Banking Industry and MIS Banking

Banking Industry and MIS

Banking Industry in the United States of America:

Contributions of Management Information Systems (MIS)

The American banking industry in many respects presents an ideal case study of how Management Information Systems (MIS) in general and computing technologies specifically can be very effective in automating and making the most critical business processes more efficient. From the initial stages of the development of the American banking industry to its current state, MIS and computing technologies have been a pivotal catalyst in its growth. The intent of this analysis is to present the past and present business models of banks and how MIS has been able to contribute to their profitability and growth. In addition, the benefits and challenges of using MIS and computing technologies are analyzed in this paper.

Analyzing the Past & Present of the Bank Business Models in the U.S.

The core business processes that the business models of American banking throughout the 19th and early 20th centuries were based on were known for how manual, repetitive, and lacking in scalability they were. This severely limited the ability of banks to grow by offering additional services, in fact hid innate strengths these institutions had as a result of how slowly transactions were completed and analyzed. As a result of these inefficiencies, American banks from the largest to the very small were literally losing billions in incremental revenue from their lack of ability to manage core business processes more efficiently. Checking accounts, interbank transfers, managing investments of savings accounts, coordination with the Federal Reserve and the adoption of government regulations over time continued to force the issue of process improvement into this industry. Bank of America was the first American bank to realize that the scalability of the banking industry's core processes including interbank transfers, coordination with the Federal Reserve, and the need for managing the onslaught of 28 million checks on average being written industry wide per day needed automation and computing systems (McKenney, Mason, Copeland, 1997).

As Bank of America sought assistance from IBM and MIT to deal with the onslaught of these processes beginning to overwhelm the banks' manual processes it became clear the most efficient strategy would be to automate them (Stone, Clarkson, 1989). This was the pivot point in the American banking industry where MIS and computing technologies started becoming integral to the performance of this industry. Bank of America partners with IBM on the development of the IBM Model 702 system and later became the first bank in the nation to take receipt of the IBM 360 (McKenney, Mason, Copeland, 1997). As is the case with many first-generation systems, the IBM 360's operating system was rudimentary and not tailored to the bank's process workflows. Bank of America worked with Stanford Research Institute of Palo Alto, CA to get the operating system and first applications fine-tuned and up and running by the mid 1960s (McKenney, Mason, Copeland, 1997).

For this pivotal point in the history of American banking's business models and their automation, the future business models began to emerge rapidly. Personal checking rapidly grew with the development of Magnetic Ink Character Recognition (MICR) technologies that could be read and processed with automated systems. Banks and financial institutions were able to manage a greater variety of services as their process efficiency for their core transactions were automated with greater accuracy and speed as a result (Stone, Clarkson, 1989). Banks began to trade foreign securities as trading networks enabled through MIS-based systems began to link global financial institutions and governments (Menyah, 2005). American banks led the transition of financial institutions from being regionally or nationally-based to being global in scope, redefining their strategic roles in global business in the process (Stone, Clarkson, 1989). Global trading of securities rapidly spread as a practice within American banks, with the world's economy became orders of magnitude more connected as a result (Menyah, 2005).

Benefits and Challenges of Using MIS Systems in Banking

Once MIS proved its worth in the American banking industry, significant change happened rapidly. The benefits of having more speed and accuracy of transactions, greater versatility of services, greater security levels for personal and business banking, and the ability of many banks to tailor specific loan and financial services programs to the unique needs of individuals pervade this industry today. From the rudimentary and often primitive approaches to dial-up banking in the 1980s and 1990s to the 24/7 rapid access of Internet banking accessible to customers from anywhere in the world in 2009, there continues to be a revolution of convenience solidly anchored in security taking hold (Wang, Wang, Lin, Tang, 2003). All of these benefits are also dominated by the fact that many banks now have guided selling systems online (Beasty, 2006) that make it possible for consumers and businesses to design their own unique financial services programs and made-to-order programs. Banking is entering a new era of personalization and exceptional security as more and more services once entirely completed in branches are now completed online. The concept of "cloud" computing or the development of Software-as-a-Service has made these services available on a 24/7 basis as many banks turn to this platform for hosting services (Orr, 2008). The risks of having banking transactions running on SaaS-based platforms have been mitigated by the continual improvement of XML integration standards specifically for this industry (Orr, 2008). All of these benefits taken together then have contributed to an industry that competes for customers with an intensity never seen before.