IT in the Banking Vertical

Before we look into what IT solutions Banks are currently de-ploying, a little background to it. Prior to the 90s, mostbanks were running on a decentralized solution, which wasbranch specific, and customers had to do transactions from theparticular branch where his account had been opened. Thoughquite a few banks had already done branch-level automation, therewere some challenges that banks were facing due to a decentral-ized model. For eg, one of the major requirements of regulatorybodies in India requires advanced Management Information Sys-tem, but under the decentralized environment, it was a really dif-ficult task to collate all information and generate MIS. Each bankbranch had to generate their Management Information Systems(MIS) and send it to the controlling office, where it was compiled.

Core Banking System brings the concept of anytime, anywhere banking

With the entry of new private sector banks in the later part of the90s, which as per the RBI mandate were totally computerized andnetworked from the very beginning, competition heated up for theestablished PSU and old private banks in India. The new privatebanks then, were frontrunners in achieving a centralized CoreBanking system and brought in the concept of anywhere/anytimebanking, and also started offering multiple delivery channels inthe form of ATMs, Internet banking, etc.

What is CBS: It is a solution where a central shared database, con-necting all branches, supports the entire banking application. Thebusiness processes in all different branches of a bank updates a common database in a central server that is located within a datacenter, and gives a consolidated view of the bank's operations.

Benefits of CBS to the banking vertical : Since the entire cus-tomer database is centrally located at the Central Data Centre (CDC) and can be accessed from any branch; it is enabling cus-tomers to access accounts from any branch, anywhere, irrespec-tive of which branch they had actually opened their accounts in.Also centralized generation of MIS has become possible andthere are no 'end of the day' or 'beginning of the day' processesto be undertaken at the bank branches. Plus, CBS facilitates mul-tiple delivery channels like Internet banking, online access to all ATM networks, tele-banking facility, bill payment, etc to cus-tomers.

CBS in Indian banks now : Most banks in India have alreadyimplemented a CBS system in most of their branches. But somebanks are still in the process of deploying the same, especiallythe regional rural banks, which have been mandated by RBI tomove to CBS by September 2011, and RBI has asked sponsorbanks to adopt RRBs and help them achieve integrated central-ized operations. (Share pattern of RRBs include 50% of the re-spective state, 35% of the sponsored bank and rest 15% by RBIthrough NABARD.)

Challenges faced by banks moving to CBS : Seepij Gupta, As-sociate Research Manager - IT Services, Springboard Research,says that without a CBS, having a CRM or BI solution is useless.He adds that a number of banks are struggling with basics of in-tegrating and implementing a CBS. He says that some banks in-spite of having a CBS have not been able to efficiently marry theirown legacy system with the CBS and are still running 2 or 3 differ-ent systems parallely. So banks need to carefully evaluate differentvendors in this space and the kind of support they would be pro-viding during and post-implementation of CBS, before zeroing in,on a particular solution.

BI for Banking :The need of the hour

Banking is a highly competitive sector and proper understandingof the customer, his likes/dislikes, and behaviour patterns are crit-ical for customer retention, acquisition and cross selling. Bankshave been deploying CRM solution to get a complete picture ofevery customer, understand their customers better, and tune theirofferings as per customer needs.

The high competition in the banking sector, is necessitatingthe banks to develop an enterprise wide data warehouse and useBusiness Intelligence to do things like predictive analysis of cus-tomer churns, bring out forecasting reports for various sales andbusiness lines and proactively identify personalised needs for cus-tomers and devise cross-selling and up-selling strategies. A casein point is the project undertaken by Yes Bank who built their ownBI solution and deployed it within their organization. Let us lookat how this BI solution benefited the bank.

Yes Bank's BI solution : Kaleidoscope

Yes Bank developed, a business intelligence platform called Kaliedoscope, which is run using in-house expertise. A freeware,LogiXML, is the reporting front end integrated with a custom built application.

