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Retail Banking: Show Me the Money...

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DQI Bureau
New Update

'Society needs banking, not banks'

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–Microsoft chairman Bill Gates

If you were born before 1985, you will emphathize with this

story. If you were born after that year, well, I think I have your sympathy.

This, of course, is assuming that there was a time when children did not conduct

banking transactions on their own. A time when tasks like withdrawing cash or

even depositing a cheque, did not qualify as child’s play. A time when going

to the bank meant taking a few hours off work, waiting in a long queue for a

token, fumbling in your briefcase for a pen, scribbling cumbersome details on a

yellowed piece of paper. It also meant twiddling your thumbs in a corner till an

irritable clerk finally shouted out your name!

Banks: The Tech

Within





It Pays to be Techno-savvy




Banking Online




ATM: The Killer App




Swadhan Shared Payment Network System




Hoarding Money...Virtually
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Lousy service from the banking sector had become a way of

life. And then, technology changed it all. The last six to seven years saw

private banks hogging the limelight with their success stories. Well, to be fair

to their country cousins–the public sector banks, they did start with many

advantages.

To begin with, as CIOs in the banking sector are quick to

point out, private banks had the advantage of beginning work on a clean slate.

It has been easier for private banks to effectively use technology from day one

and pass on the benefits to consumers. One look at the current needs and

expectations of retail banking customers and you can see it’s impossible to

think that these can be fulfilled without using technology. Customers today

expect the ‘Anytime, Anywhere’ banking experience and that accounts for the

huge number of ATM’s. They want quick decisions on loan applications and

online authorization for credit/debit cards.

While fulfilling these needs, banks also need to take the

right decisions in terms of customer credit assessment for loans, an early

delinquency policy offering flexible products like moving money from saving to

fixed deposit accounts etc. None of this can be achieved without technology. And

if banks still insist on keeping away from technology, it would not be long

before shareholders, customers and employees embark on the migration path.

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The

ideal model:
Centralized and

enables plug-and-play. Need to add a branch, ATM or new Web-enabled

service, simply connect to the switch and you are done.

Private players were quick to realize the same and have

aggressively captured top slots thanks to extensive usage of technology.

Consider the case of HDFC Bank. Thanks to international partners like Natwest

Markets, the company had decided on a primary objective of having a robust

platform and keeping pace with the expected business volumes. The company went

in for centralized banking with the entire customer database on Sun Servers.

Along with the other backend servers for credit cards, debit cards and smart

cards, these are connected to the outside world with the help of a Base24 switch

from Financial Software and Systems. The systems implemented are on a

centralized host with clients from the branches connected via leased lines using

a standard TCP/IP protocol via the Base24 Switch. So it’s a plug and play

system at HDFC Bank now. Any new ATM or branch simply has to be connected to the

Base 24 switch. Comments Nagaraj Mylandla, MD, Financial Software and Systems,

"With the Base24 switch, we have modularly implemented the various

solutions as and when HDFC needed them."

The company implemented the Base24 system for HDFC Bank way

back in 1997 with an ATM system and later added a POS (Point of sale),

MasterCard, AMEX and Visa Plus/Electron certification. The company is currently

implementing the remote banking module to integrate call center/telebanking,

Internet banking through the Base24 system using iFlex’s Finware banking

system. Apart from HDFC Bank, the company has deployed its Base24 solutions in

UTI bank, ICICI Bank and SBI.

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The stories of other private banks are similar. Comments

Global Trust Bank Executive Director PC Narayan, "Unlike other private

banks which could depend on their parent organizations and public sector banks

which could draw on their reserves, we had to be very careful with the IT

capital expenditure. But we were sure about the necessity of IT and planned our

infrastructure accordingly." Also, the innovative use of technology in

private banks is attracting retail customers. For example, HDFC has an ATM with

transaction facility in local languages.

What about PSBs? It is not that the technology is not

available and most of the smaller banks like Corporation Bank are already

networked. The problem is with bigger banks that have huge branch

infrastructure. Legacy systems and distributed architecture are other

impediments in achieving ‘Any where any time’ status. Also unlike the

private and MNC banks, where people are used to technology from day one, in the

public sector it was more a case of technology being forced on to users. Rather

than taking the lead in automating their banking process, key officials have

displayed inertia resulting in the slow pace of technology ramp-up.

For example, only 1494 of the 2627 branches of Bank of Baroda

have been computerized so far. Also on the retail side, the implementation of

technology is taking long. For example, of the 2627 branches in seven cities,

only about 290 branches customers can currently access facilities like tele-banking,

PC banking or any branch banking and that too, only within the networked

branches in the cities. Says V Chandrasekhar, DGM IT, Bank of Baroda, "The

sheer size and diversity of banks like us does pose a serious challenge."

