Bank Marketing

PROJECT REPORT

ON

“BANK MARKETING”

Submitted to Siva Sivani Institute of Management

In the partial fulfillment for the Award of the Degree of

POST GRADUATION DIPLOMA IN MANAGEMENT(Banking Insurance Finance and allied services)

Submitted byB. NITHIN

(Roll No: B2-34) SIVA SIVANI INSTITUTE OF MANAGEMENT

Kompally, Hyderabad.(2008-2010).

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Bank Marketing

ACKNOWLEDGEMENT

This Project is an authentic work of mine. I would like to take this opportunity

to thank all the people who extended their immense help to complete my

Project.

I make use of this opportunity to express my gratitude to my faculty

guide PROF.C.SUDHAKAR Finance for giving me innovative suggestions

and assisting me in time of needs.

I would also like to thank all who have co-operated with me during the

Project without whose co-operation, I would not have been able to complete

my Project.

Date: NITHIN BATCHU

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INDEX

SR. NO.

DESCRIPTION Pg no.

1. The Financial System 4

2. Origin of The Word BANK 5

3. Definition of Bank and marketing 5

4. Finance and banking in India 6

5. Users of Banking Services 6

6. Meaning of Marketing 6

7. Evolution of the marketing concept 6

8. Marketing and Competition 8

9. Marketing Concepts – Its application to Banking

9

10. Meaning of Bank Marketing 10

11. Market Research in Indian Banks 13

12. Increasing Importance of Marketing in Banking Industry

16

13. Market Segmentation 19

14. Marketing Mix for Banking Services 27

15. Strategies for Segmentation 21

16. Marketing Mix for banking services 27

17. Strategies for effective bank marketing in India 28

18. Technology in Banking 43

19. Conclusion 60

20. Refrences 61

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Bank Marketing

DECLARATION

I, Nithin Batchu, declare that this project report titled “A PROJECT ON BANK

MARKETING” is an original work done and submitted by me towards partial fulfillment

of my Post Graduate Diploma in Management (BIFAAS) Batch 2008-10,under the

guidance faculty guide, , PROF.C.SUDHAKAR

Place: NITHIN

BATCHU

Date:

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Bank Marketing

Chapter 1

THE FINANCIAL SYSTEM

The financial system consists of variety of institutions, markets and instruments that are

related in the manner shown in the below figure, it provides the principal means by

which saying are transformed into investment. Given its role in the allocation of

resources, the efficient functioning of the financial system is of critical importance to a

modern economy. Financial manager negotiate loans from financial institutions, raises

resources in financial marked and invests surplus funds in financial market. In very

significant way he manages the interface between the form and its financial

environment.

Financial System placed a very important role in the development of a country. Through

Financial System, entire money or money equals are channelized in such a way so that

each sector of economy like industry, agriculture and services can be developed

rationally. Financial sector development is the locomotive force for economic

development of a country.

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Bank Marketing

Chapter 2

ORIGIN OF THE WORK ‘BANK’

According to some economists the word ‘Bank’ has been derived from the German word

BANC which means a Joint Stock Firm while others say that it has been derived from

the Italian world ‘BANCO’ which means a heap or mound.

There is still another group of people who believe that word bank has been derived from

the Greek work ‘BANQUE’ which means a bench. In the olden days, Jews entered into

money transactions sitting on benches in a marked place. When a banker was not in a

position to meat his obligations, the on which he was carrying on the money business

was broken into pieces and the was taken as bankrupt. Thus both the words Bank or

bankrupt are said to have origin from the word ‘Banque’.

Definition of Bank

According to Oxford English Dictionary, Bank is, “An establishment for custody of

money received from or on behalf of, its customers. Its essential duty is the payment of

the orders given on it by the customers, its profit mainly from the investment of money

left unused by them”.

Banking Regulation Act, 1949 (Sec. 5(c)), has defined the banking company as,

“Banking Company means any company which transacts business of banking in India”.

According to Section 5B, “banking means the accepting of deposit of money from the

public for the purpose of leading or investment, which are repayable on demand or

otherwise and are with drawable by cheque, draft, order or otherwise.”

Different economists, banking professionals and authorities explained their viewpoint

regarding bank or commercial bank. It has been rightly said by A.K. Basu that a general

definition of a bank or banking is by no means easy, as the concepts of banking differ

from age to age, and country to country.

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Bank Marketing

Finance and banking in India

India is a vast country, before 1947, undivided India was equal to Europe excluding

Russia in its area. It is situated in south of Asia. In spite of a part of Asia, it is separated

from it. It is separated by Himalayas in North India. India has vast oceans in South, East

and West. Due to its vastness it is also called sub continent. That vast country has

given different names in different times. In Vedic period, it was called ‘Arya-V-arat’. In

Bir period and ancient period, it as called Bharatvarash’. Perhaps due to fame of king

Bharat, it was called ‘Bharatvarsh. Greek called it Indus on the name of river Sindh.

Iranians called it Hindu. Chinese travelers called it Tienchu and Yintu. Ipsing called

‘Arya Desh’ and Brahmrashtra. Bible has called it Hoddu. In medieval period, it was

called ‘Hindustan’ and Hind. European called it India. After Independence, it is return as

Bharat Ganrajya or Indian Republic in Indian Constitution.

Evolution of the marketing concept

The Role of marketing in the banking industry continues to change. For many years the

primary focus of bank marketing was public relations. Then the focus shifted to

advertising and sales promotion. That was followed by focus on the development of a

sales culture.

Although all the elements of the marketing concept – customer satisfaction, profit

integrated framework, and social responsibility – will remain important, customer

satisfaction must receive the greatest emphasis in the years ahead.

The chief concerns of most bank executives still focus on legal and regulatory issues,

according to most surveys. Community banks are particularly concerned with

eliminating barriers that give unfair advantages to financial services competitors, such

as credit unions. However, another concern pertains to technology: keeping nonblank

competitors out of the payment system.

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Bank Marketing

Bankers Identify Near-Team and Long Term Concerns

1991 2015

Maintaining profitability

Credit Portfolio Management

Service Quality

Regional Economy

Cost Management / Expense reduction

Declining Earnings/ more failures

Market / customer focus

Capital adequacy

Stock market value

Industry Overcapacity

Service quality

Maintaining profitability

Market / customer focus

Operations/systems/technology

Credit portfolio management

Productivity improvement

Investment to stay competitive

Stock market value

Asset/liability management

Electronic Banking

When this gateway system was first proposed, access to the Internet was very new and

few banks had the resources and knowledge to set up their own direct-access lines for

customers. Customers have shown a growing interest in online banking services, and

banks have responded by quickly putting in place proprietary sites on the World Wide

Web and offering PC banking.

Within the next five years, 93 percent of community bank executives surveyed say they

plan to offer telephone banking, and 79 percent plan to offer PC banking.

When asked which technology holds the most potential for the future, bank executives

identified call centers first. As customers continue the transition the transition into a

high-tech world in which they want information and answers more quickly and

accurately than ever before, call centers offer the ideal bridge. With 24-hour access to

either automated information or live operators, customers do everything from check

their accounts to apply for a loan. Bank executives also identified PC banking as having

the most promise for the future, followed by Interest access and broad function kiosks.

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Bank Marketing

Chapter 3

MARKETING AND COMPETITION

In view of the declining profitability and productivity of the banking sector and extremely

low rate of profit percentage, the determination of the financial health of the system

requires drastic remedial measures not only to build up investor confidence but also to

combat competition from all over. It is time that the pros and cons of the oncoming

banking era are properly understood and advantage taken of various opportunities. This

will require an efficient marketing approach to bank management in which target

markets will be tackled successfully along with effective satisfaction levels and in which

the usual basic elements – product, pricing, promotion and distribution will be taken

care of in a proper format of an efficiently working marketing organization.

The nationalised banks must face competition from private banks, non-banking financial

institutions, foreign banks and others. The competition is in the fields of deposits and

credits, foreign trade, consumer credit and miscellaneous banking activities. The

competition will benefit customers and force the banking system to raise its productivity,

minimize expenses, and remain sensitive to evolving issues. Narasimham Committee

Reports while recommending internal autonomy long with compliance with prudential

norms suggested rule-based credit policies, fiscal balance and a gradual movement

towards liberatlisation.

To deal with the competition from foreign banks, the Indian banks should go in for

diversification and extension of services as well as expansion of products and business.

Economic freedom and innovative spirit have contributed greatly to the success of the

market-oriented financial sector in the Western countries. Directed credit and

investment has done just the opposite. Interventionism is not necessarily bad provided it

is associated with a committed leadership. Indian financial sector had for more than four

decades, neither full economic freedom nor a well disciplined interventionism so that it

cost operational flexibility as well as functional autonomy both of which were concerned

with profitability performance and related factors.

