Transition to inorganic banking

A few years ago, keeping money in a safe at home was the norm, though unsafe. Keeping track of one's money in a bank was an arduous process. (Still today, people in Bangladesh hide their money under mattresses or inside holes made in the hidden bamboo poles.) Hours were lost for commuting to banks to make deposits, transfers, or withdrawals. There were forgeries like tempering with one's signature on a bank check. But, things have changed.

Now anybody in Bangladesh, as elsewhere in the world, can manage his money for payments and transfers simply by logging on to his bank's website through his personal computer and even through his mobile phone, if the phone is smart enough. Even cash, like in the U.S.A., should now be deposited through ATM machines in Bangladesh. Bangladeshis have already become smart to transfer funds via text messages. Passwords, now deemed a replacement of signatures, have helped decrease the incidence of banking forgeries to a great extent.

Online banking services are not only for the tech-savvy; they have become a mainstream tool for the money-using masses in both developed and developing countries. Online banking, especially mobile banking, services have been growing by leaps and bounds. Of course, there are still sceptics. Among those who do not use mobile payments, one of the main reasons they have not adopted the technology is concern about its security. If gaps that nowadays threaten data security can effectively be addressed, the percentage of those using mobile banking is expected to reach the top mark within a decade.

Life has become pretty easy with a smart phone in our hand. You are away from your home and there is no bank or ATM machine in the neighbourhood. You have realised that you forgot to pay a bill. Or, you need to check your bank balance before making a purchase. In the past, such situations would have caused great problems for a typical bank customer. But now, with the rise of mobile banking we can simply use our smart phone not only to pay bills or check bank balance online, we can also deposit our paycheck by simply taking its image by our phone's camera using our bank's special gaps that nowadays threaten data security.

Anything you could do by travelling to a bank branch on a street or on your desktop computer sitting at home in the past you have the ability now to do the same on a mobile platform. Such mobile banking through smart phones is spreading fast throughout the world, as fast in developed countries in Europe and America as in developing countries in Asia and Africa.

In the changed scenario, bankers have now to shun the traditional thinking in retail banking that is based on face-to-face communication with the bank customers. Customer intimacy, the traditional hallmark of organic retail banking, has been required for best customer experience. That is an old belief of yesteryears. Such personalised services have now been so costly that banks around the world are investing heavily in the digitalisation of their channel networks and gradually abolishing their over-the-counter human activities, moving at an accelerated pace to close their branches and reducing staff to lower costs in order to migrate to a digital model that is (tragically) more inorganic, more lifeless.

Customers, especially the young ones, are switching to digital channels at an unprecedented speed as digital channels offer them greater expediency, better ease of use, enhanced security, increased product access, and transparency. On the other hand, electronic access gives the banks a much broader reach, reduced costs for customer acquisition and operation, and greater potential for customer relationship management. Hassle-free digital banking offers the dual benefit of least channel cost and better potential for the highest level of customer service, if not the face-to-face customer intimacy from the traditional point of view.

Digital banking in catering services to the customers, thanks to the comfort and virtual environment of the Internet, is simplifying all the bank processes for quick delivery of bank products and services, streamlining the bank portfolios by exiting value destroyers, while focusing on customer needs more rigorously, and thereby increasing profit significantly.

A surprising economics of digital banking is going to make a dramatic change in how banking is going to be done in near future, ensuring huge operational efficiency and better customer service. Thousands of analogues banks may be converted into a few dozens of digital institutions (not necessarily conventional banks) in the 21st century.

There is now a new debate about the digital disruption of retail banking itself. Will people need banks anymore for their money management? Information technology (IT) in banking is creating value for customers, but by intensifying competition and lowering barriers to entry, technology will perhaps destroy the value of traditional banks, allowing non-banking institutions to offer money management services in a better and cheaper way.

Banking has changed a lot: we have 24/7 banking; we can bank nationally and globally at any time online or via mobile apps. Still, banks are not yet at the forefront of integrating digital technologies into their businesses. Digital technology has not yet transformed banking the way it has other industries, and banks have a bad reputation for being conservative and slow to innovate, especially in a world with increased regulatory constraints and a host of legacy issues still being addressed.

Mass digitalisation has greatly transformed other industries, changing the relationship between sellers and buyers. Digitally-enabled distribution system is allowing companies like Amazon and Apple to interact with consumers, completely eliminating geographic distance between provider and customer and enabling a richer, two-way flow of information that is challenging the traditional "brick and mortar" retailing. Economies of scale are changing faster with younger generations adopting mobile devices than any technology seen in history.

Digital transformation is now the most critical strategic issue for bank leaders. The competitive landscape of banking industry can be transformed by non-bank entrants like Pay Pal or Amazon or Google or Facebook, raising important demands for the regulators to act judiciously and also raising a vital question for the very survival of traditional retail banking.

The writer started his banking career in Agrani Bank and retired as a General Manager of Bangladesh Krishi Bank.

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