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The industry I have chosen to report on is the banking sector within the financial industry. In this report I will be elaborating on why I am interested in working in the banking sector and the description of it. Furthermore, I will be introducing the information technologies widely used in the banking sector, which allows any business to work effectively and efficiently and to maintain a competitive edge within the sector. I will also be elaborating about the enterprise IT organization within the banking sector and I have specifically chosen to speak about FDIC’s IT strategic plan.
I also introduced the topic of disruptive technology within the banking sector. I have chosen to speak about cryptocurrency because the banking sector will be primarily affected and how it can potentially impact the industry. Lastly, I will give recommendations about how the industry should proceed.
The financial sector is a section of the economy that is comprised of firms that provide funding services, management of money and facilitate the exchange/transaction of parties.
This sector is made up of different industries ranging from banks, real estate brokers, investment managers, insurance companies and mortgage lenders that offer a large array of products such as loans, investment advice and online payments. Some of the biggest banks include JPMorgan chase, Wells Fargo and Bank of America. The sector is one of the largest portions of most economies and can be used as an indicator of the general health of an economy. The financial services industry typically consists of 20% of total GDP in developed economies, from which retail banking, life insurance, and property and casual insurance generate most of the revenue.
The International Monetary Fund (IMF) estimated that the total global economy was worth $77.6 trillion in 2014 from which $13.1 is from the financial services. Most of the population utilizes some form of banking services or money transfer products and thus the customer segment consists of the working population, the unemployed, the retired and even the younger demographic usually starts off with a savings account at a very young age with parents mostly contributing to it. I am interested in this industry because it is an important part of the whole economy. Being able to learn about how critical information technology is for this industry is eye opening. What I have learned from all the articles I have read, is that many banks are open minded to emerging technologies and are willing to look into it and see how it can be implemented and also how crucial an IT strategic plan is for the organization.
There are many information technologies being used in the banking sector that defines who they are today. The banking sector is keen on leveraging the technological revolution to keep them in a competitive advantage and the Enterprise Research Planning (ERP) software is a crucial step in that direction. Banking involves its own typical set of technical prerequisites, operational challenges, complex data volumes, and security concerns. The most common ERP software currently being used in the banking sector would be, SAP, Oracle EBS, Corniche and EBANQ, to mention a few. However, each are used for several different purposes in the banking sector. SAP is a program that allows business to track client and business interaction through their specialized ERP system and data management program. This program aims to automate key business functions in financials, operations and human resources. Oracle EBS is one of the most widely used ERP and CRM (Customer Relationship Management) applications in the banking sector. This product was designed to help users manage global businesses, improve decision making, reduce costs and increase corporate performance. The applications in Oracle EBS support different aspects of ERP, CRM and SCM (Supply Chain Management) operations, including financial management, project portfolio, human resources, value chain planning and execution. Corniche is designed for the management of offshore banks and private banks. This product provides multiple currency accounting, card services, merchant services, payment interfaces and online banking facilities. EBANQ is the most user-friendly online banking software application on the market. It is a web-based, mobile-ready online banking system for small banks, credit unions, savings and loans, trust companies, and client fund management companies. The EBANQ allows users to navigate across their cards and accounts, view their current balance and recent transactions, and get notifications. The EBANQ would allow banks to have a mobile application for their clients. All in all, SAP and Oracle EBS dominate the market share with their highly process and secure application flow and all the products mentioned allow banks to work effectively and efficiently which helps them maintain a competitive edge.
Information Technology is one of the most significant investments in any organization. Bank information technology needs to be managed, secured, and aligned properly to meet any business objectives and keep any organization most important information secure. Majority of the leading banks have now come up with the prospect of building their activities on information technology and considering the importance of information system/information technology in banking processes. I will be talking about the Federal Deposit Insurance Corporation (FDIC) information technology strategic plan. Their IT strategic plan is built on three cross-cutting themes: Collaboration, Resource Optimization, and Innovation. According to the FDIC, the themes mentioned support five of their primary goals of their plan:
The IT strategic plan focuses on FDIC business needs and objectives, and it is data driven. According to the FDIC, the implementation of the IT strategic plan will help mature the FDIC’s enterprise architecture as it begins to define the strategic framework for aligning information resources with business requirements. It is also designed to address a rapidly evolving IT landscape.
The disruptive technology I have chosen to talk about is cryptocurrency in the bank sector. Distributed Ledger Technology (DLT), the technological innovation that gave birth to thousands of cryptocurrencies and essentially created an entire niche market/economy revolved around decentralization. Cryptocurrency is but one sole application of this relatively new technology that will impact business the same way bank accounts, wire transfer, debit/credit cards and online payments – and that is by bringing about a new standard of speed, transparency, cost and convenience to saving, storing, receiving and spending money. The introduction of digital currencies could replace current digital payment systems that facilitate transactions online. Currently there are only a handful of ways to pay online either with debit/credit cards or PayPal/Venmo that charge anywhere from 2-3% fees to facilitate this exchange in funds.
As you can see, traditional methods for transferring or spending money or either costlier or takes longer to process compared to digital currencies, not only does bitcoin process a block of transactions every ~10 minutes on average but it also does it at a fraction of the cost.
Given its brief existence many people are uneducated and unfamiliar with the matter and this could create challenges within the company if introduced. Unlike a bank account or credit card, cryptocurrency only requires the user to possess a device that is connected to the internet and a digital wallet application installed on it, in order to begin spending/using them, essentially opening/exposing your business to the billions of unbanked individuals around the world, thus encouraging greater financial participation from around the world. Given that most cryptocurrencies such as Bitcoin have predetermined inflation rates because the amount of Bitcoin that will be created is set at a fixed schedule and cannot be altered. This may create a scenario where people start to question the legitimacy of fiat currencies whose supplies are controlled by central banks from which inflation rates could be directly affected.
This graph represents the expected change in money supply which will directly affect the inflation rate in every country. As we can see, Bitcoin’s inflation rate is expected to become less than 2% by 2020, which is lower than what most central banks aim for, the federal reserve here in the US projects roughly 2%, so essentially Bitcoin becomes less inflationary than the currency which is used as the global reserve currency for most countries. We are yet to see the full effects of digital currencies, but as they gain traction and greater adoption, I can only imagine how it will not only reshape our economies but also our society that has been built on top of this current outdated monetary system. Many software/hardware applications are still in prototype stages and user interfaces is difficult to navigate. With hundreds of new cryptocurrency projects popping up every month trying to mimic the success of bitcoin; it will be interesting to see what the future holds for this class of alternative payments.
My recommendations for the banking sector would be that they stay open minded with all the emerging and disruptive technologies being introduced because it can either make or break them. Having the ability to respond to both new IT opportunities and threats, would allow any bank organization to develop innovative, proactive measures to mitigate those threats and anticipating needs of consumers, financial institutions, and their staff. With an effective IT strategic plan, it can improve any bank organization, with their agility and stability, and their accessibility and security. Any IT strategic plan should be thoughtfully designed to address a rapidly evolving IT landscape because the pace of change in the IT world is accelerating, and you must keep up with the pace. In conclusion, information technology is critical in any industry. Without information technology an organization will not be able to keep up in this rapidly evolving technological era. With technological advancement, it increases the chances of threats, cyber-attacks or data leaks are one of the main threats. However, with an effective plan, any organization can over come these challenges.
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