What is a bank? Think for a while before you answer that question. And chew on this: there are 29 banks operating in the Indian financial market, which cannot, in the technical sense of the term, be called banks. Yet, you can deposit your monthly salary cheques with them; they provide you with a cheque-book facility; and on your funds managed by them, you earn an average return of 8 per cent a year, more than what you earn on a savings back account with a bank.

The 29 banks referred to are liquid funds or cash manager funds. The only surprise is that these asset management companies haven't issued debit cards.

The bank, as we know it, is changing. Orange or Airtel, or any other cellular service provider could well be a bank in the future.

They could issue branded (or co-branded) credit cards, even act as payment and transaction gateways by providing the facility to wire funds over the mobile network. The buzz in telecom circles in Europe is that Orange is well on its way to become a bank.

There's another side to this story. The number of banking transactions conducted over the telephone is on the rise. It was in this context that the chief executive of a large UK-based bank listed the biggest challenge facing retail banks was ''turning themselves into telecommunication companies''.

The boundaries-and these aren't just geographic in nature-are blurring. There's no telling who will next enter the banking business. It could be a telecommunications company. It could be an internet service provider. It could even be (no joking) a grocery or super-market chain.

Japan's 7-11 chain (it has a chain of 7,500 stores) has already done so: each of its store boasts an ATM that serves as a virtual bank. Other Japanese banks fear the supermarket (sorry, super-bank) will be a competitor to reckon with. And AOL is rumoured to be working on securing banking licences in 40 different countries.

At a more mundane level, the Indian banking scene will see the emergence of universal banks. And M&As will become the norm rather than the exception in the sector, with weaker banks becoming acquired by the stronger ones in their effort to become larger.

Service, which has already emerged as the differentiator with the wave of new private banks, will become even more important. The good banks will boast similar technology-enabled back-end Banking-brands, or the business of building them will, then, become the key to success in the industry and banks will market themselves the same way consumer goods companies do so now.

It is the quality of service provided by their front-ends, call centres, ATMs, and the rare person behind a physical desk in a physical branch, that will help them attract and retain customers. Already, banks have the technology and the wherewithal to reach customers rather than the customer reaching out to the bank. Only, the bank could no longer be a bank.

ICICI Bank's CEO H.N. Sinor: among the first raiders

The Future Of Banking

There are more important things than being big. But sometimes you have to big to achieve them''
-A UBs advertisement.

Size matters today and will matter even more tomorrow in the global banking environment. And the drive to grow bigger will engender a spate of M&As in the sector. Already, tighter prudential norms and provisioning requirements have forced banks to clean up their books of account and shore up their capital base. This, and increased competition, will squeeze profitability across the sector: the small banks will be the ones that are hit the most. Larger banks will be able to mobilise sufficient capital to back asset expansion, and fund investments in technology.

M&As won't be new to the Indian banking sector. The government has used them in the past to bail out weaker banks, through their mergers with other public sector banks. And the new private banks have written the first chapter in the history of market-driven M&As in India: the amalgamation of HDFC Bank with the Times Bank and acquisition of Bank of Madura by ICICI Bank herald a trend driven by commercial considerations.

The weaker among the new private banks, themselves -Global Trust Bank, Centurion bank, IndusInd Bank-may themselves be acquired by their stronger peers. There is also enough illness among public sector banks to make a case for merging the weaker among them with the stronger.

That would be akin to the Latin American example where banks were merged as a response to inefficient banking structures. The capital base of most public sector banks is low and were the Reserve Bank of India to insist that they should have the same capital as new private banks (a minimum of Rs 100 crore), some of them will have to consider merger-options. Alternatively, a weak public sector bank could be broken up, into branches, and into its non-banking subsidiaries. Each of these could be taken over by other banks.

The desire of banks and financial institutions to transform themselves into universal banks will also drive mergers in the sector. As will technology and regulatory changes. Caveat: banks will do well to remember that banking isn't just about size. To succeed, big or small, a bank will need superior risk management systems. QED.

-Roshni Jayakar

Look, Ma, No Queues

Orange camies 19,000 banking-related SMS a day in Mumbai; BPL, 25,000

Will mobile banking ever take off in India? The answer to that question is yes. For, while mobile banking will always be an add-on to traditional banking channels, the number of consumers using it will increase with the corresponding rise in the number of cellular subscribers in the country. Several banks have mobile banking services already. Today, you can make a balance enquiry, request for a cheque book, get a mini statement of transactions, or pay utility bills through the mobile. Still, Indian banks have much to learn from Europe and Japan. In France, for instance, most phones come with a built-in credit card slot, something that addresses several thorny payment issues. And in Japan, the users of mobile service i-mode can carry out banking transactions online-i-mode has partnerships with 280 banks and several securities brokers.

The Bank Of The Future

By the year 2015, the word teller would have been consigned to the dust-heaps of banking history. The only teller counters, if any, will be found in museums, much like the fossilised remains of great lizards. Today's tellers would have made way for service points.

These could be Automated Teller Machines (ATM), kiosks, Internet-enabled terminals, or point-of-sale devices. Most customers will be able to perform all transactions without visiting a brick-and-mortar bank.

That could soon grow to include the unusually tactile-interface heavy transaction involved in opening an account. Credit bureaus that keep credit record of individuals will facilitate the opening of accounts through the net, or over the phone. And the list of transactions facilitated by this highly intelligent network will include trading in shares. ''A customer will see a bank less and less,'' says Neeraj Swaroop, Country Head, Marketing and Retail Assets, HDFC bank.

Other innovations: debit cards and smart cards will replace cheque books (smart cards will be rechargeable either through the net, or at ATMs, or both); all bills will be payable through remote devices; and ATMs will form the core of most financial transactions. Nor will locating an ATM be as difficult as it is now: they will be ubiquitous, and, what's better, be able to cater to customers of several banks. Banks will forge alliances with other banks, and with retail chains to beef up their distribution networks. Already, the first of these ATM-consortia has made its presence felt in India.

The number of cash transactions, and the need for cash money, will shrivel up. All inter-bank and intra-bank transfers of cash will be made electronically. And ubiquitous utilities like cellular services will make forays into transaction gateways. It is likely that some customers never have to touch cash money in their lives, ever.

At the back-end, the headquarters of all banks will have a central server that provides, on a daily basis, the balance sheet of the bank, its asset-liability profile, details of individual customer payments, and the risk status of assets.

That will make it easier for a bank to ensure that rogue employees aren't abusing the powers granted to them; still better, it will improve the financial health of a sector plagued by non performing assets.

The people manning such a bank will be a mix of customer support and call-centre executives, with backgrounds either in infotech, marketing, or mainstream banking.

-Roshni Jayakar