A H Ghani: What is online banking all about?
Mudit Saxena:There are various stages in online banking. Most banks started online banking as a servicing channel. But today banks look at online banking as an acquisition channel. Most banks started off with just a website providing information about the bank, then moved on to transactions on the Web and now into e-commerce. Online banking is perhaps an amalgam of the Net. A whole wide range of commerce applications have evolved.

Pravir K Vohra:Online banking is a movement that offers banking services to the customer without the need for him to go to a bank branch. So, online banking includes Internet banking and, to a limited extent, even the ATMs. Online banking represents various extended banking services offered by a bank off-location and off-site.

Rajiv Jamkhedkar:From being an alternative delivery channel, online banking has become an alternative form of a bank.

Rivi Varghese: People tend to associate online banking with Internet banking or ATMs. From a need perspective, online banking is something where a customer can access the bank at the time he wants to access, uses the delivery instrument or the channel of his choice and accesses it from where he wishes to. Online banking is anytime, anywhere and anymode banking. Online banking is what makes transactions happen using a combination of delivery channels. It is not a pure Internet phenomenon.

AHG:Will online banking spread the habit of banking?
PKV:It would just take a little time before the banking industry is able to reach out to poorly-banked areas. There are issues of infrastructure and profitability. But certainly, online banking would increase the co-efficient of the banking habit. Even though we might have cash dispensers and ATMs, there is still a limitation to the anywhere concept. In the retail segment, we need to figure out how are we going to deliver and receive cash.

AHG: Why cannot banks network rural pockets through cybercafes which can be financed by those very banks. How good is this as a long-term strategy?
PKV:We are already looking at that. We could do this through WAP-enabled devices at the least cost. There are infrastructural issues, but solutions are possible. We are looking at a model where we can adopt rural agrarian mandis and could have Internet kiosks there. However, such a strategy has to fit into a business model.

RJ:Cybercafes are good ways to spread the banking habit. In retail banking, it does not matter what mode, but access is important. And the most common mode where Internet converges is where there is a screen. For example, PC penetration in India is really poor, but TV penetration is decent.

MS: Online banking really means that one is able to access his bank account and all transactions happen online. That is, one can access the bank from all delivery channels: an ATM, or a telephone or the Internet. And, still it will not be an online transaction. For, a particular bank's system may not be behind to do that particular transaction. So, it is not the question of delivery channels, but whether the systems are really tagged on.

AHG: So, you are saying that online banking is where a single-point transaction fulfilment takes place?
MS: Fulfilment and change. One can have a bank balance of Rs 10,000 and the bank can still operate the customer's account in an off-line mode. It does not matter which delivery channel one is using.

RV: Actually, there are three technical aspects in online banking. One, there is a plethora of delivery channels and there is an integrated delivery channel strategy. That means a customer goes to an ATM and pays his electricity bill. And when he logs onto the Internet, it shows the bill has been paid over the ATM. So, it is an integrated delivery channel strategy. The second is integration into the core banking system. Whether it is online or offline, banks have different approaches. The third is the most ideal strategy and that is to go online. True online banking is when banking is done 24x7 hours across time zones.

AHG: Are banks going online looking at these technical components?
PKV: Some major banks which offer online banking meet these requirements. There is no bank in the world that meets 100 per cent of your needs. When the systems are down, that is going to be a limitation. Most online banks in the world are able to offer true online transaction services. So, online banking cannot be everything. There is a movement in that direction, but we are yet to get there.

RV: Look, both HDFC Bank and the ICICI Bank are offering an integrated delivery channel strategy to a certain extent. They are also offering 24x7 kind of services. We are moving towards completion, but we are not there yet.

AHG: What are the pre-requisites for launching online banking services?
RJ: I think technology is not important here. Procedures of the bank and the way the banking business is conducted are important.

PKV: An online bank obviously needs to be automated. It needs to be wired, because one is talking about a multiple branches kind of a scenario and there should be access. Then, management issues need to be sorted out. How to change processes and how to convert the branches into service outlets? Above all, there must be management desire.

MS: In online banking, there is no time element and all dimensions have to connect. Ensure that all banking facilities are made available 24x7x365. When one talks of customer service, ask these questions: is it going to be offline in terms of a telephone? Will there be somebody to service an Internet query?

Coming to technology, all banking systems need to talk to one another and they should be integrated. It is not an eight-to-four, one-shift kind of a job. It is a three-shift 24-hour opportunity. Banks were playing six hours a day and now they are batting 24 hours a day, seven days a week and 365 days a year. All the elements are still there, it is just that the dimensions have changed. Of course, this requires a mindset to be able to appreciate it.

