Is Internet Banking catching up in India?

Internet banking has gained wide acceptance internationally and seems to be fast catching up in India with more and more banks entering the fray. Indian banks have an insignificant Internet banking record. The British legacy left behind a host of large and small privately-held banks. The late 60s saw the nationalization of banks, leading to the emergence of the public sector banks. The 90s saw the banking industry embracing technology in a massive way, led in particular by the new private banks and MNC banks. Among these series of technology innovations, Internet banking for the retail segment is a recent phenomenon that has generated a lot of interest in the Indian banking industry. Private and foreign banks have been the early adopters while the PSU banks are also beginning to latch on to the bandwagon.

ICICI Bank kicked off online banking way back in 1996 and a host of other banks soon followed suit. But even for the Internet as a whole, 1996 to 1998 marked the adoption phase, while usage increased only in 1999—due to lower ISP online charges, increased PC penetration and a tech-friendly atmosphere. Internet banking users are over 65% of all Internet banking customers in India. India has a little less than a million active Internet banking users. And though this is just 0.096 percent of the total population, it represents 15 percent of the India’s Internet user population. Thus indicating that the concept of Internet banking is surely catching on. Citibank, IndusInd Bank and HDFC Bank and HDFC were the early ones to bite the technology bullet in 1999. In line with this strategy, initially the Net banking facility was provided in order to meet the information requirements of the customers and gradually it ventured into fund transfers and third party transfers. Costs of banking service through the Internet amount to a fraction of the costs through conventional methods. Industry estimates assume teller cost at Re 1 per transaction, ATM transaction costs at Re 0.45, phone banking at Re 0.35, debit cards at Re 0.20 and Internet banking at Re 0.10 per transaction. People were skeptical about even ATM at the beginning, but look how it has picked up today.

The prohibitive costs of real estate would always make Internet banking a much more viable option in the long run than physical banks. In today’s environment besides their physical branches, banks need to grow non-branch delivery networks as a part of their growth strategy. ATMs are currently the hot favorite for most banks, but Internet banking definitely has the potential to leave the rest behind. Therefore, on the whole, Internet banking increases operational efficiencies and reduces costs, besides giving a platform for offering value added services to the customer, thereby fulfilling all the essential prerequisites for a flourishing banking industry.

There are very few nationalized banks like State Bank of India, Bank of Baroda, Allahabad Bank, Syndicate Bank and Bank of India that offer Internet banking services. Some others like Union Bank of India, Canara Bank and Punjab National Bank are on the verge of doing so. SBI’s Internet banking initiative, launched in July 2001, is in fact doing quite well and has over 18,000 registered customers across 150 branches. The enthusiastic response has encouraged the SBI management to extend the service to an additional 500 branches. But despite positive news like this, PSU banks still have a lot of catching up to do on the Internet banking services front. The average customer profile of PSU banks is also comfortable with the traditional banking system and is not too keen on adopting an online model. Typically, most PSU banks have the majority of their customer base in the smaller cities or towns and even in remote villages. Even in bigger cities, a large proportion of their customers are either senior citizens or at least 50+ who have a natural aversion towards adopting new technology. This not the case with private or MNC banks, where the clientele is mostly urban-based falling in the 20-40 age group and who have a higher exposure to technology.

IDC survey seems to confirm this premise. Among the elite Internet banking users, that is, those customers who belong to Socio-Economic Class A1 (SEC A1) in the top five cities, it has been found that people access their account through the Internet once every week. Similarly users visit their ATM centre on an average of two times per week. The workplace happens to be the most favored place to access Internet for banking purposes. The home come a close second while cybercafés take the third place. ATM in the close vicinity to the office is the most preferred place among users for banking. The users (24 percent) who access the ATM near their office mostly go during the first half of the day, between 9 AM to 12 PM, but most preferred time by all users (41 percent) is between 6-9 PM. This probably explains why more and more banks are looking at Internet banking as another attractive addition to their bouquet of delivery channels. At least in urban areas, ATMs are already fast becoming the most popular mode of banking, while phone banking and mobile banking are also on the upswing as the user base grows. Internet banking now seems to be the perfect model to complement the whole system. All these initiatives taken by banks are part of their channel diversification strategy, where they intend to put the strategy matrix in place. This will be done through sprucing up the channel strategy in depth and width in which width would mean the various varieties of channel and depth would mean the value added services in each channel.

What is ultimately emerging is that though there is certainly a high level of importance attached to Internet banking, it is at present not necessarily a priority for all banks. As far as banks are concerned, migrating customers to any self-directed channel is the main goal. However, the future of banking will be one in which customers can address most of their needs through self-directed means and the key differentiator will be how effective a bank is in getting its customers online and deriving measurable value from this presence. One can sum up the whole Internet banking scenario with the adage, for while winners may not see massive gains, the losers will fade from view as their ability to compete is eroded with every mouse click.