retail baking

8/14/2019 Retail baking

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RETAIL BANKING

OBJECTIVES:-

To study the issues and challenges in retail banking

To study the recent trends in retail banking

To analyze the transforming retail banking processes and focus on evolving

process models.

To emphasize on the trends of customer relationship management in retailbanking.

To estimate the future growth of Indian retail banking.

To understand Optimization of retail banking channels.


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EXECUTIVE SUMMARY

Retail banking refers to provision of banking services to individuals and

small business where the financial institutions are dealing with large number

of low value transactions. The concept is not new to banks but is now

viewed as an important and attractive market segment that offers

opportunities for growth and profits.

Excess of liquidity, increased dependence of corporates on capital markets,

the rising income of middle class with increase in purchasing power and

ability to handle debts, the increaseing amount of NPAs from corporate

portfolio and the growth and future growth potential of the credit card

business has induced banks to shift from wholesale banking to retail

banking.

Retail banking has immense opportunities in a growing economy like India.

As the growth story gets unfolded in India, retail banking is going to emerge

a major driver. Some of the key policy issues relevant to the retail-banking

sector are: financial inclusion, responsible lending, and access to finance,

long-term savings, financial capability, consumer protection, regulation and

financial crime prevention.

The credit portfolio of banking business is fast changing in India. Retail

lending is becoming an important segment of bank credit. Large credit

exposures are linked to banks capital. Limits have to be fixed for single

exposure in relation to the capital funds. A paradigm shift from corporate

lendind and disintermediation are reasons responsible for resurgence. Banks

are facing fierce competition not only amongst themselves but also from

aggressive NBFC's. As a result, interest rates on retail lending too have

come down.

Risk managemet for banks as far as retail banking goes should focus on risk

and return characteristics of consumer loans, revenues from consumer loans,

losses from consumer loans, the collection strategies, product structuringand lending policies.

Retention of consumers is going to be a major challenge. Second, risingindebtedness could turn out to be a cause for concern in the future. Third,information technology poses both opportunities and challenges. Even with

ATM machines and Internet Banking, many of the customers still prefer the


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personal touch of their neighborhood branch bank.Fourth, KYC Issues and

money laundering risks in retail banking is yet another important issue.

Customer service is perhaps the most important dimension of retail banking

followed by constant product innovation. Quality and pace in delivery,

introduction of new channels of delivery, cross selling of products, price

bundling, and most important of all by become technology savy.

RETAIL BANKING AN INTRODUCTION

Retail banking refers to provision of banking services to individuals and

small business where the financial institutions are dealing with large number

of low value transactions. This is in contrast to wholesale banking where the

customers are large, often multinational companies, governments andgovernment enterprise, and the financial institution deal in small numbers of

high value transactions.

The concept is not new to banks but is now viewed as an important and

attractive market segment that offers opportunities for growth and profits.

Retail banking and retail lending are often used as synonyms but in fact, the

later is just the part of retail banking. In retail banking all the needs of

individual customers are taken care of in a well-integrated manner.

Todays retail banking sector is characterized by three basic

characteristics:

Multiple products (deposits, credit cards, insurance, investments and

securities);

Multiple channels of distribution (call center, branch, internet) and

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

What is the nature of retail banking? In a recent book, retail banking has

been described as hotter than vindaloo. Considering the fact that vindaloo,

the Indian-English innovative curry in umpteen numbers of restaurants ofLondon, is very hot and spicy, it seems that retail banking is perceived to be

the in-thing in todays world of banking. It is however broad in nature.


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WHY ARE BANKS CHANGING TO RETAIL BANKING?

Banks are awash with liquidity. Prime corporates do not borrow from banks

except at sub-PLR rates. Banks do not favor other corporates. Suddenly

there is a great change in attitude of banks. The name of the game is no

longer Lending to big corporates, huge amounts to create loan assets.

Banks invest their resources in government paper to the hilt and then scout

for hitherto neglected retail borrowers for lending. Retail credit is now

welcomed even from RBIs perspective. There are no longer any regulatory

hurdles. Consumer credit is no longer considered as unproductive, as it

triggers demand for consumer products, which in turn help manufacturers in

a period of economic slowdown. Retail to project credit stands to a ratio of

3: 1. While the rates of interest on consumer credit have still fallen, there is a

scope for further reduction. Perhaps, competition will further bring down the

interest rates.

Fixed interest rates on housing loan have sharply fallen, but not the floating

rates, which are linked to medium and long-term PLRs. Banks, refuse to

reduce these rates, which appears rather unfair. But then the consumers still

needs innovative products like graduated payment mortgages etc., in place

of stand alone EMI structures.

SME sector borrowers still appear to be suffering from inadequate and

delayed credit delivery this sector has immense potential for growth and

banks have to devise innovative strategies to fund their ventures on the

principle of entrepreneurship and bankabilty rather than mere collateral

securities.