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MILES

TO GO...:
Blame it on legacy

systems. Given the massive infrastructure at branches, the going is

tough for public sector players. Efforts are on to put a centralized

database in place, but most PSU banks have branches that are cut off

from the main network.

However, not to be left behind in the IT race, the bank has

appointed Gartner Group for evolving and implementing the bank’s IT strategy

to take on its tech savvy counterparts in the private sector. Like Bank of

Baroda, IT is making inroads into public sector banks irrespective of the pace.

Take the example of the big daddy State Bank of India. SBI has been heavily

advertising its ‘Any time any where’ banking offering in the metros. The

bank has computerized about 2714 branches covering about 79% of its business

reach. The bank has about 212 networked ATMs facilitating customers of 300

branches across 10 cities to enjoy anytime banking.

The balance of the total 410 ATMs at over 100 centers are

connected to the branch itself but not to the centralized database. So, do

public sector banks still have a long way to go? Of course, most of the PSBs are

part of the Swadhan network and can immediately access over 1000 ATM across the

country. However, a majority of the customers can’t benefit from the same as

they are not connected to the central database, a must for transacting on any

network.

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However, for the private players, technology has brought

success. Customers used to PSBs services have moved en masse to the private

sector banks. Says UTI bank’s Ramani, "About 85% of the cash dispensing

now takes place through the ATMs leaving the branch infrastructure for providing

more value added services."

Key technologies



A single technology that has revolutionized the functioning of private

sector banks has been the ATM network. Gone are the days when ATM usage was the

perogative of MNC bank customers. With the private banks, the major thrust was

on rapid rolling of ATM outlets across counries. In a short span of 3-4 years

ICICI bank has rolled out over 650 ATMs while HDFC Bank has a network of 360

ATMs and 147 branches in 63 cities. Jump to the public sector banks. While the

front-end (ATM) is being forced on public sector banks, they are investing

heavily in the creation of a single customer interface. This calls for a

creation of a single integrated database. This is difficult since these banks

were traditionally organized around independent product lines such as deposits,

loans and credit cards. Coordination among departments was loose and customer

information could not flow easily across the organization.

Did someone mention Internet banking? Not today! That front

is not hot anymore. So far, the global Internet banking experience has not been

so good for the banking community. According to a survey by Deloitte Consulting,

less than a third of customers rate e-banking as an important service, and of

those, only 22% actually use it. More bad news: according to the poll, more than

30% of customers do not even know whether their bank provides online services at

all.

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The findings contrast starkly with the market expectations

among banking executives. In an earlier Deloitte survey, financial services

executives had predicted that customers would be eager to do their banking on

the web. Contrast this with the scenario a mere year ago when any initiative

with the ‘e’ was waved through by the board of many banks. Expectations of

cost reduction from electronic commerce initiatives have halved since last year,

with 40% of respondents in the UK banking sector citing the main reason for this

being ‘a failure to migrate clients’ and 40% saying that ‘customer usage

was lower than expected.’

Not only do banks appear to have over estimated customer use

of the internet, but also bad experiences online have made customers unwilling

to use this mode of transaction. So after all the hype, today it’s just talked

about as another delivery channel rather than a medium with the potential to

shake up the banking system. Internet banking is passe and bankers are very now

bullish on m-banking. Again, ICICI and HDFC bank have taken the lead in the

same. Currently, services like balance inquiry, mini statements and cheque book

requests can be conducted from the cell phone.

Comments an official from a leading northern private sector

bank, "Everybody seems to be focusing on the huge penetration of mobiles

compared to PCs for m-banking initiatives and banks are trying to educate their

customers on the benefits of m-banking." Adds Narayan, "Any bank needs

to be geared for delivery capability. From the IT perspective, we had deployed a

system that would handle any end-user interface. So we are ready for m-banking

or any other delivery channel."

What next



As the public sector banks are still grappling with the issue of

computerization and are trying to put in place a centralized customer database,

private players have already moved on to the next stage. Among the CIO’s top

priorities is having a CRM and data warehousing solution in place. Comments

Ambrish, "The industry is seeing a transition from the revenue and market

share approach to profitability and wallet share. And this is not possible

without a data warehouse solution." Also, the Vasudevan Committee has

clearly asked banks to have a data warehousing strategy in place by January 2001

and a pilot application by April 2001. Apart from the committee’s directive,

it makes sense to deploy a data warehousing solution given the rapid scaling of

technology by private and MNC banks. Back to the basic question — What will be

the differentiator? The key differentiator in the long term is to build a unique

relationship with each individual client and sieve through millions of daily

transactions from various touch points like a call centre, ATM facilities, the

Web and branch visits and convert the same into a knowledge base. This will help

identify the unique needs of each customer. This is a tall order and can only be

done in a centralized data warehousing environment.