AHG: Does that mean online banking needs a sound business strategy?
MS: Absolutely. I think every business strategy is based on certain profit projections. The target-market needs to be evaluated. There will be a lot of banks which are going to say that they will run a bank only online. But,only those banks which actually invest in the future and which have in addition a click-and-brick structure will survive. As a standalone business, online banking may not make sense to a bank.

AHG: What business model do you all recommend for an online bank?
RJ: I think a business model of a bank does not change in its online version. At the end of the day, the bank has to make money by borrowing cheaply and lending at a margin. What changes in online banking are the scales, the expectations, the service delivery and convenience standards. And, of course, transparency. Ultimately, what Internet does is to give more information to the customer. That means more choice.

AHG: Do you mean banks will act not only as financial intermediaries but also as financial infomediaries?
RJ: I think so. As, for an Internet-user everything is available at a click. Customers' expectations will also go up drastically. Service delivery will be affected. But, the basic business model of getting target customers and making money will not change.

PKV: I cannot say much on the Web-only banking model. But, banks in India are looking at online banking as an extension of a business model in three or four areas. One, online banking may not add to revenues directly but will definitely reduce data-entry costs at sufficient volumes. Two, banks are using the Net to acquire and retain customers. From a pure business model perspective, online banking is a great opportunity to launch new products in a shorter time.

MS: In any business, one should ensure that you earn more than what you spend. In online banking, there are a couple of factors that tend to define success. Connectivity is one of them. Content is another. The third is the kind of services you offer and the delivery and servicing costs. Then comes customisation which is easier done technologically than doing it on an one-to-one basis. Most banks do not seem to leverage their customer base.

AHG: I think there is a need not only to customise products but also information. What are your comments?
MS: Absolutely. Do not separate products and information, look at content. In online banking, you can do customisation to such a degree and 24 hours a day.

RV: Look at the myth called usage. When one talks about online banking, everyone says that usage is poor. We already have about six million Internet users and around 50,000 cybercafes. On an average, 50 people visit these cybercafes everyday. You have a model that leverages on this and then that is a large number. Penetration of cable is tremendous and we have the technology that can leverage that. In one or two years, with set-top boxes, usage and access are going to be phenomenal. So, the question is how effectively a bank can leverage on usage.

Online banking is the least-cost service-provider. A customer walks into a branch and does a transaction. In the USA, it would cost about $1.2 and the same transaction done over the Internet would cost only a few cents. In telebanking, it would cost 20 or 30 cents and over the ATM it would cost 40 or 50 cents. Now, when you put your routine transactions on to the delivery infrastructure, you are making money indirectly. This is because your service efficiency and staff productivity are increasing. So, what we are talking about is a model based on making money just by having a good delivery channel strategy, which is as good as having a good online banking strategy.

AHG: What paybacks are you all looking at from your investments in online banking technology?
MS: Technology changes very fast. You will soon find that half the stuff that you have has become obsolete.

PKV: When we are talking about doubling our customer base year on year, that is really coming through technology. How are we going to leverage that into a bottomline figure and say this is my payback from my online banking strategy, we do not have a clear answer here.

MS: It all depends on when you started. Look, HDFC Bank was online from day one. Every single branch was linked up and every single ATM was linked up. We spent Rs 60 crore in five years. Besides, we invested in several Internet-based systems to be able to do online banking. However, I do not think we are the right people to ask that question. For, our investments have been made years ago. From a start-up perspective, it is difficult to put a figure on the technology costs involved.

RV: Banks having an Internet strategy are always looking at an incremental strategy. For, infrastructure should be resilient enough to handle all online banking applications. It is very important to have a good IT-spending strategy wherein this new technology can be looked at as an incremental spend over existing infrastructure rather than rediscovering ones entire network. But, there are other banks which want to offer online banking. These banks invest heavily in technology every time they want to offer new services. Anyway, we are not in a position to look at paybacks now.

AHG: How is online banking going to affect bottomlines of banks?
PKV: There is no single business model that works for the Internet banking channel, because you are leveraging your costs. If I am able to acquire a cent per cent customer growth in India, I do not know how much of it has come through the Internet channel. For, I am actually servicing them through multiple channels. We do not have any defined model in place at the moment which will apportion the costs to Internet banking.

RV: Internet banking will start making sense, only if you are talking about, say, 4,00,000 customers using that base. We do not have numbers at this point of time. It might be just 20,000 or 30,000. It is just a question of time before banks such as the HDFC Bank have volumes.

