Business

Technology alone not to blame for risks

It is only an enabler in banking, its role must be judged by the impact on the whole organisation

IT IS axiomatic to associate the increased technology adaptation by the financial sector with a number of benefits that have accrued to customers and the institutions themselves. It is certain that technology has delivered on its initial promises in a number of areas. Banks, including the public sector ones, have reaped the benefits. Their reach has expanded, productivity improved and accounting efficiency enhanced.

However, while detection of one set of frauds might have become easier, large-scale computerisation has brought in its wake an entirely new set of security risks, which banks have to counter by installing even newer systems and technologies.

Wider choices

Customers now have a multiplicity of choices — where to bank, for instance. A visit to the bank branch is no longer necessary for most types of transactions. The death of distance is no longer a mere cliché here. A by-product of technology, it has already happened in Indian banking. Many banks offer `anywhere banking' which means the customer can transact routine transactions at any of their branches and through Internet and phone banking.

But the real gain from technology application should be a significant reduction in transaction costs. Banks claim this has happened already. But customers at large, not just the chosen few, must feel the benefit. Armed with technology banks have been pursuing a policy of customer-segmentation more vigorously than ever before. Customers with fairly low balances and the smaller of the borrowers have been feeling left out.

Banks and other institutions spend plenty of money on technology. Its costs will have to be recovered from their customers. This is one area where transparency in their working will be welcome. Where, for instance, are the expenses on setting up ATMs accounted for?

The capital market too has seen an explosive growth in technology absorption since the 1990s.The stock exchanges and the financial intermediaries such as brokers have had to expend on software and hardware. The NSE and the BSE have terminals all over the country. The quality of regulation has improved, thanks to better surveillance and monitoring.

Quite obviously technology is merely an enabler. Neither the numerous positive features nor the negative features of the financial sector can be attributed to technology alone.

Missing human element

But it is good to remember this: while examining its role one should look at its impact on the organisation as a whole. There are surely human resources aspects as well as cultural implications in the wake of technology adaptation.

Some of these aspects are given below:

In banking, there has been a devaluation of the manager's role at the unit (branch) level. Technology might have shifted decision-making powers to the head office, with the branches merely asked to verify and accept their customers' applications for standard `products'. The human resources dimension here is that line managers have lost an important incentive to shoulder additional re- sponsibility.

A naïve belief that technology spend is an end in itself might have made some financial institutions complacent over routine but vital procedural checks.

In the end it is always the human element, with all its subjectivity, that counts in decision-making.

Again, the scope for undertaking complex sets of transactions such as derivatives has increased thanks to technology. This is welcome as far as it goes. But in their higher reaches such products must be intelligible not only to their customers but also to the institutions marketing the product. There have been a number of cases where the sheer complexity of derivatives has led.to major embarrassments, including on occasions litigation between the derivative- writing institution and the customer.

Finally, technology itself is not infallible. Recently the Tokyo stock exchange faced a major embarrassment. A seemingly casual mistake by a junior trader of a large security house led to huge losses including that of reputation. The order through the exchange's trading system was to sell one share for 600,000 yen. Instead the trader keyed in a sale order for 600,000 shares at the rate of one yen each. Naturally the shares on offer at the ridiculously low price were lapped up. (Only a few buyers agreed to reverse the deal).

The loss to the securities firm was said to be huge, running into several hundred thousands. More important to note, such an obvious mistake could not be corrected by some of the advanced technology available. For advanced countries like Japan whose financial architecture would have imbibed the latest technology, this would be a new kind of learning experience.

C. R. L. Narasimhan

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