Any Time Money

Banks are swearing by the smart chip. Getting wired is the new mantra. Preeti R Iyer & Vidyalaxmi report

Sakharam Shinde is in a hyrry, like any other urban customer. This 33-year old farmer from Erandol in Jalgaon – a district in north Maharashtra – walks briskly up to an ATM (automated teller machine), and walks out carrying his cash. Thanks to the biometric technology embedded in his ATM by the Jalgaon People’s Co-operative Bank, Shinde does not really need to remember his personal identification number. His fingerprint is doing the work for him.

Other banks in different parts of the country are similarly testing waters. ICICI Bank has launched a pilot biometric ATM in the tobacco-belt of Guntur, Andhra Pradesh, while Bank of India is trying it out in Uttar Pradesh, Bihar and Madhya Pradesh.

No, this is not public service, but pure business logic is at work here. Today, banks realise that unless they cater to the masses in India, nothing can change their scale of operations: One in every nine persons on earth is a rural Indian and 70 per cent of Indian villagers do not have a bank account. Tapping them would require multi-channels. Low-cost ATMs, e-choupals, smart cards and mobile payments are some of the solutions, just as mobile telephony is allowing rural folks to access ‘convenience banking.’

Experiments by various banks are pushing the envelope. For instance, ICICI Bank is leveraging its ‘cellular gazette’ to handle erratic landline connectivity in rural areas. Also being tried are chip-embedded cards, which store a depositor’s thumb impression to verify identity offline.

Voice recognition or natural language processing software that enables conversion of voice into digital data is doing the trick for some others. Here, customer authenticity is verified from voice samples taken at ATMs.

Incidentally, securing rural business is not the only objective. New technology is simultaneously exposing banks to a plethora of cost-benefit options along the way. Customised and often cheaper software solutions are enabling them to drastically reduce back-office expenses, making the cost of petty transactions viable. “Indeed, the technology is shrinking branch sizes as well,” says Madhabi Puri-Buch, senior general manager, ICICI Bank.

Changing technology is setting the stage for a situation where branches in urban areas would soon become passe. ATMs, call centres, and mobile and internet banking facilities are ensuring this. And banks are scrambling to put in place an integrated system as customers will need to access virtually anything from deposits, loans, PPF account, tax collection, insurance and mutual fund products or a DP account. In short: diverse needs and a single relationship manager.

In fact, most state-owned banks are progressing towards 100 per cent computerisation of branches. State Bank of India plans to extend core banking solutions (CBS) to all customers of its associate banks by December 2005. The target is to cover 80 per cent of its 9,000 branches by September 2006 under CBS.

Speed is going to be the name of the game. To provide faster settlements of funds and sound risk management, the Reserve Bank of India (RBI) rolled out Real Time Gross Settlement system in March last year even as cheque truncation technology is on its way in.

And as they act on these changes, banks are outsourcing the flow of inofrmation and data.

Typically, an organisation outsources jobs when it is not one of its core functions, needs specialised skills and is a cost-borne 24x7 operation. From a bank’s perspective, managing public funds is its core business. Value-adds such as ATMs generate a high level of IT-related activity, which is outsourced to third party service providers like NCR, Euronet, Diebold and FSS. But for this formula to become technologically successful, it has to be integrated with the business processes, and banks are no different from other businesses in this regard.

And there’s more to expect in future, even as the personal touch in banking is fading with the rise of the e-customer. In markets like the US and the UK, private enterprises running ATM networks have turned it into a profitable business proposition. For such a model to be viable in India, banks need to work out the right levels of transaction fees. Although bilateral sharing and multi-lateral sharing of ATM networks have caught the fancy of Indian banks, they do not favour ‘white-label’ ATMs. The problem, according to Loney Antony, managing director, Euronet Services India, is that “banks themselves are not ready”.

In this regard, the Institute for Development & Research on Banking Technology (IDRBT) recently reduced the inter-bank transaction charge to Rs 9. Another issue, Mani Mamallan, vice-president, FSS, says, “is that one bank should volunteer to sponsor cash. However, no bank is willing to fork out liquid cash unless the ATM comes under the bank’s flagship, defeating the very purpose of such third party ATMs.” Clearly, RBI has its work cut out here and it has formed a committee to study their viability. Also, with the recent RBI guidelines on treating offsite ATMs of banks on a par with bank branches, banks need to resort to greater sharing of resources among themselves.

Meanwhile, devices such as chip-based smart cards are on the anvil. The RBI, along with IDRBT and IIT, Mumbai, is testing these. What is the hitch right now? “Smart cards are a way ahead. However, inhibiting growth is the missing point of sales (POS) terminals,” points out Pankaj Phatarphod, head – IT, ABN Amro. Apart from the minor glitches, is everything hunky dory then? Clearly, the biggest cramp to growth comes partly from customer acceptance challenges as also security concerns. While huge sums of money are being invested into getting future ready, many customers are found sitting on the fence. With data fraud growing, online banking ends up being used for information viewing and not a tool for online transaction.

The biggest concern for a bank in the coming years will be to implement best practices in the area of compliance, says D Krishnamurthy general manager – IT, Bank of India. With Basel-II round the corner and anti-money-laundering norms already in place, banks are required to monitor their operational activities and quantify the operational risk associated with their services.

Data theft is a real concern all over the world, and measures are being worked out to tackle it. For instance, ‘Two Factor Authentication’, which originated in the Scandinavian countries, was recently made mandatory in Hong Kong. Closer home, Yes Bank has implemented the same process for its net banking facility (see box). “We found that a key concern amongst customers was the confidence to use internet banking without the worry of fraud or identity theft,” says H Srikrishnan, executive director, Yes Bank.

Finally, the way ahead will be determined not just by resolving the security concerns, but with banks reviewing the returns on investments in technology. “Soon the banks will start measuring returns on investments made on technology. The expectation would be to improve customer relations, reduce operation costs and increase returns,” says Ravi Trivedy, partner and head of financial services and technology strategy, IBM. A tall oredr indeed.•