Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1
Usage of Information Technology by the Commercial
Banks Operating in Bangladesh-Current Situation and
Its Future
Md. Shahnur Azad Chowdhury and Md. Maruf Ullah
This paper looks at how advances in information and
telecommunications technologies have been changing
the structure of the financial system by lowering
transaction costs and reducing asymmetric information.
Despite these benefits technological progress presents
policymakers with some important challenges. First
markets for financial products become larger and more
contestable, defining geographic and product markets
narrowly become more problematic. Second, financial
consolidation and the trend towards new activities of
financial intermediaries require the exploration of new
methods to preserve the safety and soundness of the
financial system. Using data collected through a major
study of retail banking institutions in Bangladesh, this
paper concludes that additional investment in IT capital
may have no real benefits and may be more of a
strategic necessity to stay even with the competition.
The positive impact of IT on productivity is difficult to
determine in net profit and asset (predominantly loans)
increases. However banks can enhance productivity by
increased spending on IT and better management of IT
resources. This would increase their competitiveness
through
differentiation
and
customer
service
improvement, reduced costs, better risk avoidance, and
maintaining the stability of their customer base and
market share. The current situation of using technical
products and services by the banks of the country along
with the constraints is evaluated in this study to put
forward suggestions to overcome the constraints.
1. Introduction:
We can consider ourselves really fortunate in the fact that visualizing
enormous potential of computers our predecessors took initiative to install the
first computer, an IBM1620 of the then Pakistan at Atomic Center, Dhaka in
the early ‘60s’. With the introduction of microprocessors in 1971, computers
became more affordable in price and reduced in size. A revelation started with
the availability of your personal computers. A microprocessor which is a tiny
solid state device makes computer an essential arms in the business world
that process data very fast in a very small fraction of second like Pico
second(1/109Seconds) or even in Nano second(1/1012 seconds) and
accurately . Today’s computer also has large amounts of storage capacity
______________
Md. Maruf Ullah, Lecturer, Department of Business Administration, International Islamic
University Chittagong. Bangladesh. E-mail: mdmaruf_ullah@yahoo.comMd. Shahnur Azad
Chowdhury, Assistant Professor, Department of Business Administration, International Islamic
University Chittagong, Bangladesh. E-mail: Email:tipu_iiuc@yahoo.com
Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1
(e.g.60 GB) and universality of its uses. Science and technology is changing
the way financial institutions perform their transactions. Today’s banks are
shaking by these technological changes. Despite huge demand from the
business community as well as the retail customers particularly the urban
customers, electronic banking (e-banking) in Bangladesh is still at a budding
state. Electronic banking plays a vital role in the economic development of a
country. Due to immense advances of information and communication
technology (ICT), it certainly introduced new dimensions for the global Ebanking community. It provides some attractive features for the customers
than those offered by traditional banking system such as to open an account;
it takes less time than traditional system.
2. Literature review:
Md. Moktar Ali,Rafiuddin Ahmed,Arifur Rahman,Md. Moshiul Azam
represented the scenario of electronic banking in Bangladesh, how it is up
surging, makes our country with more state of the art facilities and also
highlights some drawbacks and recommendations of overcoming the
drawbacks of electronic banking.( 2007).Kamrul Hasan overviewed the issues
associated with e-banking and try to explore the future challenges and
prospect in Bangladesh.( 2008).Mohammad Mizanur Rahman suggested that
it is important to recognize that the present state of technology based banking
in Bangladesh permits the banks to perform B2C transactions only whereas
B2B transactions are yet to be established. Successful implementation of ebanking will help to conduct both B2C and B2B transactions.
(2008)Mohammad Mizanur Rahman provided evidence on and implications of
adopting innovative technology in banking offering innovative products and
services by the country’s banking sector(December 2007).Farhana
Zaman,Priyabrata Chowdhury identified the common technology driven
banking services provided by the banks in Bangladesh; their present
condition, future prospects and challenges Though technology driven banking
is at present facing some challenges, it shows promise for the future. Without
this type of banking it will not be possible for the Bangladeshi banks' to
survive in a competitive global business environment. (2012).Md. Atiqur
Rahman Khan, Md. Masud Karim highlighted Embanking risks along with the
ways to overcome. (2009).Mohammad Shamsuddoha, showed the present
status of electronic banking in banking sector in Bangladesh. (2008.).Tobias
Kretschmer1 presented a review of existing studies on dynamic,
macroeconomic effects of the ICT on productivity and growth (2009)
Objectives of the study:
1. To identify various forms of technical products available in Bangladesh
2. To study about the current situation of the practices of technical product in
the banking sector of the country.
3. To evaluate an idea about the prospects of usage of these products in
Bangladesh
Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1
3. Different technical products used currently by the banks:
It is the financial world where computer has the widely implemented area for
meeting the financial needs by saving customers access time globally.
Customers can use a web browser to access their accounts, balance
checkbooks, transfer and even pay bills online. Realizing from the global
experience that today’s banking means Phone Banking, Automated Teller
machine, Online asset Switching, Tele Banging and Smart Cards, Home
Banking. In the context of Bangladesh, there are several special services and
schemes that could be taken then, they are:
 Core Banking
 Internet Banking
 Mobile Banking
 SMS Banking
 Electronic Funds Transfer
 Any Branch Banking
 Point of Sale (POS
 Banking KIOSK
 SWIFT
 MICR
 Open online Letter of Credit
