Technology Impact on Banks and the manner in which it has developed the Banking System
City and State
Technology Impact on Banks and the manner in which it has developed the Banking System
Chapter One: Introduction
Technology is a vital aspect of the modern economy, with technologies influencing areas such as computing, communications and social interactions. These technologies have been shown to create a significant impact on all businesses, including banking, and thus contribute to a long term trend of technology development in the industry which has influenced the entire banking system in a range of ways (Walker, 2014). This raises questions around the role technology will play in the future development of the banking system, and how banks can develop and implement technologies to support the industry and provide social value. This necessitates the development of models and systems to reflect the technology development process, and to apply them to the case of new development such as online banking applications and mobile wallet software (Mihai-Constantin and Paul, 2011). This proposed dissertation will look to contribute to this area of the academic and professional debate by developing such a model, which will reflect the important impacts of technology on banks and the banking system, and thus provide a viable framework through which to assess proposed future technology developments.
A volume of literature on technology use in the banking sector exists. The predominant notion among the scholars behind these publications is that the use of technology has fostered substantial developments in the banking system. Most authors view online banking as the major technological development in banking, but anticipate other significant advancements in the future. Despite the existence of several previous studies on technology use in banking, no study has focused on technology use in banking, especially in developed economies such as the US. Therefore, this study seeks to bridge this gap, by generating additional and updated knowledge about the extent to, which the use of technology has developed the banking system, specifically in the US. The rest of the paper contains the literature review, methodology, discussion of findings, and conclusion sections.
1.1 Background to the Study
Technology has become a principal element in economic growth and development, among many nations across the globe. Numerous global inventions have occurred over the years, with technology being the most celebrated one. Today, entities competing in the global market have been forced to adapt to the use of technology, in order to cope with the heightened competition. This is because traditional management strategies, which focus on analytical planning approaches and financial figures, are considered inadequate and ineffective in steering the growth of firms in such a dynamic environment. According to Aliyu and Tasmin (2012), technology has induced a paradigm shift on service delivery and performance in the banking sector, as is evident from the heavy investments in information and communication technology by banks.
Currently, technology has become the core of the banking sector. The banking sector, in turn, plays a fundamental role in sustaining a favorable economic growth rate for any economy. This implies that the collapse of the banking industry would result to the stagnation of the economy. According to Vella and Caruana (2012), technology has generated a new infrastructure for the global economy, and has provided its users with a competitive advantage over opponents. Due to the increased use of technology in the banking industry, it has become possible for transactions worth billions of dollars to take place within a limited period. According to Aliyu and Tasmin (2012), technology can be identified as frameworks that facilitate he information cycle. Information technology is one such framework, which has provided self-service facilities and platforms to customers in the banking sector. Such platforms enable the consumers to easily complete the documents required for accounts opening, for example, on an online basis. Milne (2006) itemized banking services, which have been altered through the use of technology as account opening, transaction processing, recording, and mandate on customers’ accounts.
Technology in the UK banking system and operation has often been acknowledged as a sector that promotes economic growth and a monetary balance, by improving the general performance of banks. It is in this view that this study focuses on the impact of technology on banking, while focusing on UK banks. According to Ciurea (2010), information communication technology has also played a pivotal role in all dimensions of human life through a breakthrough in social progress. Information communication technology has generally improved the processes of commercial banks in the UK, through creativity and innovation in regard to technology. This has resulted in convenience in banking, easy transactions, and increased quality of service if clients. Notably, technology use in banking in the UK has also increased the number of international transactions between customers in the UK and other nations. This implies that technology use does not only affect an individual personally, but also influences the decisions and behavior of the global market. Nevertheless, according to Balasubramanian, Jagannathan, and Natarajan (2014), although technology has revolutionized the way of conducting business and living, there has been an increase in attention on technology in the banking industry. This is because of the notion that technology use in banking processes continues to pose challenges for scholars and marketers alike. Technological advancements, competition, globalization, and social changes have induced the need for intense restructuring of the banking industry. Thus, the current study will focus on such issues, which have been caused by the use of technology in the banking sector.
1.2 Statement of the Problem
Operation efficiency in the banking sector is the key to the achievement of economic growth and development for any economy. Therefore, nations that have invested heavily in technology use in the banking industry expect high returns from such ventures, in terms of economic growth. Nevertheless, the global financial crisis that occurred in 2007 and 2008 revealed that despite heavy investments in technology, even banks were significantly affected negatively. Similarly, the European debt crisis of 2009 is additional evidence that investments in technology alone cannot prevent the collapse of financial institutions. The lack of a deep understanding about technology use in the banking system has been the reason why these financial institutions cannot remain stable, even during financial crises. In addition, the lack of understanding about technology in banking has led to the under-utilization of the full potential, which technology could add into banking.
Currently, the rapid changes in social trends such as variations in consumer preferences, technology use, and the heightened global competition demand the restructuring of the banking system. As a result, marketers have been faced by increased challenges, especially in the design of banking services that meet consumer demands. In order to bridge the gap between the ideal and the current situations, this study will provide all relevant information about how the use of technology has developed the banking system. Moreover, the study will generate solutions to such problems facing the use of technology in banking, in an attempt to exploit the full potential of the banking sector in service delivery.
1.3 Objectives of the Study
The primary objectives or aims of this study are to explore the impact of technology on banks, and to investigate how technology has developed or improved processes in the banking sector. The secondary objectives of the study are listed below
- To investigate the role of technology in the banking industry
- To establish how the use of technology in the banking industry has affected customer service
- To explore the changes in the level of efficiency and effectiveness in bank operations since the inception of technology
- To investigate the benefits of using technology in banking from the customers’, banks’, and employees’ perspectives.