Micro finance, another area of retail credit, has unfortunately become a so-

called priority sector credit. Perhaps it will be a great idea if it is delinked

from the obnoxious priority tag and thereby allow banks to display creativity

in financing the sector, especially in rural and semi-urban areas where its

potential for positive transformation of socio-economic conditions is

immense. Banks are gradually appreciating the virtue of spreading the creditrisk by financing large number of small (Retail) borrowers.

Credit card business is growing and even government banks have started

marketing cards. Surprisingly, they still do not leverage the network of

branches and availability of surplus manpower into effective marketing. The

interest rates on credit cards that are 30 percent per annum refuse to come


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down. May be with the active participation of many banks in this lucrative

business, the customer will eventually have the benefit of low rates. Thanks

to the on set of ATMs, channel migration is visible.

The personal banking segment customers have become the center of

attraction. It is their deposit and savings account that are actively sought

after, and not mega deposits at a slightly higher rate of interest. Banks are

truly spreading their deposit net rather widely.

It perhaps apt to quote what Hugh McCulloch, secretary of the treasury

UK, said long ago Distribute your loans rather than concentrate them in a

few hands. Large loans to a single borrower or a firm, although some times

proper and necessary, are generally injudicious and frequently unsafe. Large

borrowers are apt to control the bank, and when this is the relation between a

bank and its customers, it is not difficult to decide which one in the end willsuffer.

Drivers of retail business in India

What has contributed to this retail growth? Let me briefly highlight some of

the basic reasons.

First, economic prosperity and the consequent increase in purchasing powerhas given a fillip to a consumer boom. Note that during the 10 years after

1992, India's economy grew at an average rate of 6.8 percent and continues

to grow at the almost the same rate not many countries in the world

match this performance.

Second, changing consumer demographics indicate vast potential for growth

in consumption both qualitatively and quantitatively. India is one of the

countries having highest proportion (70%) of the population below 35 years

of age (young population). The BRIC report of the Goldman-Sachs, whichpredicted a bright future for Brazil, Russia, India and China, mentioned

Indian demographic advantage as an important positive factor for India.

Third, technological factors played a major role. Convenience banking in the

form of debit cards, internet and phone-banking, anywhere and anytime

banking has attracted many new customers into the banking field.


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Technological innovations relating to increasing use of credit / debit cards,

ATMs, direct debits and phone banking has contributed to the growth of

retail banking in India.

Fourth, the Treasury income of the banks, which had strengthened the

bottom lines of banks for the past few years, has been on the decline during

the last two years. In such a scenario, retail business provides a good vehicle

of profit maximisation. Considering the fact that retails share in impaired

assets is far lower than the overall bank loans and advances, retail loans have

put comparatively less provisioning burden on banks apart from diversifying

their income streams.

Fifth, decline in interest rates have also contributed to the growth of retailcredit by generating the demand for such credit.

RETAIL BANKING PRODUCTS AND SERVICES

Wide range of retail banking products and services are offered by the banks,

which cover both Depository and Advances to suit various segments of

customer like salaried persons, businessmen, traders, professionals,

pensioners etc. are as follows:-

Housing loan. Personal loan.

Vehicle or automobile loan.

Loan for consumer goods.

Credit and Debit cards-Global and international.

Loan for holidays.

Insurance products.

Gold loans.

Event loans.

Overdraft.

Mutual funds etc.

Leasing, hire purchase and factoring services

Retail banking depositories in various segments like children, housewives,

salaried class, professionals etc. include the following: - Flexi deposit accounts.


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Savings bank accounts.

Recurring deposit account.

Fixed deposit

Lockers.

Other short-term deposits.

Banks are coming out with more features to add value to retail banking

products and services. These are called VALUE ADDED PRODUCTS

AND SERVICES. These include the following: -

Free collection of specified number of outstation instruments per month.

Instant credit of outstation cheque.

Concession in commission, exchange for issuance of pay orders and

demand drafts.

Issuance of free chequebooks. Issuance of free ATM cards.

Interest rate options (fixed or floating)

Waiver of credit card issuance fees.

Free issuance of Add On cards to the members of the cardholders.

Accident insurance cover.

Arranging for insurance cover on the lockers in the bank.

Reducing the fees charged on locker facilities.

Free execution of standing instructions of customers.

Free investment advisory services.

Legal services for documentation

Services to senior citizens

Other services include: -

Payment of utility bills like electricity bills, telephone bills and water bills

etc. on due date.

Payment of monthly or quarterly education fee for children.

Payment of insurance premium on or before due dates.

Demating of shares, debentures and bonds. Telephone banking.

Internet banking.

Making payments at doorsteps.


