The Effects of Technology on the Banking Sector from a Security and Safety Perspective

In order to argue for the need for additional research into the effects of electronic banking on the security of the banking industry, Bakare Sali’s study examined different studies. Following the advent of information and technology, the banking industry has undergone enormous changes. (IT). Since the banking industry now operates in a competitive and complicated environment due to technology, electronic banking services and products have grown in popularity over the past three decades. Besides the use of technology in the banking sector has increased the awareness of information safety and security in the banking sector, making it the safest way of conducting financial activities globally.

The results of Bakare’s study showed that the use of technology in the banking industry has significantly improved information security in the banks worldwide. According to Bakare’s findings, electronic banking allows customers to have access to their accounts safely, as well as conduct various financial transactions through the use of phones or the internet without having security fears. The use of technology also allows banks to utilize various electronic devices such as computers securing, storing, distributing, and analyzing banking information. Besides, the use technology in the banking industry allows customers to utilize credit cards in making transactions, which enhances the security and safety of their monetary transactions. Bakare’s findings also showed that the use of technology in the banking industry has led to the adoption of automatic teller machines (ATMs), which ensure a safer means of making bank transactions twenty-four hours per day. The study also revealed that that the use of the internet has greatly helped banks globally in marketing online banking services and products safely and securely, thereby improving customer relations. The results of the study further showed that the use of technology in the banking sector had enhanced the use of debit cards which have secret PINs to protect the customers’ bank accounts from access by unauthorized persons, a practice which has significantly promoted the banks’ good image, as well as enhanced customer loyalty.

The study by Bakare Sali supports the study by Ho & Mallick (2009) which also found that the introduction of electronic banking enhanced the safety of bank transactions, as well as brought convenience to bank users. Since the use of debit cards replaced cash transactions, both Bakare’s study and that of Ho & Mallick (2009) agree that the use of technology in the banking sector has significantly reduced incidences of cash theft as bank customers do not necessarily have to carry cash. With debit cards, the transfer of funds from one customer’s account is made safer and faster. Besides, Bakare’s study supports the study by Ho & Mallick (2009) that electronic banking allows direct deposit and withdrawals of money to and from the customers’ accounts, thereby reducing the number of clearing days, as well as improving the security of money transfer. However, they both advise bank customers to be cautious of the use of technology in banking, especially when making telephone and online transactions.

Ho, S., & Mallick, S. (2009). The impact of information technology on the banking industry. Journal of The Operational Research Society, 61(2), 211-221. http://dx.doi.org/10.1057/jors.2008.128

The purpose of this study was to analyze the effects of investing in information technologies on the banking industry through the use of bank-level data from sixty-eight banks in the United States within the period of between the years 1986 and 2005. Although the use of information technology can improve the performance of banks by enhancing security and reducing operational costs, it can also result in competition among banks in the process of embracing new technology. Since most experimental studies have embraced the use of production function approach in determining the dominant effects of technology on the security and safety of the banking sector, this study characterizes various conditions in identifying the security impacts of technology in the banking sector. The results of the study by Ho & Mallick (2009) suggests that, though the adoption of technology boosts information security in the banking industry, it can lead to the decline in the bank profits at individual firm levels.

The results of the study by Ho & Mallick (2009) showed that the investment in information technology at the bank-level has considerably boosted the security of funds and increased customer confidence, thereby improving the financial performance of banks. The time series and cross-sectional nature of the available data in the 68 banks within twenty years made it easy for the researchers to use sufficiently large sample dimension, thereby providing a composite sample of 1293 observers. According to the study findings, on average, bank profits are positively correlated to improved data security resulting from the investment in technology. Out of the 68 banks considered in the study, the majority of them showed tremendous improvement in data security and safety of customer transactions following their massive investment in information technology infrastructure. However, other banks showed an insignificant effect of the use of technology on their security system when examined in the context of cross-section specific impacts. On average, the magnitude of the information technology coefficient in the profit equation improved marginally during the second period when compared to the first period. Such an improvement showed that the security effect is higher than the network impact during the second period, which is consistent with the proposition of the study.

The results of the study by Ho & Mallick (2009) supports the findings of other later studies such as the one conducted by Bakare (2015), which also found that the use of technology in the banking sector enhances bank information security as well as the safety of customer transactions. According to Ho & Mallick (2009) findings, the positive coefficient relating to non-interest expenses indicate that the use of technology in the banking industry requires highly skilled labor to improve information security, as well as enhance customer loyalty and boost productivity. Additionally, the findings of Ho & Mallick’s study supports the results of a study by Migdadi (2014), which also found that the use of technology in the banking industry can enhance the security of banking products and services. According to Ho & Mallick (2009), the use of technology in the banking sector reduces the customers’ risks resulting from security threats posed by the handling of cash. It further concurs with the findings by Migdadi (2014) that the banks’ investment in information technology can positively affect the productivity and profitability of the banks as a result of enhanced security of money transfer from one customer to another.

