Retail Banking 29 Pg

8/4/2019 Retail Banking 29 Pg

1/35

RETAIL BANKING

OBJECTIVES:-

To study the issues and challenges in retail banking

To study the recent trends in retail banking

To analyze the transforming retail banking processes andfocus on evolving process models.

To emphasize on the trends of customer relationshipmanagement in retail banking.

To estimate the future growth of Indian retail banking.

To understand Optimization of retail banking channels.


2/35

EXECUTIVE SUMMARY

Retail banking refers to provision of banking services toindividuals and small business where the financialinstitutions are dealing with large number of low valuetransactions. The concept is not new to banks but is nowviewed as an important and attractive market segment thatoffers opportunities for growth and profits.

Excess of liquidity, increased dependence of corporate oncapital markets, the rising income of middle class withincrease in purchasing power and ability to handle debts, theincreasing amount ofNPAs from corporate portfolio and thegrowth and future growth potential of the credit card

business has induced banks to shift from wholesale bankingto retail banking.

Retail banking has immense opportunities in a growingeconomy like India. As the growth story gets unfolded inIndia, retail banking is going to emerge a major driver. Someof the key policy issues relevant to the retail-banking sectorare: financial inclusion, responsible lending, and access tofinance, long-term savings, financial capability, consumer

protection, regulation and financial crime prevention.

The credit portfolio of banking business is fast changing inIndia. Retail lending is becoming an important segment ofbank credit. Large credit exposures are linked to bankscapital. Limits have to be fixed for single exposure in relationto the capital funds. A paradigm shift from corporate lendingand disintermediation are reasons responsible forresurgence. Banks are facing fierce competition not onlyamongst themselves but also from aggressive NBFC's. As a

result, interest rates on retail lending too have come down.

Risk management for banks as far as retail banking goesshould focus on risk and return characteristics of consumerloans, revenues from consumer loans, losses from consumer


3/35

loans, the collection strategies, product structuring andlending policies.Retention of consumers is going to be a major challenge.Second, rising indebtedness could turn out to be a cause for

concern in the future. Third, information technology posesboth opportunities and challenges. Even with ATM machinesand Internet Banking, many of the customers still prefer thepersonal touch of their neighborhood branch bank. Fourth,KYC Issues and money laundering risks in retail banking isyet another important issue.

Customer service is perhaps the most important dimensionof retail banking followed by constant product innovation.Quality and pace in delivery, introduction of new channels of

delivery, cross selling of products, price bundling, and mostimportant of all by become technology savy.

RETAIL BANKING AN INTRODUCTION

Retail banking refers to provision of banking services toindividuals and small business where the financialinstitutions are dealing with large number of low value

transactions. This is in contrast to wholesale banking wherethe customers are large, often multinational companies,governments and government enterprise, and the financialinstitution deal in small numbers of high value transactions.

The concept is not new to banks but is now viewed as animportant and attractive market segment that offersopportunities for growth and profits. Retail banking and retaillending are often used as synonyms but in fact, the later is

just the part of retail banking. In retail banking all the needsof individual customers are taken care of in a well-integratedmanner.

Todays retail banking sector is characterized by three basiccharacteristics:


4/35

Multiple products (deposits, credit cards, insurance,investments and securities); Multiple channels of distribution (call center, branch,internet) and

Multiple customer groups (consumer, small business,and corporate).

What is the nature of retail banking? In a recent book, retailbanking has been described as hotter than vindaloo.Considering the fact that vindaloo, the Indian-Englishinnovative curry in umpteen numbers of restaurants ofLondon, is very hot and spicy, it seems that retail banking isperceived to be the in-thing in todays world of banking. It ishowever broad in nature.

WHY ARE BANKS CHANGING TO RETAIL BANKING?

Banks are awash with liquidity. Prime corporate do notborrow from banks except at sub-PLR rates. Banks do notfavor other corporate. Suddenly there is a great change in

attitude of banks. The name of the game is no longerLending to big corporates, huge amounts to create loanassets. Banks invest their resources in government paper tothe hilt and then scout for hitherto neglected retailborrowers for lending. Retail credit is now welcomed evenfrom RBIs perspective. There are no longer any regulatoryhurdles. Consumer credit is no longer considered asunproductive, as it triggers demand for consumer products,which in turn help manufacturers in a period of economicslowdown. Retail to project credit stands to a ratio of 3: 1.While the rates of interest on consumer credit have stillfallen, there is a scope for further reduction. Perhaps,competition will further bring down the interest rates.

Fixed interest rates on housing loan have sharply fallen, butnot the floating rates, which are linked to medium and long-


5/35

term PLRs. Banks, refuse to reduce these rates, whichappears rather unfair. But then the consumers still needsinnovative products like graduated payment mortgages etc.,in place of stand alone EMI structures.