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Bank Marketing

Marketing concepts

Its application to Banking, when we apply marketing to the banking industry, the bank

marketing strategy can be said to include the following –

i) A very clear definition of target customers.

ii) The development of a marketing mix to satisfy customers at a profit for the

bank.

iii) Planning for each of the ‘source’ markets & each of the ‘use’ markets (A Bank

needs to be doubly market – oriented – it has to attract funds as well as were

of funds & services.

iv) Organization & Administration.

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Bank Marketing

Chapter 4

BANK MARKETING

We define bank marketing as follows: “Bank marketing is the aggregate of functions,

directed at providing services to satisfy customers’ financial (and other related) needs

and wants, more effectively and efficiently that the competitors keeping in view the

organizational objectives of the bank”. Bank marketing activity. This aggregate of

functions is the sum total of all individual activities consisting of an integrated effort to

discover, create, arouse and satisfy customer needs. This means, without exception,

that each individual working in the bank is a marketing person who contributes to the

total satisfaction to customers and the bank should ultimately develop customer

orientation among all the personnel of the bank. Different banks offer different benefits

by offering various schemes which can take care of the wants of the customers.

Marketing helps in achieving the organizational objectives of the bank. Indian banks

have duel organizational objective – commercial objective to make profit and social

objective which is a developmental role, particularly in the rural area.

Marketing concept is essentially about the following few thing which contribute towards

banks’ success:

1) The bank cannot exist without the customers.

2) The purpose of the bank is to create, win, and keep a customer.

3) The customer is and should be the central focus of everything the banks does.

4) It is also a way of organizing the bank. The starting point for organizational

design should be the customer and the bank should ensure that the services are

performed and delivered in the most effective way. Service facilities also should

be designed for customers’ convenience.

5) Ultimate aim of a bank is to deliver total satisfaction to the customer.

6) Customer satisfaction is affected by the performance of all the personal of the

bank.

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Bank Marketing

All the techniques and strategies of marketing are used so that ultimately they induce

the people to do business with a particular bank. Marketing is an organizational

philosophy. This philosophy demands the satisfaction of customers needs as the pre-

requisite for the existence and survival of the bank. The first and most important step in

applying the marketing concept is to have a whole hearted commitment to customer

orientation by all the employees. Marketing is an attitude of mind. This means that the

central focus of all the activities of a bank is customer. Marketing is not a separate

function for banks. The marketing function in Indian Bank is required to be integrated

with operation.

Marketing is much more than just advertising and promotion; it is a basic part of total

business operation. What is required for the bank is the market orientation and

customer consciousness among all the personal of the bank. For developing marketing

philosophy and marketing culture, a bank may require a marketing coordinator or

integrator at the head office reporting directly to the Chief Executive for effective

coordination of different functions, such as marketed research, training, public relations,

advertising, and business development, to ensure customer satisfaction. The Executive

Director is the most suitable person to do this coordination work effectively in the Indian

public sector banks, though ultimately the Chief Executive is responsible for the total

marketing function. Hence, the total marketing function involves the following:

a) Market research i.e. identification of customer’s financial needs and

wants and forecasting and researching future financial

market needs and competitors’ activities.

b) Product Development i.e. appropriate products to meet consumers’ financial

needs.

c) Pricing of the service i.e., promotional activities and distribution system in

accordance with the guidelines and rules of the

Reserve Bank of India and at the same time looking

for opportunities to satisfy the customers better.

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Bank Marketing

d) Developing market i.e., marketing culture – among all the customer-

consciousness ‘Personnel’ of the bank through

training.

Thus, it is important to recognize the fundamentally different functions that bank

marketing has to perform. Since the banks have to attract deposits and attract users of

funds and other services, marketing problems are more complex in banks than in other

commercial concerns.

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Bank Marketing

Chapter 5

MARKET RESEARCH IN INDIAN BANKS

After enquiring with all the public and 14 private sector banks whether they had

undertaken any market research studies. The following board areas of market research

were considered for the study:

(a) New service development,

(b) New service product acceptance,

(c) Research and development of existing financial service,

(d) Bank images study,

(e) Measuring bank’s advertising effectiveness,

(f) Measurement of market potentials,

(g) Market research of competitive service products,

(h) Customer’s opinion study,

(i) Customer profile study, and

(j) Market share analysis.

In response to the inquiry information was received from 17 banks. Out of these banks,

14 are public sector banks and 3 are private sector banks. Two nationalized banks and

two private sector banks informed that they have not conducted any markets research

studies.

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Bank Marketing

Information regarding Bankwise Market Research Studies

Bank Title of the Market Research Study

Remarks

1. Allahabad Bank

2. Bank of Baroda

a. Survey on Customer Service

b. Marketing of deposits and allied

services to non-residents customers

opinion (1958)

Not formal report

prepared.

MP Ranade: BMP

Thesis.

3. Canara Bank a. Marketing research study for two new

deposit schemes (1989)

For internal use only

4. Central Bank of India a. Market survey of customer services

b. Marketing deposits (Customers)

Conducted by the

students of BITS,

Pilani. For internal

use only service

(1986)

5. Indian Overseas Bank a. Potential areas for future business

expansion

For internal use only

6. Oriental Bank of

Commerce

a. Study of customer service in OBC

with special reference to metropolitan

branches (1989)

R Upendran MBP

Thesis

7. Punjab National Bank a. Sample survey on customer’s

responses (1987)

b. Sample survey on customer service

(1988)

c. Study on deposit linked housing loan

scheme (1982)

For internal use only

For internal use only

Formal Report

8. Punjab and Sind Bank a. Study on customer turnover (mail

questionnaire based study of

customers who have closed their

accounts) (1989)

b. Changing Profile of Punjab and Sind

Bank’s Customers and their

expectorations, a survey based study

(1988)

For internal use only

J S Kalra:

BMP Thesis

9. State Bank of Bikaner a. A survey on customer service, level

of customer satisfaction and

customer expectations (1998)

For internal use only

10. Syndicate Bank a. Evaluation Study on the quality of For internal use only

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Bank Marketing

customer service (1989)

b. Marketing of bank service with

special reference to branches in

Bombay city of Syndicate Bank-

customer service (1979)

K M Kanath

BMP Thesis

11. Union Bank of India a. Customer responses (Opinion)

survey (1988)

For internal use only

12. UCO Bank a. Customers’ opinion study (1989) For internal use only

13. United Bank of India a. Report of the survey on customer

opinion (1987)

b. Improvement of customer service in a

metropolitan branch (1979)

For internal use only

K P Ramesh Rao

BNP Thesis

14. Vijay Bank a. Report of the customer service

survey (1988)

Formal Report

15. Karur Vysya Bank a. Study on the image of the bank

(1989)

Undertaken by a

Consultant

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Bank Marketing

Most of these market research studies were conducted for internal use and no formal

reports were prepared. It is important to note the subject or issue researched by the

bank. The most important subject for market research in terms of the number of studies

conducted, is the customer service / customer’ profile opinion studies. Few banks have

conducted even more than one customer service / opinion studies.

Increasing importance of marketing in banking industry

The various other factors which have led to the increasing importance of marketing in

the banking industry are categorized as follows:

Government Initiatives

The Indian economy embarked on the process of economic reform and various policy

measures initiated by the government resulted in the increasing competition in the

banking industry, thereby highlighting the importance of effective marketing. The

Narasimhan Committee Report evidence of the Government’s desire to ‘re-regulate’ the

banking industry so as to encourage efficiency through competition. The Government

initiatives include:

Deregulation of Interest Rates

The bank may reduce their Minimum Lending Rates so as to attract customers

(individual and corporate). Such reduction in lending rates reduce the spread between

the deposit rates and lending rates, i.e. the banks margins would decline and they

would have to increase their volumes or provide attractive services so as to maintain

profits. This calls for bank marketing.

Increasing Emphasis on Bank Profitability:

With the Narasimhan Committee Report, banks have been directed to improve their

efficiency, productivity and profitability. Banks are required to be self-sufficient. In fact,

the report has adopted the BIS standards of capital adequacy (though in a phased

manner).

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Bank Marketing

Foreign Banks

Foreign banks offer stiff competition to the Indian Banks and with their superior services

and technology offer them a competitive advantage. Thus Indian Banks have to

effectively apply marketing concepts to attract customers.

Entry of New Private Banks

In the early ‘90s new competition emerged in the form of new Private Banks, who

brought along with them a high technology-based banking matching with International

Standards and have made a significant dent in the banking business by capturing

substantial share in the profits of the banking industry.

Reduction of Statutory Liquidity Ratio:

With the Government’s aim of reducing the SLR to 25 percent, the banks will have

surplus funds for which they will have to attract users.

Social Environment

Increasing Urbanization, Education and Awareness: The higher literacy level,

migration to urban areas and higher awareness due to the boom in the mass media

have important implications for the retail banker. He needs to be conscious of the fact

the increasing proportion of people are aware of financial service and are, therefore

demanding and expecting higher quality services.

