Change, especially technological, is a fact of contemporary life. In fact, it is hiding in plain sight if we care to look. The one-day Fintech Summit, dealing with technological advances in the financial sector, must have ended in Dhaka by the time this article goes to press is a testament. Among the factors pushing automation are the need to streamline and speed up operations, save cost, and bring about customer convenience.
Bangladeshi banks are enamoured of branches and have a penchant for reams of paper. This old-fashioned brick-and-mortar model drains profitability and efficiency. Occupancy and personnel costs are just two examples of high and increasing operational costs.
Stiff competition and incessant hectoring by Bangladesh Bank to reduce interest rates on loans are putting pressure on margins. In order to comply banks must rein in avoidable operational costs. A metric used by banks is "non-interest expense to gross income". At a time when non-performing loans (NPLs) have gone through the roof provisions must be soaring. Perversely, bad debt expense is constraining interest rate reduction by pushing up the cost of funds.
On the other end of the spectrum we are seeing the emergence of virtual banks in rich countries. As per media reports more than 40 banks are jostling for just five licenses to be given out by the Singapore authorities. However, most incumbents would like to sit somewhere in-between; firstly, because physical presence acts as a reminder and symbol and secondly, because human touch is necessary to build rapport, clinch sales, sort out problems, and handle confidential matters.
A first step bank branches should take is to remove an eyesore-mountains of paper. This can be achieved because paper documents can easily be digitised with the exception of original documents, for example, title deeds and signature cards. Capturing and retrieving electronic records is much faster and efficient than lugging paper files. Surprisingly, there is a paucity of electronic displays in branches - a lost opportunity. Lots of useful and helpful information are able to be broadcast for the benefit of first-time customers freeing up time for counter staff.
Automated teller machines have made life easier. In the same vein, processing of domestic cheques and money transfers have been automated thanks to Bangladesh Bank; demand drafts are out of vogue. Internet banking enables customers to view their latest transactions, check balances, and settle credit card bills. Point of sale (POS) machines have automated debit and credit card transactions. Utility bill payments are no longer a headache.
In contrast, however, mundane tasks like the opening and closing of accounts, changes in signatory, and renewal of term deposits still involve a nauseating amount of paperwork. The same goes for foreign trade and foreign remittance. The paper trail is necessary to check fraud, money laundering and terrorist financing.
The march of technology opens up a vista heretofore unimaginable. Artificial intelligence (AI) should be deployed to track deposits and withdrawals, transactions with vendors, collection of invoices, items of purchase, discounts paid and received, drawings, peaks and troughs due to seasonality and other parameters. No doubt some of this will require the cooperation and participation of borrowing customers. That shouldn't be difficult because the data so culled can be used to build profiles of customers. A byproduct of this treasure-trove of data will be the ability to build credit scores for individuals even if sub-optimal. Ultimately, good and timely credit decisions should result.
Chatbots, powered by AI, have been pressed into service selectively. These are capable of handling usual customer queries over the phone in a human-like voice. AI should also figure out peak times at branches so that additional manpower may be pressed into service to deal with rush. Ditto with cash levels.
What is the value of technology if we can't make it a servant of our financial services sector? The day is not far when we should be able to boast of a lean, efficient, modern, and profitable banking sector by aligning our institutions with the best in the world.