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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 and focus on evolving
process models.
To emphasize on the trends of customer relationship management in retailbanking.
To estimate the future growth of Indian retail banking.
To understand Optimization of retail banking channels.
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EXECUTIVE SUMMARY
Retail banking refers to provision of banking services to individuals and
small business where the financial institutions are dealing with large number
of low value transactions. The concept is not new to banks but is now
viewed as an important and attractive market segment that offers
opportunities for growth and profits.
Excess of liquidity, increased dependence of corporates on capital markets,
the rising income of middle class with increase in purchasing power and
ability to handle debts, the increaseing amount of NPAs from corporate
portfolio and the growth and future growth potential of the credit card
business has induced banks to shift from wholesale banking to retail
banking.
Retail banking has immense opportunities in a growing economy like India.
As the growth story gets unfolded in India, retail banking is going to emerge
a major driver. Some of the key policy issues relevant to the retail-banking
sector are: financial inclusion, responsible lending, and access to finance,
long-term savings, financial capability, consumer protection, regulation and
financial crime prevention.
The credit portfolio of banking business is fast changing in India. Retail
lending is becoming an important segment of bank credit. Large credit
exposures are linked to banks capital. Limits have to be fixed for single
exposure in relation to the capital funds. A paradigm shift from corporate
lendind and disintermediation are reasons responsible for resurgence. Banks
are facing fierce competition not only amongst themselves but also from
aggressive NBFC's. As a result, interest rates on retail lending too have
come down.
Risk managemet for banks as far as retail banking goes should focus on risk
and return characteristics of consumer loans, revenues from consumer loans,
losses from consumer loans, the collection strategies, product structuringand lending policies.
Retention of consumers is going to be a major challenge. Second, risingindebtedness could turn out to be a cause for concern in the future. Third,information technology poses both opportunities and challenges. Even with
ATM machines and Internet Banking, many of the customers still prefer the
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personal touch of their neighborhood branch bank.Fourth, KYC Issues and
money laundering risks in retail banking is yet another important issue.
Customer service is perhaps the most important dimension of 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 most important of all by become technology savy.
RETAIL BANKING AN INTRODUCTION
Retail banking refers to provision of banking services to individuals and
small business where the financial institutions are dealing with large number
of low value transactions. This is in contrast to wholesale banking where the
customers are large, often multinational companies, governments andgovernment enterprise, and the financial institution deal in small numbers of
high value transactions.
The concept is not new to banks but is now viewed as an important and
attractive market segment that offers opportunities for growth and profits.
Retail banking and retail lending are often used as synonyms but in fact, the
later is just the part of retail banking. In retail banking all the needs of
individual customers are taken care of in a well-integrated manner.
Todays retail banking sector is characterized by three basic
characteristics:
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, retail banking has
been described as hotter than vindaloo. Considering the fact that vindaloo,
the Indian-English innovative curry in umpteen numbers of restaurants ofLondon, is very hot and spicy, it seems that retail banking is perceived to be
the in-thing in todays world of banking. It is however broad in nature.
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WHY ARE BANKS CHANGING TO RETAIL BANKING?
Banks are awash with liquidity. Prime corporates do not borrow from banks
except at sub-PLR rates. Banks do not favor other corporates. Suddenly
there is a great change in attitude of banks. The name of the game is no
longer Lending to big corporates, huge amounts to create loan assets.
Banks invest their resources in government paper to the hilt and then scout
for hitherto neglected retail borrowers for lending. Retail credit is now
welcomed even from RBIs perspective. There are no longer any regulatory
hurdles. Consumer credit is no longer considered as unproductive, as it
triggers demand for consumer products, which in turn help manufacturers in
a period of economic slowdown. Retail to project credit stands to a ratio of
3: 1. While the rates of interest on consumer credit have still fallen, 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, but not the floating
rates, which are linked to medium and long-term PLRs. Banks, refuse to
reduce these rates, which appears rather unfair. But then the consumers still
needs innovative products like graduated payment mortgages etc., in place
of stand alone EMI structures.
SME sector borrowers still appear to be suffering from inadequate and
delayed credit delivery this sector has immense potential for growth and
banks have to devise innovative strategies to fund their ventures on the
principle of entrepreneurship and bankabilty rather than mere collateral
securities.