Increasing Urbanization, Education and Awareness: The higher literacy level,

migration to urban areas and higher awareness due to the boom in the mass media

have important implications for the retail banker. He needs to be conscious of the fact

the increasing proportion of people are aware of financial service and are, therefore

demanding and expecting higher quality services.

Decline in Traditional Indian Values (Borrowing as Taboo), Rising Consumerism, Rise in

the Percentage of Working Women.

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Bank Marketing

Technology Development

Modernization of Technology has facilitated the introduction of new banking services as

to attract new customers. An example of this is the ‘Automated Teller Machines’ or the

facility of ‘Any Time Money’. Also in foreign countries, banks are experimenting with

money transmission at Point of sale, e.g., petrol station linked with banking network.

Credit is Easier to Obtain

Growing Importance of Non-Banking Financial Institutions: Fixed

Deposits being offered by the NBFC’s are very attractive for the public, because of the

wide gap of interest rates offered by banks on term deposits and that offered by the

NBCS’s. further, they offer a variety of specialized services to their customers so as to

attract and retain them.

Disintermediation: The increasing role of capital markets in mobilizing funds is

reducing the importance of banks as intermediaries. Companies are directly

approaching the savers through the capital markets. Mutual funds help in attracting the

small investors who do not want to take much risk.

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Bank Marketing

Chapter 6

MARKETING CONCEPTS – ITS APPLICATION TO

BANKING

When we apply marketing to the banking industry, the bank marketing strategy can be

said to include the following:

i. A very clear definition of target customers.

ii. The Development of marketing mix to satisfy customers at a profit for the bank.

iii. Planning for each of the ‘source’ markets and each of the ‘user’ markets (A bank

needs to be doubly market – oriented – its has to attract funds as well as users of

funds and services).

iv. Organization and Administration.

Consumer Behavior and Segmentation

Need for segmentation

Philip Kotler has described the dilemma of the seller (especially, a seller dealing with

masses, e.g. banks) as follows:

“How the seller determines which buyer’s characteristics produce the best partitioning of

a particular market? The seller does not want to treat all customers alike nor does he

want to treat them all differently”.

Banks deal with individuals, group of persons and corporates, all of whom have their

likes and dislikes. No bank can afford to assess the needs of each and every individual

buyer (actual or potential).

Segmentation of the market into more or less homogenous groups, in terms of their

needs and expectations from the banking industry, provides a solution to this problem.

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Bank Marketing

This involves dividing the market into major market segments, targeting one or more of

this segments, and developing products and marketing programs tailor-made for these

segments.

In the first segmentation, the market is divided from a unitary whole, to groups of buyers

who might require separate products and marketing mix. The marketer typically tries to

identify different segments in the market and develop profiles of resulting market

segments.

The second step is market targeting in which each segment’s attractiveness is

measured and a target segment is chosen based on tits attractiveness.

The third step is product positioning which is the act of establishing a viable competitive

position of the firm and its offer in the target segment chosen.

In the process of segmentation, the market can be divided into major segments which

are gross slices of the market, or into smaller specially formed segments, otherwise

known as niches. Niche customers have a specific set of needs which the markerter

tries to address. While a market segment attracts several competitors, a niche attracts

fewer competitors and therefore, a company should clearly define its target segment

and devise strategies to target the customer, so that it has a competitive advantage in

the segment.

These concepts can be applied in personal banking by an Indian Bank. Traditionally,

Indian Banks have not had any conscious strategy for selecting customers from the

personal banking area, apart from some banks which have a geographic concentration

strategy such as concentrating on a particular region or state. These banks will have to

segment the market on certain basis, and identify market segments or niches which

they want to cater to. For example, a bank like SBI may not be able to cater high

income groups (say, managers, professional, NRIs, etc. who earn above Rs. 4,00,000

p.a. and who want a higher quality of products / services and who are willing to pay for

21

Bank Marketing

them), as the services required by such a profile of customers are entirely different from

the kind of products / services SBI can offer.

Initiation of Segmentation in India

Station Bank of India was the first Indian Bank to adopt the concept of market

segmentation. In 1972, it reorganized itself on the basis of major market segments

dividing customers on the basis of activity and carved out 4 major market segments, viz.

Commercial and Institutional, Small Industries and Small Business Segment,

Agriculture, Personal and Services Banking. The objectives of this scheme were:

Deeper penetration and coverage of market by looking outwards.

Adequate flexibility of organization to accommodate growth and rapid change,

Delegation of work for releasing senior management for more futuristic tasks.

Criteria for Segmentation

Segmentation in a right fashion makes the ways for profitable marketing. This helps

policy planner in formulating and innovating the policies and at the same time also

simplifies the task of bank professionals while formulating an innovating the strategic

decisions. The following criteria make possible rig segmentation.

An important criterion for market segmentation the economic system in which we find

agricultural sector, industrial sector, services sector, household sector, institutional

sector and rural sector requiring of weightage while segmenting.

Agricultural Sector: In the agricultural sector, there are four category rise since the

needs of all the categories cant’s be identical.

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Bank Marketing

The mechanization of agriculture, the improved or scientific system of activation, the

help of nature, the magnitude of risk, the availability infrastructural facilities influence the

level of expectations vis-à-vis the needs and requirements. The banking organization

are supposed to know and under stand the changing requirements of different

categories of farmers.

Industrial Sector: The banking organizations subserve the interests of the industrial

sector. The large-sized, small-sized co-operative and tiny industries use the services of

banks. The expectations of all the categories cant’s be uniform.

The banking organizations are supposed to have an indepth knowledge of the changing

needs and requirements of the industrial segment.

Services sector: It is an important sector of the economy where the banking

organizations get profitable business. The two categories of organizations such as

profit-making and not-for-profit making are found important in the very context.

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Bank Marketing

The banking organizations need to identify the changing needs and requirements of the

services sector. With the frequent use of information technologist and with the mounting

pressure of inflation and competition, we find a change in the hierarchy of needs.

Household Sector: This is also constitutes an important sector where different income

group have different needs and requirements. in below figure we find the different

segments of the household sector.

Household Segment: The high income group, middle income group, low income

group, substance level group and marginal income group have different hierarchy of

need which influence the level of their expectations.

Gender Segment: In the gender segments, we find male and female having different

needs and requirements. The banking organizations are supposed to identify the level

expectations of both sexes.

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Bank Marketing

Some of the women are housewives and therefore they have different need and

requirements whereas some of them are working ladies having different needs and

requirements.

In the profession segments, we find different categories of professions an therefore we

find a change in their needs and requirements.

The technocrats, bureaucrats, corporate executives, intellects, white and blue – collar

employees have different needs and requirements and therefore the banking

organizations should know their expectations.

Some of the organizations are known as cultural organizations, some of them are not

for –profit making, some of them are philanthropic and some of them are related to

trade and commerce. The emerging trends in the social transformation process

determine the hierarchy of needs.

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Bank Marketing

Markets segmentation thus simplifies the task of understanding the

customers/prospects. The bank professional find it convenient to formulate and innovate

the marketing mix of world class which simplify the process of excelling competition.

In the Indian perspective where we find agrarian economy contributing substantially to

the transformation of national economy, it is pertinent that the banking organizations

assign due weightage to the rural sector of the economy where we find tremendous

opportunities.

The urbanization is likely to gain the momentum and villages, outskirts of big towns and

cities are to be developed on a priority basis. Almost all the organizations are to get

tremendous opportunities there. The marketing resources if of innovative nature would

make the ways for capitalizing on the same profitably.

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Bank Marketing

Chapter 7

MARKETING MIX FOR BANKING SERVICES

The formulation of marketing mix for the banking services is the prime responsibility of

the bank professional who based on their expertise and excellence attempt to market

the services and schemes profitably.

The bank professionals having world class excellence make possible frequency in the

innovation process which simplify their task of selling more but spending less. The four

submixes of the marketing mix, such as the product mix, the promotion mix, the price

mix and the place mix, no doubt, are found significant even to the banking organizations

but in addition to the traditional combination of receipts, the marketing experts have also

been talking about some more mixes for getting the best result. The “People” as a

submix is now found getting a new place in the management of marketing mix. It is right

to mention that the quality of people/employees serving an organization assumes a

place of outstanding significance. This requires a strong emphasis on the development

of personally-committed, value-based, efficient employees who contribute substantially

to the process of making the efforts cost effective. In addition, we also find some of the

marketing experts talking about a new mix, i.e. physical appearance. In the corporate

world, the personal care dimension thus becomes important. The employees re

supposed to be well dressed, smart and active. Besides, we also find emphasis on

“Process” which gravitates our attention on the way of offering the services. It is only not

sufficient that you promise quality services. It is much more impact generating that your

promises reach to the ultimate users without any distortion. The banking organizations,

of late, face a number of challenges and the organizations assigning an overriding

priority to the formulation processes get a success. The formulation of marketing mix is

just like the combination of ingredients, spices in the cooking process.

