CHAPTER -3

THEORETICAL FRAMEWORK

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 THEORETICAL FRAMEWORK

THE RELATIONSHIP BETWEEN ATM’s USE AND

CUSTOMER SATISFACTION

Brownlie, (1989) has recommended that some customers have positive

attitude towards Automated Teller Machines based on dominant perceptions of
convenience/accessibility/ease of use. On the other hand, Reichheld and Sasser
instance, the longer a customer stays with a bank the more utility the customer
generates. This is a result of a number of factors relating to the time the
customer spends with a bank. Without usage of technology the banking sector
cannot provide customers with a satisfactory service concept that is taken into
practice. According to Patricio ET. AL ,(2003) customers will use different
service delivery systems dependent on their assessment of each channel how it
contributes to the overall service offering. Hence service satisfaction will not
merely be based on isolated service encounters and experiences but rather on
the overall feelings of satisfaction. With Automated Teller Machines network
already in place in most of the urban areas, the drive is now focused towards
the rural areas where the use of Automated Teller Machine Networks is still
uncommon. From the review literature, it can be observed that the operation
and use of Automated Teller Machine services in the financial sector has
contributed a lot in changing the way in which financial services and products
are being delivered to the banks clients. As the say goes that, for every step
forward (development) of Automated Teller Machine saw the emergency of
some challenges for the industry as customers keep demanding for better
service.

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RECENT TRENDS IN BANKING

1) Electronic Payment Services - E Cheques

Now-a-days we are hearing about e-governance, e-mail, e-commerce, e-

tail etc. In the same manner, a new technology is being developed in US for
introduction of e-cheque, which will eventually replace the conventional paper
cheque. India, as harbinger to the introduction of e-cheque, the Negotiable
Instruments Act has already been amended to include; Truncated cheque and
E-cheque instruments.

2) Real Time Gross Settlement (RTGS)

Real Time Gross Settlement system, introduced in India since March

2004, is a system through which electronics instructions can be given by banks
to transfer funds from their account to the account of another bank. The RTGS
system is maintained and operated by the RBI and provides a means of
efficient and faster funds transfer among banks facilitating their financial
operations. As the name suggests, funds transfer between banks takes place on
a 'Real Time' basis. Therefore, money can reach the beneficiary
instantaneously and the beneficiary's bank has the responsibility to credit the
beneficiary's account within two hours.

3) Electronic Funds Transfer (EFT)

Electronic Funds Transfer (EFT) is a system whereby anyone who wants

to make payment to another person/company etc. can approach his Bank and
make cash payment or give instructions/authorization to transfer funds directly
from his own account to the bank account of the receiver/beneficiary.
Complete details such as the receiver's name, bank account number, account
type (savings or current account), bank name, city, branch name etc. should be
furnished to the bank at the time of requesting for such transfers so that the

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amount reaches the beneficiaries' account correctly and faster. RBI is the
service provider of EFT.

4) Electronic Clearing Service (ECS)

Electronic Clearing Service is a retail payment system that can be used

to make bulk payments/receipts of a similar nature especially where each
individual payment is of a repetitive nature and of relatively smaller amount.
This facility is meant for companies and government departments to
Make/receive large volumes of payments rather than for funds transfers by
individuals.

5) Automatic Teller Machine (ATM)

Automatic Teller Machine is the most popular devise in India, which

enables the customers to withdraw their money 24 hours a day 7 days a week.
It is a device that allows customer who• has an ATM card to perform routine
banking transactions without interacting with a human teller. In addition to
cash withdrawal, ATMs can be used for payment of utility bills, funds transfer
between accounts, deposit of cheques and cash into accounts, balance enquiry
etc.

6) Point of Sale Terminal

Point of Sale Terminal is a computer terminal that is linked online to the

computerized customer information files in a bank and magnetically encoded
plastic transaction card that identifies the customer to the computer. During a
transaction, the customer's account is debited and the retailer's account is
credited by the computer for the amount of purchase.

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 7) Tele Banking

Tele Banking facilitates the customer to do entire non-cash related

banking on telephone. Under this devise Automatic Voice Recorder is used for
simpler queries and transactions. For complicated queries and transactions,
manned phone terminals are used.

8) Electronic Data Interchange (EDI)

Electronic Data Interchange is the electronic exchange of business

documents like purchase order, invoices, shipping notices, receiving advices
etc. in a standard, computer processed, universally accepted format between
trading partners. EDI can also be used to transmit financial information and
payments in electronic form.

CHALLENGES FACED BY BANKS

The major challenges faced by banks today are as to how to cope with
competitive forces and strengthen their balance sheet. Today, banks are
groaning with burden of NPA's. It is rightly felt that these contaminated debts,
if not recovered, will eat into the very vitals of the banks. Another major
anxiety before the banking industry is the high transaction cost of carrying Non
Performing Assets in their books. The resolution of the NPA problem requires
greater accountability on the part of the corporate, greater disclosure in the
case of defaults, an efficient credit information sharing system and an
appropriate legal framework pertaining to the banking system so that court
procedures can be streamlined and actual recoveries made within an acceptable
time frame. The banking industry cannot afford to sustain itself with such high
levels of NPA's thus, "lend, but lent for a purpose and with a purpose ought to
be the slogan for salvation".

