furture of banking

7/29/2019 Furture of Banking

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The Future of Banking


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INSTITUTE FOR DEVELOPMENT ANDRESEARCH IN BANKING TECHNOLOGY October 30, 2004 Vepa Kamesam, Chairman IDRBT

Technology and Banking

The Quintessence Nature of Banking harmonizesclosely with Technology

Banking Technology

Information

Storage

Processing

Transmission

Tasks Common toBoth


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Pervasive Branch

Network

Global Operations

Complex Credit

Calculations

Innovative Risk

Management

Mass Transaction

& Items Processing


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Many Benefits of Technology

Increased operational efficiency, profitability &productivity

Superior customer service

Multi-channel, real-time transaction processing

Better cross-selling ability

Improved management and accountability

Efficient NPA and risk management

Minimal transaction costs

Improved financial analyses capabilities


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Focus aspects of Commercial Bankingnow are:

Core

Banking (CBS)

ATMs

CardManagement

Any Branch

BankingDocument

Management

Risk

Management

Resource

Management

MIS &

Intranet

CRM

Corporate

Network

Electronic

Banking

POS Terminalsand Cashdispenser

BANKS BUSINESS

BANKS BUSINESS

RAI

SINGD

EP

OSITS

LOANS&

MISC.SERVICES


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Financial Technology InfrastructureData Center to host servers for:

CBS ATM/Financial Switch

Internet Banking

DW/DM/CRM/MIS etc.

Back-office Application E-mail Servers, Internet Server,

Enterprise-wide Network & NetworkingEquipment

Security SystemsSystems at Branches/RO/ZO/CO Depts.

Supporting Systems

Disaster Recovery Site & Business Continuity


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TechnologyA Differentiator

Technology is indeed a differentiator not only in

terms of competitive advantage, but also in

terms of administrative and back-endprocesses.

Butdue to rapid technology deployment in

Indian banking sector, the haves and have-nots gap is all set to narrow quickly.


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Technology Differentiation Fades Gradually.


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How Long a Differentiator?

Then.can technology be enough of a differentiator?

Any new technology or technology-enabled process can act

as a differentiator or a competitive edge for some level of

time.

After that time, the technology still has to be adopted as a

necessity and as a cost of doing business

Thanks to shortening technology life cycles, it would be short

sighted to assume that technology would be a long termdifferentiator


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Elements of Technology as a

Differentiator

Scalability

&Flexibility

Efficient

utilisation,mgmt

Process

enabling

Utility to

customer

Support

Skills

For Long-Term Differentiation


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Issues with Customers

Not only employees, there are problems for

customers too when a new technology

arrives

The major challenges

Comfort levels

Security and trust issues

Convenience factor

Getting rid of myths

Migration from existing to new systems

Changing the habits


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POS Terminal and Cash Dispenser

POS Terminal

Connected toCash dispenser


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Electronic

Banking

ATM

Head Office

BranchBanking

Branch 1

Branch 2Branch 3

Branch 4

Branch 5

Branch 6

Branch n


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Technology Acquisition

Inappropriate technology purchases can be the root of

all problems The Bank management has to:

Give thought to the utilization rate

Avoid knee-jerk reactions (they have done itI should

also do it)

Be impartial in technology decisions (I like that

technologyI want it)

Understand where the solution will fit AND where it wont!

Assess the strengths & weakness of solution

And seek answer to are we ready for it?


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TechnologyFor SustainedDifferentiation

Goal definition

Integrating

business &

technology goals

Solution features

Vendor selection

Business process

re-engineering

Change

management

Efficient utilisation

Customer utility

Technology

Management

Support functions

Maintenance

Back-ups and

Disaster Recovery

Scalability &

flexibilityLearning &

evolution

Differentiation is attained not achieved just throughtechnology, it is gained in the way the technology is selected,implemented and utilised


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Regulation and Supervision

The ChallengeChallenge of Technology:

New markets, products, services, delivery channels

Opened up a market for risks derivatives

Challenge of financing tech firms & IT innovation

all have implications for the stability of banks and of theeconomy

The Opportunity

Regulators have new tools

Focus of all recent financial sector reformsEmergence of non-intrusive, focused supervision

with a view to prevent frauds and disturbances to

financial stability


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Technology and Banking

Supervision

THE RBI RESPONSE

Offsite Supervision & Monitoring

OSMOS

COSMOS (Non banking Financial Companies / DevelopmentFinancial Institutions)

UBD Soft

Credit Information Bureau (A joint venture between Housing

Development Finance Corporation Ltd., State Bank of India,

Trans Union International Inc. & Dun & Bradstreet

Information Services India Pvt. Ltd.)