Constructing a data warehouse: A major challenge they facedwhile constructing the data warehouse was that it comprised ofdata from applications right from core banking, retail assets, andCRM. But this integration of data from multiple sources into a sin-gle data warehouse provided the bank with a lot of informationwhich was not previously available. Typical example includes thecustomer cross-holding MIS. Such information is critical in un-derstanding the complete picture of the customer and make ap-propriate business critical decisions. Also the data warehouse setup a clean base for advanced statistical analysis such as predictiveand forecasting reports.

Role-based and access-based information dissemination: Kaleidoscope provides information through various means in-cluding dashboards, reports/MIS graphs, key performance indica-tors and other metrics and analysis. Information available inKaleidoscope is role-based ensuring relevant information dissem-ination to the various users as well as access-based ensuring in-formation confidentiality — eg. a branch manager sees info abouthis branch only. It is being run as a program with an overall pro-gram manager along with business analysts from each applicationwho service various departments, understand and translate re-quirements and then develop and deploy reports on the system.

Business benefits from Kaleidoscope in-clude:

• Nearly 100+ business reports, dashboards, etc are avail-able to all users in the morning enabling them to plan spe-cific actions for the entire day which have huge businessimpact.
• An enterprise wide data warehouse provides numerousreports across categories which facilitate cross-sell, up-sell, deep-sell opportunities for the bank, increased liabilities generation and greater income.
• The enterprise data warehouse provides a stable platformto make other peripheral applications more feature richand opens doors to build future applications leveragedupon it.
• Users are provided with a 'Single Source of Truth' whichenables them to take informed decisions based on correct data.
• The warehouse serves as the platform for advanced statis-tical analysis ranging from real time event-based market-ing to customer propensity scores to sales forecasting, etc.

IT for connecting the un-banked

According to RBI, currently 41% of the Indian population is un-banked which is around 80 million households. Out of this, 40% isunbanked in urban areas and 60% in rural areas.

Financial Inclusion of the low-income group: In the unbankedsectors, traditionally it has been the unorganized money marketand moneylenders whose services were being availed, though theyare costlier over banks. This is either due to the absence of bankbranches nearby or absence of proof of identity like a PAN card,ration card, etc which was necessary to fulfil the stringent KnowYour Customer norm followed by banks.

Also most banks were focused towards servicing high-incomegroups and perceived extending financial services to the rural cus-tomers leading to high transaction costs because of current lowvolumes. Hence the service offerings were also not well tuned forrural customers. But of late there has been a lot of push from RBIto promote financial inclusion by directing banks to offer no-frillsaccount, simplifying the Know Your Customer procedure and pro-moting branchless banking by taking banking to the customersthrough business correspondents.

Technology enabling financial inclusion

The government is taking special interest for technology adoptionto promote financial inclusion by setting up the Financial Inclu-sion Technology Fund for meeting the costs of technology adop-tion with an overall corpus of Rs 500 crore. There are two key waysin which technology is set to play a big role in providing bankingservices to the unbanked masses. Let us see how.

Branchless banking : This is the concept of providing bankingservices outside the conventional bank branches by either usingICT or third party organizations referred to as business correspon-dents (BC) which enables local intermediaries such as self-helpgroups and kirana stores to provide banking services. Smart Cardbased banking facility, mobile based banking services and settingup more rural ATMs are some of the ways in which technology can be leveraged to promote branchless banking.

Smart Card-based banking facility: This model works on tak-ing banking to customers through the branchless banking modelbased on Business Correspondents. The BCs are provided withhand-held devices owned by banks. And each customer and theBC is provided with a smart card which have their primary ac-count number, personal details, contact information, transactionhistory etc stored in it. The BC uses his smart card on the hand-held terminal being provided to him by the bank and authenti-cates it with his/her thumb impression. The device then, getsconnected to the Bank's server. Now the BC takes the handhelddevice to the customer and enables customers to do withdrawalof deposit by swiping the smart card of the customer on the hand-held terminal with the customer being authenticated usinghis/her biometric fingerprint stored in the smart card.

These bank terminals need to have connectivity throughGlobal System for Mobile communications (GSM), Code Division Multiple Access (CDMA) or any other technologydepending upon the kind of connectivityavailable at the local place of operation.The communication done finally reachesthe back end financial inclusion serverwhich contains all the customer detailsand account information including cur-rent balance. Transaction is updated si-multaneously in their account and areceipt is printed immediately and pro-vided to the customer.

