Académique Documents
Professionnel Documents
Culture Documents
CHAPTER - 1
INTRODUCTION
Introduction of automation has also liberated the banks from a lot of paper-work. While banks in India have not become fully paperless, there is a steady movement in that direction. Banks have realised that persuading customers to carry out transactions using electronically available channels without physically visiting the bank is less expensive for them. Hence, exploiting new technologies should also improve the profitability of the banks.
The message that uses Structured Financial Message Solutions is encrypted for security reasons through Public Key Interface. The system, called Real Time Gross Settlement, and developed in May 2004 by the Institute of Development and Research for Banking & Technology, enables inter-bank transfer of funds in two hours. This has , to some extent, reduced the need for telegraphic transfer and demand drafts .
Similarly, cheque collection time will be significantly reduced (especially for outstation cheques) by the process, which transmits truncated cheque data through electronic imaging to the drawee bank. The cheque need not be moved physically. A National Electronic Fund Transfer scheme will thus empower the customers further. ECS has made banking operations cheque-less. This electronic representation of money has made it easier to progressively increase the use of information technology for banking operations. It is also possible to make banking more global due to electronic automation of work processes.
Technological innovation has also speeded up bank transactions, in the process, reducing human drudgery and possibilities of human error. Banking operations have become more customerfriendly and flexible.
Approach to the bank branch concerned has become multi-channelled and more and more customers are finding little need to visit the bank.
Thanks to electronic systems, a quantum jump has been achieved by banks in Customer Relationship Management (CRM). This not only includes information about transactions in his account, but also his preferences and his interest in a particular scheme or product of the bank. Thus, even before the customer interacts with the bank representative over the phone or in person, the bank representative has total and comprehensive information about the customer. This helps improve the quality of response the caller gets from the bank.
The process of having a machine or machines accomplish tasks hitherto performed wholly or partly by humans. As used here, a machine refers to any inanimate electromechanical device such as a robot or computer. As a technology, automation can be applied to almost any human endeavor, from manufacturing to clerical and administrative tasks. An example of automation is the heating and air-conditioning system in the modern household. After initial programming by the occupant, these systems keep the house at a constant desired temperature regardless of the conditions outside.
The fundamental constituents of any automated process are (1) a power source, (2) a feedback control mechanism, and (3) a programmable command (see illustration) structure. Programmability does not necessarily imply an electronic computer. For example, the Jacquard loom, developed at the beginning of the nineteenth century, used metal plates with holes to control the weaving process. Nonetheless, the advent of World War II and the advances made in electronic computation and feedback have certainly contributed to the growth of automation. While feedback is usually associated with more advanced forms of automation, so-called openloop automated tasks are possible. Here, the automated process proceeds without any direct and continuous assessment of the effect of the automated activity. For example, an automated car wash typically completes its task with no continuous or final assessment of the cleanliness of the automobile. See also Control systems; Digital computer.
A major issue in the design of systems involving both human and automated machines concerns allocating functions between the two. This allocation can be static or dynamic. Static allocation is fixed; that is, the separation of responsibilities between human and machine do not change with time. Dynamic allocation implies that the functions allocated to human and machine are subject to change. Historically, static allocation began with reference to lists of activities which summarized the relative advantages of humans and machines with respect to a variety of activities. For example, at present humans appear to surpass machines in the ability to reason inductively, that is, to proceed from the particular to the general. Machines, however, surpass humans in the ability to handle complex operations and to do many different things at once, that is, to engage in parallel processing. Dynamic function allocation can be envisioned as operating through a formulation which continuously determines which agent (human or machine) is free to attend to a particular task or function. In addition, constraints such as the workload implied by the human attending to the task as opposed to the machine can be considered. See also Humanfactors engineering.
Like Archimedes, Shepherd-Barron claims to have hit on the idea for the cash-dispensing machine whilst taking a bath. Shepherd-Barron also invented a device designed to scare off the seals which were depredating the stock on his Scottish salmon farm.
This device used a recording of Killer Whale noises, but unfortunately it seemed to attract more seals than it deterred. His cash-dispensing machine was fortunately rather more successful, gaining him an OBE in 2005 and marking a significant stage in the development of modern-day banking techniques, paving the way for networked systems, online bank accounts and chip & PIN security technology. The internationally accepted standard of the 4-digit PIN was also originated by Shepherd-Barron. Originally he suggested a 6-character format, similar to his old 6-digit Army serial number, but, thankfully for those of us with defective memories, his wife persuaded him that a 4-digit sequence was quite enough for the average person to retain.
In 1967 Reg Varney (of 'on the Buses' fame, a TV sitcom popular in Britain in the 1960s) became the first person in the UK to use Shepherd-Barron's invention, in a publicity stunt for Barclay's bank. I don't know how much money Reg withdrew on that red-letter day, but it would have been a maximum of 10. Back then this was considered enough money for a night out on the tiles in London, including drinks, dinner, a show and a taxi-ride home. According to Mr Shepherd-Barron himself, 10 was more than enough for a 'wild weekend'. Well, maybe on a salmon farm in Scotland it would have been. It's too late to ask Reg what he did with his tenner, as sadly he passed away in 2008, aged 92. John Shepherd-Barron died in May 2010, aged 84.
Moving on into the 1970s, he found this interesting nugget of historical information posted by 'Stareager'on the BBC's 'History of the World in 100 Objects' website:
While he was at University between 1971 and 74, National Westminster Bank introduced the '24-hour Cashcard' which allowed you to withdraw 10 (no more, no less) from a hole in the wall. You entered your number, not then called a PIN, he think, and got your money in an envelope; your card was retained. If you used it at the weekend, you had to wait till about Thursday to get your card back, by post. he suppose in its day it was meant for emergencies; its successors are now probably the predominant means of getting cash as well as a range of other services, not all bank-related (like phone top-ups.) How did we cope before this technology? Well, we queued at the bank or cashed a cheque at a compliant pub. At least, even with this new plastic card, you still felt that money was real.'
In 1975 he went to University in Reading, Berkshire, and opened my first bank account with Lloyds. he can remember a short period when he had to go into the bank and write out cheques for 'Cash' in order to get my hands on my student grant money, but he am pretty sure that it wasn't long before he received my very own cashpoint card. This was a credit-card sized piece of plastic, looking pretty much like any modern-day card, and worked in the same way as the ATM cards we are familiar with today. he can't remember what the daily withdrawal limit was, but back then my needs were simple enough for me never to have reached it. Lloyds Bank was in fact an early adopter of ATM technology, and commissioned the design of the IBM 2984 CIT (Cash Issuing Terminal), the first up-and-running cash point machine. Cashpoint is still a registered trademark of Lloyds TSB in the UK.
The inimitable Shepherd-Barron continued to take a lively interest in technology well into his old age, and predicted that the development of contactless technology was likely to bring about the demise of cash within the next couple of years. So his famous invention may now be in its last days. With the rise and rise of the mobile phone as a multi-function device it looks like the glory days of the plastic card are also numbered. The ATM is also commonly known as the Cashpoint or Hole-in-the-Wall Machine (Britain), ABM or Automatic Banking Machine (USA), All-time Money (India), and Minibank (Norway).
