New challenges in Banking
It has been customary for writers on banking to compare a bank with a
laundry. This comparison, based on the external outlook, goes as
follows: both have counters, people working behind counters, clients
visiting the place and handing their assets over the counters and those
people behind the counters to use those assets safely and return them to
the clients as promised.
Today, this comparison does not do justice to what a bank actually
does. The function it performs in the contemporary society is more akin
to the divine role played by God Murugan with His multi-head and
Just like God Murugan is a god for all seasons, for all people and
for all purposes, a modern bank should have solutions for all types of
problems which their clients are faced with. Such problems usually range
from economic to financial and even to personal.
Hence, its foremost challenge has been to acquire the capacity to
serve its clientele efficiently. Efficiency here means the provision of
its services in time, in the demanded quality and in the required volume
at competitive prices.
A modern bank is, therefore, required to have an adequate outreach
capability to serve all those clients in places where they live. The
strategy adopted by banks in this connection has been to expand their
services both vertically and horizontally.
In terms of this strategy, while expanding geographically, it got
itself fitted with various specialised divisions within a bank to tackle
different types of problems.
This administrative structure, though helpful to meet current
challenges, entailed high costs on banks, raising both sustainability
and viability issues. It also could not provide a satisfactory solution
to the physical limitation problem which has placed an effective barrier
to its further expansion.
Hence, this banking model is inadequate to meet, in its present form,
the new challenges faced by banks.
ICT Revolution and Banks
The examination of the evolution of banks in the last 50 years or so
reveals that no other industry has benefited from the advancements in
information and communication technology (ICT) as the banking industry.
Banks were the very first institutions that employed the enormous
processing power of modern computers and advanced communication
equipment to provide a wide range of services to their customers.
The wide spread application of ICT helped the banks to cut costs and
overcome geographical barriers. It helped the banks to convert
themselves to universal banking, a system that provides all financial
services to customers under one roof.
A bank today is, therefore, a combination of both human resources and
ICT. It produces all its service products by appropriately mixing these
two resources. But the new challenges faced by banks require them to
focus more on ICT than on other inputs for producing their services.
This is because the types of services which their customers seek and
the speed at which they should be produced cannot be provided
efficiently and effectively without the application of ICT.
Challenges posed by globalisation
Benefiting from the advancements in ICT and the opening of economies
to free trade, the globalisation process has now encompassed the whole
world in an unprecedented manner. This has forced the world's nations,
irrespective of whether it was to their liking or not, to plan for a
seamless integration into the globalised economy and derive benefits of
Thomas L Friedman, in his best-selling publication, The World Is
Flat, has argued that globalisation has in fact flattened the world
creating a level playing field for everyone. The end-result of this
inevitable development has been the creation of a huge single financial
market with no barriers for financial flows and trading in financial
This would mean that the traditional nation state with its
well-guarded territorial borders could continue to be only a pure
It could effectively limit the free flow of human capital in physical
form from one country to another. But, the nation states would not be
able to restrict the free flow of the products of human capital across
With modern ICT, human intelligence and competence can be obtained
from any part of the world without the human capital moving from country
to country in physical form. This technique, popularly known as
outsourcing or off-shoring, is extensively utilised by the banking
Apart from the free flow of the products of human capital, financial
services too move across the borders today without a major hindrance.
This has, indeed, given birth to what is known as the development of the
globe-wide single financial market that we experience today.
This globe-wide single financial market will benefit the world in a
number of ways.
* The competition in the market will increase several-fold raising
the quality of products and lowering their prices. All users of
financial services, whether they are sovereign states, corporate
entities or individuals, will immensely benefit such quality
improvements that have occurred without causing price increases.
* The competition also spawns innovation forcing the financial
industry to allocate more and more resources for research and
development (R & D). This is because the markets always pose industries
to new challenges and the best way to meet such challenges lies in
A large industry can always spare a high volume of resources for this
purpose than a small industry. A case in point is the globally expanded
to be continued