Attempting Digitalization of Documents in Banking for Efficiency and Sustainability

April 21, 2020

Attempting Digitalization of Documents in Banking for Efficiency and Sustainability

(Published in the Financial Express in December 2019)

Professor Shah Ahsan Habib[1]

The term ‘Digitalization of documents’ narrows down the scope of the complete transformation process that commonly starts with automation and then migrating data from a paper copies to a digital system. It is mainly about creating a paperless working environment, and the ultimate target is the holistic transformation or shifting from physical documents to digital documents. It is not an option today, rather a necessity; and digitalization of documents is believed to be widely associated with easy access to banking services, smooth and better banking amenities, speedy processing, and minimization of costs in a scenario of growing operational expenditures and intense competition in the banking industry throughout the Globe. This is relevant for all the major activities of commercial banking operations and services covering account opening and operation, credit assessment and operation, facilitation of trade services, human resource record collection and maintenance and a number of other associated financial services and operations.        

The trend for digitalization in the banking industry is moving fast mainly with digital currencies, contactless payments, targeted marketing via social media and so on. However, process improvement for complete paperless transactions for all types of customer communications and formal agreements needs much greater efforts to attain the required platform. In spite of improvements, customers’ confidence on paper copies over digital data cannot be overlooked to a big section of population. The cost elements of using paper documents by banks include: price of paper; expenses of printing documents from press; toner cost of printing; depreciation of computer printers; cost of electricity or energy use; cost of storage of documents and even more.   However, there is no doubt that many banks have been actively attempting to get their online/mobile users to move for paperless communications. Practically, the benefits of ‘digitalization of documents’ to a bank might be much higher than saving costs, and may also include efficiency, compliance and consumer satisfactions. Though harder to envision, productivity is one of the evident benefits.

Digitization plays prime role in accelerating financial inclusion efforts by enhancing the reach and capacity of financial service providers. Financial inclusion is seen as a key priority and means of reducing poverty in a manner that ensures inclusive economic growth; and there are efforts to reach the goal of universal access to financial services as part of international collaboration under the platform of sustainable development goals (SDGs). Technology adoption and expansion of digital products are tagged with inclusive banking efforts mainly in developing countries. The expansion of digital financial services (DFS) has meant greater financial inclusion. Expansion of agent banking offered financial services to a big section of population live in the remote areas. Digital transformation is also changing the way the microfinance sector operates.

This concept of transformation is associated with the thoughts of green banking. Digitalization may have notable implications on saving natural resources and costs that are clearly aligned with the goals of green banking ventures. Saving paper is a key component of environmental risk management in banks’ finance and operations, and is very much linked with saving natural resources and bio-diversity. Alongside saving environment and plants, ‘paperless banking’ became a way of saving cost as well that encompasses from online banking to account opening and management. There are estimations that almost half of the trees cut commercially around the world that end up in paper products, and yet much of the paper use is wasteful and unnecessary and these are linked to forest destruction, pollution and climate change emissions.

Energy Club Web notes that we use more than 1 million tons of paper every day and 93 percent of paper comes from trees alone and paper also accounts for half of municipal solid waste. The web data indicate, pulp and paper industry is the third largest consumer of energy and uses more water to produce a ton of product than any other industry and is one of the world’s major greenhouse gas emitters. Since the 1960s, world consumption of paper has quadrupled and use of printing paper has increased six-fold; and paper consumption is the major driver of the destruction of the forestry industry as found by the Environmental paper Network. The use of paper is one of the major factors contributing to climate change as the felling of trees in the first place directly contributes to carbon emissions as a result of machinery used both in the process and in transportation.

Sometimes online banking activities are termed as the starting point of green banking as through these initiatives banks are in a position to contribute by saving scarce natural resources and by reducing costs. E-statement is one of the early day’s initiatives to save papers; and using energy efficiency and renewable energy in the in-house operations of banks are at the center of green banking activities. As part of the green banking initiatives, Global banks are increasingly coming up with strategic commitments to save papers through technology infusion and undertaking energy efficiency and renewable energy ventures in their operations. For example, in June 2019, British multinational bank Barclays committed to go for 100 percent renewable energy by 2030 ( UNEP and European Bank for Reconstruction and Development (EBRD) mobilized 100 banks and financial institutions that committed to use and promote energy efficiency and renewable energy.

While narrating the beneficial impact of using technology in banking it cannot be denied that technological development itself brought in major environmental destruction. Growing and newer technological development and innovation have been responsible for green-house gas emission, excess power consumption, deforestation, and generation of wastes. Practically, to be in the banking business, one unilaterally does not afford to sustain evading technology, and thus it is about attempting to minimize the use of environmental risk in the technology-use and focusing on those technologies that are environment friendly. The most recent Global Risk Report by the World Economic Forum also reflects increasing concerns about the economic impact of new technologies, especially as a driver of misinformation, inequality, and unemployment alongside environmental degradation. It is to be noted that today’s top risks (in terms of likelihood) include three risks associated with environment and two with technological development; and the Global Risk Report rightly pointed out systemic risks with ample opportunities in producing and using artificial intelligence and other new technologies in the global business and economic environment.

[1] Director Training of BIBM ([email protected]).

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