The core issues faced by banks today
are on the fronts of customer's service expectations,
cutting operational costs, and managing competition.
Technology can help banks in meeting these objectives.
by Anil Patrick R
IT is central to banking. It
has moved from being just a business enabler to being
a business driver. In a manner the banking and financial
services sector—being the early adopters of any new
technology—defines the roadmap for future technology
As it is clear
for the previous story, banks are focused on three areas:
meet customer's service expectations, cut costs, and
manage competition. For this banks are exploring new
financial products and service options that would help
them grow without losing existing customers. And any
new financial product or service that a bank offers
will be intrinsically related to technology.
|“The new generation banks
showed the way and others had no option but to follow
the tech infusion to retain and attract profitable
customers” - K.N.C. Nair, Head (IT), Federal Bank.
Automation is the
basic thing that banks need to have in place. It involves
a combination of centralized networks, operations, and
a core banking application. Automation enables banks
to offer 24x7x365 service using lesser manpower.
But to be really
competitive, banks need to think beyond just basic automation.
Says V Chandrasekhar,
GM (Chief Technology Officer), Bank of Baroda, "IT has
changed the way a bank reaches out to its customers.
Gone are the days where IT was deployed for automating
accounting/back office functions to remove drudgery
of employees. It is now massively being deployed for
A better way to
understand the technologies that would define the future
of banking would be to start in the past.
Committee report in early 1980s was the first step towards
computerization of banks. Banks started exploring the
idea of 'Total Bank Automation (TBA)'. Although titled
'Total Bank Automation,' TBA was in most cases confined
to branch automation.
It was only in
the early 1990s that banks started thinking about tying-up
disparate branches together to facilitate information
At the same time,
private banks entered the banking arena with radically
different strategies. Given the huge IT budgets at their
disposal and with almost no legacy IT equipment to worry
about; private banks hastened the adoption of technology.
The philosophy for private banks was very clear: to
provide a whole new range of financial products and
services at minimal costs. And technology made this
Says K.N.C. Nair,
Head (IT), Federal Bank,"The new generation banks showed
the way and others had no option but to follow the tech
infusion to retain and attract profitable customers."
The improved connectivity
and falling costs offered by leased lines and VSATs
provided a booster to inter-branch automation.
Wadhwa, Vice President-West, Cisco Systems (India),
"With the improved services and lowered costs of service
providers such as DoT and VSNL, it became more feasible
for banks to network their branches. This gave banks
an impetus to network all the branches and set up centralized
databases. With these developments it became possible
for operations such as MIS to be truly automated and
infrastructure and numerous connectivity options, banks
started exploring multiple delivery channels like ATM,
Net-banking, mobile banking, and Tele-banking thus driving
down cost per transaction.
|“Banks are increasingly adopting
core-banking solutions for retaining customers and
lowering service costs to the customer” - Joseph
John, Head, Banking Products Division, i-flex solutions
The need for
In the early days
of banking technology, the network/backend infrastructure
used to be decentralized. This meant that each branch
had its own server(s), banking applications, database(s),
and other such assorted hardware/software.
networks had their own set of problems in terms of the
cost and management fronts. The decentralized model
involves huge capital expenditure and resources (trained
manpower, hardware, etc). In the decentralized model,
there is no coordination or one central control point.
"We had problems with updating applications, troubleshooting,
etc before we opted for centralization. Technology representatives
had to be present at each branch to provide support,"
says P.K.Vohra, General Manager, ICICI Bank.
This was an acceptable
scenario till multi-channel came into the picture. With
these concepts came the need for a centralized database.
The database had to be updated instantaneously irrespective
of the branch or channel the customer used. The networks
had to be run and managed with lesser costs.
Although data centers
were being used by some of the banking majors, they
were never considered as being capable of being a central
operations hub. Things changed when banks realized the
cost benefits of swapping the decentralized model to
a centralized datacenter architecture.
"When one or two
private sector banks showed that it can be done efficiently,
other banks began to show an interest—they also began
consolidating their databases into a single large database,"
says V.K. Ramani, President (IT), UTI Bank.
Says P.K. Vohra,
"Centralization using a data centre has helped a lot
in improving and simplifying the network from the operations,
user, and administration perspectives. From a cost perspective,
centralization has been very effective."
It is not just
the datacenter which contributed to centralization.
The network has also evolved into a unified IP network.
Says Naresh Wadhwa, Vice President-West, Cisco Systems
(India), "Older day banking networks used to be a potpourri
of several older protocols. There used to be one network
for data traffic, another for telephony, and so on.
