So, those who work in banks, called ‘bankers’, are like the space traveller who is totally confused and bemused by the new experiences he is witnessing every moment of his life. Similar to the enormous but unsuccessful efforts being made by space travellers to get themselves attuned to the changing time and space, bankers too have to make extraordinary efforts to keep pace with the ever changing landscape of banking. It is only a visionary in banking who is able to correctly gauge what is happening and take appropriate action to make him ready for the change.
Banks and Advancements in ICT
Banks have been one of the beneficiaries of the rapid advancements in science and technology in the last five decades or so. These advancements have specifically taken place in information and communication technology or ICT.By incorporating ICT in their production models, banks have been able to successfully overcome the limitations placed on them by time and space. With respect to time, they were able to move into real time transactions and with respect to space, they were able to reach any customer in any part of the globe promptly.
The results which banks achieved were dramatic: new products, new customers, new markets and new businesses. This also contributed to the overall efficiency of banks in comparison to other industries which were served by them. The productivity, rate of profit, volume of business and ability to face external shocks too improved dramatically in banks. Overall, on the advent of the new millennium, banks had emerged, among all economic ventures, as the strongest and the most sophisticated institutions in the world.
Banks Have Become One – stop Shops benefiting from ICT
ICT has also helped banks to become one – stop shops. In terms of this change, the traditional distinction which has been observed between pure banking and non – bank financial services has disappeared paving way for banks to offer all types of financial services under one roof. This development, salutary to both bank customers and banks themselves, was made possible by a number of associated developments that had taken place as an offshoot of the advancements in ICT.
First, the global professional work force which had been scattered all over the world was converted to a pool of workers who could be tapped at low cost while still being domiciled in their home countries. In olden day, this could have been done only at high costs by moving professionals physically from their home countries to host countries. The immigration rules of governments which were intended to safeguard the jobs of host countries had often stood in the way of free hiring of expatriate workers.
However, with advanced ICT, professional knowledge became a truly saleable product across the borders without infringing immigration laws. Accordingly, professionals in developing countries are providing their services to banks and other organisations thousands of miles away as if they work physically in those work places. ICT has evaporated into thin air the barriers of time and space of assembling physical resources for a common purpose.
Second, ICT has also removed the physical barrier between customers and banks. Previously, any customer desirous of receiving a bank’s service had to travel to the location of the bank and present himself physically before a bank officer. But now, with ICT, he could contact his bank from any place in the world relatively at low costs. Voluminous information could be sent back and forth between the customer and the bank practically in real time at low costs. It has improved customer relationships and accelerated the service delivery to them.
Third, ICT has helped banks to store volumes and volumes of information relating to customers, products and markets in digital form virtually at zero cost and retrieve the same in any form they desire quickly and conveniently. It has improved the customer monitoring and reduced the customer delinquency. Service appraisal can now be undertaken with more updated data thereby helping banks to keep customers under constant surveillance. The true value of information in decision making at appropriate times has been made possible by advancements in ICT.
Fourth, it was by means of ICT that banks have been able to meet the three most requirements of their services: quality, timeliness and delivery. With new and improved ICT platforms being made available to banks every day, they have been able to improve the quality of their services and deliver them to customers on time. While people working in banks and their knowledge are important, without the new apparatuses available, such human capital becomes virtually non – functional. With technology within reach, human beings have been able to do marvels.
So, banks today are offering an unimaginably wide range of services to their customers under one roof. In fact, the addition of these non – bank financial services have helped banks to diversify their income, improve resilience and compete successfully in a fast growing and changing banking world.
The development of banking on these lines took place in the last six decades in Europe in the style of ‘universal banking’. Their counterparts in USA could not do so openly, because of the prohibition by Glass – Steagall Act that had been enacted in 1933 as a safeguard against the use of depositors’ money for speculative investment banking.
However, the US banks discreetly flouted the Act by transferring their investment portfolios to subsidiaries set up in Europe and finally the lobby for removing this anomaly was so severe that the US government was compelled to repeal it in 1999.
