Tomorrows Leading Retail Bank
The changing needs of customers
In the quest to be a leading retail bank, banks in India need to consider how the environment is changing and how these changes are affecting bank customers and their needs.
Liberalisation and economic growth have led to increased personal income of the average customer, especially among the urban middle class. As the economy develops over the next decade, the Indian urban consumer would not only have higher personal income, but would also receive better education and spend more on capital and consumer items. This can be seen from the fact that growth in private final consumption expenditure in real terms increased to 14.3 per cent per annum after liberalisation from 12.8 per cent per annum in the 80s. As the rural economy improves, this trend will also be seen in semi-urban and rural areas, though much later and probably to a lesser degree.
The proliferation of technology, with the growth of personal computers and mobile phones, does and will make the customer comfortable with its capabilities and every day usefulness. In addition, the quickened pace of life causes him to put an increasing value on his time. This lifestyle manifests itself through changing consumer behaviour. Being well-educated and exposed to greater choice, the Indian consumer shops around, seeking value for money and expecting higher standards of service. He/she demands more information on which to make decisions, and displays limited loyalty to suppliers. Lifestyle pressures mean that time is money and convenience is king: no consumer will sit for hours in a Mumbai traffic jam to reach a suppliers place of business if the business can be transacted by phone, or by the supplier coming to the consumer. Increasing income, spending, and the spread of the buy now, pay later culture increases the need for financial services.
At the same time, the development and liberalisation of the Indian financial markets has increased the consumers choice both of financial products and of their suppliers. With the advent of new private sector banks and the increased aggressiveness of foreign banks in the retail market, more Indian banks are now able to offer a wider range of products and services. Liberalisation has also allowed a plethora of non-bank providers to penetrate markets, such as car loans, consumer finance and deposit mobilisation traditionally associated with banks. As Indians become less debt averse and interest rate comes down, the need for financial services like consumer finance and credit cards will increase. We have already seen this with the mushrooming of NBFCs and the growth in number of Citibank and Standard Chartered Bank credit cardholders.
Technological advances
On top of all these changes in the economies and the financial markets of India, we will see a surge of technology transforming how businesses and individuals work, play and communicate. Massive public and private sector investments have been and are being made in computer hardware and software, and telecom infrastructure and services. The mushrooming of computer training courses e.g. NIIT, ZED, Apple and the popularity of computer stores like Tangerine herald a new generation of computer literate citizens who would constitute a retail banks future customers . EFTPOS, electronic purse, and computer links from home to bank for retail customers are not yet available in India but will be soon. For a start, Dena Bank has introduced smart cards, an electronic purse by which cash can be exchanged electronically. Any doubts about the perceived usefulness of these services in the future could be laid to rest looking at the success of fax machines which till just a decade back was considered unnecessary.
Internet has recently become popular in a few homes in Mumbai and is being used for entertainment and information. There is no reason why Indian consumers may not wish to deal via the Internet or know about bank services via website pages. Mobile phone usage has been increasing in the four metros since introduction two years back and the rest of India would be covered soon. Customers may wish to deal with their bank from anywhere with the mobile phone or from the office/home with the PC. Voice response banking systems or telebanking, as introduced by Citibank and Bank of India, would be widespread in the future. Growing proliferation of ATMs in the metros would be the first of the technologically delivered banking services as customers demand Anytime, Anywhere, Anyhow (AAA) banking and banks try to shift their service delivery from branches to relatively lower cost non-physical options.
At the same time this technology is changing more of the traditional bank domain. Technology firms will be competing to take-over processing previously performed by the banks themselves. Back-office areas, such as card processing, are already being outsourced in the West as banks consolidate their organisations around customer-facing sales and service activities. This trend would also be seen in India in future.
A blueprint for the future
Tomorrows leading retail bank will have to respond now by reassessing their market focus, resources, structure and processes.
The real challenge facing retail banks as they prepare for the future is the need to adopt a stronger customer focus, rethink their distribution strategy and reorganise their resources. Banks must respond by offering differentiated service levels to meet the needs of different types of customers (e.g. personal banking for high net worth individuals, mass market banking for other individuals, commercial banking for small to medium sized businesses, and development banking for the rural customers).
Banks must also move away from branch based distribution systems to a wider system incorporating face to face channels (e.g. branches, mobile bankers) and electronic channels (e.g. phone banking, automated kiosks and online banking). Above all, banks must free up their expensive investment in real estate, i.e. the branch network and use their branches as sales and service centres rather than as transaction processing centres. To do this, banks must educate consumers to conduct transactions at ATMs, on the phone and online rather than through the branches. In addition, banks must reorganise their resources. The key issue is to change the skill mix of their staff from transaction handling to sales, service and advice. Not all existing staff will be able to make the change.
Indian banks are rising to meet these challenges. Some retail banks in India are at the forefront of these developments, and have already expanded their product range and delivery channels. Others are following their lead and are redesigning their branches to give more space to the customers. But some of Indias retail banks have been quite slow to change the way they do business. Their branches are still mostly transaction processing centres, rather than sales and service centres. There are four major issues facing all Indian banks as they strive to make this transaction :
Understanding which customers can be migrated to lower cost delivery channels (typically this has been underestimated by banks in India) and developing a strategy for doing so:
Determining the shape of their service delivery system :
Will there be specialist branches for certain customers groups ?
What role will online banking play ?
How will electronic delivery and branches be integrated ?
Reorganising their resources:
Developing a data warehouse to ensure that customers receive the appropriate service, no matter where they interface with the bank;
Retraining staff to improve relationship management and market a broader range of services;
Managing the transaction:
Migrating customers to more cost-effective delivery channels;
Managing staff as their role changes from transaction processing to service delivery;
Financing the transaction by increasing fee income and closing or consolidating branches.
The banking climate will not change radically overnight. Neither will a bank be able to redesign itself in one clean sweep. Consequently, each bank will need to perform its own analysis of the most critical issues, and move accordingly. But move they must. That a bank has time to choose the order of battle is not to say that a bank has time for complacency. Banking overcapacity is both the perception and the reality. The next ten years will be replete with the results of intensive competition and consolidation. The bank that can successfully meet these challenges will emerge as the leading retail bank in India in the years to come - a bank well placed to compete with other banks for the accolade of tomorrows leading retail bank.
The author is Associate Director, Coopers & Lybrand Financial Services Consulting, Mumbai. The views expressed here are his own.