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Bank Marketing

The Product Mix:

The banks primarily deal in services and therefore, the formulation of product mix is

required to be in the face of changing business environmental conditions. Of course the

public sector commercial banks have launched a number of polices and programmers

for the development of backward regions and welfare of the weaker sections of the

society but at the same it is also right to mention that their development-oriented welfare

programmes are not optimal to the national socio-economic requirements. The

changing psychology, the increasing expectations, the rising income, the changing

lifestyles, the increasing domination of foreign banks and the changing needs and

requirements of customers at large make it essential that they innovate their service mix

and make them of world class. Against this background, we find it significant that the

banking organizations minify, magnify combine and modify their service mix.

It is essential that ever product is measured up to the accepted technical standards.

This is due to the fact that no consumer would buy a product which contains technical

faults. Technical perfection in service is meant prompt delivery, quick disposal,

presentation of right facts and figures, right filing proper documentation or so. If

computers starts disobeying the command and the customers get wrong facts, the use

of technology would be a minus point, and you don’t have any excuse for your faults.

Product Portfolio

The bank professional while formulating the product mix need to assign due weightage

to the product portfolio. By the concept product portfolio, emphasis is on including the

different types of services/ schemes found at the different stages of the product life

cycle. The portfolio denotes a combination or an assortment of different types of

products generating more or less in proportion to their demand. The quality of product

portfolio determines the magnitude of success. It is excellence of bank professionals

that help them in having a sound product portfolio.

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Bank Marketing

We find the composition of a family sound, if members of all the age groups are given

due place. Like this, the composition or blending of a service mix is considered to be

sound, if well established and likely to be profitable schemes are included in the mix. It

is against this background that a study and analysis of product portfolio is found

significant. The bank professionals are supposed to perform the responsibility of

composing the same. A sound product portfolio is essential but its process of

constitution is difficult. An organization with a sound product portfolio gets a conducive

environment and successes in increasing the sensitivity of marketing decisions. The

banking organizations need a sound product portfolio and the bank professionals bear

the responsibility of getting it done suitably and effectively.

If the banks rely solely on their established services and schemes, the multidimensional

problems would crop up in the long run because when the well established

services/schemes would start saturating or generating losses, the commercial viability

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Bank Marketing

of banks would of course, be questioned. The banking organizations relying

substantially on a profitable scheme and ding nothing for new scheme likely to get a

profitable market in the future is to face is to face a crisis like situation. It is in this

context, that we find designing of a sound product portfolio essential to an organsition.

We can’t deny that the product portfolio of the foreign banks is found sound since they

keep their eyes moving. The innovation, diffusion, adoption and elimination processes

are taken due care. The public sector commercial banks need to innovate their service

and this makes a strong advocacy in favour of analyzing the product portfolio.

Designing an attractive package:

In the formulation of product mix for the banking organization, the designing of package

is found important. In this context, we find packaging decision related to the formulation

of a mix of different schemes and services. Developing an attractive package required

professional excellence and therefore, the bank professionals are required to be aware

of the different key issues influencing the formulation process. What the package should

basically be or do for the particular target. We re aware of the fact that a number of

schemes and services are included in the service mix of bank product and all the

services or schemes can’t be preferred by all. Of course we find some of the public

sector commercial banks now evincing stage. This makes it essential that a bank

manager thinks in favour of developing a package. The importance of packaging can’t

be underestimated considering the functions it performs and the effects which we

witness in the process of attracting and satisfying the customers. In addition to other

aspects, it is also pertinent that a bank manager is familiar with the package developed

by the leading competitive banks since this would help them in innovating the package.

It is an important component of the product mix and a bank manager while formulating

or designing a package needs to assign due weightage to the formulation process.

While developing a package, it is essential that the packages offered are efficacious in

establishing an edge over the packages of competitors. Thus needs and preferences of

the target market in addition to the packages offered by the competitors need due

weightage while designing a package.

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Bank Marketing

In the designing process the bank professionals can make a package, an ideal

combination of both, the core and peripheral services. The main thing in the process is

to make it profitable, convenient and productive to the customers so that they prefer to

transact with the bank. For the bank professional, it is an important persuasive efforts

that helps in increasing the business even without developing or innovating the services

or schemes.

Product Development

In almost all the services, the development of a product is an ongoing process. The

banking organizations also need to develop new services and schemes. We can’t deny

that the development of product specially in the banking services is found diffcult since

they don’t have any discretion, however they can do it, of course in a limited way. By

minifying, combining, modifying and magnifying, the banking organizations can give to

the services or scheme a new look. The regulations of the Reserve Bank of India, no

doubt stand as a barrier but professionally sound marketers make it possible even

without violating the rules and regulations. The banking organizations in general have

been found developing product by including some new properties or features. Generally

we find two process for the development of product. The first process is found proactive

since the needs of the target market are anticipated and highlighted. The second

process is reactive and in this context the banks respond to the expressed needs of the

target.

Proactive Process

In the pro-active process, we find product to market needs. This makes it essential that

the branch managers are aware of the changing needs of the target market. There are

six stages for the development of the product, such as idea generation, screening of the

concept, assessing of market potential, analyzing the cost, test marketing and final

commercial launching. The bank professionals have to be careful at all the stages so

that whatever the services or schemes are developed are found instrumental in getting

a positive response. The customers and competitors help bank professional

substantially in generating a new idea. The screening of the product concept focuses on

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Bank Marketing

the process of narrowing down the list of the ideas generated to a small number of

concepts.

The assessment of market potential is the third stage in which we find scanning of the

market potentials at the apex level. The branch managers can assess the potential sin

their command areas.

The fourth stage draws our attention on analyzing the cost on the basis of a cost-benefit

analysis and the fifth stage before launching is test marketing which is found

instrumental in minimizing the risk element. And finally, we find commercial launching.

The Reserve Bank of India is also required to make the regulations liberal so that the

pubic sector commercial banks get an opportunity to make their services or schemes

internationally competitive. The unfair practices, illegitimate steps should be checked

but fair practice should essentially be promoted to make the business environment

conductive.

Promotion Mix

In the formulation of marketing mix the bank professionals are also supposed to blend

the promotion mix in which different components of promotion such as advertising,

publicity, sales promotion, word-of-mouth promotion, personal selling and telemarketing

are given due weightage. The different components of promotion help bank

professionals in promotion the banking business.

Advertising

Like other organizations, the banking organizations also us this component of the

promotion mix with the motto of informing, sensing and persuading the customers.

While advertising, it is essential that we know about the key decision making areas so

that its instrumentality helps bank organization both at micro and macro levels.

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Bank Marketing

Finalizing the Budget

This is related to the formulation of a budget for advertisement. The bank professionals,

senior executives and even the police planners are found involved in the process. The

formulation of a sound budget is essential to remove the financial constraint in the

process. The business of a bank determines the scale of advertisement budget.

Selecting a Suitable vehicle

There are a number of devices to advertise, such as broadcast media, telecast media

and the print media. In the face of budgetary provisions, we need to select a suitable

vehicle. The latest developments in the print technology have made print media

effective. The messages, appeals can be presented in a very effective way.

Making possible creativity

The advertising professionals bear the responsibility of making the appeals, slogans,

messages more creative. The banking organizations should seek the cooperation of

leading advertising professionals for that very purpose.

Instrumentality of branch managers

At micro level, a branch manager bears the responsibility of advertising locally in his /

her command area so that the messages, appeals reach to the target customers of the

command area. Of course we find a budget for advertisement at the apex level but the

business of a particular branch is considerably influenced by the local advertisements. If

we talk about the cause-related marketing, it is the instrumentality of a branch manager

that makes possible the identification of local events, moments and make

advertisements condition-oriented.

Public Relations

Almost all the organization need to develop and strengthen the public relations activities

to promote their business. We find this component of the promotion mix effective even

in the banking organizations. We can’t deny that in the banking services, the

effectiveness of public relations is found of high magnitude. It is in this context that we

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Bank Marketing

find a bit difference in the designing of the mix of promoting the banking services. Of

course in the consumer goods manufacturing industries, we find advertisements

occupying a place of outstanding significance but when we talk about the service

generating organizations in general and the banking organizations in particular, we find

public relations and personal selling bearing high degree of importance. It is not meant

that the banking organizations are not required to advertise but it is meant that the bank

executives unlike the executives of other consumer goods manufacturing organizations

focus on public relations and personal.

Personal Selling

The personal selling is found instrumental in promoting the banking business. It is just a

process of communication in which an individual exercise his/her personal potentials,

tact, skill and ability to influence the impulse buying of the customers. Since we get in

immediate feed back, the personal selling activities energies the process of

communication very effectively.

The personal selling in an art of persuasion. It is a highly distinctive form of promoting

sale. In personal selling, we find inter-personal or two-way communication that makes

the ways for a feed back. There is no doubt in it that the goods or services are found

half sold when the outstanding properties are well told. This are of telling and selling is

known as personal selling in which an individual based on his/her expertise attempts to

transform the prospects into customers.

