DISTRIBUTION OF BANKING

SERVICES

* Types and Functions

DIVISIONS

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BANKING

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TREASURY AND SECURITIES SERVICE

CARD

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ASSET AND WEALTH MANAGEMENT

RETAIL FINANCIAL SERVICES

Functions of a Bank are as follows:-•Accepting deposits from Public•Lending money to public•Remittances/Collection Business•Keeping valuables in safe custody•Government business•Acting as trustee•Treasury services•Capital Market activity

Types of BankingWhen we talk about banks, we are talking about several different types of financial institutions, conducting different kinds of business. Some banks are very large and carry out many different functions, others are more specialized. Some have operated for hundreds of years and some have taken on new kinds of business quite recently.Not all banks carry out the same range of activities. Banking activities can be generally divided into the following types:

Central BankingThe duty of central banks is to maintain financial stability, otherwise a country's economy will not operate properly. Central banks act as regulators of their country's interest rates by controlling the amount of money in circulation and buying and selling currencies. They amass reserves and act as lenders of last resort, should another bank get into trouble. They exist as a separate entity from all the other banks.

Retail BankingRetail banks are the high street banks we are all familiar with. They take deposits from individuals, provide saving facilities and pay interest on these accounts. They also lend money to individuals, in the form of loans and overdrafts, and charge interest on the money they lend. They provide a range of other financial services.

Commercial BankingCommercial banks, or divisions of banks, provide banking services to businesses, from small companies through to corporate banking directed at large corporations. They help companies raise finance to expand their businesses and to maintain their cashflow by lending them money. They provide a wide range of other financial services.

Investment BankingInvestment banks distribute and underwrite (guarantee the sale of) share and bond issues; they trade securities on the financial markets and advise corporations on capital market activities such as mergers and acquisitions. Investment banks originally developed in the USA and these banks have now taken over many roles that were previously carried out by UK merchant banks.

Universal BanksAlthough some investment banks exist as separate institutions (in the United States between 1933 and 1999 investment banking and commercial banking had to be kept apart by law) in the United Kingdom, most larger commercial/retail banks also have an investment section in the company. The divisions work separately, as the work and knowledge required for each division is very different. These very large banks are known as universal or conglomerate banks.However, there is now pressure from many governments to keep investment banking separate from commercial and retail banking. If an investment bank gets it wrong and buys the wrong commodities, they can lose vast amounts of money and even go bust. Investment banking, if it goes well, can make huge amounts of money. Unlike retail and commercial banking, investment banking is a very high risk form of banking.

Products and Services offered by Banks

The different products in a bank can be broadly classified into: •Retail Banking•Trade Finance•Treasury Operations.•Retail Banking and Trade finance operations are conducted at the branch level while the wholesale banking operations, which cover treasury operations, are at the head office or a designated branch.

Retail Banking:•Deposits•Loans, Cash Credit and Overdraft•Negotiating for Loans and advances•Remittances•Book-Keeping (maintaining all accounting records)•Receiving all kinds of bonds valuable for safe keeping

Trade Finance: •Issuing and confirming of letter of credit.•Drawing, accepting, discounting, buying, selling, collecting of bills of exchange, promissory notes, drafts, bill of lading and other securities.

Treasury Operations: •Buying and selling of bullion. Foreign exchange•Acquiring, holding, underwriting and dealing in shares, debentures, etc.•Purchasing and selling of bonds and securities on behalf of constituents.•The banks can also act as an agent of the Government or local authority. They insure, guarantee, underwrite, participate in managing and carrying out issue of shares, debentures, etc. •Apart from the above-mentioned functions of the bank, the bank provides a whole lot of other services like investment counseling for individuals, short-term funds management and portfolio management for individuals and companies. It undertakes the inward and outward remittances with reference to foreign exchange and collection of varied types for the Government.

Banking Services at a Glance

•Banking covers many services, these basic services have always been recognized as the hallmark of the genuine banker. These are…•The receipt of the customer’s deposits •The collection of cheques drawn on other banks•The payment of the customer’s cheques drawn on himself•There are other various types of banking services like:

Advances – Overdraft, Cash Credit, etc. Deposits – Saving Account, Current Account, etc. Financial Services – Bill discounting etc. Foreign Services – Providing foreign currency, travelers cheques, etc. Money Transmission – Funds transfer etc. Savings – Fixed deposits, etc. Services of place or time – ATM Services Status – Debit Cards, Credit Cards, etc.

