Banks should subsume technology before technology subsumes them

Dr. W.A. Wijewardena delivering the convocation address

IBSL 2019 Convocation Address

Returning to IBSL is like ‘coming home’

It is a privilege for me to return to the Institute of Bankers of Sri Lanka, popularly known as IBSL, after the lapse of some 10 years. I had a long association with IBSL from its very beginning – from around 1977. Therefore, it is closely and inseparably linked to me. 

I was an examiner cum paper-setter of the Institute for more than four decades. From 1987 till 2000, I was its Director of Studies and the principal lecturer in banking and related subjects. Even today, wherever I go, I happen to meet those past students who now occupy high positions in the banking industry. Then, I became its Chairman and held that position for nine long years from 2000 to 2009. Hence, I wish to consider myself as a part of IBSL. 

In this background, returning to IBSL, as Chief Guest of its 25th Convocation is a rare privilege that I have got in my life. It actually gives me limitless pleasure when I observe that IBSL has grown from height to height since I left it in 2009. I wish to congratulate its Governing Board and the present management on the successful journey they have taken IBSL to reach its current position. 

However, this is not reason for IBSL to become complacent. That is because complacency is the biggest enemy of anyone in this fast changing world. IBSL may be the best in Sri Lanka today. But its management should have the unreserved determination to ‘better the best’ and ‘better that bettered best’ in the years to come.

A logo depicting quantum leap

The mandate of IBSL has been beautifully engraved to its logo which was designed in-house in 2006. In that logo, two upturned U curves have been squeezed to a blue square in a way to cut the lower curve, while at its peak by the other curve, in gold, that begins to rise again. 

These two curves represent a phenomenon that we observe in Nature, be it life, productivity, utility or anything. That is, when one invests in something, its fruits will start rising over time at a decreasing rate. Once it has reached its peak, it will start declining eventually reaching zero level. This is typical of return to education. The blue square denotes the blue ocean which alumni of IBSL could charter into unchartered vast world. 

Since the tag line of IBSL is ‘creating stars’, the upper curve is painted in gold, like a shining star. What the logo therefore says is that once one has reached the peak, he should break the cycle by jumping to a new cycle. This is known as making a ‘quantum leap’, a term borrowed from natural sciences. 

Thus, IBSL will offer bankers the chance of making this quantum leap through training, advanced professional qualifications and continuous professional development programs. With its state-of-the-art new premises, IBSL’s Governing Board and the management team are in a position to carry on this mandate successfully into the future. 

The Central Bank on its part has encouraged the adoption of new technology by banks by establishing a financial technology sandbox within its regulatory framework.  The sandbox will provide opportunities for banks to test whatever the new technology they are planning to introduce without been subject to stringent regulatory controls. It is the nexus of these three parties – IBSL, students and the Central Bank – will determine the success of the banking industry in Sri Lanka in the future

Sri Lankan banks have embraced technology

This is all the more important in the modern world where banking is changing at a rate incomprehensible even to bankers. One good thing about banking is that it has been flexible enough to take in the advancements in technology right from the very beginning into its folds. 

Embracing advanced technology, specifically, the information and communication technology, abbreviated as ICT, helped bankers to jump one hurdle which they had faced in early1960s. When competition cut down their profit margins substantially and the markets began to demand better and swift services, there was only one option that was available to bankers. That was to take in new technology and make bankers a better breed. 

The introduction of the open economy system in 1977 that exposed the local banks to competition forced Sri Lankan banks to go for new technology in a neck-break competition with each other. Today, we have uni-banks in Sri Lanka in which banking services can be obtained from any place in the globe. Thus, the traditional bank branches have now become immaterial. The conventional segregation of accounts into current, savings or term, etc. has been eliminated with the consolidation of all accounts under a single customer. 

All Sri Lankan banks offer internet banking services obviating the necessity for customers to visit bank branches thereby saving their time as well as that of bankers. By far, Sri Lankan banks are on par with banks in any developed economy. Yet, they cannot go for a respite, because the banking industry is continuously faced with new challenges that require new approaches.

 

Two challenges to Sri Lankan banks

The banking landscape is going to be changed significantly in the next decade by the development of two technologies. One is Blockchain technology. The other is the artificial intelligence. 

 

Blockchain technology has multiple applications

Blockchain technology is the operating system associated with the cryptocurrency - Bitcoin – that was introduced some 10 years ago in protest to banks which have been charging high intermediation charges. Bitcoin which provides payment facilities among customers direct has eliminated the banker. 

Bitcoin has lost its initial glamour now with the introduction of a dozen of similar digital currencies and its crash in the market in the last few months. However, its operating system, Blockchain, is going to stay permanently in the global system because of its multi-application capability. 

Blockchain is an open public ledger system operated by thousands of participants who use thousands of standalone computers in the chain. Hence, it is considered relatively hacker-free due to two reasons. One is that it does not pay hackers to hack all the computers involved. The other is that it is outside their current capability.

 

Banks are on to Blockchain technology 

As many CEOs of large banks have admitted, Blockchain will be the future of banking. A study done by Dublin based Accenture Consulting Group has revealed that Blockchain technology can save banks as much as $ 20 billion by 2022. Because of two salutary features, Blockchain can help banks solve a number of problems they are facing today. One is its open source like Linux. 