Will be covered in detail by Speaker Dr. T.V. Gopalakrishnan

C M t d


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Currency Management and

TechnologyOpportunities Galore

Currency Management - a formidable task in Indiagiven

the geographical size, the volume and value of notes and coins in

circulation, preference for cash and currency handling practices

...but technology offers immense opportunities to improveperformance

RBIs The Clean Note Policy (1999)

Establishment of 2 state of the art currency presses

Technology driven anti counterfeit measures

48 fully automated Currency Verification & Processing Systems

21 Shredding and Briquetting Machines


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Technology & Monetary Systems

Technology has: Transformed the conduct of the payment and settlement

system

Set the stage for an unprecedented growth in financial

activity across the globe Rendered more vulnerable the domestic payment system

and financial stability to international shocks

making the conduct of monetary policy more

complex and prone to implementation and operationalrisks


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The Opportunities

The proliferation of IT has also set the stage for

improving and managing risks in payment systems

Electronic Trading SystemsDVP/PVP

RTGS

Secured Netting SystemsThe growth of the Central Counterparty (CCP)

Continuous Linked Settlement

Technology & Monetary Systems


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IT and Payment and

Settlement Systems

Delivery

Versus

Payments

Electronic

Dealing

Platforms

RealTime

Gross

Settlement


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RBI

INITIATIVESIN PAYMENT

&

SETTLEMENT

SYSTEMSCompliance with

BIS Core Principles

RTGS

CFMSNEFT

PKI-based

Security

SFMS

Clearing

Corporation

of India

IDRBT

PDO-NDS & SSS

NFS/IBPG

INFINET


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RBI Initiatives in Payment

and Settlement Systems (1)

The IDRBT

Network Externalities The Indian Financial Network (INFINET)

Messaging Solutions The Structured Financial Messaging System (SFMS)

Security

Public Key Infrastructure

IDRBT CA

National Financial Switch

Inter Bank Payment Gateway


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Gateways and Integration withOther Financial Network Services

G1 - SWIFT NetworkG2 - Reuters NetworkG3 - Stock Exchange NetworkG4 - Inter Banks/FIsG5 - Shared ATMsG6 - Clearing Operations NetworkG7 - Internet

Corporate Network

Inter Banks/FIs Network

SharedATMs Network

Clearing OperationsNetwork

SWIFT

Network

Reuters

Network

NSE

Network

G1 G1 G2 G2 G3 G3

G1G2

G3 G1G2

G3 G1G2

G3

G4

G4 G4 G5

G5 G5 G6

G7

Internet

Financial Networks

INFINET


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Structured Financial Messaging System

Branch-1

Bank-1 Gateway Bank-2 Gateway Bank-n Gateway

Branch-2 Branch-n Branch-1 Branch-2 Branch-n Branch-1 Branch-2 Branch-n

Central Server at

IDRBT

..... ......

..


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PKI Hierarchy

CCA

IDRBT CA

RA

Subscriber

IDRBT CA

Repository

RA RA

Subscriber Subscriber Subscriber

Subscriber Subscriber

NFS CONNECTIVITY ith E i ti C ti & I di id l B k


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IP Address:202.138.123.68

Subnet Mask: 255.255.255.254

Location: Mumbai

CashNet

NFS CONNECTIVITY with Existing Consortiums & Individual Banks

National Financial Switch &

E- Payment GatewayISDN

Primary Link

Backup Link

Broad Band VSAT

Bank 1

Bank N

ISDN

MITRLocation: Chennai

BANCS & CashtreeLocation: Mumbai

ISDNLeased Line

ISDN

ISDN

Leased Line

Bank 2

Leased LineLeased Line

ISDN

Leased LineINFINET


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A Real Time Gross Settlement System

