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The use of electronic banking and new technologies in cash management

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The Use of Electronic Banking and New Technologies in Cash ManagementLeire San Jose Ruiz de AguirreUniversity of Basque Country, Spain

INTRODUCTION

The use of new information and communication technolo-gies (ICT) as a business tool has increased rapidly for the past 10 years (Bonsón, Coffin, & Watson, 2000; Claessens, Glaessner, & Klingebiel, 2000; Vasarhelyi & Greenstein, 2003). More specifically, financial software, e-banking, and the Internet, as core aspects of the various technologies used, have become driving forces behind the expansion of firms and the development of cash management. New technolo-gies are considered as one of the most attractive ways for businesses to increase revenue and achieve economies of scale that can reduce unit costs (Ballantine & Stray, 1998; Barajas & Villanueva, 2001; Daniel, 1999; Daniel & Storey, 1997; Deyoung, 2001; Downes & Muy, 1998; Faulder, 2001; Jayawardhena & Foley, 2000).

There are different studies about the use of ICT in the management of the enterprise that explain the obtaining of enterprise performance. Brynjolfsson and Hitt (2000) and Nájera (2005) have done a review of these works and a clas-sification of these types of researches. Unfortunately, there are not specific works or empirical researches about the use of e-banking in cash management; consequently, this work is focused in this.

The rest of the chapter is structured as follows. The theo-retical foundation on which the study is based is explained in Section 2. Section 3 presents the data and the analysis procedure used to conduct the empirical study. The main results of the investigation are shown in Section 4, and Sec-tion 5 presents conclusions. The chapter ends with a list of bibliographical references.

THEORETICAL FOUNDATION: E-BANKING IN FINANCIAL PRACTICES

Three different periods can be distinguished in the develop-ment of ICT in cash management (Williams, Chen, & Russell, 1997). In period one, prior to the 1970s, treasurers engaged in accounting and in managing the cash-flow of their companies, and did not use IT tools in their work. Period two, from the 1970s to the 1990s, is characterised by a vision based on

corporate relations and integrated systems. Since the 1990s we have moved into period three, the era of networking, in which the responsibilities of cash managers have come to include the use of electronic banking and new technologies to obtain the efficiency in their financial decisions because the great advantages for business management entailed by the development of technology. Internet is a space that can be shared freely at zero expense. However, the introduc-tion of new technologies needs to be analysed thoroughly if business management efficiency is to be maximised (Levinsohn, 2001).

In this context, specifically, electronic banking manage-ment becomes an essential function in which information can be obtained electronically on market conditions, finan-cial products, trends, and financial services. Financing and investment of treasury deficit and surpluses is optimised by comparing the terms of the different financial products on the market, and then contracting products online (Mooney & Pittman, 1996; Vasarhely & Greenstein, 2003; Welch, 1999).

In short, financial services based on new technologies use the e-banking as a single communication standard and thus, obtain economies of scale (Barajas & Villanueva, 2001; Eije & Westerman, 2002; Mishkin & Strahan, 1999) and positive synergies at treasury departments that were formerly difficult to achieve.

METHOD AND SAMPLE

To draw up the explanatory model of e-banking use in cash management, we used an exploratory factorial analysis of variables with Version 14.0 of the SPSS program.

In the following table, we have described the sample that is considered representative of the population of Spanish firms. This study was conducted on Spanish firms with more than 10 employees. The sample was chosen by proportional allocation according to criteria of company size (defined by the number of employees) and sector of activity. The total number of firms used was 501, and the error is smaller than 5%, necessary in this type of study.

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The Use of Electronic Banking and New Technologies in Cash Management

U

RESULTS

The results indicate that the new technologies more utilized by firms to financial practices are financial software, Inter-net and electronic banking. Furthermore, these results have permitted us to develop an explanatory model of the use of electronic banking to treasury management.

