Atish BakshiXIMB

Xavier Institute of Management Bhubaneswar

DIGITAL V/S BRANCH BANKING – A COMPARATIVE STUDY AND RECOMMENDATIONS FOR DIGITIZATION

Executive Summary

Background

Benefits to Stakeholders

Engagement Overview

Survey Results

Implementation Roadmap

Way forward

Banks need to redefine their business models to keep up with digitization to enhance customer experience. 50-70% higher levels of primary banking relation with customers is possible through digitization. Globally, around 78.8% of customers having positive banking experiences believed that their banks take care of their needs.

• For Customers: Positive Customer Experience, Enhanced Trust, Convenient, less time consuming

• For Bank: Reduced Costs, Increased Revenues, Broader Customer Base

• For Society: Greater financial inclusion, technological innovation, less costs of banking

Develop Strategy for Digitization, Develop systems and governance procedures for implementing digitization strategy, engage customers at digital touch points, use data analytics to gain deeper insights into customer needs, develop customized products/services

Aim for total digitization within 3-5 years. Gradual digitization of processes will reduce costs which could be re-invested in newer technologies. Enhancing customer experience should be the primary motive.

• 71.8% respondents most often use Digital Banking

• Time Constraint, Convenience, Regular Updates are important factors to consider.

• SWOT Analysis of Branch and Digital Banking

• PEST Analysis • Primary Research to derive

important factors for customer banking experience

• Plan for going digital and requirements for the plan

• Digitization Roadmap

BANKING INDUSTRY HIGHLIGHTS AND PROJECTIONS

Robust Asset Growth

• FY 13 Total Asset Size: USD 1.8 Trn

• FY 12 Total Asset Size: USD 1.5 Trn

• FY 10 Total Asset Size: USD 1.3 Trn

Credit off-take growth

• FY06–13, credit off-take CAGR = 22.8% (USD 991 billion)

• FY 14 Estimated credit off-take = USD1140 billion

Deposit growth

• FY06–13, deposits CAGR = 21.2% (USD 1274.3 billion)

• FY 14 Estimated deposits = USD 1452.7 billion

High ATM and Rural Penetration

• Estimated ATMs per million population to rise from 85 to 170

• Banking connectivity has increased from 67694 to 211234 villages in 2013

Sources: Planning Commission, RBI, Aranca Research

SWOT Analysis for Branch Banking

PERSONAL TOUCH

EASY TO ACQUIRE GOODWILL

MORE MARKET PENETRATION

BETTER GRIEVANCE REDRESSAL

STRENGTHS

CUSTOMER WAITING TIME

MAINTENANCE EXPENSES

DOCUMENT MANAGEMENT

FIXED TIMINGS FOR OPERATIONS

BRANCH LIQUIDITY ISSUES

WEAKNESSES

RURAL BRANCHES

SELF SERVICE BRANCHES

MSME SECTOR MAY PREFER

OPPORTUNITIES

DIGITIZED TRANSACTIONS

MORE INTERNET ACCESSIBLITY

NBFCs

TECHNOLOGICAL OBSOLESCENCE

THREATS

SWOT Analysis for Digital Banking

QUICKER TRANSACTIONS

LOW MAINTENANCE COSTS

EASY DATA ANALYTICS

ANYTIME, ANYWHERE

LATEST TECHNOLOGY

STRENGTHS

NO PERSONAL TOUCH IN SERVICE

DEPENDS ON INTERNET ACCESSIBILTIY AND LITERACY

SECURITY AND PRIVACY

INCREASED EMPLOYEE TURNOVER

WEAKNESSES

NEW DIGITAL PRODUCTS/SERVICES

PROCESS INNOVATION

THIRD PARTY PARTNERSHIPS (EG: E-COMMERCE STORES)

CUSTOMIZED CUSTOMER SERVICE

CONSUMER-SPECIFIC PRODUCTS

OPPORTUNITIES

TECHNOLOGY RISK

CONSTANT UPGRADATION OF TECHNOLOGY

THREATS

PEST Analysis for Digital Banking

Political Economical Social Technological

• Government’s Pradhan Mantri Jan-Dhan Yojana Programme

• SEBI includes NEFT and RTGS as payment modes for dividend and other cash benefits

• RBI has simplified the rules for credit to exporters

• GDP on the rise (expected CAGR 7% over 2012-17)

• Increase in lending to self-employed women (USD 31 bn in 2010 to USD 43 bn in 2012)

• 30-50% higher cross-selling of products than traditional banking models.