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NRI ACCOUNTS

The present menu of bank accounts for Non-Resident Indians (NRIs) has

three categories:

1. Non-Resident (External) Rupee Accounts (NRE)

2. Non-Resident (Ordinary) Rupee Accounts (NRO)

3. Foreign Currency Non-Resident (Banks) Accounts FCNR (B)

ADVANTAGES AND DISADVANTAGES OF RETAIL BANKING

ADVANTAGES

Retail banking has inherent advantages outweighing certain disadvantages.Advantages are analyzed from the resource angle and asset angle.

RESOURCES SIDE

Retail deposits are stable and constitute core deposits.

They are interest insensitive and less bargaining for additional interest.

They constitute low cost funds for the banks.

Effective customer relationship management with the retail customers built

a strong a strong customer base.

Retail banking increases the subsidiary business of the banks.

ASSETS SIDE

Retail banking results in better yield and improved bottom line for a bank.

Retail segment is a good avenue for funds deployment.

Consumer loans are presumed to be of lower risk and NPA perception.

Helps economic revival of the nation through increased production activity.

Improves lifestyle and fulfills aspirations of the people through affordable

credit. Innovative product development credit.

Retail banking involves minimum marketing efforts in a demand driven

economy.

Diversifed portfolio due to huge customer base enables bank to reduce their

dependence on few or single borrower


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Banks can earn good profits by providing non fund based or fee based

services without deploying their funds.

DISADVANTAGES

Designing own and new financial products is very costly and time

consuming for the bank.

Customers now-a-days prefer net banking to branch banking. The banks

that are slow in introducing technology-based products, are finding it

difficult to retain the customers who wish to opt for net banking.

Customers are attracted towards other financial products like mutual funds

etc.

Though banks are investing heavily in technology, they are not able to

exploit the same to the full extent.

A major disadvantage is monitoring and follow up of huge volume of loanaccounts inducing banks to spend heavily in human resource department

Long term loans like housing loan due to its long repayment term in the

absence of proper follow-up, can become NPAs.

The volume of amount borrowed by a single customer is very low as

compared to wholesale banking. This does not allow banks to to exploit the

advantage of earning huge profits from single customer as in case of

wholesale banking.

OPPORTUNITIES AND CHALLENGES

Retail banking has immense opportunities in a growing economy like India.

As the growth story gets unfolded in India, retail banking is going to emerge

a major driver. How does the world view us? The BRIC report is viewing

India as an economic superpower. A.T. Kearney, a global management-

consulting firm, recently identified India as the second most attractive retail

destination of 30 emergent markets.

The rise of Indian middle class is an important contributory factor in this

regard. The percentage of middle to high-income Indian households is

expected to continue rising. The younger population not only wields

increasing purchasing power, but as far as acquiring personal debt is

concerned, they are perhaps more comfortable than previous generations.

Improving consumer purchasing power, coupled with more liberal attitudes

towards personal debt, is contributing to Indias retail banking segment.


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The combination of above factors promises substantial growth in retail

sector, which at present is in the nascent stage. Due to bundling of services

and delivery channels, the areas of potential conflicts of interest tend to

increase in universal banks and financial conglomerates. Some of the key

policy issues relevant to the retail-banking sector are: financial inclusion,

responsible lending, and access to finance, long-term savings, financial

capability, consumer protection, regulation and financial crime prevention.

What are the challenges for the industry and its stakeholders?

First, retention of consumers is going to be a major challenge. According to

a research by Riechheld and Sasser in the Harvard business review, 5percent

increase in customer retention can increase profitability by 35 percent in

banking business, 50 percent in insurance and brokerage, and 125 percent in

the consumer credit card market. Thus, banks need to emphasis on retainingconsumer and increasing the market share.

Second, rising indebtedness could turn out to be a cause for concern in the

future. Indias position, of course, is not comparable to that of developed

world where household debt as a proportion of disposable income is much

higher. Such a scenario creates high uncertainty. Expressing concerns about

the high growth witnessed in consumer credit segments the reserve bank has,

as a temporary measure, put in place risk containment measures and

increased the weight from 100 percent to 125 percent in the case of

consumer credit including personal loans and credit cards.

Third, information technology poses both opportunities and challenges.Even with ATM machines and Internet Banking, many of the customers still

prefer the personal touch of their neighborhood branch bank. Technology

has made it possible to deliver services throughout branch network,

providing instant updates to checking accounts and rapid movement of

money for stock transfers. However, this dependency on the network has

bought IT departments additional responsibilities and challenges in

managing, maintaining and optimizing the performance of retail bankingnetworks. Illustratively, ensuring that all bank products and services are

available, at all times, and across the entire organization is essential for

todays retail banks to generate revenue and remain competitive. Besides,

there are network management challenges, whereby keeping this complex,

distributed networks and applications operating properly in support of

business objectives becomes essential. Specific challenges include ensuring


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that account transaction applications run efficiently between the branch

offices and data centers.