Has the bus left?



While private banks are on the move, cannibalizing on the public sector

market share, it’s time for the public sector to take a call on the same. If

technology is the only reason that the private sector is chipping away at its

market share, then its time to ramp up technology on a warpath. Of course this

will not be easy. The IT drive should come from the top management, else it is

doomed to fail. Mindset issues need to be handled and there needs to be an acute

focus on the training of employees. Comments a senior public sector bank

official, "Simply having technology, say a new CRM system, will not help us

till we don’t drastically change the way we run the business in terms of

customer focus. Handling that is what is going to be the tougher part."

Till that happens, private banks will be the glamour boys of the Indian banking

system.

Yograj Varma in New Delhi

Hoarding Money...Virtually

The emergence of Internet banking is prompting banks to rethink their

customer interface

Customers, both corporate and retail, are no longer willing to queue in

banks, or wait on phones, for the most basic services. They expect to be able to

transact their financial dealings where and when they wish. The emergence of

Internet banking is prompting banks to rethink their customer interface. The

Internet enables banks to offer low- cost, high value-added financial services.

In addition, it provides customers with better opportunities to compare

services. Banks will need to develop their Web-based business models centered on

customers by developing and personalizing innovative, easy-to-use offerings that

focus on customer’s lifestyle goals and develop tailored solutions in

real-time.

Studies clearly suggest that banks in future will become e-business

marketplaces. Banks have discovered that they can play a primary role as

financial inter-mediators and facilitators of complete commercial transaction

via electronic networks and especially the Internet.

The challenge for banks is to offer a payment backbone system that will be

open enough to support multiple payment instruments (credit cards, debit cards,

direct debit to accounts, e-checks, digital money, etc.) and scalable enough to

allow for a stable service regardless of the ‘workload’.

One of the major hurdles in the way of Internet banking in India is that PC

penetration is dismal and Internet growth is still slow. Add to this the state

of poor IT infrastructure in the country. The ubiquitous nature of the Internet

means that there is a theoretical possibility of an attack anywhere. These

attacks could be traditional break-ins, fake websites or by ‘denial of service’

attacks.

The websites of ICICI Bank and HDFC Bank furnish elaborate information on the

security aspects of their banks. ICICI has multi-layered security architecture

comprising firewalls, filtering routers, 128-bit encryption and digital

certificates. HDFC bank uses a technology called secured socket layer (SSL),

which involves scrambling of the information between the customer and the bank.

Banks and customers need to define appropriate legal measures covering, among

other things: service levels, indemnities, limitations of liability and

acceptability of digital signatures. In India, all of these are conspicuous by

their absence and lack of a Public Key Infrastructure (PKI) could hamper the

growth of Internet banking. IT doesn’t necessarily spell doom for traditional

banks. And it would seem almost inconceivable that the position of big banks

which process crores of rupees a day could be challenged by these Internet

entities, and especially in the Indian context, it is a far-fetched idea. What

the Internet does offer established systems of the old types, are opportunities

for cutting costs and marketing products more efficiently.

MT Jeevan/VOICE & DATA

It Pays to be Techno-savvy

Gone are the days when it was nice to have technology. Given the rapid

changes in the banking segment, today it is a must to have technology. Part of

this need stems from doing business in a very technologically competitive

environment but more importantly, a high level of technology has become a

pre-requisite for doing business in today’s banking space. Lets look at the

customer’s psyche — An any time, any where environment, quick decisions on

loan applications, online authorization for credit cards, etc… Also from the

bank’s perspective, there is an urgent need to process things faster but

without losing out on the quality factor. None of these can be possible without

technology!

The

top priority is to have a core banking application and a centralized database.

This is a sheer necessity for an ‘anytime, anywhere’ environment. So, any

new ATM or branch just needs to plug on to the centralized database and voila,

you can provide customers access to your services across the country.

Secondly, is the proliferation of ATMs actually reducing the load on existing

branches or reducing investment in brick and mortar branches? Connectivity (read

leased lines) especially with ATMs, is the key factor, where ever an issue has

been tackled with VSATs. For example, 330 VSATs dot SBI’s nationwide

networking connectivity infrastructure.

However, the current technology darlings of CIOs in the banking sector are

CRM and datawarehousing. Most banks Dataquest spoke to, were implementing a

datawarehousing solution, or were planning to, in the next financial year.

