This document discusses the evolution of banking technology over several generations from the 1960s to the present. It covers the move from mainframes to personal computers and the development of automated teller machines, online banking, and payment systems. The key benefits of technology for banks are described as increased efficiency, productivity, customer satisfaction, and reduced costs. Several committees in India addressed issues around banking technology and its implementation.

1. Banking Technology

2. Banking Technology – M.Tech (IT)
“Technology was developed to prevent
exhausting labor. It is now dedicated to
trivial conveniences.” B.F. SKINNER.
“That great, growling engine of change --
technology.”
ALVIN TOFFLER,

3. Banking Technology – M.Tech (IT)
Today we will learn…
• The need for technology in Banking
• Generations of Banking Systems
• Technology Evolution & Adoption in
Indian Banks
• The Key Committees

4. Banking Technology – M.Tech (IT)
The Pluses
Greater interaction
Greater customer loyalty
Competition not a threat
Lesser security hassles (no
online threats)
No staff hassles
The Minuses
Long queues
Large office and storage space
Restricted working hours
Service time lag causing scope
for fraud
Pathetic efficiency
No service culture
BANK
The Pluses
Greater productivity &
profitability, efficiency
Faster service & customer
satisfaction
Convenience & flexibility
Customer of bank, not branch
24x7 operations
Space & cost savings
The Minuses
Security a real threat
Staff hostility & morale
High expenditure &
maintenance
Competition
Need to keep pace with global
standards
Lack of customer loyalty
Before Technology
After Technology
Technology – Before & After

5. Banking Technology – M.Tech (IT)
Banking Technology
Information
Storage
Processing
Transmission
Tasks Common to
Both
Bank – Technology Synergy

6. Banking Technology – M.Tech (IT)
Why Technology?
• Offer enhanced customer service
• Decrease transaction costs and overheads
• Increase productivity and profitability
• Attract the growing youth population
• And….there are several benefits to
technology implementation…

7. Banking Technology – M.Tech (IT)
The Benefits
• Multi-channel, real-time transaction processing
• Better cross-selling ability
• Improved management
• Increased safety and security of funds
• Enhanced efficiency thanks to system integration
across multiple locations
• Efficient NPA management
• Minimal transaction costs
• Improved financial analyses capabilities
• Better ability to collect business intelligence

8. Banking Technology – M.Tech (IT)
Channel Cost per transaction
Full Service Branch US$1.070
Telephone US$0.540
ATM Full Service US$0.270
PC Banking US$0.0150
Internet WWW US$0.0100
Technology – cuts channel costs
The cost factor particularly gains significance in the context of
office and staff expenses contributing more than 90% of total
branch costs.

9. Banking Technology – M.Tech (IT)
Evolution of Systems
• Post world-war II Worldwide - some automation
was seen as punched-card equipment and
accounting machines
• 1950s - gradual adoption of computers as
replacements for punched-card machines
• 1953-58 - most of the major banks had installed
computers. Batch processing was the primary
mode of operation

10. Banking Technology – M.Tech (IT)
Batch Processing Private Online
Systems
Shared Online
Systems
Integrated
Computer
Networks
Evolution of Systems

11. Banking Technology – M.Tech (IT)
Generations of Banking Systems
1st
Generation Systems
• The first online installations began in late 1960s when
tellers were connected to the mainframes
• The focus was on current accounts and savings
• In Japan, the System was termed – first Generation Online
System or 1 GOLS. In the US it was called – 1 GPS or first
Generation Product Strategy
• I GOLS hinged on a central computer to which various
terminals were connected. These connections were both
point-to-point and multi-drop lines.
• The system was totally hierarchical, focused entirely on
data processing and had no real time updates.

12. Banking Technology – M.Tech (IT)
Generations of Banking Systems
2nd Generation Systems
• Developed in the 1970s
• These systems were distributed, closer to the end
user and ushered in the era of local area networks.
• 2 GOLS also heralded the awakening of:
– The need to manage database as a separate entity
– The need to do away with multi-drop lines thanks to
distributed data processing
– Local area networks (LAN) to connect local computer
resources
– Network control centre in an embryonic state

13. Banking Technology – M.Tech (IT)
Generations of Banking Systems
3rd Generation Systems
• Encouraged personal computing
• The large number of PCs and their capabilities
pointed towards the direction of networking.
• The “system architecture” concept evolved and a
number of network architectures were developed.
• Communication gained a wider perspective and
led to interconnection of LANs and Wide Area
Networks (WANs).
• Network control centre became common leading
to enhanced reliability.
• Remote diagnostics gained credence

