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)