Micro finance, another area of retail credit, has unfortunately become a so-
called priority sector credit. Perhaps it will be a great idea if it is delinked
from the obnoxious priority tag and thereby allow banks to display creativity
in financing the sector, especially in rural and semi-urban areas where its
potential for positive transformation of socio-economic conditions is
immense. Banks are gradually appreciating the virtue of spreading the creditrisk by financing large number of small (Retail) borrowers.
Credit card business is growing and even government banks have started
marketing cards. Surprisingly, they still do not leverage the network of
branches and availability of surplus manpower into effective marketing. The
interest rates on credit cards that are 30 percent per annum refuse to come
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down. May be with the active participation of many banks in this lucrative
business, the customer will eventually have the benefit of low rates. Thanks
to the on set of ATMs, channel migration is visible.
The personal banking segment customers have become the center of
attraction. It is their deposit and savings account that are actively sought
after, and not mega deposits at a slightly higher rate of interest. Banks are
truly spreading their deposit net rather widely.
It perhaps apt to quote what Hugh McCulloch, secretary of the treasury
UK, said long ago Distribute your loans rather than concentrate them in a
few hands. Large loans to a 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 is the relation between a
bank and its customers, it is not difficult to decide which one in the end willsuffer.
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 in purchasing powerhas given a fillip to a consumer boom. Note that during the 10 years after
1992, India's economy grew at an average rate of 6.8 percent and continues
to grow at the almost the same rate not many countries in the world
match this performance.
Second, changing consumer demographics indicate vast potential for growth
in consumption both qualitatively and quantitatively. India is one of the
countries having highest proportion (70%) of the population below 35 years
of age (young population). The BRIC report of the Goldman-Sachs, whichpredicted a bright future for Brazil, Russia, India and China, mentioned
Indian demographic advantage as an important positive factor for India.
Third, technological factors played a major role. Convenience banking in the
form of debit cards, internet and phone-banking, anywhere and anytime
banking has attracted many new customers into the banking field.
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Technological innovations relating to increasing use of credit / debit cards,
ATMs, direct debits and phone banking has contributed to the growth of
retail banking in India.
Fourth, the Treasury income of the banks, which had strengthened the
bottom lines of banks for the past few years, has been on the decline during
the last two years. In such a scenario, retail business provides a good vehicle
of profit maximisation. Considering the fact that retails share in impaired
assets is far lower than the overall bank loans and advances, retail loans have
put comparatively less provisioning burden on banks apart from diversifying
their income streams.
Fifth, decline in interest rates have also contributed to the growth of retailcredit by generating the demand for such credit.
RETAIL BANKING PRODUCTS AND SERVICES
Wide range of retail banking products and services are offered by the banks,
which cover both Depository and Advances to suit various segments of
customer like salaried persons, businessmen, traders, professionals,
pensioners etc. 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 like children, housewives,
salaried class, professionals etc. include the following: - Flexi deposit accounts.
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Savings bank accounts.
Recurring deposit account.
Fixed deposit
Lockers.
Other short-term deposits.
Banks are coming out with more features to add value to retail banking
products and services. These are called VALUE ADDED PRODUCTS
AND SERVICES. These include the following: -
Free collection of specified number of outstation instruments per month.
Instant credit of outstation cheque.
Concession in commission, exchange for issuance of pay orders 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 the cardholders.
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 bills and 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.
Internet banking.
Making payments at doorsteps.
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NRI ACCOUNTS
The present menu of bank accounts for Non-Resident Indians (NRIs) has
three categories:
1. Non-Resident (External) Rupee Accounts (NRE)
2. Non-Resident (Ordinary) Rupee Accounts (NRO)
3. Foreign Currency Non-Resident (Banks) Accounts FCNR (B)
ADVANTAGES AND DISADVANTAGES OF RETAIL BANKING
ADVANTAGES
Retail banking has inherent advantages outweighing certain disadvantages.Advantages are analyzed from the resource angle and asset angle.
RESOURCES SIDE
Retail deposits are stable and constitute core deposits.
They are interest insensitive and less bargaining for additional interest.
They constitute low cost funds for the banks.
Effective customer relationship management with the retail customers built
a strong a strong customer base.
Retail banking increases the subsidiary business of the banks.
ASSETS SIDE
Retail banking results in better yield and improved bottom line for a bank.
Retail segment is a good avenue for funds deployment.
Consumer loans are presumed to be of lower risk and NPA perception.
Helps economic revival of the nation through increased production activity.
Improves lifestyle and fulfills aspirations of the people through affordable
credit. Innovative product development credit.
Retail banking involves minimum marketing efforts in a demand driven
economy.
