The Impact of Information Technology on Banking Operations

The Impact of Information Technology on Banking Operations

The banking industry is one of the critical sectors of the economy whose contribution to the pace of development and economic growth cannot be fully quantified. Changes in today’s modern world reveal that the preponderance of natural factors cannot equip the banking sector fully to grapple with the exigencies of global completion. According to Hanna (1994), information, flexibility, and fast response are the key new factors for coping with global competition and information communication technology plays a critical role in these areas for quality enhancement. Antholt (1993) has declared that information is just as important as a production factor like land, labor, and capital.

The significance of IT in today’s successful organization cannot be underestimated. It plays a major role in the success of the organization in a highly competitive world by providing easy and fast means of collecting, storing, retrieving, processing transmitting, and distributing information. There can be various others factors that determine the success of a firm, and a firm may use various strategies to pursue the path of success. However, fast and easy access to information through the use of IT is very important to the firm because, it influences all other success factors, and the competitive strategies cannot be practically implemented without its support. Therefore, no business firm that minimizes the use of IT can attain the topmost position in its business. This is quite much true in the case of financial institutions, which include commercial banks. Hence, commercial banks are highly information-intensive and the use of IT by them for easy and fast means of information collection, storage, retrieval, processing, transmission, and distribution of information, should have an extensive contribution to their performance.

The evolution and recent developments in information and communication technology have come to shape the way organizations operate and do business. The emergence .of the World Wide Web (internet) and mobile telephony i.e. telecommunication system is the driving force behind this development. Consequently, manual and traditional forms of doing business are becoming things of the past as they give way to the sophisticated technology that is based on automation and interconnection of computers and other electronic devices vide electronic communication. For instance, ledger books, paper invoices, printed materials, and business trips are being replaced with online billing and payments, elaborate websites with product information, and real-time teleconferencing across continents and time zones.

Information technology has radically changed how banking is done all over the world, the volume and speed of banking transactions have improved tremendously as a result of quantum growth in information technology which has created business opportunities for banks. The positive impact of information technology IT on the global criteria, especially improved revenue corroborates with the findings of Laudon & Laudon, (1991) that studied the entire cash flow of most fortune 500 companies and linked their success to Information systems. They concluded that Information Technology directly affects how managers decide, how they plan, and what products and services are to be produced.

Information Technology (IT) is the automation of processes, controls, and information production using computers, telecommunications, software, and ancillary equipment such as automated teller machines and debit cards. It is a term that generally covers the harnessing of electronic technology for the information needs of a business at all levels.

Since the 1980s, Nigerian banks have performed better in their investment profile and use of ICT systems, than the rest of the industrial sector of the economy. An analysis of the study carried out by African Development Consulting Group Ltd. (ADCG) on IT diffusion in Nigeria shows that banks have invested more IT personnel, more installed base for Personal Computers (PCs), LANs, and WANs, and a better linkage to the Internet than other sectors of the Nigerian economy. The study, however, pointed out that whilst most of the banks in the west and other parts of the world have at least one PC per staff, Nigeria banks are lagging seriously behind, with only a PC per capital ratio of 0.8, Woherem (2000).

Information and communication technology (ICT) is the modern handling of information by electronic means which involves access to storage of, processing, transportation, or transfer and delivery (Ige, 1995). It refers to the convergence of the computer and telecommunication system in a seamless flow of information around the world. The fusion of computer and telecommunication and their uses in obtaining relevant and purposeful management information systems is the main thrust of information technology. It is the acquisition, processing, storage, and dissemination of vocal, pictorial, textual, and numerical information by a micro-electronic-based combination of computing and telecommunications. The focus of ICT is on telecommunication and computerization. It implies the convergence of computing and communication (Telecommunication) technologies and their uses or application for the global Internet, Intranet, Extranet, World Wide Web (WWW), Visual reality, Cyberspace-the New Digital Mentality and Culture (Uwaje, 2000). Communication Technology comprises the physical devices and software that link (connect) various computer hardware components and transfer data from one physical location to another. Connectivity has facilitated the use of electronic delivery channels. Distances and geographical locations are no longer barriers to financial transactions.

Full online, real-time capabilities have revolutionized the electronic transfer of funds. Electronic fund transfer (EFT) is an electronic-oriented payment mechanism. It allows customers’ accounts to be credited electronically within 24 hours (Ugwu, et al., 1999). Mark (1975) classified the basic elements of the EFT system into three:

clearing network characteristics, remote service or point of sale characteristics, and pre-authorized debit and/or credit characteristics.