SME sector borrowers still appear to be suffering frominadequate and delayed credit delivery this sector hasimmense potential for growth and banks have to deviseinnovative strategies to fund their ventures on the principleof entrepreneurship and bankabilty rather than merecollateral securities.

Micro finance, another area of retail credit, has unfortunatelybecome a so-called priority sector credit. Perhaps it will be a

great idea if it is delinked from the obnoxious priority tagand thereby allow banks to display creativity in financing thesector, especially in rural and semi-urban areas where itspotential for positive transformation of socio-economicconditions is immense. Banks are gradually appreciating thevirtue of spreading the credit risk by financing large numberof small (Retail) borrowers.

Credit card business is growing and even government banks

have started marketing cards. Surprisingly, they still do notleverage the network of branches and availability of surplusmanpower into effective marketing. The interest rates oncredit cards that are 30 percent per annum refuse to comedown. May be with the active participation of many banks inthis lucrative business, the customer will eventually have thebenefit of low rates. Thanks to the on set of ATMs, channelmigration is visible.

The personal banking segment customers have become thecenter of attraction. It is their deposit and savings accountthat are actively sought after, and not mega deposits at aslightly higher rate of interest. Banks are truly spreadingtheir deposit net rather widely.


6/35

It perhaps apt to quote what Hugh McCulloch, secretary ofthe treasury UK, said long ago Distribute your loansrather than concentrate them in a few hands. Large loans toa single borrower or a firm, although some times proper and

necessary, are generally injudicious and frequently unsafe.Large borrowers are apt to control the bank, and when this isthe relation between a bank and its customers, it is notdifficult to decide which one in the end will suffer.

Drivers of retail business in India

What has contributed to this retail growth? Let me briefly

highlight some of the basic reasons.

First,economic prosperity and the consequent increase inpurchasing power has given a fillip to a consumer boom.Note that during the 10 years after 1992, India's economygrew at an average rate of 6.8 percent and continues togrow at the almost the same rate not many countries inthe worldmatch this performance.

Second, changing consumer demographics indicate vastpotential for growth in consumption both qualitatively andquantitatively. India is one of the countries having highestproportion (70%) of the population below 35 years of age(young population). The BRIC report of the Goldman-Sachs,which predicted a bright future for Brazil, Russia, India andChina, mentioned Indian demographic advantage as animportant positive factor for India.

Third, technological factors played a major role. Conveniencebanking in the form of debit cards, internet and phone-banking, anywhere and anytime banking has attracted manynew customers into the banking field. Technologicalinnovations relating to increasing use of credit / debit cards,ATMs, direct debits and phone banking has contributed tothe growth of retail banking in India.


7/35

Fourth, the Treasury income of the banks, which hadstrengthened the bottom lines of banks for the past fewyears, has been on the decline during the last two years. Insuch a scenario, retail business provides a good vehicle of

profit maximisation. Considering the fact that retails sharein impaired assets is far lower than the overall bank loansand advances, retail loans have put comparatively lessprovisioning burden on banks apart from diversifying theirincome streams.

Fifth, decline in interest rates have also contributed to thegrowth of retail credit by generating the demand for suchcredit.

RETAIL BANKING PRODUCTS AND SERVICES

Wide range of retail banking products and services areoffered by the banks, which cover both Depository andAdvances to suit various segments of customer like salariedpersons, businessmen, traders, professionals, pensionersetc. are as follows:- Housing loan. Personal loan. Vehicle or automobile loan. Loan for consumer goods. Credit and Debit cards-Global and international. Loan for holidays. Insurance products. Gold loans. Event loans.

Overdraft. Mutual funds etc. Leasing, hire purchase and factoring services

Retail banking depositories in various segments likechildren, housewives, salaried class, professionals etc.include the following: -


8/35

Flexi deposit accounts. Savings bank accounts. Recurring deposit account. Fixed deposit

Lockers. Other short-term deposits.

Banks are coming out with more features to add value toretail banking products and services. These are called VALUEADDED PRODUCTS AND SERVICES. These include thefollowing: -

Free collection of specified number of outstationinstruments per month.

Instant credit of outstation cheque. Concession in commission, exchange for issuance of payorders and demand drafts. Issuance of free chequebooks. Issuance of free ATM cards. Interest rate options (fixed or floating) Waiver of credit card issuance fees. Free issuance of Add On cards to the members of thecardholders.