1.4 Research Questions
- 1) What is the role of technology in the banking industry?
- 2) How has the use of technology in the banking industry affected customer service?
- 3) Have there been any changes in the level of efficiency and effectiveness in bank operations since the inception of technology?
- 4) What are the benefits of using technology in banking from the customers’, banks’, and employees’ perspectives?
1.5 Research Hypotheses
The null and alternative hypotheses have been postulated in carrying out this study. The null hypothesis states a claim in a negative form, while the alternative hypothesis highlights a conjecture in a positive form. The following hypotheses are generated for this study
H0: The use of technology has not had a substantial impact on the UK banking system
H1: The use of technology has had a substantial impact on the UK banking system
H0: The use of technology has not induced significant developments on the UK banking system
H1: The use of technology has not induced significant developments on the UK banking system
1.6 Scope of the Study
This study will focus on the impact of technology on banking in the UK. Three banks based in the UK, namely HSBC Holdings, Barclays PLC, and Royal Bank of Scotland Group, are used for the purposes of this study. These banks were certified worthy in this study due to their high indulgence in technological practices. This study is also concerned with how the customers in these banks are reacting to the technological innovations they have experienced.
1.7 Significance of the Study
The findings of this study are useful to marketers, consumers, banking and information technology scholars, and banks. The findings will generate additional knowledge about technology use in the banking sector, which is useful to marketers, especially in the design of products and services that satisfy the market demand. As mentioned, there have been significant societal changes such as consumer behavior changes in the banking industry, which have imposed substantial challenges on marketers. Therefore, a deeper understanding of these concepts will enable marketers identify additional opportunities for design of services to customers. Moreover, this study will enable consumers anticipate and demand for service quality in regard to banking, in light of the adoption of technology in the banking industry.
This study is useful to academic scholars in the banking and information technology fields. The findings will enable these scholars identify additional opportunities for the use of technology in banking and other fields, thereby promoting innovation and creativity. Similarly, the information generated in this study will enable banks counter the challenges they currently face in reference to the use of technology. In addition, the study will enable banks recognize technological ventures, which could facilitate the restructuring processes, as well as help them cope with the heightened global competition.
1.8 Limitations of the Study
This study is limited to technology use in the UK banking system. This implies that the extent to, which technology has developed the banking sector as well as the overall impact of technology on banking cannot be explored through this study. Additionally, a convenient sample comprised of three banks, which have heavily invested in technology is used in sourcing the data needed in this study. This implies that the findings may not be representative of the general population of banks in the global economy. The impact of technology on banks in another region using a better sample could be explored in future studies.
Chapter Two: Literature Review
Technology has become the bedrock for national growth and development, especially in the rapidly changing global environment. Thus, this has continually challenges organizations to devise innovative initiatives to address various socio-economic issues such as capacity building, skilled human resources, and reliable infrastructure. Banks are a examples of such organizations; most have installed up-to-date computers that enable them achieve multimedia and communication connections on the internet. According to Milne (2006), customers of the banking industry currently rely on technological breakthroughs in accessing and monitoring their bank accounts and activities. Therefore, in order to maintain the ease of accessibility of services to clients, as well as to guarantee the opportunity to use them at anytime, technology has to be used. In particular, the online banking services should be made accessible to the customers at all times, as a way of bringing them closer and making them familiar with banking operations. Therefore, this section reviews the existing literature on technology use in banking, in order to generate answers to some of the research questions for this study.
The development of new technologies in the banking industry is strongly influenced by the existing technology in place. However, as technology and client demands change rapidly, these systems have to be developed and updated in order to remain competitive and relevant. This has led to a strong focus by banks on identifying technologies which are demanded by clients, and attempts to integrate these into legacy architectures this has led to the development of models of hierarchical technologies which are used to measure banking efficiency and competitiveness. These models are used to analyze the technology demands and technology gaps in national banking systems, and the implications of these for the banking system as a whole (Kontolaimou, 2014).Models have also been developed to consider the process of mobile application development, and particularly the case of collaborative mobile applications. These collaborative banking systems help both clients and banks achieve higher levels of performance and returns from technologies, and thus should be at the core of effective technology development (Ciurea, 2010).
Another important area of the literature to consider is not only the role of technology developed by banks, but also external technology which is adopted and adapted by banks. This particularly refers to the adoption of information technology (IT) and computer applications, which have often been developed for a different purpose, but are found to be useful in managing banking systems. These technologies can thus have a more transformative impact on banking systems as they may take the systems in directions which had not previously been anticipated (Financial History Review, 2007). An example of such an external technology is the customer relationship management technology, which has been developed in a number of industries, and adopted by banking. According to Vella and Caruana (2012), understanding the adoption of these systems by banks can be achieved through the use of the theory of reasoned action and the technology acceptance model, and thus these should be incorporated in any explanatory model. Similarly, the use of the internet in banking has transformed the banking system thanks to the volume of information flow, and resulting impacts on customer satisfaction. However, the adoption of this technology placed banks in a new and challenging security environment, which required them to adapt their internal systems in order to succeed and manage the security risks inherent in the online environment (Balasubramanian, et al, 2014).
The other main factor to consider when developing technologies and implementing them in the banking industry is the social acceptance of these technologies. There is a rich literature in this area, particularly around the social acceptance of automated information and services systems, including automated teller machines, telephone banking, and internet banking. Similarly, this requires the use of the technology acceptance model to understand consumer behavior, but with the integration of trust and technology efficacy constructs into the model in order to reflect these important information based dimensions. These models have been applied extensively to the case of internet banking technologies, showing that perceived usefulness, perceived ease of use and trust explain up to 50% of the variance in acceptance behavior around internet banking, and thus its impact on banking systems (Hussain Chandio, 2013).
