Path-Breaking New Generation Banking


A Common Bankiing Platform


Money Station

Path-breaking next generation banking

Integration of operational systems for sharing resources and technology infrastructure across banks or a group of banks with operational synergy can redraw the profile of Indian banking. The Technology, Digital and Financial Working Group under Gyan Sangham 2016 zeroed in on a concept called Money Station, a fully integrated common platform that can vend comprehensive set of banking products and services. That would combine the concept of Railway Station, Bus Station and multi-brand supermarket under one roof. Both the customers and banks would immensely benefit from this path-breaking transformation on shared infrastructure. Virtually the next generation banking, that will lead to elimination of redundant systems in the industry as each bank already has more or less the same IT architecture. Trimming the overhead cost and redundant asset saves each one’s money. While decentralized customer care enables each bank to give more focused attention, banks would be set free from pressure on technology skill upgradation and unhealthy competition among banks.

"Future success of banking depends on two things, number of delivery outlets a bank has and number customers a bank acquires. There are equally two big challenges too, that would be retention of customers, which is possible only through good quality services and operational efficiency that each one will have to look at seriously."

 

- Dr R.C Lodha, former Executive Director, Central Bank of India

We have entered into an era of branch-less and border-less universal banking on electronic platform. In future people may not want to search for branch of their bank or walk into home bank to do business but more convenient  solution. That is what new generation customers want; that is exactly what banks too are supposed to take shake in future. The momentum is gaining speed. We are going to enter into an era of cashless economy and massive e-banking practice without making the conventional brick-and-mortar banking irrelevant. While transaction business is rapidly changing into electronic format, vast majority of customers still do branch banking, which is unavoidable for business banking and shopping of an array of products, including credit and other personal banking products.

While the fast growing App-banking is opening a new common platform for payments and transactions, there is a huge scope for building a common infrastructure for vending other products across banks for customers to choose from. Experts foresee an era of super-market banking on a single platform vending multi-brand products as the necessity of time – emerging necessity for each bank and all their customers. Already there are customers who shop various products from various banks, often similar products too, based on the presence of branch at chosen geographies and nearby locations. Customers look for choices in a single location. This is possible, if banks adopt a common strategy. The time is not far, says Dr R.C Lodha, former Executive Director of Central bank of India.

The tech-savvy customers and others who continue to resort to the conventional banking need a convenient and farsighted common delivery platform, which is a virtual banking supermarket. Banks also need to cross over to new territories as hitherto vastly uncovered segment is getting rapidly covered. But the economic sense would not prevent a bank from reaching out to a new geography and new segment, if a bank is mandated for covering new segment of customers. Each bank needs to constantly expand their reach, upgrade their systems and refurbish their existing infrastructure in those cases of obsolete systems. This is the next big challenge that can be met only at a staggering cost. Since sustainability of the rising cost is put to doubt in many cases, the most prudent way to meet the challenge is the option of a discreet consolidation of resources among banks for creation of an infrastructure that is common for every one or group of banks, says Dr Lodha, who has made a profound study on workability of sharing operational infrastructure of banks among all players or a suitable set of players for building more efficient common platform that can accommodate every bank’s interests.

Reserve Bank of India (RBI) also has suggested the idea of sharing infrastructure among banks at seed level while granting license for Payments Banks as the banking regulator knew the same would help achieve the spirit of financial inclusion more effectively. There should be sharing of resources and functional inoperability which would keep the cost under control. In unbanked areas infrastructure sharing would become a key to ensure cost efficiency. Sharing of infrastructure would make everyone involved in more efficient. This will necessitate better automated teller machine (ATM) infrastructure. These were the idea behind paving the way of payments banks operating on shared platform. Through this RBI has already sent in a hint of what it wants in future in terms of sharing infrastructure, through the in-principle license to the payments banks, which are required to share infrastructure of existing banks.

Banks with foot-print in limited geography or are yet to penetrate in many more locations also have big challenges, he asserts. For meeting the challenge and ensure delivery of the best of comforts that customers demand every changing day most banks are spending too much of their financial and HR resources. They will have to keep spending and paying greater attention to this area, often with digression of attention away from core business planning, new product introduction and innovation, attention on risk aversion and many other issues of business.

Country with huge size of population who are not so tech-savvy and yet to have better mobile-data connectivity there is a need of creating a physical infrastructure of banking super market wherefrom everyone can transact, understand availability of various products of various banks at single station and seek human interface for suitable personal and business products.

As mobility of people is increasing leaps and bounds, there is an obvious demand for increase in branch mobility and access to services. As a standalone entity, each commercial bank has limitations and needs to address viability to stay in the form of a commercial establishment. At the same time, spending too much on creating technology infrastructure and operational system lone would not ensure sustainability, because technologies and service equations are changing fast. Moreover, only the savvier ones are able to maintain an edge, leaving even more reliable banks behind.

Indeed, on the technology front, most commercial banks are also progressing well as a result of their consistent efforts, investments of money and talent for building a name and technology platform for themselves. But in the long run they may face new challenges on delivery front and also on economic viability of investment on technology.