Accident insurance cover. Arranging for insurance cover on the lockers in the bank. Reducing the fees charged on locker facilities. Free execution of standing instructions of customers. Free investment advisory services. Legal services for documentation Services to senior citizens

Other services include: -

Payment of utility bills like electricity bills, telephone billsand water bills etc. on due date. Payment of monthly or quarterly education fee for children. Payment of insurance premium on or before due dates. Demating of shares, debentures and bonds. Telephone banking.


9/35


10/35

Consumer loans are presumed to be of lower risk and NPAperception. Helps economic revival of the nation through increasedproduction activity.

Improves lifestyle and fulfills aspirations of the peoplethrough affordable credit. Innovative product development credit. Retail banking involves minimum marketing efforts in ademand driven economy. Diversifed portfolio due to huge customer base enablesbank to reduce their dependence on few or single borrower Banks can earn good profits by providing non fund based orfee based services without deploying their funds.

DISADVANTAGES

Designing own and new financial products is very costlyand time consuming for the bank. Customers now-a-days prefer net banking to branchbanking. The banks that are slow in introducing technology-based products, are finding it difficult to retain thecustomers who wish to opt for net banking. Customers are attracted towards other financial products

like mutual funds etc. Though banks are investing heavily in technology, they arenot able to exploit the same to the full extent. A major disadvantage is monitoring and follow up of hugevolume of loan accounts inducing banks to spend heavily inhuman resource department Long term loans like housing loan due to its longrepayment term in the absence of proper follow-up, canbecome NPAs. The volume of amount borrowed by a single customer is

very low as compared to wholesale banking. This does notallow banks to to exploit the advantage of earning hugeprofits from single customer as in case of wholesale banking.

OPPORTUNITIES AND CHALLENGES


11/35

Retail banking has immense opportunities in a growingeconomy like India. As the growth story gets unfolded inIndia, retail banking is going to emerge a major driver. Howdoes the world view us? The BRIC report is viewing India as

an economic superpower. A.T. Kearney, a globalmanagement-consulting firm, recently identified India as thesecond most attractive retail destination of 30 emergentmarkets.

The rise of Indian middle class is an important contributoryfactor in this regard. The percentage of middle to high-income Indian households is expected to continue rising. Theyounger population not only wields increasing purchasingpower, but as far as acquiring personal debt is concerned,

they are perhaps more comfortable than previousgenerations. Improving consumer purchasing power, coupledwith more liberal attitudes towards personal debt, iscontributing to Indias retail banking segment.

The combination of above factors promises substantialgrowth in retail sector, which at present is in the nascentstage. Due to bundling of services and delivery channels, theareas of potential conflicts of interest tend to increase inuniversal banks and financial conglomerates. Some of the

key policy issues relevant to the retail-banking sector are:financial inclusion, responsible lending, and access tofinance, long-term savings, financial capability, consumerprotection, regulation and financial crime prevention.

What are the challenges for the industry and itsstakeholders?

First, retention of consumers is going to be a majorchallenge. According to a research by Riechheld and Sasser

in the Harvard business review, 5percent increase incustomer retention can increase profitability by 35 percentin banking business, 50 percent in insurance and brokerage,and 125 percent in the consumer credit card market. Thus,banks need to emphasis on retaining consumer andincreasing the market share.


12/35

Second, rising indebtedness could turn out to be a causefor concern in the future. Indias position, of course, is notcomparable to that of developed world where household

debt as a proportion of disposable income is much higher.Such a scenario creates high uncertainty. Expressingconcerns about the high growth witnessed in consumercredit segments the reserve bank has, as a temporarymeasure, put in place risk containment measures andincreased the weight from 100 percent to 125 percent in thecase of consumer credit including personal loans and creditcards.

Third, information technology poses both opportunities

and challenges. Even with ATM machines and InternetBanking, many of the customers still prefer the personaltouch of their neighborhood branch bank. Technology hasmade it possible to deliver services throughout branchnetwork, providing instant updates to checking accounts andrapid movement of money for stock transfers. However, thisdependency on the network has bought IT departmentsadditional responsibilities and challenges in managing,maintaining and optimizing the performance of retail

banking networks. Illustratively, ensuring that all bankproducts and services are available, at all times, and acrossthe entire organization is essential for todays retail banks togenerate revenue and remain competitive. Besides, thereare network management challenges, whereby keeping thiscomplex, distributed networks and applications operatingproperly in support of business objectives becomesessential. Specific challenges include ensuring that accounttransaction applications run efficiently between the branchoffices and data centers.

Fourth, KYC Issues and money laundering risks in retailbanking is yet another important issue. Retail lending isregarded as a low risk area for money laundering because ofthe perception of the sums involved. However, competitionfor clients may also lead to KYC procedures being waived in


13/35

the bid for new business. Banks must also consider seriouslythe type of identification documents the will accept andother processes to be completed. The Reserve Bank hasissued details guidelines on application of KYC norms in

November 2004.