2.1 Overview of the Banks
Three banks, namely the HSBC Holdings, Barclays PLC, and Royal Bank of Scotland Group, are used as case studies in this study. HSBC Holdings is the largest bank in the UK, and it provides regional business and consumer banking services, makes global payments, and national trust and wholesale services. The bank has invested heavily in technology, especially in the provision of consumer services. The most notable developments in technology use by HSBC Holdings is the use of contact-less cards in transactions. This implies that the bank has made it possible for its customers to access and use their funds while travelling, by the use of a card.
The Barclays PLC Bank is a multinational corporation that provides financial and banking services to consumers across different parts of the world. It is ranked second as the largest bank in the UK. The bank’s success over the years is attributed from its quality in customer service by providing technological-based services. Customers are able to access and monitor their bank accounts through contact less cards. The Royal Bank of Scotland Group is also a bank based in the UK, and is ranked third largest bank holding entity based on the number of assets. It also provides credit cars with chip technology to its customers, in order to enable them access their funds at any time from any location.
2.2 Conceptual Framework
2.2.1 The Evolution of Technology
Technology has instituted substantial changes, challenging the way organizations are structured, as well as the way businesses are run. Technology is continually evolving, defining new horizons, bringing new dimensions to human lifestyle, and breaking new barriers. Technology can be defined as a systematized framework of infrastructure tools, and techniques, which are used in the generation, processing, transmission, and storage of data and information. During the 1950s and 1960s prior to the invention of modern technological infrastructures, business information and data were processed through punched card equipment and mainframe computers, which had minimal capabilities compared to today’s microcomputers. The advent of primitive multi-user networks in the 1970s facilitated their connection to the mainframe computers.
The advent of database management systems was a response to the challenges faced by both individuals and organizations in the management of large volumes of data. The innovation of database management systems induced an increase in the use of decision support systems, management information systems, and information systems. The following decades were characterized by the integration of network and telecommunications technologies with business operations. During the 1990s, technological innovations introduced programming languages, which were widely incorporated into business operations, as well. According to Mihai-Constantin and Paul (2011), a complete technological breakthrough emerged during the mid-1990s, a period when organizations adopted the full use of technology in business expansion and exploitation of new opportunities.
As a result of increased demand and awareness from consumers, as well as technological progress, today’s business environment has become increasingly dynamic. Business entities such as banks in the 21st century operate in a highly competitive and complex environment. Nowadays, consumers seek services from companies, which have a competitive edge over others, because they have become increasingly aware that top companies are associated with quality service delivery (Matei, 2012). This implies that top performing banks have to devise new technology-based ways through, which to meet the demands of their customers. Additionally, such technology-based strategies enable them gain additional advantages over their rivals. The US banking industry has witnessed tremendous changes over the years, since the advent of modern technologies. The quest for global relevance and survival has induced the need to exploit loopholes in service provision, which could be sealed through the incorporation of technology.
The latest use of technology in banking is evident from the introduction of chip cards by the leading banks in the US. Chip cards are a form of credit cards, which are fitted with magnetic strips at the bank. Europay, MaterCard, and Visa (EMV) are examples of such chip cards; however, they are different from ordinary credit cards, in that they are instead embedded with an electronic chip, which contains the information that is usually stored in the magnetic strip. Examples of EMV cards include the Chip-and Signature and the Chip-and Pin cards. The holder’s signature is required for verification during the use of a Chip-and Signature card, while a PIN is required for the Chip-and Pin cards. The reason why most banks in the US have embraced this technology is that these cards eliminate the risk of data loss through security breaches. Additionally, this technology offers enhanced security against counterfeiting. This shows that technology has indeed changes the banking system in significant ways.
2.2.2 The Role of Technology in the Banking Industry
While a few studies claim that the introduction of technology in banking has caused a deceleration in growth, the majority debunks such claims in totality and approve that technology has played a pivotal role in the growth of the banking industry. Aliyu and Tasmin (2012) claimed that information and communication technology affected the productivity and efficiency negatively especially during the 1970s. However, the opponents to this notion argue that the period during which this claim was made marked an era where technologies were becoming ubiquitous. The critics of these claims also argue that the use of technology has caused an increase in productivity and ease of access. According to a study by Milne (2006) which examined the influence of technology on the banking industry between 1992 and 2003, there is considerable relationship between the executed technology, cost savings, and productivity.
The advent of modern technologies has set the platform for extraordinary improvements in banking process across the world (Tavares, 2013). For example, the creation of worldwide networks has caused a substantial decline in the cost of global funds transfer. According to Walker (2014), banks that use technology related products such as electronic payments, online banking, information exchanges, security investments and so on, deliver services to customers with less effort. A study by Aliyu and Tasmin (2012), revealed that technology contributes to a company’s level of output. The study also established that investments in technology contribute an estimated 81 percent marginal increase in a firm’s output. On the contrary, non-technological investments only contribute a 6 percent marginal increase in output. In addition, this research suggested that information system professionals are likely to be twice as productive as non-information practitioners.
The incorporation of technology in banking systems has encouraged two major outcomes, according to (Financial History Review, 2007). One is the reduction in the operational costs of the financial institutions; internet technology enhances the speed of banks, thereby facilitating the accomplishment of low value added and standardized transactions through online platforms. Secondly, technology encourages transactions between clients within the same network. Technology has constantly reshaped the dimension of competition especially in the banking sector. Following the introduction of mobile banking, automated teller machines, and online banking, the diffusion of technology, as well as increased penetration of the Internet has introduced new distribution channels and challenges to retail banking.
