Last week at the Human Capital Conference organised by the National Banking Institute, it was heartening to see a room full of people—many of whom were women—keen to learn about the developments in the area of human capital. Last year in Nepal, the banks spent all their energy in ensuring that they meet the capital requirements enforced by regulators. For instance, for an A Class bank, the requirements stipulate that their capital has to be Rs8 billion. The regulators enforced this with the intention that it would make banks merge, but instead, we saw each bank successfully raising its capital. Therefore, the challenge now is to provide services to this big capital base.

The only differentiator

In banking, like in many other sectors, everything apart from human capital is becoming homogenous. All banks have the same capital base, a similar technology platform and they all provide comparable products and services that are allowed by the Nepal Rastra Bank. The only differentiator lies in the people who are using the machines, selling the services and serving the customers. Financial capital is no longer a constraint, but human capital is.

In the early 1990s, when private banks were allowed to operate in Nepal, there was a big disruption in terms of how service was delivered. Instead of paying a small amount under the table to get a token to withdraw your own money from a government-owned bank, banks started coming to you. There were more options available for people as banks started to issue credit cards and consumer loans. People who would have never been able to acquire a car or a house through accumulating wealth could hedge future earnings to buy a vehicle, a house or an education for children. It was one of the key catalysts in reducing the inequality in a country where there was only a small middle class.

Now we have come to a similar juncture where the market needs another disruption keeping the consumer in mind. Many people in my office talk about how they, their family members or their friends compare going to banks with going to a government office. Social media pages are full of complaints about financial institutions and their service delivery. Someone in my office raised the question of why the front desk people in banks looked so sad. It has become important to introspect how human capital can be the differentiator in a market that is seemingly turning into a big oligopoly instead of a free market.

Disruption is key

When private health care services were first established in Asia, hospitals started recruiting staff from hotel management institutions rather than approaching nurses in many areas of service. In India, some banks have already started recruiting staff from the hospitality industry. Gone are the days where banks recruited only from business schools. In the US, many investment banking staff now come from liberal arts colleges. These are students who have come to understand many aspects of human life through the study of liberal arts. There is also a trend where it is more difficult to employ business school students who believe that they can get better jobs for higher pay, but lack a basic understanding of society or human behaviour. Finance is relatively easier to teach; financial institutions find that it takes more time for business school graduates to learn soft skills than for liberal arts graduates to learn finance. Technology is only as good as the person using it. We tend to believe that having the best technology platform will deliver the best, but this is not true—its potential is limited to the person who is using it. Leaders across many fields use the best smartphones or laptops, but that does not make them the best communicators.

Aiming for global standards

In Nepal, we create our own concoction of enterprises. Banking in Nepal is different from how it is around the world. Banks in Nepal thrive by providing better returns to bank owners who would have pledged their shares for other businesses. Trading of shares gets more attention than banking itself. This is common across all sectors. Until we are able to adopt global benchmarks and create more Nepali benchmarks, it will be difficult to bring about change.

Industries are being disrupted by firms they never thought belonged to their league. A telecom company can give money transfer firms a run for their money, peer to peer lending platforms can give considerable competition to the lending arm of banks, and firms that can provide both debt and equity to projects give the bank’s project finance business competition. These alternatives are emerging, as people who are driving the alternatives are not there only to do their jobs, get their promotions and bonuses, and keep their job secure. There are new global standards these firms are pushing, and it is the people who are behind these firms that are changing the way banking is done.

For Nepal, with a $25 billion economy that is continuing to grow, money is not the constraint anymore; it is the people who can effectively utilise the money in a way that benefits the larger populace. Serious introspection is required in all sectors, but because banking is seen as a leading industry, the pressure on it to change is particularly immense.