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80 Int. J Latest Trends Fin. Eco. Sc. Vol-2 No. 1 March 2012 The Impact of Information and Communication Technology on Banks‟ Performance and Customer Service Delivery in the Banking Industry
  Int. J Latest Trends Fin. Eco. Sc. Vol-2 No. 1 March 2012 80 The Impact of Information and Communication Technology on Banks ‟  Performance and Customer Service Delivery in the Banking Industry Alhaji Abubakar Aliyu, Rosmaini Bin HJ Tasmin  Department of Technology Management  Faculty of Technology Management, Business and Entrepreneurships Universiti Tun Hussein Onn Malaysia, 86400, Parit Raja, Batu Pahat, Darul Ta’zim, Johor, Malaysia  Abstract   -   Information and communication technology (ICT) has become the heart of banking sector, while banking industry is the heart of every robust economy. If it collapses so will the economy. This is absolutely evident from current recession in European banks crises, and in turn. The effect of globalization, competition and innovation in the banking industry by its providers to offer their services makes essential the understanding of how various aspects of consumer behaviour affect the innovation and respond to customer service delivery. Within this context this paper has considered a critical literature review of previous researchers with the objective to examine the impact of Information and Communication Technology on banks performance and customer service delivery. This paper also makes of a critical review of peer reviewed, scholarly and organizational literature regarding the impact of ICT on banks ’  performance to examine if banks have successfully achieved effective customer ’s service delivery, by providing high level of customer service through online delivery channel, besides operating cost minimization and revenue maximization. Keywords -  Banking Industry, ICT, Online Banking, Customer Service delivery and Bank’s performance.   1.   Introduction Information and communication technology (ICT) has in particular brought a complete paradigm shift on the bank‟s performance and on the customer service delivery in the banking industry. In a bid to catch up with global development, improve the quality of customer service delivery, and reduce transaction cost, banks have invested heavily in ICT, and have widely adopted ICT networks for delivering a wide range of value added products and services. The ICT development has a significant effect on development of more flexible and user friendly  banking services. In this context one of the objectives of this paper is to examine the relevant literature to assess to what previous researchers have found about the impact of Information Technology on ban k‟ s  performance and customer service delivery after adoption of information technology. Customer satisfaction and customer service delivery is a key parameter for banks to ascertain how effectively the web furthers their objectives of customer acquisition, retention and increased share of wallet. The research on the impact of ICT on  bank‟s performance and customer service delivery in the banking industry have been broad. However, few areas, with consumer perspective, are left with less exploratory debate. Today, information and communication technology has become the heart of banking sector, while banking industry is the heart of every robust economy. If it collapses so will the economy. It is absolutely evident from the current recession, in European banks ‟  crises, and in turn. ICT has created a new infrastructure for the world economy to  become truly global and also provided the users of new technology a competitive advantage over their rivals. Electronic banking system has become the main technology driven revolution in conducting financial transactions. However, banks have made huge investments in telecommunication and electronic systems, users have also been validated to accept electronic banking system as useful and easy to use (Adesina and Ayo, 2010). ____________________________________________________________________________________ International Journal of Latest Trends in Finance & Economic Sciences IJLTFES, E-ISSN: 2047-0916 Copyright © ExcelingTech, Pub, UK (   Int. J Latest Trends Fin. Eco. Sc. Vol-2 No. 1 March 2012 81 Castells (2001) reveals that, now transactions worth billions of dollars can only take place in seconds in the electronic circuit throughout the globe by pressing a single butting. Although, ICT has revolutionized the way of living as well as conducting businesses and study of Banking industry has received increased attention over the last decade, it continues to pose challenges for marketers and academic alike. According to Loonam et al   (2008), ICT advancements, globalization, competition and changing social trends such as heightened customer proactivness and increased  preferences for convenience have caused intense restructuring of the banking industry. 2.   Theoretical Background Apparently, to identify and examine the impact of ICT on ban k‟ s performance and customer service delivery, the researcher exploded various articles/journals, relevant literature and existing  practice of Electronic banki ng. In today‟s business, competition, deregulation and globalization have compelled Banks to offer service 24 hours around the globe, whereas the significance drawback, on the other hand, lies in its inconvenience and security factors. However, both these factors have a significant and  profound impact on banks‟ performance and customer service deliver. The relationship that revolves between ICT expenditures, bank‟s  performance delivery is conditional upon the extent of network effects. If the networks are low, ICT is likely to:    Reduce payroll expenses.      Increase market   share.      Increase revenue and profit .   