Rural Banking and Evolution of Banking Automation

The advent of Information Technology (IT) has brought about automation (or computerization) of many aspects of human existence. From agriculture, economics, health to banking and finance, IT has made significant impact. IMF conference of 1989 confirmed that Information Technology has had more impact on more fundamentals, more quickly, than virtually any other external change in the history of the banking industry (Agboola, 2003). 

Information Technology is a general expression covering computers, telecommunications and electronics. According to Khalifa (2000), IT is the automation of processes, controls, and information production. Banking automation is, therefore, a system of operating the banking process by highly automatic means so that human intervention is reduced to a minimum (Source: investopedia.com). Automation involves the use of automated machines (computer-based devices) to carry out banking activities to increase speed, accuracy and capacity (Agboola, 2003).

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Application of Information Technology (IT) in banking, also termed banking automation, has a number of advantages: some of which include speed, processing, storage, and quick and easy retrieval of stored information. An example of banking automation is the use of Computer as a back office affair to transfer accounting and record keeping activities from branch ledgers to a centralized system.

Seeing the potential of IT during its wake, many financial institutions made the crucial decision to automate their processes and they are reaping the benefits of that decision, even now. This helps explains why big commercial banks that embraced automation early have become more effective operationally than the rural banks, which kept using manual operations.

Traditionally, banks have always sought media through which they would serve their clients more cost-effectively as well as increase the utility to their clientele (Abor, 2003).  Their main concern has been to serve clients more conveniently, and in the process increase profits and competitiveness. Electronic and communications technologies have been used extensively in banking for many years to advance agenda of banks (Abor, 2003).

In Ghana, the earliest forms of electronic and communications technologies used were primarily office automation devices (Abor, 2003). Telephones, telex and facsimile were employed to speed up and make more efficient, the process of servicing clients.  For decades, they remained the main information and communication technologies used for transacting bank business.

Later in the 1980s, as competition intensified and the personal computer (PC) got popular, Ghanaian banks begun to use them in back-office operations and later tellers used them to service clients (Abor, 2003). Advancements in computer technology saw the banks networking their branches and operations thereby making the one-branch philosophy a reality.  Barclays Bank (Gh.) and Standard Chartered Bank (Gh.) pioneered this very important electronic novelty, which changed the banking landscape in the country (Abor, 2003).

Arguably, the most revolutionary electronic innovation in Ghana and the world over has been the ATM (Abor, 2003). In Ghana, banks with ATM offerings have them networked and this has increased their utility to customers.  The Trust Bank Ghana, in 1995 installed the first ATM (Abor, 2003). Not long after, most of the major banks began their ATM networks at competitive positions. The ATM has been the most successful delivery medium for consumer banking in this county. Customers consider it as important in their choice of banks, and banks that delayed the implementation of their ATM systems, have suffered irreparably. ATMs have been able to entrench the one-branch philosophy in this county, by being networked, so people do not necessarily have to go to their branch to do some banking.

Another area of automation in Ghanaian banking is the various electronic cards, which the banks have developed over the years (Abor, 2003). The first major cash card is a product of Social Security Bank, now Soceite Generale SSB, introduced in May 1997. Their card, ‘Sika Card’ is a value card, onto which a cash amount is electronically loaded. In the earlier part of year 2001, Standard Chartered Bank launched the first ever debit card in this country (Abor, 2003). Its functions have been integrated with the customers’ ATM cards, which have increased its availability to the public since a separate application process is not needed to access it. A consortium of three (3) banks (Ecobank, Cal Merchant Bank and The Trust Bank) introduced a further development in electronic cards in November 2001, called ‘E-Card’ (Abor, 2003). This card is online in real time, so anytime a client uses the card, or changes occur in their account balance, their card automatically reflects the change.

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Even though ATMs have enjoyed huge success because of their great utility, it has been recognized that it is possible for banks to improve their competitive stance and profitability by providing their clients with even more convenience.  Once again ICT was what saved the day, making it possible for home and office banking services to become a reality. In Ghana, some banks started to offer PC banking services, mainly to corporate clients (Abor, 2003).  The banks provide the customers with the proprietary software, which they use to access their bank accounts, sometimes via the World Wide Web (WWW). This is on a more limited scale though, as it has been targeted largely at corporate clients. Ghana Commercial Bank, Ecobank (Gh.) Ltd, Standard Charted Bank (Gh.) Ltd. and Barclays Bank (Gh.) Ltd and Stanbic Bank (Gh.) are the main banks known to offer PC banking services (Abor, 2003).