Though there is pressure now being built up for a re – enactment of a Glass – Steagall type prohibition, world’s banks are said to be moving toward a more liberal business model which has no place for restrictions of businesses of any form. Even if restrictions are placed, if there is a demand for universal banking, banks will find ways of satisfying that demand, despite the control by regulators as had been done by US banks for more than six decades. Hence, the future of banking in the world has to be viewed in this light.
Banks in the Future are Technology – driven
The competition, the need for making a wider out – reach at low costs and thinning interest margins will compel banks to find ways of reducing costs and still offering quality services to customers. To accomplish this feat, there is no other way than using modern technology generously. As the current state of technology stands, it is not a substitute for human beings. Technology, being the servant, has to be under the care of a master.
Therefore, though banks have embraced technology ardently, they have not displaced the human masters completely. That is why when banks grow, they have to hire new workers in increasing numbers to take care of the growing business, on one hand, and to succeed the retiring workers, on the other. Hence, both the technology application and the human capital engagement go hand in hand in current banking. But, this may not be the trend in the future.
The current research in ICT field is expected to lead the world to ground – breaking discoveries. At present, we live in a world in which machines cannot replicate human brains. Intelligence is still the monopoly of humans and all that machines can do is to work according to the commands made by their human masters. It is still a world where machines do not have intelligence of their own.
Distributed Artificial Intelligence is within Sight
But the current research on ICT has focussed on developing a ‘new intelligence’ known as ‘distributed artificial intelligence’ which could replicate human brain to a very close degree. While at present, human brain cannot know of itself, so is a machine. But, new technological developments will help, through processes like ‘recursion’, a computer programme to loop back on itself and use its own information to do tasks over and over until it gets a result.
In other words, in the future, a machine can know of itself and work according to the functioning of different parts; when one part falters, it could send message to another part to repair it and bring the machine to a working order. This is using artificial intelligence distributed over different parts of a body.
Just like the ICT revolution in 1960s helped banks to innovate themselves, the new ‘distributed artificial intelligence revolution’ will certainly carve out a new paradigm for banks. It will bring about a new banking model: the use of human brains will be reduced to a minimum and the use of artificial brains will be maximised. With computers gaining capability of replicating certain functions of human brains, the entertainment, appraisal, approval and monitoring of loan accounts will be handed to machines. Like human beings, these machines will be able to learn, recognise patterns in data, understand peculiarities, talk and use natural languages and prioritise and switch tasks accordingly. The reminding services which a boss gets from his secretary today will be performed with equal or perhaps, greater efficiency by a computer tomorrow.
Banks will love to employ this new technology to the maximum. That is because it will provide them with a competitive edge, help them to cut labour costs, improve efficiency by timely delivery and reduce hassles of managing labour. Overall, the new technology will rescue banks by helping them to make a quantum leap into the next generation of banking.
Bankers’ Dilemma with Intelligent Machines
Imagine the predicament which a banker may run into when he is confronted with an intelligent machine as a co - worker in his bank.
The machine will do everything which a banker composed of flesh, blood, bones and sensuousness can do. It can entertain customers, interview them politely, appraise his suitability, examine him in terms of his past records already stored in its memory, approve or disapprove his application for service in double quick time and produce all the services needed by customers.
The advantage of working with such an intelligent machine is that all the delays, inefficiencies, abuses of authority and corrupt practices about which customers have innumerable complaints will be things in the past. The disadvantage is whether the banker will be able to work in collaboration with a machine which is faster and more efficient than the bankers made up of flesh and blood. More precisely, it would mean whether a banker can be a good ‘team partner’ with a machine. This question does not arise at present since the banker is the master and the machine is the servant. Yet, in future, it will be a serious issue, since the banker and the machine are co – workers with same intelligence and skills.
How could Bankers overcome the Problem?