Furthermore, in a broader perspective ,   ICT ,   d e r  eg ul a t io n  and glo  b a liz a t io n in the banking i ndus t ry  could reduce t he  income s t re a m s of  banks and t h us   the s t r  a t egic responses of th e  banks,  particularly t he  trend t ow a r  d s i n t ern a l cost cutting,  mergers and accusations are likely to change the  dynamics of t he  banking industry.  This  paper seeks to determine if banks have earned higher income and delivered a high quality service than in traditional way. The main issues that can  prevent consumers positively include the convenience aspect of the service, ease of use and its compatibility with their lifestyle. 3.   Role of ICT in the Banking Industry   Apparently, there are always potentials of crisis which make the bank endure an insufficiency; advanced ICT supported by a superior mechanism control is required to make certain that ICT has achieved the required processes insufficiency; thus, advanced information system supported by a superior mechanism control is required to make certain that ICT has achieved the required processes. A review of some related literatures reveals that ICT may essentially affect negatively banks efficiency and may reduce productivity. This notion was noted by Solow (1987), you can see the computer age everywhere these days, but in the productivity statistics . However, since 1970s to the time Solow was claiming that there was a huge decelerating in growth as the technologies were becoming ubiquitous. On the same vein, the paradox has been defined by Turban, et al. (2008) as the “discrepancy between measures of investment in ICT and measures of output at the national level” . ICT has been one of the most essential dynamic factors relating all efforts; it cannot improve banks‟ earnings. This was reve alled in an extensive survey conducted in USA for the  period of 1989-1997 by Shu and Strassmann (2005) Conversely, there are various literatures that debunk Solow‟s claim ing in totality and approve the  positive impacts of Information and Communication Technology expenses to business value. In a comprehensive research conducted by Saloner and Shpard (1995) in USA within the time frame of 1971-1979 reveals that the interest of network effect is significant in utilizing an Automated Teller Machines (ATMs). Milne (2006) also encourages and supported the notion of the above authors. Interestingly, Kozak (2005) investigates the influence of the ICT evolution on the profit and cost effectiveness of the banking industry within the stipulate period of 1992-2003. For this period, the study declares a significant relationship between the executed ICT, productivity and cost savings. The modernization of ICT has set the stage for extraordinary improvement in banking procedures throughout the world. For instance the development of worldwide networks has considerably decreased the cost of global funds transfer. Berger (2003), revea ls‟  banks that are using ICT related products such as online banking, electronic payments,  Int. J Latest Trends Fin. Eco. Sc. Vol-2 No. 1 March 2012 82 security investments, information exchanges, financial organizations can deliver high quality customer services delivery to customers with less effort. Brynjolfsson and Hitt (2000) point out that ICT contribute significantly to firm level output. They determine that Information Technology capital contributes an 81% marginal increase in output, whereas non Information Technology capital contributes 6%. Likewise they illustrate that Information System professionals are more than twice as productive as non-Information System  professionals. Farrell and Saloner (1985) and Economides and Salop (1992), showed that the relationship concerning Information and Communication Technology and banks‟ performance have two encouraging outcomes. 1.   ICT can bring down the operational costs of the banks (the cost advantage). For instance, internet technology facilitates and speeds up  banks procedures to accomplish standardized and low value added transactions such as bill payments and  balance inquiries processes via online network. 2.   ICT can promote transactions between customers within the same network (the network effect). ICT has completely reshaping the landscape and the dimension of competition in the banking industry. Following the introduction of online  banking, ATMs and Mobile banking, which are the initial milestones of electronic banking, the diffusion of ICT and increased penetration of Internet has added a new challenges and distribution channel to retail banking: online  banking for the delivery of services and products. 4.   Information and Communication Technology and Banks’ Performance However, research on the impact of ICT on  banks ‟  performance is insufficient and the available studies are more of US, European and Australian  banking industry. Carlson et al   (2000) and Furst et al   (2002) conducted and intensive research whether there is a positive relationship that exists  betw een offering electronic banking and bank‟s  profitability. Furst et al   (2002), reveals that federally chartered US banks had higher Return on Equity (ROE) by using the conventional business model, ICT was one of the major factors that affect  bank‟s  profitability within the period under study and they also observe that more profitable banks adopt ICT after 1998 but yet they are not the first movers. On the same note, Egland et al   (1998), conducted a study and found no evidence of major differences in performance of electronic  banking in the US subject to two caveats: 1.   This result may not be the case for all the  banks. 2.   