Today, irrespective of whether its data, voice or videoconferencing,
ATMs or mobile banking, just a single IP based network
After the turn
of consolidated databases and networks come core banking
applications. Core banking applications help provide
complete front and backend automation of banks.
|“In banking, being the first
to market alone is not enough since products can
be copied very fast. It is the customer service
levels which matter” - Neeraj Bhai, CTO, IDBI Bank.
also help banks achieve centralized processing and provide
24-hour customer service. "Core banking applications
provide anywhere, anytime 24 by 7 non-stop services,
which is not possible with traditional localized branch
automation systems that are available only between 10
am to 2 pm," says V. Chandrasekhar.
Core banking applications
help integrate the enterprise to existing in-house applications
to offer a single customer view. These applications
provide automation across multiple delivery channels.
Adds Joseph John,
Head, Banking Products Division, i-flex solutions: "Banks
are increasingly adopting core-banking solutions for
retaining customers and lowering service costs to the
Banks are reinventing
themselves as marketing agencies by selling products
like life insurance, RBI bonds, credit cards, etc. Core
banking applications are able to support this.
is another area where core banking applications can
help. These systems take care of the risk monitoring
and reporting requirements. Loyalty programs can also
be monitored and managed using a core banking application.
A happy customer
is one of the main issues that banks face in today's
hypercompetitive environment. If the service levels
are not up to customer expectations, in all likelihood
the customer might take his business elsewhere. This
is where Customer Relationship Management (CRM) practices
(most important) and software (on the technology side)
play an important role.
Before banks go
for a CRM solution, they need to ask themselves one
question: How well do they know their customer?
For that matter
how many customers have moved in the past? Or how existing
customers use various services that the bank provides.
"In banking, being
the first to market alone is not enough since products
can be copied very fast. It is the customer service
levels which matter," says Neeraj Bhai, CTO, IDBI Bank.
This is where CRM
techniques and tools come into place. While a foremost
part of CRM strategy is all about treating your customer
right, technology does make a major difference. "CRM
is a tool that allows you to emote and relate with your
customers. Increasingly, all banks will require it as
they get centralized," says P. K. Vohra.
CRM tools can be
broadly classified into two categories: Operational
provides the software support for businesses that require
customer contact. These tools are largely workflow based
to provide information to employees and document customer
interactions. This includes collaborative CRM type of
tools used to provide enterprise/customer interaction
across all contact channels such as face-to-face, telephonic,
electronic, and wireless. Operational CRM types are
the major CRM tools being used nowadays for customer
support in India. For example, say a premium customer
dials your call center from his home. Operational CRM
can alert the call center executive of his account status
and other details by his home telephone. This will help
the employee in extending him the kind of service extended
to a premium customer.
helps you make sense of the information. It helps you
target customers and utilize their potential to the
maximum. For example, say an account holder withdraws
Rs 10,000 every month from his account and deposits
it in another bank as EMI for a loan. Analytical CRM
tools can help you track this activity. Techniques such
as data warehousing and data mining are prominent tools
used for this. Your bank could offer a loan to the customer
at a lower rate than what the other bank offers. This
will keep the customer happy since he knows that you
are giving him better service. This translates to gains
for your bank as well.
|“If you have CRM backed with
your data warehouse solution, it not only streamlines
the channels, but also tells you which customer
to focus on” - V. K. Ramani, President (IT), UTI
Banks tend to forget
one important aspect about CRM; it is more than just
a technology implementation, it has to be a clearly
defined process with appropriate customer service levels.
This is exactly the reason why CRM implementations meet
with limited success.
Adds K. N. C. Nair:
"e-transformation should not be at the expense of the
personal touch in service. This will differentiate a
bank from its competitors when the technology is available
to all sooner or later."
Mining for intelligence
issue banks face is in proper analysis of financial
data to identify business potential. This helps a bank
identify cross- sell and up-sell potentials. Technologies
such as data warehousing/mining come into play here.
Says Ramani, "If
you have an operational CRM, it streamlines your delivery
channels. If you have CRM backed with your data warehouse
solution, it not only streamlines the channels, but
also tells you where to move. It tells you which customer
to focus on."
A data warehouse
can help the bank get a single view of its data across
disparate systems. This comes in handy since most banks
have data spread over several disparate, sometimes legacy
systems. If the data is spread across different systems,
a transaction done on one system will not be reflected
in the other. This is not a very desirable situation
when it comes to multi-channel banking.
solves these by integrating all the data into a common
warehouse (usually an RDBMS). The multiple data coming
in from different systems is converted into a common
format using the ETL (Extraction, Transformation, Loading)
process. This provides a single repository from which
you can view or use information when required.
So you have the
information in place with the warehouse but how do you
make sense out of it? This is where data mining steps
in. Data mining can help you recognize patterns in the
data you have. For example, how many of your customers
have a two wheeler and earn more than Rs 15,000 a month?