Diversifed portfolio due to huge customer base enables bank to reduce their
dependence on few or single borrower
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Banks can earn good profits by providing non fund based or fee based
services without deploying their funds.
DISADVANTAGES
Designing own and new financial products is very costly and time
consuming for the bank.
Customers now-a-days prefer net banking to branch banking. The banks
that are slow in introducing technology-based products, are finding it
difficult to retain the customers 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 are not able to
exploit the same to the full extent.
A major disadvantage is monitoring and follow up of huge volume of loanaccounts inducing banks to spend heavily in human resource department
Long term loans like housing loan due to its long repayment term in the
absence of proper follow-up, can become NPAs.
The volume of amount borrowed by a single customer is very low as
compared to wholesale banking. This does not allow banks to to exploit the
advantage of earning huge profits from single customer as in case of
wholesale banking.
OPPORTUNITIES AND CHALLENGES
Retail banking has immense opportunities in a growing economy like India.
As the growth story gets unfolded in India, retail banking is going to emerge
a major driver. How does the world view us? The BRIC report is viewing
India as an economic superpower. A.T. Kearney, a global management-
consulting firm, recently identified India as the second most attractive retail
destination of 30 emergent markets.
The rise of Indian middle class is an important contributory factor in this
regard. The percentage of middle to high-income Indian households is
expected to continue rising. The younger population not only wields
increasing purchasing power, but as far as acquiring personal debt is
concerned, they are perhaps more comfortable than previous generations.
Improving consumer purchasing power, coupled with more liberal attitudes
towards personal debt, is contributing to Indias retail banking segment.
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The combination of above factors promises substantial growth in retail
sector, which at present is in the nascent stage. Due to bundling of services
and delivery channels, the areas of potential conflicts of interest tend to
increase in universal banks and financial conglomerates. Some of the key
policy issues relevant to the retail-banking sector are: financial inclusion,
responsible lending, and access to finance, long-term savings, financial
capability, consumer protection, regulation and financial crime prevention.
What are the challenges for the industry and its stakeholders?
First, retention of consumers is going to be a major challenge. According to
a research by Riechheld and Sasser in the Harvard business review, 5percent
increase in customer retention can increase profitability by 35 percent in
banking business, 50 percent in insurance and brokerage, and 125 percent in
the consumer credit card market. Thus, banks need to emphasis on retainingconsumer and increasing the market share.
Second, rising indebtedness could turn out to be a cause for concern in the
future. Indias position, of course, is not comparable to that of developed
world where household debt as a proportion of disposable income is much
higher. Such a scenario creates high uncertainty. Expressing concerns about
the high growth witnessed in consumer credit segments the reserve bank has,
as a temporary measure, put in place risk containment measures and
increased the weight from 100 percent to 125 percent in the case of
consumer credit including personal loans and credit cards.
Third, information technology poses both opportunities and challenges.Even with ATM machines and Internet Banking, many of the customers still
prefer the personal touch of their neighborhood branch bank. Technology
has made it possible to deliver services throughout branch network,
providing instant updates to checking accounts and rapid movement of
money for stock transfers. However, this dependency on the network has
bought IT departments additional responsibilities and challenges in
managing, maintaining and optimizing the performance of retail bankingnetworks. Illustratively, ensuring that all bank products and services are
available, at all times, and across the entire organization is essential for
todays retail banks to generate revenue and remain competitive. Besides,
there are network management challenges, whereby keeping this complex,
distributed networks and applications operating properly in support of
business objectives becomes essential. Specific challenges include ensuring
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that account transaction applications run efficiently between the branch
offices and data centers.
Fourth, KYC Issues and money laundering risks in retail banking is yet
another important issue. Retail lending is regarded as a low risk area for
money laundering because of the perception of the sums involved. However,
competition for clients may also lead to KYC procedures being waived in
the bid for new business. Banks must also consider seriously the type of
identification documents the will accept and other processes to be
completed. The Reserve Bank has issued details guidelines on application of
KYC norms in November 2004.
