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Thursday, January 20, 2011

Why has'nt the ICT revolution led to lower bank charges?

While the banking channels have become more technology driven and less costly(ATM's, mobile/internet banking etc), the service charges have not gone down proportionately. While foreign banks did always charge high for 'services' like DD issue, even Indian pedigree banks like HDFC and ICICI have followed suit. As the RBI Dy Governor(and ex-MD Punjab National Bank) Dr KC Chakrabarty said in Jan-11
I must admit that one reason for costing of electronic products at a higher band in comparison with the traditional products has been the banks’ attempt to part-recover the cost of deployment of technology. The process of introducing innovative products in India has been costly for the banks due to the unsystematic developments during the initial stage of technology deployment by the banking industry. In a country of our size, co-operative efforts and sharing of infrastructure while deploying technology is a lost opportunity story.
In the telecom sector, infrastructure sharing has become a fine art, to the extent that SPV's are existing to operate and monetize telecom towers. But RBI did not mandate sharing of banking infrastructure till recently(making upto 5 withdrawals/month free in third party ATM's). So when the regulator does not mandate sharing of infrastructure, why would any incumbent dilute its competitive advantage by permitting sharing? While sharing would be improved utilization(thus lowering per unit costs), it was not done and so the consumer pays for this decision of banks.
Point to ponder:- Suppose banks start sharing their core IT platforms, Can virtual banks exist like OrangeDirect in the USA?

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