The Impact of IT on the Joint Venture of a Pakistani Bank - Research Proposal Example

Age of Global IT – linking Pakistan to the world… This report aims at highlighting how information communication technologies can influence and assist the joint venturing of an international financial institution (bank) in Pakistan. Introduction About the Banking Sector Banking sector initiated from a single individual who was assumed as trust worthy and people kept their belongings with him in surety that these belongings, including cash, gold, silver, etc would remain safe and the person was honest enough to give them back as and when the owner demanded. From that fundamental form, banking came into existence, and moved onwards from various stages to where it stands today that no business can think of growing without banking support; organizations assume a bank account as a symbol of credibility and trust, and the same has become the actual mode of payment between parties (individuals or corporate). Martinez (2009) states that as the world grows global, the need for banks to cross borders gain exceptional significance; thereby, some move their off shore branches, while others opt for various other mediums – one of such mediums to move across the geographical boundaries is ‘collaborative venture’, also known as a ‘joint venture’. Trends in ICT Elliott (2004) states that the advancements of information and communication technology have had a huge impact on the banking sector, along with its impact on other financial and non financial institutions. Thatchenkery (2005) states that ICT has led banks to a long way; from a single branch towards the networking and flow of information to-and-from hundreds of branches; and from information flowing in all directions in a single bank to information flowing across banks, information and communication technology enhancements has revamped the banking sector to transfer of monetary terms from one bank to another, while both being geographically dispersed and having no connection what so ever. Trends Trends are commonly known as fashions but in true sense, trends are waves that flow in, stay, and leave. But there is another phenomenon in trends and that is complementing each other. In this phenomenon, two or more trends do not overcome one another but actually complement each other’s existence. So much so that the case under consideration, in accordance with Doukidis (2004), provides a classical example of how the trends of banking sector have been assisted to flow by the trend of the information and communication technology. These trends have complemented each other to an extent that banking today without ICT stands absolutely no where. Rationale for Selection For the purpose of this assignment, a bank has been chosen that wants to keep itself anonymous, referred to as bank A, plans to enter the financial sector market in Pakistan, with due collaboration another bank, referred to hereon as bank B. The reason for selection of this scenario is primarily the current global economic recession, whereby banks are literally at a verge of begging deposits to improve their positions, and are anxiously on the lookout for lending towards honest clientele, who would definitely pay back their debts. At this point in time, the banking sector in Pakistan, though a very small portfolio in the global arena, but according to the UN Reports of 2007 and the World Bank Reports of 2009 has not been significantly influenced by these crisis. As a matter of fact, in certain sections of the economy, the economists seek growth even in the times of this downturn. The following section presents a brief on the current standing of economic and ICT in Pakistan to provide a bridge towards how banking sector is utilizing the same for connectivity, and how bank A can effectively utilize ICT for joint venturing with Bank B. Economics & ICT in Pakistan In accordance with Iimi (2004), Pakistan has been a growing economy in the last decade or more. However, the banking sector remained very conservative and traditional by nature. For a crude example, a cash deposit in the same bank from one branch to another had additional charges associated. But with the jumping-on-the-wagon by multinational banks such as ANZ Grindlays, Standard Chartered and ABN AMRO, the industry structure has been redefined. According to Ravi (2007), these banks brought with them the initiatives that they had taken in global markets and gave a tough competition to the local banks to the extent that today, the local banks only compete for the fact that they have a wide spread branch network literally reaching the rural areas at their door steps, while these banks are primarily placed in metropolitans only. Banking sector has been a driving force for the economy of Pakistan in recent years, and the blend of ICT has doubled the speed of this driving force. ICT has being a complementing factor for many industries to grow in Pakistan. Usage of ICT – Banking Sector in Pakistan Vilanculos (2009) states that the internet, being one of the prime advancements of ICT, has brought about major changes in the infrastructure of the banking sector, and today, there is hardly a single bank in Pakistan that does not offer internet banking which shows the advancements of ICT and its subsequent application towards the same. In accordance with Shah (2009), this has given a tremendous boost to the banking sector in Pakistan, particularly for reaching all ends of