INFORMATION SYSTEMS IN BANKINGIntroduction

CHALLENGES FACING BANKING EXECUTIVES

Customer retention Cost pressures Increased competition (new entrants)

TRADITIONAL BANKING?

‘Branch banking’: Traditional service channels Banks used their retail outlets to provide services to the

individual customer. ‘Bank Banking’

Multiple delivery channels: ATMs, call centers, online banking, mail/fax, WAP, etc

banks are more focused on enhancing customer value through branches. They are using their existing network of branches to advice on and sell new financial instruments like consumer loans, mutual funds, etc.

a customer will be treated as a bank's customer than just the customer of a particular branch which was the case earlier.

BENEFITS OF USING TECHNOLOGY IN BANKING

Technology has opened up new markets, new products, new services and efficient delivery channels for the banking industry.

Anytime-anywhere banking – banks now provide remote, reliable, secure and round the clock access

Customer-centric: more value added services to meet the customers’ rapidly evolving needs and preferences

Speedy processing and transmission of information

BENEFITS OF USING TECHNOLOGY IN BANKING CONTD

Reduced cost of business Increased range of products and services Reduction of fraud levels and improved risk

management Global compliance – adopting trends to provide

seamless and standardised services worldwide

ADOPTION OF IT IN THE BANKING SECTOR

IT in banking is basically used under two avenues: Communication and connectivity Business Process Re-engineering

Notable applications: Core banking systems, ATM services, Mobile banking,

Internet Banking, SMS and telebanking, Electronic Bill payment, MICR Cheque processing

CHALLENGES

Security concerns Poor technological infrastructure Loss of the human face Computer illiteracy

BANKING SYSTEMS

Traditionally: the banks adopted systems developed in-house or used

vendor provided systems on a decentralized basis, ad hoc solutions implemented on piecemeal basis, i.e.

separate modules and technology platforms for key operations such as deposit mobilization and lending, trade finance, treasury operations, and more recently card transactions.

The arrival of new foreign banks with state-of-the-art technology-based services pushed other banks to move towards the latest technologies, especially core banking systems so as to retain their customer base and meet competition.

Challenges of using traditional (legacy) systems Old programming languages Inflexible systems Difficult to integrate Batch processing as opposed to real-time processing Account-centric as opposed to customer centric

CORE BANKING SYSTEMS (CBS)

The sum of all IT components that allow a banking institution to develop, process and manage its basic financial products and services effectively (SAP/ Accenture).

Supports ‘bank banking’ along with ‘branch banking’.

CBS FUNCTIONALITY

CBS facilitate banking operations like ATM's, Electronic fund, Transfers, Telebanking, Internet banking etc.

Key components: Deposit systems Loan servicing systems Client information file Statement production Payments

CBS ARCHITECTURE

Hosted in servers Written in COBOL The banks have to implement a three tier

architecture, for Wide Area Network. The branches are connected to a Zonal centre, by a

leased line. The district layers are in turn connected to the data

centre, and disaster recovery centre, by 2 MBPS based lines.

TECHNOLOGY RISKS IN THE BANKING SECTOR

disruption to core banking and payment services Mitigated by developing Business Continuity Plans and

setting up Backup Systems and Disaster Recovery Sites.

Security beaches (hacking) Audit processes