It was only in the early 1990s that banks started thinking about tying-up disparate
At the same time, private banks entered the banking arena with radically different strategies. Given the huge IT budgets at their disposal and with almost no legacy IT equipment to worry about; private banks hastened the adoption of technology. The philosophy for private banks was very clear: to provide a whole new range of financial products and services at minimal costs. And technology made this possible. The improved connectivity and falling costs offered by leased lines and VSATs provided a booster to interbranch automation.
3.1:Waves of change
The first wave in banking technology began with the use of Advanced Ledger Posting Machines (ALPM) in the 1980s. The RBI advised all banks to go in for massive computerization at the branch level. With the second wave of development in late 1980s came Total Bank Automation (TBA). This automated both the front-end and back-end operations within the same branch. TBA comprised of total automation of a particular branch with its own database. In the third wave, the new private sector banks entered the field. These banks opted for a different model of having a single centralized database instead of having multiple databases for all their branches.
The fourth wave started with the evolution of the ATM delivery channel. This was the
first stage of empowerment of the customer for his own transactions. Traditionally, banking players relied extensively on their reach to effectively put emerging banks out of competition. This forced new banks develop strategies that could help them reach out to end-customers cost effectively. The solution came in the form of a delivery channel known as Automated Teller Machines or ATMs, as they are more popularly known. This turned out to be one of the biggest growth drivers for private banks in India. And when new private banks started installing ATMs across the length and breadth of the country, customers started flocking in droves. A case in point is ICICI Bank. During the liberalization of the banking sector, ICICI Bank, which did not have a huge national network, realized that it could use IT to enhance its value-added offerings.
HDFC Bank is the other big player from the banking industry, which has aggressively used ATMs to its advantage. Though HDFC Bank has around half the number of ATMs as compared to ICICI Bank; its ATMs are among the highest transacting ones in the world.
24x7x365 service using lesser manpower. No doubt, innovations like tele banking and automated teller machines (ATMs) have considerably put customers at ease in the recent past. But with net banking the customer will be able to transact with the help of a mouse and his visits to the neighborhood bank will become a thing of the past.
With Computerization and networking of bank branches in the country, most banks today are in a position to capture and consolidate financial data about a customer. Financial data is typically a summary of the loans granted, savings and fixed accounts held by the customer, credit card facilities availed. More so, their IT systems also record operational data, such as the number of times a customer has visited the bank branch in the last month, the number of ATM transactions he has undertaken in the same time period. Private and foreign banks also analyze each customers financial behavior, in terms of average balances maintained, number of cheques used each month, number of cheques dishonored and many other things such as regular payment of loan installments, credit card payments and so on.
profitability of each customer to the bank. Also, this data helps them to select customers for profitable cross-sell opportunities. Most banks these days have a proxy profit and loss statement for each customer, which records the revenue the bank earns from each customer and the money the bank spends in servicing the customer.
Revenue is in the form of interest income on loans such as home/auto/personal loans and fee income which bank earns from a customer when it sells insurance policies, foreign exchange, etc
The other side of the profitability statement shows the transaction cost the bank is incurring to service you. For instance, each branch visit, vis--vis an ATM visit of a customer is 3 times more expensive for the bank. Hence each time you visit the branch to withdraw money instead of the ATM, you are costing the bank thrice the amount of money. Similarly, for the other channels such as internet, phone and mobile, the cost of servicing the customer is significantly lower for the bank.
Summary of the statement shows the bank the amount of profits it is earning from each customer. Consequently, it is obvious that the bank prefers the more profitable customers. While the loss-making ones are either gradually upgraded to better levels or are weeded out of the banks business through disincentives. For instance, the customers who do not maintain the average quarterly balance are charged heavy fines and are also restricted on the number of free ATM transactions they can undertake each quarter.
Introduction:
10 years ago, an ATM was a novelty in Indian bank branches. But with the entry of aggressive private sector banks, ATMs have mushroomed in the urban Indian landscape. With ATMs now a part of everyday life, access to funds has to be ensured anytime, anywhere, by most banks if they are to survive the dog-eat-dog competition in the banking sector.
Users visit their ATM center on an average of two times per week. Office (40%) happens to be the most favored place to access Internet for banking purpose. Home comes close second and Cyber caf in third place. ATM in the close vicinity to the office is the most preferred place among users for banking. While ATMs do help banks to attract customers, there is also one more critical aspect to considerthe immense cost savings from which a bank can benefit due to a transaction taking place over an ATM vis--vis a branch. Typically, it costs a bank close to Rs.50 per transaction if conducted in a branch. The same if done through an ATM costs about Rs. 15. A look at the volume of ATM transactions conducted reflects the level of success of this delivery channel. From standing in a queue for hours on end to withdraw paltry sums, we have reached a stage where we hardly need to know where our bank is located. A welcome relief for those of us who had to start a morning on a bad note, courtesy of the pompous officer at the bank counters.
Another group that has benefited immensely from progress on this front are frequent travelers. From having to carry wads of notes stuffed into a wallet ready to burst at the seams all that the traveler now needs is a small piece of plastic that can be used to withdraw money from almost any corner of the country, if not the world. While today each and every bank touts The customer is King mantra, it was a quite a different story not so long ago. Customers patronizing PSU banks were greeted with the
10
typical babu culture, where getting even a cheque encashed used to take ages. A customer had to adjust their schedule to the bank and very rarely was it the other way around. A person in a city like Mumbai usually had to wait for a weekend to deposit a cheque, because by the time he reached home, the bank would have closed. Today, while the timings of banks have not changed drasticallybanks have become more customer-friendly. Now, power has shifted into the hands of the customer.
The ATM industry is an evolving one, which has seen radical and business-changing events occur frequently in its first three decades. Banking in India has come a long way thanks to a combination of factors like increasing consumer awareness, technological advancement, as well as the growing financial muscle of our populace. One such innovation is the Automated Teller Machine (ATM), todays most preferred mode of delivery channel in all FIs. Banks like ICICI Bank, UTI Bank and HDFC Bank all deploy ATMs aggressively and have seen their customer base swell. Subsequently, even PSU banks have followed suit with an increasing numbers of ATMs. Increasing pressure to cut costs, coupled with changing customer expectations and competitive pressures forced most banks to look at IT deployment as a part of a comprehensive strategy rather than fragmented investments. A combination of regulatory and competitive issues have led to the increasing importance of banking automation
11
Banks are focused on three areas: meet customer's service expectations, cut costs, and manage competition. For this banks are exploring new financial products and service options that would help them grow without losing existing customers. And any new financial product or service that a bank offers will be intrinsically related to technology. The new generation banks showed the way and others had no option but to follow the tech infusion to retain and attract profitable customers
Customers today consider services and facilities such as Internet, ATM, phone and mobile banking an essential part of the banking experience. This calls for channel aggregation, which would be possible only through complete automation.
12
Two types of debit card transactions: 1) Direct debit card: A Direct debit card allows only "on-line" transactions. An immediate electronic transfer of money from your bank account to the merchant's account. This requires you to enter your PIN or Personal Identification Number at the store's terminal. The system then checks your account for sufficient funds to cover the purchase. These are typically the cards that come with the "Maestro" logo, from MasterCard. Example: Suvidha debit card issued by Citibank in select cities. 2) Deferred debit card: A 'Deferred' debit card looks similar to a credit card, but is not a credit card. It bears a Visa or MasterCard logo, and can be used wherever your card's brand name is displayed. This card allows "off-line" and "on-line" transactions. Off-line purchases are where the shopkeeper's terminal scans your card and creates a debit against your account. You are not required to enter your PIN at the store's terminal. Most off-line transactions are verified immediately to see whether there is enough money in your account. Off-line debit cards usually carry the 'Electron' logo, from Visa.
