The Hindu Business Line : What's your Net worth?

Jaychandran Pillai, Director, Alp Management Consultants, belongs to the new crop of entrepreneurs who log onto the Net every morning to check not just their mail, but also alerts on their companies' bank balances, to help them reconcile the accounts. He thinks this daily e-ritual gives him a head start in the business.

Alp Management has six branches across the country and one the US, and this Bangalore-based headhunting firm makes huge payments/fund transfer for utility bills. The company also issues a large number of DDs every day. All these mundane banking tasks have been simplified, thanks to online banking, says Pillai.

Current statistics show that less than 10 per cent of Indian banking customers use the Net for their banking needs. The services could range from checking balance history and requests for cheque books to slightly advanced interactive services such as paying utility bills and, at the highest level, executing transactions and transferring funds.

There are three distinct milestones that Indian banks have achieved on their e-drive. At the first level, banks offer information about their products and services. Most public sector banks in India are still lingering at this level. Some, who have managed to cross the initial cost and technology hurdles, afford interaction between banks and customers. Here the services include electronic mail, balance enquiry and loan applications.

And, at a higher level, some private Indian and foreign banks have enabled transactional banking where customers make utility payments for telephone and electricity bills, municipal taxes and so on. Though full-scale transfer of funds across all banks is yet to start, most banks allow transfer of funds to another account-holder in the same bank.

Shantanu Ghosh, Country Head, Retail Banking, ING Vysya Bank, says that while balance confirmation is the most sought after information, customers are also gradually venturing into e-mode remittance and other transactions.

According to Makarand Padalkar, Chief of Staff and Head of Investor Relations, i-flex Solutions Limited, "People want a real-time view of the action. They are looking at transaction-related information." i-flex is a global provider of IT solutions to the financial services industry.

`Public' good

While a cursory study of the country's e-banking history would show that private and foreign banks have provided the initial thrust for Net banking, public sector banks are not really far behind.

Canara Bank, through its Internet banking, offers facilities such as quick view of the last 10 transactions, viewing balances across branches from a single login, viewing and downloading transaction details (operative accounts, term deposit accounts and loan accounts) for a given period, mails, requests, change of password or profile, activity enquiry and details of loans and deposit schemes.

The bank hopes to shortly introduce facilities such as funds transfer, trade finance and payment of utility bills. This South-based PSU bank launched Internet and mobile banking in July last year across six cities, covering 300 branches. Now, the facility is available in 608 branches across 105 cities, with plans to cover 750 branches before March 2005.

Bank of Baroda, another public sector bank, has deployed information-based Internet banking and mobile banking systems to customers in 300 branches across seven cities. The services include providing an integrated view of all accounts held by a customer, detailed passbook view for two months and online request for chequebooks.

The NRI Net

Thanks to the presence of a large Indian diaspora in West Asia and the US, which gave an added impetus to the Net banking system, some facilities receive numerous hits every day. Says V. Chandrashekhar, General Manager and Chief Technology Officer, Bank of Baroda, "We have the biggest overseas presence and were constantly receiving queries from NRI customers who wanted to access their accounts via the Internet. The NRI, corporate and mobile customers who wanted to monitor their accounts online have praised the initiative and it has become an instant hit." Sources in Canara Bank also maintain that Net banking is more popular among NRIs mainly because this community is more Net savvy.

But surely e-banking is not the sole preserve of NRIs and corporate clients, or is it?

Padalkar of i-flex says that many individuals with Net access are actively using the facility to open a fixed deposit account or invest in the stock market. "In fact, stock market players use the Net extensively for all their transactions."

ING Vysya has both retail and corporate customers who use the mouse instead of the pen. "For corporate customers, cash management services (CMS) are currently available through the Internet. It's largely customers with business in multi-location offices who see greater value in e-banking," says Ghosh.

In terms of Net usage by customers, HDFC and ICICI Bank have been the forerunners in the country. Among ICICI customers, 17 per cent use the Internet and mobile phones for banking, while at HDFC it is 10 per cent. Although ATMs (53 per cent for HDFC and 46 per cent for ICICI) and physical branches (27 per cent for both) are still the preferred choices, this ratio promises to turn in favour of Net banking in the future. For instance, in the case of ICICI Bank, only two per cent of transactions in 2000 were online.

