Only banks, no bricks

Banks, as we know them today, are on the way to obsolescence. Remember the time you walked into the nearest branch of your bank, waited in the long queue outside the teller's counter, hassled by the limited banking hours. 

Now, everything is only a mouse-click away from the privacy and comfort of your home, irrespective of the time. Internet has changed the nature of banking as never before.

Globally, the financial sector is metamorphosing under the impact of competitive, regulatory and technological forces. There is an increasing overlap between different financial services and there is competition from non-traditional sources such as retailers, airline and telecom companies. Technology, especially the Internet, is perhaps the biggest source of change.

The electronic revolution in banking basically centers on changes in the distribution channels of financial institutions. The first giant step in this electronic revolution was the computerization of banks. Then, by linking up technological developments in telecommunications and IT, real-time online electronic funds transfer came into existence. 

Commercial banks today have the privilege of various delivery channels for their products and services. These include brick and mortar branch network, ATMs, tele banking using the telecommunication channel and PC-banking. But nothing has ushered in a total shift in retail banking like the way Internet has.

The Indian scenario

With Internet emerging as a popular medium for transacting financial products, e-banking is becoming a reality in India earlier than what many people had envisaged. And the private sector banks were quick to latch onto this new delivery channel, leaving behind their public sector counterparts. Banks like ICICI, HDFC and UTI now offer a slew of products and services on the Web.

India's largest public sector bank, State Bank of India, is catching up and has already made online banking available at select branches in the metros. It is now planning to reinvent itself to gain competitive edge. Its technology roadmap includes initiating virtual banking, which would mean interconnectivity of 400 ATMs, specialized branches, introduction of remote and home banking, smart cards, e-trading, e-commerce and even hi-tech, low-cost solutions for rural branches.

ICICI Bank offers its products and services under the brand name `Infinity'. The services offered include account information, funds transfer, bill payment and online real-time e-shopping payments. Enhancements for further versions include request for demand drafts and pay orders. The bank also offers many value-added services such as trade related information to corporates and something as innovative as online pooja payment service at Sidhivinayak Ganapati Temple in Mumbai. 

HDFC Bank under its `NetBanking' service has a couple of more offerings such as demand draft/banker's draft request, FD inquiry, new FD requests and TDS inquiry. Customer can also leave with the bank any instruction not currently included in its NetBanking service that they would like the bank to perform on their accounts. Another value-added service offered by the bank includes online VSNL Internet subscriptions in Mumbai, Delhi, Calcutta, Chennai, Pune, and Bangalore. 

On the corporate front, HDFC Bank offers `Enet', an online electronic delivery channel that provides its corporate clients convenient and secure access to their banking data around the world. It has also added new revenue streams by launching Application Service Provider (ASP) services by joining forces with I-flex solutions, a banking solutions provider.

This joint venture offers I-flex's flagship product FLEXCUBE on an ASP model for the first time in India. HDFC Group and I-flex solutions have an equal stake in the new company.

Both these private banks have launched their own private gateways eyeing the e-commerce market. ICICI has already signed up with 15 Web merchants where all online transaction will take place in its gateway. In the coming months, the gateway will be available on more than 50 sites. HDFC bank has tied up with 15 portals and is negotiating with several others to offer secure business to consumer e-commerce transactions. Few of the portals that HDFC bank has tied up with are:

Satyam, IndiaInfo, Fabmart, Mantra Online, CyberITMall, Cricketnext, Indiacar, IndBazaar, Travelanza, and

VSNL.

Another area where both these banks have gained a foothold is m-commerce. ICICI has a tie-up with Orange and offers services based on WAP. It already provides a range of personal finance services including personal banking services, online information tracking of utility bills, travel and ticketing information, etc.

HDFC has launched its m-commerce services in Punjab in association with Spice Telecom and with Fascel in Gujarat based on SMS technology. HDFC Bank first introduced this facility in Mumbai followed by launches in Delhi, Chennai, Calcutta, Maharashtra, Goa, Kerala, Tamil Nadu, Karnataka, and Andhra

Pradesh.

The opportunities

Initially, banks saw Internet as just another delivery channel bringing in greater flexibility. But, they have realized that it also presents opportunities to substantially improve the economics of reaching a diverse, profitable customer base because accessing customers through remote channels breach the traditional link between growth in branches and balance sheet growth. This bodes well for Indian banks grappling with branch proliferation and over staffing. Another advantage would be marketing of information like brochures and product details over e-mail to its customers.

However, the most important of it all is the significant improvement in customer relationship. Customers, both corporate and retail, are no longer willing to queue in banks, or wait on phones, for the most basic of services. They demand and 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.

To remain competitive, banks will need to develop their Web-based business models centered on customers by developing and personalizing innovative, easy-to-use offering that focus on customer's lifestyle goals and develop tailored customer solutions in real-time.

E-business marketplaces

Various studies clearly suggest that banks in future will become e-business marketplaces. In North America and Europe, banks have already started investing in Internet commerce market, by discovering areas in which they have a role to play and can reap the benefits first. 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. Both ICICI and HDFC have made significant investments in their payment gateways with this objective in mind. 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'.

The impediments

One of the major hurdles in the way of Internet banking in India is the lack of a critical mass of Internet subscribers. PC penetration is dismal and Internet growth is still slow. Add to this the state of poor IT infrastructure in the country. Hence, banks are not in a position to achieve the full potential of their electronic capabilities. However, the major hurdle in the way of e-banking in India is that of security-a hitherto uncharted territory both for banks and their customers. The ubiquitous nature of Internet means there is a theoretical possibility of attack by anyone, anywhere. These attacks can manifest themselves as 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.

However, despite cryptography, authenticated websites and firewalls, there remain serious legal challenges to be resolved. Business on the Internet is without precedent and lacks a legal framework in most countries. Banks and customers, therefore, need to define appropriate legal measures covering, among other things: service levels, indemnities, limitations of liability and acceptability of digital signature. In India, all of these are conspicuous by absence and lack of a Public Key Infrastructure (PKI) could hamper the growth of Internet banking.

Trends

Six years ago, Bill Gates said, "Banking is necessary, but banks are not." Virtual banks with no branches and attached costs are gaining popularity in the West. But it doesn't necessarily spell doom for traditional banks. And it would seem almost inconceivable that the position of big banks which process crore of rupees a day could be challenged by these Internet entities, and especially in the Indian context, it is a far-fetched idea. As has happened in the past, some of the biggest dotcom websites of the world have fallen prey to hacking that has stalled their systems for hours in a day. 

Legacy systems on the other hand have been known to work. What the Internet does offer established systems of the old types are opportunities for cutting costs and marketing products more efficiently. With IT enabling a paradigm shift in the banking sector, there is no way banks can turn a blind eye to new technology and the willingness to adopt technology products.

MT Jeevan 


Source: www.voicendata.com