13
Example
HDFC Bank issues Electron debit cards in more than 15 cities around the country. Salient features: It is a combination of a Cheque an ATM card. Therefore, there are no fees for using the ATM for cash withdrawal, or as a debit card for purchase. A Debit card is more affordable than a credit card. You just use your bank account for all your transactions. Currently, there are only two issuers in India - Citibank and HDFC bank. No credit period. Your bank account is debited immediately. No credit check is required to get a Debit card. Spending is limited to your bank balance.
Benefits:
1) Free with your Bank Account: Obtaining a debit card is easy. If you qualify to open a bank account, you usually get a debit card, if your bank offers the service. 2) No background check: When you are applying for a debit card, the bank does not need to look into your credit history. All you need is the documentation to open a bank account, and money in your bank when you use your debit card. 3) Convenience: A Debit card frees you from carrying a lot of cash or a chequebook. In case, you are an international traveller, you don't need to stock up on Traveller's Cheque or cash. You can use your debit card to withdraw cash from over 500,000 ATMs around the world in over 100 countries. You can withdraw in the local currency of the country you are in; limited only by the money you have back home in your account, and your Business Travel Quota (BTQ) limit availability.
14
4) Fair Exchange: If you return merchandise or cancel services paid for with a Debit card, the transaction is treated as if it were made with cash or a check. Customers usually get cash back for offline purchases; for on-line transactions, the amount is credited to your account.
Drawback: Unlike a credit card, debit card transactions are on a "pay now" basis.
15
Banking is an industry that is based on intensive information, and transactions in banking can normally be consummated without any physical exchange. These ingredients have made banking a perfect passenger for the Internet vehicle. However, in the initial stages Internet banking had to go through hard times and failures. As a result, customers do not seem to be much excited about Internet banking. In fact, an article in the Euromoney magazine quoted Internet banking as "Click, click you are dead" . The other important delivery channel, from a banks perspective, is Internet banking. Consumers in today's fast paced technology driven world expect access to information regardless of the time or place. In a borderless world spinning on the axis of the Internet, Internet Banking assumes a special and sophisticated significance. With Internet Banking, your bank travels with you around the world. You have on-line, real-time access. We call it 24*7*.365 banking.
Internet Banking is a service offered by banks that enables their customers, easy and secure access to their accounts via computer with an internet connection. One can have access to account information from anywhere in the world anytime. Future belongs to technology. Cheaper delivery points like Internet and tele banking will improve their shares. ATM banking costs 80% while Internet and telebanking costs only 15% compared to normal banking transactions.
Internet banking for the retail segment is a recent phenomenon that has generated a lot of interest among the banks in India. Private and foreign banks have been the prime movers in the area while public sector banks are also beginning to latch on to the bandwagon Prime driver for any bank to offer services online is to offer 24 X 7 availability and convenience to its customers. Beyond that, cost reduction is another major reason. It is
16
estimated that cost to the bank per transaction done over Internet is nearly one eight of that done through branch banking.
It is clear that Internet banking is here to stay and will be a major channel to acquire and service customers.
With the facility of being able to execute a host of banking transactions at one's own convenience, one is no longer restricted to branch timings. Internet banking is provided at no extra costs by banks.
17
The kind of transaction that one can carry out using internet banking largely depends on the bank providing the service. Some of the transactions are:
Allows new account application for deposits and loans. Provides with a summary of all your bank accounts. Allows transaction tracking which enables retrieval of transaction details based on cheque number, transaction amount, and date and so on. Provides viewing demat transaction and holding statement (if one have a demat account with the bank) Change Customer profile. (I.e. the customer can update their mailing address and all your communication from bank will go to their new address.) Allows transfer funds between ones accounts including loan payments. Offers payment of utility bills such as (telephone, mobile, electricity, insurance premium, credit card, etc.) online. Allows electronic submission of request for a cheque-book, stop payment instruction, opening a fixed deposit, etc. Request for a Demand Draft. TDS Inquiry Customer Support
In the long run Bank can save money by not paying for tellers or for managing branches infact the Internet will provide the bank with an almost paperless system. Then the bank can reach a whole new market, as there are no geographic boundaries with the Internet. Banks provide a highly secure environment for carrying out the banking activities on the internet. ICICI bank was the first to launch Internet banking in India in 1997.After that many Private and Nationalized Banks have jumped into the bandwagon, of providing financial services on the Net. It removes the traditional geographical barriers as it could reach out to customers of different countries/legal jurisdiction. It has added a new dimension to different kinds of risks traditionally associated with banking, heightening some of them and throwing new risk control challenges. It poses a strategic risk of loss of business to those banks who do not respond in time to this new technology, being the efficient and cost effective delivery.
18
Online banking commands finances, deposits, payments, balances etc whenever ones feel like, through PC without taking the pain of visiting the bank, physically. One can make financial transfers sitting at home or at your office, just by logging into the site of the bank. Net banking does not require any software installation on your computer. As long as you have an Internet account and a 'secure connection' you can access your account from anywhere, anytime.
"Net banking provides both the Bank and the customers an opportunity to re-evaluate their relationships and move to a new paradigm of faceless banking."
There is no doubt that the potential for Net banking is immense considering the rising penetration level of Internet in Indian homes and offices. The lure of convenience through internet banking is definitely going to catch up with the business executives, homemakers and people who work odd hours.
Internet Banking is quickly revolutionizing the entire financial industry. It is providing the banking industry an opportunity to expand its reach into a broader market primarily composed of the bank's most profitable customers. Through the collection of data captured online, the banks can target specific customers for more efficiently, taking full advantage of the least expensive delivery channel available today.
19
Currently, there are three basic kinds of Internet banking that are being employed in the marketplace:
Information
This is the most basic level of Internet banking. The bank has marketing information about its products and services on a stand-alone server. This level of Internet banking service can be provided by the bank itself or by sourcing it out. Since the server or Web site may be vulnerable to alteration, appropriate controls must therefore be in place to prevent unauthorized alterations to data in the server or web site.
Communication
This type of Internet banking allows interaction between the banks systems and the customer. It may be limited to electronic mail, account inquiry, loan applications, or static file updates. The risk is higher with this configuration than with the earlier system and therefore appropriate controls need to be in place to prevent, monitor, and alert management of any unauthorized attempt to access banks internal network and computer systems. Under this system the client makes a request to which the bank subsequently responds. Works on the same principle as the e-mail.
Transaction
Under this system of Internet banking customers are allowed to execute transactions. Relative to the information and communication types of Internet banking, this system possesses the highest level of risk architecture and must have the strongest controls. Customer transactions can include accessing accounts, paying bills, transferring funds, etc. These possibilities demand very stringent security.
