July 2008

Information Technology in Banking

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Banks and financial institutions have recognised Information Technology (IT) as an enabler of sophisticated product development, better market infrastructure, implementation of reliable techniques for control of risks. 

The growing competition and increasing customer aspirations have led to increased awareness amongst banks on the potential and importance of technology in banking. The arrival of foreign and private banks with their superior state-­of­-the-­art technology­ based services has pushed Indian Banking fraternity to follow suit by adopting the latest technological advances so as to meet the threat of competition and customer expectations. Indian banking industry, today is in the midst of an IT revolution. A combination of regulatory and market forces has supported the implementation of technology and automation in the Indian banking industry.

Banks and financial institutions have recognised Information Technology (IT) as an enabler of sophisticated product development, better market infrastructure, implementation of reliable techniques for control of risks. This helps the financial intermediaries to reach geographically distant and diversified markets. With continuous and rapid advances in technology, the banking sector has seen a revolutionary wave. Technology has changed the contours of three major functions performed by banks, i.e. access to liquidity, transformation of assets and monitoring of risks. Further, IT and the communication networking systems have a crucial bearing on the efficiency of money, capital and foreign exchange markets. The most important impact of IT in banking however has been the manner in which it has facilitated financial transactions across an entire spectrum of economic activities thus resulting in a sort of Economic Revolution. By introducing the possibility of online payments and other financial transactions, IT in banking has scaled up immensely the level of activity across sectors by making services and products easily available and accessible to an ever increasing net of people.

YES BANK has been conceptualised with the vision of being a new age, technology driven, state-­of the-­art, private Bank. As the youngest Indian bank, YES BANK has benefited from the lack of legacy systems and capitalised on the experience of peers in the industry in adopting the best of international technology. In addition, YES BANK has adopted a unique ‘knowledge driven’ approach towards offering solutions that go much beyond the traditional realm of banking. The Strategic Initiatives and Advisory Government (SIG) Group of YES BANK has been institutionalised from this perspective as the government advisory and development research arm of the bank. SIG has been actively involved in policy advisory, governance reform and Public Private Partnership (PPP) Initiatives across identified themes and sectors. These initiatives led to greater access to banking and created more bankable projects which will benefit not only YES BANK, but the banking fraternity as a whole. Some of the Focus Areas of Yes Bank include:

Enabler of e­-Governance: e­-Governance is the application of Information Technology to the process of government functioning to bring about an effective, accountable, responsive, moral and transparent governance. It results in a strong and effective information chain, provides fast and convenient services to citizens and leads to effective utilisation of resources. World economies have recognised IT as an effective tool in catalysing the economic activity in efficient governance and in developing human resources. As the era of digital economy is evolving, the concept of governance has assumed significance. e­-Governance has consequently become an accepted methodology involving the use of IT in improving transparency, providing information speedily to all citizens, improving administration efficiency and improving public services such as transportation, power, health, water, security and municipal services. In all these services, by providing an efficient, transparent, easy and cost effective method of online financial transactions, IT in banking has proven to be one of the key enablers for e­-Governance.

In order to provide a network model which facilitates information dissemination,  communication and transaction in the state on a self–sustainable basis, YES BANK has been advocating a Central Electronic Service elivery System. Banks are a crucial link in such a  system and some of the applications include:

Financial Inclusion: Poverty alleviation organisations, social entrepreneurs, government    institutions, corporate enterprises and even uneducated village entrepreneurs are  continuously developing technological solutions to serve the often overlooked customers at the bottom of the pyramid. These solutions are bringing the benefi ts of the digital age, increased access to markets, education, environmental information and government services to society. In doing so, they are helping to build the business, economic and social cases for investing in systems and infrastructure needed to serve all strata of the society. Together they are  helping to empower thousands of the country’s underprivileged to become agents of their own development.

ICT is a major enabler in this process of providing sustainable solutions to the needs of a larger section of society,with special emphasison the under-privileged communities. The ICT sector is the creator of jobs for knowledge professionals and skilled persons, producer of goods and services by small, medium and large enterprises, payer of taxes and recipient of subsidies, earner of foreign exchange through exports, attractor of foreign investment and business, and earner of quick and high returns on investment in higher technical education. Consequently, the growth of the ICT sector contributes to overall economic growth. Given that all these transactions involve money, there emerges an important role for the banking and fi nancial system. And consequently,IT in banking assumes an important role.

