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Issue of February 2006 

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Indian banks defining the future of banking

IBM’s strategic research unit, the Institute for Business Value, recently released a study called Banking 2015: Defining the Future of Banking. Worldwide, total financial services revenue is predicted to experience compound annual growth of 7.1 percent between 2000 and 2015, from $2 trillion to $5.6 trillion. In the Asia-Pacific region, IBM predicts a growth rate of about 7.6 percent.

The study forecasts trends in banking for a unique insight into the competitive forces that bankers will face in the next 10 years. It highlights the emerging business and technology innovations and societal trends that will propel and shape the industry’s transformation.

According to the survey, the five key trends that will determine market success in 2015 are customers taking control, niche competitors, a new workforce, regulated transparency and sharp focus on technology.

Sanjay Sharma, Corporate Head, Technology, IDBI Bank believes that business, whether banking or otherwise, has to be customer-centric.

Agrees Sharad Bishnoi, Assistant Vice-president, Head, Business Process Re-engineering Group, HDFC Bank, “Banking services require a high level of customer engagement and understanding of the requirements for a quality value proposition. These factors can be sustained long-term by adopting a customer-centric business strategy.”

Similarly, transparency and accountability from regulation and compliance are also growing. Sharma points out that banks dealing with the US customers need to comply with international regulations such as Sarbanes-Oxley, and the Indian ones from RBI and Clause 49.

The survey goes on to predict that market changes will pose growing challenges for conventional banks. Sunny Banerjea, Global Banking Leader for the IBM Institute for Business Value says, “By 2015, we will live in an intensely customer-centric market dominated by global mega banks and densely populated by specialist financial services providers. Technology will also drive fundamental changes in workforce disposition, which will have substantial follow-on effects for productivity, efficiency and profitability. These trends are already evident but as they become entrenched, there will be profound changes in the competitive drivers of global banking.”

Sharma feels that over time banks will focus on specialising in key segments. The survey suggests that banks must identify target business areas. It will be essential to maximise operational efficiency and counter nimble new market entrants by partnering with specialist providers.

Keeping with the future trends, the study identifies a number of value-added options for products and market innovation. These are mortgages, RFID, service packaging and customer integration.

Says Bishnoi, “Service packaging and customer integration have started already and I believe will only increase in future. Basic products in banking being limited in number, added flavours and value additions are gradually coming to the forefront. Two of the most critical aspects will be: packaging more customised products to suit a customer need and customer integration leading to better portfolio management—at a more granular level.”

However, Sharma feels that it is the mortgage and RFID segments which are more promising. “Though mortgages have operational complexities they are innovative products for customers. For instance, customers can avail of different cash-back offers. Similarly, RFID also has great potential to leverage business. Banks can utilise this technology to understand customers’ needs and for issues such as customer authentication.”

According to Swarup Choudhury, Director, FSS, IBM, each bank must decide on a strategy that fits its customers’ needs. “Banks will need special strategies to cater to a far more discerning and controlling customer,” he says.

He predicts, “Banking customers will demand more advocacy, personal security and control in their banking relationships. Banks will source products and services from many specialised and best-in-class service providers, including independents and other banks providing white-label products and services. They will partner actively with providers to improve their capabilities without locking up their own capital and their ability to address changing demand cycles.”

—Shivani Shinde

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