Such results are open to change over time as banks become more severe in the use of innovation. While in a similar study in Kansas USA, Sullivan (2000) also found no systematic evidence that multi-channel banks in the 10th Federal Reserve District were either helped or harmed by having transactional web sites. These finding were among the previous findings of Sathye (2005), for the credit unions in Australian banks for the period of 1997 to 2001, shows that electronic banking has not proved to be a yard stick for performance enhancing tool. According to Haq (2005) banks ‟ existence depend on their ability to achieve economies of scale in minimizing asymmetry of information between savers and  borrowers. Today, one of the major challenges facing the banking industry is how ICT has helped  banks to sustain the economies of scale whilst shifting from bricks and mortar banking to online  banking. Claessens et al   (2001)  buttress that, “ Role of ICT in the banking industry can allow global economies to setup a financial system before first establishing a fully functioning financial infrastructure instead. Virtually, since electronic  banking is much cheaper, it involves reduced  processing costs for providers and less search and switching costs for consumers, banks can promote their services and products involving smaller transactions to lower income borrowers, even in remote areas. Similarly, a research conducted by DeYoung (2005) analyzes the performance of the conventional banking versus the modern banking in the US market and find strong evidence of general  Int. J Latest Trends Fin. Eco. Sc. Vol-2 No. 1 March 2012 83 experience effects available to all start-ups. However, in a recent study, DeYoung et al   (2007) invoke and find that, for US community banks and traditional community banks, those multi-channel  banks are somewhat more profitable, mainly via increased noninterest income from deposit service charges. Movements of deposits from checking accounts to money market deposit accounts, increased use of brokered deposits, and higher average wage rates for bank employees were also observed for click and mortar banks. Whereas no change was explored in loan portfolio mix, these findings confirm Hernando and Nieto (2007) that internet banking is seen as a complementary channel. Centeno (2004) in his study of analyzing the acceding and candidate countries ‟  (ACCs) adoption of e-banking, classified e-banking adoption factors in two categories: 1.   ICT factors: These factors involve internet  penetration rates, skill of consumers in using internet and related technologies, attitude towards technology, security and  privacy concerns. 2.   Banking factors: This category includes trust in banking sector, banking culture, Electronic banking culture and Internet  banking push. In a similar research, conducted by Centeno (2004), he also stated that lack of PC and internet penetration is still an entry barrier for internet banking development both in EU15 and ACCs. The cost of access services is a main issue for the PC and Internet penetration especially in Central and Eastern Europe countries. On the other hand, there has been a lack of confidence in the  banking sector in ACCs due to past turbulent  periods. These concerns are further aggravated with privacy concerns. Magnitude of banking service usage and electronic banking culture are also weaker in ACCs compared to EU 15. A similar research with Centeno (2004), conducted by Gurau (2002), reveals that successful implementation and development of online  banking is upon many interrelated factors. Today these aspects as in the current age in UK these factors have been dealt and overcome by the  people. Now a day ‟ s skills of using internet and cost of accessing the technology, being at home, do not seem to be a stumbling block towards the adoption of innovation from the consumer  perspective. Simpson, (2002) reveals that electronic  banking is motivated largely by the prospects of operating costs minimization and operating revenues maximization. An evaluation of online banking in developed and emerging markets reveals that in developed substitute for physical branches for delivering banking services. 5.   Customer Service Deliver In The Banking Industry   Bloemer et al   (1998) were on the view that most models in the banking industry of customer evaluations of services focus on the comparative  judgment of expectations versus perceived  performance resulting in the two major evaluative  judgments of perceived service quality and customer satisfaction. For example: 1.   Customers access service delivery by comparing their expectations prior to their service encounter with a bank (employee). 2.   Customers also, develop perceptions during the service delivery process and then compare their perceptions with the actual service received from the bank‟s employee.  Thus, customer expectations are unique prior to a service. They influence customer's evaluation of service performance and customer satisfaction. Customer services, by definition, are intangible and easily duplicated. They can be divided into high-touch or high-tech services. 1.   High-touch services are mostly dependent on people in the service process producing the service. 2.   Whereas high-tech services are  predominantly based on the use of automated systems, information technology and other types of physical resources. However, one should always remember that high-touch also includes physical resources and technology based systems that have to be managed and integrated into the service process in a customer oriented fashion (Gronroos, 2001). Consequently, electronic banking services include both high-tech and high-touch services. For example, high-tech services include online banking, Mobile Banking, ATM machines, etc whereas high-touch services consist of instructions and personnel assistance in using the services.
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