Of Banks And Cyber-Banks

Banks are very big spenders perhaps the biggest spenders on technology. A Soloman Brothers estimate puts the spending on technology by the banking sector ,worldwide,any where between US$15 bn to US$ 20bn a year. The worldwide IT spending by financial firms is expected to reach US$ 200bn by the year 2005, a sizeable portion of it coming from financial firms outside the United States and Europe. In our own country, public sector banks alone have spent upto Rs.600 crore on information technology (IT) till March 1996, with sizeable investments made by other foreign, private and urban co-operative banks.

Spending on IT is imperative for modern banking. And a long and patient waiting to make it pay is also inevitable. After several decades of relentless spending on technology, financial firms in the United States and other industrial countries began to see the returns on technology only recently, mostly because of rigorous refinements and reforms in business processes." The plastic card has pushed aside the cheque book, the automated teller machine has taken over from the cashier, electronic dealing systems have displaced the stock exchange floor" is how a survey described the radical changes brought about by technology in finance. With the advances in technology - in respect of options, opportunities and applications - taking place at a faster pace, there are simultaneous changes and transformation taking place in the priorities, programmes and perceptions of the organisations.

 

More than the perceptions, it is the cost parameters which is making technology most attractive for banking. A recent study estimates that in a full service branch, the cost of per transaction is US $ 1.07 cents, as against US $ 0.54 for telephone banking, US $ 0.27 for ATM full service, US $ 0.015 for PC banking and US $ 0.01 for Internet based banking. Many banks in the western countries are offering incentives for use of ATMs which have the capacity to perform as many 150 functions, ranging from cash dispensing to accepting split deposits, to trading in stocks to buying mutual funds. More and more banks are exploring possibilities to hook up to the Internet to provide banking services. North America leads Internet banking with 478 web sites, followed by Europe with 250 sites. The rest of the world is also catching up fast with Asia accounting for 50 banking websites, Australia/New Zealand with 13 sites, Middle East with 20 sites and South America with 22 sites. Security First Network Bank, an Atlanta

(US) based savings bank, is one of the first Internet banks to go operational. Within 10 months of its launch in October 1995, it garnered 5550 accounts and US 15 million deposits across the world.A recent report in the Financial Times best describes the shape of things to come: "Ask a British banker, who his biggest competitors will be over the next five years and he is as likely to answer Microsoft as Midland".

Contrary to the widely held belief, large scale technology adoption need not necessarily lead to staff retrenchments as more and more banks even in the advanced countries are thinking of redeploying the excess staff in marketing and business development. One of the biggest benefits of technology to banks is that, apart from facilitating speedy transactions and developing effective delivery systems, it provides them with enormous opportunities to build up information network on customer profiles, spending habits, income levels etc., which could be useful in developing innovative products and services. As more and more banking operations go technology driven, manpower could be best utilised in marketing and support services, which will be critical for the banks to recap the real advantages of technology.

Though many prophesy the end of the brick and mortar branches which are gradually being replaced by computerised kiosks and multi- function automated teller machines, there are many who still feel the importance of personal service and care which was so critical to successful banking not so long ago. This belief is particularly pertinent to banking systems in countries like India, where counter services are critical for quality customer service and where banks have to go a long way to become fully conversant with cyberbanking , and command it as a competitive force.

That the human element is indispensable for an activity such as banking was best described by Martin Taylor, chief executive of Barclay's Bank (UK), in a recent interview. The industry taught people to associate banking with visiting marble halls that were almost like cathedrals. Now we are telling them it's all right to pray at home. But we have to understand that money, our product, has a lot of sociological encrustations which we can't remove simply by changing the way we view our business."

Bandi Ramprasad, chief economist, Indian Banks Association. The views expressed here are those of the author.