Dynamics of Personals Selling

The dynamics of personal selling are found instrumental in activating the selling

activities. Sales preparations are considered most crucial for the actual sales. Pre-sale

activities and post-sale services can’t be left neglected to improve the marketing

activities. The customers may be interested in knowing the main features of the

services, how a particular service would help them, rationale behind the technical

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Bank Marketing

services and proof in regard to its uses. The pre-sale activities would bring the positive

results, if preparations are adequate.

Some of the customers are found highly aware of the developments, they are found well

informed. On the other hand, we also find other category of customers who are in dark.

Here, the branch managers are expected to match the level of awareness of customers.

As for instance, Mr. A goes up the matrix but Mr. B has not enough time for the branch

managers. The branch managers are supposed to prepare a synopsis of their sales

talk. Not surprisingly the highly aware customers are found in apposition to make

independent decisions and know all about. While selling to the less aware customers,

the managers should stress on the main features of the services and the expected

benefits of these services.

Sales Promotion: It is natural that like other organisations, the banking organizations

also think in favour of promotional incentives both to the bankers as well as the

customers. The banking organizations make provisions for incentives to the bankers

and call the bankers’ promotion. Like this, the incentives offered to the customers’

promotion. There are a number of tools generally used in the different categories of

organizations in face of the nature of goods and services sold by them. The gift,

contests, fairs and shows, discount and commission, entertainment and travelling plans

for bankers, additional allowances, low interest financing and retalitary are to mention a

few found instrumental in prmoting the banking business.

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Bank Marketing

As and when the banking organizations offer new services and schemes, the tools of

sales promotion are required to be innovated. This is with the motto of stimulating the

new and old customers. An important thing in the very context is the changing needs

and requirements of customers/prospects. The bank professionals been outstanding

task of studying the competitors’ strategies which would help them in intiating the

process of innovation. Here it is important to mention the promotional incentives to the

customers would focus on decision related to the selection of a tool. There are a

number of considerations to streamline the process. The bank professionals are

supposed to study the market conditions and make necessary suggestions, especially

regarding the incentives.

It is a blending process and bank professional have to be sure that whatever provisions,

they make are fulfilled on priority basis. More incentives more efficiency or vice-versa

conditions more efficiency, more incentives motivate bankers substantially.

The price mix:

In formulation of product mix, the pricing decisions occupy a place of outstanding

significance. The pricing decisions or the decisions related to interest and fee or

commission charged by banks are found instrumental in motivating or influencing the

target market. The reserve bank of india and the Indian Banking Association are

concerned with regulations. The rate of interest is regulated by the RBI and other

charges are controlled by Indian Banking Association. To be more specific in the Indian

setting, we find this component of the marketing mix significant because the banking

organizations are also supposed to subserve the interest of weaker sections and

backward regions. The public sector commercialbanks in particular complicate the

problem of pricing.

Pricing policy of a bank is considered important for raising the number of customers vis-

à-vis the accretion of deposits. Ofcourse, there are a number of factors to influence the

process but it is also right to mention that the key role in the entire process is played by

the RBI. A National Consumer Survey conducted by the L.H.Associates reveals that the

quality of consumer service was one of the three top issues and the consumers ranked

the quality of their bank relationships as even more important than the fees charged for

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Bank Marketing

the services. To be more specific when we find a number of domestic and foreign banks

working in the Indian economy, the RBI bears the responsibility of making the business

environment sonductive. The non-banking organizations and foreign banks have been

found attracting customers by offering them a number of incentives. The potential

customers or investors frame their investment plans in the face of pricing decisions

made by the banking organizations. While formulating the pricing strategies, the banks

have also to take the value satisfaction variable into consideration. The value and

satisfaction can’t be quantified in terms of money since it differs from person to person,

keeping in view the level of satisfaction of a particular segment, the banks have to frame

their pricing strategies. The policy makers are required to be sure that the service

offered by them are providing satisfaction to the customers concerned. The pricing

decisions may be bit liberal, if the potential customers are found shifting ti the non-

baking investments. In this context, it is pertinent that pricing is used as motivational

tool.

The banking organizations are required to frame two-fold strategies. First, the strategy

concerned with the interest and fee charged and second, the strategy is related to the

interest paid. Since both the strategies throw a vive-versa impact, it is pertinent that the

banks attempt to establish a correlation between the two. It is essential that both the

buyers as well as sellers have a feeling of winning.

The banks have to take the value satisfaction variable into consideration while

designing the pricing strategies. Mclver and Naylor opine that a marketing manager has

to regard price as a variable to be traded off against product quality and promotion

rather that as an absolute where the lowest price is not desirable.

The RBI has to be more liberal so that the public sector commercial banks make

decisions in the face of changing business conditions. There is no doubt in it that the

commercial banks bear the responsibility of energizing the social marketing, they are

also supposed to bear the social costs. It is also right that the foreign banks have found

making the business environment competitive. These emerging trends necessitate a

close look on the pricing problem. The policy makers find it difficult to bring a change

since the regulations of the RBI make things more critical. The expenses are not

regulated by the RBI and the banking organizations are forced to increase the

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Bank Marketing

budgetary provisions. The sources of revenue are regulated which complicates the task

of bank professionals. This makes it essential that the RBI, the Government of India

and the banking organizations think over this issue with a new vision.

The Place Mix:

This component of the marketing mix is related to the offering of the services. The two

important decision making areas are making available the promised services to the

ultimate users selecting a suitable place for bank branches.

The selection of a suitable place for the establishment of a branch is significant with the

viewpoint of making the place accessible and in addition, the safety and security

provisions are also found important. The banking organizations are not free to open a

branch since the RBI regulates the subject of branch expansion but so far as the

management of branch is concerned, the branch managers have option to select a

place which is convenient to both parties, such as the users and the bankers. In the

Indian perspective, the protection to the bank’s assets and safety to the users and

bankers need due weightage. The vulnerable area or regions need adequate provisions

to make the branch safe. The management of office is also found significant with the

viewpoint of making the services attractive. The furnishing, civic amenities and parking

facilities can’t be overlooked.

Another important decision making area is related to the offering of services. This draws

our attention on the behavioral profile of bankers. The bankers in general and the front-

line staff in particular bear the responsibility of making available the services promised

to the ultimate users without any distortion often a gap is found generated by the front-

line staff that makes an invasion on the image of bank. The bank professionals or a

manager is required to be sure that whatever the promise has been made regarding the

quality of services are not distorted. The RBI and the different public sector commercial

banks are required to manage the distribution process intelligently and professionally.

Thus, the place mix is found to be an important decision making area which requires

due attention, both at macro and micro levels. If the banking organizations sell the

promises, it is essential that the end users get the same without any distortion.

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Bank Marketing

The People:

Sophisticated technologies, no doubt, inject life and strength to our efficiency but the

instrumentality of sophisticated technologies star turning sour if the human resournces

are not managed in a right fashion. Generation of efficiency is substantially influenced

by the quality of human resources. It is against this background that a majority of the

management experts make a strong advocacy in favor of developing quality people and

late, the people management has been included in the marketing mix of organizations is

general and the service generating organizations in particular.

Not only the public sector commercial banks but almost all the public sector

organization and albeit other government departments, off-late, have been facing the

problem of quality people resulting into inefficiency, deceleration in the rate of overall

productivity and profitability or so. The front-line staff are rough and indecent, the

branch managers are helpless and even the bankers have been found involved in the

unfair practices. The public sector commercial banks need to assign an overriding

priority to the development of the quality people majority of the management of the

experts have realized the significance of quality people in the development of an

organization and the board rooms are also found changing their attitudes. The first task

before the banking organizations at the apex level is to over haul the recruitment

processes. While fixing criteria for selction, they need to assign due wieghtage to the

ethical values. The education and training facilities are required to be innovated the

process of identification and inculcation need to be managed carefully.

The foreign banks and private sector commercial banks reward for efficiency and at the

same time also demotivate the inefficient bankers. This helps them in improving the

effieicncy of even the inefficient people. The development of human resources makes

the ways for the information of human capital. Incentives, ofcourse, inject efficiency and

the organizations offering more incentives succeed in motivating the people.

Having better and co-effective control over operations

Enriching the job content of employees at all levels.

Improving the quality of decision making, a must in the fast changing

environment.

Thus, the key focus areas in which information technology can be employed are:

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Bank Marketing

Automated processing of back office operations like processing of forms, policy

customerization and product slection, pricing and preparation of quotations etc.

Computer assisted telephone and intelligent voice processing of customer call

handling, new business marketing or handling after office hours enquiries.

Image processing for documents, storage and retrieval, folder management and

work flow management for the movement of documents with the bank.

Artificial intelligence and expert systems for complex decision making like the

appraisal of the of the creditworthiness of clients designing of innovative

instruments and strategy formulation.

