Networks to invade RI banking industry

Networks to invade RI banking industry

JAKARTA (JP): Local commercial banks are at a crossroads in
dealing with increasingly demanding customers and the mounting
pressure of competition among themselves as well from foreign
banks and non-bank institutions.

The banking business environment here and elsewhere is
changing very rapidly, as commercial banks have to deal with many
more new competitors, a foreign analyst said Wednesday.

"Traditionally in Indonesia, there has always been a very
competitive market among banks. Now they have to compete with
non-bank institutions which offer similar services," said James
R. Slaby, program manager of banking and finance industry at Bay
Networks of the United States.

Bay Networks claims to be the world's largest network
provider. It maintains that 80 percent of all financial
transactions throughout the world go through networks built by
the company.

Slaby said many choices are now available for customers.
Borrowers can obtain money through banks, credit cards and
financial institutions. On the investment side, many places are
also available for investors to place money.

He suggested that banks be very focused on customer services.
Thus, banks have to think about how to deliver the best services
to customers.

"Increasingly, Indonesian consumers have less free time, work
longer hours, spend more time in traffic and have fewer and fewer
hours of the week to visit their banks," he said.

Customers are now looking for new ways to deal with banks.
They want automatic teller machines; they want to pick up
telephones and dial the bank's computer and get information about
their accounts; and they even want to do business with their
banks using their computers at home.

In addition, local commercial banks also have to compete with
the growing presence of international banks, which -- using more
sophisticated network technology -- are gradually stealing the
market share of local commercial banks.

Internet

Moreover, more and more foreign banks offer services worldwide
through the Internet -- another challenge for local banks.

Indonesian banks are still a bit wary of doing business on the
Internet because of the security issue, more than anything else.

"I understand this. I would be hesitant myself today to give
my credit card number over the Internet, for instance," Slaby
said.

A number of Indonesian banks are now beginning a very limited
use of the Internet, such as creating web sites (home pages) to
publish information for customers about their deposit rates,
lending rates and other information about their banking services.

However, for the sake of security, they still keep their
Internet channels separate from their primary networks.

"I believe in near future, however, this security issue will
become much less significant. Banks will be able to conduct
business with customers by establishing secure connections with
the Internet," Slaby said.

All these new features of banking businesses, however, will
not drive out the old ways of doing banking. There will always be
customers who, when doing business with their banks, like to
visit the banks. This presents another challenge for banks to
keep their old ways of doing business.

"So, they (local commercial banks) face really competitive
pressure from all sides, forcing them to be very careful about
providing excellent customer services," Slaby noted.

With such competitive pressure, he said, business challenges
for commercial banks will be increasing retail branch
profitability through integration of their old and new delivery
channels, providing up-to-date customer services, creating
competitive differentiations and new time-to-market products as
well as controlling operational costs.

To meet all the challenges, Slaby suggested, banks should
build their own reliable, high-performance and secure networks,
to connect the headquarters and branches, provide employees with
better access to the banks' operations and provide customers with
better services through delivery channels.

"A network must be extremely reliable ... If the network goes
down, customers cannot do business. They get angry and will take
their businesses somewhere else ... And you may lose millions and
millions of rupiah," Slaby said.

For similar reasons, a network must have high performance. For
a financial trader, for instance, the ability to execute the
transaction through a network just a few seconds ahead of his
competitors tremendous advantages, either in placing buy or sell
orders.

The ability for customers to complete transactions at teller
windows or automated teller machines -- parts of a network -- is
very important for banks in keeping their customers.

Security

In terms of security, banks must require a network which can
provide a very tight security system, because banks face
potential threats from all different people who want to break
into the network. They may be former employees, the banks'
existing employees, or sophisticated criminals.

As security is a very complex issue, Slaby said, banks will
not be able to address it simply with technology. A very
successful security strategy must cover many things besides
technology, including operational procedures and policy.

In short, Slaby said, reliability, high performance and
security have always been the requirements for banking networks.
They will continue to remain important, even when the banks are
changing in response to new business trends and take advantage of
new technology.

"It was true 20 years ago, it is true today and I believe it
will continue to be true also in the future," Slaby said. (rid)