2.2.3 Technology and Customer Service in the Banking Industry
The delivery of quality customer service is determined by the expectations of customers. Therefore, it is imperative to prioritize such expectations and integrate them with processes that promote efficient service delivery (Reid and Levy, 2008). Prior to the invention of modern technologies, the banking industry was depicted as one that demonstrated little market orientation; thus, it had little regard to expectations and needs among customers. The problems that were associated with banking service during this period included limited time for customer servicing, long lines, excessive bureaucracy, and transaction errors. Nevertheless, the emergence of contemporary factors such as new technologies, competition, and increased knowledge among customers modified the affiliation between banks and customers.
However, as Aliyu and Tasmin (2012) note, the increase in the deployment of technology in financial transactions has considerably reduces the contact between customers and banks. Nevertheless, in consideration of the role played by communication in the banking industry, banks have even become the most intensive service providers in regard to the deployment of technology in operations. With the increase in online banking services, as well as automated teller machines, most previously recurring problems associated with banks have been mitigated. As a result, the customer experience has become increasingly comfortable, and the volume of customer services has become easier to handle. According to Reid and Levy (2008), it is notable that the introduction of modern technologies in banking has enabled banks provide services to clients not only in their branches, but in stop shops, for example. This insinuates that technology has improved the delivery of services to bank customers.
2.2.4 Technology and Bank Performance in the Banking Industry
Literature on the impact of technology use on the performance of banks is limited, as a majority of scholars has focused on the European, US, and Australian banking industries. One study explored the relationship between a bank’s profitability and offering electronic banking services. This study established that federally chartered banks in the US had higher returns on equity, with information and communication technology as the major determinant of a bank’s profitability of the period considered. The existence of banks is highly dependent on their ability to attain economies of scale, by reducing asymmetry of information between borrowers and savers. Therefore, the incorporation of technology in banking activities has enabled banks to sustain their economies of scale amidst paradigm shifts from traditional to online banking (Reid and Levy, 2008).
The use of technology in banking guarantees an increase in their profitability ratios; electronic banking is cost effective. It involves less switching and search costs for consumers and minimized processing costs for banks. This way, banks are able to promote their products and services with processes that involve minimal transactions. Most technology based banking services are motivated by prospects of operating revenues, costs, and maximization. The evidence of the positive impact of technology use in banking is the increase in the number of consumers targeted by banks, through online platforms and provision of electronic transfer services. Moreover, most banks have ventured into the provision of credit cards to their clients, which have continued to expand their customer base. This shows that the use of technology has had a positive impact on the performance of banks.
2.2.5 The Significance of Technology is the Banking Industry
According to Aliyu and Tasmin (2012), the incorporation of technology in banking has distorted the conventional banking operations by enabling banks to break their comfort zones through the separation of customer service delivery into a different business. For example, Internet-based banks distribute securities and insurance among other banking products. Nevertheless, their group does not produce all of these products. The major economic argument for the integration of technology in banking operations is based on the projected decline in the overhead expenses facilitated by the elimination of physical branches and the costs with which they are associated.
As Milne (2006) states, banks exist due to their ability to attain economies of scale. Nevertheless, the unit costs associated with Internet-based banking decrease more rapidly compared to those of traditional banks. This is because output expands as a result of growth in the balance sheet. In other words, technology plays a fundamental role in reducing the unit costs associated with the processing of transactions by banks. In this regard, Internet banking is an innovation process, which functions as a substitute for physical banking halls and branches used in the delivery of services.
2.2.6 Benefits of Using Technology in Banking Operations
The changes brought by the use of technology in banking have had a significant impact on the customers, employees, and banks themselves. According to Tavares (2013), the advent of technology has facilitated the delivery of banking products and services more conveniently compared to previous eras. As such, the advantages accruing from the integration of technology in banking operations are three-dimensional: to customers, the bank, and the employee. Banks have become more aware of customer’s needs for new services, thereby enabling them to plan for their availability. In addition, the increase in the level of competition resulting from technological processes has forced banks to integrate new technologies in operations in order to satisfy the rising consumer demand. As such, several solutions including self-inquiry facilities, remote banking, anytime banking, telebanking, and electronic banking have been implemented in this regard.
A self-inquiry facility allows customers to view transactions in their accounts by logging into specified self-inquiry terminals. Similarly, remote banking terminals enable clients to make inquiries about their bank accounts on an online based platform, without necessarily visiting a physical branch. Anytime banking has been made possible through automated teller machines, which make it possible for customers to conduct transaction from wherever they might be located. Telebanking provides 24-hour banking services to consumers, while electronic banking allow clients to access and monitor their financial transactions without visiting physical branches, through a Graphical User Interface software installed on a computer. Generally, the benefits accrued by a customer from the integration of technology in banking include reduced waiting time, personalized service delivery, and easy access to their financial information (Walker, 2014).
The advantages accrued by banks that have implemented technology in their operations include increased follow-up, immediate replies to customers, and fast information transfer. Banks are able to conduct follow up operations due to the availability of a variety of inquiry facilities, which promote business development. Additionally, the use of technology in banking promotes prompt and quality service delivery to clients, because the employees are able to provide replies without reference to ledger-keepers. Moreover, the bank is able to generate various management information systems reports and periodical returns on due dates, thereby speeding up decision-making processes.
The integration of technology in banking has positive implications on the productivity of banking employees. Employees are able to accurately execute cumbersome and complex time-consuming tasks such as those involving cross currency transactions, and interest calculations. In addition, the use of technology in banking operations enables the employees to eliminate errors especially when posting entries, due to the existence of single-point entry. Moreover, it strengthens the customer-employee relationships because technology use relieves the employees of cumbersome tasks, thereby enabling them to focus more on customer service. This shows that technology adoption into banking has not only been beneficial to the banks, but also to the customers and employees.