STRATEGIES FOR INCREASING RETAIL BANKINGBUSINESS

a.Constant product innovation to match the requirements ofthe customer segments: The customer database availablewith the banks is the best source of their demographic and

financial information and can be used by the banks fortargeting certain customer segments for new or modifiedproduct. The banks should come out with new products inthe area of securities, mutual funds and insurance

b. Quality service and quickness in delivery: As most of thebanks are offering retail products of similar nature, thecustomers can easily switchover to the one, which offersbetter service at comparatively lower costs. The quality of

service that banks offer and the experience that clientshave, matter the most. Hence, to retain the customers,banks have to come out with competitive products satisfyingthe desires of the customers at the click of a button.

c. Introduction of new delivery channels: Retail customerslike to interface with their bank through multiple channels.

Therefore, banks should try to give high quality serviceacross all service channels like branches, Internet, ATMs,

etc.

d. Tapping of unexploited potential and increasing thevolume of business. This will compensate for the thinmargins:The Indian retail banking market still remainslargely untapped giving a scope for growth to the banks andfinancial institutions. With changing psyche of Indian


14/35

consumers, who are now comfortable with the idea ofavailing loans for their personal needs, banks havetremendous potential lying in this segment. Marketingdepartments of the banks be geared up and special training

be imparted to them so that banks are successful ingrabbing more and more of retail business in the market.

e. Infrastructure outsourcing: This will help in lowering thecost of service channels combined with quality andquickness.

f. Detail market research: Banks may go for detail marketresearch, which will help them in knowing what theircompetitors are offering to their clients. This will enable

them to have an edge over their competitors and increasetheir share in retail banking pie by offering better productsand services.

g. Cross-selling of products: PSBs have an added advantageof having a wide network of branches, which gives them anopportunity to sell third-party products through thesebranches.

h. Business process outsourcing: Outsourcing ofrequirements would not only save cost and time but wouldhelp the banks in concentrating on the core business area.Banks can devote more time for marketing, customer serviceand brand building. For example, Management of ATMs canbe outsourced. This will save the banks from dealing with theintricacies of technology.

i. Tie-up arrangements: PSBs with regional concentration canreap the benefit of reaching customers across the country byentering into strategic alliance with other such banks withintensive presence in other regions. In the present regime offalling interest and stiff competition, banks are aware that itis finally the retail banking which will enable them to holdthe head above water. Hence, banks should make all outefforts to boost the retail banking by recognizing the needs


15/35

of the customers. It is essential that banks would beimaginative in predicting the customers' expectations in theever-changing tastes and environments. It is the innovativeand competitive products coupled with high quality care for

clients will only hold the key to success in this area. In short,bankers have to run very fast even to stay where they arenow. It is the survival of the fastest now and not onlysurvival of the fittest.


16/35

CUSTOMER RELATIONSHIP MANAGEMENT

IN RETAIL BANKING

IntroductionRetail banks are facing greater challenges than ever beforein executing their customer management strategies.Intensifying competition, proliferating customer contactchannels, escalating attacks on customer information, risingcustomer expectations and capitalizing on new marketopportunities are at the top of every bank executives

agenda.In looking for ways to drive growth, banks need to evaluatetheir customer management strategy. Do they currentlyhave a CRM solution that is capable of delivering: Consistent and cost-effective customer service? Customer-aligned products and services? Enhanced customer loyalty and long-term value?

CRM in retail banking: current trends andDynamics

Today, more than ever before, the ability to maximizecustomer loyalty through close and durable relationships iscritical to retail banks ability to grow their businesses. Asbanks strive to create and manage customer relationships,several emerging trends affect the approach and tools banks

employ to achieve sustainable growth. These trends reflect afundamental change in the way banks interact with thecustomers they have - and those they want to acquire.Trend: focusing on organic growth


17/35

How can a retail bank drive growth? Traditionally, bankshave grown through an aggressive strategy of acquiringdirect competitors and taking over their branch networks.

Today, that strategy is no longer sufficient, since it doesnt

create organic growth for the financial institution. To buildstronger customer loyalty, banks need improved customerknowledge to develop products and deliver services targetedat specific market segments; resulting in more directedmarketing, sales and service tactics. This is not to say M&Aswill not continue to be an effective way to expand productofferings and service capabilities. However, retail banks willfocus on acquiring businesses that have essential productsor capabilities to complete the banks portfolio of offerings.

The goal? To gain greater wallet share of current customers

and support their organic growth. A recent example of this isthe acquisition of Providian by Washington Mutual thatexpanded its credit card offering for both banking andmortgage customers.