14. Banking Technology – M.Tech (IT)
1 GOLS 2 GOLS 3 GOLS
Transaction oriented Message oriented Communicating
databases and
voice/image handling
oriented
Focus - Data Focus – Data and Text Focus – Data, Text,
Image, Voice
20-50 character input,
50-100 character
output
100 words average for
electronic mail and 65
for telex
500 MB transmissions
(equivalent to 100
million words)
Generations of Banking Systems

15. Banking Technology – M.Tech (IT)
Generations of Banking Systems
• Fourth generation online systems (4 GOLS) are in
the offing
• These systems will hinge on artificial intelligence
(AI)
• Intelligent networks will form the backbone for
banking industry
• The result - integrated banking services, global
databases and a true paperless environment

16. Banking Technology – M.Tech (IT)
1960s Mainframes
1970s Minicomputers
1980s Personal Computers
ALPMs
ATMs, thin clients era1990s
2000
& beyond
Electronic banking
Payment system innovations
Timeline – Technology in Indian
Banks

17. ALPM Single user, No connectivity
Excessive focus on accounting
Not much strategic information useful for management
Branch Automation Multi-user, Limited connectivity
Single window convenience
Integration of various modules
Areas covered – accounting, various reports, MIS, interest
calculations, etc.
But…reports only for branches…not total bank
Reports useful to some extent to management
Bank Automation Anywhere banking
Customer-orientation
Bank-wide MIS and reports
Total connectivity, provided network is good
Integration of treasury operations
Centralized Banking Centralised operations, Customer centricity
Ability to launch products and services rapidly
Integrated delivery channels
Future-prepared IT infrastructure
Interfaces with other financial systems and applications
Opportunities for savings – space, personnel
Software Characteristics

18. Banking Technology – M.Tech (IT)
Technology Today in India
• Technology-Oriented ServicesTechnology-Oriented Services
– Delivery Channels – There are a host of them including ATM, Tele-
banking, Internet Banking, Mobile Banking, Call centres
– Centralized Banking Solutions
– Electronic Cards – ATM, Credit, Debit Cards, Smart cards
– Electronic Funds Transfer
• Some key infrastructure projectsSome key infrastructure projects
• INFINET – INdian FInancial NETwork
• National Financial Switch
• Real Time Gross Settlement System (RTGS)
• Structured Financial Messaging System (SFMS)
• National Electronic Fund Transfer (NEFT)
• E-Check
• Public Debt Office (PDO) – Negotiated Dealing System (NDS)
• Centralized Funds Management System (CFMS)
• Technologies in the offingTechnologies in the offing - Data warehousing, Data mining, CRM and
Business Intelligence, electronic payment and settlement systems, etc

19. Banking Technology – M.Tech (IT)
Technology-Oriented Committees
• Committee on the Mechanization of the Banking Industry
(Rangarajan Committee I – 1984)
• Committee on Computerisation in Banks (Rangarajan
Committee II – 1989)
• Committee on Technology Issues Relating to Payments
System, Cheque Clearing and Securities Settlement in the
Banking Industry (Saraf Committee -1994)
• Committee on Banking Sector Reforms (Narasimham
Committee II -1998)
• Committee on Technology Upgradation in the Banking
Sector (Vasudevan Committee - 1999)
There were several more committees such as Damle Committee (1982,
focus on “item processing), TNA Iyer Committee (1987, focus on
communication network for banks, BANKNET, RBINET).

20. Banking Technology – M.Tech (IT)
Here’s a tale to end with…
• “I was working the help desk. One day one of the
computer operators called me and asked if anything
"bad" would happen if she dropped coins into the
openings of her PC.
I asked her if this was something she was thinking of
doing. She said, "never mind" and hung up.
So I got out my trusty tool kit and paid her a visit. I
opened her CPU case and sure enough, there was 40
cents.” A technician
…a new application for existing technology? Who knows?

21. Banking Technology – M.Tech (IT)
“However far modern science and technics have
fallen short of their inherent possibilities, they have
taught mankind at least one lesson: Nothing is
impossible.” LEWIS MUMFORD, Technics and Civilization, 1934

22. Banking Technology – M.Tech (IT)