STRATEGIES FOR INCREASING RETAIL BANKING BUSINESS
a.Constant product innovation to match the requirements of the customersegments: The customer database available with the banks is the best source
of their demographic and financial information and can be used by the banks
for targeting certain customer segments for new or modified product. The
banks should come out with new products in the area of securities, mutual
funds and insurance
b. Quality service and quickness in delivery: As most of the banks areoffering retail products of similar nature, the customers can easily
switchover to the one, which offers better service at comparatively lower
costs. The quality of service that banks offer and the experience that clients
have, matter the most. Hence, to retain the customers, banks have to come
out with competitive products satisfying the desires of the customers at the
click of a button.
c.Introduction of new delivery channels: Retail customers like to interface
with their bank through multiple channels. Therefore, banks should try to
give high quality service across all service channels like branches, Internet,ATMs, etc.
d. Tapping of unexploited potential and increasing the volume of business.This will compensate for the thin margins: The Indian retail banking marketstill remains largely untapped giving a scope for growth to the banks and
financial institutions. With changing psyche of Indian consumers, who are
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now comfortable with the idea of availing loans for their personal needs,
banks have tremendous potential lying in this segment. Marketing
departments of the banks be geared up and special training be imparted to
them so that banks are successful in grabbing more and more of retail
business in the market.
e. Infrastructure outsourcing: This will help in lowering the cost of service
channels combined with quality and quickness.
f.Detail market research: Banks may go for detail market research, whichwill help them in knowing what their competitors are offering to their
clients. This will enable them to have an edge over their competitors and
increase their share in retail banking pie by offering better products and
services.
g. Cross-selling of products: PSBs have an added advantage of having awide network of branches, which gives them an opportunity to sell third-
party products through these branches.
h.Business process outsourcing: Outsourcing of requirements would not
only save cost and time but would help the banks in concentrating on the
core business area. Banks can devote more time for marketing, customer
service and brand building. For example, Management of ATMs can be
outsourced. This will save the banks from dealing with the intricacies of
technology.
i. Tie-up arrangements: PSBs with regional concentration can reap thebenefit of reaching customers across the country by entering into strategic
alliance with other such banks with intensive presence in other regions. In
the present regime of falling interest and stiff competition, banks are aware
that it is finally the retail banking which will enable them to hold the head
above water. Hence, banks should make all out efforts to boost the retail
banking by recognizing the needs of the customers. It is essential that banks
would be imaginative in predicting the customers' expectations in the ever-changing tastes and environments. It is the innovative and 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 are now. It is the survival of the fastest now and not only
survival of the fittest.
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CUSTOMER RELATIONSHIP MANAGEMENT
IN RETAIL BANKING
Introduction
Retail banks are facing greater challenges than ever before in executing their
customer management strategies. Intensifying competition, proliferating
customer contact channels, escalating attacks on customer information,
rising customer expectations and capitalizing on new market opportunities
are at the top of every bank executives agenda.
In looking for ways to drive growth, banks need to evaluate their customer
management strategy. Do they currently have a CRM solution that is capableof 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 and
Dynamics
Today, more than ever before, the ability to maximize customer loyalty
through close and durable relationships is critical to retail banks ability to
grow their businesses. As banks strive to create and manage customer
relationships, several emerging trends affect the approach and tools banks
employ to achieve sustainable growth. These trends reflect a fundamental
change in the way banks interact with the customers they have - and those
they want to acquire.
Trend: focusing on organic growth
How can a retail bank drive growth? Traditionally, banks have grown
through an aggressive strategy of acquiring direct 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 build
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stronger customer loyalty, banks need improved customer knowledge to
develop products and deliver services targeted at specific market segments;
resulting in more directed marketing, sales and service tactics. This is not to
say M&As will not continue to be an effective way to expand product
offerings and service capabilities. However, retail banks will focus on
acquiring businesses that have essential products or 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
is the acquisition of Providian by Washington Mutual that expanded its
credit card offering for both banking and mortgage customers.
Trend: seeking out and better serving emerging
customer segments
One of the ways banks can achieve improved organic growth is by focusing
on new markets. Emerging demographic segments represent untapped
revenue streams that can fuel a banks growth. In the U.S., the Hispanic
market represents a major opportunity. This fast-growing and underserved
customer segment offers new potential revenue for retail banks. The need
every bank has is how to respond quickly and at low cost. And this need is
increasing all the time.
Trend: creating deep business insight into customer
Preferences
Customer loyalty that drives organic growth can only be built through a
consistent customer experience. This means understanding each
individual customers needs and preferences. One of the largest
challenges banks face
is how to better understand their customers and provide personalized
customer service.
A one-size-fits-all customer strategy no longer works. Banks need to serve
the rapidly diverging needs of all markets: aging baby-boomers, time-
stressed mid-lifers and younger technophiles (i.e., Gen-X and Gen-Y).