Technology load

Increasing use of Net banking does appear great for a country's technological advancement, but can Indian banks handle the load? That's the question doing the rounds. Currently, public sector banks are grappling with several basic problems. D. Krishnamurthy, General Manager, IT, Bank of India, says that the major problems pertain to connectivity. A host of public sector banks are only now implementing core-banking solutions with standardised software and a centralised database. This exercise is expected to take two to three years, as banks bring major branches into their Net banking system.

Canara Bank has leased lines from BSNL and MTNL, and its officials maintain that bandwidth has stabilised as the electronic exchange seldom breaks down. Banks also face the challenge of catering to a more demanding customer — someone who is less tolerant of errors or omissions. Banks that do not have tight and sophisticated internal controls run the risk of losing public confidence. This would, in turn, impact earnings and capital.

Are Indian banks technologically on par with banks elsewhere in the world? There are several issues involved here. One is the level of security, which banks will not compromise on. Experience has shown that initially, when customers log on, they do have fears about security. But the first few interfaces with technology establishes a comfort level.

ING Vysya has installed firewalls, intrusion detective systems and so on to secure transactions. "Once customers experience the convenience, they switch over swiftly and smoothly," explains Ghosh.

Secondly, technology is an important issue. Net banking calls for highly sophisticated back end. Padalkar says quite a few banks in India manoeuvring the e-road have crossed this hump. As for a user-friendly front end, he says i-flex, which has designed the software for several banks in India, uses the services of ergonomists. The front end has to be creative and user-friendly without confusing the customer, he says.

Pillai of Alp Management voices a common grouse when he says that logging on to a bank's Web site (home page) takes a long time especially between 9 a.m. and 6 p.m. due to heavy customer traffic. "It is definitely faster after 7 p.m.," he says. Also, some sites make upgrades over weekends, making it cumbersome for customers. However, these disadvantages are offset by the advantages: savings on time and money.

Take the case of Alp Management. Pillai sees up to 10 per cent savings on every transaction made through e-banking; nearly 40 per cent of Alp's transactions are online. The use of technology here, like in any other service industry, is a winning proposition for the banks. There is substantial transaction cost savings for the bank. Padalkar says physical banking is 50 times costlier than e-banking.

Banks need to invest about Rs 40 lakh to Rs 50 lakh to e-enable customers for basic services; sophisticated services call for investments to the tune of Rs 4 crore to Rs 5 crore. An oft-quoted study by Booz Allen Hamilton in 1996 pointed to the fractional cost of Net banking compared to bank operations using physical infrastructure.

An indirect benefit is the increased customer loyalty that banks have been accruing, thanks to e-banking. "Not providing this facility could have led to customer attrition, apart from image related dimensions for the bank," says Ghosh. On the flip side, Net banking requires banks to be on their toes all the time. For banks, already faced with an uncertain interest rate environment, it could mean increased deposit volatility. The ability of a Net banking customer to move his funds away in a flash, simply because another bank offers a quarter per cent more, can create considerable difficulties for banks in future. They will need to devise strategies to counter this risk.

Click and brick

Some banks abroad, such as EGG Bank or NET Bank, have only a virtual presence without any physical branches. It was predicted in the late 1990s that this would be the model of the future, although it does not yet have regulatory sanction in India.

Most Indian banks see Net banking as complementary to their existing channels of business. They now follow the `click and brick' model, implying the need for both branches as well as Net banking services. While physical branches will continue, banks will leverage on the phenomenal reach of the Net to expand their geographical coverage.

And as more banks join the Net brigade, this will create its own momentum. Padalkar, however, feels that the pure Internet experience is not a very practical idea. "Can you imagine what customers will do when faced with a situation like they did with the Global Trust Bank recently? Where will they go and protest?" You certainly cannot smash your own PC, can you?

Picture by Parth Sanyal

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