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Wednesday, October 08, 2008

Leveraging on ICT to improve bank operations

THE banking consolidation exercise in 2005, spearheaded by Prof. Chukwuma Soludo, as the Central Bank Governor, which initially sent the banking sector into disarray, might very well be the best thing that has happened to the industry in Nigeria.

In 2004, Soludo, announced a comprehensive reform program for the banking sector part of which stipulates a minimum capitalization of N25 billion for every commercial bank compared with the N2 billion previously fixed with full compliance by the end of December 2005. The reform led to a series of mergers and takeovers with the result that the number of banks operating in Nigeria shrunk from 89 to 24.

Proponents of the financial sector consolidation argued that institutions need size to spread growing Information Technology (IT) and process costs over larger revenue bases. Another key factor is the need for greater capital base to fund larger projects in Nigeria that would enhance the economy.

These proponents have been proved right as the Nigerian economy and not just the industry appears the better off from this exercise. Aside the creation of well paying employment for graduates due to the roll out of new branches in order to further reach the un-banked, banks have of late been funding high capital projects that they were incapable of before now. One of such examples would be the $2billion loan syndication spear-headed by Stanbic IBTC Bank for MTN Nigeria late last year.

Another example was the financing of the Murtala Mohammed Airport (MMA2) where Zenith Bank Plc led 6 banks whose financial input led to the completion of the project.

Other benefits of the consolidation include the expansion of quality ownership which improves Corporate Governance in the Nigerian banking sector and also the increased value to shareholders. Also the consolidation exercise has resulted in the merging of banks, paving the way for the emergence of larger banks which have used the combined operation synergies to generate higher net income.

The growth of the banking industry has also produced a competitive grasp for market share and industry leadership amongst big banking brands with each bank trying to out do the other with choice products such as car loans and mortgage facilities as well as attempts of world class service delivery. Just a few years ago, the use of Automated Teller Machines (ATM) was a marvel to Nigerians, now, it is the norm and banks send automatic notices via Short Messaging Service (SMS) on account transactions. With mobile banking solutions such as the ones eTranzact provides, customers could conduct financial transactions from the comfort of their homes or offices, all with the use of their mobile phone or/and the internet. Surely in the past few years, there has been an evolution of banking services available to customers all made available through technology.

Some banks have gone as far as firming up their customer care services through the deployment of Internet telephony. Now instead of customers trying to memorise different branch office phone numbers, the bank recording time and resources being wasted as calls are forwarded from desk to desk, the bank now has an automated call system that routes calls to appropriate quarters or just supplies the caller with information on services without having to speak to any of the well trained customer care executive equipped with all information details.

Also via core banking solutions such as Flexcube and Finacle using the internet, banks could attend to customers whose accounts are not domiciled in that branch as it can be called from the data bank at the head office, where all information is stored. All these branches are connected virtually through a wide area network WAN, that enables information sharing as though all these branches were in the same office via the internet. Banks’ use WANs because it enables bank staff in one area to communicate with other bank staff and their information in other areas, hence they could share information easily and this is what powers the ease with which a customer could access bank details from any branch nationwide. This is a marked improvement from the era of the tally numbers and branch specific services of only just a few years ago. Surely technology has made banking easier.

There are however some hitches in the service delivery offered by these mega banks. Many customers have often experienced down time at a nearby branch in which the bank is unable to process information and resultantly unable to attend to customers since “the server is down”. At other times, it is just plain slow and the queues begin to grow as even the ATM machines might not be working at the time. This, many a time, is caused by overload on the bank’s broadband infrastructure. Where there is immense pressure on the available bandwidth, this slows down the response time of the core banking solutions and hence the ability of the bank to respond promptly. An option for the bank, however, is to increase bandwidth. The increase in bandwidth will accommodate the new branches and ensure that the response time is not affected despite increased staff users and surging customer numbers. However, this option does not solve the problem permanently as applications have ever increasing demands requiring more bandwidth resources. Importantly the use of the resources are sub-optimal.

