Tech products drive bank profitability

Technology-driven business models are helping banks increase profitability by reducing capital mobilisation costs.

Almost 90 percent of all private commercial bank (PCB) branches have become tech-savvy in the past few years. State-owned commercial banks have also joined the bandwagon.

Technology driven products include automated teller machines (ATM), credit cards, debit cards, point of sales (POS), phone banking, internet banking and SWIFT (an international network for the banking community for faster international business).

Banks are increasingly dependent on these alternative business models and a major portion of bank payments and transactions take place via these models.

“Sixty percent of all transactions now take place through alternative banking channels,” said a senior official of BRAC Bank, a third generation PCB.

Dutch-Bangla Bank Limited (DBBL), which has the largest ATM network in the country with 573 booths, now transacts an average of Tk 700 crore a month that has doubled from last year, said Deputy Managing Director Abul Kashem Md Shirin.

“The cost of a transaction through the technology driven channel is a 10th of the cost of the transaction through the manual channel," said Syed Masodul Bari, head of IT of Al-Arafah Islami Bank.

A recent Bangladesh Bank (BB) study on "Innovative Technology and Bank Profitability: The Bangladesh Experience", also shows banks that adopt technology are more profitable and reduce risks as they gain maturity in offering such services.

The use of technology-driven products by local banks does not date back long. In 1998, one PCB had credit card facilities, while there were no debit card facilities, ATMs or POS. Another foreign bank operated credit cards and ATM service at the time.

In 2006, 14 out of 30 PCBs launched credit card services, 17 launched debit cards, 17 had ATM services, 7 had POS, 3 had internet while 22 had online banking. Three out of the four state-owned banks introduced debit cards in 2006.

Now, almost all private banks have the technology-driven business model to give better and faster services to their clients. Nearly 100 percent of all the 3,500 private bank branches are computerised, which was 46 percent a decade ago, the BB study shows.

Two private banks, one local and another foreign, introduced credit and debit cards first in 1999 in Bangladesh. At the end of that year, the number of debit card customers stood at 2,014 and credit card customers stood at 1,607, the BB statistics show.

The number of debit and credit card users jumped to 6 lakh and 2.25 lakh respectively at the end of 2006.
The use of debit cards continues to rise rapidly and the number reached 12 lakh in August 2009, according to data collected from several banks.

In the market for debit cards, BRAC Bank rules over nearly a third, followed by DBBL with 2.5 lakh, Q-Cash with nearly 2 lakh and Standard Chartered Bank with 1 lakh customers. Other major players in this market are -- Eastern Bank, The City Bank and Prime Bank.

There are about four lakh credit-card holders in the market. Bankers said credit-card growth is slower than debit cards. A beneficiary has to be a taxpayer to obtain a credit card.

According to the latest BB data, payments and transactions by credit card were nearly Tk 1,100 crore in June 2008, which was Tk 2,000 crore for debit card, 4,060 crore for ATMs and 180 crore for POS.
The transactions were almost half in December 2007, just six months ago, BB data shows.

“Establishment of the Bangladesh Automated Cheque Processing System by this year will boost payment and transactions through technology-driven products,” a senior BB official said.

Source: The Daily Star, September 7, 2009