JAIIB PPB Paper-2 Module-C Unit 6: Impact of Technology Adoption and Trends in Banking Technology

06/04/2023

JAIIB Paper 2 (PPB) Module C Unit 6: Impact of Technology Adoption and Trends in Banking Technology (New Syllabus)

The IIBF has recently announced updates to the JAIIB Exam 2023, including changes to the syllabus and exam format. Candidates will now be required to complete four papers, with Paper 2 (Principles & Practices of Banking) covering Unit 6: Impact of Technology Adoption and Trends in Banking Technology. This unit is particularly crucial for candidates, as it will significantly impact their performance in the exam.

To assist candidates in understanding the topic, we will provide all the necessary details related to Unit 6: Impact of Technology Adoption and Trends in Banking Technology of JAIIB Paper 2 (PPB) Module C: Banking Technology. We strongly recommend that candidates refer to this article and utilize our Online Mock Test Series to enhance their understanding of Foreign Currency Accounts for Residents and other related aspects.

Candidates must comprehend each unit in the syllabus, including the Marketing unit, to excel in the JAIIB Certification Examination 2023 and establish a successful career in the banking sector. This unit is of great importance in the banking industry, and candidates must prepare thoroughly.

Role And Uses of Technology Upgradation

Data And Message Transferring

With the help of information technology, the banks are able to reduce the operational time in data and information communications.
Whereas e-mail has found its application in sending unstructured free format messages, the newer concept of Electronic Data Interchange (EDI) refers to the transmission of structured and formatted messages for further analysis and use in business applications.

Electronic Data Interchange

EDI is the inter-organisational exchange of business documentation, which can be processed by computers.
Banks have been using EDI in the form of SWIFT messages. EDI is usually referred to as electronic funds transfer (EFT). Credit clearing and debit clearing are different forms of EDI for making the transfer of funds electronically. The credit card network is another EFT system using EDI standards.
Electronic data interchange for the administration of commerce and transport (EDIFACT) is the universal set of standards and guidelines for communication by EDl.

E-MAIL

E-mail is basically used for transmitting unstructured messages.

Corporate Websites

Many banks now have their own websites on the internet as a platform for service delivery. Banks uses the website for:

Dissemination of information about their products and services.
Financial advice
Highlighting non-banking activities
A node for commerce
Selling financial products
Account services

Management Information System

The concept of MIS places particular emphasis on the availability of data and the ease with which it can be analysed and turned into meaningful information for managerial decision making.

Computer Based Information System

Data is consistent, and hence, the processed information is more accurate and relevant for decision making.
Data redundancy is minimised, reducing labour in data reporting.
These are more flexible and can suitably be modified with ease to match the changing requirements.

In order to meet the need for correct and consistent data, RBI has initiated a project called Automated Data Flow (ADF). ADF ensures submission of correct and consistent data from banks to RBI without any manual intervention.

Decision Support Systems

DSS are easy to use, flexible and interactive computer-based systems designed to facilitate decision making.
DSS provides the management use of query languages, ad hoc reports, statistical analysers, graphics, etc. In simulations, the DSS make use of complex mathematical models to aid decision making.
For example, the impact of any change in CRR/SLR requirements can be easily ascertained to help the management decide on different investment options for available funds.
Similarly, in the competitive market, DSS helps bank in generating precise information for pricing their products and services.

Global Trends In Banking Systems

Following trends are visible in the banking systems:

Banks are installing more and more ATMs for banking transactions
Customers are provided more choices to collect their cash
Mobile banking, Debit cards, Credit cards, Internet Banking
Increasingly venturing into fee-based services like the following: marketing of insurance and annuity sales, mutual funds, financial planning, trusteeship services

Additionally, the following activities are also using technology

Automated clearing systems
Customer information databases
Imaging of paper documents
On-line access to regulatory agencies
Use of the Internet and mobile for customer services
RTGS
Cheque truncation
Customised solutions for corporates

Impact of Information Technology on Banks

Changes in Organisational Structure and Orientation

The need for faster information and better control has resulted in establishing a direct liaison between the top management and the field functionaries.
As the technology helps collect, interpret, and transmit information, the need for middle tiers of management vanishes and more self-managing groups with autonomy and access to information emerge strongly.
Several traditional jobs no longer remain relevant, and several new jobs come up.
Managerial attitudes also undergo a change under the impact of IT. This is reflected in the way the top executives look at IT as a functional requirement and apply it for improving organisational efficiency and effectiveness.
The organisational change can facilitate the increased involvement of information systems in the mainstream product offerings in the banking and financial sector.
The systems and procedures within banks have to adapt themselves in accordance with the IT needs without sacrificing privacy and security.

Impact on Service Quality

The technology is forcing the banks to develop a strategy for an online delivery system to broaden the customer relationship.
The advent of virtual banking in the form of Internet banking and mobile banking has removed the barriers for entry of these non-banking financial institutions to compete with conventional banks.
The Enhanced Access and Service Excellence (EASE) program, driven by Indian Banks’ Association (IBA), stresses on data analytics, automation, and digitization, foster new-age reforms in Public sector banks (PSBs) to improve profitability, asset quality, customer service and digital capabilities.
Ease Next Programme 5.0 version launched in June ‘22, would prioritise digital customer experience and integrated and inclusive banking, focusing on small businesses and agriculture.