20
21
Consequently, by using this information, financial institutions can generate business rules that define as to which type of offers need to be made to customers at various times of their lives. Increasingly, financial institutions make offers through all channels, tracking the results to make business strategies even more effective
Conventional banking has always been slow and time consuming, so much so that sometimes you need to wait several hours to process a simple transaction like clearing a check. But, Internet banking has tremendously reduced the time required to process banking transactions, thereby making banking faster and convenient. For the bankers this system is cost-effective, as it has considerably reduced the administrative costs and paperwork related to the transactions. Besides, banks can also cater to the needs of thousands of customers at the same time. All these factors
22
have significantly increased the profit margins of commercial banks by lowering their operating costs. This has enabled them to offer acceptable interest rates on savings account and credit cards. With the help of Internet banking, you can access any information regarding your account and transactions, any time of the day. This means that you no longer have to depend on the office hours of your bank to obtain information. Therefore, you can regularly monitor your account as well as keep track of financial transactions, which can be of immense help in detecting any fraudulent transaction. In addition to this, fund transfers, both national and international, have also become faster and convenient with Internet banking. Nowadays, you can transfer funds from one account to another within a few minutes. You can easily carry out stock trading, exchanging bonds and other investments with the help of Internet banking.
All these features have made Internet banking ideal for people who make a number of financial transactions each day. In addition to availing banking facilities for 24 hours a day, you can also receive other important information regarding banking policies, rates of interest offered on different types of bank accounts and formalities required in executing various transactions. With such information you can compare the services of different banks and opt for the one that satisfies your individual needs and requirements.
However, there can be some serious disadvantages of internet banking, out of which the security of your bank account is the most important one. So while availing the facilities of Internet banking, you have to be very careful to ensure the security of your computer and personal information like the password, user name and pin number of your bank account. Otherwise, you may become a victim of computer hacking, which can lead to unauthorized use of your account by computer hackers. Though banks have come up with several security measures, the customers are also required to be a bit careful to ensure security and safety of internet banking.
23
Now one can access bank account and conduct a host of banking transactions and inquiries through our Mobile Banking service. Also can check balance, stop a cheque payment, or even pay utility bills. Mobile Banking service gives an account information and real-time transaction capabilities from the mobile phones at a true "anywhere, anytime, anyhow" convenience. All this through SMS or WAP or R World (for Reliance India Mobile customers). SMS Banking brings your bank accounts to your fingertips. It works using Short Messaging Service (SMS) technology. With SMS we can perform a wide range of querybased transactions from our mobile phone, without even making a call.
Mobile Banking on regular mobile phones can be conducted with normal SMS codes: Example: FOR HDFC BANK a) Get your balance details (HDFCBAL) b) Request a cheque book (HDFCCHQ)
24
2) Submit this form to the bank and wait for the processing period, which is usually 2-3 working days.
3) Enter the mobile number (as indicated by the bank) on the mobile phone, followed by the mobile banking request, in the format specified by the bank.
4) Thereafter, you will receive mobile phone alerts and can put in request for your banking information and/transaction through the mobile.
But still ATMs remain the most successful delivery channel followed by telephone banking and internet banking. With drastic fall in cell phone tariff and emergence of seamless connectivity between fixed and mobile lines, mobile banking is set to emerge as one of the cost-effective delivery channels in near future. Toll-free-numbers would also gain popularity as an important delivery channel. Although banks abroad are using call centre as a delivery channel for some time, banks in India have just begun to exploit it as an effective non-branch delivery channel.
The bankers will have to take a comprehensive view about their delivery channels. Till now delivery channels were viewed in terms of cost and technology. Delivery channels were devised focussing mainly on time and place advantage to the customers. However, with the continuing advances in wireless technology, flexibility in delivery channel device would be the forte of banks.
25
The modes of delivery like ATM, telebanking and Internet banking not only offer convenience to customers, but also reduce the overhead costs of operations significantly for banks by reducing the need for maintenance of records, books of accounts, etc. in the traditional format.
With about thousands of off-site and on-site ATMs installed, banks are effectively reaching out to a large customer base at a substantially lower cost. While ATMs do help banks to attract customers, there is also one more critical aspect to considerthe immense cost savings from which a bank can benefit due to a transaction taking place over an ATM vis-vis a branch. A look at the volume of ATM transactions conducted reflects the level of success of this delivery channel.
Typically, it costs close to Rs.50 per transaction if conducted in a branch and the same if done through ATM costs about Rs.15. In order to reduce the cost of transaction banks have started out-sourcing and sharing of ATM services and this trend will gather momentum in near future. As this delivery channel gains mass acceptability and is user friendly, the bank can use it to cross-sell its as well as others' products. It would be wise therefore to restrict your branch visits and instead use ATMs. To Sum up, For while winners may not see massive gains, the losers will fade from view as their ability to compete is eroded with every mouse click."
26
Following are the basic steps: Insert your card into the slot provided. Select the language in which you want to be led through the transactions. Most ATMs offer you the options of conducting your transactions in English and Hindi. At some locations, you will be able to select between English and the regional language. At the prompt, enter your PIN. Press the "Enter" key. Select the transaction you wish to conduct (e.g.: withdrawal/ balance inquiry). Select the account type. If you are using a Credit Card, select the "Credit" option. If you are making a withdrawal, enter the amount you wish to receive. Confirm that the amount is correct. Collect your cash, card and receipt.
27
First there were Rigid bank union restrictions on deployment; there was no government regulation restricting the deployment of ATMs by banks but the it was an indirect control whereby the Indian Bank Unions determined the number of ATMs deployed by the bank hence putting a constraint on the growth of ATM services. Second there were extremely high tariffs on the hardware import: Earlier the duties on the ATMs were 150 to 200 percent. With
28
the levels of duties as high the feasibility and viability of putting ATM outlets also became an issue for the banks.
However the most important factor for the slow growth was the Lack of sophisticated computer technology that hindered the progression of processing networks. Most government banks are still on distributed databases and the move toward complete automation has been slow.
29
The shared network would facilitate optimum use of the banks' resources, the infrastructure and rationalise deployment of ATMs. Participating Banks as well as the customer will gain from the arrangement. Since many Banks have evinced interest to join the network the number of ATMs under our network will definitely grow.
The system will work on an integrated backbone network and will be online and available on a 24 / 7 basis with all new security features. This is a very unique proposal of broad-basing the customer service through a concerted effort and in a very cost-effective manner.
30
ATM cards that function as debit cards are particularly vulnerable to fraud because they are used in "point of sale" transactions that require only a signature rather than a PIN to verify withdrawals. These cards withdraw money from a customer's account at the time of sale and deposit the funds into a merchant's account.
Techniques used to carry out ATM crime Card swapping where a customers ATM card is swapped for another card without their knowledge whilst undertaking an ATM transaction. Card jamming where an ATM machine card reader is deliberately tampered with so that a customers card will be held in the card reader and cannot be removed from the machine by the customer. The criminal removes the card once the customer has departed. Vandalism where an ATM machine is deliberately damaged and/or the card reader is jammed preventing the customers card from being inserted. Physical attacks where an ATM machine is physically attacked with the intention of removing the cash content. Mugging where a client is physically attacked whilst in the process of conducting a transaction at an ATM machine.
31
The increase in the percentage of cash transactions through ATMs has led to a reduction in costs for the bank. The cost of a transaction done across the counter is nearly Rs.50. However, the costs are only Rs.15.50 per transaction when done through the ATMs. Interestingly, the average number of transactions through ATMs of Federal Bank is around 200 per day.
