Ranee Jayamaha: Impact of IT in the banking sector Speech by Dr Ranee Jayamaha, Deputy Governor of the Central Bank of Sri Lanka, at the Trans Asia, Colombo, 22 January 2008. *  *  *  Introduction The rapid advancement in Information and Communication Technology (ICT) has had a profound impact on the banking industry and the wider financial sector over the last two decades and it has now become a tool that facilitates banks’ organizational structures, business strategies, customer services and other related functions. The recent “IT revolution” has exerted far-reaching impacts on economies, in general, and the financial services industry, in particular. Within the financial services industry, the banking sector was one of the first to embrace rapid globalization and benefit significantly from IT development. The technological revolution in banking started in the 1950s, with the installation of the first automated bookkeeping machines at banks. This was well before the other industries became IT savvy. Automation in banking became widespread over the next few decades as bankers quickly realized that much of their labor-intensive information-handling processes could be automated with the use of computers. The first Automated Teller Machine (ATM) is reported to have been introduced in the USA in 1968, and it was only a cash dispenser. The advent of ATMs helped both to improve customer convenience and reduce costs, as before ATMs, withdrawing funds, accounts inquiries and transferring funds between accounts required face-to-face interaction between bank staff and customers. 1.

However, the potential benefits include doubling of revenue growth owning to increased differentiation, cross sales, retention of high value customers, improved credit quality, speedy product creation and through enhancement of access to finance by vulnerable groups. It will also reduce annual IT costs including simpler application, optimization of hardware configuration and back office automation. Moreover, it would enhance reputation with clients and investors with exact regulatory compliance and better results in risk and financial management. 9.1.5 The effects of using ageing core banking systems were revealed by several surveys conducted on banks in Europe, Asia/Pacific and North America in 2001. Given heavy reliance on manual processes that hamper productivity, banks in the Asia/Pacific region have indicated that they spend 48% of their time on back office activities. North American and European banks spend a significantly lower amount of time on back office activities, ranging from 34-36%, respectively. Although the survey results are fairly old and things have changed dramatically since then, there is a clear call for modernized and integrated core banking solutions. The more encouraging news is that a significant number of banks around the world are planning major core banking replacements over the next few years. Banks, which have done comprehensive changes can relax, at least in the near future. 9.2  Use common or shared systems instead of propriety systems  9.2.1 It is also noted that, currently, an overwhelming majority of large banks in Europe and the Asia/Pacific region are running propriety systems.