E-banking inevitable, but too early for local banks

E-banking inevitable, but too early for local banks

By Bernie K. Moestafa

JAKARTA (JP): Since the Internet became a tool that is
reinventing the way people do business, banks have become among
the first to consider the technology a threat to their existence.

The Internet allows for a 24-hour services from anywhere in
the world, something a bank can never offer without the Internet.

Thus came e-banking, which according to Internet networking
company Cisco Systems, Inc., is the banking industry's future.

E-banking may be inevitable, but the few people using the
Internet here cannot justify its full implementation yet, said
Michael Morris, country manager at consulting firm KPMG
Indonesia.

"The stakes are high; banks typically invest US$15 million to
$50 million to fully implement Internet banking," Morris said
during an e-banking seminar in Bali held by Cisco.

Of the 10 largest banks in Indonesia, he said, only four offer
Internet banking services. They are Bank Central Asia (BCA), Bank
Indonesia Internasional (BII), Bank Lippo and Bank Bali.

Even then, these banks offer limited services over the Web and
have yet to fully exploit the Internet to their advantage.

According to Cisco, implementing e-banking requires banks to
bring their entire operation onto the Internet.

In turn, e-banking will boost employees' productivity and
create a more "profitable" relationship with customers, it said.

"But the Internet usage in Indonesia indicates that the
personal Internet banking market is small," Morris went on.

He estimated that by the year 2003, some 2.2 million
Indonesians would be using the Internet.

Assuming that 10 percent to 20 percent were the targeted
banking customers, the market size would be about 440,000 to
220,000 people, he explained. But if only 20 percent of the
targeted market sign up for and actively use Internet banking, he
continued, local banks would be serving only 88,000 to 44,000
customers over the Web.

"It (the market) is too small and doesn't justify yet a full
investment in Internet banking," Morris said.

"Also, implementing e-banking may face resistance from within
the bank due to different internal priorities.

"Internally, the competition for (a company's) resources is
intense as every business line has pet projects," he said.

While externally, tight competition among countries to attract
skilled information and technology workers has left Indonesia
with not enough qualified human resources.

"Some workers were siphoned off to Singapore and Australia.
But this shortage does not only happen in Indonesia, it happens
everywhere in the world," Morris explained.

Take years

According to him, it may take several years before Indonesian
Internet users reach the critical mass, and investment in e-
banking becomes feasible.

"I would say in about five years' time we'll be seeing e-
banking here," he said.

However, he warned that inaction could cost banks their
business.

"You need to start preparing it now, since building the
required internal capabilities can take several years," he said.

Preparations, he said, included setting up the networking
infrastructure, fostering awareness of staff, developing internal
management processes.

"Aggressively, banks can prepare themselves in two years,
otherwise within three to five years," he estimated.

At present, he said, the challenge for local banks was in
selecting a few business opportunities with the Internet.

Because of the few people using the Internet here, Morris
suggested local banks offer e-banking to business customers.

Most companies, he said, would value services that allow them
to track their cash flow instantly, or process documents over the
Web to reduce human error.

"You can get a (business) customer switching to a foreign bank
if it can offer Internet banking," he said.

He said that companies that require fast cash management, and
exporters were most likely to favor banks with e-banking.

With a strong network of branches, local banks could, for
instance, serve small and medium-sized firms across the country,
he said.

He said that foreign banks, on the other hand, were better
prepared to tackle large corporate clients with global
operations.

In the United States, he said, financial institutions are
estimated to spend up to $37 billion in new Internet-related
investments this year.

Their investment confidence is grounded on forecasts that
business transactions over the Web might hit $3 trillion by the
year 2004, Morris said.

Cisco cited three factors as having pushed these trends:
globalization and deregulation, changing demographics and
lifestyles, and the Internet.

It said that multinational companies now demand global
services from their banks, while deregulations allowed nonbanks
to offer banking services.

Consumers too have changed, as more two-income families have
created individual investors who want better service flexibility.

But the Internet strives on these factors, accelerating
globalization and opening consumers to more information, Cisco
said.

"While each of these presented a new challenge to business,
combined they have disrupted the marketplace severely," it said.

The country manager of PT Cisco System Indonesia, Hermanto
Murniadi, said that although Indonesia was lagging behind,
companies here were investing heavily in the Internet.

"Our sales last year surged by three times from the year
before," Hermanto said, though declining to name a figure.

He said that many firms here were trying to upgrade their
technology, which fueled Cisco's sales.

Telecommunication companies were the highest contributors, but
many banks were also trying to catch up.

PT Bank Buana Indonesia general manager Ishak Sumarno said his
bank had opted to wait before investing in e-banking due to the
small size of the market.

"Most people using the Internet go to warnet (Internet
kiosks), and those are mostly the younger generation," Ishak
said.