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.