Our payment system has seen a revolution over the last eight years after National Payment Corporation built a common payment platform called National Financial Switch. As of now the technology sharing is tapped largely for managing only payments, but not for other more important banking products and services. This system has progressed so well as a result of RBI’s renewed commitment towards providing a safe, efficient, accessible, inclusive, interoperable and authorized payment and settlement systems. The unified payment interface provides a payments architecture that is directly linked to achieving the goals of universal electronic payments, a less cash society and financial inclusion very much in line with one of RBI’s vision documents. This indicates India’s progress in innovating payment system on a common platform, hinting at similar workability for extending the concept of shared infrastructure and building a common platform for all banks.

There must be a healthy system that makes each player commercially viable instead of making them meet against each other. Already the structural changes are bringing heavy toll on profitability, besides rise in other costs. Banks should explore bolder and more radical approaches to cut their costs through prudent steps, Dr Lodha opines.

He delved deep into various aspects of information technology infrastructure across all banks, ultimate connotation of its adoption, which include operational efficiency, safety, cost cutting, utilisation of operational synergy, profitability, proliferation of customer base, public acceptance, customers’ comforts, modern face etc, as per the order of the day. Banks keep these factors in mind, while spending money and deploying its HR resources. Under the changing regulatory environment and necessities for being competent, invulnerable to domestic and international economic shocks, there have been newer compliant requirements. He has found several factors attributing to large scale margin squeezing, which can be curtailed considerably through an implementable common strategy under the present situation wherein every bank bas more or less same system. Mr Lodha and his team have made an elaborate mapping of the industry’s current status in terms of operational infrastructure after seemingly a hair-splitting study of the operational nuances, economic logic of infrastructure creation for service and delivery. It has also made a deep study of how the concept can take an organization shape, management challenges, task of building it and possible risks.

The Core Banking Solution (CBS) is the central nervous system that makes every bank run their operation. This system not only drives the bank’s day-to-day operations but also serve the core IT platform for new capabilities and growth. Still, many banks are saddled with underperforming systems and outdated architectures that hardly support key processes at the very time it faces huge pressure to cut costs for survival in the turbulent market. In an attempt to overhaul obsolete systems, they face bigger task as the change has been so rapid any speed run may not help them stay in the race, set aside it being too costly.

His team has made right assessment of the fact that the technology environment has changed remarkably.  “Web communications, network computing and plug and play system design have emerged as keystones of high performing IT Platforms.  The core systems installed in banks are ill-equipped to support the range of functions, modularity and scalability that a modern financial institution requires. Banks have tacked on many new applications to address regulatory requirements, bridge system incompatibilities. On the other side Internet has increased demands to deliver banking services over new channels, such as smart phones resulting in convenience banking, as customers have begun to demand,” the committee noted.

The banking industry has a huge hidden strength and vast scope for making each player more cost efficient, but requires a bold step that might help banks also trim overheads, operational complexities and eliminate redundant infrastructure. In today’s atmosphere a full-service investment typically provides a range of operational and supporting services that do not differentiate banks from their competitors, he tells. Most of the large banks which have up-to-date technology have same system and identical processes, often with the same software tools. In such cases it is extremely prudent to join forces to share capabilities. This calls for active collaboration among banks for each one’s sustainable benefit. This means banks will need to collaborate actively and confront stakeholder resistance and build a common platform. He has also has noted the fact that the financial services industry in India stands to gain substantial benefits from pooling the operational services. Banks can increase return on equity (ROE) while focusing on competing with each other in areas where differentiation is possible and desirable, it notes. But it is for the industry players to take the call. 

In fact, as an experienced banker he could read the pulse of the industry carefully and underlined the fact that the current market conditions clearly provide the necessary ‘burning platform’ - which would be a Money Station, virtually in line with what is called Railway Station or bus Station, where at all banking and monetary requirements of business and individuals would be met without considering which bank one is customer of.

He has elucidated many advantages of Money Station. A high-performance shared IT services model helps eliminate redundancy through process and technology standardization, its study points out. It consolidates and redesigns non-core support functions into shared functions, operating like a business with high focus on client services and cost management. Banks would find that many of the core issues faced as a result of the increasingly complex regulatory environment can be alleviated using a shared IT services model. In fact, the system can remove complex duplicate and costly and non-standard processes. The system can bring in some ease on multi-layered, top–heavy organizations, regionalized infrastructure, reduce unwarrantable management time on transactional activities that do not generate corresponding revenue and reduce the burden of staff that can be re-deployed for other activities. Besides these the implementation and operation of a mature shared IT services operating model would help banks lower location and resources cost, he notes. As far as banks are concerned shared IT services centre is more than just a centralization of services, since the structure places great emphasis on “shared” responsibility for end-result and on “service” delivery for very high client satisfaction. Moreover, the Group says, the implementation of a high performance shared IT services model can provide banks with an opportunity to redesign processes around preferred practices and the effective use of enabling technology, with  the goal of helping to reduce ongoing costs over the long term. This help bank’s core management retain its focus on clients and key bank growth strategies, while helping to manage operations independently as an effective and streamlined business.