An intelligent machine is always in an advantageous position compared with a banker. It can learn new subjects quickly, acquire new skills and can upgrade itself in response to the emerging needs. Its memory capacity and ability to retrieve information stored therein quickly and efficiently are superior to the memory power possessed by individuals. The banker, on the other hand, is subject to quick depreciation and learning defects with the advancement of age. He may find his memory failing him quite often when he becomes older. In a situation where individuals and machines have diverse skills and abilities, it is to the advantage of the banker to accept his defects and place himself on a continuous learning programme.
A weakness which can be seen in many individuals in the present society, especially in Sri Lanka, is that they stop learning new skills after they reach certain stability or position in the organisations they are working. They give more priority to work and less priority to skills build up. However, unknown to them, the society’s knowledge base is advancing rapidly and when they come out of the little capsules in which they have lived safely all that time, they find themselves totally unfit to perform new duties that require new knowledge. Compared to them, the younger generations are fitter to perform these duties by using the new knowledge, but if the young people when they become older practice the same apathy with respect to knowledge build up, the same cycle is repeated ad infinitum.
The solution therefore lies in an individual putting himself in learning on a continuous basis. All individuals will have to go back to school again and again and if it is not practicable, should undertake learning by resorting to both non – formal and informal methods. There is nothing like keeping oneself updated on the specific types of skills that are necessary to perform a job in a new knowledge environment.
This requirement is equally applicable to bankers. Since the banking industry undergoes the fastest change compared to other industries, the continuous learning requirement is more relevant to bankers than to workers in other industries. If bankers made up of flesh and blood desire to beat their new co – workers who come in the form of intelligent machines, there is no other alternative except learning better skills and becoming abler workers than those machines. Hence, the greatest challenge for bankers in the future is to acquire new skills and knowledge on a continuous basis to make them fit for undertaking new tasks and duties.
Technology has also Shrunk and Displaced Bank Branches
Another trend which can be observed in banks with high technology application is the shrinking and displacement of bank branches. Technology makes the individual bankers more efficient by helping them to produce a greater output with the same effort and costs. Thirty years ago, when all operations in banks were done manually, the daily output of a worker was rather limited. Today, with advanced ICT, they have been able to serve more customers, produce a bigger output and earn more revenue per hour of employment of a worker.
Hence, the necessity for additional staff in bank branches has been effectively curtailed making bank branches smaller and smaller. It is equivalent to shrinking of the bank branches. With the availability of the next generation technology to banks, all bank branches will become virtual offices without a specific geographical location. This will eventually displace the bank branch altogether.
The advantage of having such a virtual bank branch is that it cuts the costs of banks significantly and permits banks to have a wider outreach without being constrained by geographical limitations. It will obviously obviate the necessity for opening bank branches in remote areas, because customers in those areas now can be serviced from a central location by resorting to advanced ICT. It gives flexibility to staff, more revenue to the bank and greater satisfaction to customers. Educational institutions like universities have already utilised this advanced ICT to create virtual class rooms and have a greater outreach for students across the globe.
The Challenge for Bankers
The developments in the banking field with the acceptance of new advanced technology poses real challenges to bankers in the future. They will have to compete with intelligent machines for the protection of jobs and be prepared to work in a virtual office environment. The current competencies, skills levels and the preparedness of bankers are totally inadequate for them to face these new challenges.
To face these challenges successfully, bankers have to develop a culture of continuous learning for themselves. Such a culture will require them to change their present behavioural habit of stopping learning altogether after they attain a certain position in life. Learning is a continuous activity for anyone in the society. It is much more relevant in a society where there is a rapid change in everything around the members. Banking being such a sub – society, bankers have to learn continuously in order to remain productive in their respective careers.
Otherwise, the bankers made of flesh and blood will have to work under intelligent machines which are more efficient, knowledgeable and productive.
W A Wijewardene is a former deputy governor of the Central Bank of Sri Lanka and president, Business Management School. This is based on the K Sivagananathan Memorial Oration 2010 delivered at the Bank of Ceylon, in Colombo.