E BANKING POSSIBILITIES AND CHALLENGES IN NEPALS CONTEXT

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Banking in Nepal in the age of Technology
A presentation to the First Non-Resident
Nepalese Seminar
Kathmandu, 11-13 October 2003
-Surender Bhandari CEO,Kumari Bank Limited
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History of Banking in Nepal

• Banking was first introduced in Nepal through
  Nepal Bank Limited in 1937
• To monitor Banking activities and to provide
  financial advice to the Government, Nepal Rastra
  Bank was established on 1956
• A new Era in Banking began in 1984 with the
  establishment of the first joint venture bank,
  Nepal Arab Bank Limited.
• Development of banking continued over the years
  and after nearly two decades of establishment of
  private sector banks in Nepal, Kumari Bank
  Limited, the first National Level Nepali Bank
  with 100 percent Nepalese ownership and Nepalese
  Management was established in 2001.

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History of Banking in Nepal

• Today, 17 Commercial Banks, 17 Development Banks,
  5 Rural Development Banks and 57 finance
  companies are involved in the economic
  development of the Country. Also the 34
  cooperatives and 40 INGOs are operating limited
  banking transactions in Nepal.
• Out of the 17 commercial Banks, 7 Banks are
  joint venture Banks and 2 are Government or semi
  government and others banks are under 100 percent
  Nepalese Equity. Out of above 17 banks 10 Banks
  are operated by Nepalese Management.
• out of these, 7 banks operate or are ready to
  migrate in near future with a higher end
  international banking software

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TRADITIONAL BANKING MODEL

• Traditional Banks in Nepal Operate under sheer
  weight of Manpower
• Administrative Structure is highly regimented
• There is traditional division of labor
• Manual Input of Records and Data
• Limited competition
• Transaction are circumscribed by heavy regulation
• Minimal use of technology

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Distribution Channels in Traditional Banking

• Brick and Mortar Branches
• Few distinct alternative products offered
• Cost of consumer service is high
• Main activities
• Deposits Lending
• Monitoring liquidity
• Manage customer service

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New Trends in Banking

• The sphere of banking products and services have
  crossed the border of local market and has
  reached in the international community
• Consumers In Nepal have become more
  sophisticated, technology savvy and demanding
• Banks are now continuously required to introduce
  new innovative product, processes and
  technologies
• Products are being tailored to meet each
  individual customers requirement
• Deregulation has increased competition among banks

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Challenges for Traditional Banks

• Traditional markets may be disoriented through a
  fundamental shift in business proposition
• Banks would required to find ways to
  differentiate quality of service and pricing to
  sustain profitability
• Revenue Growth opportunity will be limited
• Banks would require a decision support mechanism
• To help exploit market
• To innovate and develop new product
• Need to adopt Technology
• To enhance corporate performance
• To retain Customer
• To retain quality Human Resource

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Changing Business Environment

• Globalization
• Highly competitive
• Increasing customer expectation
• Instant access to information
• Faster information processing

• Application processing
• Customer correspondence
• Customer service

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Universal Banking

• Geographical boundaries are becoming irrelevant
  now with increased trade and remittances
• Distinction rooted in banking are becoming
  blurred
• Leading to a more visible convergence of markets
• Need of total financial service solution
• Wholesale Banking/Retail Banking now major
  segment in the market

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Evolution of Technology has redefined Banking

• Nepalese Banks are slowly moving from Brick
  Mortar to Click and Brick
• Has started using technology based delivery
  channels
• Technology being used as a tool for survival as
  a competitive tool in customer capture
• Cost of servicing customer is cheaper
• Products evolved with customer in mind
• Real time strategic information available for
  speedy business decision

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Phases in Technology Adoption

• Early Phase of technology adoption began with the
  introduction of JV banks in Nepal. The main
  features of this phase
• Technology immature
• High risk/high award for early adopters
• We are now in the Growth Phase of technology
  adoption
• Technology stable more players
• Fair scope for competitive advantage
• The final phase will be the Maturity Phase,
  which is not very far away.
• Technology mature
• Non adoption leads to competition disadvantage

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E-Banking The Paradigm Shift

• Electronic banking is the wave of the future. It
  provides enormous benefit to the bank consumer
  in terms of ease and cost of transaction. Some of
  the Banks in Nepal have already initiated in this
  direction.

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Concept

• Continuous technology innovation and up -
  gradation among local banks have allowed for much
  wider array of banking products and services to
  become accessible and delivered to retail and
  wholesale customers through an electronic
  distribution channel.

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Channels in Electronic Bankingavailable in Nepal

• Automated Teller Machines (ATM)
• Debit Cards
• Credit Cards
• Tele Banking
• Remote Banking
• Internet Banking
• Any-Branch banking

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Internet Banking Momentous development

• Of all the E-banking products internet banking
  has been the most momentous development of
  Ebanking in Nepal . It is more complex and varied
  then any other products.
• It represents new Era of Banking
• Has transformed the dynamics of Banking
• Has opened new vistas for business that never
  existed
• Allowed for integrated customized services
• Superior cost efficiencies relative to any
  currently available distribution channel

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Internet Banking

• Internet Banking was first introduced in Nepal by
  Kumari Bank Limited in 2002.
• This system allows individuals to perform banking
  activities from any place any time any where via
  the internet
• Basically, it does not involve any physical
  exchange of money
• Internet baking services are of two types
• Financial
• Non-financial