32
driven by private sector banks, will be driven by Indian PSU banks in the next year. The retailbanking scene is getting hotter by the day with banks going all out to increase access points. This is great news for ATM majors like NCR India and HMA Diebold, which are fighting aggressively to increase market shares.
As part of its strategy in offering innovative services, NCR is talking to the Railways in Mumbai for deploying an ATM, which could be used to dispense railway tickets. The focus is on letting the customer use the ATM as a medium which can be used for non-cash transactions like payment of bills, insurance payments, printing of statements or accessing the Internet. The key idea is to get the customer used to these channels and then migrate him to different low cost channels like the Internet. For example, a customer using a Web-enabled ATM would be more likely to go in for, say, a service like Internet banking. Also, from the banks point of view this would be more cost effective as a transaction over the Internet would be minimal cost to the bank per transaction.
NCR is also looking at offering solutions that can bundle the ATM with the smart card. For example, the value of a Petrocard (a smart card with stored value used in petrol stations) would double if the Petrocard user has the option of topping up the pre-paid value of the card via an ATM. This option would give the customer better flexibility. The trend now is to use the ATM as a tool to acquire new customers and retain them by providing a range of services. Banks are slowly waking up to the ATMs potential as a serious marketing tool. They are also earning sizeable revenues by using ATMs to advertise products from other companies. A few banks are offering utility bill payment facilities on their machines too. Apart from that, a variety of services ranging from railway card/season
33
tickets and cinema tickets to dispensing of mobile phone smart cards are being thought of as a part of the strategy to attract customers and earn extra revenue. This could be the future of ATMs, where more non-cash transactions will be done. Some banks are even toying with the idea of selling movie tickets through ATMs.
For example:
The SBI ATM at CST railway station in Mumbai dispenses season tickets too.
Another unique strategy from NCR is the installation of local language ATMs which are available in almost all Indian languages. In rural areas for example, some farmers are extremely rich but do not have access to ATMs. How do banks reach out to such people? The answer is in the form of intelligent ATMs. Besides, an illiterate person would not be able to use an ATM, whichever language it displays. The answer is an ATM that offers an audio aid, which has clear instructions on how to withdraw cash in the language he speaks. We are seeing two distinct trendsstate-run banks are installing ATMs to ensure that they do not lose customers, and to cut costs, while private and foreign-owned banks are using it to acquire customers. This does not mean that the cost-factor is not relevant to the latter. Again, of the installed ATM base, nearly 70 percent is accounted for by private and foreign players. We also see that state-run entities have more of onsite ATMs. ATMs have evolved from only basic cash dispensing solutions to one which can provide value added services. The future of ATMs will be touch-screen kiosks, payment of bills, and smart cards bundled in with ATMs.
Consumers in this age of financial self-empowerment expect continuous access to their money and account information. In these changing times ATMs are in a position to cater the demand for cash availability and are finding growing acceptability in the Indian mentality. This changing scenario gives a lot of scope for the proliferation of ATM services in India.
34
The future of ATMs in India is fantastic. In fact, within a few years, the country will be flooded by ATMs. And, with e-commerce expected to boom in the next few years, banks will play an increasingly important role. But for that to happen, banks will have to transform themselves to serve customers in a better way. They will have to re-invent themselves so that better services can be offered at all levels. Thus, ATM, telephone and Internet banking are set to become the key drivers of growth for banks. According to International Data Corporation (IDC) projections, banking through Internet will get revenues of more than US $ 3 bln in another two years time.
In future a bank's ATM would function like a kiosk delivering more of non-cash transactions, thereby simultaneously reducing the fixed and operating cost of ATM.
ATMs, the Internet, call centers, instant messaging, mobile phones, and wirelessenabled handhelds are giving people round-the-clock access to cash, retail goods and services. In this age of accessibility, people no longer need to visit their bank to retrieve their moneyit comes to them. Financial service sector organizations are competing with one another to deliver to their customers the most sophisticated access points to funds.
Among all the delivery channels used by banks today, ATMs remain the most successful, followed by telephone banking and Internet banking. But the biggest potential could lie in mobile banking. With cellphone tariffs falling and increased bandwidth, the potential for banking player to tap this channel is enormous. The future delivery channel will have various mobile portals using technologies such as GPRS (General Packet Radio Service). The customer would prefer to do banking transactions not only anytime, anywhere, but also through any device. With the current rate of evolution in the wireless industry, the mobile channel is poised to become the de-facto banking channel within the next three years.
One more delivery channel, which will increase in the future, is the deployment of call centres. For instance, looking at the cost effectiveness of call centers.
35
As a delivery channel gains ground, it can be used to sell products of other vendors too. Analysts believe that as banks discover the marketing power of ATMs, one would see a trend where ATMs would be used to deliver products of other vendors as well.
The next five years will see a marked shift, wherein customers will show a preference for non- branch delivery channels.
Research indicates that globally, 80 percent of cash withdrawals occur on ATMs; the emphasis is now shifting towards adding new services at these touch points. ATMs thus become an ideal banking unit of a bank, as acceptor as well as dispenser.
As per the survey over the last three months across nine major cities in India came up with some startling figures. The potential banking consumer population in India is around 300 million. The number of ATMs required to service this population would be a whopping 200,000, at the minimum. At present we have a paltry 5,000 ATMs countrywide. To be very precise, an ATM will have to be installed for every 1,489 cards issued. In order to break even, the number of transactions per ATM would have to be 203 every day and the customer would have to make a minimum of four transactions per month on an ATM.
36
9.1:ATM Outsourcing
The potential for the ATM industry in India thus remains largely untapped so far. ATM Outsourcing:
The question remains as to whether the banks and the bankers can afford to wait while building the required infrastructure and formulating business and revenue models to generate future profits for the bank. As banks look at the difficult task of minimising operational costs, while simultaneously enhancing ATM channel availability and customer satisfaction; outsourcing the management of the ATM channel has presented itself as an attractive option. This would also enable them to concentrate more on banking rather than getting involved with the intricacies of technology.
In order to outsource an important project, the bank has to consider various factors before choosing a service provider. In this emerging highly competitive scenario, service providers who can offer services in the shortest time frame and with the least down time will be the winners.
Many Indian banks that were hampered because of lack of knowledge of technology are now actively talking to ATM vendors for outsourcing their needs. For example, Bank of India recently signed an agreement with India Switch Company, a Diebold HMA group company, for outsourcing the setting up of ATMs. Other banks-especially PSU and co-operative banks are expected to follow this trend.
The Indian ATM Industry has seen explosive growth in recent times, with the installed base registering a CAGR of almost 60% in the last few years. While committing to substantial capital outlays on the deployment if ATM channel, banks are recognizing the significance of the 3Ms Maintenance, Monitoring and Management to make the self-service channel a profitable one.
37
ATMs represent the single largest investment in the electronic channel services for the banks. Running a large ATM network is a serious business, involving varied disciplines and complexities of hardware, software and processing requirements. The banks are working towards optimum availability of ATM networks for their customers, while protecting margins in a competitive environment. Outsourcing management of the ATM network to subject-matter-experts is becoming an increasingly preferred alternative, since this helps freeing the banks resources for their core business of banking.
This is part of a global trend, as banks and financial institutions the world over are discovering that outsourcing the ATM channel management can bring both improved performance and reduced operational costs.