the country. This is a prime example of the consumer services presented by the banking sector. ATM and other forms of cards are also assumed as ICT advancement examples, and this form has also prospered from a time when only Citibank was producing cards, and today all banks have their visa compliant cards, and this visa compliancy allows them acceptability, world over. In accordance with Bouma (2001), when it comes to the global business, banks are using various technologically advanced systems to allow ease communication and coordination with global banks. Banks need to correspond to each other as an integral part of their operation primarily when it comes to global funds transfer or providing trade services to a client. Welfens (2002) states that during the old times, transfer of funds globally took approximately 14 days, which was considerably slow for businesses and it beard cost; similarly, trade services were slow as well, which were fine for that time, primarily because firstly there was no cut-throat competition as exists today, and secondly, the global practices were likewise. Today, both competition and global practices have really gone long far, and thus, it is the need of time that the banking services improve accordingly. According to Browning (2008), the utilization of ICT has led Pakistan to not just enter the race but to move along way where it stands. The development of the NII in the early 1990s in the US was followed lately by Pakistan during the late 1990s and early years of 2000s. According to Cogan (2008), this proposed the development of public and private networks for communication, interactive services, and other electronic gadgets allowing the information to be at the finger tips. NII just not referred to the information aspect of data exchange but also the multimedia values, functions, customized services and so on. Following the same, in the last decade, the government of Pakistan developed NADRA (National Database Regulatory Authority), which centralized the issuance of all information pertinent to an individual citizen, from the issuance of license to identity card, passport and verifications. An interface of the same was provided to the banks, VeriSys (Verification System), which allowed banks to cross check identities of individuals for various banking operations. This was a classical measure to reduce the number of fraudulent transactions in the banking sector. This step made the banking operations safer at a global scale, because the war-against-terror (WAT) was supposedly having connections to the banking sector in Pakistan, and the conventional banking practices were not sufficient enough to fight the WAT. Following the fact that NADRA’s system was well defined and its application has had significant impact on reducing the ghost-population (citizens existing on record only) to a greater extent, and it also eased the process of account opening and verification of individuals. The same led to the formation of a concept known as ECIB (Electronic Credit Information Bureau); its access was restricted to the banking sector only. A bank would just enter the national identity card number (CNIC) of an individual on the system and the system would provide the output i.e. the credit history of that person; some of the information includes the number of credit cards an individual has, credit limits, loans outstanding, and institutions/providers of these credits. This actually led banks into keeping a stringent check on the exposure that should be given to an individual customer. There are more applications of NADRA that can assist the banking sector in reducing the frauds to almost nil but that discussion lies beyond the scope of this topic. The next section of this report describes the plan as to why the bank wishes to approach another bank and come to Pakistan. Why A wants to join B and come to Pakistan? The bank A belongs to UAE – a country where there are mass expatriates from Pakistan, which A is a local bank in UAE with no reach outside the nation itself. Therefore, it seeks an opportunity to provide safe money transfer to the expatriates. Though, currently there are many options for the expatriates. Following is a brief about the most commonly used options. Western Union is the most renowned and most used mechanism for money transfer but is considered an expensive deal. Money transfer has two aspects associated; a fee that is charged and the currency rate differential. In accordance with the western union pricing policy, both these factors are in-favor of the company itself. Transfer is spontaneous or next day; spontaneous is premium charged. Money Gram is another widely used money transfer mechanism. It is considered cheaper than western union, but fails to capitalize on this aspect. It lacks advertising and promotion else it can take a major market share. The transfer is spontaneous. Bank transfers from local banks in UAE to banks in Pakistan are common; with UBL, HBL, SCB and other banks having off shore branches in UAE, it is another commonly used mechanism. Despite the bank being the same, the transfer takes 3-5 days to be credited to the account of the individual; however, bank transfer is cheapest and safe as well because the money directly goes to the bank account, and there is no hassle of carrying cash from the receiver’s end to a bank or to their homes. Here there lies a window of opportunity as expatriates look for a mechanism of transferring money which