Technology has significantly impacted banking operations in both positive and negative ways. Positively, technology allows banks to offer new services to customers through multiple delivery channels, share information more easily, and potentially expand their operations geographically without establishing new branches. However, technology adoption can be expensive and time-consuming, requires changes to job roles and training, and introduces security and customer retention issues for banks. The role of branches is also changing, becoming more advisory as transactions increasingly move to digital channels.
2. Banking Technology – M.Tech (IT)
“Technology... is a queer thing. It brings you
great gifts with one hand, and it stabs you in
the back with the other.”
New York Times
3. Banking Technology – M.Tech (IT)
Session Agenda
• The positive impact of technology
• The negative side of technology
• Changing role of branch banking
4. Banking Technology – M.Tech (IT)
Banks
Disintermediation
More Demanding
Customers
Strategic Alliances
Competition for
deposit base
Mergers &
Acquisitions
Relaxed RBI Controls
The Impact
5. Banking Technology – M.Tech (IT)
Customer Related Changes
• Then
– Branch the point of contact between bank and
customers
– Hence heavy reliance on branch networks
• Now
– Several ways for customer to avail bank services
– Branch is still the node, but the transactions are moving
out!
• It is a wise man who lives with money in the
bank, it is a fool who dies that way."
6. Banking Technology – M.Tech (IT)
Customer Customer Customer
Bank Branch Bank Branch Bank Branch
Clearing Clearing Decision
Central Clearing Head Office
Clearing Decision
Decision
Traditional Banking StructureTraditional Banking Structure
INSTITUTE FOR DEVELOPMENT AND
RESEARCH IN BANKING TECHNOLOGY
V. P. GULATI
7. Banking Technology – M.Tech (IT)
Customers
Telephone, Branch, Electronic Banking, etc.
Shared Information
Clearing systems Head Office risk monitoring
The New Relationship OrientedThe New Relationship Oriented
BankBank
8. Banking Technology – M.Tech (IT)
Old, Product-Based
Structure (based on
activities)
New Customer-Oriented
Structure
(Based on customer
grouping)
•Lending Operations
•Payment Operations
•Brokerage Operations
•Deposit Operations
•Forex
•Retail banking operations for
small customers
•High net worth individuals
•Corporates
•Institutional Investors
A Comparative Structuring
9. Banking Technology – M.Tech (IT)
The Micro-marketing Trend
• The structural change has spawned – “micro-
marketing”
• Banks are more attuned to specific needs of
individual customers
• Two-fold benefits:
– Customer happy to not be flooded with unsuitable offers
– Bank gains greater loyalty points and market share
• Micro marketing has sparked off development of
new tools such as Customer Information Systems
(CIS), CRM
Technology feeds on itself. Technology makes more technology
possible. Alvin Toffler
10. Banking Technology – M.Tech (IT)
Greater Options
• Earlier banks had set products and services, and
limited channels for delivering them….primarily
the Branch. Their options were fairly limited.
• Now, there are a plethora of choices – ATM,
Internet, Phone etc.
• But….the decision making complexity increases!!
• Banks need to choose:
– the products/services they will offer,
– whether to take up tasks in-house or outsource them
– suitable delivery channels for various services and so
on
11. Banking Technology – M.Tech (IT)
Other Operational Impact
• Development of new tools (such as datawarehousing,
data mining, CRM etc)
• Centralization (through centralized banking solutions)
• Resource sharing (ATM sharing)
• Growing shift to the paperless mode (Electronic bill
payments, e-mails, check imaging etc)
"To be a leader today, you better make technology your friend. That's
the leadership behavior we need to cultivate, because whoever
`obsoletes the existing,' wins." James R. Houghton, Corning, Inc
12. Banking Technology – M.Tech (IT)
Banking Organisation Size
Technological advances lead to a growth in bank size. This can
occur in four ways:
• Creation of new services with greater economies of scale than
traditional services – eg IT-driven delivery channels vs
traditional branches
• Creation of new technologies for producing existing banking
services, which again offer greater scale economies or fewer
diseconomies than the technologies they replace – CBS which
replaced Total branch automation
• Facilitating large banks to expand their risk-expected return
frontiers in comparison to smaller banks
• Reduction in managerial “diseconomies of scale” - Managers can
make more productive use of time as it improves monitoring and
control
13. Banking Technology – M.Tech (IT)
Geographic Expansion
• Technology allows banks to expand
geographically without the costs and efforts that
go into actual branch expansion.
– New services can be delivered at locations across the
world, without any need for branch expansion. Eg,
bank does not have to be near the customer to offer
Internet Banking service.
– New technologies allow delivery of traditional
services with fewer distance-related diseconomies
14. Banking Technology – M.Tech (IT)
On the Negative Side
• Expensive, time consuming
• Legacy systems marked by distributed databases
and customized software
• Lack of IT-competent human resources
• Change in work environment
• Reallocation of duties, responsibilities and
authority
• Training
• Change management
• Lack of customer database
15. Banking Technology – M.Tech (IT)
On the Negative Side
• Customer retention issue
• Cost pressures
• Competition
• Changing business priorities – cost
reduction, Product Differentiation,
operational excellence and Customer-
centricity.
• Security
16. Banking Technology – M.Tech (IT)
Changing Role of Branch
• Despite the predictions by doomsdayers,
branch banking will continue to survive.
• Branches are being used to improve
customer value
• Branches are becoming “advisory centres”
17. Banking Technology – M.Tech (IT)
Branch will continue to exist…
In India, the share of branch banking may
come down to 30-40%
18. Banking Technology – M.Tech (IT)
An unforeseen impact of technology!!
• 1st Person: "Do you know anything about this fax-
machine?"
• 2nd Person: "A little. What's wrong?"
• 1st Person: "Well, I sent a fax, and the recipient called
back to say all she received was a cover-sheet and a
blank page. I tried it again, and the same thing
happened."
• 2nd Person: "How did you load the sheet?"
• 1st Person: "It's a pretty sensitive memo, and I didn't
want anyone else to read it by accident, so I folded it
so only the recipient could open it and read it."
