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Information technology (IT)

Information technology (IT) plays an important role in the banking sector and this is also expected to continue in importance to the industry in the next years. The salience of IT in banking finds support in the sustained expenditures made by banks on IT software and systems reaching up to 10 percent and even greater. IT expenditures are necessary to support the maintenance and enhancement of electronic banking systems to provide banking services on the virtual community. Another evidence of the important role of IT in banking in the establishment of more electronic service channels to meet the growing demand for online banking transactions.

The number of electronic channels is increasing while existing bank outlets is decreasing in favour of electronic transaction venues. Despite the widespread IT adoption of banks, complete IT transformation has yet to occur apart from the fact that the development of IT tools is decreasing. (European Central Bank 1999) As such, IT engagement by global banking sector should continue in the future with banks continuously attempting to stay one step ahead of IT issues while addressing current problems that banks face in operating under an IT context.

Banks engage in IT because of the array of benefits it

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offers such as process facilitation, faster service delivery, and cost minimisation. The widespread access of bank customers to computers and the Internet has resulted to the development of the virtual marketing channels of banking services that allows banks to save on costs because of the lack of need for physical banking structures and numerous service delivery agents. As such, it is not surprising that banks accord high priority to the development of its IT capability in order to minimise its total operating costs.

Another benefit of IT use in banking is the ability to enhance workforce productivity. By experiencing the benefits of automation of some banking processes, not only do banks minimise errors and have a means of easily detecting mistakes but that banks can also concentrate efforts on key tasks such as marketing, service delivery, staff training and development, and service innovations. (Shin 2001) As such, through the use of IT, banks gain the potential to achieve efficiency.

IT adoption has changed in the previous years from banks developing IT competencies to handle the IT transformation of its operations and services to the outsourcing of IT tools and systems development to companies specialising in IT for the banking industry. By doing so, banks have been able to further save on cost by engaging the services of IT companies to develop the bank’s IT capabilities. However, the banking sector and IT companies operate on a highly competitive global environment so that the IT companies compete to provide services to banking industries around the world.

Competition allows banks to select an IT company able to offer quality IT services at reasonable prices. This means lesser cost again for the banking sector. Apart from these developments, IT outsourcing in the banking sector continues to change with the development of new utilities for IT in the banking sector together with the changes in IT market and competitive environment resulting to a wide array of options for banks.

In this light, the study seeks to investigate the trends and the development of IT outsourcing in the UK banking sector by looking at the comparative experiences of banks in the UK in terms of the extent of IT transformation of the banks, the ways that these banks have outsourced IT, the benefits of IT outsourcing, and the issues experienced in IT outsourcing.

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