Typically, outsourcing could involve various tasks. The scope depends on a bank's long-term strategic goals. Tasks that could be outsourced include: ATM Monitoring Sophisticated software and tools, such as those at NCR's ATM Management Centre at Mumbai, make it possible to monitor the entire ATM network remotely on a 24 x 7 basis. In addition, the tools also facilitate accurate diagnosis capabilities help significantly in maximizing ATM availability across a widespread geographical area through faster and accurate response to fix any problem or even pre-empt a possible problem. Cash and Consumables Replenishment; this service helps minimize outages and maximize channel availability through improved logistical management of Cash and Consumables Replenishment. Currency Management; This is one of the important elements of ATM management. This helps ensure that the ATM does not have cash-outs, which could mean dissatisfied customers besides avoiding expensive emergency Cash replenishment trips. Mostly importantly, currency management lowers a bank's cost of cash, eliminating excessive idle cash that could mean a loss of interest revenue.
38
Network and Systems Management; This includes the monitoring of the entire network connectivity on a 24 x 7 basis, including the network equipment and servers, the telecom and transmission lines and the software within the ATMs.
39
9.2:Outsourcing Benefits
In today's ATM sharing, high availability of the ATM to the bank's customers is a must for the channel to become a profitable one for the banks. Outsourcing of ATM management plays a significant role in making the vital network available in an efficient and cost-effective manner through the coordinated delivery of field services from a single service organization. Lower Operational costs: Banks choosing to outsource operational management of ATM channel may be able to achieve as much as 15 to 25 percent savings on ATM management service over the cost of in-house operations. The outsourcing agency is able to leverage economies of scale and continuously upgrade technology to drive cost efficiency. Cost of Cash: Cash carrying costs are among the largest cost of running the ATM channel. With the integration of advanced currency management tools, cash costs can be reduced substantially. Improved performance: The single point of contact accountability maximizes availability through the elimination of delays repeated callbacks and out-of-scope charges that may occur when several organizations are providing the services. Through its Management Centre Infrastructure, a company like NCR can instantly pinpoint and diagnose problems throughout the ATM network ensuring an accurate and quick response. Concentrating on core Competency: Outsourcing ATM management to specialists frees Bank management to focus on its core business of banking. Outsourcing also stimulates branch productivity, freeing branch personnel to concentrate on customer interfacing and revenue generating functions. Technologies Edge: On its own, it may be a difficult for a bank to keep ATM hardware and software updated as technology evolves. NCR as a leading ATM manufactures invests heavily in management infrastructure to provide customers with state of art tools. The key to successful outsourcing strategy for the ATM channel is to have a partnership between the two organizations rather than just traditional vendor relationship. A partnership approach to ATM outsourcing can offer banks an operational model whether overall channel availability is increased with the significantly lower cost and higher customer satisfaction.
40
S.No.
Banks
No. Of atms
Indian Bank
83
2 3 4
295 4100 13
Syndicate Bank
182
Union Bank
145
600
41
Greater Co-op
10 times
5 times
5 6 7 8
From the above table, it can be seen that the average customers visit to the branch in preautomation phase was 10 times and visit after introduction of Automation channels is Avg. 6 times. Retail Banking is going through an active metamorphosis. This is thanks to the number of consumers who have migrated from paper to plastic, and of course also due to changes in the banks themselves. So far there are just a few banks that have jumped onto the retail banking bandwagon, but many are sure to follow.
42
Sr. No.
Banks
1 2
3 4
5 6
7 8
From the survey conducted, it can be observed that Avg. time taken by Teller is 10 Min. whereas ATM takes on an Avg. 3 Min. Hence, it can be said that ATM is more effective in terms of timing saving and providing better customer satisfaction than the Teller at Branch.
43
44
Speed: Computerization helps in processing the data placed in several data files in no time. Accuracy: The data processed by the computer are highly accurate. The programs written
on the system checks and controls data before and during processing.
Flexibility: The modern digital computers can be used for a variety of purposes. E.g.
online processing, multiprogramming etc.
Choice of Configuration: Wide ranges of peripherals are available for many computer
systems, which allow business organization to select those which most suit its processing requirements.
Storage capacity: Large volumes of data can be conveniently stored, accessed and
altered.
45
Data Processing: Computer has lifted the heavy data processing constraint with the
manual system and has opened up new avenues for planning, control and data experimentation.
Volume: Computers can store volumes of data and can retrieve the desired information
quickly.
Reduction in paper work: The use of computers for data processing has helped the
management of business organizations to cope with increasing problem of paper handling
46
Second the ATMs can also be used as marketing tool for the new products and services; ATM locations offer important distribution points for new products and services by the banks. The advances in technology have made the machines more functional; the online ATMs connected to the customer databases can provide updated and customized information to the customers.
Thirdly it helps the banks attract new customers; The shared ATM networks allows the customers of different banks to do their banking transaction efficiently, giving the acquirer banks an opportunity to open interfaces with new customers.
Apart for these ATMs also benefit the banks by providing Additional revenue opportunities; these front end sites form an important resource for the banks for generating revenues by marketing these distribution points for distribution of third party products and services. Couponing schemes, distributing leaflets of the third party products etc are some of the ways in which additional revenues from an ATM site can be generated. Advertising on the screens and on the site can be another source of revenue for the banks. Utility payments, ticket distribution points are the other areas where the ATMs can generate additional revenues for the banks.
47
Customer is absolutely free to bank whenever and wherever he wants. That is, whether it's a national holiday, a strike or a traffic jam, the ATM is there for you always. Plus, there's no queue and most of the time, the crisp notes coming out of the ATM are an added bonus. Most banks today are looking at ATMs not only as a delivery channel that bring in customers in droves but also significantly reduce transaction costs.
E-Age Advantages: 24-hour access to cash Balance inquiry Mini-statement request Cheque book request Funds transfer PIN change Bill Payment of Utility Services, etc Anytime cash deposits
Though Internet Banking-is not as popular as ATMs but it is an emerging delivery channel-offers significant cost advantage to banks. A net-based transaction costs the bank only around Rs. 4 and costs per transaction are even lower than those of an ATM. In addition, as a delivery channel, Internet banking does not require physical infrastructure, thus saving on prohibitive real estate costs. Thus, banks are trying to get customers to switch over to this mode of banking.
48
Pitfalls
But in spite of all the positive signals, there are problems galore, which if not set right, can come in the way of ATM growth rates in India. One is the familiar infrastructure problem. Other problems are issues like obtaining many different permissions from different authorities like the municipal authorities, building society permission, permission for locating VSATs on top of a building, obtaining permission from the local telecom provider, etc. The rapid deployment of ATMs earlier was because of the fact that there was no permission required from the Reserve Bank of India. But today this is mandatory. Industry experts point out that this was done because there were a lot of banks, which set up ATMs without adequate funds. The RBI wanted to check the status of banks before allowing them to set up ATMs.
First there were Rigid bank union restrictions on deployment; there was no government regulation restricting the deployment of ATMs by banks but the it was an indirect control whereby the Indian Bank Unions determined the number of ATMs deployed by the bank hence putting a constraint on the growth of ATM services. Second there were extremely high tariffs on the hardware import: Earlier the duties on the ATMs were 150 to 200 percent. With the levels of duties as high the feasibility and viability of putting ATM outlets also became an issue for the banks.
