Banking in Nepal in the age of Technology

1. 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

2. 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.

3. 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

4. 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

5. 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

6. 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

7. 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

8. Changing Business Environment • Globalization • Highly competitive • Increasing customer expectation • Instant access to information • Faster information processing • Application processing • Customer correspondence • Customer service

9. 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

10. 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

11. 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 theMaturity Phase, which is not very far away. • Technology mature • Non adoption leads to competition disadvantage

12. 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.

13. 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.

14. Channels in Electronic Bankingavailable in Nepal • Automated Teller Machines (ATM) • Debit Cards • Credit Cards • Tele Banking • Remote Banking • Internet Banking • Any-Branch banking

15. 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

16. 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

17. 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.

18. 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.

19. 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.

20. 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

21. 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.

22. 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

23. 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

24. 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

25. 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

26. 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.

27. 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

28. What’s 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 !!

29. 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

30. 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

31. 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.

32. Thank you…www.kumaribank.com