Technological Innovation in Banking and Payments: Industry Trends and Implications for Banks

Abstract

ments involve the adoption of new processes, while others reflect a recent surge in the use of technologies that have existed for a number of years. In both cases, these processes combine the electronic transfer of payment related information with the actual payment instructions. While much attention has centered on the shifts away from paper-based payment media, the development and adoption of processes that broaden the scope of information transferred electronically in the course of a payment transaction will likely have a greater long-term impact on electronic commerce and banking. We discuss the response of banks to these technological developments, and the challenges arising for bank management in the fourth section of the article. Banks are substantially increasing their investments in technology, and we present information on the composition and magnitude of those investments. Our analysis indicates that banks are feeling strong competitive pressures to avoid being left behind in the technology area. This sense of urgency could lead to heightened technologyrelated risk exposures for banks if they fail to implement appropriate technology risk management practices. We then briefly discuss the steps taken by bank regulators to help institutions develop sound risk management measures. The article concludes with a summary of our key observations.