Fourth, KYC Issues and money laundering risks in retail banking is yet

another important issue. Retail lending is regarded as a low risk area for

money laundering because of the perception of the sums involved. However,

competition for clients may also lead to KYC procedures being waived in

the bid for new business. Banks must also consider seriously the type of

identification documents the will accept and other processes to be

completed. The Reserve Bank has issued details guidelines on application of

KYC norms in November 2004.

STRATEGIES FOR INCREASING RETAIL BANKING BUSINESS

a.Constant product innovation to match the requirements of the customersegments: The customer database available with the banks is the best source

of their demographic and financial information and can be used by the banks

for targeting certain customer segments for new or modified product. The

banks should come out with new products in the area of securities, mutual

funds and insurance

b. Quality service and quickness in delivery: As most of the banks areoffering retail products of similar nature, the customers can easily

switchover to the one, which offers better service at comparatively lower

costs. The quality of service that banks offer and the experience that clients

have, matter the most. Hence, to retain the customers, banks have to come

out with competitive products satisfying the desires of the customers at the

click of a button.

c.Introduction of new delivery channels: Retail customers like to interface

with their bank through multiple channels. Therefore, banks should try to

give high quality service across all service channels like branches, Internet,ATMs, etc.

d. Tapping of unexploited potential and increasing the volume of business.This will compensate for the thin margins: The Indian retail banking marketstill remains largely untapped giving a scope for growth to the banks and

financial institutions. With changing psyche of Indian consumers, who are


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now comfortable with the idea of availing loans for their personal needs,

banks have tremendous potential lying in this segment. Marketing

departments of the banks be geared up and special training be imparted to

them so that banks are successful in grabbing more and more of retail

business in the market.

e. Infrastructure outsourcing: This will help in lowering the cost of service

channels combined with quality and quickness.

f.Detail market research: Banks may go for detail market research, whichwill help them in knowing what their competitors are offering to their

clients. This will enable them to have an edge over their competitors and

increase their share in retail banking pie by offering better products and

services.

g. Cross-selling of products: PSBs have an added advantage of having awide network of branches, which gives them an opportunity to sell third-

party products through these branches.

h.Business process outsourcing: Outsourcing of requirements would not

only save cost and time but would help the banks in concentrating on the

core business area. Banks can devote more time for marketing, customer

service and brand building. For example, Management of ATMs can be

outsourced. This will save the banks from dealing with the intricacies of

technology.

i. Tie-up arrangements: PSBs with regional concentration can reap thebenefit of reaching customers across the country by entering into strategic

alliance with other such banks with intensive presence in other regions. In

the present regime of falling interest and stiff competition, banks are aware

that it is finally the retail banking which will enable them to hold the head

above water. Hence, banks should make all out efforts to boost the retail

banking by recognizing the needs of the customers. It is essential that banks

would be imaginative in predicting the customers' expectations in the ever-changing tastes and environments. It is the innovative and competitive

products coupled with high quality care for clients will only hold the key to

success in this area. In short, bankers have to run very fast even to stay

where they are now. It is the survival of the fastest now and not only

survival of the fittest.


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CUSTOMER RELATIONSHIP MANAGEMENT

IN RETAIL BANKING

Introduction

Retail banks are facing greater challenges than ever before in executing their

customer management strategies. Intensifying competition, proliferating

customer contact channels, escalating attacks on customer information,

rising customer expectations and capitalizing on new market opportunities

are at the top of every bank executives agenda.

In looking for ways to drive growth, banks need to evaluate their customer

management strategy. Do they currently have a CRM solution that is capableof delivering:

Consistent and cost-effective customer service?

Customer-aligned products and services?

Enhanced customer loyalty and long-term value?

CRM in retail banking: current trends and

Dynamics

Today, more than ever before, the ability to maximize customer loyalty

through close and durable relationships is critical to retail banks ability to

grow their businesses. As banks strive to create and manage customer

relationships, several emerging trends affect the approach and tools banks

employ to achieve sustainable growth. These trends reflect a fundamental

change in the way banks interact with the customers they have - and those

they want to acquire.

Trend: focusing on organic growth

How can a retail bank drive growth? Traditionally, banks have grown

through an aggressive strategy of acquiring direct competitors and taking

over their branch networks. Today, that strategy is no longer sufficient, since

it doesnt create organic growth for the financial institution. To build


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stronger customer loyalty, banks need improved customer knowledge to

develop products and deliver services targeted at specific market segments;

resulting in more directed marketing, sales and service tactics. This is not to

say M&As will not continue to be an effective way to expand product

offerings and service capabilities. However, retail banks will focus on

acquiring businesses that have essential products or capabilities to complete

the banks portfolio of offerings. The goal? To gain greater wallet share of

current customers and support their organic growth. A recent example of this

is the acquisition of Providian by Washington Mutual that expanded its

credit card offering for both banking and mortgage customers.