Distribution of Banking Products and Services

Starting with the ’90s, retails banks have faced several challenges. One of the most important challenge of a bank is how to efficiently reach the customer, with the right product or service, at the right time. Today, they can choose between branches, contact centers, ATMs, online channels, portals and web banks. Multichannel banking is, therefore, more relevant than ever. Multichannel banking is more than just offering multiple channels, but offering integrated channels, with the optimal balance of services, prices and offer across channels. Banks should have the ability to deliver the right service at the right time in the right channel. Retail bank distribution 2015—Full digitalization with a human touch

The digital transformation of retail banking has so far taken place in two stages – but the most exciting and groundbreaking one is only just starting. As a result banks will have to make changes to all their distribution channels. We believe that the key developments will be as follows:

Branch networks will be radically transformed into sales and advice outlets—they will be 20 percent more productive than today and their costs will be up to 50 percent lower.

Digital channels will be designed to create a “wow” experience for the user, thereby capturing these channels’ full sales potential (more than 20 percent of all product sales at the moment start with an online enquiry or investigation)

Call centers will become a profitable, professional channel in which video technology is increasingly used. As a result 15 percent of service requests will typically be converted into sales.

Banks will manage these different channels so that service from the customer’s perspective is seamless and ‘end-to-end’ and from its own perspective it captures sales that are currently being lost.

Minimum amount of all product sales that start with an online enquiry or investigation.

Without decisive action, banks risk being stuck with an expensive and inflexible distribution set-up. To start the journey, top management should look at metrics and governance in a less branch-centric way and should launch a series of multichannel mini-transformations both within and across the different channels.

An overview of retail banking’s distribution transformation

1980-2000 – Digitalization of payments: In this period ATMs, cards and tele-banking replaced paper-based payments as banks sought to capture new cost saving opportunities and reach customers previously excluded from the mainstream banking system. All banks have now completed this part of the ‘journey’.

2000-2010 – Digitalization of basic banking: Over the first decade of the 21st century most customers started being able to access their banks remotely 24/7 for the bulk of low-value added activities. Benefits included greater convenience for them and further cost efficiencies for the bank. This part of the journey is not yet complete but most European players are well advanced along the road.

2010-2015 – Full digitalization with a human touch: Banks are only just beginning to provide the ultimate client experience, namely digitalization of sales and after-sales service combined with continued face-to-face interactions for the more complex products. Thanks in part to the development of mobile banking, sales of products either transacted online or influenced by online marketing are expected in the medium term to grow to the point where they represent roughly 60% of the total.In the following chapters we will discuss what’s involved in the third part of the digital journey, as well as how a bank can make the transformation happen.

Distribution in bankingA distribution channel is a route to the market for a supplier. In the case of a bank, the distribution channel is the way the banking product or service takes from the bank to the customer.

Types of distribution channels

1. Branches These are the face of the bank and the place where the client meets the bank. The distribution is made by the traditional counter. The bank’s president is far away and not always known to customers. However, the client manager is close, he advises, listens to the client, makes clients’ financial life easier790.

2. Specialized branches have been created as an alternative for the classic branches. These specialized branches are focused on a certain type of activity such as: operations for individuals, for small business or for corporate clients. Banks have opened such branches in supermarkets or malls. The main reason for establishing such branches was to have a close relationship with these corporate customers and to provide services of interests for their clients. Their primary activities are the consumer loans and basic operations for individuals (payments, foreign exchanges etc.). BRD-GSG, ING Bank were the first banks to open such branches in Romania.

3. Among the specialized branches, we can also mention: the mortgage branches whose focus is on selling mortgage loans. Raiffeisen Bank created such a branch named „Raiffeisen – Casa Ta” as a result of the high demand for mortgage loans and the complexity of these products.