Preliminary Results

The Use of ICT in Cash Management

The ICT’s most widely used in financial operations and more specifically, in treasury management are financial software,

the Internet, and e-banking, though it is the introduction of the Internet into all areas of corporate life that has been the major revolution of the past 10 years. All these technologies entail benefits for financial management, so the next step is to analyse their average levels of use and determine which ICT’s are most widely used in this area (see Graph 1).

This analysis shows that e-banking (Internet banking) is the most widely used tool in treasury operations, with treasury managers awarding it an average score of 4.512 out of 5. The second highest score is that of the Internet, with 4.312, followed by financial software with an average of less than 4. Specifically, e-banking is used habitually by 73.1% of the firms analysed, the Internet by 65.5% and financial software by 44.6%.

Table 1. Acknowledgements: The sample

SAMPLE THE CLASIFICATION OF THE SAMPLE

RANDOM ERROR

INFORMATION COLLECTION TECHNIQUE. TIME

501 valid questionnaires. The interviewed person was the finance manager or cash manager.

Criteria: company size (defined by the number of employees) and sector activity.

± 3, 52% with a confidence level of 95,5%, p=q=0.5,

Telephone’s interview.

June of 2005.

Graph 1. The level of utilization of ICT in cash management: Averages

3,55

4,31 4,51

00,5

11,5

22,5

33,5

44,5

5

Financingsoftw are

Internet e-banking(Internetbanking)

averages

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The Use of Electronic Banking and New Technologies in Cash Management

Electronic Financial Instruments

In this sense, we analyzed electronic financial instruments, the financial instruments via e-banking mostly used by the companies. Concretely, four financial instruments have been analyzed that are emitted via electronic bank; the check, the invoices, the orders, and the request of loans (see Graph 2). The scale has been used starts in 1, which represents the smallest use, and finishes in 5, the most used.

The invoice (2,45) is, on the average, the financial in-strument emitted by e-banking that is used more, followed by the orders (2,42) and checks (2,19). The request of loans (1,57) via electronics is considerably inferior. These data, in general, denote that the financial instruments via e-bank-ing are not used habitually in the companies, although the electronic invoices and orders are used.

Explanatory Model: E-banking in Cash Management

Exploratory Factorial Analysis

The basic assumptions underlying factorial analysis, linear-ity, normality, and homoscedasticity, are conceptual rather than statistical. Therefore, from a statistical point of view, these assumptions can be obviated in the awareness that their fulfilment causes a drop in the correlations observed

(Hair, Anderson, Tatham, & Black, 1999). However, these correlations are still sufficient if it is determined that facto-rial analysis is appropriate. This can be done by analysing the Kaiser-Meyer and Olkin (KMO) measurement and examining the whole correlation matrix, contrasting it with Bartlett’s sphericity test.

The results shown in Table 2 are satisfactory for both tests, so an exploratory factorial analysis can be performed for e-banking.

These results (Table 3) show that the eight variables for the use of e-banking in treasury management can be grouped into two components with minimal information loss. The first component explains 41,728% of the variance, the sec-ond 28,725%. In all, this grouping into two factors explains 70,453%1 of the overall variability of the sample.

Saturations lower than 0.6 in absolute value have been eliminated.

An analysis of the sensitivities in Table 4 shows that for the first component, negotiation with financing institutions, management of the financing of treasury deficit, management of the placement of treasury surpluses and interest-rate, and exchange-rate risk management have high, positive values. Considering the significance of these variables, this component seems to be reflecting aspects concerned with advances use of e-banking in cash management.

Use of e-banking in collects and payments management, day-to-day control of banking positions, short-term treasury forecasts, and monitoring of banking positions at the value

Graph 2: Electronic financial instruments: Averages

2,19 2,45 2,42

1,57

00,5

11,5

22,5

33,5

44,5

5

Chec ks Inv oic e Orders Reques t ofloans

averages

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The Use of Electronic Banking and New Technologies in Cash Management

UTable 2. Determining factor of the correlation matrix, KMO, and Bartlett´s test

Kaiser-Meyer-Olkin simple suitability measure

,806

Bartlett´s sphericity test Chi-square 1004,000 fd 28 p-value ,000

Table 3. Principal component analysis. Final statistics with three components of rotate variables

Communality Comp. Eigen-value

%of Var. %Var. Accum.