Although Internet banking has made its advent in the Indian Banking Scenario, the pace of its acceptance is not exciting. Internet itself is out of reach for the potential consumers of Net banking services. In the course of time when ISPs come up with sufficient bandwidth at a reasonable price, then only we can expect a smooth acceptance of Internet Banking. While Internet banking is a potential and powerful delivery channel, it has failed to make a significant impact due to a variety of reasons.
49
There are three clear reasons why Internet banking has not taken off in India
1) Slowness in adoption of the Internet by the 40+ age group. 2) Lack of a strong trust environment prevents rapid move of corporate into adopting Internet, 3) Lack of a critical mass of early adopters of security and trust technology among bankers operating in India to drive the transition from bricks and mortar to e-banking.
However the most important factor for the slow growth was the Lack of sophisticated computer technology that hindered the progression of processing networks. Most government banks are still on distributed databases and the move toward complete automation has been slow. One of the problems faced by Net banking in India is lack of customers having PC and Internet access and above all security is a huge issue which is restraining the customers from doing their banking on the Net. In spite of facing several such limitations, it is heartening to see that many co-operative and rural banks have taken the technology plunge and are able to offer the latest services to customers at affordable budgets.
50
However, if the system goes awry, it can cause significant problems for consumers. Last month, the Chase online banking system had a service outage and was down for three days, leaving 16 million customers without access to their account. An outage of this size is uncommon, but it is a good reminder for all of us to have a back-up plan, to keep a personal record of account information. A lost credit card or a stolen wallet can be just as damaging if you dont have a record of all bills youve set up for automatic payment, says Bill Hardekopf, CEO of LowCards.com and author of The Credit Card Guidebook.
Many consumers use credit and debit cards for automatic bill payments. This is a system that typically runs smoothly and on schedule but also makes it easy to forget about the merchants and bills you are paying. If you must replace a card or an account number is changed, these bills arent automatically transferred to the new account. It is up to you to immediately contact each merchant and vendor with the new card information to avoid interruption. Keep a record of the name and phone number for every person, business, bill or loan that is paid with an online payment. A late notice, accumulating fines, or terminated service may be your first notification that a bill was not paid. Missed payments can cost much more than a late fee. These problems can negatively affect your credit score, says Hardekopf. Making a record of accounts to pay is
51
a small hassle, but there may be a time when you are glad you did. Scrambling to fix it after you are delinquent on the payment is too late.
For Chase customers, several days without account access was an anxious time for those that had bills to pay. Even though Chase will refund any late fees incurred during the delay, the bank cannot repair the credit scores that may drop after the late payments.
It is also possible that account information may have been corrupted. Chase customers should look carefully at their account for lost transactions, incorrect account balances, missed deposits, and missed payments
52
CHAPTER-12 REPORTS RELATED TO AUTOMATED SYSTEM IN BANKING 12.1:Bank automation: Towards paperless transactions
Today, money has evolved beyond physical form, and can be measured by electronic pulses. This electronic representation of money has made it easier to progressively increase the use of information technology for banking operations. It is also possible to make banking more global due to electronic automation of work processes. Technological innovation has also speeded up bank transactions, in the process, reducing human drudgery and possibilities of human error. Banking operations have become more customerfriendly and flexible. Approach to the bank branch concerned has become multi-channelled and more and more customers are finding little need to visit the bank. As a matter of fact, the very concept of a bank branch is becoming irrelevant as far as catering to a customers needs is concerned. On the flip side, however, these improvements have been associated with increased threat of misuse, forgery and fraud. Introduction of automation has also liberated the banks from a lot of paper-work. While banks in India have not become fully paperless, there is a steady movement in that direction. Banks have realised that persuading customers to carry out transactions using electronically available channels without physically visiting the bank is less expensive for them. Hence, exploiting new technologies should also improve the profitability of the banks.
53
Automation
Automation came to banks, beginning with ALPMs (Automatic Ledger Posting Machines). The repetitive and cumbersome task of ledger maintenance had been simplified. A server at every branch contained the entire database. It was soon realised that it would be more fruitful to have the total database at a central location and create a wide area network, WAN. Such a system required a lot of redundancy to ensure 24x7 availability to the customers.
Core banking
Introduction of these innovations created the idea of core banking. This happened around 1992 and changed the very concept of branch banking. The first ATM had been had been installed in 1980 and progressively provided an electronic channel with flexi-timing for customers banking needs. Limited services like cash withdrawal, balance enquiries, printing of mini statements, etc., was available. Addition of Internet banking multiplied the delivery channels. This required that the accounts be up-dated in real time.
Mobile banking
SMS banking provides another channel for banking. It indicates to the customer all the entries like credit, debit or any other transaction that has taken place in his account. Mobile banking has an edge over Internet banking, since it does not require any connectivity. Visits to the bank may be made only for seeking advice. The customer is really dealing with the bank and not that specific branch since the database is centrally located. All this provides excellent flexibility in bank operations and timing.
54
55
56
Lauding the efficiency and commitment of the BBs staff, he said the automaton process is progressing faster even than the process in the United States due to the skill and dedication of people working in the central bank. Kahn said automating the US banking sector was a difficult task and took more time than the progress in Bangladesh. He observed the automation process as a driving force in achieving the vision for Digital Bangladesh and advised continuous effort to make people tech-savvy. It is easy to change technology, but hard to change people, Kahn said.
57
During the visit, the mission members discussed various reform measures taken by the Bangladesh Bank under the IMF aided Financial Sector Reforms Programme taken in the 90's. "IMF mission appreciated the role of Bangladesh Bank and expressed their satisfaction with the progress in a number of key areas like automation and IT", officials told BSS. The IMF mission found a tremendous progress in automation and application of IT in the operational functions of Bangladesh Bank, they added.
"Bangladesh Bank has already introduced e-commerce, e- banking and automated clearing house which are historic moves towards achieving higher productivity in all economic sectors, including agriculture and SME through use of ICT", IMF officials said. Bangladesh Bank Governor Dr Atiur Rahman has already announced that the central bank would be turned into a paperless institution within the shortest time and interbank market would be made completely digital by 2010 in order to increase efficiency and transparency, reduce risks and corruption in the country's fragile financial sector. He also said the central bank was going to introduce a digital trading system in interbank market to ensure transparency, increase efficiency and deal with call money, securities, bonds and foreign currencies in line with international trading practices.
The central bank has already asked the commercial banks and non- bank financial institutions to improve their ICT base. The IMF mission also found that the central bank had already engaged commercial banks in major programmes of upgrading their IT platforms with ample processing power and online connectivity to enable efficient data management, processing and analyses for risk management purpose and reporting to BB.