 Money Link
 Phone Link
 Tele banking
 ATM
 On line Banking
 Credit Cards.
 Debit Cards.
3.1 Core Banking
It means a group of banks services provided to the customer together. For
example any customer may enjoy any sort of service from any member bank
of the group under core banking.
3.2 Internet Banking
The Internet Banking provides the facility of bank through internet and it gives
you freedom of choosing your banking hour by allowing you greater control on
your finance. It secure and fast.
3.3 Mobile Banking
Mobile banking allows customer of a financial institution to conduct a number
of financial transaction through mobile devices such as a Mobile Phone or
Personal Digital Assistant.
Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1
3.4 SMS Banking
Short Message Service (SMS) is the formal name for text messaging. SMS
banking allows customers to make simple transactions to their bank accounts
by sending and receiving text messages.
3.5 Electronic Funds Transfer
Electronic Funds Transfer (EFT) is a system of transferring money from one
bank account to another without any direct paper money transaction.
3.6 Any Branch Banking
Any branch banking is the service where an account is accessible from any
branch of a particular bank. In Bangladesh the term is widely popularized as
online banking.
3.7 Point of Sale (POS)
Point of Sale (POS) service is an innovative electronic money transferring
system that allows the customers of banks to pay for their purchases through
their ATM and credit card at any POS enabled retailer.
3.8 Banking KIOSK
KIOSK Banking offers customers the flexibility to conduct their banking
transactions via the KIOSK machine. The customer must have a Debit Card
and a PIN. When one inserts the debit Card into the Kiosk, he/she will be
prompted to enter the PIN. He/she can then begin using KIOSK Banking.
3.9 SWIFT
The Society for Worldwide Interbank Financial Telecommunication ("SWIFT")
operates a worldwide financial messaging network which exchanges
messages between banks and other financial institutions.
3.10 MICR
MICR (Magnetic Ink Character Recognition) is a character recognition
technology adopted mainly by the banking industry to facilitate the processing
of cheque.
3.11 Open online Letter of Credit
It means that for opening letter of credit the customers need not to go to the
bank physically. They can open the letter of credit with the help of online
banking.
3.12 Money Link: The money link is the name of Bank service automated
teller machine service. Through this, customers are able to withdraw cash
from their accounts, 24 hours a day, seven (7) days a week.
3.13 Phone Link: The phone link represents a state-of-the-art technology
in the banking sector. Through this service, account holders may avail the
conveniences of doing a host of peripheral banking works on the phone.
By dialing the designed number, customer service automatically response,
which guides the caller step by step, through the transaction or operations.
Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1
The following service available to the an account holders through phone –link
service
Inquiry on product services
Change of accounts address
Informing the bank about lost/captured Money Link ATM card.
Stop cheque instruction.
Order for pay order or DD preparation.
Status inquires on remittance.
Renew of FDR or opening of FDR and other accounts opening
assistances.
3.14 Tele banking: It is another type of voice promoted electronic banking
system in which a touch-tone phone is used. Here the services are:
Cheque account balance
Receiving balance and transaction reporting
Initial multi currency payment orders.
Communication with bank employee via E-Mail
3.15 ATM (Automated Teller Machine)
ATM is a self-service device for providing teller services to bank’s clients. This
can be defended as tellers designed for unattended customer use. This is
also a form of Electrical Fund Transfer (EFT) . The main services are:
Cash dispensing.
Dispensing of Traveled, Cheque & Foreign currency.
Deposit of cash.
Deposits of cheque , pay order, draft etc
Transfer of funds between accounts.
Bill payment.
Full statement producing.
Balance enquires.
Request for cheque book
Notice of withdrawal.
Pass book update.
Different loan application and inquires.
3.16 Credit cards: A wide range of established banks like ANZ Grindlays,
Citibank, Hong Kong bank and other private or state owned bank use credit
card as a medium of payment at different point-of-sales(POS) in the place of
cash currency. There are various types of cards being used around the world.
The main categories are.
 Credit Card
 VISA & Master Card Credit Cards
 Charge Card:
3.17 Debit Card: Debit
cards are linked directly to the bank account of its
holder. The older of debit card can use it to buy goods or withdraw cash and the
amount is taken from the bank account right away.
Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1
4 Present Status of usage of Technical products and services
by the banks
The private commercial banks, Foreign Commercial banks and nationalized
commercial banks are providing a large number of technology driven services
to their customer. Standard Chartered Bank and HSBC are the pioneers to
introduce technology driven banking facilities. These banks provide services
like ATM, debit card, credit card, Point of Sale (POS) services, internet
banking, phone banking, any branch banking, Electronic Fund Transfer (EFT).
Along with these services Standard Chartered Bank is providing KIOSK
service to its customers. Among the local banks, the PCBs are ahead of the
NCBs in providing technology driven banking services.. These banks are
providing services like any branch banking, SMS banking, debit card,
Electronic Fund Transfer, ATM booth etc. Islamic banks of the country have
also come forward to launch technical products. For sending foreign
remittance NCBs and some PCBs are working collaboratively with mobile
phone service operators. Recently remittance can be sent in Bangladesh by
banking channel through account transfer (normally takes 3 working days) or
in the form of instant cash (takes 24 hours). As a result money transfer
becomes relatively easy, quick and hassle free [3].
Figure 1: Percentage of Banks providing Technology Driven Services
Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1
5 Challenges of Technology driven banking in the country
The challenges for technology driven banking are:
 There is not sufficient and adequate knowledge of the management
about technology driven banking
 There is lacing of strategic plan.
 Bangladesh is still suffering from internationally standard