• Digital banks can have a cost-income ratio advantage of around 10-15% over traditional banks.

• More than 50% customers worldwide are thinking of switching or are unsure of staying with their bank in the next 6 months

• Globally, around 89.4% of Customers having positive banking experiences also trust their banks.

• Number of people using net banking rose to 7% in 2012

• India’s working age population estimated to grow at 3.01% CAGR over next 5 years

• Data Analytics• Big Data• Cloud • Indian banks

devoting around 15% of total spending on technology

• Estimated 9.8% increase in spending on IT products and services for Indian banks

• Tele-density in rural India up to 40.8% in February 2013 from <1% in 2007

Benefits of Digital Banking

Faster, secure

processing

Instant High Quality

Information

Wide range of products

Price transparency

Lean channel structure

Streamlined governance

Integrated IT infrastructure

Enhanced revenue model

External Benefits

Internal Benefits

Improved, digitally enabled risk analysis and

compliance tools

Multichannel Integration

Digital tracking of client interactions, leveraging “big data”

Increased wallet share, lower Opex, revenue growth

Multichannel Integration

Effective customer acquisition, Interactive client education

More product and service customization

Faster response times, Reduced cost for delivery, Higher self-service rate

BENEFITS OF

DIGITAL BANKING

Primary Research Results

Research Details

• Sample Size: 103• Survey Method: Internet Survey• Analysis: Discriminant Analysis with 9 variables (SPSS

used)• Two Groups: Use Digital Banking Often (coded as 0) and

Use Branch Banking Often (coded as 1)• Only 17.1% of variation in discriminant scores

not explained by differences between two groups. Indicative of a good model

• The variable Convenience has the highest discriminating power and is the most important factor that people consider when choosing between digital and branch banking.

• 100% of the cases have been classified correctly using the 9 independent variables. Indicates an excellent model for prediction.

• Time Constraint, Convenience, Regular Updates are important factors to consider for digital banking.

Transformation of Business Model

Traditional Business Model

Extensive documentation and paperwork involved when financing a customer’s purchase

Core business takes place at branches

Act as a medium between customer and third parties from whom the customer is buying

Branch help desks for more insightful assistance and personalized service

Digital Banking Business Model

Financing is hassle-free, available to customer anytime, on the spot through mobile, laptop etc

Core business takes place digitally, branches are there for specialized operations

Partner with third parties from whom the customer buys to influence his/her purchases

Provide personalized service digitally by harnessing the power of call centers, social media and data analytics

BANKING BUSINESS

RETAIL PRIVATEWHOLESALE

Banking and Financial Institutions

Corporate and Investment Banking

Emerging Corporate

Financial Markets

Agricultural and Rural Banking

Business Banking

Retail Assets

Retail Deposits

Credit Desk

Capital Market Operations

Advisory Desk

Private Bankers

Compliance and Products

In such a model, the segments in each business line work in silos. Customer and product information are usually not shared between segments which leads to repetitive processes of customer data collection, verification, risk attribution etc. Moreover, products in each segment are designed on the basis of customer information gathered from that segment only. This stutters innovation.

ING Vysya’s Current Structure

The plan for going digital is to first integrate activities across segments. The objective is to reduce duplication of business process and products by doing away with repetitive processes that are common to various segments.

The primary objective of the digital model would be to create value from customer information. Instead of focusing on pre-designed products, the focus should be on the customer and to design customized products on the basis of consumer data.

What to consider for going digital?

Infrastructure

Data

Content Mgmt.

Analytics

Third Party Partners

User Interface at

Touch points

BI, content lifecycle analysis, product evaluation

Master Data Mgmt., unified reporting and integration of data

Integrated structure for easy storage and distribution of data.

Real-time data analysis on the basis of customer, product, channel etc

Unique and consistent user interface for a better user experience

Partnerships for client-facing processes, gamification, mobile applications

Plan for Implementing Digital Banking

CUSTOMER DATABASE

ORIGINATION SYSTEM

DEDICATED SERVICES

INDEPENDENT PROCESS SUPPORT

DATA REPOSITORY

PRODUCT MAINTENANCE SYSTEMS

All front-end systems consolidated into one origination system for product origination. Needs extensive integration with customer database.

