Blue oceans for banks myths and realities
The forthcoming era is certainly a testing period for banks. Stiff
competition and high overheads make it challenging to maintain
On the other hand global uncertainties, industry convergence and
technology advancements offer enormous challenges for banks in achieving
their revenue targets. Amidst these pressures on both the top line and
bottom line in very hostile and regulated markets can banks expect blue
oceans? The writer says yes.
Those who are innovative and geared to make a difference do have
immense potential. This short article examines and explains the
possibilities from generic perspectives.
Changing customer behavior
Visiting a bank to spend a couple of hours was never seen as a waste
of time those days. Congested roads, lack of parking space, changing
lifestyles and increasing opportunity cost of time tend banking
customers to look alternative ways of doing banking.
Global statistics and technology trends reveal that a considerable
number of customers do their banking transactions without visiting
What banks need to understand is how fast this has been happening and
how best they can retain the existing clients and attract new clients
who will prefer to do banking outside the bank premises.
Similarly, technology advancements and competitive offerings have
compelled the banking customers to expect everything over the counter.
Months or weeks taken to process a facility have come down to minutes
and seconds. Both individuals and corporate firms demand quick response
on line real time. Realizing this, using traditional resources is quite
expensive and risky.
Reaching the customers
Whether the reason to open a branch is achieving internal targets,
harness opportunities or CSR initiatives, extending the reach by opening
physical branches needs careful analysis than never before.
We see in many places isolated small villages and communities with 50
to 100 families with sizeable economic activities.
Can a bank open up a branch to serve them? A local bank may incur a
sum of Rs 10 to 20 million to open a new branch. In addition to the
upfront investment, the recurrent expenditure is also quite significant.
Providing the other necessities including trained personnel is also a
On average, a new branch will take between 18 to 24 months to break
even. The legislative and regulatory issues, presence of competing banks
in the same vicinity and increasing costs thus make opening up of a new
physical branch a very complicated decision for any bank.
When customer preference is to do banking without visiting physical
branches, such decisions to open new branches have to be necessarily
As urban markets were saturating, the banking industry became hostile
looking for unbanked and under banked customers.
Financial inclusion was a buzzword for banks in the past decade and
technology was considered as an inevitable factor in reaching the
unbanked in a cost effective manner. When technology based solutions are
becoming common there again banks face the challenge of differentiating
their offerings to increase the appeal.
Banking beyond branches
As at present, multiple channels and devices are in use by banks in
reaching the customers offering on line real time banking.
The channels include internet, agents/dealers and the customers. The
devices include personal computers, EDC POS terminals, PDAs/Palmtops and
It should be noted that use of devices which are not meant for
payments can cause serious problems in view of multi faceted
vulnerabilities. For an example, the mobile phone is not a payment
However, it could be converted to a payment device with appropriate
software. Allowing users to engage in on line real time banking using
such devices needs comprehensive evaluation of software and vendors.
Creating an interface and using a mobile phone for many other
purposes is no more a secret. As more and more generation Y people are
using mobile devices and IT skills are increasingly misused in
fraudulent and unethical activities, it is essential that foolproof
technologies that adhere to stringent security standards are in use.
Failure to do so, due to negligence, preferences and/or economic
benefits can lead to severe financial losses, legal consequences and
damage to reputation.
Among the alternative devices available, the EDC POS terminal is
preferred and recommended due to many reasons over the other devices.
Firstly, the EDC POS terminal is a payment device and therefore it
comes with certain features and specifications that facilitate and
ensure secure transactions. Secondly, the EDC POS terminal is always
kept with a third party who has a legal binding with the bank/financial
institution. Therefore, fraudulent usage by individual customers is
A third reason which has been the primary factor highlighted by many
banks in the region using branchless banking with EDC POS terminals is
its ability to incorporate sophisticated security measures and strong
user authentications such as biometric verifications.
This facilitates the banker or the agent to properly verify the
customer in the field. Since the device is compatible with all the
available communication channels it is easy to access all the targeted
Convergence or encroaching?
Disruptive technologies continue to change the competitive landscapes
of industries. Telecommunication industry was considered as a supporting
industry for banking until mobile service providers started offering
banking services in different parts of the world. Whether we call it
industry convergence or not, it ends up by making the banking industry
quite hostile. New and dynamic players can easily attract the new
generation tech savvy customers to do banking on mobile devices instead
of queuing up in a bank branch.
High overheads prevailing in the telecommunications industry, stiff
competition and lowering margins in traditional products more and more
telco firms may enter into banking industry. High mobile penetrations
close to or exceed 100% in the region certainly appeal the innovative
players to harness the ubiquitous connectivity of millions of people
within their networks.
Despite the global trend for free market activities, banking industry
will continue to be a regulated industry compared to other industry
sectors due to its importance to economies and inherent vulnerabilities
to be addressed collectively.
Is there a blue ocean for banks?
Therefore, foresightedness in banking on technology has enabled many
banks in the region to expand their reach amidst challenges.
As banks continue to compete in red oceans whilst meeting stiff
competition from other industries where channel and product innovations
do have very short life spans, it is quite important to examine how some
banks see blue oceans.
In Malaysia, Indonesia, Cambodia and Vietnam several large banks have
selected EDC POS terminals to simulate bank branch transactions in
expanding their reach instead of opening new physical branches.
When the going gets tough with saturated urban markets, increasing
electronic frauds, lowering margins and inconsistencies in
responsibility and accountability of staff in new and sophisticated
solutions it is a proven methodology for many leading banks.
The business models vary from country to country. Whether it is
called agency banking, branchless banking, microfinance, grass root
banking or barefoot banking these banks have relied on the EDC POS
device in offering foolproof on line real time banking.
The writer had the privilege in involving several such projects as a
solutions architect and hence ends this article confirming the existence
of blue oceans for local banks provided that they use innovative