nsb: how information systems are being used to achieve competitive advantage?

How Information Systems are being used

to achieve competitive advantage?

University of Colombo School of Computing



Prepared by:

Waruna Kodituwakku





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1. Introduction

The National Savings Bank (NSB) was established by an Act of Parliament in 1972 by amalgamating three institutions namely; the Ceylon Savings Bank (established in 1842), the Ceylon Post Office Savings Bank (established in 1885), and the National Savings Movement (established in 1942). (1) The NSB is fully owned by the Government of Sri Lanka. NSB Fund Management Co. Ltd established in 2000 is a 100% subsidiary of NSB. (2)

The objective of NSB is to promote savings among the people of Sri Lanka with special emphasis on the less affluent people. For this purpose, NSB has a wide network of branches, postal banking branches, and school banking units in addition to a unique system of 4055 agents in the form of post offices and sub post offices. The savings thus mobilized would be used to make profitable investments. The vision of NSB is to provide financial services to all the Sri Lankans. (3)

2. Installation of information systems

The need for automation of information systems was to better serve its customers. On one hand the transaction costs had to be managed in the face of ever growing numbers of branches, customers and deposits. Accuracy of information was also crucial. On the other hand, customer services had to be in line with the competitors in the banking industry. In the 90s, all local banks were embracing the benefits of ICT, and NSB could not refuse the temptation. (4)

NSB commenced the automation of its information systems in the 1990s and most of them were in place by 2000. Many were developed in-house. Therefore these solutions fit into the requirements of the bank and its customers. It has also given greater flexibility and room for innovation at a comparatively lesser cost. Above all, it has avoided the dependence on external software experts. (5)

Currently, IT applications are being used in accounting, customer services (loans, deposits etc.), asset & liability Management, and risk management. All the branches and most of the post office savings operations have been networked, while sub-post offices are also being networked. 148 ATMs have been installed. In addition, NSB’s web portal (http://www.nsb.lk) provides 24hour/365day access.

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3. Benefits of information systems and how competitive advantage was

achieved with information systems

3.1 Customer Service:

During the era of manual accounting, the interest on customers’ accounts were computed monthly on the lowest balance during the month and credited to the accounts monthly. It was impossible to compute interest on the daily balances due to the hugeness of the work involved. This system was disadvantageous for the customers, but it was inevitable in manual accounting. As a result of the introduction of automated accounting systems, NSB is able to compute interest on daily balances of the accounts. This is fair by both parties, and hence customers are not deprived of their due interest. (4)

Previously, a customer was confined to the Branch that he opened his account with. He could not deposit or withdraw money from other branches. The NSB information systems have provided two solutions for this problem. The first is that all the NSB branches have now been connected via a network. As a result of the network system, a customer can go to any NSB branch and perform the normal banking transactions. The second solution is the installation of ATMs. A customer can perform many transactions from any of the ATMs, in any location.

Customer service was also limited by the “banking hours” previously. Even urgent banking transactions were impossible after banking hours or during the weekends. For this problem too NSB has offered three solutions; ATMs, Internet and the unique “Point Of Sale” system (customers can deposit cash from their business place). (5) They provide 24hour/365 day service. Now customers do not have to visit a branch for most of the transactions.

3.2 Product Differentiation

With the help of the information systems, NSB has been able to design and offer many new products to the customers. Ridhee Rekha, NSB Debit Card with Master facility, NSB Easy Card, and Point of Sale (POS) system are a few examples. (6) Under the “Ridhee Rekha” lottery system, the customer can deposit any amount of money in multiples of ten rupees. The draw is based on those ten rupee multiples. A customer who has more deposits gets a higher number of chances in the monthly draw. This fair and equitable system induces the customers to deposit more. It has been facilitated by the information system. NSB’s Point Of Sale (POS) software has won a gold award too. (7)

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3.3 Customer Loyalty

The customer loyalty is achieved through improved customer services in relation to the competitors and the trust that NSB has won due to its stability and strength. How customer services were improved with the help of information systems were discussed above. Information systems have helped to build the trust too, by providing accurate and timely information to the public and to the Central Bank. NSB has received AAA ratings for seven consecutive years. (5)

Customers’ loyalty to NSB is displayed by the ever increasing number of account holders. Ten years ago, NSB had 12.9 million account holders which were nearly 68 % of the population of Sri Lanka. As at end 2009, the comparable figure was 16.3 million account holders which equals to 78% of the population. The rate of growth of account holders (2.63% p.a.) exceeds that of the population. For every 4 Sri Lankans, 3 are account holders of NSB!!! (8)

3.4 Cost savings

The information systems have helped NSB to save staff costs. For example, in 2000, NSB had 12.9 million account holders, indicating an average of 4705 per staff officer. By end of 2009, the respective figures were 16.3 million and 5592. During the 2000-09 decade, the number of account holders has increased by 26% while the number of staff has increased only by 6.3%. This shows that the staff is able to handle more work now, due to the help from information systems. The deposits per employee which were Rs. 38.3 mn in 2000, has increased to Rs. 107.4 mn. by end 2009. (9)

3.5 Focus

Before the information systems were automated, consolidation of the branch accounts was a very tedious task which required a huge volume of man power. The possibility of errors was also high. As a result, the Accounts and MIS departments were very often behind the schedules. As a result of the introduction of automated information systems, both the accuracy and the timeliness of information have improved considerably. (4)

4. Conclusion

The above facts display that NSB has gained and developed two competitive advantages over its competitors. The first is customers’ loyalty. NSB’s market share is 20% in deposits and in terms of customer reach it is the first. The second is a cost advantage. The Cost: Income ratio of 39% (10) is lower than that in many other local banks. It indicates the productivity improvement and the cost advantage of NSB gained through information systems.

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References:

1. p. 16, NSB Annual Report 2009


3. pp. 16, 17, NSB Annual Report 2009

4. Interview with Mr. H A R Bandara, former AGM (Finance), NSB


6. pp. 104,105, NSB Annual Report 2009

7. p19, NSB Annual Report 2009

8. p. 101, NSB Annual Report 2009, Central Bank Annual Report 2009 (Statistical Table 49)


10. p. 24, NSB Annual Report 2009 (Cost: Income Ratio = Operating expenses excluding provisions

as a % of Total net income)

nsb: how information systems are being used to achieve competitive advantage?

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