Trend: seeking out and better serving emerging

customer segments

One of the ways banks can achieve improved organic growth is by focusing

on new markets. Emerging demographic segments represent untapped

revenue streams that can fuel a banks growth. In the U.S., the Hispanic

market represents a major opportunity. This fast-growing and underserved

customer segment offers new potential revenue for retail banks. The need

every bank has is how to respond quickly and at low cost. And this need is

increasing all the time.

Trend: creating deep business insight into customer

Preferences

Customer loyalty that drives organic growth can only be built through a

consistent customer experience. This means understanding each

individual customers needs and preferences. One of the largest

challenges banks face

is how to better understand their customers and provide personalized

customer service.

A one-size-fits-all customer strategy no longer works. Banks need to serve

the rapidly diverging needs of all markets: aging baby-boomers, time-

stressed mid-lifers and younger technophiles (i.e., Gen-X and Gen-Y).

Banks must move out of their comfort zone and develop services and

products that address the specific needs of different market segments.


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It is clear that financial service providers can no longer sustain growth and

profitability targets through mass direct mail campaigns that deliver less

than 1 percent response rates. Those that do will lose out to competitors

implementing personalized communications that target the right customer, at

the right time, with the right product or service. To optimize customer

relationships and loyalty, banks need to integrate processes and technologies

that enable them to build and then act upon a detailed view of what each

customer wants. This will require highly skilled customer service

professionals, with the right combination of linguistic, culturally aligned and

financial services skills, as well as the ability to deploy customer service

strategies quickly, efficiently and cost-effectively.

Trend: Responding to intensifying competitionthrough revitalized offerings

The need to revitalize a companys portfolio of offerings happens in every

industry. Examples in high-tech manufacturing, consumer industries and

transportation show how important new offerings are in order to stay

competitive as products and services become more commoditized. The

same is true in the financial services industry. Todays retail banks face a

relentless stream of new competitors, eager to take a share of the markets

revenues. Three major competitors offering differentiated products, services

or distribution models have emerged over the past decade: Brokerage and

insurance firms, expanding their offering portfolios into banking products

beyond their traditional product sets.

Nontraditional players such as PayPal (expanding through technology-led

channels of services) or telecommunications companies (expanding by

bundling of payments for like services) are growing by becoming payment

aggregators. Nonbanking companies looking to (if not already) enter the

market by offering banking products and services. The entry of

nontraditional players will not only affect bank growth rates as they compete

for consumers, but will also place downward pressure on operating marginsand profitability created through their nonbanking business models.

Renewing and reinvigorating product offerings and customer service

strategies are essential ways to stay competitive in a changing marketplace.

Proactive banks will respond to market opportunities and competitive


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threats by launching new products, entering new markets and acquiring new

customer segments. A proactive CRM solution is the foundation that can

help support this without disrupting current services that would put

existing clients at risk.

Trend: Improving distribution and channel

Management

How are retail banks responding to intensified market competition? To take

themselves to the next level of improved sales and service, banks are

focusing on developing, implementing and integrating their channels more

rapidly and efficiently. Their goal is to meet three objectives:

Improved and more consistent service based on a full

customer view

Increased revenue through adoption of new products Improved profitability through lower product

development and service costs

Forward-looking banks will simultaneously improve customer service

quality and profitability by deploying an integrated CRM strategy.

Deepening relationships with their customers means that banks must offer

their products and services through appropriate delivery channels that appeal

to their customers. Deploying multiple channels and integrating them at theenterprise level give banks a consistent and full view of the customer. To be

successful, this must include all service channels both physical and virtual

including, call center, Web, branch, kiosk, ATM, phone and mobile

devices. To achieve this, banks need to develop technology, operational

processes and customer strategies to make their channels more effective in

reaching and serving their customers. By tailoring products or services to

specific customers or market segments, banks will be able to increase their

product adoption rate, revenues and return on investment (ROI) for new

product development.

Trend: safeguarding customer information

Adding to this complexity, customer privacy and information security are

under attack as never before. The threats come from many quarters

including increasingly sophisticated identity thieves, constant phishing

expeditions by criminals seeking to trap unwary customers, and even inside


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jobs where staff sell customer data to criminals. Expanding legislative and

industry requirements for customer security are also increasing costs for

financial services companies. Compliance with customer information

regulations is becoming increasingly complex as regulations are growing at

all operating levels:

At the global level The Payment Card Industry (PCI) Act requires a

single set of information security standards and requirements

for all payment organizations.

At the national level The Gramm-Leach-Bliley Act not only requires that

financial institutions ensure the security and confidentiality of customer

records and information but also requires companies to protect against

anticipated threats and unauthorized access, which could result in substantial

harm or inconvenience to a customer.

