MEMORANDUM
TO: Professor Morris
FROM: Sarah Ritchie
DATE: September 4, 2012
SUBJECT: How BTPN can improve operations through the use of mobile banking

As you requested, I analyzed BTPN’s current operations and recommend that Mr. Jerry Ng employ mobile banking to transform the current system of micro-loan repayment.
The use of mobile banking will influence the success of BTPN by:

* Keeping them at the forefront of innovation * Allowing for more customer flexibility * Increasing loan repayment efficiency

BTPN will confirm its competitive position as an innovator and create more value for its product through mobile banking. More flexibility for customers will further the value creation and fit in with the already successful micro-lending model. BTPN can expedite the repayment process by automating it through technology.

BTPN’s business model

BTPN provides pension loans for civil servants, savings deposits for middle and high-income Indonesians, and micro-loans for poor Indonesian entrepreneurs. BTPN builds bank branches close to pasars with a simple and repeatable franchise model, subsequently carefully selecting employees whom undergo rigorous training. BTPN monitors the performance of both their employees and customers with state of the art technology, such as a standardized “dashboard” and EDC mobile devices. BTPN also provides additional services for their customers such as education, consultation, and training.

BTPN’s current microfinance process

To begin the microlending process, a potential customer submits a loan application to the local branch. At the branch, a loan administrator checks the application for completeness and uploads a scanned image to the central loan system. Then a credit officer performs a field survey to confirm assets, observe operations, assess character, and the customer’s ability to repay. Next the branch manager reviews the application and approves or denies the loan. If denied, the branch manager places the loan in a reject box with other applications that are incomplete or rejected. BTPN then sends a loan agreement to the customer and disperses funds in his or her savings account. Middle and high-income Indonesians provide these funds via their BTPN savings accounts. Once a month, a relationship officer visits the customer to request loan repayment. BTPN facilitates repayment with the use of mobile EDC devices, which update the central loan system in real time. See Exhibit 1 for a visual explanation of BTPN’s current micro-lending process.

BTPN’s microfinance process with the use of mobile banking

If BTPN implements mobile banking, the microfinance process will change in the method of repayment. The relationship officer will no longer directly visit and request payment from the customer, the customer will repay loans on his/her own. Observe Exhibit 2 to see these changes.

How BTPN should implement mobile banking

BTPN is known for innovation and technology, thus mobile banking will further secure that competitive position and fit into the existing model. BTPN should pair with a local cell service provider to provide network coverage to all of its microfinance customers. BTPN should then purchase smart phones for all of their current customers. They should install a secure application on the phones that allows for the free direct transfer of funds from an encrypted and monitored personal account.

By supplying their customers with a bundle of technology, BTPN will create more value for their product and thus will be able to charge higher interest rates for their microloans. In addition to a phone, each customer will receive a detachable card reader along with a debit card. Customers can transfer funds to the central loan system of BTPN by swiping their debit card and entering their PIN number. Exhibit 3 contains examples of detachable card readers.

Customer repayment of loans will promote flexibility. Although BTPN’s capital investment will be extensive, the relationship officers will no longer have to visit individual customers providing both parties with more freedom. The economy is shifting towards customer power and allowing customers to have more freedom supports this move. BTPN already allows customers to individually withdraw and deposit funds into their account, thus more flexibility will fit into its business model and attract more customers.

This change will also make operations more efficient by allowing customers to take responsibility for the repayment of their loans instead of relationship officers. Customers can quickly repay loans with the swipe of a card. BTPN is already known for quick application turnaround, and this will further expedite the entire process.

The lack of personal meetings is an aspect of this change that could be inconsistent with BTPN’s strategy. These relationship officers are extensively trained to do their special jobs, and the technology may deem them obsolete. If BTPN omits personal meetings, will BTPN lose its reputation for having top-notch employees and human relations?

I hope this information aids Mr. Jerry Ng in his choice to change the current operations at BTPN. Please contact me via email at skr8dh@virginia.edu if you have any questions.