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The Facilities through Internet Banking
Through Internet Banking you can monitor your
account no matter where you reside or where you
are. You can enquire your balance, you can
transfer funds from one account to another, you
can request the bank to make payment to third
party, you can requisite for cheque-books and
demand drafts and many more banking activities
can be carried through this versatile channel of
modern banking.
The bank has moved forward by providing
convenience of payment through the net for
school, colleges, utility bills which has greatly
reduced the inconvenience and has provided
convenience to its customers.
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What is for NRN
NRN can also avail this opportunity of on-line
banking to conduct banking activity such as
transfer of money, e-commerce, payment of bills
etc. and monitor their account at Banks in Nepal
from any part of the world.
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Convergence of Internet Banking

• Internet is expected to become a mainstream
  distribution channel for banking services within
  the next five years
• Internet is already having a profound effect on
  certain financial services.

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Online banking Highest Service Provider

• Internet has raised the service bar in the
  provision of banking services to the Nepalese who
  are well versed
• 24 hour, 7 days a week service
• Instantaneous transaction processing
• No need to leave desk/home
• Customer interactivity allows for the development
  of highly customized banking services
• Customers can quickly ascertain comparative
  services (and pricing) being offered by
  competitor banks

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Online Banking A Cross-border service

• The democracy of the internet has substantially
  reduce cross-border barriers to entry
• By its nature, the internet is a borderless
  distribution channel
• Other e-commerce activities have shown the
  ability of new brands to quickly become market
  leaders outside their domestic market
• Nepalese living abroad already have footholds in
  Nepal by operating their account through the net.

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The New Value Paradigm

• Increased revenue
• Wider market reach
• Increased sales through targeted marketing
• Entry into new market opportunities
• Decreased Costs
• Reduction in traditional branch network
  infrastructure
• Reduction in customer service staff
• Reduction in cheque processing costs with
  increasing electronic payment
• Decreased distribution cost
• All leading to improved customer satisfaction
  and retention

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Online Banking Improved shareholder value

• Has potential to alter investor perception of
  bank values
• High potential growth rates for early online
  banking leaders
• The first mover has a very big head start down
  the learning curve as incremental information is
  vital

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Online Banking is a multi-service proposition

• Internet not just a customer access channel
• Its all about customer service
• Can be extended to warp up customer/vendor/bank
  transactions i.e. provide the basis and platform
  for e-commerce/e-business
• Its not just announcing that you have a .com
  business
• Its explaining to customers why you have a better
  solution because you have leverage in the
  internet
• The Internet has allowed for online banks to
  adopt a price and service leadership strategy to
  cherry pick traditional banks profitable
  customer segments

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Relevance of e-banking in Nepal

• Nepal is in the growth phase of the technology
  life cycle
• Evolving internet technology and standards
• Access to the internet has spread to mainstream
  users. There are more than 50 thousand net users
  in Nepal.
• Customers acceptance across a wider range
• Some Banks in Nepal have to come to grips with
  the explosive growth in the wider use of the
  Internet and consider its implications for retail
  business
• Immediate access to a large high net worth
  customer base comprising primarily non resident
  Nepali

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Nepalese banks have to convert the threat into an
opportunity

• For banks in Nepal, the internet is a major
  opportunity for growth, efficiency and marketing
  initiatives
• Internet-only banks in the US (Atlanta Internet
  Bank) and Germany (Bank 24) which have
  successfully attracted thousands of customers in
  their first year of operations with no bricks
  and mortar physical network
• Technology provides solutions to reach a banking
  product out to rural areas
• Most remote locations have cable TV connections
  which can be used to create internet access.

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Banks with technology infrastructure will out-do
competition

• Telecommunications options to continue expanding
• Continuing advances in technology
• Voice, data and video converge into one network
• Telecommunications costs will be driven down
  further
• However, banks would be successful provided they
  have existing valid analogues in the traditional
  world and have growth oriented management teams
  to exploit the opportunities

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Whats next in this Information Age ?

• New Virtual Banks
• Paperless branch banking
• Internet based Corporate Banking
• Smart Card Delivery Systems
• e-Cash systems
• Competition to banking from telecom companies,
  supermarkets and mass-transit companies !!

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What is to be done

• In order to enable the bank the economy to
  capitalize on the enormous benefits of E- banking
  E-commerce the Government need to
• Understand the level of benefits to the customer,
  to the banks and to the country
• Understand the risk associated
• Develop the requisite law and frame work i.e
  
• Cyber law
• Recognize Digital signatures
• Create environment for development of e- commerce
  

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To sum up

• Technology has empowered top management of banks
  in Nepal to gain greater visibility and control
• Provides a wide range of financial options and
  greater convenience with borderless approach
• It has opened the banking services and products
  beyond local market, specially for Nepalese
  residing abroad to have Banking relationship with
  their Banks in Nepal
• Monitoring accounts and doing transactions from
  outside the country has now became easy and
  cheaper

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Finally,

• The Nepalese Financial Sector is now ready to
  provide world class products and services to its
  customers. There are multiple delivery channels
  including net payment system and credit cards.
  Now you can bank upon with Nepalese Banks
  wherever you are and can get world class services
  with a simple click through your net.

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Thank you www.kumaribank.com