beyond pt 0 23/1

Section Two
Banking and finance
Technological innovation has
been a major force shaping
financial service delivery
over the past two decades
and appears likely to
accelerate over the next
few years.
The Wallis Committee
2.1 Nature of the sector and the context
The economic role of the banking and financial services sector is to
mobilise funds between savers and investors.
The sector includes financial intermediaries and financial markets.
Financial intermediaries include the deposit taking banks, building
societies and credit unions, insurance companies (life, health and general)
and superannuation funds. The sector also includes value that is added by
market institutions, such as the Australian Stock Exchange and the Sydney
Futures Exchange.
Total finance sector expenditure in 1997–98 was $32 398 million, or
around 5.8 per cent of Australia’s GDP. 1 As of May 1999, the industry
employed 300 400 people. 2
Overall, the market environment in the banking and financial services
sector is becoming increasingly competitive. While seeking to mitigate the
risk of systemic financial failure, the thrust of regulatory reform following
the Wallis Committee’s report to the Government has been to encourage
a more efficient and flexible financial system. 3 Previous regulatory fetters
and cross subsidies have been progressively removed.
As imperfections in the operation of markets have receded with the
development of new transactions technology and new ways of harnessing
information, trade in markets has increasingly substituted financial
intermediation. It seems that further change is ahead with the new
capacities introduced by the use of e-commerce.
2.2 Role for e-commerce
The banking and finance sector was one of the first industry sectors to
benefit from the use of information technology more generally.
Early computers were used for scientific and military purposes, not for commerce.
They first made their way into commercial applications in the 1960s, with ERMA
(the Electronic Recording Machine—Accounting). Banks were swamped with the
growing volume of checks that needed to be processed (between 1943 and 1952,
check use had doubled from 4 billion to 8 billion checks written each year). By
automating the function with ERMA, the first bank to use the computer, Bank of
America, reported that nine employees could do the job that previously took
50 people.
Henry D, Cooke S, Montes, 1998, The Emerging Digital Economy,
US Department of Commerce 1998
The banking and finance sector has been a rapid adopter of e-commerce.
The sector displays many characteristics that will facilitate the adoption
and extension of e-commerce activities, such as the importance of product
over location, many of its key services are easily virtualised, and great
importance is placed on quick response times.
1 ABS.
2 ABS.
3 Financial System Inquiry 1997, Final Report, AGPS, Canberra.
91