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.