Banks must move out of their comfort zone and develop services and
products that address the specific needs of different market segments.
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It is clear that financial service providers can no longer sustain growth and
profitability targets through mass direct mail campaigns that deliver less
than 1 percent response rates. Those that do will lose out to competitors
implementing personalized communications that target the right customer, at
the right time, with the right product or service. To optimize customer
relationships and loyalty, banks need to integrate processes and technologies
that enable them to build and then act upon a detailed view of what each
customer wants. This will require highly skilled customer service
professionals, with the right combination of linguistic, culturally aligned and
financial services skills, as well as the ability to deploy customer service
strategies quickly, efficiently and cost-effectively.
Trend: Responding to intensifying competitionthrough revitalized offerings
The need to revitalize a companys portfolio of offerings happens in every
industry. Examples in high-tech manufacturing, consumer industries and
transportation show how important new offerings are in order to stay
competitive as products and services become more commoditized. The
same is true in the financial services industry. Todays retail banks face a
relentless stream of new competitors, eager to take a share of the markets
revenues. Three major competitors offering differentiated products, services
or distribution models have emerged over the past decade: Brokerage and
insurance firms, expanding their offering portfolios into banking products
beyond their traditional product sets.
Nontraditional players such as PayPal (expanding through technology-led
channels of services) or telecommunications companies (expanding by
bundling of payments for like services) are growing by becoming payment
aggregators. Nonbanking companies looking to (if not already) enter the
market by offering banking products and services. The entry of
nontraditional players will not only affect bank growth rates as they compete
for consumers, but will also place downward pressure on operating marginsand profitability created through their nonbanking business models.
Renewing and reinvigorating product offerings and customer service
strategies are essential ways to stay competitive in a changing marketplace.
Proactive banks will respond to market opportunities and competitive
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threats by launching new products, entering new markets and acquiring new
customer segments. A proactive CRM solution is the foundation that can
help support this without disrupting current services that would put
existing clients at risk.
Trend: Improving distribution and channel
Management
How are retail banks responding to intensified market competition? To take
themselves to the next level of improved sales and service, banks are
focusing on developing, implementing and integrating their channels more
rapidly and efficiently. Their goal is to meet three objectives:
Improved and more consistent service based on a full
customer view
Increased revenue through adoption of new products Improved profitability through lower product
development and service costs
Forward-looking banks will simultaneously improve customer service
quality and profitability by deploying an integrated CRM strategy.
Deepening relationships with their customers means that banks must offer
their products and services through appropriate delivery channels that appeal
to their customers. Deploying multiple channels and integrating them at theenterprise level give banks a consistent and full view of the customer. To be
successful, this must include all service channels both physical and virtual
including, call center, Web, branch, kiosk, ATM, phone and mobile
devices. To achieve this, banks need to develop technology, operational
processes and customer strategies to make their channels more effective in
reaching and serving their customers. By tailoring products or services to
specific customers or market segments, banks will be able to increase their
product adoption rate, revenues and return on investment (ROI) for new
product development.
Trend: safeguarding customer information
Adding to this complexity, customer privacy and information security are
under attack as never before. The threats come from many quarters
including increasingly sophisticated identity thieves, constant phishing
expeditions by criminals seeking to trap unwary customers, and even inside
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jobs where staff sell customer data to criminals. Expanding legislative and
industry requirements for customer security are also increasing costs for
financial services companies. Compliance with customer information
regulations is becoming increasingly complex as regulations are growing at
all operating levels:
At the global level The Payment Card Industry (PCI) Act requires a
single set of information security standards and requirements
for all payment organizations.
At the national level The Gramm-Leach-Bliley Act not only requires that
financial institutions ensure the security and confidentiality of customer
records and information but also requires companies to protect against
anticipated threats and unauthorized access, which could result in substantial
harm or inconvenience to a customer.
At the state level The California Information Practice Act requires
businesses in California to disclose any security breach that occurs to anyCalifornia resident whose unencrypted personal information was, or is
reasonably believed to have been, acquired by an unauthorized person.
Against this ever-expanding background, it is vital that banks ensure their
customer data is secure from both internal and external threats. The
following are three key reasons why this is so important:
If a bank loses a customers information, it invariably
loses the customer as well.
A security breach has an immense negative impact on
the value of the banks brand and reputation, hindering
the banks ability to acquire new customers.
Under Basel II, banks without required client data security
as a part of their risk management program must maintain
higher levels of capital reserves reducing the amount
of funds available to invest in the marketplace and
generate revenue.