is safe, cheap and spontaneous – all three qualities not existing in the same option. Bank A seeks an opportunity that if it can form a joint collaboration with Bank B, the two can reap benefits out of the sum of money transferred official from UAE to Pakistan. Once this collaboration is developed, it can also run the other way for example any business wanting to have trade done from Pakistan in UAE, can take services and the scope of services may expand. This would provide a platform for bank A to enter into the region slowly and gradually step by step and the first step would be the formation of alliance with a local bank. Then on, looking at the potential in the market, which can be magnified by means of the remittance values, bank A can actually devise products and services to suit the given markets. The only big time issue in such a partnership and bundle offering is that of money laundering. However, that can be avoided based on solution derived from the innovative characteristics of NADRA and VeriSys as described previously. The following section presents a recommendation-cum-plan of this window of opportunity can be utilized. Recommendations The fundamental mechanism recommended for this money transfer would be as basic as it is in other formats. A person would approach bank A in UAE, give the money to send, fill a form; the mandatory/required information in the form would be the CNIC number of the receiver and the receiver name, along with the identification of the sender. The sender gets a unique identifier, which he gives to the receiver; the receiver walks in with CNIC and receives it. The process is very simple, but the logic behind it is anti-money laundering and providing the three propositions that were mentioned in the previous section of this report. Since transactions would be greater in volume, a reduced margin in terms of fees as well as currency differential would lead to higher profits. The banks can coordinate and develop special account numbers allocated for frequent money transfers and provide this facility through their respective internet banking set up. Setting up special account numbers will not be a difficult deal; similar to the categories of PLS, Current Accounts, Check-in accounts, etc., a new category of transfer account can be developed. The numbering of this account can be done jointly with the corresponding banks. This would require the development of a MoU (Memorandum of Understanding) between the two banks, and would require approval from the concerned State/Federal Banks as well. With the appropriate approvals, this would most likely become an account to account transfer for expatriates to back home. For anti money laundering, this would be a tremendous strategy because this would reduce the chances of an anonymous or ghost-transfer of funds. Additionally, since it would move through authoritative channels of the federal bank, it will not have any issues against legalities and all legal constraints can be well thought of. This would serve the window of opportunity i.e. payments being received safe and sound, securely in a bank (or a bank account), at good rates, and spontaneously. These options combined give an optimal solution to both the money sender and the receiver, additionally, allowing the bank to gain an advantage about the dealing. Subsequently, bank A can move into the region of Pakistan through bank B, forming a strategic alliance. References A. Iimi (2004) Banking sector reforms in Pakistan: economies of scale and scope, and cost complementarities. Elsevier (pg 53-72) Douglas G Cogan (2008) Corporate Governance and Climate Change: The Banking Sector. UN Flatiel Fabião Vilanculos (2009) Assessment of the use of ICT in the financial sector: A case study of Mozambican banking system. LAP Lambert Academic Publishing (pg 79-92) Geoffrey Elliott (2004) Global business information technology: an integrated systems approach. Pearson/Addison Wesley (pg 101-113) Georgios I. Doukidis, Nikolaos Mylonopoulos, Nancy Pouloudi (2004) Social and economic transformation in the digital era. Idea Group Inc (pg 151-160) Jan Jaap Bouma, Marcel Jeucken, Leon Klinkers (2001) Sustainable banking: the greening of finance. Greenleaf Publishing (pg 103-111) Larry Browning, Larry D. Browning (2008) Information and communication technologies in action. Routledge (pg 171-175) Leonardo Martinez-diaz (2009) Globalizing in Hard Times: The Politics of Banking-Sector Opening in the Emerging World (Cornell Studies in Political Economy). Cornell University Press (pg 222-234) Mahmood Shah, Steve Clarke (2009) E-Banking Management: Issues, Solutions, and Strategies. Idea Group Inc (pg 251-272) Paul J.J. Welfens (2002) Interneteconomics.net: Macroeconomics, Deregulation, and Innovation. Springer (pg 111-122) Tojo Joseph Thatchenkery, Roger Stough (2005) Information communication technology and economic development: learning from the Indian experience. Edward Elgar Publishing (pg 203-207) United Nations Conference on Trade and Development (2007) Information economy report 2007-2008: science and technology for development : the new paradigm of ICT. United Nations Publications (pg 301-322) Vadlamani Ravi (2007) Advances in banking technology and management: impacts of ICT and CRM. Idea Group Inc (pg 387-390) World Bank. Development Data Group (2009) Information and Communications for Development 2009: Extending Reach and Increasing Impact. World Bank Publications (pg 277-285) Read More