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Technology is the foundation on which the retail banking edifice is built across the globe, says J. Sethuraman in Retail Banking from the Indian Institute of Banking and Finance. He traces how technology implementation in the public sector banks (PSBs) started from standalone automated ledger posting in the 1980s and graduated to total branch automation and regional networked hubs. “New generation private sector banks started with the technology advantage of a single server environment… PSBs also reengineered their technology initiatives and started implementing core banking solutions, networking the customers and accounts on a single platform.”
The book cites a 2003 study of the Boston Consulting Group on the opportunities for retail banking. Four process models used by retail banks to integrate technology, as discussed in the study, were horizontally organised model (with individual process platforms supporting one product only), vertically organised model (where functionality is provided across all products with customer information being centralised), predominantly horizontally organised model (with some modularisation within a product, and customer data integration available to a certain extent for other products), and predominantly vertically organised model (offering common information for most of the related services).
Though there is no one-size-fits-all solution for banks, studies have revealed that if a bank effectively transforms its processes, it can reduce its unit costs between 20 and 40 per cent, completely changing its competitive position, the author underlines.
Implementation models
An informative chart in the book is about the varied technology implementation models adopted by banks. For instance, PSBs who came late to the technology race took the external vendor route for better channel delivery and efficiency, Sethuraman reminisces. “Some PSBs which were following the bits and pieces approach (engaging different vendors for different requirements) later migrated to a unified technology delivery model. In old generation private banks, because of their small size, most of the banks took to outsourcing route…”
A chapter on ‘delivery channels' reminds that as long as the Internet is used only as a medium for delivery of banking services and facilitator of normal payment transactions it may not impact monetary policy. “However, when it assumes a stage where private sector initiative produces electronic substitution of money like e-cheque, account-based cards and digital coins, its likely impact on monetary system cannot be overlooked.”
The chapter also highlights that the thrust of regulatory thinking has been to ensure that while the banks remain efficient and cost-effective, they must be aware of the risks involved. Cautions Sethuraman, therefore, that it is not enough for banks to have systems in place but the systems must be constantly upgraded to changing and well-tested technologies.
Starter material to get an overview of retail banking.
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