By preventing security breaches and avoiding losses, banks can actually
realize a ROI from investing in security. This makes protecting customer
data a prerequisite for competing effectively in the retail financial services
market. Banks must balance the cost of security against the need to share
information and service the customer, while at the same time finding ways
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to secure vital customer and financial data for the purposes of risk
management planning.
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Reaping the benefits of a CRM solution
Faced with these numerous and varied trends, retail banks are reshaping the
way they must interact with their customers. A fully integrated,
enterprisewide CRM platform ensures banks have the core capabilities totake full advantage of their customer relationships and capitalize on these
market dynamics, rather than losing out because of them.
Gaining Sales Momentum
In todays increasingly competitive environment, where maximizing organic
growth is a banks priority, sales momentum is essential. To build this
momentum, banks need to focus simultaneously on:
Increasing acquisition rates of new and emerging customer segments,
such as the Hispanic population in the U.S.
Improving retention of existing customers and saving at risk
customers
Increasing profitability of customer relationships, either at the top-
line through increased sales, or at the bottom-line through more cost-
effective service
Improving integrated channel distribution strategies to get the right
product, to the right client, at the moment the customer has the need
Maximizing the value and return from CRM investments that have
already been made
Increasing Acquisition Of New Customers
A CRM solution should help a bank target customers based on the value
they bring to the bank, now and throughout the life of the customer (and
beyond through next generation marketing). Banks need to ensure that
their value propositions have traction with the right market segments. This
will enable the bank to identify, target and capture new customers. Clearly,
customer insight and strategy are the core differentiators for the bank. CRMsolutions (people, applications, systems and processes) must support these
strategies to get the right products and services to the right customers.
Improving Retention Of Existing Customers
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Customer retention can be achieved by enhancing customer satisfaction and
loyalty, improving problem resolution, and creating the ability to identify
and save at-risk customers. In fact, an at-risk customer actually
represents a major opportunity for additional revenue if handled correctly.
However, the greatest danger for banks is either not identifying at risk
customers or not having the capabilities to do anything to recover them.
For example, a customer makes a large withdrawal from his or her account.
This may signal that the customer is switching funds to another bank. Or the
customer may be buying a house, a boat, or paying college tuition, in which
case there are clear opportunities to sell additional products or investments.
The identification and treatment of this customer should reflect his or her
lifetime value. CRM-driven techniques will help retain customers and can
migrate mere account holders into loyal, long-term, profitable customers.
Increasing The Profitability Of CustomerRelationships
Boosting revenues requires improving the product pipeline and close rates,
while reducing sales and service costs. On the revenue side, the banks CRM
solution should use customer intelligence to target specific offers and
manage marketing campaigns for a high likelihood of acceptance. Customer
treatment strategies should be fully integrated with a CRM platform and the
processes to support them. On the cost side, better channel management,
CRM automation and integration will help increase the efficiency and
effectiveness of sales and service.
Improving Distribution And Channel Management
To win profitable customers and build long-term relationships with them,
banks need to have the right insight, products and services for the right
customer at the lowest possible cost. From call centers to Web sites, every
one of a banks multiple channels must be scalable, flexible, low-cost and
fully integrated with all the other channels. This is the only way to
consolidate customer information and provide consistent treatment acrossthe enterprise. Each of the banks channels must also be able to
accommodate change and adapt to future trends in the marketplace.
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Maximizing The Value Of Past CRM Investments
As new technologies and channels emerge, the need to control costs and
maximize the ROI from existing CRM investments raises many questions:
How can a bank lower its operational cost structure while leveragingthe newest technologies such as interactive voice recognition-based
routing to improve service quality and customer experience?
How can it manage its customer service/call center workforce more
efficiently and effectively in an era when a major call center has to
handle tens of million of calls a year from a vastly diverse spectrum of
customers?
How can the banks investment in customer care be refocused to
create a permanently lower and more flexible cost base perhaps
through use of a common platform, technologies and processes?
With intensifying competition putting pressure on increasing
required customer service levels and improving top-line
revenues, investment in new capabilities to make the customer
relationship stronger and more profitable is critical for future
growth. However, it is important for banks to maintain a
tight rein on their costs while deploying these solutions.
In summary, the market dynamics facing financial services companies
have never been more fluid and complex. In the midst of these trends isyour customer. Any CRM solution invested in must be implemented with
the clear goals of improving the following:
Customer satisfaction and loyalty
Customer insight
Speed-to-market for products and services
Customer security
All this must be done in a manner that generates measurable increases in
revenue for the bank and reduces overall costs of service.