2.2.7 Consumer Behavior in the Banking Industry
Consumer behavior is a dynamic concept, which has attracted the attention of scholars over the previous decades. The increase in consumer awareness, deregulation, globalization, and the change in living standards and urbanization are some of the factors that have induced a change in preferences among consumers in the banking industry. The study of consumer behavior is imperative in the banking industry, in order to identify the likes and dislikes among various consumers, as a way of promoting quality service delivery. Consumer preferences, needs, and demands, also vary according to segments; thus, it is necessary that banks also study customers in their target segments, prior to the provision of goods and services. As Reid and Levy (2008) suggest, once consumers are treated as the most important assets to a bank, the study of their behavior becomes increasingly important in market decision making.
According to Aliyu and Tasmin (2012), consumers in the banking industry seek transactional efficiency, convenience, and an access to competitive prices and returns. Technology generates unprecedented opportunities to the banking industry in regard to the ways in which they organize delivery, financial product development, and marketing. Nevertheless, while technology offers additional opportunities to the banking sector, it also generates challenges such as the entrance of competitors, the blurring of marketing boundaries, and the innovation of technological applications. However, as Milne (2006) notes, in order to cope successfully with such challenges, banks need to comprehend the nature of changes, around which they revolve. Scholars argue that in order to cope in today’s competitive global market, banks have to establish core capabilities that promote the reorganization of customer service and product delivery.
Consumer behavior influences a customer’s usage of technology-based bank operations. This implies that consumers who are at ease with technology-based software often use online-banking services. Moreover, personal characteristics have been highlighted as significant determinants of a consumer’s ability to adapt to a given technology. Banking customers demand a relative advantage from their banking service providers in order to switch channels. This implies that banks should ensure that the new technology-based platforms should be perceived as better compared to their predecessor. In regard to electronic banking, consumers perceive them as better than branch banking venues due to price incentives and added convenience. This is because the branch banking venues are characterized by slow service and long waiting lines. Most banks have acted upon the advantage provided by the use of technology in banking through the introduction of electronic banking transactions. The costs involved in these transactions are considerably lower compared to those accrued when one visits a physical branch banking venue. This is the major reason why branch-based transactions are rapidly losing their popularity among consumers.
2.3 Empirical Framework
2.3.1 The Increasing Need and Demand for Technology
The force of technology progress has transformed the business environment considerably. The American Institute of Public Accountants has recognized the rising demand and need for technology. Similarly, the Institute of Management Accountants recognized the increasing demand for technology during the 1990s when it warned that the accountants who did not adopt technology risked being overtaken by computer professionals. According to Balasubramanian, Jagannathan, and Natarajan (2014), banking institutions in Pakistan now perceive electronic banking as an instrument for eliminating inconvenience, saving time, and minimizing transaction costs. Moreover, these institutions believe that the integration of technology in banking increases the probability of government’s access to public data. The changing dynamics in consumer behavior have also triggered an increase in the need and demand for technology in banking. The rise in the demand for technology in banking translates to an increase in a complete venture into technology-based banking applications in the future.
The literature reviewed affirms that the integration of technology in banking services has significantly improved operations in the sector. According to the literature, the use of technology in banking has improved the performance of banks, the delivery of customer service, and has increased the productivity of employees. The literature also insinuates a possible increase in the number of technology-based ventures in banking, in the future. This means that it is possible that banking services in the future will only be accessible through technology-based applications. The literature, therefore, affirms that technology has developed and transformed the global banking system.
Chapter Three: Methodology
The research process is systematic as it entails the identification of a problem and the design of a procedure through which to generate answers to it. The methodology part of the research process entails the definition of the design employed, the population and sample used, the data collection procedures, as well as analysis and reporting strategies. Thus, this section explains the procedures used in investigating the impact of adapting technology in the banking system and the extent to which the technology has developed the system of banking.
3.1 Research Design and Methodology
According to Bryman and Bell (2011), research design describes the approach used in structuring an investigation aimed at the identification of underlying variables and their associations with each other. The use of a research design in a study is useful because it enables the inquirer to develop a mental structure for gathering and analyzing evidence (Gummesson, 2000). The description of the methodological approach adopted in a study is also beneficial in explaining the type of a study. This study will adopt the mixed methods approach in providing an analysis of evidence concerning the use of technology in the banking system. The mixed methods approach is employed in research to gather and analyze evidence, while incorporating both quantitative and qualitative components (Creswell and Plano, 2011). The principle purpose of this methodology is to promote corroboration, as well as generate an in-depth breadth of understanding about a given problem. As such, it is used when the aim of an inquirer is to understand a given phenomenon deeper, while offsetting the shortcomings associated with individual approaches, namely quantitative and qualitative methodologies. Additionally, researchers use the mixed methods technique when they seek to continuously examine a phenomenon from various angles (Lisle, 2011).
The use of the mixed methods technique is justified in the current study. The primary objectives of this study are to investigate the impact of technology in banking and to explore how technology has developed the banking system. Technology is described as an infrastructure of various components, whose understanding requires an analysis of evidence from different angles. This implies that the use of an individual approach such as the qualitative technique would only provide information about how technology has influenced banking. This is because the qualitative approach is concerned in answering research questions such as how and why. Alternatively, using the quantitative methodology alone in this study would generate a shallow understanding about the extent to which technology has been used in banking operations. Nevertheless, a combination of these techniques will provide an in-depth understanding of technology use in banking from both qualitative and quantitative angles.