Collects and Payments management ,638 1 3,343 41,728 41,728Day-to-day control of banking positions ,648 2 1,494 28,725 70,453Short-term treasury forecasts ,587Monitoring of banking positions at the value data ,474Negotiation with financing institutions ,585Management of the financing of treasury deficit Management of the placement of treasury surpluses Interest-rate and exchange-rate risks management

,681

Management of the placement of treasury surpluses ,622Interest-rate and exchange-rate risks management ,602

Table 4. Rotated component matrix; Varimax normalization with Kaiser

COMP. 1 COMP. 2Collects and Payments management ,798Day-to-day control of banking positions ,792Short-term treasury forecasts ,709Monitoring of banking positions at the value data ,663Negotiation with financing institutions ,746Management of the financing of treasury deficit Management of the placement of treasury surpluses Interest-rate and exchange-rate risks management

,813

Management of the placement of treasury surpluses ,772Interest-rate and exchange-rate risks management ,764

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The Use of Electronic Banking and New Technologies in Cash Management

data can be grouped around the second factor as basic use of e-banking in cash management.

The Explanatory Model of Use E-Banking in Cash Management

The use of ICT in cash management is expanded in the last decade. The electronic cash management is focused in the use of new technologies and particularly, e-banking in treasurer’s financial practices that permit they obtain more information to select the best financial decision that is conduced to obtain economic scales in the enterprise and reduction of transac-tion cost with positive synergies. There are two levels to use e-banking, the first level, basic e-banking is only used in the repetitive actions of the cash managers, the second level, we have denominated advance e-banking, and it is used in strategic financial practices (Graph 3). Is important to use e-banking in two levels, but nowadays some enterprises, small and medium principally, have not used advance e-banking to cash management.

CONCLUSIONS

The ICT more utilized by firms to financial practices is elec-tronic banking. The principal electronic financial instrument that enterprises use to cash management is the invoice. Fur-

thermore, these embrace not only the most repetitive treasury functions denominated as basic e-banking referred to use of e-banking to collect and payment management, but also they are used in treasury management functions that depend largely on corporate decisions and are strategic rather than operational denominated as advance e-banking.

REFERENCES

Ballantine, J. A., & Stray, S. J. (1998). Financial appraisal and the IS/IT investment decision making process. Journal of Information Technology, 13, 3-14.

Barajas, A., & Villanueva, M. (2001). Escenario de la banca en Internet. Banca y Finanzas, 66, 29-32.

Bonsón, E., Coffin, Z., & Watson, L. (2000). Un lenguaje para el reporting digital. Partida Doble, 17, 16-22.

Brynjolfsson, E., & Hitt, L. M. (2000). Beyond computation: Information technology, organizational transformation and business performance. Journal of Economic Perspective, 14(4), 23-48.

Claessens, S., Glaessner, T., & Klingebiel, D. (2000). Elec-tronic finance: reshaping the financial landscape around the world. Working Paper, Nº 4, 1-26. Retrieved from http://www.ssrn.com.

Graph 3. The different use of e-banking in cash management

B A S IC E -B A N K IN G

A D V A N C E E -B A N K IN G

USE OF E-BANKING TO:collects and payments management,

day-to-day control of banking positions,short-term treasury forecasts

and monitoring of banking positions at the value data

USE OF E-BANKING TO:negotiation with financing institutions,

management of the financing of treasury deficit, management of the placement of treasury surpluses

and interest-rate and exchange-rate risk management

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The Use of Electronic Banking and New Technologies in Cash Management

UDaniel, E. (1999). Provision of electronic banking in the UK and the Republic of Ireland. International Journal of Bank Marketing, 17(2), 72-82.