At the state level The California Information Practice Act requires

businesses in California to disclose any security breach that occurs to anyCalifornia resident whose unencrypted personal information was, or is

reasonably believed to have been, acquired by an unauthorized person.

Against this ever-expanding background, it is vital that banks ensure their

customer data is secure from both internal and external threats. The

following are three key reasons why this is so important:

If a bank loses a customers information, it invariably

loses the customer as well.

A security breach has an immense negative impact on

the value of the banks brand and reputation, hindering

the banks ability to acquire new customers.

Under Basel II, banks without required client data security

as a part of their risk management program must maintain

higher levels of capital reserves reducing the amount

of funds available to invest in the marketplace and

generate revenue.

By preventing security breaches and avoiding losses, banks can actually

realize a ROI from investing in security. This makes protecting customer

data a prerequisite for competing effectively in the retail financial services

market. Banks must balance the cost of security against the need to share

information and service the customer, while at the same time finding ways


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to secure vital customer and financial data for the purposes of risk

management planning.


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Reaping the benefits of a CRM solution

Faced with these numerous and varied trends, retail banks are reshaping the

way they must interact with their customers. A fully integrated,

enterprisewide CRM platform ensures banks have the core capabilities totake full advantage of their customer relationships and capitalize on these

market dynamics, rather than losing out because of them.

Gaining Sales Momentum

In todays increasingly competitive environment, where maximizing organic

growth is a banks priority, sales momentum is essential. To build this

momentum, banks need to focus simultaneously on:

Increasing acquisition rates of new and emerging customer segments,

such as the Hispanic population in the U.S.

Improving retention of existing customers and saving at risk

customers

Increasing profitability of customer relationships, either at the top-

line through increased sales, or at the bottom-line through more cost-

effective service

Improving integrated channel distribution strategies to get the right

product, to the right client, at the moment the customer has the need

Maximizing the value and return from CRM investments that have

already been made

Increasing Acquisition Of New Customers

A CRM solution should help a bank target customers based on the value

they bring to the bank, now and throughout the life of the customer (and

beyond through next generation marketing). Banks need to ensure that

their value propositions have traction with the right market segments. This

will enable the bank to identify, target and capture new customers. Clearly,

customer insight and strategy are the core differentiators for the bank. CRMsolutions (people, applications, systems and processes) must support these

strategies to get the right products and services to the right customers.

Improving Retention Of Existing Customers


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Customer retention can be achieved by enhancing customer satisfaction and

loyalty, improving problem resolution, and creating the ability to identify

and save at-risk customers. In fact, an at-risk customer actually

represents a major opportunity for additional revenue if handled correctly.

However, the greatest danger for banks is either not identifying at risk

customers or not having the capabilities to do anything to recover them.

For example, a customer makes a large withdrawal from his or her account.

This may signal that the customer is switching funds to another bank. Or the

customer may be buying a house, a boat, or paying college tuition, in which

case there are clear opportunities to sell additional products or investments.

The identification and treatment of this customer should reflect his or her

lifetime value. CRM-driven techniques will help retain customers and can

migrate mere account holders into loyal, long-term, profitable customers.

Increasing The Profitability Of CustomerRelationships

Boosting revenues requires improving the product pipeline and close rates,

while reducing sales and service costs. On the revenue side, the banks CRM

solution should use customer intelligence to target specific offers and

manage marketing campaigns for a high likelihood of acceptance. Customer

treatment strategies should be fully integrated with a CRM platform and the

processes to support them. On the cost side, better channel management,

CRM automation and integration will help increase the efficiency and

effectiveness of sales and service.

Improving Distribution And Channel Management

To win profitable customers and build long-term relationships with them,

banks need to have the right insight, products and services for the right

customer at the lowest possible cost. From call centers to Web sites, every

one of a banks multiple channels must be scalable, flexible, low-cost and

fully integrated with all the other channels. This is the only way to

consolidate customer information and provide consistent treatment acrossthe enterprise. Each of the banks channels must also be able to

accommodate change and adapt to future trends in the marketplace.


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Maximizing The Value Of Past CRM Investments

As new technologies and channels emerge, the need to control costs and

maximize the ROI from existing CRM investments raises many questions:

How can a bank lower its operational cost structure while leveragingthe newest technologies such as interactive voice recognition-based

routing to improve service quality and customer experience?

How can it manage its customer service/call center workforce more

efficiently and effectively in an era when a major call center has to

handle tens of million of calls a year from a vastly diverse spectrum of

customers?

How can the banks investment in customer care be refocused to

create a permanently lower and more flexible cost base perhaps

through use of a common platform, technologies and processes?

With intensifying competition putting pressure on increasing

required customer service levels and improving top-line

revenues, investment in new capabilities to make the customer

relationship stronger and more profitable is critical for future

growth. However, it is important for banks to maintain a

tight rein on their costs while deploying these solutions.

