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Managing Risks in Commercial and Retail Banking by AMALENDU GHOSH

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CHAPTER 3

Technology Risk in Banking

3.1 WHAT IS TECHNOLOGY RISK?

Technology risk arises from the use of computer systems in the day-to-day conduct of the bank's operations, reconciliation of books of accounts, and storage and retrieval of information and reports. The risk can occur due to the choice of faulty or unsuitable technology and adoption of untried or obsolete technology. Major risk arises from breaches of security for access to the computer system, tampering with the system, and unauthorized use of it. Historically, information technology was used as a supporting tool for fast and accurate delivery of financial services. Over the years, the uses of information technology in financial services have substantially widened. Fierce competition among banks induced them to enlarge their network of banking products and services, and compelled them to offer services off-site and allow the customers to access the computers from their end. Banks are facing greater threats from rapid changes occurring in the technological systems applicable to financial services.

3.2 RISKS IN ELECTRONIC BANKING

The introduction of Internet banking service, mobile banking service, automated teller machine (ATM) service, and other utility services has increased the information technology risk manifold. The need for providing multiple electronic banking services has pushed banks to bring changes in products and speed up service delivery. The market competition leaves no time for banks to adjust to ...

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