BANKING: The Network Is the Bank

Having just selected the car of his dreams, Suresh “Techno” Iyer
swipes his smart card through the card reader attached to his Internet access
device and points to the display button marked “loan officer.” A
voice, silky and businesslike, pours out of the speakers: “How can I help
you, Mr Iyer?” Iyer opts for a car loan, and in time less than it takes him
to brush his teeth, the application for his loan is processed and approved. He
slides his card through the slot again to accept the loan. Three hours later, a
driver delivers the car to his door. Suresh slides his card through the driver’s
mobile card reader, to acknowledge the receipt of the vehicle as he recalls that
the most stressful part of the entire process had been choosing the model.
Everything else, including the dealings with the bank, had been easy.

This is not a scene from a Hollywood sci-fi movie, but a not-too-distant
future possibility for households in India. And this may hold true not only for
car loans but the entire portfolio of banking services.

Banks are using technology as an enabler to provide innovative products, multiple delivery channels and have efficient service mechanisms
CN Ram
head, IT, HDFC Bank

Banking in the country is already witnessing sea changes as the banking
sector seeks new applications for infotech. The best part is that the benefits
are beginning to reach the masses. Earlier, this domain was the preserve of very
few organizations. Foreign banks with heavy investments in technology started
giving some “out-of-the-world” customer services. But such services
were available only to a select few–the very large account holders. Then came
the liberalization and with it, a multitude of private banks. The same customer
service was now available to the masses. With the entry of private banks, a
large segment of the urban population now requires minimal time and space for
its banking needs. Automated teller machines (ATM) are available across the
country, though they are still limited to prominent cities. If there is a
problem, all you need to do is give a call to the 24×7 call centers even in the
middle of the night. If you need information, check out the Web sites for
detailed information about products and procedures, from the comfort of your
home or office.

The first mass-oriented infotech deployment in the banks happened in 1998,
with Citibank’s pilot project “Suvidha” in Bangalore. The project
focussed more on the ATMs and less on the brick-and-mortar branches. Within two
years, it broke even and has now been launched in Delhi and the NCR. The bank’s
customers have access to over 49 ATMs in the region including Citibank’s own
ATMs and other ATMs in the Cirrus network–an international banking network.
Apart from the bank’s Web site providing information about all the ATM
locations, Citibank has put up a 24×7 call center to address all customer needs
from a single location. Another example is ICICI Bank. In Delhi alone, its on-
and off-site ATMs number about 39 while the brick-and-mortar branches number
about 10. It also has a call center to handle any banking queries in Delhi.

Private banks: Big lead

With the liberalization of the banking sector, private banks realized that
the adage “customer is the king” could be their ticket to success. The
customer–long forgotten by the public sector banks–could be attracted and
retained through good customer service. But without a countrywide presence like
the public sector banks, private sector banks could only compete through
innovative means. This came in the form of technology and private banks resorted
to leverage it to dish out a complete banking menu to their customers. Agrees CN
Ram, head, IT, HDFC Bank, “Banks are using technology as an enabler to
provide innovative products, multiple delivery channels and have efficient
service mechanisms.” Compare the menu of any private or foreign bank with a
public sector bank and it’s not hard to know why private banks have been
gaining market share. Multiple-site ATMs to tele-banking to PC banking to
Internet banking–you name it and the banks are giving it all without actually
increasing the number of their branches. And yet the customer feels better
served. No longer does he need to prime hours of his workday standing in long
queues in the bank or be forced to visit a particular branch for his banking
requirements. Today, thanks to the technology, one can bank in different
locations in a city or even the country, and more importantly, at ones
convenience. And banks are outdoing each other in increasing that convenience
level. Says Chander Singh, senior VP, IT and e-banking, Bank of Punjab, “By
the end of year 2001, we plan to have more e-bank centers than the actual number
of brick-and-mortar branches.”

Already, infotech in banking is become a strategic necessity for banks,
rather than being a key differentiator. Indeed, in its early stages, the ATM was
a source of strategic differentiation for Citibank and other early adopters. For
example, from 1977—1988, Citibank had increased its market share in New York
City from 4% to 13.4%. Many analysts agree that ATMs were a substantial driver
of that impressive growth. But, as the technology was deployed more widely, the
value associated with having ATMs installed shifted. Today, the ATM technology
doesn’t differentiate a bank–consumers expect it as a basic service
offering. ATMs have migrated from being a differentiator to a strategic
necessity.

