Till the beginning of the 1950s, banks were just a building block being used for storing money. They were operating under a card system where the details of customers were recorded regarding money stored and withdrawn. A new card has to be filled every time customers visit the branch. There was no use of account numbers. Customers have to go to the same branch where they have stored money. Customers’ details could not be accessed from other branches.
Literally, there was no digital platform for banks to operate. This was initiated to change by the introduction of ERMA (Electronic Recording Machine for Accounting) developed by MIT in 1953 for Bank of America. This was for cheque payment. ERMA was a computer technology started the use of bank account number for each customers eliminating the card system being used previously.
With the evolution of internet and computer technology, a new concept of self-service banking got initiated in the 1980s. This was later powered by ATM (Automated Teller Machine). With the expansion of internet, banks started to offer internet banking services, Internet banking was simply access to bank statements with login through the internet. When technology shifted towards smart mobile and mobile data, mobile banking service was started to be offered by banks.
After 2000, banking has marked a huge step in automation and digitalization. Unified Payment Interface (UPI), biometric KYC (Know Your Customer), POS (Point Of Sales), Quick Response (QR) ) Code-based payment, digital wallet, etc. have become popular banking services globally. Use of voice-based AI (Artificial Intelligence), robot-based basic banking service at branches, use of robot advisors for banking and financial services, etc. are the current emerging trend in banking services throughout the world.
In the context of Nepal, the stepping stone towards digital banking services is not very old. Pumori is the first and most used banking software system among Nepalese banks. The digitalization of banking services started in the 1990s. This was the decade when ATM, debit/credit cards, internet banking, and mobile banking were all introduced; all these services later on flourished and became the core part of banking products of all classes of banks. With the reach of the internet and smart mobile rising in Nepal, the base of customers using digital banking services is also soaring swiftly.
This has aided the accessibility of banking services through a digital platform. This has largely shifted the trust and utility of banks to the upper level. This has reduced banking service friction and ensures the immediacy of the services in the hands of customers. But digitalization in Nepalese banking services is still at its infant stage. Much scope for expansion and making these services accessible to the larger banking customer base is still prevalent in the Nepalese banking sector.
What are we missing?
The pace of digitalization in Nepalese banking services can be regarded as satisfactorily slow. Only primary digital services via ATM and mobile banking is of high focus by all banks of Nepal. But these are still optional services to be issued as per customer demand only. These are still not the core compulsory feature of deposit or credit products of banks. These should be complementary services like cheques for all customers. One account opening form should be enough to ask for such services.
No multiple forms fill up should be imposed to guarantee customer convenience. With this, in hand banking reach can be assured for bank customers. Most Nepalese banks do not have proper online account opening and KYC update system. There is no access for all service requests and credit applications in a rather full-fledged manner. Hence, we are missing a digital framework portal to ensure anytime banking access as and when needed. A concrete regulatory guideline for such a mechanism should come from Nepal Rastra Bank ensuring customer and transaction safety.
Apart from this, we are just thinking with very low initiation for making a digital and cashless economy. There are still very places in Nepal where you can make payment digitally, The availability of POS, QR code, and digital wallet payment is restricted to limited merchandise and services of major cities. In the case of semi-urban or rural municipalities, even there are no or ineffective ATM services. Financial literacy programs of banks are still focused on teaching saving and credit behavior.
They are not focused on enhancing the digital smartness of customers who are aware in terms of bank deposit and credit. Nepalese banks are still focused on income guarded safe credit lending, mostly in unproductive sectors such as automobiles and housing, With this, we are missing the opportunities to promote innovative and future projection based entrepreneurship. Moreover, we as banks are still focused on product-based marketing missing the chance to be taken through behavior-based bank marketing for customers.
What is needed more to cover misses?
We cannot write off the growth and expansion of banking services in Nepal. It is so far so good. But to a limited extent only. The branch-based banking service network is commendable. With commercial bank branches at 746 of 753 local levels and total BFIs branches of 9695 (Macroeconomic and Financial Situation of Nepal, NRB, Mid-May, 2020), banking has reached almost every part of Nepal. But what we are missing is genuine bank customers with literacy and accessibility to digital platforms of banking services.
Banks are missing the chance of converting digitally conscious customers into the core customer base. This is a large part of bank customers who do not have access to digital banking services regarding its availability and use. Nepalese bans are also missing multiple digital banking service expansion and enriching the existing digital platforms. Specifically, Nepalese banks are not even taking fair advantage of grown internet, smart mobiles, and other technological advancements within the country as a whole.
Nepalese banks are not marketing or selling their products to promote the goal of digital and cashless Nepal. They have so far limited their sales of digital products to certain rural areas or educated class of society. This can never ensure banking accessibility at the time of need to all customers despite any geographical, social, and gender distinctions. Most of the trade and hospitality sectors are still not linked with card-based or mobile banking platforms of banks. Investment advisory services are still a great miss in the Nepalese banking service sector. Banking frauds through ATM, system hacking, personal information leakages, delay in mobile banking transactions, cards not supported at different terminals, etc.
have questioned the reliability and security of existing digital banking platforms. Efficient and secure banking is more crucial at the time of calamities and crisis. Hence, Nepalese banks need security enhancement of their digital platforms. This has to go simultaneously with the addition of more links to their existing service system. This requires relatively high cost and technical resources. Only this can make the digital transformation of Nepalese banking services with more integrity, reliability, and security.
Traditionally, banks were a physical building structure where money was kept safe to be used later when needed. Customers have to visit the same place as branches of the same bank at other locations could not deliver the service of cash withdrawal. Slowly this changed. Banks after the 1950s went into digitalization. The bank building concept has now changed into a digital platform concept. Digitalization has transformed the physical image of banks into a digital platform with the ability of store and move money with access to credit. This has been well complemented by the evolution of the internet, computer, smart mobile, and new digital innovations. Such conceptual change has now become part of the Nepalese banking sector too.
Being honest, Nepalese banking is still on a branch based concept to a larger extent. Yet developments in digital banking services in Nepal is worth appreciable. It has so far nicely complied with internet and mobile technology evolution within the country. Most of the digital banking services of Nepal is not accessible for many customers as it is not a complementary part of banking products.
Most customers of banks are not skillful enough to use such services as they are not made digitally literate by banks. The card-based and mobile banking platforms need the addition of more trade and services. This can ensure a larger scope of services through digital platforms. With this transformation, banking services can be made available from anywhere at any time. This ensures more viability of banking even the time of crisis during which physical visit to bank branches is not possible like COVID-19.
Different attributes of digitalization are still missing in Nepalese banking services. The safety and security of the Nepalese digital banking platform is a doubt. But no argument regarding coming future to be a digital and cashless future. Hence, Nepalese banks ought to ensure the security of transactions and information through a tightened digital security system. The creation of a unified payment interface has become more significant. Making most banking services accessible through the bank website and bank app must be securely permitted.
Behaviour oriented saving and investment products must come on digital platforms ensuring more digital customer onboarding. With such initiations, the digital transformation of Nepalese banking services can be stepped forward. Along with such digital transformation of Nepalese banking services, they can be made more effective digitally in the national and international arena making accessible anytime and anywhere with no physical bank visits.
(The writer, Ravi Dhungel, works at Nepal Bank Limited)