58
12.4:The Dragon and Tiger of the ATM Markets: China and India Report Published by Celent
The ATM markets in China and India have experienced explosive growth over the past five years. The next three to five years will see an even greater increase from about 125,000 ATMs in 2006 to 350,000 ATMs by 2010. While traditional ATM markets are on the decline, overseas markets are rapidly becoming attractive venues of growth. They are the destinations of choice for ATM industry players seeking to sustain profitability levels. In particular, the rapid development of banking and financial services in both China and India represents a significant opportunity for ATM growth. In a new report, The Dragon and Tiger of the ATM Markets: China and India, Celent describes how retail banking across both countries has grown exponentially as consumers buying power has risen, increasing the demand for more flexible and convenient access to bank distribution channels. With fairly large proportions of the population being either unbanked or underbanked, particularly in India, and with low branch density per capita in both countries, financial institutions face pressure to expand their retail distribution capabilities to meet growing demand. Given the extremely low penetration levels of ATMs in both China and India, better leveraging this cost-effective self-service distribution channel represents a key opportunity for meeting this challenge. Spurred by the high growth and competitiveness of the banking industries in both countries, ATM installations have seen double-digit growth in each of the past five years. Celent predicts that the best is yet to come. The next three to five years will see even higher growth in these two countries from about 125,000 ATMs in 2006 to 350,000 ATMs by 2010.
59
Like India, China is experiencing rapid growth in ATMs, driven by its largely cash-based society, the low density of bank branches at a time when demand for financial services is accelerating rapidly, and the need to more aggressively deploy ATMs beyond the largest metropolitan centres to midsize and small cities and suburban regions, says senior analyst and coauthor of the report.
Wenli Yuan,
Celent
In addition to regular ATMs, these markets will witness high growth in innovative technologies such as biometric ATMs that cater to the large and underbanked rural population of both countries, says Sandeep Hebbar, Celent analyst and coauthor of the report
60
Transaction Limits:
Daily limit of Rs.15, 000/- at the ATM Daily limit of Rs.25, 000/- at Point of Sale (POS) terminal for debit transactions Combined daily limit of Rs.40, 000/State Bank accepts Debit / Credit Cards issued by Banks in India and Abroad affiliated to both VISA and Master Card International at its over 4174 ATMs in India. Cash transactions and Balance enquiries are allowed at a nominal fee as under: -
Transaction Costs:
Debit Cards Issued in India Credit Cards Issued in India Debit / Credit Cards Issued Out side India Balance enquiries
61
SBI tied up with Indian Bank for sharing ATM on 16 July, 2004.
State Bank of India has entered into an agreement with Indian Bank for bilateral sharing of their ATM networks. SBI has a network of 4100 ATMs while Indian Bank has a network of 104 ATMs. SBI already has such bilateral sharing networks with HDFC and UTI Banks.
th
ICICI Bank signed MoU with SBI for ATM network sharing
ICICI Bank, Indias largest private sector bank, signed a Memorandum of Understanding (MoU) with State Bank of India (SBI), Indias largest public sector bank for sharing of ATM networks.
SBI and Associates, having 2068 ATMs and ICICI Bank having a network of 1725 ATMs. The agreement will enable the customers of ICICI Bank and SBI to have access to the combined ATM network of 3793 ATMs, spread across over 600 centres in the country. The countrys largest private and public sector banks, ICICI Bank and State Bank of India, integrated their ATM networks to give their retail banking customers access to almost 4,000 automated teller machines across the country.
Customers of both banks will be able to use ATMs of the other bank at no extra charge or fee. This is the first bilateral ATM sharing deal of this size in the country. Though the trend had been started by other smaller banks, which have made attempts to form bilateral and multi-lateral ATM networks in order to provide more machines at more locations to their customers, as well as maximise revenues from each machine.
ICICI Bank has utilized technology to provide value-added services to its customers. The Bank services a growing customer base of more than 6 million customer accounts through a multi-channel access network comprising over 450 branches, over 1725 ATMs, call centers and Internet banking. Today, ICICI Bank witnesses more than seventy percent of its transactions on electronic channels as against only 5% usage less than three years ago.
62
SBI, HDFC link ATM sharing pact - January 28, 2004 PSU banking major State Bank of India has signed an ATM sharing agreement with private sector HDFC Bank. The agreement covers 2,850 ATMs belonging to SBI and its seven associate banks and 870 ATMs belonging to HDFC Bank. The ATM network sharing alliance reiterates our commitment towards maximizing customer convenience. It further enhances the proposition of anywhere, anytime banking offered by the ATMs for our customers. Hence it makes sense to enter into multiple sharing arrangements with banks as it leads to greater utilisation of the machines.
63
One can only imagine the complexities involved in deploying a core banking solution for an entity the size of State Bank of India. With more than 13,600 branches spread across the length and breadth of the country, the project was huge in size and complicated in its implementation. The project involved deploying a centralized core banking system throughout the SBI group, consisting of SBI and its seven associate banks. In the group, SBI alone has more than 9,000 branches with 51 foreign offices in 31 countries. The estimate of investments for SBI is Rs. 500 crore ($102 million).
But this mammoth task, said to be one of the largest of its kind in the world in terms of the number of branches, customers and transaction volume, was undertaken by TCS. The project involved procurement, supply and installation of hardware and the core banking software, customization of the core banking software, implementation and rollout of the software at SBI branches, and training and support. TCS will manage the entire project and the system integration activities involved. As the prime vendor, TCS has teamed with Financial Network Services, Australia (FNS) and Hewlett Packard (India) for this project. Hewlett-Packard will provide its always-on Internet infrastructure solution consisting of Superdome servers and XP storage systems, whereas the core banking system will be supplied by FNS.
64
Total number of branches in India Partial computerization at branch level Number branches Number of existing service branches Number of partially computerized of fully computerized
385 63
service branches Number of fully computerized service branches Total ATMs installed Online terminals at corporate sites installed Debit cards (as ATM cards) issued 30,62,628 2490 5980 318
65
In this prevailing scenario, a number of banks have adopted a new deployment strategy of infrastructure outsourcing, to lower the cost of service channels. As a result, other banks too will need to align their new technologies with their reinvented business models. The required changes at both the business and technology levels are enormous. In a highly competitive retail banking market, early adopters are profiting from increased efficiencies. Even though there are certain limitations, it is heartening to see that many co-operative and rural banks have taken the technology plunge and are able to offer the latest services to customers at affordable budgets.
As we move inexorably into the future, the banking sector is poised to scale new heights, adopt advanced technologies and rise to new levels. The banker of the future will look to technology as a tool to provide better quality and service to customers, while banking technology will be increasingly sourced from trusted technology service providers to the banking sector.
What has been achieved so far is only a modest beginning and many more industry wide projects are in the offing. In addition, banks are yet to complete major technological upgradation of their systems. They are yet to see the real benefits of the technology. However, the implications of large-scale technological usage are paramount for a robust and proven disaster capability.
When banks depend on technology for their day-to-day business, the complexity and risks of technology have to be understood and sufficient backup plan put in place to ensure continued customer service.
In addition, as more technology based services are provided, the demand from customers will keep increasing and banks would thereby end up in a technology war. In order to win this war, investments in technology are going to increase and proper utilisation of
66
these investments is essential for banks to ensure that the systems deployed are fully integrated with their operations. Mumbai being the financial capital of the country will always set the pace of automation in the banking and financial services industry.
It will also take the lead in deploying large-scale systems and reap the benefits. Several banks, (RBI, SBI, BOB, BOI, CBI, Dena Bank, ICICI Bank, UTI Bank, etc.,) with their headquarters in Mumbai, are already setting the pace of technology deployment. They have set an example of how technology-based transformation is delivering enhanced customer value.
It is only a matter of time before the Indian banking industry witnesses enhanced technology deployment. With that, customers are assured of better service from the banking industry. This would ensure better services to customers and also reduce the incidence of fraud or scams in the banking industry.
67