INTRODUCTION

Background to the Study

The world banking and financial system is in the throes of a transformation caused by increasing
globalization and deregulation. Technological innovations such as those available in ATMs,
phone banking, Internet banking, and smartcard applications are taking place at an
overwhelmingly fast pace in the global banking industry. Banking can be traced back to the year
1694 with the establishment of the bank of England. The bank was started by a few individuals
who were actually money lenders with an aim of lending money at interest. Most of us have
experienced some form of bank transactions in our lives.

Massive, rapid, technological innovations (Norton, 1995) are replacing the traditional branch
teller. With greater competition brought by deregulation, globalization and widespread mergers
and acquisitions taking place in the banking sector, more branches are being closed down and
replaced by self-serviced banking (SSB) facilities like the ATMs as part of a larger
rationalization exercise. Even with the massive branch network, the use of phone banking and
Internet banking is strongly promoted by the banks in addition to ATMs. In todays commercial
banking environment information technology, effective service delivery and customer
satisfaction are an indispensable competitive strategy. Furthermore, the stiff competition and the
compression of the interest rates, has forced banks to set up and put into effect all necessary
decision support technological systems. This enables them to dynamically plan new locations,
evaluate their performance, forecast customers attitude to new offered products and services,
estimate clients switching behavior, and finally provide marketing support to their
geographically separate branches.

The banking sector has been the backbone of every country. It implements and brings about
economic reforms. Any change in this sector through technology has a sweeping impact on any
country. The developments in information collection, storage, processing and transmission
technologies have influenced all aspects of the banking activity. The history of technology is the
history of the invention of tools and techniques. The 19th century saw astonishing developments
in communication technology originating in Europe. In 20th century information technology
developed rapidly due to the scientific gains directly tied to military research and development,
as they did in part due to World War II. Despite the fact we have just entered into the 21st
century technology is being developed even more rapidly, marked progress in almost all fields of
science and technology has led to massive improvement to the technology we currently possess.
Information technology (IT), also known as information and communication(s) technology
(ICT), is a term that describes the combination of computer technology which is hardware and
software with telecommunications technology such as data, image and voice networks.
According to Henry C. Lucas, JR. (1997) Information technology refers to all forms of
technology applied to processing, storing and transmitting information in electronic form. The
physical equipment used for this purpose includes computers, communications equipment and
networks. Effective service delivery is important and has a great influence on customer
satisfaction, improving sales and market share (Joseph & stone, 2003). Commercial banking is at
a stage where customer perceptions and preferences have a very important impact on a banks
success. Customer satisfaction is a measure of how products and services supplied by a company
meet or surpass customer expectation. The integration of world economies has opened an array
of business opportunities as well as challenges for firms. Increased standardization activity
reflects, among other factors, demand by consumers for safer and higher quality products,
technological innovations, the expansion of global commerce and the increased concern by
many governments to societal and welfare issues. Firms in service sectors such as banking are
under constant pressure to perform better, cheaper and faster. The developments in information
and communication technology (ICT) are radically changing the way business is done.
Electronic commerce is now thought to hold the promise of a new commercial revolution by
offering an inexpensive and direct way to exchange information and to sell or buy products and
services. This revolution in the market place has set in motion a revolution in the banking sector
for the provision of a payment system that is compatible with the demands of the electronic
marketplace.

Challenges ahead

The banking industry is changing at a phenomenal speed. While at the one end, we
have millions of savers and investors who still do not use a bank, another segment
continues to bank with a physical branch and at the other end of the spectrum, the
customers are becoming familiar with ATMs, e-banking, and cashless economy.
This shows the immense potential for market. Banks are setting up alternative
delivery channels to contain operating costs like off-site ATMs, internet banking,
telebanking, outsourcing, centralized transaction processing, etc. No doubt, the
benefits of technology have brought a sea-change in the outlook of modern
banking. Now the goal of banking is not just to satisfy but to engage with
customers and enrich their experience and for the successful achievement of this
goal, the only sustainable competitive advantage is to give the customer an
optimum blend of technology and traditional service. With technology occupying a
pivotal role in delivery of banking services, the expectations of the consumer have
also been growing. Broadly, these expectations are swift service with minimal
response time, efficient service delivery, tailor-made and value-added products to
suit specific needs, hassle-free procedures and minimum transaction costs, and
pleasant and personalized service.
Self-inquiry facility: Instead of customers lining up or going to the help desk, banks have provided
simple self-inquiry systems on all branches. A customer can use their ATM card to know their
account balance, or to get their bank statement. This saves time on both the sides.