Trend: seeking out and better serving emergingcustomer segments

One of the ways banks can achieve improved organic growthis by focusing on new markets. Emerging demographicsegments represent untapped revenue streams that can fuela banks growth. In the U.S., the Hispanic market representsa major opportunity. This fast-growing and underservedcustomer segment offers new potential revenue for retailbanks. The need every bank has is how to respond quicklyand at low cost. And this need is increasing all the time.

Trend: creating deep business insight into customerPreferences


18/35

Customer loyalty that drives organic growth can only be builtthrough a consistent customer experience. This meansunderstanding each individual customers needs andpreferences. One of the largest challenges banks face

is how to better understand their customers and providepersonalized customer service.

A one-size-fits-all customer strategy no longer works.Banks need to serve the rapidly diverging needs of allmarkets: aging baby-boomers, time-stressed mid-lifers andyounger technophiles (i.e., Gen-X and Gen-Y). Banks mustmove out of their comfort zone and develop services andproducts that address the specific needs of different marketsegments.

It is clear that financial service providers can no longersustain growth and profitability targets through mass directmail campaigns that deliver less than 1 percent responserates. Those that do will lose out to competitorsimplementing personalized communications that target theright customer, at the right time, with the right product or

service. To optimize customer relationships and loyalty,banks need to integrate processes and technologies thatenable them to build and then act upon a detailed view ofwhat each customer wants. This will require highly skilledcustomer service professionals, with the right combination oflinguistic, culturally aligned and financial services skills, aswell as the ability to deploy customer service strategiesquickly, efficiently and cost-effectively.

Trend: Responding to intensifying competitionthrough revitalized offerings

The need to revitalize a companys portfolio of offeringshappens in every industry. Examples in high-techmanufacturing, consumer industries and transportation show


19/35

how important new offerings are in order to stay competitiveas products and services become more commoditized. Thesame is true in the financial services industry. Todays retailbanks face a relentless stream of new competitors, eager to

take a share of the markets revenues. Three majorcompetitors offering differentiated products, services ordistribution models have emerged over the past decade:Brokerage and insurance firms, expanding their offering portfolios into banking products beyond their traditionalproduct sets.Nontraditional players such as PayPal (expanding throughtechnology-led channels of services) or telecommunicationscompanies (expanding by bundling of payments for likeservices) are growing by becoming payment aggregators.

Nonbanking companies looking to (if not already) enter themarket by offering banking products and services. The entryof nontraditional players will not only affect bank growthrates as they compete for consumers, but will also placedownward pressure on operating margins and profitabilitycreated through their nonbanking business models.

Renewing and reinvigorating product offerings and customerservice strategies are essential ways to stay competitive in achanging marketplace. Proactive banks will respond tomarket opportunities and competitivethreats by launching new products, entering new marketsand acquiring new customer segments. A proactive CRMsolution is the foundation that can help support this withoutdisrupting current services that would putexisting clients at risk.

Trend: Improving distribution and channel

Management

How are retail banks responding to intensified marketcompetition? To take themselves to the next level ofimproved sales and service, banks are focusing ondeveloping, implementing and integrating their channels


20/35

more rapidly and efficiently. Their goal is to meet threeobjectives:

Improved and more consistent service based on a fullcustomer view

Increased revenue through adoption of new products Improved profitability through lower productdevelopment and service costs

Forward-looking banks will simultaneously improve customerservice quality and profitability by deploying an integratedCRM strategy. Deepening relationships with their customersmeans that banks must offer their products and servicesthrough appropriate delivery channels that appealto their customers. Deploying multiple channels andintegrating them at theenterprise level give banks a consistent and full view of thecustomer. To be successful, this must include all servicechannels both physical and virtual including, call center,Web, branch, kiosk, ATM, phone and mobile devices. Toachieve this, banks need to develop technology, operationalprocesses and customer strategies to make their channelsmore effective in reaching and serving their customers. By

tailoring products or services to specific customers or marketsegments, banks will be able to increase their productadoption rate, revenues and return on investment (ROI) fornewproduct development.

Trend: safeguarding customer information

Adding to this complexity, customer privacy and information

security are under attack as never before. The threats comefrom many quarters including increasingly sophisticatedidentity thieves, constant phishing expeditions by criminalsseeking to trap unwary customers, and even inside jobswhere staff sell customer data to criminals. Expandinglegislative and industry requirements for customer security


21/35

are also increasing costs for financial services companies.Compliance with customer informationregulations is becoming increasingly complex as regulationsare growing at all operating levels:

At the global level The Payment Card Industry (PCI) Actrequires a single set of information security standards andrequirementsfor all payment organizations.At the national level The Gramm-Leach-Bliley Act not only requires that financial institutions ensure the securityand confidentiality of customer records and information butalso requires companies to protect against anticipatedthreats and unauthorized access, which could result insubstantial harm or inconvenience to a customer.