Tourism: Tourism has emerged as a key sector in terms of income generation, employment     creation and foreign exchange earnings. The tourism industry has a very high revenue capital ratio and one of the highest employment investment ratios. The introduction of IT to this sector can change the face of tourism. Online bookings, reservations and payments with respect to all forms of travel and accommodation have taken tourism to a completely different level of operation. The setting up of Tourist Reception Centres across the states in India has resulted in an integrated system with Internet connectivity among the private operators and the government to ease the planning and execution of bookings. Once again the importance of IT in banking emerges with the need of an integrated ‘Transactional Banking Solution’ with involvement from the tourism departments that would include not only local payments but payments across currencies as well.

Reaching Out to Rural Community:
A major challenge that the banking sector in India faced was that of its spread and presence in the rural parts of the country. Despite the priority sector lending requirements, the banking interface in the rural areas was hitherto quite limited. As a result, even the industry penetration was restricted by the limited fi nancial transaction possibilities.

With the introduction of various technological innovations in the banking sector and with  industry reaching out to the villages through Internet kiosks, banks have been able to create a  rural community interface that never existed before. Through this interface, industry,  services and the banking sector has gained huge momentum in rural India. The biggest  example of this is the e -Choupal movement. Through e- Choupals, ITC began the silent  evolution of rural India with soya growers in the villages of Madhya Pradesh. Farmers now log  on to the site through Internet kiosks in their villages to order high quality agri inputs,  get information on best farming practices, prevailing market prices for their crops at home  and abroad and the weather forecast – all in the local language. e- Choupal delivers real time  information and customised knowledge to improve the farmer’s decision making ability,  thereby better aligning farm output to market demands; securing better quality, productivity and improved price discovery.

Most of these IT and e-Ggovernance linked initiatives require an active banking interface for their success. It is only when the banking and fi nancial system is completely IT enabled and effective that these fi nancial transactions can be undertaken. Thus, the governance aspects of IT in banking are of extreme importance and it is imperative that all banking institutions introduce IT as a key element of their activities. IT is a strong enabler for all these initiatives and banks must play the vital position of a facilitator.

Consumer Access:
The banking sector, in keeping with the increased competition, has   developed unique product propositions extending the entire benefi t of the advancements in the e -Payments landscape to the customer’s desktop by pioneering the introduction of the electronic payments. Through the net banking facilities, banks have extended a whole plethora of services to their customers in an attempt to make banking easier and more accessible to a wider customer base.

Banks provide multiple options for making payments based on the ease of use and feasibility  for benefi ciaries to accept payments. It allows its customers to initiate online payments  through various payment modes like Real Time Gross Settlement (RTGS), National Electronic  Fund Transfer (NEFT), online issue of demand drafts, YES BANK to YES BANK account transfers.

All these facilities bring with them a whole array of advantages like speedier payments  cycles, extensive coverage, 24×7 payments, payment tracking mechanism, benefi ciary advice information and two factor authentication. On the corporate side also a number of  benefi ts accrue from these e-Payments. The fi nancial benefi ts include reduction in cost of printing, dispatching physical instruments and cost of idle funds lying in the account till all  instruments are cleared. There are also a number of operational effi ciencies like elimination  of time and effort of manual signing of instruments and the time saved can be utilised for core  business opportunities. Apart from introducing RTGS & NEFT transfer options, YES BANK has  introduced a unique e- Payments product, YES Xpress Outbound that gives the capability to  initiate real time online payments for any values from users desktop using RBI sponsored  RTGS and NEFT payment gateways. The bank Customers are provided with an online confi  rmation along with instant settlement making cash fl ow forecasting easier  and precise to the last minute.

Other electronic initiatives in the Transaction Banking space include
Online Forex Solutions: Corporate customers can trade multiple foreign currencies using this platform
Auto Upload Facility: This facility automates the bulk payment fi le upload process for the customer.
Email Advice Master: Ability to send customised email advices to benefi ciaries. The email advice contains the invoice/bill level information for the payment instructions

YES BANK has also ensured the security of these transactions by benchmarked robust security  features like: Unique Tracking Number generated for every transaction ensures the  transaction can be traced through the history of RTGS/NEFT payments The transactions are  routed through a closed user group; thereby eliminating the risk of third party intervention Straight through process ensures no manual intervention from the bank to RBI servers.

Be it e- Agriculture, e- Business, e-Tourism, e- Procurement, e- Post, or any other e -System  that requires a fi nancial transaction, it necessitates theneed for the banking sector to be  integrated within it. An immediate outcome of this is the policy implications and thus the  emerging need for institutional mechanisms to be introduced that will allow for this level of e-  Governance. The banking sector led by RBI along with all the public and private sector banks  and the whole of industry, agriculture and services sector need to come together under this  umbrella of e- Governance in order to maximise the benefi ts from IT. As the New Age Private sector bank, YES BANK has introduced and continues to structure a number of e- Payment  instruments in an effort to make banking more accessible to a larger and wider customer base.

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