Banks have recognized the internet as representing an opportunity to increase profits and their competitiveness. As at 2003, no bank was offering internet banking (i-banking) in Ghana, but at the time some (Ecobank (Gh.) Ltd, Standard Charted Bank (Gh.) Ltd. and Barclays Bank (Gh.) Ltd) had well laid plans to start (Abor, 2003). Currently, we have a number of banks offering this innovation.

Telephone banking, has also taken a big leap with its convenience and time. Barclays Bank (Gh.) launched its telephone banking services in August 28, 2002. SSB Bank also launched its “Sikatel” or “SSB Call Centre” (telephone banking) in September 19, 2002. The services available with this system are ascertaining credible information about the bank’s products, the customers’ complaints, bank statements and cheque book request and any other complaints and inquiry.

As the rural banks increase their investments in automation and rural development continues to pick up speed, it will only be a matter of time before the aforementioned automation products become commonplace in rural banks.

Due to its importance, automation is the basis on which the future economy of Ghana, particularly the financial sector, is being planned (Ofori-Dwumfuo and Botchway-Anang, 2012). This is not surprising because automation of activities of banking institutions is now the global order.

Automation is transforming every aspect of a bank’s business, from its management information to the nature of the products and services it offer (Agboola, 2003). Automation influences many of the main drivers of both cost and revenue, which is increasingly determining a bank’s overall profitability and competitive positions. Hence, a bank that has not automated its activities will eventually decline in its overall profitability and competitive edge over time. 

Benfits of Rural Banking Automation

According to a study by Ofori-Dwumfuo and Botchway-Anang (2012), the following were identified as some of the benefits of the Rural Financial Services Project (RFSP):

•  Increase in competitiveness of rural banks with the commercial banks in the financial market, leading to improved service delivery to customers and greater customer satisfaction.
•  Better monitoring of rural banks in order to reduce financial malpractices. 
•  Enhancement of intra/inter bank transactions, peer interaction and peer monitoring among the networked members.
• The combined returns will bring greater efficiency, lower cost of operation leading to productivity and increased profitability and sustainability to the Ghanaian rural banks.

As a network, rural banks have achieved a remarkable level of service delivery and financial performance. At the end of 2008, they had deposits of GHS 343.9 million (US$265.1 million) from more than 2.8 million clients, and loans and advances of GHS 224.7 million (US$173.2 million) with about 680,000 clients (Nair and Fissha, 2010). They delivered 128,875 domestic money transfers worth around GHS 63.3 million (US$48.8 million) in 2007 and 32,392 international money transfers worth GHS 9.3 million (US$7.1 million) in 2008 (Nair and Fissha, 2010). They also facilitated check transactions worth GHS993.7  million (US$766.1 million) in 2008. Rural banks made a consolidated profit of GHS 15.6 million (US$12.0 million) in 2008 and had a consolidated net worth of GHS 62.3 million (US$48.03 million). Several have excelled in performance, both within the financial sector and in the broader private sector. In 2008, the year the Rural Financial Services Project closed, 18 rural banks qualified for the Ghana Club 100 (Nair and Fissha, 2010). Clearly, automation has impacted on the productivity of rural banks.

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Some References

Abor, J. (2003). Technological innovations and banking in Ghana: an evaluation of customers’ perceptions. University of Ghana: Legon.

Addeah, K. (2001). The legal and regulatory framework of micro and rural finance institutions in Ghana. Paper presented at the Rural Financial Services Project Launch Workshop, Agona-Swedru, Ghana, November 8, 2001.

Addo, J. S. (1998). A feasibility study and business plan for the establishment of an ARB Apex Bank, Accra. Revised Report for the Association of Rural Banks. Africa Region, the World Bank (1997), Technoserve/Ghana, Washington, D.C. World Bank, Africa Region Studies in Rural and Micro Finance No. 2.

Ayantokun, O. (2008). Adopt robust ICT, Banks Chief Tells MFBs; Nigerian Tribune, Wednesday, 1^st October, 2008. Pp35.

Agboola, A. A.  (1998). Computers in business administration: prospects and problems in

Nigeria. Journal of Social and Educational Research, 1(1)

Agboola, A. (2001).  Impact of Computer Automation on Banking Services in Lagos. M.Phil Thesis of the Department of Management and Accounting, Obafemi Awolowo University, Ile-Ife.

Agboola, A.A. (2003).  Information Technology, Bank Automation, and Attitude of Workers in Nigerian Banks. Journal of Social  Science, 7(3): 215 – 222.

Alu, A. O. (2000). Effects of Information Technology on Customer Services in the Banking Industry in Nigeria.

Ofori-Dwumfuo, G. O. and Botchway-Anang, B. N. A (2012). Computerization of rural banks in Ghana -issues and challenges. Current Research Journal of Social Sciences, 4(4): 294-303.