RDBMS for the systematic use of information which would facilitate the cross

selling of products.

Electronic Data Interchange for company wise communication and inter

connection of systems for the benefit of both bank’s MIS and the customers.

All the above systems should be “client-base” systems and not line of business

systems. Since these would provide better marketing and service to clients, facilitate

cross selling and customerization of schemes and hence, a better packaging for the

product. This would help the Indian banks “think customer”.

All these would, thus, help in the effective management of time. Recourse to

mechanized systems like ledger posting, machine, cash counting machine, and cheque

sorting machine would result in reduction in the number of tedious and routine jobs to

be handled manually saving time for the people to focus on the customer.

Strategies for effective abnk marketing in India:

Introduction: since the inception of globalization in India, banking sector ahs undergone

various changes. Introduction of asset classification and prudential accounting norms,

deregulation of interest rate and opening up of the financial sector made Indian banking

sector competitive. Encouragement to foreign banks and private sector banks increases

competition for all operatives in banking sector. The protective regime by the authority is

over. Indian banks are exposed to global competition. Even competition within the

country has increased manifold. The almost monopoly position enjoyed by the public

sector banks of India is no more existence. Under this development, Indian banks need

to reinvent the marketing strategy for growth.

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Bank Marketing

The spread of the bank in Indian rural and semi urban areas are highly different from

state to state and region to region. Many states have fewer networks of bank branches

in the rural areas and research scenatios different marketing approach for different

areas are required. If the bank follows the same marketing strategy for all areas the

success would be difficult.

Marketing approach for urban areas:

The urban areas of India are developed taking into account all parameters of

development. The level of income of the people, the literacy rate and level of education

as well as awareness of the people about rights of the customer are higher than that of

the rural and even semi-urban areas. Thus, here for effective bank marketing different

approach is necessary than that of rural areas.

The marketing strategy should be based on customer service and the use of modern

technology in banking. Under competitive environment for the success of the business,

better customers and retaining existing customers is possible only with customer

service. Use of modern technology in urban areas will also go long way for marketing of

banking services. Technology based services like credit card, debit card, ATM, any

where banking, internet banking and mobile banking are necessary for urban areas.

This is because it enables customer to perform banking transaction at their

convenience. Business hours of bank are also an important factor for urban banking.

India many private sector banks, especially co-operative banks and now even some of

the public sector banks have also started this practice and they find it successful. To

attract business and wholesale customers, banks need to adopt technology based

product and service which is suitable to such class of customer. For instance, RTGS,

collection of outstation cheques, issuing the cheques at par at any branch in the

country, cash management facility, DD etc are necessary. Another strategy of effective

marketing is bank need to change the focus from the traditional banking to universal

banking. In urban areas, the extend and variety if economic activities demands that one

institution should meet all financial needs of a customer. Under such an expectation of

people, universal banking would prove successful approach for bank marketing. The

term ‘Universal banking’ in general refers to the combination of commercial banking and

investment banking that is issuing, underwriting, investing, trading in securities.

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Bank Marketing

For increasing customer base and retention of the existing clientele universal banking

approach is effective strategy. Universal banking offers number of benefits to customers

as well as the banks. For instance, economies of scale arise in multi product firms

because cost of offering various activities by different units are greater than the costs

when they are offered together. Moreover the most important benefit for the bank is that

it is useful to increase the fee beased income of the bank. Financial sector passing from

lower interest rate regime at present and added to this the process of disintermediation

is affecting the main and the traditional source of the income for the banks i.e., interest

income. All banks are striving hard to increase their fee based income to improve their

bottom line. Universal banking can help the banks here positively.

Marketing approach for rural areas:

Prior to nationalization of banks in 1969, the rural areas were virtually without banking

facilities. At that time unorganized sector was dominating in the rural finance. After

nationalization of banks in 1969 branches of the banks were started gradually in the

rural areas also. Today more than 50% branches of the banks are found in the rural

areas. However, the distribution of banks in the rural areas is highly uneven. Here

banks have to face competition with the unorganized sector. Moreover the rural banking

is highly regularized activity by the Government in India. Lending as well as interest rate

is regularized. Thus under such environment different marketing approach is required.

For effective rural marketing product development, promotion and communication is

important. All these parameters banks have to balance with socio-economic factors

prevailing in the rural areas. Bank need to innovate product that could attract the

depositors. Various loan schemes that are suitable for them for getting funds at right

time and also they find convenient to repay. For instance traditional savings bank

account may be given fixed deposit concept that once a particulat limit of balance is

reached the funds from savings account is automatically coveted into fixed depost

attracting higher interest rate.

Banks need to develop some scheme which would attract them to bank with. For loans

and advances products which are suitable to farmers, small traders, small scale agro

based rural industries are already in existence. Banks need to see how value addition

can be made to these existing scheme. Banks also need to tie up with the NGO’s and

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Bank Marketing

various SHG’s for different types of loans and micro financing. This will help the bank for

building good image and reputation in the rural areas over and above the business.

Another potential area which can be explored by banks in the rural area is retail

banking. With the steady increase in the income of the rural people there is ample

scope for retail loan products like housing loans and loan for consumer durables.

Marketing through customer services in rural areas is different from that of urban areas.

Here personalized banking is the success manthra for banks. Because of high level of

illiteracy people prefer to undertake banking transaction themselves. They hesitate to

depend upon technology based service. For effective marketing in rural areas, bank

should have staff with right soft skill like concern for customers’ problem, positive

attitude, good communication and negotiation skill. At every level of dealing with the

customer bank need to educate them for banking activates and process. To attract the

customers from the unorganized sector most important factor is to provide, the borrower

the required finance of right amount at right time.

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Traditional banking

Gunpowder

Personalized services, time consuming, limited access

Virtual or E-banking

Nuclear charged

Real time transactions, integrated platform, all time

access

Bank Marketing

Chapter 8

EVOLUTION OF E-BANKING

The story of technology in banking started with the use of punched card machines like

Accounting Machines or Ledger Posting Machines. The use of technology, at that time,

was limited to keeping books of the bank. It further developed with the birth of online

real time system and vast improvement in telecommunications during late 1970’s and

1980’s.it resulted in a revolution in the field of banking with “convenience banking” as a

buzzword. Through Convenience banking, the bank is carried to the doorstep of the

customer.

The 1990’s saw the birth of distributed computing technologies and Relational Data

Base Management System. The banking industry was simply waiting for these

technologies. Now with distribution technologies, one could configure dedicated

machines called front-end machines for customer service and risk control while

communication in the batch mode without hampering the response time on the front-end

machine.

Intense competition has forced banks to rethink the way they operated their business.

They had to reinvent and improve their products and services to make them more

beneficial and cost effective. Technology in the form of E-banking has made it possible

to find alternate banking practices at lower costs.

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Bank Marketing

More and more people are using electronic banking products and services because

large section of the banks future customer base will be made up of computer literate

customer, the banks must be able to offer these customer products and services that

allow them to do their banking by electronic means. If they fail to do this will, simply, not

survive. New products and services are emerging that are set to change the way we

look at money and the monetary system.

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Bank Marketing

E-BANKING PRODUCTS

Automated Teller Machine (ATM )

These are cash dispensing machine, which are frequently seen at banks and other

locations such as shopping centers and building societies. Their main purpose is to

allow customer to draw cash at any time and to provide banking services where it would

not have been viable to open another branch e.g. on university campus.

An automated teller machine or automatic teller machine (ATM) is a computerized

telecommunications device that provides a financial institution's customers a method of

financial\ transactions in a public space without the need for a human clerk or bank

teller. On most modern ATMs, the customer identifies him or herself by inserting a

plastic ATM card with a magnetic stripe or a plastic smartcard with a chip that contains

his or her card number and some security information, such as an expiration date or

CVC (CVV). Security is provided by the customer entering a personal identification

number (PIN).

Using an ATM, customers can access their bank accounts in order to make cash

withdrawals (or credit card cash advances) and check their account balances. Many

ATMs also allow people to deposit cash or checks, transfer money between their bank

accounts, pay bills, or purchase goods and services.

ATMs are known by various casual terms including cash machine, hole-in-the-wall, cash

point or Bancomat (in Europe and Russia). The occasionally-used ATM Machine is an

example of RAS syndrome.

Some of the advantages of ATM to customers are:-

Ability to draw cash after normal banking hours

Quicker than normal cashier service

Complete security as only the card holder knows the PIN

Does not just operate as a medium of obtaining cash.

Customer can sometimes use the services of other bank ATM’s.

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Bank Marketing

Telebanking or Phone Banking

Telephone banking is relatively new Electronic Banking Product. However it is fastly

becoming one of the most popular products. Customer can perform a number of

transactions from the convenience of their own home or office; in fact from anywhere

they have access to phone. Customers can do following:-

Check balances and statement information

Transfer funds from one account to another

Pay certain bills

Order statements or cheque books

Demand draft request

This facility is available with the help of Voice Response System

(VRS). This system basically, accepts only TONE dialed input. Like the ATM customer

has to follow particular process, initially account number and telephone PIN are fed for

the process to start. Also the VRS system provides the users within additional facilities

such as changing existing password with the new desired, information about new

products, current interest rates etc.

