IT Can Lower Banking Costs in European Union

Internet banking, not often offered currently in the 15 European Union countries, is expected to have the highest growth potential of all remote banking options in the future, according to a report the European Central Bank issued last night.

IT developments, overall, are important to EU banks as a way to lower costs and keep up with the competition, according to the ECB's report called "The Effects of Technology on the EU Banking Systems."

According to the study, Internet technology can help EU banks to cut costs by reducing per-transaction costs by up to 25 percent over manual transactions. Also, IT in general can give banks a more efficient way to collect information on customer needs and habits, and can make it easier for banks to diversify into new business areas (such as insurance).

Still, IT adoption must be carefully managed, the report cautioned: if a bank shifts its focus to remote banking methods, for example, it needs to do so well, in case the bulk of its customers shift to the new way of banking. Customer loyalty can be a problem in the age of IT banking, too, as consumers use the Internet's power to search for and use services from lower-cost or more innovative banks.

Banks need to prepare for such new competition, especially as the Internet revolution brings a host of financial institutions from outside of the banking community (supermarket chains, securities brokers and so forth) into the banking market, the study said.

Other IT concerns for banks include avoiding heavy investments in IT products or trends that quickly go out of style. Uncertainly about online-banking laws can make the IT/banking marriage an uncomfortable arrangement. Banks may also be opening themselves to "systemic risks" as the trend to pooling IT resources with other banks opens their IT systems to danger.

Founded in June last year, the ECB is a central authority owned by the 15 EU countries. The bank is responsible for setting monetary policy for the 11 EU countries who, so far, have joined in the European Monetary Union (EMU). In January, the EMU debuted its new currency, the euro, in those 11 EU countries.

As things stand currently, EU banks have used IT mostly to prepare for the euro and the year 2000, rather than to move into the online world. Few EU banks have become what the report called "banking technology leaders."

But to keep up with competition, EU banks need to get going with IT developments. Increased competition will bring with it a host of trends: banks will close more branches as remote banking options become available; with the help of IT, banks will offer more and more innovative features; banks will increasingly outsource IT activities; banks will pool resources to share development costs, and banks will cooperate with IT and telecommunications companies to speed IT development, the report predicted.

For IT mangers at banks, the bottom line is to "enhance knowledge, technical skills and tools," and be aware of "strategic, legal and operational risks associated with technological development," the report noted.

Join the newsletter!


Sign up to gain exclusive access to email subscriptions, event invitations, competitions, giveaways, and much more.

Membership is free, and your security and privacy remain protected. View our privacy policy before signing up.

Error: Please check your email address.

More about EMUFinancial Institutions

Show Comments