Remote banking: Remote terminals at the customer site connected to the respective branch through a
modem, enabling the customer to make inquiries regarding his accounts, on-line, without having to
move from his office. This facility has also enabled anytime banking, because customers can use
ATM machines to deposit money on their accounts. Remote Banking has helped people in rural areas
to improve on their culture of saving money.

Anytime banking - Anywhere banking: Installation of ATMs which offers non-stop cash withdrawal,
remittances and inquiry facilities. Networking of computerized branches inter-city and intra- city,
will permit customers of these branches, when interconnected, to transact from any of these branches.

Telebanking: A 24-hour service through which inquiries regarding balances and transactions in the
account can be made over the phone.
Electronic Banking: This enables the bank to provide corporate or high value customers with
Graphical User Interface (GUI) software on a PC, to inquire about their financial transactions and
accounts, cash transfers, cheque book issue and inquiry on rates without visiting the bank. The
technology used to provide this service is called Electronic Data Interchange (EDI). It is used to
transmit business transactions in computer-readable form between organizations and individuals in a
standard format.

Rural Banking: Unlike in the past when banking was centralized in urban areas, now a days
technology has made it simple to set up banking facilities in rural areas. For example: In Africa, they
have introduced Mobile money banking facilities. In this case a user in a rural area will have an
account with a mobile company which is opened for free. They can then deposit money on that
account via a nearby mobile money operating center. This money can be withdrawn at any time
anywhere in that area and they can also receive or send money using the same system.

Centralized information results to quick services: This enables banks to transfer information from
one branch to another at ease. For example, if customers registered their account with a rural branch,
they can still get details of their account while at the main branch in an urban area.

Automated Teller Machine (ATM): ATMs were introduced to the Indian banking industry in the early
1990s initiated by foreign banks. Most foreign banks and some private sector players suffered from a
serious handicap at that time- lack of a strong branch network. ATM technology was used as a means
to partially overcome this handicap by reaching out to the customers at a lower initial and transaction
costs and offering hassle free services. Since then, innovations in ATM technology have come a long
way and customer receptiveness has also increased manifold. Public sector banks have also now
entered the race for expansion of ATM networks. Development of ATM networks is not only
leveraged for lowering the transaction costs, but also as an effective marketing channel resource.

Biometrics: Banks across the country have started the process of setting up ATMs enabled with
biometric technology to tap the potential of rural markets. Biometric Card provides automated
methods of identifying or authenticating the identity of a living person based on unique physiological
characteristics and recognition of the face, fingerprints, eyes or voice. This technology is a boon for
millions of illiterates who have remained outside of banking ambit due to their illiteracy. This may
prove helpful for old-age customers also who can be identified as a genuine beneficiary of various
schemes run by Centre or State governments meant to improve their standard of living.

Multilingual ATMs: Installation of multilingual ATMs has also entered pilot implementation stage for
many large banks in the country. This technological innovation is also aimed at the rural banking
business believed to have large untapped potential. The language diversity of India has proved to be a
major impediment to the active adoption of new technology, restrained by the lack of knowledge of
English.

Multifunctional ATMs: Multifunctional ATMs are yet to be introduced by most banks in India, but
have already been recognized as a very effective means to access other banking services.
Multifunctional ATMs are equipped to perform other functions, besides dispensing cash and
providing account information. Mobile recharges, ticketing, bill payment, and advertising are
relatively new areas that are being explored via multifunctional ATMs, which have the potential to
become revenue generators for the banks by effecting sales, besides acting as delivery channels.

ATM Network Switches: ATM switches are used to connect the ATMs to the accounting platforms of
the respective banks. In order to connect the ATM networks of different banks, apex level switches
are required that connect the various companies. It looks like traditional credit card with one tiny
microprocessor chip and is offered to the customer for small purchase. It can be used as prepaid
telephone card and uses sophisticated encryption to protect value as it passes from one card to
another.