The answer to this question will give you a list of
prospective customers to whom you can offer a car loan.
Just give the query you have to the data mining tool
and you will have the answer in a jiffy. "Data mining
and data warehousing can help banks identify the right
customer for a particular promotion. They also help
in cross sell and up sell of services to customers,"
says George Varghese, Head - Marketing, SAS India.
Anil Patrick can be
reached at email@example.com
| Click on image for
Pre Server Consolidation
Storage is an ever-increasing proposition. Consider
this: The very nature of financial data involves
large amount of information generated by the minute.
Add to this the RBI regulations for banks and
financial institutions to store over the past
seven years of financial transactions and you
have one big mess up your sleeve.
This brings us to
two main issues about storage: storing all the
information and managing it. Banks, especially
the private and the MNCs, are increasingly going
in for SANs.
Says Neeraj Bhai,
"The moment you grow beyond a certain size
you either go in for disparate systems or integrate
them into SAN/NAS."
The first wave in banking technology began with
the use of Advanced Ledger Posting Machines (ALPM)
in the 1980s. The RBI advised all banks to go
in for massive computerization at the branch level.
There were two options:
automate the front office or back office. Many
banks opted for automating the front office ALPM
in the first phase. Banks like State Bank of India
concentrated on the back office automation at
the branch level. The Rangarajan committee report
of 1985 ensured that banks had to get computerized.
With the second wave
of development in late 1980s came Total Bank Automation
(TBA). This automated both the front-end and back-end
operations within the same branch. TBA comprised
of total automation of a particular branch with
its own database.
In the third wave,
the new private sector banks entered the field.
These banks opted for a different model of having
a single centralized database instead of having
multiple databases for all their branches. This
was possible due to the availability of good network
infrastructure. In the beginning of the 1990s,
leased line costs were coming down. The DoT expanded
its capacity and new technologies were being implemented.
Earlier, banks were
not confident of running the whole operation through
a single datacenter. However, when a couple of
private sector banks showed that it can be done
efficiently, other banks began to show an interest,
and they also began consolidating their databases
into a single database. Banks followed up on this
move by choosing suitable application software
that would support centralized operations.
The fourth wave started
with the evolution of the ATM delivery channel.
This was the first stage of empowerment of the
customer for his own transactions.
The second stage
was the Suvidha experiment in Bangalore. This
showed the power of technology and how the reach
can be increased phenomenally at a great pace.
Seeing these, all the banks started revamping
their retail delivery channels. Their core focus
became the number of customers they can service
at lower cost. The main channels for these were
channels such as Internet Banking and mobile banking.
After this came alliances for payment through
The third important
development happening now is the real-time gross
settlement system of the RBI. Once this is in
place, transactions between banks can be done
through the settlement system, online, electronically.
So the collections will become very fast.
Given the very nature of financial transactions,
information security plays a critical role in
banking. Most banks have a clearly defined security
policy with access rights determined by the role
an employee plays in an organization. Banking
is one sector where CIOs are focused on the core
security processes and operations than just implementing
In addition to investing
in the usual security tools and solutions like
anti-virus, firewalls, intrusion detection systems
(IDS), and PKI, many banks are now outsourcing
their security requirements. This way they can
focus on their core business competencies than
managing their backend security.
As C.N. Ram, Head-Information
Technology, HDFC Bank says, "It is not enough
to take care of security from just the hardware/software
perspective one needs to have security policies
in place. At HDFC Bank we have a mechanism in
place where a third party is hired to manage our
entire security. This third-party is constantly
onsite looking at the logs, making the required
changes as there are patches and upgrades being
constantly released and it is imperative to incorporate
all of these."
For every successful IT implementation, you will
hear about four that failed to make the grade.
One of the biggest problems behind this is that
most organizations expect software to adapt to
their needs without any compromise from their
part. The technical issues can be sorted out in
every implementation, but this lack of process
re-engineering cannot be.
While it is necessary
that core processes remain the same as far as
possible, it's not always the case. Many a time
an existing process might have to be modified
to get the best out of the implementation. This
is where a change of mindset needs to come in.
The goal is to have improved benefits at the end
of the day. "The business process changes
required for implementing core banking or centralization
needs support and buy-in at all level. Hence Change
Management is a major issue with the banks during
IT implementation,' says Santanu Ghose, Group
Manager (Non Stop Systems), HP India.
On the technical
side, most of the problems occur on the interfacing
part. Different platforms using different standards/protocols
require diverse interfacing needs. Since many
core banking applications make use of modules
for operation, special care has to be taken on
this front. Most of the banks have legacy applications
running side by side. If the interfacing is not
done properly and efficiently, the implementation
is bound to be a failure.