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….
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.