The mixed methods methodological approach is chosen in the gathering and analysis of evidence in this study because of the advantages with which it is associated. One such advantage is that it does not restrict an inquirer to utilizing a give type of data (Creswell and Plano, 2011). Additionally, it enables an inquirer to provide solutions to problems, which could not be adequately, explained using individual research methodologies. The mixed methods research design also promotes the expansion of perceptions about a given phenomenon, by overshadowing the limitations associated with quantitative and qualitative approaches. Moreover, this approach facilitates data triangulation, which is integral in the analysis, presentation, and reporting of data. However, the mixed methods research technique demands an extensive supply of research resources, and requires an inquirer to be highly qualified. Descriptive and case study research designs will be used alongside this methodology in obtaining answers to the research questions for this study.
The first process in conducting this study will entail the description and identification of a sampling frame, from which the participants in this study are drawn. The sampling frame for this study is comprised of three banks operating in the UK. The second step will involve the selection of a sample, from which the qualitative information required is obtained. The criteria for inclusion in the sample requires that a respondent be transacting or banking in one among the three banks in the sampling frame, and that the bank must have adopted the use of technology in its operations for a period longer than five years. Thirdly, permission for including the banks and participants involved will be sought through informed consent forms, which will be issued to the participants included in the sample. The purpose of these forms is to brief the respondents about the study, its objectives, the reasons why their participation is requires, as well as how they stand to benefit from participation. Upon approval, the participants will be requested to sign and return the forms to the researcher, as a sign of agreement to engage in the study. The researcher will then schedule interviews with them, to facilitate data collection. The information gathered will then be analyzed in order to generate findings and conclusions.
3.3 Population and Sampling
The population of this study is comprised of all customers in the three banks under consideration. The convenience non-probability sampling technique will be utilized in the selection of 10 respondents. This sampling technique is preferred because it promotes maximum access to participants (Bryman and Bell, 2011).
3.4.1 Quantitative Data
The quantitative data used in this study will be obtained from secondary sources such as case studies and academic literature about successful and unsuccessful technology development in the banking industry. This data will include the use of statistics and figures around the impact of transaction costs, technology adoption rates, user acceptance rates, and levels of investment. The use of quantitative data will facilitate the generation of additional insight about the factors that influence the integration of technologies, as well as their impact on banking systems.
3.4.2 Qualitative Data
The qualitative evidence in this study will be gathered through primary research. This data will be obtained from the participants included in the final sample. The qualitative data will be obtained from the participants using semi-structured interviews. The rationale for selecting interviews is based on the sample size used; interviews are used when the sample size involved is relatively small, because they are time consuming (Matt and Kunsthalle, 2007). Additionally, they facilitate the generation of maximum insight into a given phenomenon, by providing a structure that allows the researcher to address the necessary issues, while maintaining flexibility. In addition, interviews promote the generation of a wide range of information, because they give an interviewer the room for probing.
However, the major shortcoming associated with the use of interviews is that they are vulnerable to interviewer bias. Thus, in order to mitigate the effects of this limitation, the researcher will conduct all interviews, without the aid of assistants. The questions included in the interviews will be developed based on the research questions for this study. This implies that the questions will focus on concepts such as, customer service, user acceptability, changes in the level of efficiency since the adoption of technology, and the role of technology in banking. The interviews will provide qualitative data that will facilitate the identification of core themes and the understanding of how they relate to the banking sector in general.
3.5 Data Analysis and Presentation
The evidence gathered will be analyzed separately. The qualitative data will be examined using the thematic narrative analysis approach, in order to identify recurring themes and patterns in the data. These themes and patterns will facilitate the generation of information about the impact of technology use in the banking industry. The quantitative data gathered, in contrast, will be analyzed using statistical techniques such as descriptive statistics and correlation analysis. Graphs and tables will be used in the presentation of both qualitative and quantitative evidence gathered. Graphs are graphical displays of data, which promote understanding.
3.6 Reliability and Validity
Reliability and validity are useful concepts in research, because they influence the internal and external validity of a given study (Atkinson, Coffey, and Delamont, 2005). Therefore, it is necessary that researchers focus on examining reliability and validity issues prior to conducting research, in order to enhance the generalization of their findings to similar studies. Validity refers to the truthfulness of a variable in promoting consistent in regard to what it purports and for what it is intended. The validity of the data collection instrument in this study was explored through a content validity analysis. Expert opinion was sought in the evaluation of the relevance of the questions included in the interviews, while conducting the content validity test. The test-retest method was used in examining the reliability of the instrument of data collection. The validity and reliability of the quantitative data used, in contrast, was examined through a cross-check against various secondary sources. Data that was found inconsistent across various sources was excluded.
3.6 Ethical Considerations
This study sought to uphold the norms of social research. Thus, the principles of anonymity, informed consent, and confidentiality were upheld. The research avoided publishing the names and personal details of the respondents against their will. In addition, informed consent forms describing the study were provided to the participants to gain their permission prior to the beginning of the study. Moreover, the participants were accorded the freedom to withdraw from participation at any stage of the study, with or without the provision of reasons for withdrawal. The researcher intends not use the findings of the current study for external purposes.
Chapter Four: Data and Analysis
This chapter presents the data gathered and the analyses conducted on the data. These analyses are useful in the generation of answers to the research questions.
4.1 Qualitative Data
The qualitative data presented in this section is sourced from the responses provided by the participants during the interviews.
Section A: Personal Information
|Number of Males||Number of Females|
According to this table, 6 out 10 respondents were males, representing 60% of the sample size, while 4 were females, representing 40% of the sample size.
Number of Years Transacting with the Bank
|Respondent||Number of years working in the bank|
According to this table, the least number of years as a customer by a respondent are 6, while the maximum is 15. This implies that subjects are well-endowed with knowledge about technological developments in the banking industry.