A more cost effective solution might be to get a Wide Area Network optimization solution that would enable the bank optimize the wide area network they presently enjoy and their broadband capacity.

In September last year, Francis Hook of the International Data Corporation, MEA unit, at eNNOVATE Expo, an annual technology expo in Lagos-Nigeria, delivered a paper on broadband penetration with information from a nationwide research by IDC.

The research showed that broadband penetration is about 0.01 per cent in Nigeria. Mavis Ampah, a World Bank representative speaking at the Nigerian eGovernment Interoperability Framework workshop, last July in Abuja, noted that the cost of broadband in Nigerian is among the highest in the world.

Since all banking operations run on broadband and with more branches springing up across the country, banks have to contend with the high cost of broadband acquisition in order to run their IT driven services such as the Voice over Internet Protocol (VoIP), which drives improved customer service delivery, the ATM network system, and even the core banking operations as retrieving bank details of customers over the WAN. Notably, optimized use of broadband or bandwidth will not only enhance present activities, it will leverage the banks upgrade to the use of broadband intensive technology such as video conferencing (VC) from state to state instead of incurring travel expenses. Technologies such as VC help to introduce the concept of virtual sales experts helping to drive service excellence leading to customer loyalty at a lower cost.

Though one of the resultant benefits of the consolidation exercise was the increase in the size of the banks and perhaps the availability of more resources for improved service delivery, there is also the need for these banks to optimize their spend on investment in order to maximize return on investment to investors. With the high cost of broadband, making the most use of available broadband may be a more resourceful investment than increasing broadband spend.

Taking a cue from the American television network, NBC, banks could adopt Wide Area Application Services (WAAS) to optimize bandwidth and reduce the cost of acquiring broadband.

During the just concluded Beijing Olympics, Cisco Wide Area Application Services enabled WAN optimization and acceleration between Beijing, New York and Los Angeles.
By optimizing 35 Mega Bytes Per Second (Mbps) links into 140Mbps links, Cisco WAAS allowed editors and shot selectors to access gigabyte-sized files over the WAN with the same performance as if they were stored locally. This reduced for them the operating costs of housing, air travel, transportation and food for 400 video shot selectors and editors that would have otherwise been flown to Beijing.

Cisco WAAS is a comprehensive WAN optimization solution that accelerates applications over the WAN, delivers video to the branch office and provides local hosting of branch–office IT services. Cisco WAAS allows IT departments to centralize applications and storage in the data center while maintaining Local Area Network (LAN)-like application performance and provide locally hosted IT services while reducing the overall branch-office device footprint.

WAAS improves productivity of branch employees, minimizes branch costs, responds rapidly to changing business needs, scales perfectly with core banking software such as Finacle, FlexCube and even business solutions software such as SAP, Oracle, to name a few. More specifically, WAAS has caching facilities which checks for the delta at all times, so the danger of caching (where the bank is liable to having outdated information in the event of a downtime) is aptly eliminated.

What this translates to for the banks is more value for every amount spent on broadband, and for the customers, lesser likelihood of downtime and the delays and inconveniences associated with it and importantly the ability to freeze operation expenditure on broadband while getting more out of the network due to the deployment of the Cisco WAAS.

The high cost of broadband and even deployment of new branches could be cut down substantially by this new cutting edge technology that would optimize available bandwidth. This creates room for the banks to deploy other WAN enabled applications like video conferencing over the same broadband capacity as WAAS enables wide-scale delivery of live video by eliminating bandwidth upgrades and complex configuration, reducing broadband spend in the long-run and enabling faster roll out of new branches as IT cost of branch offices are reduced considerably.

Technology has transformed the way the banking industry delivers its services. The ease and quality of service delivery has been transformed in the past few years and though the advanced countries are still ahead in their banking processes, the Nigerian banking industry can very well be seen to be leveraging technology to improve service, maximize profit and by extension grow the economy.

The growth in the short while is a clear indication that in no distant future, Nigerian banks will continue to finance massive developmental projects and in the process, contribute to enhancing the economic growth and development.


•Toju Grage, wrote in from XLR8, a communications consultancy in Lagos.



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