Next on the line to look at infotech is the insurance segment, which is fast
going to play host to the private players. But public sector players in this
sector too are eager to embrace the technology. Unlike its banking peers, the
Indian insurance monolith LIC has been going full steam with IT initiatives. The
giant is in the process of networking all its branches across the country over a
wide area network (WAN), supplemented by metro area networks (MANs). Unlike the
past where each policy was tied to a particular branch, now it’s possible to
get information in any branch of the city.

Net banking: The next shift

The IT initiative was only for large metros and has not visibly affected the semi-urban or rural areas, given the fact that there are constraints of a limited backbone network 
Ashutosh Gupta CEO, Deutsche Software

But before the banking industry moves up the technology chain, CIOs need to
look at another issue radically changing this banking industry–the Internet.
In America, several major financial institutions are also launching
Internet-only units apart from the traditional brick-and-mortar branches. For
example, in Canada, the Bank of Montreal launched mbanx, the US-based First USA
Bank unveiled Wingspanbank.com. However, in India, we still have too many
problems like infrastructure and poor Internet penetration to see Internet-only
units in the country. However, as this is becoming a cost-effective way to do
business, the Bill Gates’ quote of “society needing banking but not
banks” is fast becoming true. Rather than going the old way of setting up
branches to increase their market shares, today the financial organizations are
increasingly moving towards the Internet as the next paradigm. In the
Internet-only model, to develop a full-fledged banking unit, all one needs is a
trusted brand name, interactive Web sites and tie-ups with various networks like
the global Cirrus or the Mumbai-centric Swadhan to use the ATM facilities. Of
course, for the brick-and-mortar presence, call centers are required, especially
to handle all business FAQs. It’s also easier to wean away customers since
such banks can offer a higher rate of interest as compared to a megalith
brick-and-mortar set-up, mainly on account of their low maintenance and
operational costs. Comments Ankur Singh, business development manager, Apex
Technologies, “I don’t remember going to the bank in the banking hours
for the last two years and interacting with bank staff in person. It’s now
mainly ATMs, tele-banking, Net-banking and now m-banking.”

Though, it will take a lot of time to achieve a level similar to the US,
things are already fluttering in the banking industry. Citibank Suvidha is a
successful experiment in this direction. According to reports, 33% of Citibank’s
banking customers in India have shifted to Net-banking. Most of the private
banks are luring their customers with Internet-banking facilities. The private
segment has taken the lead and the public segment is also moving in the same
direction, but with offerings in select branches only. Agrees R Ravisankar, CEO,
iflex, “Even the larger, traditional public sector banks are realizing the
importance of the Internet and are beginning to incorporate these into their IT
strategies.” Today, almost all banks have at least put up basic business
information on their respective Web sites. Most banks have Web sites for two key
reasons–to have a presence on the Web and be seen as a tech-savvy organization
and also to retain customers in response to aggressive banks.

Though there is no denying that the Internet has emerged as a promising new
medium for the financial sector, the issue of security still remains to be
tackled. However, banks are already taking initiatives to address this issue.
Comments Singh, “We are already using a 168-bit encryption.” So
according to industry analysts, though security will remain an important concern
for financial institutions, it won’t come in the way of widespread
implementation of online banking, which will continue to be driven by
competitive pressures and market requirements.

Public sector: Why the lag?

This raises the question as to why it’s the private sector, which has been
taking the initiative while the public sector keeps on watching its depleting
market share. The public sector, which controls about 65% of the banking
industry, is certainly aware of the implications. At the core of the problem is
the model on which the public sector banks are based–the service model. As
nationalized banks, they have certain social obligations, which require them to
provide services throughout the country and it will take them time to mature to
a different model.

CIO Concerns: Parameters for Selecting the Right Banking Solution

  • Flexibility
    Does the solution have the capability to adapt quickly to changing market requirements? Can new products and services be introduced quickly with the technology or will any new product imply adding a new component to the existing technology?
  • Reliability and availability
    With customers demanding any time access, does the solution support 24×7 operations?
  • Scalability and stability
    Can the solution handle growth in volumes with acceptable response times and reasonable hardware costs?
  • Interoperability and compatibility
    Is the system open, as proprietary technologies may not work to their benefit? Can it integrate seamlessly with the other applications of the bank, such as CRM and business intelligence? Also with the convergence of the financial market, banks will sell insurance products and vice versa, can the solution integrate and talk to other platforms seamlessly? 
  • Delivery channels
    Does the technology allow the bank to seamlessly add new delivery channels like Internet banking, ATM, mobile banking, and Web TV?
  • Speed of deployment
    If the technology takes a long time to be implemented, will the company lose out in offering the same to its customers. 
  • Stability
    Is the solutions provider financially strong and viable, and will be around for some time?