RJ: If you are talking retail, it will only make money when there is a threshold volume. In fact, HSBC is the first virtual bank and the first to launch direct banking in the Eighties. We did not make money during the first three years. It is obviously a question of threshold. Therefore, if you ask HSBC why are they investing US $two billion in information technology and what is the payback, there will be no answers.

AHG: You are all talking about volumes. But, an online banking technology should be capable of handling volumes. Do banks have online technology strategies?
MS: Banks should be clear about what they want to do five years from now. Banks should know the structure and work on that. Let me share the experience of HDFC Bank. Traditionally, bank branches were used to be service centres, just processing houses. When HDFC Bank was set up about five years ago, a decision was taken that the bank will have a separate processing cell. At that point itself, we knew we are going to be a retail bank.

A bank needs to have its vision of a well-defined business strategy. For, every strategy will require different technology investments. For instance, one needs to know what needs to be on V-SAT and what does not. One should know the business model and exactly how customers are going to be serviced. If you do not know that, you will be investing in technology which is too expensive, not open and not scalable.

AHG: Does that mean a business strategy in online banking is more a technology strategy?
MS: Absolutely. If you do not have such a strategy, you will keep investing.

PKV: I agree. Technology investments are really driven by your needs. So, you need a business strategy. The systems need to be open, they need to be well-documented, well-architected and scalable.

RV: When you say online banking, that is the time you are talking about a different type of scalability. How do I handle a barrage of customers tomorrow? In their desperation to go on the Internet, banks do not think about this.

Banks require a different kind of strategy which is protected from a variable and unpredictable load. The scalability issue should be handled both at the core level and at the Internet delivery system level.

AHG: But, where is the demand for Net banking? Is scalability such a relevant issue today?
RJ: What I am saying is this: you cannot acquire technology today and say let me worry tomorrow.

RV: There are two issues here. One, to have an enabling technology, I should be able to offer banking on the Net. There is a core infrastructure which a bank needs. You grow with that infrastructure. If the base infrastructure itself is not scalable, then you are in a big mess. Two, banks should consider how fast they can come out with new services.

AHG: Interfacing with third party systems is vital to Internet banking. Is this happening?
MS: I think such interfacing has already started. Consider telephone bill payments. There is a solution where you interface with the MTNL bill system and where an automatic debit takes place. That is the first part in linking with third party systems. Payment gateways are another example of third party integration and interfacing.

PKV:There is this integration that is happening for many years. For example, our corporate customers can actually upload their salary files from our Internet banking products. This is obviously an interface with the banking system. You obviously have checks and balances, call them firewalls or whatever.

RJ: Being a global bank helps here. HSBC can afford to build a middle-ware IBM worldwide platform. That means interfacing with various feeds or accesses, anything with a screen on. So, you need to have a middle-ware which is flexible and more secured. Of course, security remains a concern here.

AHG: Let us get down to marketing strategies for online banking. How do you get Net banking customers?
PKV: There are information sites, content sites, advertisements on the Internet and there are seminars and symposiums. There are target segments and there is analysis in terms of segmenting the Net banking customers by age and by income-tax certification. And then banks have products which are only for online. ICICI Bank has products that are marketed through traditional branch channels. So, it is a combination of traditional marketing, segment-focussed products and some Internet or only-online banking products.

RJ: Banks need to look at customer perception. Bank sites are by far not the most popular sites, they are boring sites. The first thing is to find out ways to get customers visit a bank's website. The second thing is: how do you get a customer start using symbols? Thirdly, credit is going to become just a transaction. I think it is a combination of these that are important for getting a person use online banking facilities.

MS: I think online bank marketing has two aspects. One is the need to acquire a customer. Secondly, most online brands are similar to service brands and are different from product brands.

The most critical thing in an online brand is to understand that it is very easy to lose a customer, in a matter of seconds. Stickiness is important. Some say it depends on the number of hits. Hits do not mean a damn. You should know these: how much time a customer is spending on the bank's site? How often is he doing that? What is the usage? I think building a service experience and allowing customers to navigate at convenience are critical.

RJ: Earlier, the bank-customer relationship was a sticky one. Unless he was really fed up with the bank, he would not move his bank account. In the online world, moving a relationship to a competitor is a just a click away.

AHG: How will online banking evolve? Where would it go from here?
RV: Banks might begin looking at the Walmart example. A retailer entertains thousands of customers daily, has good relations with them and uses data mining. So, a retailer might think of starting a bank.

RJ: In fact, non-banking players are ruining banking.