A typical Money Station will have state of the art technology architecture and infrastructure equipped with digital banking and multi-function kiosks for every general banking requirements, which include account opening, cash and cheque deposits, withdrawals and transfer, ATMs and Micro-ATMs, account statement and pass book entry, complete account information, debit and credit card issue, wallet management, utility bill payment facilities, online booking of lockers, video walls and video conferencing, sales of investment products and life-non-life insurance products, equity trading and demat facilities, rail, air and bus ticket booking, e-commerce and online purchases, currency exchange machine, coin vending machine, all types of loans, overdraft sourcing and servicing, online filing of Income Tax Returns, tele-banking and adhaar based banking kiosks, connectivity to accept information from CIBIL, CRISIL, CERSAI, Income Tax, Sales Tax, Service Tax and land record information data bases appointments with necessary bank officials, etc. Accessibility to access verification sources online and integration with internal systems will accelerate the work-flow leading to the completion of process instantly without waiting for results, be it opening an account, application for internet banking, card issues or for credit products.

In fact, Money Station would be a multi-brand banking service super market manned with suitable guides, besides self-service apparatus that can encourage cashless transactions. Initially it can be set up in all major shopping malls, where footprint is huge and other public places at Tier II and tier III cities. Given the nature of bank branches expansion and premises available in fast growing new cities establishment of Money Station is not a big task. Even branches can be converted into Money Stations and facilitate cross-selling of services of banks which do not have presence in the location. In fact, the Group proposes that “existing premises of banks at prominent locations may be used for setting up of Money Stations, especially where e-lobbies have already been set up by individual banks.”

In fact, Money Station would be a comprehensive and sophisticated one-stop all-bank or multi-bank service platform with a flexibility to accommodate emerging requirements also.  Yet, Money Station is not going to lessen the challenges of banks. It has the task of handling service of multiple banks and multi-brand products while managing the customer traffic with accountability and responsibility. The Station has to be manned round the clock with infusion of suitable talents. There are organizational issues, which include resources, culture and hierarchy.

The issues like connectivity can be addressed through initiatives having dedicated optical fibre connectivity (OFC) across India, maintained by public sector telecom company, Bharat Sanchar Nigam (BSNL). Each bank will draw their last-mile network from this shared infrastructure. It will ensure that banks have their highly available, scalable and secured network for banking transactions, there should be common vendor/ method to have VASAT bandwidth / exclusive transponder for the banks. Develop a private IT subsidiary of banking system across banks which supply resources to banks. This private IT subsidiary would maintain decentralized IT infra and utilities. All banks who are funding this subsidiary would be board member of this subsidiary.

The recently launched app called Bharat Interface for Money known as BHIM App is a classic example of resource sharing among banks. This is a simple, easy and quick payment system using Unified Payments Interface (UPI), which is bank-independent. Point of sales terminals (POS) and automated teller machines (ATMs) are working on a common platform. These are also finest examples of resources sharing among banks. On similar lines kiosks  can also be provided for multi Bank cash acceptance, Dr Lodha points out. Though POS and ATMs have gained enough popularity and acceptability towards sharing of infrastructure kiosks are yet to gain acceptability and popularity. Gaining popularity of KIOSK as a common resource tool would be a major task, he opines.

Aadhar can be made a supporting tool for multi bank operations, including KYC and other legal aspects since it is a reliable system to identify one's identity. Aadhar enabled payments-receipt system may be used as a vital tool in the proposed system for banking transactions. Already KYC/eKYC compliance formalities are in practice using Aadhar. This can obviously play an important role in the common resource sharing system. It also takes care of regulatory requirement and can also be used eliminating duplication tool in the proposed system, he adds.

Currently the common resource sharing is employed more for payment-receipt centric banking transactions. However, the proposed common platform can broadly cover other banking service functionalities too. This can also encourage competitive banking while offering more options for customer choice at single window.

At the same time, there are challenges and limitations. The back-office operations may become complex in nature and require more attention towards providing robust reconciliation mechanism and complaint redressal tool. It will also fulfill regulatory requirement and financial discipline, he avers.

 

Says Mr Lodha

“In the early stage of resources consolidation, there are many issues. Every transition has some or the other pressures. Indian banks have admirable track record of managing the pressure of transition. Identifying the preferred and less risky method to transfer knowledge and managing the transition are the core issues. An effective transition requires a sophisticated and structured process. When assessing the operational requirements of running a shared IT services centre, differences in the individual components and cost to the operation must be analysed. Ultimately, if the long term goals is to create a sustainable and successful service operation that continues to drive cost efficiency. In all the ways, I am confident that the transition upon the integration of technology infrastructure among banks to build a common infrastructure would be smooth and successful, if we take an attempt seriously.”