Bangalore recently saw a new wave sweep through its banking segment. Citibank, one of the largest banks in the world, has launched a pilot project in the city with a view to expanding its reach. Hitherto perceived as one catering only to the upper class of society (a savings account in the bank needs a minimum Rs 1,00,000 balance), the bank hopes to target the other segments with this innovative scheme. However, expansion is easily proposed than done. For, Citi, being a foreign bank, has restrictions on the number of branches that it can operate in the country. The cost factor too outweighs the benefits of having several branches in a small metro.

So, what the bank has done is utilised technology to the fullest. It has opened only one branch in the city and set up several full feature ATMs and video kiosks at various other locations. As per the scheme, savings accounts are offered with a minimum balance of just Rs 1,000. But, there is one catch. The customer is actively discouraged from entering the brick and mortar branch; he is encouraged to transact all his businesses only through electronic channels: ATMs, telephones or computers. If he still wants to enter a branch, he can do it, but with a small penalty, in the nature of a service charge. Every transaction conducted within the branch costs him Rs 100.

Other than that, he gets all the benefits of traditional banking, ie apart from 24-hour phone banking, he can order drafts, request chequebooks, withdraw or deposit cash and cheques, etc. He also gets an ATM card which doubles as a debit card with over 2,000 merchants. The ATM card also has the global acceptability recently introduced by Citibank. He can even open a fixed deposit account or transfer funds to his fixed deposit account remotely, through video kiosks.

The scheme already has managed to bag 80,000 clients and Citi is looking at touching the 100 thousand-mark by the end of this year. Citibank, head of sales & distribution, Sarvesh Sarup drives home the point: "Technology does not exist for its own sake, but only to make life more convenient and simpler for the customer."

Not the first, though
This trend has been popular abroad for several years now. First Union, one of America's largest banks, launched a similar project in a quiet town in the US, North Carolina, way back in 1996. It tried for the first time to change its customers' behaviour, but not by forcing technology upon them but by understanding how technology affected them. It redesigned its branches giving more open space and making them look less intimidating. It offered more facilities through its ATMs. A customer could encash a cheque instantly on its ATM, request an instant mini-statement of recent transactions and even deposit money in more than one account (split deposits). Customers were gently persuaded to use the ATMs or telephones by specially appointed customer relationship managers (CRM), who explained how a transaction could be done faster and remotely through an electronic channel. The results were astounding. ATM deposits quickly doubled and queues dwindled fast.

Differing purpose
What differentiate Citibank's Bangalore project from those undertaken by other banks elsewhere are the scope and the focus. While Citibank seeks to increase its presence in an area where it has nil presence, others aim at cost reduction by shifting customers from traditional banking channels to electronic channels.

For example, First Union plans to shift 280 million branch-based transactions to electronic channels by 2000. The volume would represent around a fifth of the total transactions forecast for the period in that region.

The strategies for making electronic channels more popular vary though. From gentle persuasion employed by First Union to applying price mechanism by other banks. KeyCorp, a Florida-based bank, at one time paid 25 cents to customers to make deposits through ATMs rather than through tellers. First Chicago, on the other hand, like Citibank, charges customers for certain types of teller transactions.

The cost-benefit trade-off
The benefits of technology are obvious. Transactions through electronic channels are several times cheaper than conventional branch-based dealings. In the US, an ATM transaction costs 25-30 cents (see chart) against over $1 for a teller transaction. The gap, in India, may not be so wide argues Sarup: "Cheaper labour available here makes it possible to conduct a teller transaction at half the cost in the US". The savings, thus, may not be as much as in the US.

ATMs bring yet another worry in their wake. The convenience offered by ATMs drives the customer to use the facility more often. He withdraws smaller amounts several times over a month as against a one-time large withdrawal from a conventional bank, which is usually time consuming.

The consumer behaviour in turn drives up the cost for banks. This incremental cost may be recoverable in the US due to the larger savings in ATM usage. But the same may not be possible in India. Hence, in India, Citibank does not see the Bangalore project as a cost saving opportunity. Maybe higher volumes in future across the country would help Citi save some pennies too.

Everybody, though, does not show the same logic. KV Kamath, CEO, ICICI, sees this particular consumer behaviour as an opportunity to increase revenues. His argument: since in the case of ATMs, customers withdraw only small amounts in perhaps five or six installments spread over a month instead of withdrawing the entire amount in the first week of the month (as would be the case in branch banking), the average cash balance with banks remain substantially high. The extra float earned by banks can be effectively invested to obtain better returns in the short-term money market or in other investment avenues.