The Effects of IT Expenditures on Banks’ Business Performance: Using a Balanced Scorecard Approach

The Effects of IT Expenditures on Banks’ Business Performance: Using a Balanced Scorecard Approach

Information Technology  is a very important strategic tool for banks in these days. And also banks are highly investing for information technology. In the banking industry, many expenses are focused by the services required by individual customers rather than by corporate customers.

Therefore most of the transactions processed for individual customers are routine, which can be easily provided by on-line banking system.

IT provides more timely and accurate information to improve management decisions. IT operations in the banking industry are various. IT operation such as ATM, internet banking, and computerized bank functions allows banks to provide financial services anytime and anywhere. This gives an easy access to their customers.

The use of IT also gives an opportunity for banks to innovate processes in developing and distributing financial product as well as procedures in lending and depositing. This strategic role of IT will contribute to the banks’ increased operational quality.

IT operation helps banks to better serve their customers by supplying a variability of financial services quickly as possible at the nearest location.

In this case,

§  The effect of IT expenditures on increasing labor productivity is greater for high IT level banks than low IT level banks

§  The effect of IT expenditures on reducing administrative expenses  is greater for high IT level banks than low IT level banks

§  IT utilization for high IT level banks has a greater positive impact on increasing market share than one for low IT level banks.

§  Banks that spend more on IT will have a greater positive impact on financial performance than other banks.

Applying in to local situation:

In Sri Lanka most of government banks and commercial banks are highly investing for Information Technology. Because of these days customer requirements based on virtual aspects.

They need more efficiency at on line banking. Time and the cost are most vital indicators of their day to day life style.

Opportunities:

§  Increasing productivity by investing for Information Technology in banks.

              For an example: Electronic Funds Transfer at Point of Sale is an on-line system that

              allows customers to transfer funds immediately from their bank accounts to

              merchant accounts when making purchases.

              Increased banking productivity results from customers shopping payment  

              requirements instead of clerical duties in handling cheques and cash withdrawals for

              shopping.

§  Improving new customers for virtual banking systems by winning their trust for accuracy of online banking systems.

                      The idea of Internet banking is; "to give customers access to their bank accounts via a web site and to enable them to ratify certain transactions on their account, given compliance with stringent security checks"

Internet banking by its nature offers more convenience and flexibility to customers

coupled with a virtually absolute control over their banking. Service delivery is

informational and transactional

It is most cost-efficient technological means of yielding higher productivity.

It eliminates the barriers of distance, time and provides continual productivity for the

bank to beyond belief distant customers.

§  Introducing high technologies to the banking Industry.

         Computers have been used in the banking industry since 1980s. However, their impact was

limited because there were not enough of them. As technology has already advanced,

it has become a major influence in the banking industry.

          This development has affected nearly all aspects of the banking industry. The improvement in Information and Communication Technology (ICT) has enhanced the creation of new business models and has revolutionized the distribution channels of financial system resulting in not only a reduction in the transaction costs but also has improved the convenience and accessibility for the customer.

Challengers:

§  Security level of transactions.

§  Speed of transactions.

§  Privacy of customer Information.

Conclusion:

  The effect of IT expenditures on increasing productivity is depending on IT level of banks.