Complacency is the biggest enemy of anyone in this fast changing world. IBSL may be the best in Sri Lanka today. But its management should have the unreserved determination to ‘better the best’ and ‘better that bettered best’ in the years to come.

IBSL will offer bankers the chance of making this quantum leap through training, advanced professional qualifications and continuous professional development programs. With its state-of-the-art new premises, IBSL’s Governing Board and the management team are in a position to carry on this mandate successfully into the future

The other is that it is a distributed ledger that enables a large number to participate in the process at relatively zero cost. It is safe to store and transmit data, has an open and transparent network infrastructure, and provides a decentralised operation. When delivering their services to customers, banks have to engage a number of mediators at high costs. 

In Blockchain which is a distributed ledger systems, banks can eliminate those costly mediators and deliver the services direct to customers. Further, since it is a device to enforce contracts automatically on satisfying a set of pre-determined conditions, it is a handy way for banks to go for smart contracts. Since Blockchain technology permits bank to bank transactions and remittance of payments swiftly and safely, there is a possibility that in the next five-year period, it can replace the present foolproof international money transfer system, SWIFT. 

Another use of Blockchain is the single stage client identification that is required under present banking regulatory rules known as Know Your Customer or KYC. Once a customer in the distributed ledger is identified, the relevant information is stored in the system for subsequent uses. It is also handy for credit information bureaus that are required to store many thousands of client information for easy retrieval by members. Already, the London based Billion Group has introduced a Blockchain application to record credit histories of about 150 million borrowers in the EU region. This is a very expensive task under the traditional data storage systems.

 

AI: Let machines do routine work while people do brainy work

The second challenge faced by bankers is the onset of artificial intelligence. According to Oxford historian, Yuval Noah Harari who wrote the history of tomorrow in his Homo Deus, artificial intelligence is the main threat to Homo sapiens in the future. It is not only because machines will become smarter than humans, but also they can do most of the routine jobs more efficiently and swiftly. The preparation, evaluation and follow up of credit agreements with customers is one area where machines have replaced humans. 

A machine learning system introduced by J P Morgan Chase recently called Contract Intelligence or COiN is reported to have the ability to analyse 12,000 legal documents and extract important data points and clauses within seconds. If done manually, it would approximately take 360,000 hours. Artificial Intelligence is used by many banks today as a ‘chatbot’ – a speaking robot – virtual assistant to customers. With the capability of interacting through voice media with real people, like Google’s Duplex, customers can now speak to chatbots and get a range of banking services from them. 

This has specifically become important in the present drive to ‘branchless banking’ by major banks in the world. A branchless bank is a virtual entity operating in the clouds but it could provide all the services which a branch provides to customers today. The only requirement which a customer should have in order to do business with a virtual bank is the possession of a smart phone. This will indeed become child’s play in the future with 5G internet technology that is to replace the present 4G technology. 

In such a world, a smart phone held in the hand of a customer will be the bank branch that could provide all the services needed by him. These services include deposit services, money transfer services, credit services, payment services, advisory services and many more. Artificial intelligence will take over the routine jobs which bankers are presently handling. The best part is that it will allow bankers to have enough free time to use their brain power to formulate the best policies for banks. 

By far, Sri Lankan banks are on par with banks in any developed economy. Yet, they cannot go for a respite, because the banking industry is continuously faced with new challenges that require new approaches.

The banking landscape is going to be changed significantly in the next decade by the development of two technologies. One is Blockchain technology. The other is the artificial intelligence. 

No need to fear disruptive technologies

These technologies are surely disruptive technologies because they shake us to our core disturbing the respite which we are presently enjoying and challenging the complacency which we are saddled with. It is frightening as well as challenging to the banker who is not adequately prepared. History has seen many instances where people’s lives have been disrupted by the introduction of new technologies. 

The motorised truck replaced the horse or bullock driven cart in early 20th century. It entailed enormous social costs on those who had used those carts for a living. Yet, no one can stop the onset of technology and the changes which it brings to society. The best way to face those changes without tears is to prepare ourselves for this eventuality well in advance. 

This is our responsibility as bankers in the future. We cannot prosper in our career unless we have the courage to take the challenge and face it successfully. In a world where customers have become smart, a banker who is not smart cannot survive.  Thus, banks should subsume technology before technology subsumes them,

 

IBSL should continue with its mandate

The mandate of IBSL has been to equip its students with smartness to facilitate them to become smart bankers one day. The responsibility of students has been to make use of those facilities to the maximum so that we have a generation of bankers who have no fear of technology. The Central Bank on its part has encouraged the adoption of new technology by banks by establishing a financial technology sandbox within its regulatory framework. 

The sandbox will provide opportunities for banks to test whatever the new technology they are planning to introduce without been subject to stringent regulatory controls. It is the nexus of these three parties – IBSL, students and the Central Bank – will determine the success of the banking industry in Sri Lanka in the future. I have full confidence that IBSL, made up of people with unwavering determination, will be able to deliver this promise.

I congratulate all those who have successfully completed their diplomas and are receiving the relevant certificates in the Convocation being held today. They are the future of the Sri Lanka’s banking industry, trained and developed by IBSL.

(W.A. Wijewardena, a former Deputy Governor of the Central Bank of Sri Lanka, can be reached at [email protected].)