The Hindu Business Line : Falling in line

Slowly but steadily, the Indian customer is moving towards Internet banking. The ATM and Net transactions are becoming popular. But the customer is clear on one thing - he wants Net banking to be simple. And the banking sector is matching its steps to the march of technology.

IN some contexts such as banking, the Internet is still a good word, despite the dotcom crash and all that has happened since. Although online banking came into the vocabulary much around the same time as the rest of the Internet revolution, it is one application that still seems to have a future.

Online banking has been seen as a channel to expand, get more customers and roll out new products at a much lower cost of investment.

Cheaper alternative

With increasing competition, it seems to be the cost factor that is driving banks to offer the facility. The Internet is still a very cheap alternative to opening a physical branch, and most of the push seems to be coming from the supply side.

"The costs of a banking service through the Internet form a fraction of costs through conventional methods. Rough estimates assume teller cost at Re 1 per transaction, ATM transaction cost at 45 paise, phone banking at 35 paise, debit cards at 20 paise, and Internet banking at 10 paise per transaction," says an industry report.

In India, it is a revolution led by the MNC and private banks and followed by nationalised banks. "Today's lifestyle demands it," claims the Vysya Bank Chief Executive Officer, Shantanu Ghosh.

With pressures on time and longer travelling periods, more and more people find it tiresome waiting in queues. People want flexibility, and Internet banking offers just that, he feels.

From snob value to necessity

A couple of years ago, there was a belief even among bankers that customers opening new accounts wanted the online banking facility, just to "feel good" and very few of them actually used the services. Today, bankers believe that the trend from `nice to have' is changing to `need to have'. The "snob value" of banking with an organisation that could offer service on the Internet has given way to a genuine necessity, he feels. "It all depends on how busy a person is." But once the user gets used to the speed and response, banks believe that it is here to stay.

Drawbacks remain

Two of the biggest deterrents to online banking — security and lack of comfort — remain issues even today.

ICICI Bank, which was one of the first in the country to introduce Internet banking, has only 20 per cent of its customers banking online.

If this is the kind of scores that new private banks, with a reputation for attracting the younger and tech-savvy crowd keep, it is little wonder that the decades-old Vysya bank, which started Internet banking only a few months ago, has just a miniscule percentage of customers on the Net. The bank's customer profile spans a wider social strata and includes a large number who shy away from electronic banking. Much as the bank wants to promote Net banking, it is not taking a hardliner approach like some MNC banks do. "We do not insist that all customers use the Net or the ATM. While we would like to encourage them, we do not penalise customers for not using the ATM," says Ghosh.

In its report on the status of e-Banking in India, IDC feels that banks still have a long way to go. According to IDC, there are around two million registered Internet users, of which one million could be active ebanking customers.

Usage is unequally distributed around the country. In a recent study, the southern region emerged as the largest user of ATMs, with 28 per cent of people using it, followed by the western region.

Convenience counts

The reasons for adopting technology too are different, Ghosh says. In Bangalore, for instance, with its large IT industry population, the level of IT awareness is far higher than in a city like Calcutta and therefore access through ATMs and the Internet is proportionately greater. In Mumbai, on the other hand, people use ATMs because they want to avoid travelling through crowded roads. It is more a matter of convenience that drives technology adoption.

The NRI category and "high net-worth individuals" with multiple bank accounts, are probably the most enthusiastic users of technology that offers them access to their accounts from anywhere in the world, at any time of the day, from the desktops in their homes.

Banks are moving from the level one (minimum-functionality sites, offering mainly information) to forms to open accounts online, to Web-based bills payment systems and finally, level four of highly sophisticated transactions such as online funds transfer, transactions and cash management services.

Banking on technology

Despite the slow start, there is a great deal of optimism for the sector. Banks are continuing to invest in technology. The fear of competition - it doesn't require much investment to enter the financial services area on the Net - and the fact that the Internet is the best possible way to reach out to millions of retail customers, has the banks laying their bets on it.

But India still has a long way to go and none of it will happen overnight, warns Ghosh. It is a volume game and for banks to recover their investments in technology, they need to play the volume game. However, it may take up to three years to even build up a critical mass.

A demand-side pressure is expected to build up, once low-cost access becomes a reality. There is already growing customer awareness, and with deregulation to allow more convenient international transactions, Internet banking is expected to become more widespread.

At the same time, it is a medium that no bank can ignore. Today, new products are advertised on the Net at target markets, the distribution costs of which are around 30 per cent lower than traditional channels.

The issue of security requires firewalls to be built in, but this also slows down the system. "We have got to invest very heavily if the speed has to be reasonably good," Ghosh says.

Keep it simple

Ghosh also feels the simpler the usage, the more the number of people who would be willing to try it. Today, the structure of most of the B2B and e-commerce applications is dictated by IT companies, he points out. "It should not be so. It should be dictated by the bank and should be customised by the IT companies," he says. Usage is "hugely complicated", which could put users off, he feels.

On the other hand, a simpler solution would have the user feel more comfortable to upgrade to the next level of transaction. Vysya Bank also plans to keep it free of cost to get more users onto the bandwagon.

According to IDC, markets like Korea and Singapore have nearly 10 per cent of their population banking over the Internet.

The research organisation believes that this is an indication of things to come in India and that the country continues to be a huge potential market.

Picture by Parth Sanyal

chitphad@thehindu.co.in

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