E-banking — Hype or reality?

A status report on e-banking — the delivery of financial products through electronic channels — may not be easy to come by in India. E-banking, as far as the interface of technology with individual customers is concerned, has come to be identified with the three channels of automated teller machines (ATM), Internet banking and tele-banking. The first difficulty in making an estimation of the penetration of e-banking arises from the definition itself. A delivery channel such as an ATM cannot exist separately from the more conventional form of banking. For a bank customer it is a convenience tool. All the electronic delivery channels in use in India — tele-banking, the ATM and the Internet — can only supplement and not supplant the more conventional ways of delivering banking products. Therefore statistics of e-banking business in India can be misleading. That is why even the most ardent proponents of e-banking among bankers (the new private and foreign banks especially) would like "a click and mortar'' approach — you have got to have both the traditional bank branches as well as the newer channels.

There can be no doubt at all that e-banking is a selling proposition at a time where retail banking is being given a big boost. A few foreign banks and the technology savvy private banks have had a first mover advantage — in first introducing ATMs and other e-channels — which they have used to build a retail banking base far in excess of what their limited branch size would normally support. However for most customers transacting through an ATM or the Internet is not the whole banking experience. There are other needs, which require a visit to a bank. Most bankers say that e-banking — especially its most visible form, the ATM — is not always viable. A certain minimum number of transactions will have to be put through. Besides — and this is a key issue — do customers always prefer an ATM even when it can dispense cash faster, give account statements much more "efficiently,'' outside banking hours and without any staff intervention?

There is much that technology can do to make the financial sector more efficient. There is unanimity that the financial sector cannot do without technological upgradation. But while even the most dogmatic resistance, as for example from the trade unions, has been won over, the time has to come to recognise the true worth of technology in today's finance. Has there been too much hype over the alleged benefits of technology?

Like in other sectors of the economy, the value of technology lies in so far as it boosts efficiency in recording significant productivity gains in manufacturing and services. In the financial sector it does reduce transaction costs, paves the way for entry into newer business (the currently fashionable debit cards, for instance) and expands the geographical reach. The back-office computerisation appears less glamorous but is the most utilitarian from the institutions' point of view. It checks frauds and ensures a higher order of book-keeping. Unfortunately, those benefits have not been touted as much as the outward manifestation of tech upgrades.

There is a flip side to technology. As the recent Reserve Bank of India's Report on Trend and Progress of Banking points out, "the major issue about new IT is its impact on the processing of information, which lies at the very core of banking business. In spite of its advantages reliance on such technology exacerbates traditional risks.'' For instance, there is an operational risk. Procedures have to be improved to suit the new technology. Banks face a reputation risk in being lax in delivering the promised services on time.

The large number of consumer courts' verdicts against credit card issuing banks falls in this genre. Like other e-businesses the financial sector is also not sure about the legal position. The legal/regulatory framework is just evolving. Finally, the RBI points out to the emergence of a "digital divide'' in the wake of the new technological developments. IT-led innovations in banking as elsewhere are knowledge intensive and favour the educated participants at the cost of ignoring the less priveleged.

Competition among banks will push banks to offer less expensive technology-intensive products, but surely there is a limit to how far they can go. One has to reckon with paying for these services although it may not be apparent from the glib sales talk of the bank personnel.

There is a lot to be said about the attitudinal changes that technology has brought about in the financial sector. A few of those are not desirable. Technology had led to standardisation, a kind of impersonal uniformity in packaging and distributing a product. Foreign banks have been using "associates'' or contractors to sell these, often with disastrous consequences to their image and reputation. Given that the cost of technology has to be recovered there is perhaps no alternative except to employ non-bank — often poorly trained — salesmen at a pittance. That is going to be a major area of concern, for the regulator, for the trade unions as well as for banks themselves.

An even bigger blow is directed at the very foundations of retail banking. In India as in the U.K. standardisation of products/services has devalued the role of the bank manager and made retail banking heavily dependent on the vicissitudes of the head office and the computer.

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