In summary, the market dynamics facing financial services companies

have never been more fluid and complex. In the midst of these trends isyour customer. Any CRM solution invested in must be implemented with

the clear goals of improving the following:

Customer satisfaction and loyalty

Customer insight

Speed-to-market for products and services

Customer security

All this must be done in a manner that generates measurable increases in

revenue for the bank and reduces overall costs of service.


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FUTURE OF RETAIL BANKING

How do we see the future of retail banking? What are the major attributes of

the shape of things to come in this sector?

First, customer service should be the be-all and end-all of retail banking.

The other day a document released by the British Bankers Association,

entitled UK Retail Banking Manifesto: addressing the challenges that lie

ahead for the industry and its stakeholders on September 29, 2004 came to

my notice. This document analysed the key policy issues relevant to the

retail banking sector and highlighted the role of financial inclusion,

responsible lending, access to finance, and consumer protection. It is in this

context that that one is reminded of the needs to develop the standards and

codes for banking. The contribution of the Committee on Procedure &

Performance Audit on Public Services (CPPAPS) (Chairman: Shri S.S.

Tarapore) has been invaluable and has provided great insight. Based on the

recommendation of the CPPAPS, the Annual Policy Statement for 2005-06

announced the decision to set up an independent Banking Codes &

Standards Board of India on the model of the mechanism in the UK in order

to ensure that comprehensive code of conduct for fair treatment of customersis evolved and adhered to. The codes and standards, together with the

institutional mechanism to monitor them, are expected to enhance the

quality of customer service, to the individual customer in particular. The

codes will bring about greater transparency in the system and also tackle the

issue of information asymmetry. The Board would function as an industry-

wide watchdog of the banking code and ensure that the banks comply with

the banking codes. The codes would establish the banking industrys key

commitments and obligations to customers on standards of practice,

disclosure and principles of conduct for their banking services. The Board

will monitor compliance with the Codes by the affiliated banks.

Second, sharing of information about the credit history of households is

extremely important as far retail banking is concerned. Perhaps due the

confidential nature of banker-customer, banks have a traditional resistance to

share credit information on the client, not only with one another, but also


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across sectors. Globally, Credit Information Bureaus have, therefore, been

set up to function as a repository of credit information - both current and

historical data on existing and potential borrowers.

The database maintained by these institutions can be accessed by the lending

institutions. Credit Bureaus have been established not only in countries with

developed financial systems but also in countries with relatively less

developed financial markets, such as, Sri Lanka, Mexico, Bangladesh and

the Philippines. In Indian case, the Credit Information Bureau (India)

Limited (CIBIL), incorporated in 2000, aims at fulfilling the need of credit

granting institutions for comprehensive credit information by collecting,

collating and disseminating credit information pertaining to both commercial

and consumer borrowers. At the same time banks must exercise due

diligence before declaring a borrower as

defaulter.

Third, outsourcing has become an important issue in the recent past. With

the increasing market orientation of the financial system and to cope with

the competition as also to benefit from the technological innovations such

as, e-banking, the banks are making increasing use of "outsourcing" as a

means of both reducing costs and achieving better efficiency. While

outsourcing does have various cost advantages, it has the potential to

transfer risk, management and compliance to third parties who may not be

regulated. A recent BIS Report on Outsourcing in Financial Servicesdeveloped some high-level principles. A basic requirement in this context is

that a regulated entity seeking to outsource activities should have in place a

comprehensive policy on outsourcing including a comprehensive

outsourcing risk management programme to address the outsourced

activities and the relationship with the service provider. Application of these

principles in the Indian context is under consideration.

Finally, retail banking does not refer to lending only. In the whole story of

retailing one should not forget the role played by retail depositors. Thehomemaker, the retail shop keeper, the pensioners, self-employed and those

employed in unorganised sector - all need to get a place in the banks. It is in

this backdrop that the Annual Policy for 2005-06 pointed out issues relating

to financial exclusion and had announced that the RBI would implement

policies to encourage banks which provide extensive services while

disincentivising those which are not responsive to the banking needs of the


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community, including the underprivileged.

Furthermore, the nature, scope and cost of services need to be monitored to

assess whether there is any denial, implicit or explicit, of basic banking

services to the common person and banks have been urged to review their

existing practices to align them with the objective of financial inclusion.

PARADOX OF RETAIL BANKING-2015

Any serious discussion of the future of the retail banking industry eventually

raises a basic question: will future customers still need retail banks? The

answer, it turns out, depends on banks themselves. With technology and

nonblank businesses providing new options for safeguarding and managing

their finances, customers will continueto depend on banks only as long as

banks can provide service and value that cannot be found anywhere else.