Migdadi, Y. (2014). The impact of banking sector reform in developing economies on banking transactions security and quality: the case of Jordan. International Journal of Services and Standards, 9(1), 37. http://dx.doi.org/10.1504/ijss.2014.061063

This study by Migdadi Yazan traced the impact of Jordan Banking’s transaction security and quality reform in between the years 1999 and 2008. The study surveyed front office credit employees and tellers at fifteen local banks in Jordan, and the result of the study showed a tremendous improvement quality of credit and account transactions through such actions as securing information system, reviewing banking information system, as well as controlling risk management and data integrity. The great improvements which occurred as a result of the Jordan banking reforms provided a vast managerial and practical implications to different decision-makers, as well as regulators in both the country’s Central Bank and the area of academics. Besides, the effectiveness of such technology-based regulations provided operational management insight to enhance quality in banking transactions in the context of data security, as well as to further improve future security regulations in the banking industry in developing countries.

The result of the study by Migdadi (2014), showed that the banking sector in Jordan enjoys transaction security and data integrity following the improved technology-based regulations in the banking industry. The actions taken by the banking industry in Jordan proved to be effective in the context of quality or security in credit and account transactions, which showed statistically tremendous improvement over the time frame of the study. The improved security in account operations appeared to be higher than that of credit accounts due to advancement in the use of technology in securing customers’ bank accounts. Besides, since the account transactions proved to be higher than credit transactions, Jordan’s banking industry put more technology investment in account transactions, thereby securing various bank products and services, as well as minimizing the expected errors. Additionally, according to the survey, the relative impact of establishing a committee to design and control risk management and data integrity on account operations in the bank sector was more than that of credit. That shows that the account transactions require more investment in technology to enhance the safety of money transfer, as well as improve the management of customers’ accounts. The study also found that since credit transactions get processed in front and back offices, such offices need to be well-integrated through the use of more advanced Information Technology systems to enhance data safety and security, as well as data transfer mistakes and errors.

Previous studies, such as the study by Ho & Mallick (2009), have reported similar impacts of technology-based banking sector reforms on the security and quality of bank transactions in developing countries. According to Migdadi (2014), the banks in Jordan significantly improved safety and quality of both their account and credit operations by technologically revolutionizing the country’s banking sector. Similarly, the study by Migdadi (2014), as well as that conducted by Sfar (2013) found that the use of technology in the banking sector significantly contributed to improving the security and safety of the banking industry’s information systems and networks, as well as enhancing its risk management and data integrity. Additionally, like Sfar’s (2013) study, the findings by Migdadi (2014) showed that the banks in Jordan had improved the security aspect of their transactions as a result of improved regulations, which emphasized consistent update of the banks’ information system.

Sfar, W. (2013). Determinants of Organizational Adoption of Technological Innovations: Case of Electronic-Banking. Communications Of IBIMA, 1-22. http://dx.doi.org/10.5171/2013.291607

The purpose of Sfar’s study was to analyze various determinants the adoption of electronic banking in the banking industry. The phenomenon of technological innovation in the banking sector assumes paramount importance in the context of enhancing data security, as well as solving a system of interconnected constraints involving both the customers’ concern for profitability and demand for quality service. However, the adoption of technology by banks is not as systematic as may be expected. Due to the identification of its security and safety impact on the organizational structure, technology has been the primary focus of much of academic studies in the banking sector. In particular, technological innovation in the banking industry plays a pivotal role in managing the security of the banking system, enhancing structural performance, as well as apprehension of the business environment. Banking services form part of the sectors that embrace technology to boost the security of data. Besides, In the current competitive and international framework, banks seek to find ways of innovating security solutions as a means of setting up a differentiated identity.

The result of the study conducted by Sfar (2013) showed that the introduction of electronic banking services makes banks to expand their market bases due to the security aspect that gets strengthened by the use of technology in various banking systems. Banks perceive the delivery of technology-based services as a phenomenon with significant security advantages to both the customers and the service providers. The study also found that the full implementation of technological innovation in the banking industry requires banks to allocate a large proportion of their budget to E-banking services, as well as rely on a customer-oriented-strategy as a means of ensuring the safety of the entire banking system and all transactions made by the customers. The study further found that the clients in the banking sector are well-informed about electronic banking and the banks have a strong competitive intelligence to embrace technological innovations in all their operations for various strategic and qualitative considerations such as improving the security and safety of customer transactions. Therefore, data security forms part of the primary reasons for the adoption of technological innovations in the banking sector.

The findings of Sfar’s study reflect the findings of other studies relating to the impacts of technological innovations on service security in the banking sector. For example, Migdadi (2014) found that security is no longer a major challenge for bank customers at a time when the service providers in the banking sector are integrating various technological innovations to meet the growing demands for quality service. According to Sfar (2013), banks employ the use of multi-channel distribution strategies where technological innovation plays a pivotal role in ensuring the security of electronic banking, thereby building the customers’ confidence, a finding which supports the study conducted by Ho & Mallick (2009). The topic explored by Sfar (2013) has had also been addressed previously using econometric methods aimed at validating the assumptions regarding the correlations between the adoption of technological innovations and data integrity in the banking sector. Sfar’s study has therefore highlighted how the variable of data safety forms part of the primary reasons for the adoption of technological innovation in the banking industry.