4. Self banking branches were first created by ING. These branches have two areas: one where the customers are served by bank employees (usually 3 or 4 persons) during the normal working hours and one where the customers can use self banking devices. These can be used all day long (24h/24, 7 days/7). Here, the clients can make deposits, payments, cash withdrawals, invoice payments, repayments of loans installments. BRD-GSG, RBS have also created such self banking branches.

5. Mobile branches were first used by Raiffeisen Banca pentru Locuite. The bank did not have a branch network and the products were delivered by the help of sales agents. The bank started a banking caravan which reached the most important cities in Romania. The aim of this caravan was to promote and to sell the bank’s products. These branches had a rapid installation (2 weeks) and can be easily relocated to another place (if necessary). The opening hours were 2-3 days/week, 3-4 hours/day.

6. Banking cafes were first settled in Romania by Banca Transilvania. The banking cafe is the result of a partnership between a bank and a cafe. The branch that is located in a cafe can offer a full range of products and services. This concept was later developed by ING, Volksbank, BRD.

7. Direct mail is another distribution channel for banking products and services. The aim of delivering the banking products and services by mail can be, not only just simply informing the clients about a new product but also convincing the client to buy a certain product. The main advantage of delivering by mail is the fact that the bank can promote its products and services to a certain segment of clients. In this way, the bank can target a certain group of clients in order for the message and products to be tailored accordingly.

8. Automatic teller machines (ATMs) were first introduced in Romania in 1995. ATMs have been rapidly moving from just a cash-dispensing machine to a self-service banking channel. ATMs can increase the marketing potential by providing services to clients in others places than the bank branches. ATMs are an alternative for crowded desks in branches. The clients appreciate the user-friendly feature of ATMs , the large number of operations that can be done through ATMs, the speed and the security of these devices and last but not least the theoretically unlimited availability of ATMs.

9. EFTPOS (Electronic Funds Transfer at Point of Sale) is a payment method that can be described as a distribution channel. EFTPOS is a system by which the clients pay the services they acquired just by using a bank card. This system is very used when shopping, travelling, buying tickets. The client has the possibility of choosing from a large variety of channels: phone, ATM, POS, Internet. ‘Martini banking’ is a new form which signifies the presence of the banking products and services, anywhere and any time.

10. Call centers - Raiffeisen Bank was the first bank to start up a call center in Romania in 2004. Up until that moment, the only possibility to contact the bank by phone was through the branches’ numbers. The only dedicated phone-line for a bank was the one related to card problems. Through call centers, all the information is received for free and one client can choose from a large range of services. The most important issue is to ensure the security of this service. Nowadays, the call centers are used as a marketing tool.

11. Internet banking. The Internet-driven information revolution is widely seen to be transforming the way both business and consumer operate. The Internet became a distribution channel by providing an entire range of services: payments, information about account balances. The Internet is also a tool for acquiring new clients by online applications for different products.

Biometric ATM’s• These ATMs use the finger print of the card holder or eye retina scan as a PIN for

verification purpose• Banks are more focused to put these ATMs in rural areas because biometrics

makes it possible for the low literacy population to use banks

M-Pesa• M-pesa is a mobile-phone based money transfer and micro financing service,

which allows users with a national ID to use their money easily with a mobile• Vodafone is expected to launch M-pesa in India, in association with ICICI & HDFC

bank

Plastic Money• Plastic money, cash cards, credit/debit cards and polymer notes will boom as the

e-commerce space boom in India and people get used to the idea of carrying less cash

• Many cards have a micro chip embedded in them which makes it a transit card also

Virtual Banking• This technology will have a deep impact on the lives of professionals who believe

in the life-on-the-go approach• A user can have access to his/her bank accounts at a nominal cost and at a fast

speed from anywhere in the world

Innovation In The Banking Industry

Retail banking - challenges ahead in distribution channels in urban/rural India

The promise of lower transaction costs, increased sales productivity, and more convenient service has lured banks into setting up new delivery channels. Earlier, vast brick and mortar branch network has been considered as an inherent advantage of established banks and new entrants were at huge disadvantage. The goal for banks’ senior management is to turn today’s “all things to all people” branch network into highly differentiated system for delivery of multiple products. These can come in many forms, but at their most basic they entail understanding customer needs for the delivery of different products, how these needs vary by customer types, current customer behavior, and customer profitability. It is this multifaceted understanding of customers that yields actionable implications for distribution strategy.