Impact on Human Resources

With the increased use of I.T., there is an ever-increasing demand for specialised personnel in the fields of IT management.
There is the high turnover rate of computer-skilled manpower. This may necessitate the banks to formulate their own manpower policies to retain these professionals within the organisations.
Banks have groomed their existing staff to handle IT operations. Now with ever-evolving technologies banks are recruiting skilled personnel in various specialised areas of Information

Impact on Privacy and Confidentiality of Data

The data about individuals which is held for processing must have been obtained fairly for a specific lawful purpose only.
The data must be accurate, up-to-date and kept no longer than necessary.
Data must be used only for the specific purpose and may be disclosed in accordance with the specific purpose only.

Banks have been implementing various security measures like Data Encryption, Data Checksum, Data Leakage prevention, Database Monitoring, Privilege User monitoring etc., to protect the customer data and to ensure the privacy of data.

Emerging Technology Trends In Banking

Artificial Intelligence

Artificial intelligence (AI) is an area of computer science that emphasizes the creation of intelligent machines, software that work and react like humans.
AI can also be deployed to offer personalized services for each customer, enhance data security, decision-making speed and accuracy, and employee output.
AI is being used in Banks for predictive analysis, voice recognition, risk management, fraud prevention, wealth management etc.

Robotic process automation (RPA)

Is the practice of automating routine business practices with software robots.
It uses artificial intelligence to build software robots that automate tasks that once required human intervention, such as customer service and IT management.
Some of the major advantages of RPA are 24 × 7 working without fatigue, time and cost savings, zero typos or copy/paste mistakes, compliance.
RPA is being used in banking activities like KYC, customer onboarding, Loan origination, etc.

Chatbots

Chatbots are software applications that mimic written or spoken human speech for the purposes of simulating a conversation or interaction with a real person.
A Chabot can be deployed for customer service, as a standalone application or on a website. etc. Some examples are virtual assistants such as Google Now, Apple’s Siri, and Microsoft’s Cortana.

5G Network

5G networks are digital cellular networks, in which the service area covered by providers is divided into small geographical areas called cells.
5G technology is characterized by low latency, high data capacity, and reliability. This will eventually help Banks create new ways to deliver mobile, online and in-branch services.
Some areas where 5G can be useful are next-generation mobile user experience, facial recognition for identity authentication, Video chatbots, Remote troubleshooting for IT personnel, Real-time fraud detection/analytics and Customer profiling.

Blockchain Technology

Blockchain is a distributed ledger technology (DLT) that stores groups of transactions known as “blocks” and then links and sequences the list of transactions using cryptography.
Blockchain technology can be used in banking activities like secure document management, reporting, payments, treasury & securities and trade finance.
The banking industry can benefit from blockchain technology as it helps in fraud prevention, increases the resilience of the bank’s IT infrastructure and also increases the transparency of processes.

Digital currency

The functionality of digital currency is similar to physical currencies but can be exchanged remotely with instantaneous transactions across the world.
Cryptocurrencies are a type of digital currencies. Cryptocurrency is an asset used as a means of exchange. Some of the popular cryptocurrencies are Bitcoin (BCH), Ethereum (ETH), Litecoin (LTC), Ripple.
A central bank digital currency (CBDC) which is also known as digital fiat currency, is a digital currency issued and guaranteed by a central bank, which can be used to make digital payments.
RBI announced the launch of the first pilot for retail digital rupee on December 1, 2022. The pilot would cover select locations in closed user group, comprising of participating customers and merchants. Transaction can be both P2P (Person-to-Person) & P2M (Person-to-Merchant).

Virtual Reality / Augmented Reality

Augmented reality (AR) is an interactive experience of a real-world environment where the objects that reside in the real world are enhanced by computer-generated perceptual information. Virtual reality completely replaces the user’s real-world environment with a simulated one.
With the usage of VR, AR, AI, and sensor technologies, Banks can improve operational efficiency and individual productivity.

Wearables

Wearable technology involves the usage of wearable gadgets that can be comfortably worn by a person on his body for the purpose of recording tracking information for personal or business usage related to health and fitness.

Digital Lending and Relevant Regulations in India

Financial Stability Board (FSB) has defined FinTech as “technologically enabled innovation in financial services that could result in new business models, applications, processes or products with an associated material effect on financial markets and institutions and the provision of financial services”.

Digital Lending involves lending through web platforms or mobile apps, utilizing technology for authentication and credit evaluation.

Reserve Bank of India has published a discussion paper on August 10, 2022, classifying the universe of digital lenders into three groups:

Entities regulated by the RBI and permitted to carry out lending business;
Entities authorized to carry out lending as per other statutory/regulatory provisions but not regulated by RBI;
Entities lending outside the purview of any statutory/regulatory provisions.

In order to ensure customer protection, conduct issues and transparency in lending ecosystem, Reserve Bank of India has introduced the following major guidelines:

All loan disbursals and repayments are required to be executed only between the bank accounts of borrower and the Regulated Entities (RE) without any passthrough/pool account of the Lending Service Providers (LSP) or any third party.
Any fees, charges, etc., payable to LSPs in the credit intermediation process shall be paid directly by RE and not by the borrower.
A standardized Key Fact Statement (KFS) must be provided to the borrower before executing the loan contract.
All-inclusive cost of digital loans in the form of Annual Percentage Rate (APR) is required to be disclosed to the borrowers.
Automatic increase in credit limit without explicit consent of borrower is prohibited.
A cooling-off/look-up period during which the borrowers can exit digital loans by paying the principal and the proportionate APR without any penalty shall be provided as part of the loan contract.
REs shall ensure that they and the LSPs engaged by them shall have a suitable nodal grievance redressal officer to deal with FinTech/digital lending related complaints.
As per extant RBI guidelines, if any complaint lodged by the borrower is not resolved by the RE within the stipulated period (currently 30 days), he/she can lodge a complaint under the Reserve Bank – Integrated Ombudsman Scheme (RB-IOS).