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 The Indian banks are subject to tremendous pressures to perform as
otherwise their very survival would be at stake. Information technology (IT)
plays an important role in the banking sector as it would not only ensure
smooth passage of inter related transactions over the electric medium but will
also facilitate complex financial product innovation and product development.
The application of IT and e-banking is becoming the order of the day with the
banking system heading towards virtual banking.

As an extreme case of e-banking World Wide Banking (WWB) on the

pattern of World Wide Web (WWW) can be visualized. That means all banks
would be interlinked and individual bank identity, as far as the customer is
concerned, does not exist. There is no need to have large number of physical
bank branches, extension counters. There is no need of person-to-person
physical interaction or dealings. Customers would be able to do all their
banking operations sitting in their offices or homes and operating through
internet. This would be the case of banking reaching the customers.

Banking landscape is changing very fast. Many new players with

different muscle powers will enter the market. The Reserve Bank in its bid to
move towards the best international banking practices will further sharpen the
prudential norms and strengthen its supervisor mechanism. There will be more
transparency and disclosures. In the days to come, banks are expected to play a
very useful role in the economic development and the emerging market will
provide ample business opportunities to harness.. Human Resources
Management is assuming to be of greater importance. As banking in India will
become more and more knowledge supported, human capital will emerge as
the finest assets of the banking system. Ultimately banking is people and not
just figures.

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 India's banking sector has made rapid strides in reforming and aligning
itself to the new competitive business environment. Indian banking Industry is
the midst of an IT revolution. Technological infrastructure has become an
indispensable part of the reforms process in the banking system, with the
gradual development of sophisticated instruments and innovations in market
practices.

Indian banking industry, today is in the midst of an IT revolution. A

combination of regulatory and competitive reasons has led to increasing
importance of total banking automation in the Indian Banking Industry.
Information Technology has basically been used under two different avenues
in Banking. One is Communication and Connectivity and other is Business
Process Reengineering. Information technology enables sophisticated product
development, better market infrastructure, implementation of reliable
techniques for control of risks and helps the financial intermediaries to reach
geographically distant and diversified markets.

The bank which used the right technology to supply timely information
will see productivity increase and thereby gain a competitive edge. To compete
in an economy which is opening up, it is imperative for the Indian Banks to
observe the latest technology and modify it to suit their environment. Not only
banks need greatly enhanced use of technology to the customer friendly,
efficient and competitive existing services and business, they also need
technology for providing newer products and newer forms of services in an
increasingly dynamic and globalize environment. Information technology
offers a chance for banks to build new systems that address a wide range of
customer needs including many that may not be imaginable today.

It is becoming increasingly imperative for banks to assess and ascertain

the benefits of technology implementation. The fruits of technology will

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certainly taste a lot sweeter when the returns can be measured in absolute terms
but it needs precautions and the safety nets.

It has not been a smooth sailing for banks keen to jump onto the IT
bandwagon.

There have been impediments in the path like the obduracy once shown
by trade unions who felt that IT could turn out to be a threat to secure
employment. Further, the expansion of banks into remote nooks and corners of
the country, where logistics continues to be a handicap, proved to be another
stumbling stock. Another challenge the banks have had to face concerns the
inability of banks to retain the trained and talented personnel, especially those
with a good knowledge of IT.

The increasing use of technology in banks has also brought up 'security'

concerns.

To avoid any pitfalls or mishaps on this account, banks ought to have in

place a well-documented security policy including network security and
internal security. The passing of the Information Technology Act has come as
a boon to the banking sector, and banks should now ensure to abide strictly by
its covenants. An effort should also be made to cover c-business in the
country's consumer laws.

Some are investing in it to drive the business growth, while others are
having no option but to invest, to stay in business. The choice of right channel,
justification of IT investment on ROI, E-governance, customer relationship
management, security concerns, technological obsolescence, mergers and
acquisitions, penetration of IT in rural areas, and outsourcing of IT operations
are the major challenges and issues in the use of IT in banking operations. The
main challenge, however, remains to motivate the customers to increasingly

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make use of IT while transacting with banks. For small banks, heavy
investment requirement is the compressing need in addition to their capital
requirements. The coming years will see even more investment in banking
technology, but reaping ROI will call for more strategic thinking.

The banks may have to reorient their resources in the form of

reorganized branch networks, reduced manpower, dramatic reduction in
establishment cost, honing the skills of the staff, and innovative ways of
attracting talented managerial pool. The Government of India and the Reserve
Bank of India (RBI) on their part would strengthen the existing norms in terms
of governing and directing the functioning of these banks. Banks needs to
strengthen their audit function. They would be evaluated based on their
performance in the market place. It is in this context that we have invited the
chief executive officers of Indian banks to respond to the issues mentioned
earlier.

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