Digitisation, Fintech game changers for local banks – Analysts

As fintech firms and technology giants use consumer data, artificial intelligence and modern technology to build competitive alternatives to traditional financial offerings, banks are consolidating their brick and mortar branches to become more digitised.

Sri Lanka has entered a phase which is dominated by mobile applications. The figures attest to the degree to which digital banking has become a viable alternative to brick and mortar banking, Atchuthan Srirangan, Assistant Manager Research (Fixed Income and Equity, First Capital holdings) said.

Assets of banks have increased by 17 per cent compound annual growth rate (CAGR) since 2009, although the branch network has only grown by 4 per cent attributable to the accessibility via other modes such as ATMs and increased usage of digital platforms, he said at the First Capital ‘Investment Strategy 2020 – 2nd Research Conference’ on Tuesday at the Cinnamon Grand.

Total number of ATM terminals posted an 8 per cent CAGR while volumes of transactions posted through ATMs have nearly doubled in 2018 relative to 2012. Banks have concentrated on digital banking whilst consolidating its physical branch network which has eased the cost to income(C/I) ratio for most banks. This ratio is expected to be a critical factor in the future in improving the profitability of banks and many banks have already started to embrace the digital technology over brick and mortar methods. “Front office of banks is in the process of being automated with advanced ATMs multi-tasking by handling bulk of the front office services. We expect the process of front office automation to be implemented at an accelerated pace during the 2020E-2022E,” Mr. Atchuthan added.

“Our commercial bank branch density for 100,000 people is much greater than its peers demonstrating that SL population still opts for physical banking. However developed countries have a deeper reach to people through virtual banking over the traditional banking,” he noted.

Mobile banking has outdone Internet banking in the country recently and is expected to gain a faster pace as a result of shift in the payment sphere, he added.

Interestingly it was also pointed out that recruitment and branch expansion freeze with digitisaion and automation.

Banks were seen freezing recruitments which is reflected by only 2 per cent CAGR in staff recruitments after 2013. Further with certain positions within the banks falling redundant amidst the digitisation and automation process, all banks have taken initiatives reorganising banks around the needs of the customers and to make the customer service units more marketing oriented. Accordingly, total income per employee has shown a considerable increase. The growth of the Internet, mobile, and communication technology suggest that Sri Lanka has enormous opportunities for digitisation of its processes, Mr. Atchuthan added.

Mobile banking has outdone Internet banking in the country recently and is expected to gain a faster pace as a result of shift in the payment sphere, he added