Prakash Seernani, Practice Lead - BFSI, Omnitech, writes that the RBI’s commitment to driving investments in technology combined with the steps that the IT industry is taking will result in this growth.
The Reserve Bank of India has so far been the major driver of investment into technology in the Indian banking industry. History proves that, over the past two decades, the RBI has taken sure-footed steps that have been getting longer. Its confidence in the ability to drive technology into the banking sector is remarkable and evidenced from the fact that, this time around, it has released a vision for six years as opposed to the earlier three. This far, we have seen the RBI being involved to a large extent. Now, things are changing and it is becoming still more committed. It has regulatory and business initiatives that, coupled with the steps that the IT industry has been taking, are sufficient to prove my point.
Customer is king
Over the past decade the profile of the customer has changed substantially and they are increasingly accessing new channels including ATMs, Internet and the mobile phone. Customers have tasted the benefits of technology and are now demanding these services from their banks. In a recent address on 25-Aug-2011 at the FICCI-IBA conference on Global Banking, HR Khan, Deputy Governor of the RBI, disclosed that the volume of electronic transactions had gone up to 41% and was rising. The Reserve Bank of India is gearing up in multiple ways with the Next Gen RTGS being a case in point. Banks too will need to gear up by rapidly adopting technology and staying abreast with advances if they are to retain their customers. The RBI understands this and has opened up the Net-Banking channel for the Urban Cooperative Banks. The thousand plus urban cooperative banks will now extensively use this delivery channel. We are already seeing a number of them moving towards it with read/view options as the starting point. Over the next two to three years, banks will make substantial investments in delivering their service to the customer’s doorstep moving from Any Branch Banking to Anywhere Banking. The exponential penetration of mobile networks, the availability of the banking channel and the more-than-willing acceptance by the customer, is another area that banks will focus upon. Bank-in-the-pocket is becoming an accepted phenomenon and it will soon become a demand on the customer’s part.
Banking on business
As banks focus on improving customer service levels to the expected mark, there will invariably be a demand for understanding the customer better. The near future will see banks investing into CRM solutions serving two purposes. First, it will help the bank understand the customer better and secondly, when an identity is stolen, there is a change in operating patterns and this will help banks identify threats. Banks that have invested in using the latest technological advances are already backing it up with confirmation channels—both manual (call from the customer desk to confirm a transaction) and electronic (SMS intimation of a transaction). These not only help banks improve customer relationships and reduce risk but also act as inputs to compliance systems like Prevention of Money Laundering (PML). While some banks have already invested in AML tools, a large number of them are yet to make this investment to the extent that it is effective. Even from the banks that have already adopted such systems, most of them are not integrated with their core systems. This is a pending activity that is in progress. Banks will continue to invest in such integration systems enabling Straight Through Processing (STP) while consolidating storage and computing needs and optimizing costs. These are already on the board and funds have been committed for the current and next couple of years.
With investments into CRM solutions, the bank understands the profile of its customers and what keeps them happy and banking. Results from this, however, are insufficient to fuel growth. Banks need sophisticated Business Intelligence (BI) tools to understand customer behavior and be able to target prospects with similar behavior in order to grow their customer base. Banks that have already invested into BI tools and are using them to target prospects have seen the benefits. It is only a matter of time before using BI tools becomes commonplace.
Additionally, banks are now eyeing the large rural landscape. After taking over the metro markets, the banks are now moving into Tier II and Tier III cities. More investments are already seen or being seriously considered into systems for Financial Inclusion (FI). Over the past two years, the RBI has been aggressively pursuing its objective and, in this final year, it would have completed all 350,000-odd unbanked villages. With accounts in place, the transactions are soon to follow and will do so.
Security is a growing concern
With every open channel, be it a brick & mortar branch or an electronic delivery channel, security is always a concern. Internet banking and mobile banking are no exception and banks will need to seriously consider implementing Threat Management Systems including Multi-Factor-Authentication as inherent features of their channels. With networks open and hackers intelligent and waiting to attack, these will be investments that will happen not after but along with the business enabling investments.
Banks have realized that they have made substantial investments in technology that have been driven by need and that there exists room for optimization. There are multiple objectives that the CIO/CTO is driving viz. consolidating assets for better cost and control while also refreshing technology and putting in place a Disaster Recovery Management (DRM) plan to ensure Business Continuity. The CIO is considering investments that will bring down the cost of operations, while also reducing the cost of business and minimizing business loss due to unavailability.
With IT being offered as a service the build-or-buy decision has a new dimension that is actively being considered namely managed services. A few banks have already tested the waters and the learning from them is available for the others in the pack. A clear-cut list of Do’s and Don’ts may not be formally available but a broad idea is in place and CIOs today are more than willing to consider and evaluate options, customizing the offerings based on their needs.
The IT industry is constantly riding the innovation curve that’s sharper than ever and more IT services are falling into the Managed Services basket, offering server management, network management and security management services. Live cases of these, though sparse, are available across the spectrum of banks, showing that aggressive and innovative CIOs are not confined to the biggies.
With commitment from both the involved parties, the RBI and the banks themselves, technology is bound to move into the driver’s seat. CIOs will finally get a seat on the Steering Committee and get to drive the business rather than merely supporting it. Obviously, the prime-on-priority will be to select a partner that not only caters to their current needs but also runs a longer distance in the race. CIOs will look for IT organizations that are professionally managed, focused on the domain, have a track record of exponential growth and are flexible and agile enough to help address grey areas. IT organizations from their side would be looking for banks with dynamic leadership with aggressive growth plans, with the daring to back innovation and the patience needed to address grey areas.
With the relevant stakeholders committed, the next couple of years will see technology embedded into the banking sector like never before and progress made over the past two decades will be dwarfed compared to the progress over the next three years. Similar will be the investments that banks will make during the period.
The author is responsible for the overall leadership of the Omnitech’s BFSI Practice in India. He has extensive experience in setting up and managing global resource pools (Global PMO) along with heading Delivery / Program Management (Prince-II).