Banks Can No Longer Afford To Lag Behind

[george]

Banks can no longer afford to lag behind

At the end of the month, many executives have to sign hundreds of money transfer forms for employees' salaries. The process uses a lot of paper, takes a person to travel to submit the forms to the bank, employs a couple of bank employees to type the data into their mainframe, consuming printer ink and more paper to print out one or many transaction slips. The process can take about four hours.

An alternative is to send the electronic data to the bank to upload directly into its mainframe to transfer the money from the company account directly into each employee's account in the same bank in 10 seconds _ but the bank charges 10-15 baht per employee every month.

This phenomenon puzzles me because the second method clearly is more cost-effective and productive, but it is discouraged by the institution. Strange bank behaviour such as this provides opportunities for other competing services.

A few years back when I was a consultant to a beer importer in the US, I noticed that the importer had had a good relationship with the brewery for more than 20 years. They were both reputable companies, yet they continued to use letters of credit, so one day I asked them if they trusted each other. They assured me they did. So I advised the importer to start using payment directly by wire transfer which reduced L/C costs and amendment costs. As well, it would obtain a 2% cash discount incentive from the brewery and enjoy much more flexibility in logistics.

What are banks? They are just commercial establishments that sell products, more or less the same as your bookstore, noodle shop or McDonald's franchise, so all business practices can be applied metaphorically. The products in these cases are money, trust, risk, and computing services. The cost of money is the deposit rate, and the selling price is the lending rate. You can have retail, wholesale, online, CRM, ERP, P2P just as in other trade channels.

The modern solution to distribute money from one account into others can be demonstrated by PayPal. I used to have many bank accounts in the US. Some banks can transfer funds to another selected bank but not others. PayPal seems to be the most universal money transfer system of them all. It can transfer money from any bank to any other bank or banks, securities trading account, credit card or other account, though it takes three days to do so for free. Besides the US, PayPal is now operating in Hong Kong, Taiwan, Singapore and 37 other countries, including partial use of the service in Thailand.

Another movement to improve lending is Zopa.com. The concept is called P2P banking, which could mean peer-to-peer or people-to-people. You can be a lender or a borrower. The software matches each single lender to 50 borrowers or more to diversify the risk. It also maintains risk management and debt recovery with data from three credit agencies. The services reflect the new business paradigm of the Internet _ search _ just like Google did. In this case, it's the search to match lenders with the borrowers through complex logic.

The P2P banking concept is not new in Thailand. Many people locally have been using the old Chinese ``share'' method for decades. Share involves a group of trusted people _ family members, friends, or neighbours _ who gather and create a pool of money, with each member contributing to the pool. Every month, each member bids for the sum of the pool. The highest bidder gets the total for that month and he or she will have to pay the bid price over the rest of the pool's life. For the next month, only the non-bidders are qualified to offer a new bid, until the last one in the pool receives the last month's total without paying any premium. The modern share system can be improved by integrating historical payments and credit ratings The distribution can be accessed from wire transfer or ATM.

With new financial business models coming up to replace the bank, it will be just a matter of time before people take their business elsewhere if banks continue to do business in an unreasonable way.

Dr Arnat Leemakdej is director of the Thammasat Center for e-Commerce, Faculty of Accountancy and Commerce, Thammasat University. www.TUeCOM.com

--Bangkok Post 2005-08-24