Mobile-based banking facility

One of the major challenges that banksface while planning financial inclusion ofthe rural and urban low-income groups isthe need to maintain the cost of transac-tion as low as possible, to ensure the prof-itability of each small value transaction.An innovative solution that is addressingthis challenge are transactions facilitatedthrough customer's ultra-low cost, mo-biles, such as the Nokia 1200 mobilephones as front-end, over a cloud-basedcore banking system. Such a solution is be-ing provided by Eko India financial Serv-ices, named SimpliBank.

Simplibank an abridged CBS on cloud,enabling financial inclusion : SimpliBank is hosted and managed low-cost but abridged Core Bank-ing System, which provides the entire banking solution in thecloud and is designed with the mobile phone as its primary trans-action interface. Through the deployment of SimpliBank on acloud infrastructure, cost per transaction has been dramaticallylowered, thus enabling profitable inclusion of low-income groupcustomers. It works on universal interface, working on the lowest-common-denominator handset (their reference test handset be-ing the Nokia 1200, the ultra-low-cost handset) without the useof SIM Toolkit, downloaded application, Java apps or any othertechnology that may not be immediately available to the massmarket of prepaid low-income mobile subscribers. It provides auser interface readily usable by the number-literate.

Simplibank enabling opening of SBI's no-frills bank accountfor low-income groups: Currently Eko partners with State Bankof India as one of SBI's nationwide Business Correspondent. Ekowith SBI has launched the SBI Mini Savings Bank Account, whichis a no-frills account, at Uttam Nagar, New Delhi through the Sim-plibank platform. SBI mini savings accountholders can do a host of financial transactionsincluding deposit and withdrawal from their ac-counts through their mobile phones at variousSBI Eko Customer Service Points (CSP) whichhave been set up in parts of Delhi/NCR, Biharand Jharkhand.

Every person opening the this no-frills ac-count would need to have a mobile phone andthe corresponding mobile number would act thecustomer's SBI Bank account number and alltransactions are conducted by dialing specificnumbers, the information being provided by theCSPs. Transactions happen in real-time and in-stant confirmations happen through SMS.

Low-cost ATMs for rural India

In the past few years quite some banks in Indiahave been installing biometric ATMs that elim-inate the need to remember PIN numbers, aspart of their financial inclusion plan. But someof the major challenges they experienced werehigh total cost of ownership of ATMs, require-ment of AC to operate and conventional ATMsconsuming a lot of power in the already electric-ity-starved rural areas. Recently an ATM modeltailor-made for rural India has entered the mar-ket, Vortex Engineering's Gramateller ATMs.

They are perfect for rural settings as they can operate smoothly under power fluctuations, can viably run onsolar power and have built in back-up for about 4 hours. Also theydon't require an AC and can operate between 0 to 50 degrees. Theyconsume less power, even less than 100 W. The consumer authen-tication could be done either through PIN or fingerprints. Mostimportantly, it costs roughly one-tenth of what a conventional ATMcosts. State Bank of India has already placed an order for 545 suchGramateller ATMs. Such low-cost ATMs would definitely becomea hit amongst banks enabling them to reach out to rural areas, butat a lesser investment.

Multi-line instrument for trade floor

A solution specifically designed for the trade floor is Siemen'sOpen Scape Xpert.Diverse applications that supply trading data,market forecasting, customer information, phone, email, voice recording playback and streaming news (RSS) can now be brought together in a single network. Each trader can customise their turret in the way that allows them to work with maximum and the product provides monitoring of 16 lines in parallel peruser. The device has Intel Celeron processor and Windows XPand comes with a very strong voice encryption, armed with several back up capabilities. By integrating important applications through a single screen, each trader on your floor can ac-cess the diverse applications from phone to instant messaging to market data, CRM, video and beyond. With the system infunction in SBI with 90 trading boards running simultaneously,the solution allows scalability to a 1000 users within the current version.

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