There are already signs that customers are questioning the ability of banks to

look out for their financial wellbeing. Only 36 percent of consumers believe

what banks tell them, according to a Forrester survey.1 A separate survey

also indicates that over 60 percent of U.S. households conduct their own

research before buying financial services products.2 As a result, banks have

begun to rethink what, where and how they serve an increasingly informed

and demanding customer base. At the same time, a confluence of industrydevelopments, including consolidation, regulation, industry specialization,

changing workforce needs and new technologies are putting additional

pressure on banks operating models and raising questions about traditional

strategies for growth and value creation. So, what will the future look like?

How will banks continue to grow revenues and remain profitable? What will

it take to create and maintain advantage in this highly competitive industry?

An examination of the forces shaping the industry reveals that the future will

require superior efficiency and operational excellence from all banks, while

industry leadership will be attained by those institutions most adept at

harnessing product, service and process innovation to anticipate and meet

customer needs. Ultimately, to deliver on these imperatives, banks will have

to focus on their core strengths those activities in which they excel and

partner with best-in-class specialists for everything else: achieving more by

doing less. On the surface, the competitive landscape of the retail


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banking industry in 2015 will not look much different than it does today.

Mergers and acquisitions will likely have reduced the total number of banks,

especially mid-tier regional banks, and industry specialists and non-bank

banks will play a more prominent role. But most of todays players,

including universal banks, community banks, industry specialist banks and

non-bank banks, will still be vying to differentiate themselves in a crowded

marketplace. However, traditional approaches to creating value through

growth and efficiency will no longer be enough. Advantages gained through

acquisition, new market entry and reconfigured product offerings will be

fleeting at best, while partnering and outsourcing will make efficiency a

basic requirement for all. Through market research and interviews with

industry executives, the IBM Institute for Business Value identified

ive major industry trends that will impact the retail banking industry. By

2015, the combined implications of these trends will create an environment

in which nothing less than sharp focus and excellence in day-to-dayoperations will be acceptable, and banks will have to generate growth

through continuous innovation or be left behind:

Customers redefine the rules of the game

Pronounced shifts in demographics, attitudes and behaviors, in addition to

ubiquitous information, are giving customers the power to demand much

greater responsiveness and transparency from their banks.

Universal banks and ultra-focused niche players thriveLarge players will generate higher aggregate profits by reaping the benefits

of super scale, while niche players will aggressively pursue the most

desirable customers by addressing their needs in distinct ways those in the

middle will get squeezed.

Changing workforce composition dictates new

approaches

An older and increasingly mobile and diverse workforce will raise

management complexity and require flexible approaches to compensation

and performance management.

Regulatory burdens intensify

Heightened requirements around privacy, security, partnership risk and

operational risk will require banks to take a more proactive, enterprisewide

approach to managing compliance issues.


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Technology improves inexorably to enable breakaway

value

Advanced technologies will allow banks to infuse their legacy operating

models and infrastructures with unprecedented functionality. Emerging

technologies such as grid computing, service-oriented architectures,

virtualization of data and storage, and predictive intelligence will cause

entrenched insourcing philosophies to perish in favor of a partnership model

where specialized enterprises thrive. Of these trends, the first two

increasingly powerful customers and intensifying competition

stand out as the most significant forces that will drive industry change

over the next decade. The other three trends

changes in managing human capital, regulations and technologies

will strongly contribute to and reinforce the effects of intensifying

competition and customer empowerment on banks strategic choices.

In this emerging environment, innovation will take many forms, including

advances in products and services, markets, operational processes, customer

intimacy, and new channel and diversification strategies. But innovation will

not be possible, nor will it have the desired impact, unless banks create the

requisite conditions for innovation development.

There are four strategic imperatives banks must follow to cultivate

innovation and position themselves for sustainable growth:

Focus on core strengths and partner for everything

else Leading banks will optimize their performance by becoming

specialized enterprises, managing only strategic, differentiating business

components internally and partnering with best-in-class specialists for those

capabilities that do not drive competitive advantage.

Optimize the potential of each customer relationship Rather than attempting to be all things to all people, industry leaders will use

superior customer insights to offer the most appropriate and profitable

products, tools and services to targeted segments.

Harness the potential of the workforce through

effective performance management Banks will need to realign skills and

set the right performance metrics to motivate a changing workforce to

continuously pursue innovation.


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Recognize that technology will be a critical element of

success By making technology a central component of the strategicdecision making process, banks will be able to tightly align their business

and technology initiatives, and will be able to differentiate their offerings

and seize market opportunities with greater agility.


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REFERENCES

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

The paradox of Banking 2015 - Achieving more by doing less. IBM

Business Consulting Services. 2007.

EDS viewpoint paper customer relationship management in retail banking.


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BIBLIOGRAPHY

www.Rbi.org

www.indiastat.comwww.contentsutra.com

www.dnaindia.com

www.indiainfo.com

www.ocw.mit.edu

www.emeraldinsight.com

www.Google.com

www.Indiastat.com

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

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