Section B: Hypothetical Questions
Technology has had a positive impact on your banking transactions
|Response||Number of respondents|
According to these responses, 70% of the respondents agreed that technology has had a positive impact on their banking transactions. 10%, however, disagreed, while 20% neither agreed nor disagreed.
Technology has had no significant impact on my banking transactions
|Response||Number of respondents|
90% disagreed that technology has had no significant impact on banking transactions, while 10% agreed.
Have you become happier and more satisfied with banking services since the introduction of technology?
|Response||Number of respondents|
|I do not know||0|
80% of the interviewed participants said that the introduction of technology in banking has made them happier and more satisfied, while 20% disagreed.
Do you think that the majority of your fellow customers have completely accepted the shift from the traditional banking services to the technology-based services?
|Response||Number of respondents|
|I do not know||3|
When interviewed about social acceptance of technology in banking, 60% agreed that the majority of customers have completely accepted the shift to technology-based banking. However, 10% disagreed with this idea, while 30% claimed to not know.
Consumer behavior influences the implementation of technology-based decisions
|Response||Number of respondents|
According to this table, 100% of the participants agreed that consumer behavior plays a role in influencing technology-based decisions in bank operations.
Which among the following is the technology-based service you enjoy the most? Online banking, ATMs, contactless cards, mobile banking
|Service||Number of respondents|
According to this output, 40% of the subjects enjoy mobile banking technology-based service. 30%, in contrast, enjoy online banking the most, while 20% and 10% enjoy using contactless cards and ATMs, respectively.
Do you think the introduction of these technology-based services have improved your access to service provision?
|Response||Number of respondents|
|I do not know||1|
|Kind of change||Number of respondents|
|Increased rate of access and monitoring of my account||3|
|Decline in the number of visits to the physical branch||1|
|Improved service quality||2|
|Easier transfer of funds||4|
80% of the respondents claim that the use of technology in banking has improved their access to service provision, while 10% disagreed, and the remaining 10% claimed not to know. When asked about the kind of change they thought was brought about by technology, 40% said that the transfer of funds has become easier, while 30% said that they have gained an increased rate of access and monitoring over their bank accounts. 20% said that they had experience a change in service quality, while 10% said that they no longer visited physical branches as often as before.
Would you agree that the use of technology has fostered developments in the banking industry?
|Response||Number of respondents|
|I do not know||0|
80% of the participants said that the use of technology has fostered developments in the banking industry, while 20% disagreed.
What future recommendations would you propose in order to improve the use of technology in banking?
|Response||Number of respondents|
|Enhance personalized customer service||2|
|Improve online security||5|
When questioned about recommendations they would propose towards the improvement of technology use in banking, the majority 50%, mentioned online security, while 20% proposed personalized customer service. The remaining 30% gave no recommendations.
4.1.2 Analysis of Qualitative Data
A thematic content analysis on the qualitative evidence generated through interviews reveals several recurring themes on impact of technology on service provision, most common technology-based services, customer satisfaction, social acceptance, and the role of technology in banking. Notably, technology use in banks has significantly increased customer satisfaction, according to the qualitative evidence. Most participants say that technology use in banking operations has made them happier and more satisfied. This is evident from the sharp declines in the number of complaints about operations from the customers. The analysis also reveals that most customers enjoy mobile and online banking technology-based services. This implies that convenience, cost efficiency, and flexibility are the major determinants of the rate of social acceptance of technology in banking.
In regard to social acceptance, it is unclear if technology use in banking has generally been accepted among customers. This is because a majority of the participants claimed not to know whether all their fellow customers have accepted these developments. This implies that consumer behavior affects the understanding of products and services, which would improve the efficiency of technology use in banking. Additionally, a significant number of the respondents claim that their interactions with bank employees have shifted to online platforms. In addition, the evidence reveals that consumer behavior plays a pivotal role in technology-based decision making in banks. This shows that technology has caused developments in the banking industry.
. Additionally, a significant number of participants agree that technology has instituted major developments in the banking industry, such as the introduction of online and mobile banking, and contactless cards. The majority of participants view security threats as the major loopholes towards the efficient use of technology in banking operations. The proposals generated by the respondents reveal that they are confident that technology will still be used in banking operations, even in the future. Therefore, we can anticipate major developments in the banking industry.
4.2 Quantitative Data
The quantitative data is sourced from various secondary sources, and it focuses on aspects such as the level of investment, adoption rates, user acceptance rates, and impact on transactions resulting from the use of technology in banking procedures.
Level of Investment
The following table shows the data about the changes in the level of investment on information and technology on the US finance and insurance industry between 2003 and 2009.
|Year||Value of investment (capitalized expenditure in millions of dollars)|
Source: US Census Bureau “Information and communication technology”
According to the table and graph above, the level of investment in information and communication technology in the US finance and insurance industry, under which the banking sector operates, has steadily increased between 2003 and 2007. The insignificant decline in the level of investment in technology between 2007 and 2009 could be attributed to the global finance crisis, which affected the banking sector negatively.
|Mode of payment||1995||2000|
|Number of checks paid (billion)||49.5||42.5|
|Debit card transactions (billion)||1.4||8.3|
|Credit card payments (billion||10.4||15.0|
Source: Previous research
This table is based upon data sourced from an academic literature source about the user acceptability trends of technological systems in banking for 1995 and 2000. According to these statistics, the number of checks paid, which is a traditional method of banking, declined significantly from 49.5 to 42.5 billion. On the contrary, the use of debit and credit cards in transactions and payments respectively, increased significantly within the same period. This shows that more consumers accepted and adopted the use of these technology-based banking processes.
The adoption rates are measured by the changes in the number of transactional internet sites and informational websites. The table below represents this information.
|Year||Number of transactional internet sites||Number of informational websites|
Source: Previous academic research
These statistics show a general increase in transactional internet sites that support internet banking, between 2001 and 2001. However, the number of informational websites declined significantly over the same period, from 27.7% to 21.7%.