Reduction of systemic risk in inter bankpayment systems

To be implemented by the year end

The Centralised Funds Settlement System

Facilitating effective liquidity management

The Negotiated Dealing System A modern electronic dealing platform for gilts

Enabling Straight Through Processing


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CFMS

Settlement

Accounts

IFTPStrip & StoreProcesses

SSS

Intra DayLiquidity

RBI Payments and

Actg. Entry

Interface

INFINET NSS

Participants

Interface

Participants

Interface

Participants

Interface

Real Time

Gross

Settlement


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RTGS Scenario

90 banks have implemented it

3-4 more to implement in a fortnight

Customer transactions have already started Total volumes Transactions on average

Rs.20,000 crores per day settled continuously

from the time of opening of markets

Guarantee settlement fund

RBI I iti ti i P t


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The Securities Settlement System Providing centralized depository and

settlement services

Seamlessly integrated with the NDS andRTGS Systems

The Clearing Corporation of India

Secured netting services with central

counterparty arrangements G-Sec and Forex segments

Elimination of settlement risks with liquiditysaving elements


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Smart CardsThe Future

Multi-application Smart Card

Channel of the future

Pilot project started Pilot Project funded by MCIT, Govt. of

India

The project is in progress in partnershipwith IDRBT, IIT Bombay, and Banks inIndia


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RBI and Customer Service(1)

Dissemination of informationThe RBI websiteMultiple Delivery Channels

Coin & Note Dispensing MachinesFor the general public

Interactive Voice Response SystemFor banks and financial institutionsWeb server

For government customersOn the anvil.

A secured web serverSFMS/email based communicationwith customers


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RBI and Customer Service...(2)

Improvements in payment and settlementsystems

MICR ClearingEnabling faster clearing of cheques

Cheque Truncation & E-ChequesOn the drawing board

ECS/EFTEnabling T+2 settlement of our equitiesmarket

National EFTEnabling T+0 settlement of allcustomer funds transfer transactions

Technology Vision of the RBI


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Technology Vision of the RBI

Centralised DatabaseManagement System Enterprise KnowledgeManagement System

Integrated AccountingSystem Integrated GovernmentAccounting System Currency OperationsSystem

Desk Top Decision Making Capability

Desk Top Analytical Capability

Desk Top Transactional Capability

Securities Settlement

System

Integrated Establishment

System

Offsite Supervisory

Systems

Integrated Forex

Management System

Human Resource

Information System


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Issues in ImplementationLess than 10% of failures are due to technical snags most are due topoor management and implementation

Resistance to change

Overlooking processreengineering

Project managementDedicated project teams

Change management

Policies

People Skills & Training

Basic Infrastructure telecom,power

Security

Privacy & confidentiality

Legal and regulatory issues


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Pre-requisites for Technology

Planning forDisasters

Business Process

Re-engineering

Human Resource

Empowerment


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The pre-requisites for

TechnologyPlanning for disasters

Increased operational risk

Business Continuity Planning

Business Process Re-engineering

Human Resource Empowerment


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Getting Personal with Personnel

People represent the most precious asset Large employee base largely untrained. Training

scope & methodology?

VRS to balance costs. Break even? Down sizing?

Bring in young blood

Campus recruitment Re-defining & designing jobs. Career paths?

Specialist Vs. Generalist

Attrition of trained employees to IT industry / other

banks. Competitive incentives? Re-location of personnel. Union issues?

Retrained personnel. Morale of employees?

Need for Training


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Need for Training

All these developments call for extensive, continuoustraining

Current and future technology implementations call for atleast 20% of officers specialise in IT

Hence need for specially skilled peoplea mix of:

System administrators

Application managers (knowledgeable about both banking andtechnology)

Technology managers (who form the core team of technologyprofessionals).

Security Risk Management


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Security Risk Management Security is aboutcementing the weak link

Strong security measures (physical & data security) plusdisaster recovery are essential

Authentication of e-banking customers and accountabilityfor e-banking transactions

Segregation of duties, proper authorization controls etc.

Physical security measures

- Graded access control, Iris & X-ray scanners, CCTV & detectionsystems, hotline and wireless links, fingerprint readers,concealed cameras, various sensors, bollards, boom barriers etc.

Disaster Management and Disaster Recovery sites


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H t E S it ?? A F k


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How to Ensure Security??-A Framework

l i f i i k


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IDRBTs Solutions for Security RiskManagement (SRM)

Risk

Assessment

Gap

AnalysisIS Audit

Awareness by

Training

Policy &

Procedures

Development

Implementation

SRMfor

Banks

PKIINFINET


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Technology Related Issues

People Related IssuesReskilling

Monetary systems, Efficient

Telecommunication & Infrastructure to

Drive Banking on Real-time Basis

Risk Management & Physical Security

At a Glance.


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The future will be not be more ofthe same

we need to be ready..

furture of banking

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