At the state level The California Information Practice Act requires businesses in California to disclose any securitybreach that occurs to any California resident whoseunencrypted personal information was, or is reasonablybelieved to have been, acquired by an unauthorized person.Against this ever-expanding background, it is vital thatbanks ensure their customer data is secure from bothinternal and external threats. The following are three keyreasons why this is so important:

If a bank loses a customers information, it invariablyloses the customer as well.

A security breach has an immense negative impact onthe value of the banks brand and reputation, hinderingthe banks ability to acquire new customers.

Under Basel II, banks without required client data

securityas a part of their risk management program must maintainhigher levels of capital reserves reducing the amountof funds available to invest in the marketplace andgenerate revenue.


22/35

By preventing security breaches and avoiding losses, bankscan actually realize a ROI from investing in security. Thismakes protecting customer data a prerequisite forcompeting effectively in the retail financial services market.

Banks must balance the cost of security against the need toshare information and service the customer, while at thesame time finding ways to secure vital customer andfinancial data for the purposes of risk management planning.


23/35

Reaping the benefits of a CRM solution

Faced with these numerous and varied trends, retail banksare reshaping the way they must interact with theircustomers. A fully integrated, enterprisewide CRM platformensures banks have the core capabilities to take fulladvantage of their customer relationships and capitalize on

these market dynamics, rather than losing out because ofthem.

Gaining Sales Momentum

In todays increasingly competitive environment, wheremaximizing organic growth is a banks priority, salesmomentum is essential. To build this momentum, banksneed to focus simultaneously on:

Increasing acquisition rates of new and emergingcustomer segments, such as the Hispanic population inthe U.S.

Improving retention of existing customers and savingat risk customers

Increasing profitability of customer relationships, eitherat the top-line through increased sales, or at thebottom-line through more cost-effective service

Improving integrated channel distribution strategies to

get the right product, to the right client, at the momentthe customer has the need

Maximizing the value and return from CRM investmentsthat have already been made

Increasing Acquisition Of New Customers


24/35

A CRM solution should help a bank target customers basedon the value they bring to the bank, now and throughoutthe life of the customer (and beyond through nextgeneration marketing). Banks need to ensure that their

value propositions have traction with the right marketsegments. This will enable the bank to identify, target andcapture new customers. Clearly,customer insight and strategy are the core differentiators forthe bank. CRM solutions (people, applications, systems andprocesses) must support these strategies to get the rightproducts and services to the right customers.

Improving Retention Of Existing Customers

Customer retention can be achieved by enhancing customersatisfaction and loyalty, improving problem resolution, andcreating the ability to identify and save at-risk customers.In fact, an at-risk customer actually represents a majoropportunity for additional revenue if handled correctly.However, the greatest danger for banks is either notidentifying at risk customers or not having the capabilitiesto do anything to recover them.For example, a customer makes a large withdrawal from his

or her account. This may signal that the customer isswitching funds to another bank. Or the customer may bebuying a house, a boat, or paying college tuition, in whichcase there are clear opportunities to sell additional productsor investments. The identification and treatment of thiscustomer should reflect his or her lifetime value. CRM-driventechniques will help retain customers and can migrate mereaccount holders into loyal, long-term, profitable customers.

Increasing The Profitability Of CustomerRelationships

Boosting revenues requires improving the product pipelineand close rates, while reducing sales and service costs. Onthe revenue side, the banks CRM solution should usecustomer intelligence to target specific offers and manage


25/35

marketing campaigns for a high likelihood of acceptance.Customer treatment strategies should be fully integratedwith a CRM platform and the processes to support them. Onthe cost side, better channel management, CRM automation

and integration will help increase the efficiency andeffectiveness of sales and service.

Improving Distribution And Channel Management

To win profitable customers and build long-termrelationships with them, banks need to have the rightinsight, products and services for the right customer at thelowest possible cost. From call centers to Web sites, everyone of a banks multiple channels must be scalable, flexible,

low-cost andfully integrated with all the other channels. This is the onlyway to consolidate customer information and provideconsistent treatment across the enterprise. Each of thebanks channels must also be able to accommodate changeand adapt to future trends in the marketplace.

Maximizing The Value Of Past CRM Investments

As new technologies and channels emerge, the need tocontrol costs and maximize the ROI from existing CRMinvestments raises many questions:

How can a bank lower its operational cost structurewhile leveraging the newest technologies such asinteractive voice recognition-based routing to improveservice quality and customer experience?

How can it manage its customer service/call centerworkforce more efficiently and effectively in an erawhen a major call center has to handle tens of million ofcalls a year from a vastly diverse spectrum ofcustomers?


