Cutting costs and giving more benefits to customers

Stephen Liestyo, General Manager, Consumer Banking BCA.

Banking transactions just became a bit more convenient for mobile phone owners. A bank is only a push button away from our handset. The character of business has also changed. Thanks to the progress in technology, dealing with banks, previously known to be prudent and serious, is as comfortable now as sending an SMS. What kind of phenomenon is this? This change has benefited customers. Life becomes easier. The question now is whether sophisticated technology can generate significant profits to banks.

Within the last decade, banks the world over have undergone an extraordinary shift, even much faster than predicted. Banking transactions previously conducted through branch offices can now be made through ATM. Even shopping can be conducted by means of an ATM card with the sum being debited directly from the cardholder's account. Internet technology has also inspired bankers to introduce on-line transactions through the Internet. Transactions undergo a change. New breakthroughs have occurred so that transactions can now be conducted from your mobile phone.

This is obviously beneficial to customers. Banking transactions can now be conducted in an easier manner, and one need not come to the bank, just find an ATM, or use your private computer or your mobile phone. From the bank's side, however, does this change bring in significant profits, bigger than those generated by conventional banking?

Profits may be tangible or intangible. The experience of BCA in applying the e-banking system shows that tangible profits can be realized in several areas: First, the bank can reduce its transaction costs. Even through mobile banking, transaction costs can be cut down, as shown in the table.

No Delivery Channels Cost per transaction (in US $) 1. Old fashioned bank branch 1.07 2. Human Call Center Operator 0.54 3. Interactive Voice Response (IVR) 0.27 4. Direct-Dial PC Banking Network 0.26 5. PC Based Internet Banking 0.13 6. Mobile Phone Banking

a. Transaction charge passed

on to the Consumer 0.16

b. Transaction charge absorbed by the Bank 0.36

Second, with e-banking, a bank can introduce efficiency and reduce its operating load. For a bank as large as BCA, operating loads can sometimes be overwhelming. With e-banking, the operating load can be transferred to e-channels. Besides, BCA is also capable of increasing its fee-based income. By means of multi channels, BCA is able to form alliances with a number of other potential businesses to make payment through BCA's e- channels. Therefore, BCA can create new income-generating opportunities.

As for the intangible profits derived from the application of e-banking, they are oriented to a number of things. First, to be able to compete effectively. Second, to give another alternative to consumers in accessing BCA. Even with the Internet, consumers can access a broader market. Third, intangible profits will finally arrive at the brand image of the company adopting the e- banking system. If the brand of e-banking is successful, intangible profits are hard to measure. Many things are interconnected with such profits. Trust, credibility and finally loyalty of consumers to remain with this particular bank.

From the marketing perspective, whatever concept is applied, the final question will be whether this concept is profitable. To get there, there are a number of fundamental viewpoints to consider. First, how each bank understands the nature of the customer's value chain as influenced by advanced technology. How technology can change the consumer's banking pattern, from bricks and mortar banking style, to bricks and clicks and then bricks and mobile style, as we have now. Banking transactions are now possible on a mobile basis.

The second fundamental viewpoint is how bankers understand that technological advances will automatically alter the competitive advantages of market players. While before the key factors of competitive advantages were based only on customer intimacy and product innovation, now operational excellence has become a decisive factor thanks to the progress in technology.

Then the third fundamental viewpoint, which has become strategic consideration for bankers, is how to enhance technology to execute strategies, rather than develop IT as the strategy. Business strategies must drive technology to the goal of business to achieve rather than using IT as a strategy. Fourth, which is no less important, is how a bank focuses strongly on economic values rather than growth alone. A big growth may not generate equally big profits. Bankers must work hard to augment their profits by focusing themselves on profitable consumer segmentation.

Of no less significance is the fifth fundamental viewpoint, namely how bankers develop e-brands so that in developing these e-brands, the relationship and proximity to the parent brand should be clearly defined. In the absence of a clear definition, e-brands already developed will disappear by themselves. In developing this e-brand, the strategy returns to the brand concept to be developed. And a brand concept must rely on the umbrella brand.

Of course, to implement all this is not easy. The understanding of the public of a product we wish to launch will play a significant role in determining the rate of success of the product. The biggest challenge will be how bankers educate consumers to understand the value they sell. To be able to do this, banks need huge investments for public education. This public education is complicated as what we wish to convey is not an ordinary product but e-brands, whose security has been hotly debated.

Finally, when the product is launched, its success will be highly dependent on the extent consumers understand the product on offer. A product is loved because it is known. If love is fostered, loyalty will be the hope of everybody, and of course every business. Where there is loyalty, there will be profits. More profit varieties can even be created in future.