Electronic fund transfer has also been variously designed to ease the international transfer of money. In 1977, the international payment system known as SWIFT (Society for Worldwide Inter-bank Financial Telecommunication) became operational. SWIFT enables user banks to use electronic mode to transfer international payments, statements, and other banking messages. In Nigeria, First Bank’s Western Union, Monogram of United Bank for Africa (UBA) among others performs international funds transactions.

Information technology is the term that generally covers the use of electronic technology for the information needs of a business at all levels. It has made it possible for banks to:

1. Improve service delivery with the availability of online, real-time transactions.

2. Funds transfer will be faster, more accurate, and cheaper in charges.

3. Capacity to process a large volume of transactions which will require a lower administrative cost.

4. Reduction of cash transactions with long-term prospects of minimal cash handling.

Information technology application by banks is centered on customer service. Banks now respond to customers for balance on their account, statement of account, and account activity inquiries.  The work of the front office teller (cashier) is minimal (ATM) Banks can serve customers outside the banking hall 24 hours on daily basis. Merchant customers can make local and international business transactions online, they allow online payment via online, telephone, or mobile payment medium (Interswitch, transact, etc), with this payment switch, the merchant account holder’s customers can make payment for goods and service without necessarily seeing the business merchant in person.

Competition has become stiff; banks now do many things in different ways. The bank that has concentrated its activities in the old media can invest in the new media by recognizing its activities especially if it finds out, albeit painfully that it is losing ground to those competitors utilizing sophisticated technology.

According to Odubanjo (2000), Nigerian banks are responsible albeit at a snail’s speed for the information technology revolution enveloping the universe. The deregulation of the banking sector in Nigeria in 1986 brought far-reaching transformation through computerization and improved bank service delivery. The watershed in the computerization of the Nigerian financial sector started with the changing policy environment enumerated in Structural Adjustment Programme (SAP) 1986.

1.1 STATEMENT OF PROBLEM

The advent of information technology in the operations of the commercial banks in Nigeria among other sectors has brought about several noticeable developments but at the same time, it brings about its attendant problems. The paradox behind the information technology productively makes many managers believe that the huge investment does not commensurate with the increase in productivity.

Given the high level of financial stakes involved, the investigation of the impact of information technology on organizational and employee performance has been and continues to be a major research concern for both academics and practitioners.

1.2 RESEARCH QUESTIONS

The questions this research work intends to answer are as follows: –

1. How has information technology aided banking operations?

2. Why are banks unable to strictly comply with the mission statement/corporate mission? With information technology, some banks’ management does not adequately plan to meet the quality of the services. For example, the required number of customers to be attended to by a cashier within the daily working hours to guide against long queues is neglected – this causes a delay in service delivery time leading to long queues in the banking hall.

3. Why is a high incident of bank fraud borne out of information technology? This’ fraud ranges from ATM card fraud, internet banking fraud, email and text message fraud, and fund transfer to untraceable offshore accounts, among others.

4. Does the huge investment into information technology in banks have a proportionate profit return?

1.3 OBJECTIVES OF THE STUDY

This project work is, therefore, aimed at examining how the adoption of information technology affects the operations of commercial banks in Nigeria. The specific objectives are:

1. To investigate how the adoption of information systems has influenced the growth and development of the banking sector;

2. To investigate the extent to which effectiveness and efficiency in the banking sector after the advent of information technology.

3. To examine the modes by which commercial banks can improve their service delivery to attract depositor’s funds.

4. To determine how information technology has assisted in the enhancement of globalization of Nigerian commercial banks.

1.4 JUSTIFICATION OF THE STUDY

The dominant role that the banking industry plays in the Nigerian economy cannot be over-emphasized. Government, statutory corporations, corporate bodies, businessmen, and civil servants depend on the banks for the transaction of one business or the other. The banking system is required as a catalyst for rapid macro-economic development of other sectors of the economy; hence, its stability

should be the priority of the government, especially during the domestic dispensation. Going by the recent distress in the banking industry in Nigeria, the level of public confidence in the sector has dwindled and this has led to the instability syndrome in the sector as such the public assurance and confidence inefficiency in the private sector is decaying, (Akpoyibo, 2006; Soludo, 2007).

The major cause of this syndrome can be traced to the problems inherited in the banks’ operational system.

The quest for globalization and commercialization has brought about innovations in technology.  The digital age and the potential threat posed by non-traditional competition which necessitates innovation has made it inevitable for Nigerian commercial banks to improve upon their operation as they face evolving revolution and are being confronted with an increasingly sophisticated customer base compelling them to offer today what their customers would be expecting tomorrow.  Banks have to deviate from just being profit-making minded to more conscious customer-centered institutions.