26/35

How can the banks investment in customer care berefocused to create a permanently lower and moreflexible cost base perhaps through use of a commonplatform, technologies and processes?

With intensifying competition putting pressure on increasingrequired customer service levels and improving top-linerevenues, investment in new capabilities to make thecustomerrelationship stronger and more profitable is critical for futuregrowth. However, it is important for banks to maintain atight rein on their costs while deploying these solutions.

In summary, the market dynamics facing financial

services companies have never been more fluid andcomplex. In the midst of these trends is your customer.Any CRM solution invested in must be implemented withthe clear goals of improving the following:

Customer satisfaction and loyalty

Customer insight

Speed-to-market for products and services

Customer securityAll this must be done in a manner that generates

measurable increases in revenue for the bank and reducesoverall costs of service.

FUTURE OF RETAIL BANKING

How do we see the future of retail banking? What are themajor attributes of the shape of things to come in thissector?


27/35


28/35

therefore, been set up to function as a repository of creditinformation - both current and historical data on existing andpotential borrowers.

The database maintained by these institutions can beaccessed by the lending institutions. Credit Bureaus havebeen established not only in countries with developedfinancial systems but also in countries with relatively lessdeveloped financial markets, such as, Sri Lanka, Mexico,Bangladesh and the Philippines. In Indian case, the CreditInformation Bureau (India) Limited (CIBIL), incorporated in2000, aims at fulfilling the need of credit grantinginstitutions for comprehensive credit information bycollecting, collating and disseminating credit information

pertaining to both commercial and consumer borrowers. Atthe same time banks must exercise due diligence beforedeclaring a borrower asdefaulter.

Third, outsourcing has become an important issue in therecent past. With the increasing market orientation of thefinancial system and to cope with the competition as also tobenefit from the technological innovations such as, e-banking, the banks are making increasing use of"outsourcing" as a means of both reducing costs andachieving better efficiency. While outsourcing does havevarious cost advantages, it has the potential to transfer risk,management and compliance to third parties who may notbe regulated. A recent BIS Report on Outsourcing inFinancial Services developed some high-level principles. Abasic requirement in this context is that a regulated entityseeking to outsource activities should have in place a

comprehensive policy on outsourcing including acomprehensive outsourcing risk management programme toaddress the outsourced activities and the relationship withthe service provider. Application of these principles in theIndian context is under consideration.


29/35

Finally, retail banking does not refer to lending only. In thewhole story of retailing one should not forget the role playedby retail depositors. The homemaker, the retail shop keeper,the pensioners, self-employed and those employed in

unorganised sector - all need to get a place in the banks. It isin this backdrop that the Annual Policy for 2005-06 pointedout issues relating to financial exclusion and had announcedthat the RBI would implement policies to encourage bankswhich provide extensive services while disincentivising thosewhich are not responsive to the banking needs of thecommunity, including the underprivileged.

Furthermore, the nature, scope and cost of services need tobe monitored to assess whether there is any denial, implicit

or explicit, of basic banking services to the common personand banks have been urged to review their existing practicesto align them with the objective of financial inclusion.

PARADOX OF RETAIL BANKING-2015

Any serious discussion of the future of the retail banking

industry eventually raises a basic question: will futurecustomers still need retail banks? The answer, it turnsout, depends on banks themselves. With technology andnonblank businesses providing new options for safeguardingand managing their finances, customers will continue todepend on banks only as long as banks can provide serviceand value that cannot be found anywhere else.

There are already signs that customers are questioning theability of banks to look out for their financial wellbeing. Only

36 percent of consumers believe what banks tell them,according to a Forrester survey.1 A separate survey alsoindicates that over 60 percent of U.S. households conducttheir own research before buying financial servicesproducts.2 As a result, banks have begun to rethink what,where and how they serve an increasingly informed anddemanding customer base. At the same time, a confluence


30/35

of industry developments, including consolidation,regulation, industry specialization, changing workforce needsand new technologies are putting additional pressure onbanks operating models and raising questions about

traditional strategies for growth and value creation. So, whatwill the future look like? How will banks continue to growrevenues and remain profitable? What will it take to createand maintain advantage in this highly competitive industry?An examination of the forces shaping the industry revealsthat the future will require superior efficiency andoperational excellence from all banks, while industryleadership will be attained by those institutions most adeptat harnessing product, service and process innovation toanticipate and meet customer needs. Ultimately, to deliver

on these imperatives, banks will have to focus on their corestrengths those activities in which they excel andpartner with best-in-class specialists for everything else:achieving more by doing less. On the surface, thecompetitive landscape of the retailbanking industry in 2015 will not look much different than itdoes today. Mergers and acquisitions will likely have reducedthe total number of banks, especially mid-tier regionalbanks, and industry specialists and non-bank

