NEW BANKING PARADIGM

During a discussion three years before, I had suggested a chief executive of a public sector bank that instead of opening new branches, it would be better to flood the nation with ATMs and also that the bank should dedicate the coming year to a year of technology. My suggestion was not accepted with the reason that banks cannot ignore "connect with the customers".

The technological evolution of the Indian banking industry started in 80s albeit too slow with the introduction of mechanization and computerization coupled with resistance from trade unions. However, over the years, technology has helped banks to evolve many new products/ services to suit the growing needs of their customers. The introduction of core banking solution and ATMs made the banking possible anywhere at any time.  Technology has totally changed the paraphernalia of banking services. Banks have complete range of technological products viz. Internet Banking, SMS Banking, Mobile Banking, Missed Call Banking, e-lounges, e-passbook, e-KYC Solution, NRI services, debit/credit card services and many more.

Today, India has more mobile users than bank accounts. The new age consumer base is technology saavy, always connected and looking for a personalized, contextual experience with real-time online information. Cell phone penetration has reached almost 85% and the rise of the middle class has increased the number of households with internet connectivity. This is the time, banks in India should realize that the role of social media cannot be ignored in providing services to the tech saavy customers. ICICIbankpay allows customers to transfer money to anyone in the country who has a Twitter account and the bank also have Facebook banking app since September 2013. Kotak Mahendra Bank has introduced a feature called JiFi banking that lets users receive banking updates via Twitter, reward points for online transactions and let them add friends to the JiFi network.

Rajiv Lall, vice-chairman and managing director of newly licensed IDFC Bank Ltd, said, “The way the world is moving, branches are becoming less relevant for a connect with customers. The goal is really to use technology intelligently in a way that builds a trusted relationship with customers at scale and at lower cost.” What role do the branches play in the success of a bank? In June this year,  Atom Bank  got approval of the banking regulator in the UK. Atom Bank will not have any branch  and operate only through a mobile app; its customers will be able to open accounts and carry out all banking transactions from their smartphone.

In developed countries, there have been branch-less online banks such as Egg (a wing of Prudential Plc), Smile (a UK Internet bank), First-e (Dublin based European online bank) and Cahoot (Internet division of Santander UK Plc). A Financial Times report says mobile has overtaken branches in the UK as the most popular way to bank. Anthony Thomas, chairman of Atom Bank, sees no long-term future for the branch as a transaction centre as “mobile has gone from nothing to bigger than branches, internet and telephone” in less than two years. Fidor Bank AG of Germany communicates with its customers through social media. It had 300,000 customers in Germany but only 34 employees in 2014.

Fidor, Atom and other such banks are, in times to come, going to force the high street banks to take a re-look at their business model. In the absence of branches, these technology-heavy and employee-intensive banks can offer higher interest rates to savers and competitive rates to borrowers as their operating cost is low. The live example of e-commerce and e-tailing  is before us which has overtaken the physical retail sector in such a short span.

In India, a bank spends an average of Rs 40 for each transaction conducted at a branch. If a customer uses ATM facility, the cost drops to Rs 18-20 per transaction, but it is much higher than the cost involved in online banking - for e-banking it is Rs 5 whereas the cost of transaction drops to Rs 1.50-Rs 2 if a customer uses mobile banking.

Indian banks, especially public sector banks and their customers are getting younger as the average age of the employees and that of the customers  is getting reduced. By 2020, most of the old stuff of the banks will get retired and the long associated customers will gradually say good-bye to this earth, it will be totally new look of the banks. The earlier banks gear up for the change, the better it is as the young customers would like to have a bank in their pocket that is ready whenever and wherever they need it.

Tilak Gulati is Assistant General Manager at UCO Bank.

(This article has also been published on www.allbankingsolutions.com)

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