Banks should subsume technology before

technology subsumes them

Dr. W.A. Wijewardena delivering the convocation address

Returning to IBSL is like ‘coming home’

Monday, 21 January 2019

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 waw1949@gmail.com.)
Posted by Thavam