There is no doubt on technology adoption by banks. It is ubiquitous – in ATMs, payments, statements, channels, mobile, internet banking and most if not all our interactions with the bank.
Or is it? Not so soon….
In reality, technology adoption is partial with a limited view of customer and competition. It is still old and expensive technology and process at the back end of most banks. While, the banks have given more options, convenience, and comfort to a customer but has totally failed to benefit the customer in terms of cost of banking. The cost for the customers has not come down in line with the technology adoption we see. To fund the back-end processes and technology, banks have to keep rates and fees high. In fact, the cost ratio of banks in region is quite high – India (53.5%), Singapore (44.4%), Malaysia (48.4%), Indonesia(49.5%).
In one of his interviews last year, RBI governor Mr. Raghuram Rajan noted “We can see the effect of the IT revolution everywhere in the banking system, except on the expenses side… why aren’t the expenses coming down? We need to look at whether technology is really bringing down costs.”
One of my colleagues working with banks all over Asia in technology modernization was surprised at the amount of money/time spent on back-end activities and processes which can be done much cheaper using technology. One such example is various reconciliation activities. There are vendors and tools but most of the work is still manual (read staff using computers – not automated) and overall cost doesn’t come down.
So what’s next – How will this change…
Next wave to reduce the cost for banks and its customers has started. Some are already happening and others are more radical and need regulatory oversight and changes. With central bankers across the world more open than in past, this will happen sooner than we can imagine….
- White-Label branches
It is not uncommon to have 5-10 different bank branches next door in certain areas while unable to locate a branch in another part of a city. The branch cost is borne by customers eventually. Banks are always in the conundrum – whether to reduce branches to optimize cost or to increase branches to improve customer experience. This is a something which provides best of both worlds. Time is ripe for regulators to look at the option of allowing white-label branches. When can same ATM dispense cash for all banks worldwide, why banking has to be limited to a branch of a specific bank? Look at how vfs-global solved the problem of having embassy/consulate everywhere. Banks can still differentiate on what they offer and have standards set for specific customer types – product innovation will be key and it could be a totally new set of players running these ‘Branches’.
- Robotic-Automation in banking
With technology, the calculators and ledgers were replaced by computers. Nothing else significantly changed in the layout of branches or the work to be done by individuals whether it was tellers, agents or back office staff. The move to automate the repetitive work done by individuals will not only reduce cost, improve productivity, reduce errors but also free up bankers and staff to focus on better customer experience and value added tasks. Refer my other post on automation – RPA Robots are here- Are banks ready?
- The Fintech frenzy
The currently on ongoing Fintech frenzy and offerings are going to bring the individual service and transaction cost dramatically. While they can provide alternate processes, provide tools, innovative offerings but it’s for the banks to utilize, optimize and then pass on the savings to its customers. They must not only look at technology which is the focus right now but also optimize on changing the role of staff, overall count and layout of branches, and re-thinking how the customer should interact with banks.
Do or Die?
If current big banks don’t reduce a cost of operation, someone else (mostly non-banking entities) will make banking cheaper. Why bankers can’t keep doing what they did so far?
After all, now banking is not limited to banks. Better buckle up for the future. It’s closer than you think.