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FUTURE OF RETAIL BANKING
How do we see the future of retail banking? What are the major attributes of
the shape of things to come in this sector?
First, customer service should be the be-all and end-all of retail banking.
The other day a document released by the British Bankers Association,
entitled UK Retail Banking Manifesto: addressing the challenges that lie
ahead for the industry and its stakeholders on September 29, 2004 came to
my notice. This document analysed the key policy issues relevant to the
retail banking sector and highlighted the role of financial inclusion,
responsible lending, access to finance, and consumer protection. It is in this
context that that one is reminded of the needs to develop the standards and
codes for banking. The contribution of the Committee on Procedure &
Performance Audit on Public Services (CPPAPS) (Chairman: Shri S.S.
Tarapore) has been invaluable and has provided great insight. Based on the
recommendation of the CPPAPS, the Annual Policy Statement for 2005-06
announced the decision to set up an independent Banking Codes &
Standards Board of India on the model of the mechanism in the UK in order
to ensure that comprehensive code of conduct for fair treatment of customersis evolved and adhered to. The codes and standards, together with the
institutional mechanism to monitor them, are expected to enhance the
quality of customer service, to the individual customer in particular. The
codes will bring about greater transparency in the system and also tackle the
issue of information asymmetry. The Board would function as an industry-
wide watchdog of the banking code and ensure that the banks comply with
the banking codes. The codes would establish the banking industrys key
commitments and obligations to customers on standards of practice,
disclosure and principles of conduct for their banking services. The Board
will monitor compliance with the Codes by the affiliated banks.
Second, sharing of information about the credit history of households is
extremely important as far retail banking is concerned. Perhaps due the
confidential nature of banker-customer, banks have a traditional resistance to
share credit information on the client, not only with one another, but also
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across sectors. Globally, Credit Information Bureaus have, therefore, been
set up to function as a repository of credit information - both current and
historical data on existing and potential borrowers.
The database maintained by these institutions can be accessed by the lending
institutions. Credit Bureaus have been established not only in countries with
developed financial systems but also in countries with relatively less
developed financial markets, such as, Sri Lanka, Mexico, Bangladesh and
the Philippines. In Indian case, the Credit Information Bureau (India)
Limited (CIBIL), incorporated in 2000, aims at fulfilling the need of credit
granting institutions for comprehensive credit information by collecting,
collating and disseminating credit information pertaining to both commercial
and consumer borrowers. At the same time banks must exercise due
diligence before declaring a borrower as
defaulter.
Third, outsourcing has become an important issue in the recent past. With
the increasing market orientation of the financial system and to cope with
the competition as also to benefit from the technological innovations such
as, e-banking, the banks are making increasing use of "outsourcing" as a
means of both reducing costs and achieving better efficiency. While
outsourcing does have various cost advantages, it has the potential to
transfer risk, management and compliance to third parties who may not be
regulated. A recent BIS Report on Outsourcing in Financial Servicesdeveloped some high-level principles. A basic requirement in this context is
that a regulated entity seeking to outsource activities should have in place a
comprehensive policy on outsourcing including a comprehensive
outsourcing risk management programme to address the outsourced
activities and the relationship with the service provider. Application of these
principles in the Indian context is under consideration.
Finally, retail banking does not refer to lending only. In the whole story of
retailing one should not forget the role played by retail depositors. Thehomemaker, the retail shop keeper, the pensioners, self-employed and those
employed in unorganised sector - all need to get a place in the banks. It is in
this backdrop that the Annual Policy for 2005-06 pointed out issues relating
to financial exclusion and had announced that the RBI would implement
policies to encourage banks which provide extensive services while
disincentivising those which are not responsive to the banking needs of the
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community, including the underprivileged.
Furthermore, the nature, scope and cost of services need to be monitored to
assess whether there is any denial, implicit or explicit, of basic banking
services to the common person and banks have been urged to review their
existing practices to 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 future customers still need retail banks? The
answer, it turns out, depends on banks themselves. With technology and
nonblank businesses providing new options for safeguarding and managing
their finances, customers will continueto depend on banks only as long as
banks can provide service and value that cannot be found anywhere else.