communication channels.
 It requires high cost to establish technology driven banking systems.
 There is lack of integrated plan among the banks and the Central Bank
authority. Inefficient clearing house facilities.
 The standard of software's to run the banking system and their
robustness are not satisfactory, because of that the bank authority do
not keen or trust upon the local vendors..
 There is a biasness of the management of bank towards foreign
software.
 Legal barriers and inappropriate policy framework are also impeding
the growth of technology based banking services..
Besides these, major impediments and risks associated with the
implementation of innovative technology are:
 As the information are to be kept public for internet banking or any sort
of online processing so there is a risk of loss of data confidentiality..
 The investment in IT may not generate quick or visible cash
immediately so banks may face cost overrun or cost control problem.
 Another problem that banks face with implementation of latest
technology is the conversion of traditional system to the new system or
the continuous up gradation as technology evolves so fast
 The movement towards technology driven banking might marginalize
the customers who do not have internet access or who are not
technologically sound (Khalil, Ahmed & Khan).
 Because the availability of power and other infrastructural development
the coverage of the private commercial banks and foreign commercial
banks is concentrated mainly in urban and semi-urban areas. The rural
parts of Bangladesh still remain outside of their services.
 According to Ali (2010), the major risk of internet banking includes
operational risks (e.g. security risks, system design, implementation
and maintenance risks); customer misuse of products and services
risks; legal risks (e.g. without proper legal support, money laundering
may be influenced); strategic risks; reputation risks (e.g. in case the
bank fails to provide secure and trouble free e-banking services, this
will cause reputation risk); credit risks; market risks; and liquidity risks.
6 Prospects of Technology Driven Banking in Bangladesh
Communication system has got a miraculous change after invention of
internet. Now a day's almost all of the developing countries like Bangladesh
are using Internet at a higher rate than previous years as a medium of
communication. In both developing and developed countries, internet is
growing rapidly as a strong and popular medium of communication (Azam
Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1
2007). OECD (2001) indicated that there is a strong positive correlation
between Internet usage and online banking usage. Table 1, gives a picture of
how the number and percentage of internet users are increasing over the
period which is a hope for the technology-driven banking sector in
Bangladesh. Because the prospects and development of technology driven
banking largely depend upon the usage of internet by the mass people. [3]
Table 1: Internet users per 100 inhabitants in Bangladesh
(from 2001-2010)
Year
No.
of
User
2001
0.13
2002
0.14
2003
0.16
2004
0.20
2005
0.24
2006
1.00
2007
1.80
2008
2.50
2009
3.10
2010
3.70
Source: International Telecommunication Union
There is about three billion mobile phone whole over the world. This means
that over 40% population of the world uses mobile phones. In more developed
countries the mobile penetration is more than 90% and in the developing
countries catching up fast. Recently, the introduction of mobile banking by
Trust Bank, Dutch Bangla Bank, BRAC Bank and some other Private
Commercial Banks in Bangladesh opened a new window for technology
driven banking. In 2010, the total number of mobile subscribers was 68.6
million and in 2011, the total number of subscribers was 85.0 million. The
annual growth rate was 31% in 2010 and 24% in 2011. Among the mobile
subscriber only13% have bank account. So there is a great opportunity for the
bankers to make a good amount of profit by providing the service of mobile
banking. The Bangladesh railway owned a high-speed optical fiber network
(1,800 km) parallel to the railway path that covered most of the important
parts of Bangladesh. This optical fiber network can be used as the backbone
network of technology driven banking in Bangladesh. For example, mobile
phone operators such as Grameen Phone Limited use this optical fiber
network through which they reach even in rural areas with their services
(Islam 2005). It is encouraging that some of the FCBs and PCBs are already
used this optical fiber network for conducting online transactions, ATM and
POS services. Bangladesh Bank started implementing different projects for
modernizing national payment and settlement system from 2009 followed by
the development of inter-bank online network. Bangladesh Bank is expected
to introduce mobile phone-based credit services to accelerate loan
disbursement and recovery in rural areas. In addition, the government has an
emphasis on building a digital Bangladesh, setting up ICT Park, raising
allocation for developing ICT infrastructure, waiving taxes on computer
peripherals, increasing the bandwidth of submarine cables and introducing the
3G mobile services. The government is also encouraging the automation
program of the banking sector led by Bangladesh Bank which is a positive
sign for the prospects of technology driven banking in Bangladesh.[3]
Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1
7 Recommendations
This paper is a descriptive study where the main purpose was to highlight the
present status, future prospects and challenges of technology driven banking.
Now-a-days technology driven banking services are not 'nice to have' but an
impossible to survive without' for all banks. It has changed the traditional
banking system drastically and made banking service easy and accessible.
But Bangladesh is a developing country with limited infrastructure facility and
limited skilled manpower. Computer literacy of the people is very poor and
information technology is in the infant state.
A well functioned tech based banking system is dependent on the availability
of a backbone network connecting the whole country; reliable and secure
information and telecommunication infrastructure; ICT penetration in the
banking sector; skilled operational personnel; and legal and regulatory
framework. Both individual and joint efforts are needed to overcome the
constraints in promoting the technology driven banking in the country. The
recommendations of this study are mentioned below.
For the scheduled banks, it is important to:

Find out the scope to adopt technology driven banking.

Building up strong and true ICT department and provide training to the
employees and procuring robust software and quality hardware with
high configuration.

Create separate unit in each branch for rendering ICT related
operational activities under the supervision of the ICT department.

Train all staff about the basic ICT related matters.

The tech based banking products should me made cheap and
attractive for the mass people. If they avail the product in increased
volume then the bank will be able to maximize profit through multiple
transactions rather than a single. The ICT department should get a
handsome budgetary allocation each year by the management and the
amount should be reinvested at a higher amount every year.
In order to improve the growth in technology driven banking services banks
can also take the following steps:

There may be promotion through advertisement for increasing
awareness among the customers regarding the benefit of technology
driven banking.

Research may be conducted regarding how to design user frank
technical product easy to be used by the aged person who are not that
much proficient in using modern technology.
Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1

The bank may give few incentives like as minimum service charge for
these who are using technology driven banking services.

In order to detect and minimize the security risk the banks can take
some security counter measures, such as, preventive measures or
deterrent efforts. Preventive measures include using sophisticated
security software and controlling the access such as advanced access
control, intrusion detection, firewall and inspection mechanisms etc.
Deterrent efforts include: ducting the users of tech based banking
services how to use those services and what will be the consequence
of misuse, educating the IT personnel of banks about the security
measures and developing security policy statements and guidelines.

Besides all these, the government may take initiatives to provide policy
help to reduce the cost of technology driven banking service like as
adequate legal and environmental framework for flourishing tech based
banking.

At present, Bangladesh is trailing behind in acquiring the required
quality of banking services to effectively compete in the global market.
Therefore, the banking system needs up gradation and urgent
measures are needed to create a level playing field for rapid expansion
of technology driven banking in the country. Despite all constraints,
efficient use of existing facilities can improve the recent condition of
technology driven banking in Bangladesh.
Conclusion:
In this age of information technology and competitive world, banking sectors
should be modernized. The banking sectors of our country should use
electronic banking system so that they can provide more services to their
customers and earn sustainable amount of money to support the national
economy. The growth of electronic banking users increasing is a significant
manner. However, last 10 years it has got tremendous importance over the
bank customer and hopefully it will increase day by day after nurture the
product by the professional bankers.
References
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Proceedings of 3rd Asia-Pacific Business Research Conference
25 - 26 February 2013, Kuala Lumpur, Malaysia, ISBN: 978-1-922069-19-1
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