banks will play a more prominent role. But most of todaysplayers, including universal banks, community banks,industry specialist banks and non-bank banks, will still bevying to differentiate themselves in a crowded marketplace.However, traditional approaches to creating value throughgrowth and efficiency will no longer be enough. Advantagesgained through acquisition, new market entry andreconfigured product offerings will be fleeting at best, whilepartnering and outsourcing will make efficiency abasic requirement for all. Through market research andinterviews with industry executives, the IBM Institute forBusiness Value identifiedive major industry trends that will impact the retail banking

industry. By 2015, the combined implications of these trendswill create an environment in which nothing less than sharpfocus and excellence in day-to-day operations will be


31/35

acceptable, and banks will have to generate growth throughcontinuous innovation or be left behind:

Customers redefine the rules of the game

Pronounced shifts in demographics, attitudes and behaviors,in addition to ubiquitous information, are giving customersthe power to demand much greater responsiveness andtransparency from their banks.

Universal banks and ultra-focused niche playersthrive Large players will generate higher aggregate profits byreaping the benefits of super scale, while niche players willaggressively pursue the most desirable customers by

addressing their needs in distinct ways those in the middlewill get squeezed.

Changing workforce composition dictates newapproaches An older and increasingly mobile and diverse workforce willraise management complexity and require flexibleapproaches to compensation and performance management.

Regulatory burdens intensify

Heightened requirements around privacy, security,partnership risk and

operational risk will require banks to take a more proactive,enterprisewide approach to managing compliance issues.

Technology improves inexorably to enablebreakaway

value Advanced technologies will allow banks to infuse theirlegacy operating models and infrastructures withunprecedented functionality. Emerging technologies such asgrid computing, service-oriented architectures, virtualizationof data and storage, and predictive intelligence will causeentrenched insourcing philosophies to perish in favor of a


32/35

partnership model where specialized enterprises thrive. Ofthese trends, the first two increasingly powerful customers and intensifying

competition

stand out as the most significant forces that will driveindustry change over the next decade. The other threetrends changes in managing human capital, regulations andtechnologies will strongly contribute to and reinforce the effects ofintensifying competition and customer empowerment onbanks strategic choices.

In this emerging environment, innovation will take many

forms, including advances in products and services, markets,operational processes, customer intimacy, and new channeland diversification strategies. But innovation will not bepossible, nor will it have the desired impact, unless bankscreate the requisite conditions for innovation development.

There are four strategic imperatives banks must follow tocultivate innovation and position themselves for sustainablegrowth:

Focus on core strengths and partner for everythingelse Leading banks will optimize their performance bybecoming specialized enterprises, managing only strategic,differentiating business components internally andpartnering with best-in-class specialists for thosecapabilities that do not drive competitive advantage.

Optimize the potential of each customer relationshipRather than attempting to be all things to all people,industry leaders will use superior customer insights to offerthe most appropriate and profitable products, tools andservices to targeted segments.

Harness the potential of the workforce through


33/35

effective performance management Banks will need torealign skills and set the right performance metrics tomotivate a changing workforce to continuously pursueinnovation.

Recognize that technology will be a critical elementofsuccess By making technology a central component of thestrategic decision making process, banks will be able totightly align their business and technology initiatives, andwill be able to differentiate their offerings and seize marketopportunities with greater agility.


34/35

REFERENCES

Consumer lending in India: Growing pains in retailbanking. The Economist. May 19, 2005.

The paradox of Banking 2015 - Achieving more by doingless. IBM Business Consulting Services. 2007.

EDS viewpoint paper customer relationship management inretail banking.


35/35

BIBLIOGRAPHY

www.Rbi.org

www.indiastat.comwww.contentsutra.comwww.dnaindia.comwww.indiainfo.comwww.ocw.mit.eduwww.emeraldinsight.comwww.Google.comwww.Indiastat.comwww.Timesofindia.com
http://www.rbi.org/http://www.indiastat.com/http://www.contentsutra.com/http://www.dnaindia.com/http://www.indiainfo.com/http://www.ocw.mit.edu/http://www.emeraldinsight.com/http://www.google.com/http://www.indiastat.com/http://www.timesofindia.com/http://www.timesofindia.com/http://www.rbi.org/http://www.indiastat.com/http://www.contentsutra.com/http://www.dnaindia.com/http://www.indiainfo.com/http://www.ocw.mit.edu/http://www.emeraldinsight.com/http://www.google.com/http://www.indiastat.com/http://www.timesofindia.com/

Retail Banking 29 Pg

Documents

Transcript of Retail Banking 29 Pg