There are already signs that customers are questioning the ability 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
also indicates that over 60 percent of U.S. households conduct their own
research before buying financial services products.2 As a result, banks have
begun to rethink what, where and how they serve an increasingly informed
and demanding customer base. At the same time, a confluence of industrydevelopments, including consolidation, regulation, industry specialization,
changing workforce needs and new technologies are putting additional
pressure on banks operating models and raising questions about traditional
strategies for growth and value creation. So, what will the future look like?
How will banks continue to grow revenues and remain profitable? What will
it take to create and maintain advantage in this highly competitive industry?
An examination of the forces shaping the industry reveals that the future will
require superior efficiency and operational excellence from all banks, while
industry leadership will be attained by those institutions most adept at
harnessing product, service and process innovation to anticipate and meet
customer needs. Ultimately, to deliver on these imperatives, banks will have
to focus on their core strengths those activities in which they excel and
partner with best-in-class specialists for everything else: achieving more by
doing less. On the surface, the competitive landscape of the retail
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banking industry in 2015 will not look much different than it does today.
Mergers and acquisitions will likely have reduced the total number of banks,
especially mid-tier regional banks, and industry specialists and non-bank
banks will play a more prominent role. But most of todays players,
including universal banks, community banks, industry specialist banks and
non-bank banks, will still be vying to differentiate themselves in a crowded
marketplace. However, traditional approaches to creating value through
growth and efficiency will no longer be enough. Advantages gained through
acquisition, new market entry and reconfigured product offerings will be
fleeting at best, while partnering and outsourcing will make efficiency a
basic requirement for all. Through market research and interviews with
industry executives, the IBM Institute for Business Value identified
ive major industry trends that will impact the retail banking industry. By
2015, the combined implications of these trends will create an environment
in which nothing less than sharp focus and excellence in day-to-dayoperations will be acceptable, and banks will have to generate growth
through continuous 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 customers the power to demand much
greater responsiveness and transparency from their banks.
Universal banks and ultra-focused niche players thriveLarge players will generate higher aggregate profits by reaping the benefits
of super scale, while niche players will aggressively pursue the most
desirable customers by addressing their needs in distinct ways those in the
middle will get squeezed.
Changing workforce composition dictates new
approaches
An older and increasingly mobile and diverse workforce will raise
management complexity and require flexible approaches 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.
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Technology improves inexorably to enable breakaway
value
Advanced technologies will allow banks to infuse their legacy operating
models and infrastructures with unprecedented functionality. Emerging
technologies such as grid computing, service-oriented architectures,
virtualization of data and storage, and predictive intelligence will cause
entrenched insourcing philosophies to perish in favor of a partnership model
where specialized enterprises thrive. Of these trends, the first two
increasingly powerful customers and intensifying competition
stand out as the most significant forces that will drive industry change
over the next decade. The other three trends
changes in managing human capital, regulations and technologies
will strongly contribute to and reinforce the effects of intensifying
competition and customer empowerment on banks strategic choices.
In this emerging environment, innovation will take many forms, including
advances in products and services, markets, operational processes, customer
intimacy, and new channel and diversification strategies. But innovation will
not be possible, nor will it have the desired impact, unless banks create the
requisite conditions for innovation development.
There are four strategic imperatives banks must follow to cultivate
innovation and position themselves for sustainable growth:
Focus on core strengths and partner for everything
else Leading banks will optimize their performance by becoming
specialized enterprises, managing only strategic, differentiating business
components internally and partnering with best-in-class specialists for those
capabilities that do not drive competitive advantage.
Optimize the potential of each customer relationship Rather than attempting to be all things to all people, industry leaders will use
superior customer insights to offer the most appropriate and profitable
products, tools and services to targeted segments.
Harness the potential of the workforce through
effective performance management Banks will need to realign skills and
set the right performance metrics to motivate a changing workforce to
continuously pursue innovation.
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Recognize that technology will be a critical element of
success By making technology a central component of the strategicdecision making process, banks will be able to tightly align their business
and technology initiatives, and will be able to differentiate their offerings
and seize market opportunities with greater agility.
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REFERENCES
Consumer lending in India: Growing pains in retailbanking. The Economist. May 19, 2005.
The paradox of Banking 2015 - Achieving more by doing less. IBM
Business Consulting Services. 2007.
EDS viewpoint paper customer relationship management in retail banking.
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BIBLIOGRAPHY
www.Rbi.org
www.indiastat.comwww.contentsutra.com
www.dnaindia.com
www.indiainfo.com
www.ocw.mit.edu
www.emeraldinsight.com
www.Google.com
www.Indiastat.com
www.Timesofindia.com
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