Application of Information and Communication Technology in Banking

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Digital technology has greatly reduced the costs of compiling, processing, and distributing information. Information and communications technology (ICT) invigorates markets by enhancing the flow of information, not in creating certainty, but making information more symmetric. The rise of the Internet, for example, has increased transparency, improving the ability of all market participants to determine the available range of prices for financial instruments and financial services (Clemons and Hitt, 2000, 4). Indeed, information-driven disintermediation is not limited to the financial sector: The flow of information turns client relationships into markets. This phenomenon is cropping up in fields as diverse as travel agencies, real estate, and the auctioning of flowers in Amsterdam (Anon., 1998).The new markets that hand information to consumers also tend to push down prices. This is a dangerous prospect for branded goods like banking products and services, which behave increasingly like commodities. Moreover, technology has continually lowered the transaction costs of direct financing, facilitating the emergence of new electronic markets, payments and settlement networks, and new market-based risk and wealth management systems.Disintermediation is accompanied by securitization. Large firms increasingly raise finance directly from the financial markets. Companies with secure cash flows create securities from (or securitize) these assets, the value of which is determined by the volume and reliability of the cash flows (Holland et al., 1998, 222). The securities are then sold publicly or privately to institutional investors.