculture, banking

industries present higher diversification in providing customer services. In this

case, a differentiated model with network effects would probably describe the

market better than the production function approach, which describes each bank’s

profit (output) as a specific production function of inputs. Notice that most

empirical studies have constructed their testing on productivity or growth. In

addition, while most production approaches only present a mixture of IT influences

on both demand and supply sides, a differentiated model can distinguish a network

effect from the demand side (in banking services) from a cost reduction effect from

the For example, Berger (2003) pointed out two approaches in measuring

productivity: either by the govermment productivity indexes or by a modified form

of the Solow (1957) neoclassical growth model (Oliner and Sichel, 2000).

Computers may affect productivity because they are a specific capital input to the

production process. This is the approach taken in most existing studies, including

both the national and industry-level studies just cited, as well as studies at the plant

or firm level, such as Brynjolfsson and Hitt (2000), Dunne et al. (2000), Stolarick

(1999), and McGuckin et al.(1998). 3supply side. Most importantly, a

differentiated model can characterize the competition in the industry, which cannot

be distinguished from the cost effect in the production function approach.

Specifically, our paper examines the effect of IT in a modified Hotelling model

with network effects due to Rohlfs (1974), and the theoretical conclusions are

tested on a panel data of 68 US banks for the period 1986-2005. The keypoint to

understand the inconsistenc is to contemplate IT’s influence to the whole industry,

rather than to the individual banks. For individual bank, it is true that both cost and

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network effects are positive. When all banks in the industry have the same access

to this cost-saving technology, will the cost advantage from adopting IT vanish due

to competition (in particular, price competition in banking industries). Will the

presence of multiple networks bring determinative benefits to each bank in the

industry? By investigating the equilibrium in a Hotelling model with network

effects, we are able to explore the overall effect of IT to the whole industry. The

main findings are summarized as follows. First, we derive a simple test on the

existence of network effect by checking the relation between market share and IT

expenditure.

If there is only a cost reduction effect, each bank’s market share will

increase with IT; however, if there is also a network effect, the market share does

not necessarily increase with IT. This result can be useful if a proxy variable for

the size of network is invalid (Saloner and Shepard, 1995, use the number of

branches possessed by a bank as a proxy for its expected ATM network size in

equilibrium). Our test on the US banks shows that, the market share is positively

related to IT expenditure indicating that there is a network effect. Second, we are

able to distinguish the cost reduction effect from the network effects. Since the

equilibrium price will decrease with IT expenditure, if we could isolate this price

effect by treating prices as one of the explanatory variables in the model,

Proposition 2 shows that if the overall impact of IT on profits is negative, then the

cost reduction effect is negative. Moreover, since in this case the market share still

increases with IT, this negative result will indicate Berger’s (2003) observation

that banks may have essentially "given away" th benefits from the ATM

technology in the 1980s as the industry became more competitive due to

deregulation, and rents from market power shifted to consumers (p. 142). Our

estimation of the US banks also show that if prices are treated as an explanatory

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variable, the overall impact of IT on profits is negative. Finally, in line with both

sides of the existing literature, we predict that banks’ profits can be positively or

negatively related to IT expenditure. In the equilibrium, each bank’s price will

decrease with its IT expenditure, but the impact on the profits will have to depend

on whether its market share has increased. The overall effect on the whole industry,

however, will depend on the relative sizes of weighted sum of IT and the average

of IT. Here, the weight is measured by each bank’s profit share. For the data of

US banks, we conclude that banks’ profits are negatively related to IT expenditure,

showing that the weighted sum of IT in the US is less than the average of IT.

Overall, a differentiated model not only fits in the banking industry more,

but also enables us to distinguish the network effect from demand side and the cost

reduction effect from supply side. Our empirical study on the panel data of US

banks shows that due to severe competition, each bank has over-invested in IT

equipment, while the benefits from networks and cost reductions are competed

away. The remainder of the paper is organized as follows. Section 2 presents the

modified Hotelling model with network effects and derives three results concerning

the relation between IT and equilibrium behaviors. In Section 3, the theoretical

conclusions are tested on a panel data of 68 US banks for the period of 1986-2005.

Section 4 concludes the paper.

It also became pronounced immediately the line between accounting,

finance and InfoTech was removed from the business world. The advent of

information technology removed boundaries that have for ages been a major

barrier to globalized trading and business. In fact, it is difficult to imagine what

business executives will face if IT completely isolated from business now .I can

assure you that the global business network will crumble in a twinkle of an eye.

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Finance and IT have manmade Siamese twins that will take divine intervention to

separate.

Though the importance of information technology in business and

finances are somewhat obvious, not everybody appreciates these importances of IT

in finance. This article is written to bring together the importance of InfoTech in

finance in such a way that everybody will understand. The article is divided into

two sections; one setion dealing with positive roles of IT in finance and the other

talking about the negative roles of IT in finance.

Bibliography

Books

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Morley D. (2013).Understanding computers Today and Tomorrow 14th Edition.

2013 course technology cengage learning.

Websites

Wagner, Todd, Treating Your Customers Right, November, 2003.

Wasserman, Elizabeth, Tech Talk: Online Game Site Develops

ForumIncTechnology.com, 2009.

Zetlin, Minda, Helping Customers Help Each Other Online, IncTechnology.com,

2007.

Zetlin, Minda, Making Chat Work for Customers, 2008.

Sean Mullin, Demand Medin, www.smallbusines chron.com.my.Jun 2007,

AyseGunsel. (2011). Does Information Technology Capability improve bank

performance.

http://www.accenture.com/Global/Services/By_Industry/Communications/Access_Newsletter/Article_Index/TreatingRight.htm

http://technology.inc.com/internet/articles/200904/tech_talk_zanini.html



http://technology.inc.com/internet/articles/200710/community.html

http://technology.inc.com/internet/articles/200803/chat.html

finance

Economy & Finance