Dataquest CIO panel discussion on Banking
The Dataquest CIO panel discussion held recently in Mumbai focussed on the banking segment, bringing up various challenges and concerns facing IT managers in this sector. The panel comprised of: KC Shashidhar, general manager at Nabard; Neeraj B Bhai, chief technology officer at IDBI Bank; Prasun K Mondal, senior vice-president at Unit Trust Of India; VK Ramni, president (information technology) at UTI Bank; Anurag Khanna, managing director and CEO of Banknet India; and Prasanto K Roy, chief editor of the Dataquest group of publications. Other than sharing views on different IT implementations in their organizations, panelists expressed their thoughts on the increasing focus on infrastructure-sharing, return on investment, changing business needs and the upcoming challenges for the banking sector. (Excerpts from Discussions)
Globally, banks share networks especially the ATMs to have economies of scale and a wider reach. However in India, private sector banks started the trend of deploying their individual networks. In India, the cellular industry has already been witness to the network-sharing trend. While the banking industry had a headstart on this a long time ago with ‘Swadhan’, it remained in the domain of the public sector banks and has not seen much success. But there is also a legal angle to shared information. Comments Khanna, "The Banking Act and other regulations prohibit banks from sharing their customer information with any third party." Agrees Surya Narayan, "I think the loss over information is the basic irritant to share or use network with others." Echoes Neeraj Bhai on similar lines, "While banking is about trust, banks don’t trust each other."
Another obstacle in the infrastructure sharing arrangement of banks is the lack of private sector participation in the pilot projects. Comments Neeraj Bhai, "The usual excuse for private banks was to wait till the project has stabilized adn then to take due advantage of it being in a better position." Add to this the fact that it’s these private banks that are more techno savvy, most of the pilots have not been very successful. The next obstacle is purely a mindset one. How can you achieve a comfort level while working with your competitors? While the top tier banks have and are continuously rolling out their network, there is hope for the second rung ones too. Also the model has a good chance in the rural areas where cost of deploying networks would be high, account balances would be low, and hence sharing of information is not so much valuable. Given these economics, it would make more sense for banks to look at using shared infrastructure in these areas. And the success of the same is seen in the cooperative banking segment. Comments Shashidhar, "The strong centralized cooperative federation has been largely successful in these attempts." While several attempts have been made like Infinet, unless the banking community has a strong centralized leadership, sharing infrastructure on an industry-wide scale is going to take a long time.
The Indian banking industry has toyed with the idea of shared infrastructure and Swadhan is a good example of the same. However the timing was not right. The issue was not with the concept, but the pace of technology of the member banks, mostly PSUs. It’s no surprise then as to why the Swadhan network did not find many takers from the user perspective. Moreover the success of Swadhan depended on the number of card bases issued, and the nationalized banks, which had to generate the card base, did not see much incentive to do so. Comments Ramani, "So you have set up a network and your network depends on transactions, but member banks are not even prepared to issue 500 cards per branch." The advent of ATM’s came only after private banks stepped into the fray. Adds Ramani, "IDBI Bank and UTI Bank contribute about 90% of the ATMs in the Swadhan network."
Technology as the key differentiator
If success is a parameter, then private banks clearly demonstrate that technology is a winner. On the retail side, technology has brought in a new customer experience and established a larger customer base. Apart from the enhancing customer experience, technology is also bringing down transaction costs. According to research, the cost of a branch transaction is about Rs 150 and is drastically reduced to Rs 27 on an ATM machine. Of course the cheapest is online banking where the average transaction cost is about Rs 11. Today technology is certainly a key differentiator if the comparison is between private and public sector banks. Agrees Shashidhar, "Technology has become a standard that everybody is offering." Comments Ramani, "Technology cannot be the sole differentiator as it can be replicated easily."
However, banks have to address a larger issue—how to keep the customer interaction small, pleasant, and comfortable. Banks must invest in datamining, and data warehousing tools to analyze and predict customer trends. But the key concern is the overall integration of technology. Comments Mondal, "Since banks are looking at a range of services, its imperative for overall integration." If all the systems are integrated, then the customer interaction can be a pleasant one.
