What next after the banking crisis?

What next after the banking crisis?

By A. Putu Mandau Wijayanto

Tremors from the economic crisis did not only wiped out ailing banks and cause widespread layoffs. Bank customers now wish for a sense of security from those banks which survived the process of closures within the past year. Security tops the list for every customer, but it is an intangible concept. Thus, the problem is one of perception. If the restructurization of the banks proceeds smoothly, some of the problem will be solved.

Efforts to recover the sense of security among customers is part of the Indonesian bank consolidation efforts. Restructurization has reaped moderate results. Indonesian banking regulators have made advances in transparency. This is evident from the recent liquidation of various banks, which did not cause panic among customers because of the government's guarantee of their deposits.

Our research conducted showed that there was a sense of security concerning state banks. Of course, it is hardly a strange perception that state banks are considered safer. In the future, however, it is not unforeseeable that the perception of security could be lost by state banks. Their management could embark on an incorrect strategy, which is why state bank administrators should not be complacent about their seemingly secure position.

Our research shows that private banks are superior in their service, such as in efficiency, responsiveness to customer needs, continually update their ATM systems and provide flexible opening hours. Following consolidation, banks boasting these superior aspects will be more competitive.

To hold this competitive edge, domestic banks cannot be removed from the two concerns of security and superior service. It is a must for a bank to have both qualities because foreign competitors not only boast these, but also excel in management leadership, technological and financial innovation skills, are a low-cost producer of commodity products, have brand-name reputation, integrated delivery of products, product leadership, etc.

All these are central as key drivers of competitiveness. It is high time Indonesian banking considered acquiring these aspects as competitive edges. Additionally, technological innovations in information technology are forecast to play a major role with the advent of the e-commerce era.

E-commerce infrastructure must be ready for development not long after this economic crisis ends with Nusantara 21. From a small scale, e-commerce will spread rapidly. It will be only a matter of time after the crisis ends that a boom in ATMs, telephone banking and Internet banking will follow in Indonesia. At that time, the number of branches a bank has will no longer be the most important concern. "Branch banking is not a dinosaur!" may be the cry.

It has already occurred in America. In the 1980s, there was a boom of ATMs and telephone banking which sealed the death warrant of many bank branches. In the U.S., ATM usage has soared to about 700 million transactions annually -- and 40 percent of households use telephone banking. With the spread of the Internet, the physical distribution of bank branches -- and making transactions in them -- is no longer a major priority, although this does not mean it is not a necessary consideration.

But a bank like BCA, for instance, will inevitably be better prepared to enter the new era because it possesses the infrastructure; after all, it has the most ATMs of any bank in Indonesia. Such infrastructure depth means BCA is ready to serve different market segments.

Yet, it cannot be denied that physical distribution through a bank's branches remains important. Generically, we can identify three segments of bank customers. They are the traditionalist, the service seeker and the technology embracer. In the traditionalist segment, customers will inevitably be more oriented to making physical transactions at the bank itself (65 percent), with fewer using ATMS (30 percent) or telephone banking (5 percent). Among service seekers, 45 percent prefer physical transactions in a branch and 40 percent use ATMs; a mere 15 percent use telephone banking.

For technology embracers, most, or 55 percent, use ATMs, 25 percent rely on telephone banking and the remainder use physical transactions at a branch.

Technological development has led to innovative routes, like online services, ATM, direct mail and phone channels in tandem with the growth of networks and physical distribution, all of which have been intensively developed recently by Citibank with its ATM Boutiques. It is trend likely to flourish in the future as banking consolidation takes shape.