Impact on Transaction Costs
According to data obtained from Fedwire, a framework for large-value wholesale payments, the use of technology in banking has caused a decline in the unit costs of processing transactions. For example, the unit costs associated with automated clearing house (ACH) transactions have generally declined; ACH is a technology-based substitute for paper checks. Raw data on ACH transactions showed a considerable decline in nominal unit costs per item processed, for a ten year period (1990-2000). These unit costs declined from $0.869 to $0.176.
4.2.1 Correlation Analysis
Correlation analyses show the strength and direction of the underlying relationship between variables. The researcher sought to investigate the relationship between user acceptance and adoption rates. The following tables show the output of the analyses from Excel.
Correlation between the number of debit cards transactions and transactional internet sites
|Transactional sites||Debit card transactions|
|Debit card transactions||1||1|
Correlation between the number of credit card payments and informational websites
|Informational websites||Credit card payments|
|Credit card payments||-1||1|
According to this output, there is a perfect positive correlation between the number of debit cards transactions and transactional internet sites. On the contrary, there is a perfect negative correlation between the number of credit card payments and informational websites.
4.2.2 Analysis of Quantitative Data
According to the quantitative data presented, the level of investment in technology in the banking industry has steadily increased over the years. Similarly, user acceptance rates have increased as is evident from the increase in the number of debit card transactions and credit payments, and a decline in the number of checks paid. The increase in user acceptance rates has triggered the increase in investments, as evident from the data obtained from the US Census Bureau.
Also notable, is the increase in the adoption rates for different technological frameworks used in banking. The adoption rates were explored through changes in the number of transactional and informational websites. Transactional internet sites are currently used for online and wireless transfers across the globe. Informational websites, in contrast, are only used to gather information about processes and events. Therefore, an increase in the number of transactional internet sites and a decrease in the number of informational websites is an indication that people no longer use technology for assessing information about banks; instead, the internet is used for transaction purposes. Upon learning such consumer behavior trends, banks have increasingly adopted technological infrastructures to meet the growing demand; hence the rise in adoption rates.
The amount of unit costs encountered in banking transactions, in contrast, has declined since the adoption of technology-based processes in the banking industry. The quantitative data used in this study shows a general decline in federal unit cost of electronic payment transactions. Therefore, a decline in federal unit costs translates to a substantial unit cost savings for banks, in regard to electronic payment processing. The correlation analysis shows a perfect positive correlation between the number of debit cards transactions and transactional internet sites. This implies that an increase in the user acceptance rates causes a corresponding increase in the adoption rates in regard to technology and banking. On the contrary, an increase in the user acceptance rates causes a shift from the use of the internet for information sourcing to a platform for transaction purposes.
Chapter Five: Summary and Conclusions
The purpose of this chapter is to provide summaries and answers to the research questions generated at the beginning of the study. Additionally, recommendations and suggestions for further research on the topic are discussed.
5.1 Summary and Conclusion
This study sought to explore the impact of technology on banking, and how it has developed the banking industry. The specific objectives included the assessment of the role of technology in banking, the impact of technology use in banking on customers, operational efficiency, and bank performance, as well as the benefits of using technology in banking. According to the literature reviewed, the integration of technology in banking services has significantly improved operations in the sector. According to the literature, the use of technology in banking has improved the performance of banks, the delivery of customer service, and has increased the productivity of employees. The literature also insinuates a possible increase in the number of technology-based ventures in banking, in the future.
The mixed methods approach is utilized in gathering and analyzing evidence on the impact of technology in banking. Qualitative evidence is sourced through interviews on a sample of 10 customers from three leading banks in the UK, namely HSBC Holdings, Barclays PLC, and Royal Bank of Scotland Group. Quantitative data, in contrast, is gathered from secondary sources that provide figures and statistics around adoption rates, user acceptance rates, the impact on transaction costs, and levels of investment. An analysis on the evidence shows that technology use in banking operations has caused developments such as increased convenience, flexibility, and cost efficiency. Technology use in banks has increased customer satisfaction, service quality, and therefore, continues to play a fundamental role in the banking industry. Additionally, the levels of investment, adoption rates, and user acceptance rates have generally increased over the years, projecting an expansion in technology-based applications in the banking industry, in the future. Therefore, the research objectives and questions were addressed sufficiently.
Based on the responses of the participants, the stakeholders in the banking industry should ensure an increase in security of online based transactions, which is a threat to technology use in banks. Moreover, the rapidly changing consumer preferences signify a rise in the demand for technology in the future. Therefore, banks should ensure the design of personalized products and services, which satisfy the growing demand, sufficiently.
5.3 Suggestions for Future Work
Future research could be focused on technology and banking in another region other than use, using a probability sample.
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Appendix 1: Interview Questions
Section A: Personal Information
- Gender of the participant
- How many years have you transacted with the bank?
Section B: Hypothetical Questions
Kindly respond to the following statements. (Agree, Disagree, Neutral response, Yes, No, I don’t know?
- Technology has had a positive impact on your banking transactions
- Have you become happier and more satisfied with banking services since the introduction of technology?
- Do you think that the majority of your fellow customers have completely accepted the shift from the traditional banking services to the technology-based services?
- Consumer behavior influences the implementation of technology-based decisions
- Which among the following technology-based service do you enjoy using the most? Online banking, ATMs, contactless cards, mobile banking
- Do you think your use of technology in banking has improved your access to service provision? If yes, kindly clarify how.
- Would you agree that the use of technology has fostered developments in the banking industry?
- What future recommendations would you propose in order to improve the use of technology in banking?