Unity in diversity
While this is good credo for India, it poses a nightmare for the CIOs. Today it’s the business head who takes the IT product decisions depending on the requirements, functionality and features. The end result is that a bank hosts different applications. To add to the woes, chances are high that the underlying technology may not comply with the techie’s mindset of a standardized platform, hardware, and software, across the organization. The bigger issue for the CIO is the integration of this diverse mix of OSs, hardware, and software and mix of various other components of the network. Well the silver lining is that the IT decision can be quickly taken if presented as management issues. Comments Ramani, "Earlier there was a lot of deliberation on the question of why spend couple of crores on IT investments. Given the management involvement, these decisions are taken within three months compared to 2-3 years for a similar decision to be agreed upon in a public sector bank."
Return on investment
Since business heads are taking the IT decision and they are ruled by the excel sheets, ROI has become the key parameter for any investment. Also since IT investments are huge in nature, the business heads and management are extremely sensitive to such things and hence a greater emphasis on ROI. Comments Neeraj Bhai, "This short term emphasis is becoming a very negative factor for a long term vision since the technology focus is getting diluted." And this where the problem for the CIO begins! Justifying ROI is always not possible. Claims Shashidhar, "Our research shows that a majority of IT benefits are intangible in nature and cannot be justified in terms of the numbers on a excel sheet." And the debate continues…
Automated teller machines
The most visible face of Indian customer centric banking, ATMs have also showed us how technology can change existing business models. And it’s the private sector banks, which have made huge success stories of large scale ATM deployment. This is the key obstacle in the sharing of ATM networks by banks. Today banks find it difficult to share their ATM network with competitors as ATMs are being projected as the key differentiator. The success is visible from the fact that nearly 60% plus of cash transactions are happening from the ATMs. Given the huge proliferation of credit cards, the transaction cost from an ATM are similar to that of a branch, as people conduct more transactions using a credit card rather than cash. Comments Khanna, "I think most banks are not taking the credit card while factoring in the installation of ATMs." Nevertheless a bigger opportunity awaits the banks in the non-metro areas once they customize the ATM offerings.
The success of the private banks has proven that given the right attitude one can work wonders inspite of the many inherent disadvantages. Rather than cribbing about the lack of infrastructure, the private banks have leveraged the existing one and done a remarkable job using the same. Today decision making is much quicker as bankers are realizing that heavy investment in technology need not become the stumbling block for growth but is the real driver for growth. Comments Roy, "The IT budgets of banks and financial institutions are in the range of 10% of sales compared to the average 2-3%." Banks are investing huge sums in technology. Given the complexities involved, CIOs would like a third party to maintain it efficiently. And it has to be a single vendor who can manage all the multiple touch points. Claims Surya Narayan, "QoS, maintaining high availability and keeping the response time at the appropriate service level is a critical need from the banks perspective." Secondly, vendors have the responsibility of using their global experience to help Indian banks aspire for the international standard. Integration of systems across the organization is one of the key issues for banks. But can they all be integrated? Since no single vendor can offer an integrated solution, this seems very unlikely. Comments Khanna, "The buying decision is usually adhoc and largely driven by the vendors." Another key issue faced by the CIOs is planning. Given the ever-changing face of technology, planning for more than a year is to live in a fool’s paradise. However banks need to be proactive with their feet on the ground and keep looking for newer technology to complement the existing infrastructure. Adds Ramani, " If anybody says that he has a technology plan for three years, hats off to him."
When will branches disappear? Will they?
Not so soon. Bank branches are here to stay and will continue to play an important role in the total transaction volume. Even today there are a good number of customers who want to visit the branch and fulfill their transaction. The banks need to focus on which transactions can be moved to the non-branch medium so that the branch infrastructure can be used more efficiently for other transactions involving personal relationships. While non-branch medium certainly brings convenience, all the banks are moving to techno savvy banking at full throttle.