Technology and Innovation in Banking and Finance Essay Example

Introduction

Technology holds a significant position in the performance of the banking sector in the worldwide economic scale. The impact of technology and innovation has been depicted on the external economic forces alongside the changes on the internal dimensions as a result of technological advancements. Technology and innovation have dramatically influenced the delivery of the banking system seen through the implementation of banking self-services such as the automatic teller machines and mobile banking which have been perceived to enhance the growth of bank revenues and reduce costs for banks alongside the convenient services provided to customers. The most recent aspect of technology and innovation evident in the banking sector is the internet banking services which is multidimensional providing information as well as transactional services. This paper aims at evaluating the development process of internet banking and various issues related to its implementation in both developed and developing nations. This paper will then analyze the performance of some of the banks that have adopted internet banking technology.

Is your time best spent reading someone else’s essay? Get a 100% original essay FROM A CERTIFIED WRITER!

Save 25%

Technological and Innovation Applications in Banking

Electronic Banking, Mobile Banking, and Automated Teller Machines

Innovation and technology have led to the development and adoption of mobile technology in banking activities. Many financial organizations and banks today have embraced mobile banking even in the developing countries which have changed the orientation of service from the traditional brick and mortar establishments (Frame & White, 2014). All the three technological innovations in the application today in banking has proved useful in expanding the overall access and differentiation of services which has increased consumer convenience and earning for banks. The adoption of internet and mobile banking has enabled banks and financial organizations to remain competent and relevant in a world that is experiencing continuous changes. The relevancy created by banks through innovative technologies has improved the number of people using bank services which ensure continuous revenue streams (Frame & White, 2014). With the automated teller services banks, customers have unlimited access to their funds which has encouraged more people to use banking services. Besides, the bureaucracy in the banking system has significantly decreased making it easy and fast for financial consumers to acquire services that previously took more time (Frame & White, 2014).

Prepaid cards which operate through the automated teller machines is an augmented service that shows how technology and innovation can be used to influence the overall service efficiency. Prepaid cards have help consumers to set aside funds which can be used for goods and services. Their resemblance to the credit and debit cards in functionality and using automated teller machines has increased the overall access and preference by banking customers.

Automated Clearinghouse and Small Business Credit Rating

Most banking and financial customers are large organizations that need banking services to pay off their employees and suppliers. The adoption of modern technology and innovation in such systems has been instrumental in increasing service access and convenience (Blach, 2011). Previously many organizations had to complete manual cash transfers which were time-consuming and inefficient. The automated clearing house solved this problem by increasing the overall access and convenience of making regular payments. Besides, technology has also improved service efficiency amongst small businesses through the use of small business credit scoring which eliminates the need for physical valuation of financial services consumers to extend loan facilities. The use of new technology has made it easy to assess consumer information which makes it easy to evaluate their credit potential (Blach, 2011). The small business credit scoring operates by securing credit information of small business which makes it easy for banks to assess the ability of the small firms to pay back the loans extended to them.

Online Communication Using Web Portals

Banking and financial services are one of the economic fronts that have significantly benefitted from technological development and innovation. Innovation and technological advancements have changed the overall profile of how people do banking and access to financial services (Aliyu & Tasmin, 2012). Banks customers today have broader access to services with greater convenience and information for decision making today than before the coming on new technological applications. In communication, banks and financial organizations can use websites that provide customers with unique access identities where they can be able to acquire many services that previously required them to make an appointment with the banker (Aliyu & Tasmin, 2012). Communication plays a significant role in service delivery and has been instrumental in the growth of the global financial and banking sector. Information communication technology applications have been the heart of the banking sector by increasing customer control and access to their finances while increasing online services (Aliyu & Tasmin, 2012). Banks have invested significantly in customer services through the online portals which ensure prompt feedback and access to financial information. In this case, improved customer services have helped banks and financial institutions to develop online services such as mobile banking, internet banking and credit facilities where they can be able to access the services without having to go to the banks.

