Banks should invest more in Information Technology in 2010

With assets totaling almost $1 billion the local banking industry is set for a new stage with new entrants injecting specialized services and additional capital in line with a fully liberalized regime. While making a reflection of the banking performance for the last 6 years ever since liberalization of the industry, the market regulator the National Bank of Rwanda (NBR) has been focusing on efforts to restructure financial institutions for the purposes of rebuilding the infrastructure after it was destroyed in 1994. According to statistics from the regulator, the performance of the industry in the first quarter of 2009, total assets reached $880 million. The economic prospects that have come with the integration of Rwanda’s economy into the East African Community (EAC) has further seen its banking industry attracting a bevy of regional and continental heavyweights. The other factor that has served to stimulate the banking industry has been the economy which has continued to register low inflation while attracting robust trade with the increase of Foreign Direct Investment (FDI). This means that banks now have the means to implement new Information Technology platforms for the purposes of boosting their efficiency levels. Now, money in retail transactions is becoming electronic, transformed into information stored on a computer chip in a plastic card or on a personal computer so that it can be transmitted over open information systems, such as the Internet. The most noteworthy developments in retail payments systems are electronic cash and engaging in financial transactions from home or elsewhere by personal computers. Currently some local banks have taken a step into use of I.T by allowing their customers to check their accounts online; however, the system is either not yet interactive or a customer can not carry out a transaction like transfer funds or issue orders to transfer or even apply for loan. Worse still, most customers still have to go to the banking hall to carry out “basic” transactions such as withdrawing money creating long queues in banks. This is partly because of the inefficiency related to operations of the Automated Teller Machines (ATM). Banks must continue advancing the application of computer technologies to communications systems. This is because banks and others in the financial information business are better able to achieve economies of scale in storing and moving data using modern technology. They can more comprehensively incorporate large quantities of financial data on their operations at a lower cost and in less time. They and their customers can have more direct and immediate access to each other, at lower cost. If banks invest more in better and advanced computer technologies also mean that banks and their customers no longer have to conduct their business face-to-face. As the need for geographic proximity between financial institution and customer fades, so generally does the importance of geography-based procedures, practices, and rules that govern much of the financial services industry today. For instance, most people prefer to have an account with a bank that has more branches and not necessarily that they are satisfied with the products and services offered by the bank. Electronic transactions also lower costs significantly as it eliminates costs and risks associated with the processing and accounting of money manually, as well as storage, transport, and security. Additionally, the technological revolution holds the potential to enhance greatly the ability of the poor to have convenient access to financial services because of the advantages that are inherent to high-tech payments systems. The cost of low-value transactions–transactions most common to the poor–can be much lower in high-tech systems than in traditional payments systems. High-tech systems have more flexibility than traditional systems in the delivery of financial services virtually. Such flexibility provides added convenience, in that services can be available on virtually a 24-hour basis, and added safety, in that funds are less subject to theft. As electronic money and banking products mature it may well turn out that many of the policy issues raised by these new technologies–money laundering, counterfeiting, fraud, consumer disclosure will be minimal if banks also put in place strong security systems. Strong security systems will be especially important for successful banking and commerce over the more open internet, where packets of information can pass through a number of computers, each one accessible to a large number of people, before reaching their final destination. At the same time, it is incumbent upon government to follow these developments carefully, in particular monitoring the pace of change, so that where there are emerging issues that can only be dealt with by government, they are in fact addressed. Berna Namata is a business journalist with The New Times bernanamata@gmail.com