Comments B Amrish Rau, Business Manager (India), Tera Data India, "If

transactions from various touchpoints are not captured and available to the

staff, the bank could fail to meet the requirements of customers and have a huge

problem in retaining them."

Given the increasing complexities thanks to the ever increasing touch points

such as branch visits, ATM, call centers and credit card transactions, it is

impossible to keep track of the customer without solutions like datawarehousing.

And on top of the datawarehouse sits the CRM package.

The increasing competition coupled with finicky customers have ensured that

banks are looking for solutions that can help turn data captured at every touch

points like call centres, ATM facilities and the Web into a knowledge base.

Today, this knowledge base can furnish the bank with complete information on

customer behavior. This can be leveraged for related opportunities like

cross-selling and determining the risk involved with respect to issues like

fraud, default and so forth. Customers today take ATMs for granted and one

wonders banks could possibly have done without technology.

Banking Online

This

is one of the key delivery channels for the retail segment and the much-talked

about one as well. Though penetration is still low compared to international

standards, it is among the few segments showing no sign of abatement. Of course,

this will bring in its share of the never-ending debate on the PC versus the

mobile appliance rivalry. What should banks target, internet banking because

their peers are doing so or mobile banking which seems to have more chance of

success. Also, internationally Internet banking has not met the expectations of

the banking community. According to a survey by Deloitte Consulting, less than a

third of customers rate e-banking as an important service, and of those, only

22% actually use it. So the debate continues. The same is the case with Indian

Banks. Barring the top private banks like ICICI Bank, HDFC Bank, Global Trust

Bank and Citibank, who have been aggressive in the Internet banking space, the

Internet as a delivery channel is yet to pick up. On the other hand, bankers are

optimistic about m-banking, given that mobile penetration is on the rise in the

country. Comments V K Ramani, senior vice-president (IT) at UTI Bank,

"While we will continue to focus on Internet banking, m-banking is on the

clear priority list for UTI bank given the fact that a cell phone is always with

the customer and is always on. So there are no hassles of locating a PC, logging

on and waiting…." The same is the case with other banks, who are in the

process of educating their customers on the m-banking concept. All

advertisements and promotional material is aimed at educating people on the

benefits. And these banks are waiting… when customers start demanding, they

will be ready for the same. However, from the bank’s perspective, it does not

really matter what appliances the end-user is using if the back-end is taken

care off. According to PC Narayan, executive director, Global Trust Bank,

"If the back-end is only customized to a browser, then the bank can face

problems offering services to other channels. We have in place a system where

the Web server would need no change if we were to add a new delivery

channel."

ATM: The Killer App

A revolution no less. ATM’s are no longer a technology issue but are driven

by market demand. A strong ATM network is among the key messages aimed at

driving in retail customers. This revolution came with the private banks,

notably ICICI Bank’s drive to have a branch at shopping malls, in petrol pumps

or in a grocery store without the infrastructure of a branch.

According

to VK Ramani, senior vice-president (IT), UTI bank, "Today 85% of cash

withdrawals are happening on our ATM network." No one dispute the

advantages of a wide ATM network for enhancing customer accessibility, and even

from the bank’s perspective, it leads to a huge reduction in the cost. Compare

the cost of rolling out a branch office with that of having a single ATM service

performing a wide variety of functions like cash withdrawal and mini statements.

The success of ATMs have made the public sector banks jump on to the bandwagon

and are aggressively rolling out their ATM network. A few examples: State Bank

of India is planning to have over 1,000 ATM’s across the country by the

year-end. This would also enable SBI’s associate bank to use the facility.

Canara Bank plans to ramp up its network of less than 60 to about 100 by March

2002.

Apart from enhancing customer service levels, ATMs are becoming a

self-sustaining business. ATMs have evolved to a point where apart from the

usual banking function, they are being used for other value added services like

advertising, bill payments, servicing other customers of Visa and Mastercards.

Swadhan Shared Payment Network System

Way

back in 1997, when ATMs were yet to become the glamor boys of the banking

industry, some of the IBA member banks came together and set up a Shared Payment

Network System (SPNS) named the ‘Swadhan’ ATM network. Today, this network

is 1,000 ATM-strong and is present in 64 cities across the country. In this

network, the ATM holder of any member bank can avail of the facility at any of

the ATMs of any of the member banks in the city. SWADHAN widens the scope of ATM

usage in the country in a cost-effective manner. A member bank of SWADHAN can

increase its geographical presence without deploying ATMs in all the locations;

instead it can share and use ATMs of other banks, thereby saving a substantial

amount. Likewise, the customer of the bank is highly benefited by having a

nation-wide access to the card, without holding multiple accounts in different

banks. Today, 25% of the ATMs in the country are networked to SWADHAN.

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