Internet Banking

According to Amin (2016), the concept of internet banking refers to the mobile delivery of banking services through the use of the internet instead of conventional banking procedures. The aspect of internet banking can alternatively be analyzed in two different dimensions depending on the banking services which can either be categorized as informational or transactional services. Internet banking allows many customers to pay for services and also to access different bank services without the need to go to the banks physically. Internet banking continues to create new service possibilities that will revolutionize banking to enhance consumer experience while reducing the overall cost of operations.

Informational Services

The aspect of informational services of internet banking refers to the provision of the necessary banking information to the consumers or even the marketing of banking services. The application of information services through internet banking is more reliable than the conventional approach of providing informational services which could hardly maintain stability and constant availability. The informational services provided by internet banking act as an interactive guide which is more efficient because it is customized and cost-effective. Generally, informational services perform an essential function of enabling customers to remotely access their banking information from their comfort zones (Amin, 2016). Information is critical in the banking industry, and the use of internet portals has increased the overall access of service information which enhances value and convenience. Banks are using the internet to provide education to their consumers on financial management which is critical towards promoting efficiency.

Transactional Services

Transactional services include the transfer of funds across various banking accounts or the making of online payments for multiple functions. However, the essential aspect of transaction services is the capability to pay bills for third parties because it enhances the active management of the cash flow of the household. Transactional services enable clients to access the most recent service delivery channels of banking services. Consequently, the fact that customers can operate their everyday banking activities without any inconveniences without long queues implies the convenience in the delivery of services to customers (Amin, 2016).

The Adoption of Internet Banking

The concept of internet banking has resulted in various changes in regards to the efficient delivery of services. However, multiple factors have influenced the adoption of internet banking services in both developed and developing nations. According to the study by Claro & Rosa (2016), on the adoption of internet banking, more than half of retail banking services is likely to depend on internet banking shortly. Internet banking has been widely adopted and partly used for retail customer services and also partly for corporate consumer services. However, the adoption of internet banking can further be analyzed by evaluating some of the incentives towards the adoption of internet banking and the factors that affect the adoption of internet banking.

Incentives for the Adoption of Internet Banking

The motives for the adoption of internet banking include the cost-effectiveness in comparison to the conventional banking approaches which is estimated to be almost ten times lower than the physical path of banking in terms of transaction costs. Internet banking is also cost-effective in terms of the utilization of resources in contrast to the physical banking approach. Generally, there is no more for the banking sector to consider as an incentive other than the transaction overhead costs and the expansion of the typical banking approaches (Claro & Rosa 2016). On the same hand, every banking institution aims at attracting more customers and equally retaining the existing clients as the primary objective of the whole banking process and that is only possible with the increase in efficiency and coverage of retail services. Internet banking has opened up opportunities for new market players into the banking and finance sector because of the drop in the entry sector since it enables the delivery of services over the internet. The aspect of internet banking has led to the decrease of "brick and mortar" banking branches hence a decline in staffing and overhead charges alongside the increased competitive rate on the products and services which gain competitive advantage (Claro & Rosa 2016).

The Significance of ICT on Banking

The introduction of internet technologies on banking has completely revolutionized banking activities through improved efficiency and expanded services. Information communication technology has significantly distorted the banking business models with a great emphasis on customer service and expanded internet banking which has enabled many banks to offer more services such as insurance and security investments (Blach, 2011). The main economic argument in support of technological development and innovation in banking is the reduction in the overhead expenses which has made it possible for banks to eliminate physical branches. Internet banking has become a substitute for physical branches and has enabled many banks to offer little transaction costs which has increased their customer base while making very high profits (Aliyu & Tasmin, 2012). Therefore, ICT has been able to provide unprecedented service opportunities for banks and increased operational efficiency. The self-service facilities offered by banks today through information communication technology are the future reality of how innovation has transformed banking services.

Factor Affecting the Adoption of Internet Banking

One element that is essential to the adoption of internet banking is consumer awareness because it is critical that consumers are aware of the benefits of services provided due to internet services. Therefore, the adoption of internet banking should be marketed amongst the clients so that they are informed abou...