Daniel, E., & Storey, C. (1997). Online banking: Strategic and management challenges. Long Range Planning, 30(6), 890-898.

Deyoung, R. (2001). The financial performance of pure play Internet banks. Economic Perspectives, Federal Reserve Bank of Chicago, 25(1), 60-76. Retrieved from http://www.chicagofed.org

Downes, L., & Muy, C. (1998). Killer app-digital strategic for market dominance. Boston: Harvard Business School Press.

Eije, H., & Westerman, W. (2002). Multinational cash management and conglomerate discounts in the euro zone. International Business Review, April, 1-25.

Faulder, G. (2001). Foster’s choose treasury. Corporate Finance, 198, 25-26.

Hair, J. F., Anderson, R. E., Tatham, R. I., & Black, W. C. (1999). Análisis Multivariante (5ª ed,). Madrid: Prentice-Hall.

Jayawardhena, C., & Foley, P. (2000). Changes in the bank-ing sector-The case of Internet banking in the UK. Internet Research: Electronic Networking Applications and Policy, 10(1), 19-30.

Levinsohn, A. (2001). The wild, wired world of e-finance. Strategic Finance, 82, 27-32.

Mishkin, F., & Strahan, P. E. (1999). What will technology do to financial structure? Working Paper, Nº 6892, National Bureau of Economic Research. Retrieved from http://www.nber.org

Mooney, J. L., & Pittman, W. D. (1996). A guide to electronic commerce. Management Accounting, 78(3), 43-47.

Nájera, J. J. (2005). El estudio del impacto de la tecnología de la información sobre los resultados empresariales: una revisión de la literatura. XV Congreso Nacional Acede, La Laguna.

Vasarhelyi, M., & Greenstein, M. (2003). Underlying principles of the electronization of business: A research agenda. International Journal of Accounting Information Systems, 4, 1-25.

Welch, B. (1999). Electronic banking and treasury security, (2nd ed.). Blackwell, Oxford.

Williams, B. C., Chen, J. C., & Russell, P. O. (1997). Un-derstanding changes in systems, accounting and auditing: the impact of EDI. Managerial Auditing Journal, 12(6), 298-304.

KEY TERMS

Cash Management: The cash management corresponds to the obtaining of available the necessary one, at the suit-able moment, to the smaller possible cost for which the treasury is planned, is decided what short-term financing and investment to make, analyze the relations with the financial organizations and the risks are managed. In addition, the pursuit and the analysis of the management of the circuit of collections and payments are essential, along with the enterprise culture.

E-Banking: The electronic bank consists of the use of electronic channels by means of which the financial in-stitutions can send products or offer the banking services. Between the services and products, they are possible to be included, deposits, financial management of accounts, warnings, payments of electronic accounts, and provision of other products of electronic payments.

Electronic Cash Management: It is possible to be defined as the set of procedures and practices of integrated management of treasury with the developments in the tech-nologies of the information.

Electronic Financial Instruments: They consist of financial products that are contracted, emitted, and paid without the use in paper of financial documents.

ICT in Cash Management: It consists of the use of different techniques, such as Internet, Intranet, software, electronic bank, and the bank by Internet, with object to es-sentially obtain the efficiency of the management of treasury by means of the reduction of costs.

Information and Communication Technologies (ICT): The ICT has defined as the grouping of the technologies of information, that they are characterized by the technologies of registries of contents (computer science, communica-tions, Telematics), and the technologies of the communica-tion, that essentially group the radio, the television and the telephony.

Internet Banking: From the global concept of electronic bank, we considered that the bank by Internet consists of the use of the Internet channel like communication channel, banking product distribution, and hiring on the part of the financial organizations.

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The Use of Electronic Banking and New Technologies in Cash Management

ENDNOTE1 The number of factors extracted was determined by

prioritising the “percentage of variance” criterion over the “latent root” criterion so that with commonalities above the set minimum of 0.5 it was decided to select the number of factors necessary to explain at least 60% of the variance.

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