Information technology focuses on the development of electronic networks that exchange information. Because all financial transactions involve the exchange of information, the increasing popularity of online finance coincided with advances in information technology. According to Professor Jane K. Winn of the University of Washington School of Law, “Financial institutions were at the forefront in creating the global information economy as it exists today.” Finance today relies on information technology.
In the 1960s, the New York Stock Exchange shortened its trading days because the volume of trades was too high to process manually. The development of information technologies such as computers and local networks in the 1970s brought fast and affordable information access to the finance industry. Increasingly affordable computers encouraged the development of numerous small financial firms that handled electronic data processing. At the same time, the speed and reliability of information technology supported the creation of nationwide financial services, including electronic check and credit card processing.
The open, public nature of the Internet threatens the closed information networks developed by the financial industry in the late 20th century. As a result of this conflict, banks are at the forefront of both information sharing and information security technology. Online commercial transactions began in 1995, and by 1998 the Internet was processing more than $50 billion worth of transactions. In the 21st century, the annual worth of Internet transactions is higher and requires more networks, more computers and more security programs. Financial institutions cannot compete without a broad but secure information network, so information technology is essential to their success.
Information technology allows finance to function on a global level. “Financial markets can be thought of as the first organized, global information markets operating through networked computers,” Winn says. Without information technology, financial markets couldn’t react to global developments and finance companies couldn’t consistently acquire information at the same time as their competitors. For example, the Internet allows continuous access to credit scores and credit ratings to all lenders, insurance companies and businesses that need financially responsible customers.
The information technology that runs social media on the Internet provides financial institutions with valuable information on their customers. By encouraging online communities associated with their products, finance companies not only acquire information but also encourage brand loyalty. For example, websites such as TradeKing allow online stock traders to discuss their picks and advise newcomers. Socially driven information technology allows finance companies to contact the younger demographics that will be their future customers.