Moreover, branches spread across the entire country and a lack of national
bandwidth have become a big constraint for the IT endeavors of public sector
banks. Nevertheless, they are on the technology route, though there is less
visibility about that. Comments Ashutosh Gupta, CEO, Deutsche Software,
"The IT initiative was only for large metros and has not visibly affected
the semi-urban or rural areas, given the fact that there are constraints of a
limited backbone network." On the other hand, private banks have no such
bottlenecks and from the beginning can plan their network in a fully
computerized environment even in B-class cities and hence are more visible.

Then there is the issue of the legacy systems. Since the public sector banks
are still in the process of automating their processes, they need to run the
manual processes for some time. Most of the IT initiative so far has meant
automating the traditional paperwork to online process. Contrary to this, as
late entrants in the banking sector, private banks had the benefit of working in
a fully automated work environment right since their inception, and could
compete with the foreign players in terms of technology. Comments Ravisankar,
"The private sector banks have the major advantage of being able to effect
changes quickly, and not have to deal with a huge infrastructure, branch
network, and manpower resource pool that they need to transform." As a
consequence, they have also optimized the use of human resources. To compound
their woes, public sector banks also have the ever-looming issue of unions. Says
Ram, "Automation was always resisted in these banks by the unions since
they perceived it as a threat to jobs." Adds Pravir K Vohra, executive vice
president and head, information technology, ICICI bank, "Apart from inertia
at the lower ranks, banks are also burdened with legacy systems and applications–a
total restructuring needs to be brought about."

CIOs: Crucial decision makers

In this technology-based banking world, it’s the CIO who is fast becoming
the key to a bank’s success or failure. With increasing needs to gear up to
the fast-changing technology, the onus to implement the right banking solutions
lies on the CIO. With the apparent huge potential of the market, the industry
has seen many players offering their financial solutions to the banking sector.
It’s imperative for the CIO to decide upon the best technology. Industry
analysts say that the most important parameter in evaluating the technology
remains the flexibility of the solution along with the scalability. With the
growing popularity of Internet banking, CIOs’ evaluation of the solutions
becomes all the more crucial for the future of the bank. Web sites which offer
static information and primarily replicate existing business processes, will not
be give a bank the cutting edge. It becomes the CIO’s job to ensure that such
sites allow the bank to take useful advantage of the Net.

India is still in the early stages of incorporating technology in banking and
we have barely scratched the tip of the opportunity iceberg. In round one, the
winners have been the private players. However, with 60—65% of the banking
still in control of the public sector banks, they too have an important role to
play and the sooner they start incorporating technology into their overall
business plan, the faster they can recover, some if not all of their lost market
share. Banks have a key role to play in the emerging e-commerce market. A big
opportunity lies in positioning as a co-developer in the e-commerce space.
Though private banks have taken a clear lead in this area, public sector banks
too can grab some of the untapped opportunities by moving in quickly. Comments
Girish Vaidya, senior VP and head, banking, Infosys, "The monopoly that the
banks have enjoyed over the payment system will disappear in the e-commerce era
unless they position themselves between two transacting parties."

While private banks are deploying technology to cannibalize the public sector
market share, the game has just started. Proper technology usage by public banks
can still put them back in the same league with the private ones. But for this
they immediately need to explore and exploit the technology to the fullest. They
also need to look at international trends of Internet-only units supported with
call centers and huge networks of ATMs. Timely measures in these direction will
put them back in the same league as the private or foreign banks. The ongoing
automation in public sector banks is fine, but they also need to deploy the
state-of-the-art banking solutions and services quickly. Probably they will have
to work on parallel on both these issues. While such services are yet to become
a requirement by customers in ‘C’ class cities, they already constitute a
major demand from customers in the urban areas.

At the end of the day, the quality of banking services will win long-term
customer loyalty. Of course, the technology will continue to play the enabler.

Yograj Varma
in New Delhi

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