Mobile Banking

Mobile banking comes in as a part of the banks initiative to offer multiple channel

banking providing convenience for its customer. A versatile multifunctional, free service

that is accessible and viewable on the monitor of mobile phone. Mobile phones are

playing great role in Indian banking- both directly and indirectly. They are being used

both as banking and other channels.

Internet Banking

The advent of the Internet and the popularity of personal computers presented both an

opportunity and a challenge for the banking industry. For years, financial institutions

have used powerful computer networks to automate million of daily transactions; today,

often the only paper record is the customer’s receipt at the point of sale. Now that their

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Bank Marketing

customers are connected to the Internet via personal computers, banks envision similar

advantages by adopting those same internal electronic processes to home use.

Banks view online banking as a powerful “value added” tool to attract and retain new

customers while helping to eliminate costly paper handling and teller interactions in an

increasingly competitive banking environment. In India first one to move into this area

was ICICI Bank. They started web based banking as early as august 1997.

Types of Internet Banking or e-Banking

Understanding the various types of Internet banking will help examiners assess the

risks involved. Currently, the following three basic kinds of Internet banking are being

employed in the marketplace.

Informational- this is the basic level of Internet banking. Typically, the bank has

marketing information about the bank’s products and services on a stand-alone

server. The risk is relatively low, as informational systems typically have no path

between the server and the bank’s internal network. This level of Internet banking

can be provided by the banks or outsourced. While the risk to a bank is relatively

low, the server or web site may be vulnerable to alteration. Appropriate controls

therefore must be in place to prevent unauthorized alterations to the bank’s

server or web site.

Communicative- this type of Internet banking systems and the customer. The

interaction between the bank’s system and the customer. The interaction may be

limited to electronic mail, account enquiry, loan applications, or static file updates

(name and address change). Because these servers may have a path to the

bank’s internal networks, the risk is higher with this configuration than with

informational systems. Appropriate controls need to be in the place to prevent,

monitor, and alert management of any unauthorized attempt to access the bank’s

internal networks and computer systems. Virus controls also become much more

critical in this environment.

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Bank Marketing

Transactional- this level of Internet banking allows customers to execute

transactions. Since a path typically exists between the server and the bank or

outsourcer’s internal network, this is the highest risk architecture and must have

the strongest controls. Customer transactions can include accessing accounts,

paying bills, transferring funds etc.

Advantages of e-Banking

Convenience- Unlike your corner bank, online banking sites never close;

they’re available 24 hours a day, seven days a week, and they’re only a mouse

click away.

Ubiquity- If you’re out of state or even out of the country when a money

problem arises, you can log on instantly to your online bank and take care of

business, 24\7.

Transaction speed- Online bank sites generally execute and confirm

transactions at or quicker than ATM processing speeds.

Efficiency-You can access and manage all of your bank accounts, including

IRA’s, CDs, even securities, from one secure site.

Effectiveness- Many online banking sites now offer sophisticated tools,

including account aggregation, stock quotes, rate alert and portfolio managing

program to help you manage all of your assets more effectively. Most are also

compatible with money managing programs such as quicken and Microsoft

money.

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Bank Marketing

Disadvantages of Internet Banking

Start-up may take time-In order to register for your bank’s online program, you

will probably have to provide ID and sign a form at a bank branch. If you and

your spouse wish to view and manage their assets together online, one of you

may have to sign a durable power of attorney before the bank will display all of

your holdings together.

Learning curves- Banking sites can be difficult to navigate at first. Plan to invest

some time and\or read the tutorials in order to become comfortable in your virtual

lobby.

Bank site changes- Even the largest banks periodically upgrade their online

programs, adding new features in unfamiliar places. In some cases, you may

have to re-enter account information.

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Bank Marketing

E- BANKING SERVICES:

1. Bill payment service

Each bank has tie-ups with various utility companies, service providers and insurance

companies, across the country. It facilitates the payment of electricity and telephone

bills, mobile phone, credit card and insurance premium bills.

To pay bills, a simple one-time registration for each biller is to be completed. Standing

instructions can be set, online to pay recurring bills, automatically. One-time standing

instruction will ensure that bill payments do not get delayed due to lack of time. Most

interestingly, the bank does not charge customers for online bill payment.

2. Fund transfer

Any amount can be transferred from one account to another of the same or any

another bank. Customers can send money anywhere in India. Payee’s account

number, his bank and the branch is needed to be mentioned after logging in the

account. The transfer will take place in a day or so, whereas in a traditional method, it

takes about three working days. ICICI Bank says that online bill payment service and

fund transfer facility have been their most popular online services.

3. Credit card customers

Credit card users have a lot in store. With Internet banking, customers can not only pay

their credit card bills online but also get a loan on their cards. Not just this, they can also

apply for an additional card, request a credit line increase and God forbid if you lose

your credit card, you can report lost card online.

4. Railway pass

This is something that would interest all the aam janta. Indian Railways has tied up with

ICICI bank and you can now make your railway pass for local trains online. The pass

will be delivered to you at your doorstep. But the facility is limited to Mumbai, Thane,

Nasik, Surat and Pune. The bank would just charge Rs 10 + 12.24 percent of service

tax.

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Bank Marketing

5. Investing through Internet banking

Opening a fixed deposit account cannot get easier than this. An FD can be opened

online through funds transfer. Online banking can also be a great friend for lazy

investors.

Now investors with interlinked demat account and bank account can easily trade in the

stock market and the amount will be automatically debited from their respective bank

accounts and the shares will be credited in their demat account.

Moreover, some banks even give the facility to purchase mutual funds directly from the

online banking system.

So it removes the worry about filling those big forms for mutual funds, they will now be

just a few clicks away. Nowadays, most leading banks offer both online banking and

demat account. However if the customer have there demat account with independent

share brokers, then need to sign a special form, which will link your two accounts.

6. Recharging your prepaid phone

Now there is no need to rush to the vendor to recharge the prepaid phone, every time

the talk time runs out. Just top-up the prepaid mobile cards by logging in to Internet

banking. By just selecting the operator's name, entering the mobile number and the

amount for recharge, the phone is again back in action within few minutes.

7. Shopping at your fingertips

Leading banks have tie ups with various shopping websites. With a range of all kind of

products, one can shop online and the payment is also made conveniently through the

account. One can also buy railway and air tickets through Internet banking.

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Bank Marketing

Internet Banking versus Traditional Banking

In spite of so many facilities that Internet banking offers us, we still seem to trust our

traditional method of banking and is reluctant to use online banking. But here are few

cases where Internet banking will turn out to be a better option in terms of saving your

money.

'Stop payment' done through Internet banking will not cost any extra fees but when

done through the branch, the bank may charge you Rs 50 per cheque plus the service

tax.

Through Internet banking, you can check your transactions at any time of the day, and

as many times as you want to.

On the other hand, in a traditional method, you get quarterly statements from the bank

and if you request for a statement at your required time, it may turn out to be an

expensive affair. The branch may charge you Rs 25 per page, which includes only 30

transactions. Moreover, the bank branch would take eight days to deliver it at your

doorstep.

If the fund transfer has to be made outstation, where the bank does not have a branch,

the bank would demand outstation charges. Whereas with the help of online banking, it

will be absolutely free for you.

As per the Internet and Mobile Association of India's report on online banking 2006,

"There are many advantages of online banking. It is convenient, it isn't bound by

operational timings, there are no geographical barriers and the services can be offered

at a miniscule cost."

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Bank Marketing

Impact of e-Banking on Traditional Services

One of the issues currently being addressed is the impact of e-banking on traditional

banking players. After all, if there are risks inherent in going into e-banking there are

other risks in not doing so. It is too early to have a firm view on this yet. Even to

practitioners the future of e-banking and its implications are unclear. It might be

convenient nevertheless to outline briefly two views that are prevalent in the market.The

view that the Internet is a revolution that will sweep away the old order holds much

sway. Arguments in favor are as follows:

E-banking transactions are much cheaper than branch or even phone transactions. This

could turn yesterday’s competitive advantage - a large branch network - into a

comparative disadvantage, allowing e-banks to undercut bricks-and-mortar banks. This

is commonly known as the "beached dinosaur" theory.

E-banks are easy to set up so lots of new entrants will arrive. ‘Old-world’ systems,

cultures and structures will not encumber these new entrants. Instead, they will be

adaptable and responsive. E-banking gives consumers much more choice. Consumers

will be less inclined to remain loyal.