This research will enable banks to identify ways of remaining competitive in the global and domestic financial industry.  It also helps prepare banks for repositioning towards meeting the challenges imposed by global banking.

It is also expected that the work will contribute to the bank’s future projections on strategies to be used in attracting depositors’ funds, reducing queues in the banking hall, and the bank’s management policies.

And finally, this research work intends to contribute to knowledge in the academic field and serve as a source of reference to researchers who would research similar studies in the future.

1.5 SCOPE AND LIMITATION OF THE STUDY

This study would only focus on the impact of information technology on the banking operations of Nigeria.

However, the extent of this research would be limited due to time constraints, class academic work, and the nature of its kind – a first-degree research exercise, thereby limiting its scope and intensity. Emphasis is laid on activities in the First Bank PLC. The period covered by this research study is 2005 – 2010.

1.6 OPERATIONAL DEFINITION OF TERMS

Information:

Information refers to processed/analyzed data through the computer system that informs a recipient about a situation. It is the meaning assigned to data within some context for use of data, Walters, (1992).

Data:

Data are raw, unanalyzed facts, figures, and events from which information can be developed. Data is a basic raw fact that can process and converted to a meaningful output called information. It is the encoded representation of facts, ideas, and instructions such that the representations can be processed, communicated, and interpreted by computers and/or people, Walter (1992).

Computer:

A computer is a programmable, multi-purpose use machine that accepts data (raw facts and figures) and processes or manipulates it into information that we can understand and utilize (Microsoft Encarta (2009).

Communication:

Communication often called telecommunication allows data and information to be transmitted from one point to another electronically. It is the transfer of ideas or information from the data processing system to ultimate users. The ultimate purpose of communicating is to inform the recipient.

Online:

It is a term used for a direct or immediate communication link between two devices. Online links are contrasted with offline links, in which only direct communication is possible. Thus, a telephone link is online, whereas, a telegram link is offline. The term online and offline are further used to denote the difference in time between when data is input into the system and when it is processed. A computer works online if input data is processed immediately (real-time processing operating mode) and offline if there is a significant period between input and processing time, Clems & Sachwill (1992).

Disk Storage:

This is data storage on an optical or magnetic tape/disc in-memory system. It is characterized by low cost and relatively fast access to data stored on it. Longley & Shain (1989). External memories such as CD ROMS, DVD ROMS, Flash drives, external hard drives, etc are capable of storing and retrieving billions of information in a small portable device.

Internet:

Internet is also known as the net is a massive connection of networks linking millions of computers via protocols, hardware, and communication channels. It enables the automation of several tasks which have been carried out manually in the past. Internet is the term used to describe the collection of international computer networks which form a vast global network of computer network-based communication, Fisher (1995). Those who have access to the internet can send messages to other internet-connected people in any part of the world with the twinkle of an eye. Some of the services available on the net include e-mail, bulletin boards, electronic journals, mailing lists, and many more.

Given the above concepts, we can therefore say that information technology is of utmost relevance to individual performance within the organization.

The truth is that information and deployment of information technology have changed the nature of work, approach to work, and service delivery; this has resulted in various outcomes for the individual employee and the organization at large. For instance, mobile phones have allowed managers to stay in touch with their field personnel no matter how far the distance may be. Luthans (2002), corroborated this by stating that the text compatibilities of the cell phones have also enabled formal communication amongst individuals of the same organization several distances apart.

The portable laptops and palmtop that can handle banking transactions of the day, report presentations, share data, and other critical tasks help employees communicate with each other via email and the internet. More recently, the Persona Digital Assistant (PDA) which is wireless handheld and connected to the internet has made virtually all information available, anywhere, anytime.

Electronic Mail (e-mail):

It permits the transmission of letters, memos, and other documents from one terminal or computer to another in a different office, city, state, or country, Fuori and Gioia (1991). E-mail uses a central switching center which is responsible for renting mailboxes to subscribers and- acting as the public telephone network link.  Anderson (1990). When a message is created on the sender’s system, it is addressed to a remote mailbox and it’s transmitted by telephone line or wireless network to the mailbox services operator and forwarded to the receiver. The receiver enters a personalized code (password) via the keyboard in the terminal/computer which allows him to read the messages on a visual screen. The transmitted messages are stored in an electronic mailbox on the receiving computer until the recipient is ready to read them and/ or print them as hard copies on paper. The advantage of this is that it is fast and saves time difference problems.