Will provide front-end staff with latest information on customers.

Specific functionality providers to all front-end operations. Eg: Credit Appraisal

Should be independent of customer and product. Supports execution of processes.

Maintains originated products. Should be capable of scaling.

Customer data and product data to be stored separately for better analytics

Requirements For The Digital Model

Decide Digitization

Strategy

Design System for

Implementing Strategy

Decide on the Governance of

Digitization Strategy

New Customer Engagement

Implementation of the

Digitization Strategy with

existing customers and

products/services

Customer Data Collection

New Product/Service

Origination

Build In-house or Buy? Understand

digital consumer value chain, the solutions available and the

bank’s own capabilities

Channel Integration, Content management capabilities,

Value added services, Social Media Analytics, Community

Collaboration Platforms, Master Data Management System

Periodic Measurement andReporting, Roles & Responsibilities of Governance Board, Policies and Guidelines for regulatory compliance and information security, Organizational change management, knowledge management and sharing

Full or phased implementation? Understand resources available in target areas, cost-benefit analysis,

competitor analysis

New Customers are targeted and engaged at various digital touch

points

Collect and maintain a repository of customer data. This is a continuous

process. Data Analytics will be used to gain deeper insights into customer needs

Develop customized products from

customer data. Enhance Customer

Experience

Innovate business processes and try to enhance customer

experience at different touch

points

Roadmap to Digital Banking for ING Vysya

Continuous Process

New Customer Segmentation based on data

Segment potential customers on the basis of analyzed

data.

Products & Service Delivery After Digitization

PRODUCT/SERVICE PRESENT DELIVERY METHOD DELIVERY METHOD AFTER DIGITIZATION

REMARKS

Current & Savings Bank Accounts Apply Online/OfflineForm Fill OfflineDocument Verification Offline

Apply Online/OfflineForm Fill Online/OfflineDocument Verification Online/Offline

Online forms can be floated whereby customers can submit scanned copies of documents. Online verification saves time for the customers.

Forex Services Form Fill Offline, Transaction Offline Form Fill Offline, Transaction Offline Usually high touch service, therefore should be concentrated at the branches. Survey shows customers are willing to visit branch for Forex Services

Card Origination Apply Online/Offline, Form Fill Offline, Document Verification Offline

Apply Online/Offline, Form Fill Online/Offline, Document Verification Online/Offline

Online forms can be floated whereby customers can submit scanned copies of documents. Online verification saves time for the customers.Monitor card usage to gain information about purchases.

Change of Customer Details Form Fill Offline, Verification Offline Form Fill Online/Offline, Verification Online/Offline

Customer documentation submitted and verified online. Saves time and is more convenient.

Wealth Management Services Online/Offline Online/Offline Usually availed by HNIs, this should be at the discretion of customers. However, generally online reporting is encouraged.

Insurance Services Online/Offline Online/Offline Document verification online and examination of underlying asset should be at the customer’s doorsteps.

Research Files and References

Discriminant Output.spvDiscriminant Data.savMicrosoft Excel

WorksheetSURVEY DATA AND FILES:

References:• http://www.pwc.com/gx/en/banking-capital-markets/publications/digital-banking-survey.jhtml• http://www.slideshare.net/morellimarc/report-15092014• http://www.wordstream.com/blog/ws/2014/05/12/customer-churn• http://www.in.capgemini.com/thought-leadership/world-retail-banking-report-2013• http://www.executiveboard.com/exbd/about/index.page?• http://www.livemint.com/Opinion/TOfsav5Xaj2HZhtGNASgaN/Getting-financial-inclusion-back-on-track.html• http://www.atkearney.com/paper/-/asset_publisher/dVxv4Hz2h8bS/content/banking-in-a-digital-world/10192• Indian Bank's Association, Indian Banking Sector 2020, Business India Aranca Research • PWC, ‘Searching for new frontiers of growth’, Aranca Research • Capgemini Analysis, 2013; 2013 Retail Banking Voice of the Customer Survey, Capgemini• “DIGITAL BANKING”- Opportunity for Extraordinary Gains in Reach, Service, and Productivity in the Next 5

Years, Boston Consulting Group (BCG), FICCI, IBA

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