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The future belongs Net-savvy banks

C.J. Punnathara

KOCHI, April 22

WITH the imminent changes in Indian cyber laws and advent of full-fledged Internet banking, the competition in the banking industry will become all the more pronounced and fierce.

``The focus will shift from the traditional high profile corporate accounts to high networth retail customers and NRIs who will be the harbingers and target audience of Internet banking,'' Mr. K.P. Padmakumar, Chairman of Federal Bank, said. The suitable amendments to the cyber laws are expected to be ratified during the current session of Parliament.

As the country shifts over from ledger-and-pass book banking to Internet banking, there will be a perceptible shift in the customer profile from one bank to another. This will come about as the high networth customers pursue greener pastures, seeking the advantages of Internet banking.

The battle for the high networth customers will hot up further as the technology savvy banks go out of their way to win over their accounts, in order to attain the minimum critical mass for their Internet banking operations.

``The traditional customer loyalty to individual banks will be sorely tested as the high networth clients seek the advantages of seamless and efficient transactions, access to superior and versatile products, quicker and transparent operations at falling costs,'' Mr. Padmakumar said.

The banks which have already introduced Internet banking or those which are on the entry threshold will be the net gainers in this battle for high networth customers. The gains of the technology-driven banks will translate as losses to some of the tradit ional brick-and-mortar banks which are lagging far behind in computerisation and absorption of new technologies.

The flight of the high networth customers is likely to puncture the turnover of some of the traditional banks and constrain their bottomlines. These erosion in bottomlines could result in a spate of mergers and acquisitions in the banking industry, some bankers said.

However, Mr. Padmakumar ruled out such an eventuality. Instead, he believed these erosions were likely to stimulate and accelerate the pace of computerisation and assimilation of technology by the traditional banking sector. Even in the transition period , the traditional brick-and-mortar banks are expected to enter into shared payment arrangement with the technology-driven banks. The shared payment system is very much in vogue in the developed countries of the West. However, the delay is still likely to result in an erosion of their high net worth customer profile.

The new generation private sector banks with their fully-computerised environment and technology-driven operations are best equipped to access Internet banking. An added advantage of these banks is their major concentration in metros and urban centres. I t is these metros and urban centres which are expected to facilitate and act as the spring board for the Internet banking in the country.

The success of several traditional banks in stemming the erosion of their customer base would depend on an accelerated pace of computerisation and absorption of technology. Banks such as State Bank of India, State Bank of Travancore, Federal Bank and oth ers are specially vulnerable to such erosions, given the large number of high networth NRI customers on their rolls.

While it has taken most traditional banks decades of effort to build up their client base, the advent of Internet banking could sorely test their ability to retain them. While bankers were unanimous that introduction of Internet banking would usher in se amless and efficient transactions, extend superior and versatile products, offer speedier and transparent transactions at cheaper costs, they said that the high networth customer would be guided by the extent of preparedness of his traditional banks befo re he seeks out other banking partners.