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H. Srikrishnan

The global experience in Internet banking shows that factors such as simplicity, convenience and accessibility appeal more in banking services.

At times, we expect the computers not just to talk, but also to walk and take care of some physical aspects of our work. What started as a source of information has grown into an interactive tool that has virtually become indispensable for many of us.

But Internet is yet to achieve the explosive growth that it has potential for in a country like India. Poor PC penetration and connectivity are some of the limiting factors. High-speed Internet access remains a dream for the masses both in terms of cost and availability. Despite all this, Internetworldstats.com reveals there were over 18.5 million Internet users in India in December 2003. These figures have grown by a phenomenal 270 per cent since the beginning of the century. We have about a million active users of Internet banking out of about 4 million people registered for the service.

The need for increasing awareness levels and incentives for higher usage is still a challenge, which should help us ideally swing towards transaction processing over the Net at the earliest. Another phenomenon unique to India is that about 40 per cent of Net-banking customers use the office connection and logical inferences can be drawn on the population which still does not have PC access at home.

Compare this to the situation in the US, where about 27 per cent of the banking population use Internet banking. The global experience in Internet banking shows that factors such as simplicity, convenience and accessibility appeal more in banking services and money management. `Money' is the key word here and is not necessarily limited to banking. Besides making payments through banks, the next popular money-related activity is investment. Thus, there is a need to increase usage through value-added services and integrated offerings that cover access, payments, investments and execution. In India, we are at the stage of adoption, which is more or less the first stage — that is, access only.

One possible fear that users and non-users have is about security of transactions. This is a widely debated subject and, to my mind, is still a myth. The truth is that clients like to get their banking done as they get it done today. The reluctance to "try" something newis the bigger barrier. There is enough evidence to support this argument, as the select community of Internet banking users have very rarely abandoned this medium. Once people get used to the "convenience" factor, they stick on. From the banks' perspective, getting customers away from the branches into an online mode would help reduce costs. And with today's technology, internal and external interfaces are possible.

The usage in India is currently at two extreme ends. There are the large corporations who have automated their back-end through sophisticated ERP systems and allow electronic access. At the other end of the spectrum, are the retail customers who are limited in number and use this channel for low-value and low-volume transactions. This situation needs a paradigm change.

There is a strong need for mid-size corporations to upgrade themselves to be part of a larger supply chain. Another key word here is `supply chain'. This is in the form of multiple agencies (suppliers, corporates, dealers, customers, utility companies, stock exchanges, government departments and so on), which form an integral part of the transactions in the marketplace. This revolution will take off in the immediate term, enhancing usage on the Internet, to move from the `access' stage to the next stage of `payment'.

While retail customers have to venture towards high-volume transactions, an important issue pertains to the usage of plastics for settlements. Users are wary of Internet payments, owing to card-related frauds. This certainly needs to be put to rest with necessary security measures from the relevant players.

Over the next couple of years, we should see a major shift in electronic bill presentment, which will facilitate online payments. Integration of utility companies, establishing standards and customer incentives to migrate to this channel for payments are key events that will help.

Before winding up, we need to discuss the `payment systems' where the RBI has had great foresight in laying down the initial framework for Internet banking at the appropriate time. Additionally, the advent of RTGS (Real Time Gross Settlement) in India will accelerate the execution part, with inter-bank payments happening in real time. Going forward, we will come of age when we see seamless integration of all channels, with all the relevant players coming together, either as providers or beneficiaries. This journey has to be "multi-dimensional", capturing the corporate, government, investment and retail flows. The growth potential in this channel is much higher than that of traditional direct banking channels such as ATMs to say the least...

The writer is Executive Director, YES Bank Ltd. The views expressed in this article are personal.

Picture by Paul Noronha

The writer is Executive Director, YES Bank Ltd. The views expressed in this article are personal.

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