Retail banking gets tech savvy

Technology is changing the face of the retail banking in the country. Branches, the quintessential hub, today account for just 20-30 per cent of retail transactions in private sector banks with alternate channels such as automated teller machines (ATMs), phonebanking and Internet carrying the major load of retail transactions.

Not left far behind are the public sector banks (PSBs). While their loyal customers find the familiarity of the good old ways comforting, the PSBs are losing out on the younger customers and a lot of business.

Two years ago, an International Monetary Fund (IMF) report had noted that the cost of transacting through alternate channels was about 1-2 per cent of that incurred by a branch.

Banks which invested early in technology (it takes Rs 10-15 lakh to set up an ATM, plus crores go into setting up net banking and phonebanking infrastructure) have a clear advantage as they could attract a big chunk of customers in the below 50 age group.

With the alternate channels now assuming required scale and decent adaptation, banks are reaping in the benefits and using the channels profitably to provide additional services such as depositories, retail loans, credit cards and insurance.

Further, ATMs are now being used to recharge mobile phones and not just plain banking. One unexpected benefit has been that even in case of a bank strike, ATMs come to the rescue.

ICICI Bank, the largest private bank, has 2,020 ATMs, of which, nearly 1,200 are in cities other than metros. "In 2000, 90 per cent of transactions were done through branches, which has come down to around 25 per cent," says Chanda Kochar, executive director, ICICI Bank. Nearly a third of ICICI customers use net banking and 850,000 are registered for the service.

"At Citibank, only 5 per cent of cash transactions happen through branches, 95 per cent are through ATMs. We have almost doubled our Internet banking usage in the last two years," says Sharad Mohan, marketing director at CitiGold Wealth Management.

Its ATM count has gone up to 420 from 209 in 2003. The branches have added preferential banking to their repertoire with exclusive space earmarked for services such as "CitiGold Centre", which offer comfort and complete confidentiality.

The IMF report had noted that banks in Asia were embracing the change faster than even some of the developed countries. In India's case, this can be partly attributed to the fact that banking sector has itself grown significantly in the last decade.

Public sector banks missed the early bus, as they woke up to alternate banking channels in a significant manner only about two years back. SBI which had around 1,300 ATMs in March 2003 now has over 7,000.

While global strategy firm McKinsey & Company's survey earlier this year said that that urban banking consumers favoured individual contact, the fact is that the business model is changing and more and more of them are adapting to the alternate channels.

While transaction costs are falling, shared network are still expensive for user and over 97 per cent of card transactions are dealt at ATMs of card-issuing banks, with only balance being dealt on ATMs of the other banks.

Oriental Bank of Commerce with 506 ATMs is one of the many banks that has tied up with National Financial Switch and IDBRT network to allow their customers access ATMs of other banks.

"PSBs followed a cost minimisation strategy. A lot of our retail customers are in the senior age group and they are more comfortable with dealing with branches... But there is a large clientele in the younger age group which has opted for the private banks," said a senior executive with one of the PSBs.

HDFC Bank which had 730 ATMs at end of 2003 now has 1200 and plans to finish with 1400 by end of this year. Punjab National Bank (PNB) has 600 ATMs which are expected to grow to 750 by March 2006.