The steps to be followed in making a new distribution channel successful: a) Understand customers’ current channel/transaction behavior and their

underlying attitude; b) Use sophisticated experimental customer research to assess the

economic impact of tactics designed to change that behavior;c) Develop an integrated channel migration plan which blends economic

and non-economic incentives to ensure that right initiatives are targeted at the right customers;

d) Protect sales effectiveness by utilizing the ability of non-branch channels to select amongst prospects and differentiate the marketing message;

e) Design non-branch channels to emphasize personalized interaction to counteract decreased loyalty among remote customers;

f) Develop tracking mechanisms to allow you to assess and revise your migration strategy on an ongoing basis.

Turning our attention to delivery channels used by banks in India, in comparison with their international counterparts, it is observed that the banks are yet to exploit the delivery channels to the maximum extent technology permits. Increase in off-site delivery channels has led to new product development, speed of transaction processing and reduction in transaction costs. In India the major issue about new technology related delivery channels is their impact on the processing of information, which lies at the core of banking business. Inspite of their advantages, reliance on technology based delivery channels often exacerbates traditional risks: operational risk, reputational risk and legal risk, besides emergence of other risks. ATMs still remain the most successful delivery channel followed by internet banking and Telephone banking.

Distribution Network of various Commercial banks in India

1. HDFC BankHDFC Bank is headquartered in Mumbai. As of June 30, 2015, the Bank’s distribution network was at 4,101 branches. All branches are linked on an online real-time basis. Customers across India are also serviced through multiple delivery channels such as Phone Banking, Net Banking, Mobile Banking and SMS based banking.

2. ICICI Bank The Bank continued to leverage its strengths in the use of modern banking technology to further improve its customer service. Initiatives in this regard included launch of new products, such as bank@campus for students and kid-e-bank for small children. Both these products are web-enabled and offer many innovative and attractive features to the target customers. The Bank's web-enabled credit cards launched during January 2000 have received a good response.The Bank has concluded arrangements with various service providers and along with other companies in the ICICI group, offers its customers a suite of banking and utility products through the Internet. Towards this end, it provides a whole range of services under B2B, B2C, mobile banking, etc.

Network expansionDuring the quarter, the Bank crossed two milestones by opening more than 100 offices and installing more than 200 Automated Teller Machines (ATMs). During the first quarter, the Bank expanded its distribution network by opening 4 branches and installing 33 additional work-site and off-site ATMs. As at June 30, 2000, the Bank’s physical network consisted of 85 branches and 16 extension counters. The Bank had 208 ATMs – the largest network of ATMs in the country - spread across 49 centres in 17 States and Union Territories. This physical distribution network is complemented by other technology driven delivery channels such as web-enabled kiosks, call centres, mobile phones and the Internet.

3. Central Bank of India Among the Public Sector Banks, Central Bank of India can be truly described as an All India Bank, due to distribution of its large network in all 29 States as also in 6 out of 7 Union Territories in India. Central Bank of India holds a very prominent place among the Public Sector Banks on account of its network of 4695 Branches, 4 Extension  counters, along with 29 Satellite Offices (as on May 2015) at various centres throughout the length and breadth of the country.

ConclusionAs we could see, most banks operate through various distribution channels. The expectation was that customers would eventually conduct most of their business online or by phone. However, current studies suggest that customers still prefer the branches. Over the last decade, banks have made considerable investments in the development of services that are not based in the branch. (this has led to a dramatic increase in the use of Internet and mobile banking, whilst the role of the ATM has also increased). Multichannel banking is, therefore, more relevant than ever. Multichannel banking is more than just offering multiple channels, but offering integrated channels, with the optimal balance of services, prices and offer across channels. Banks should have the ability to deliver the right service at the right time in the right channel. The bank should define exactly how they are going to use each channels, which services and products in which channels, how to mix and integrate the channels and how to support the channels. To do this, they need to understand customer behavior, channels performance and the channel’s operating cost. However, managing and integrating the distribution channels within an increasingly complex and challenging operating environment has become very difficult.