E-banking will lead to an erosion of the ‘endowment effect’ currently enjoyed by the

major UK banks. Deposits will go elsewhere with the consequence that these banks will

have to fight to regain and retain their customer base. This will increase their cost of

funds, possibly making their business less viable. Lost revenue may even result in these

banks taking more risks to breach the gap.

Portal providers are likely to attract the most significant share of banking profits. Indeed

banks could become glorified marriage brokers. They would simply bring two parties

together – eg buyer and seller, payer and payee.

The products will be provided by monolines, experts in their field. Traditional banks may

simply be left with payment and settlement business – even this could be cast into

doubt.

Traditional banks will find it difficult to evolve. Not only will they be unable to make

acquisitions for cash as opposed to being able to offer shares, they will be unable to

obtain additional capital from the stock market. This is in contrast to the situation for

Internet firms for whom it seems relatively easy to attract investment.

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Bank Marketing

There is of course another view which sees e-banking more as an evolution than a

revolution.

E-banking is just banking offered via a new delivery channel. It simply gives consumers

another service (just as ATMs did).

Like ATMs, e-banking will impact on the nature of branches but will not remove their

value.

Experience in Scandinavia (arguably the most advanced e-banking area in the world)

appears to confirm that the future is ‘clicks and mortar’ banking. Customers want full

service banking via a number of delivery channels. The future is therefore ‘Martini

Banking’ (any time, any place, anywhere, anyhow).

Traditional banks are starting to fight back. The start-up costs of an e-bank are high.

Establishing a trusted brand is very costly as it requires significant advertising

expenditure in addition to the purchase of expensive technology (as security and

privacy are key to gaining customer approval).

E-banks have already found that retail banking only becomes profitable once a large

critical mass is achieved. Consequently many e-banks are limiting themselves to

providing a tailored service to the better off.

Nobody really knows which of these versions will triumph. This is something that the

market will determine. However, supervisors will need to pay close attention to the

impact of e-banks on the traditional banks, for example by surveillance of:

strategy

customer levels

earnings and costs

advertising spending

margins

funding costs

Merger opportunities and threats, both in the UK and abroad.

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Bank Marketing

The Indian Scenario

Drivers of change

Advantages previously held by large financial institutions have shrunk considerably. The

Internet has leveled the playing field and afforded open access to customers in the

global marketplace. Internet banking is a cost-effective delivery channel for financial

institutions. Consumers are embracing the many benefits of Internet banking. Access to

one's accounts at anytime and from any location via the World Wide Web is a

convenience unknown a short time ago. Thus, a bank's Internet presence transforms

from 'brouchreware' status to 'Internet banking' status once the bank goes through a

technology integration effort to enable the customer to access information about his or

her specific account relationship. The six primary drivers of Internet banking includes, in

order of primacy are:

Improve customer access

Facilitate the offering of more services

Increase customer loyalty

Attract new customers

Provide services offered by competitors

Reduce customer attrition

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Bank Marketing

Indian Banks on Web

The banking industry in India is facing unprecedented competition from non-traditional

banking institutions, which now offer banking and financial services over the Internet.

The deregulation of the banking industry coupled with the emergence of new

technologies, are enabling new competitors to enter the financial services market

quickly and efficiently.

Indian banks are going for the retail banking in a big way. However, much is still to be

achieved. This study that was conducted by students of IIML shows some interesting

facts:

Throughout the country, the Internet Banking is in the nascent stage of

development (more than 50 banks are offering varied kind of Internet banking

services).

In general, these Internet sites offer only the most basic services. 55% are so

called 'entry level' sites, offering little more than company information and basic

marketing materials. Only 8% offer 'advanced transactions' such as online funds

transfer, transactions & cash management services.

Foreign & Private banks are much advanced in terms of the number of sites &

their level of development.

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Bank Marketing

EMERGING CHALLENGES

Information technology analyst firm, the Meta Group, recently reported "financial

institutions who don't offer home banking by the year 2000 will become marginalized."

By the year of 2002, a large sophisticated and highly competitive Internet Banking

Market will develop which will be driven by

Demand side pressure due to increasing access to low cost electronic services.

Emergence of open standards for banking functionality.

Growing customer awareness and need of transparency.

Global players in the fray

Close integration of bank services with web based E-commerce or even

disintermediation of services through direct electronic payments (E- Cash).

More convenient international transactions due to the fact that the Internet along

with general deregulation trends eliminates geographic boundaries.

Move from one stop shopping to 'Banking Portfolio' i.e. unbundled product

purchases.

Certainly some existing brick and mortar banks will go out of business. But that's

because they fail to respond to the challenge of the Internet. The Internet and its

underlying technologies will change and transform not just banking, but also all aspects

of finance and commerce. It represents much more than a new distribution opportunity.

It will enable nimble players to leverage their brick and mortar presence to improve

customer satisfaction and gain share. It will force lethargic players who are struck with

legacy cost basis, out of business-since they are unable to bring to play in the new

context.

E-Banking world wide

Since its inception, Internet banking has experienced strong and sustained growth.

World

Bank report on leapfrogging in e-finance pointed out that the three countries with

impressive progress in information technology in this sense are Estonia, Republic of

Korea and Brazil. Creation of the world’s leading electronic banking systems has been

done at a remarkably low cost compared to other world-class internet banks .

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Bank Marketing

In the European Union, 60 million people, representing 18 per cent of the adult

population, use online banking In France, the number of online banking accounts is

recording an annual growth rate of 75 per cent. However, Estonia is a country that has

become a leader in Internet banking (which now reaches 18 per cent of the population),

not only among Eastern European countries but in world rankings, through a

combination of easyto- use software, free-of-charge transactions and behavior changes

resulting from the influence of the Nordic countries’ IT culture on Estonia.

A sector in which Latin America is seems to be performing better than in other industries

is online retail banking. Growth in this area has been driven by traditional banks, which

have used the online channel to generate customer loyalty and improve their operating

margins. Two Brazilian banks, Bradesco and Banco do Brasil, have thus achieved more

than 4 million online customers each. Mexico is another leader of Internet banking in

Latin America. It adopted legislation providing for the development of both E-Commerce

and e-finance. In Mexico, the number of online bank users more than tripled from

700,000 in 2000 to 2.4 million in 2001, and it could reach 4.5 million in 2005 (E-Marketer

2002b). One reason for the success of Latin American banks’ online ventures seems to

be the attention they have paid to providing retail customers with multiple ways to

access their accounts (Internet, telephone, wireless). However, given that the share of

the total population that actually has a bank account is relatively small, the expansion

of Latin American online banking may be facing a bottleneck.

Compared with overall Internet usage estimated at 4.4 million in Australia, the major

banks together have attracted only 1.2 million to online banking.

The Internet is a global phenomenon and so is e-finance. Its deployment is not limited to

developed countries, and indeed some developing countries – such as India and the

Republic of Korea – are experiencing particularly strong growth in E-Banking. In Asia

one of the most impressive records has been achieved by the Republic of Korea. The

Republic of Korea is leading in online brokerage and in mobile banking. In South-East

Asia Internet banking is also developing rapidly in Thailand, Malaysia, and Singapore

and to a lesser extent, in the Philippines.

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Bank Marketing

In Bangladesh there is a large gap between the computerization of foreign banks and

that of local commercial banks and as regards the state of their intra- and inter-branch

online networks. However, 75 per cent of local banks are planning to introduce E-

Banking, which implies very dynamic improvements.

Apart from North and South Africa the Sub Saharan Africa is the region that is seriously

lagging behind in Internet banking, although it is giving to the rest of the world the good

example of microfinance developments.

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Chapter 9

CONCLUSION

Banking sector has undergone various changes after the new economic policy based on

privatization, globalization and liberalization adopted by government of India.

Introduction of asset classification and prudential accounting norms, deregulation of

interest rate and opening up of the financial sector made Indian banking sector

competitive. Encouragement to foreign banks and private sector banks increased

competition for all operators in banking sector. Banks in India prior to adoption of new

economic policy was protected by government and was having assured market due to

almost state monopoly in banking sector. However, under the new environment, Indian

banks needs to reinvent the marketing strategy for growth. In India geographical

development is not even throughout the country, there are fully fledged urban areas

covering the metropolitan cities and other big cities. On the other hand there are under

developed rural areas too. For effective bank marketing different approach for different

areas is required. In urban areas customer services is of paramount importance as the

level of literacy and therefore awareness of the people is more. Also technology based

marketing would have higher degree of success due to typical urban life style of the

people. Universal banking providing all financial service under roof will have more

success in urban areas. In the rural areas for bank marketing personalized banking will

go in long way. Also banks need to offer innovative tailor made deposits and advances

products to suit individual customers. Delivery of advances of right amount and at right

time is essential in rural marketing.

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Chapter 10

BIBLIOGRAPHY

Banking Theory Law and Practice, Dr. S. Guruswamy.

Marketing Management, Philip Kotler.

www.bankingindiaupdates.com

www.rbi.gov.in

Customer Relationship Management, K. B. S. Kumar.

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