Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.

Retail Banking In India


Published on

Retail Banking In INdia

Published in: Business, Economy & Finance

Retail Banking In India

  2. 2. INNOVATIONS IN RETAIL BANKINGINTRODUCTION:RETAIL BANKING is a banking service that is geared primarily toward individualconsumers. Retail banking is usually made available by commercial banks, as well as smallercommunity banks. Unlike wholesale banking, retail banking focuses strictly on consumermarkets. Retail banking refers to provision of banking services to individuals and smallbusiness where the financial institutions are dealing with large number of low valuetransactions. The concept is not new to banks but is now viewed as an important andattractive market segment that offers opportunities for growth and profits.Excess of liquidity, increased dependence of corporate on capital markets, the risingincome of middle class with increase in purchasing power and ability to handle debts,the increasing amount of NPAs from corporate portfolio and the growth and futuregrowth potential of the credit card business has induced banks to shift from wholesalebanking to retail banking.Retail banking has immense opportunities in a growing economy like India. As the growthstory gets unfolded in India, retail banking is going to emerge a major driver. Some of thekey policy issues relevant to the retail-banking sector are: financial inclusion, responsiblelending, and access to finance, long-term savings, financial capability, consumer protection,regulation and financial crime prevention.2
  3. 3. INNOVATIONS IN RETAIL BANKINGDIFFERENCE BETWEEN CORE BANKING AND RETAILBANKINGOften retail banking is referred to as "non commercial banking" this would be your commonchecking accounts and consumer loans. Where as "core banking" is often the very solidbusiness accounts and commercial loans. It is referred to, as core because it is a core orcentral to the banks business. Few banks survive from just retail banking services, they needthose core business accounts that are perhaps more stable than retail business."Business Banking" tends to work with small-to-medium sized enterprises (SMEs). Businessbanking does all the things that retail banking does but adds the following things:1) More services: Business Banking includes things like more treasury services, revolvingcredit, merchant credit, cash management, group insurance, corporate cards and secureInternet banking (e.g. server-to-server).2) Better rates: Since SMEs bring in more money, they tend to get better rates than the retailbanking customer, who tends to need lots of maintenance compared to their deposit sizes.Retail, SME and corporate banking customers use the same infrastructure, but the salesplatforms tend to be different to cater to their specific needs.3
  4. 4. INNOVATIONS IN RETAIL BANKINGADVANTAGES AND DISADVANTAGES OF RETAILBANKING:ADVANTAGES:Retail banking has inherent advantages outweighing certain disadvantages. Advantages areanalyzed from the resource angle and asset angle.-RESOURCES SIDE(a) Retail deposits are stable and constitute core deposits.(b)They are interest insensitive and less bargaining for additional interest.(c)They constitute low cost funds for the banks.(d)Effective customer relationship management with the retail customersbuilt a strong customer base.(e) Retail banking increases the subsidiary business of the banks.-ASSETS SIDE(a) Retail banking results in better yield and improved bottom line for a bank.(b) Retail segment is a good avenue for funds deployment.(c) Consumer loans are presumed to be of lower risk and NPA perception.(d) Helps economic revival of the nation through increased production activity.(e) Improves lifestyle and fulfills aspirations of the people through affordable credit.(f) Innovative product development credit.(g) Retail banking involves minimum marketing efforts in a demand –driveneconomy.(h) Diversified portfolio due to huge customer base enables bank to reduce theirdependence on few or single borrower4
  5. 5. INNOVATIONS IN RETAIL BANKING(i) Banks can earn good profits by providing non fund based or fee based services withoutdeploying their funds.DISADVANTAGES:(a) Designing own and new financial products is very costly and time consuming for the bank.(b) Customers now-a-days prefer net banking to branch banking. The banks that are slow inintroducing technology-based products, are finding it difficult to retain the customers whowish to opt for net banking.(c) Customers are attracted towards other financial products like mutual funds etc.(d) Though banks are investing heavily in technology, they are not able to exploit the same tothe full extent.(e) A major disadvantage is monitoring and follow up of huge volume of loan accountsinducing banks to spend heavily in human resource department(f) Long term loans like housing loan due to its long repayment term in the absence of properfollow-up, can become NPAs.5
  6. 6. INNOVATIONS IN RETAIL BANKINGDRIVERS OF RETAIL BUSINESS IN INDIA• ECONOMIC PROSPERITY and the consequent increase in purchasing power havegiven a fillip to a consumer boom. During the 10 years after 1992, Indias economy grewat an average rate of 6.8 percent and continues to grow at the almost the same rate – notmany countries in the world match this performance.• CHANGING CONSUMER DEMOGRAPHICS indicate vast potential for growth inconsumption both qualitatively and quantitatively. India is one of the countries havinghighest proportion (70%) of the population below 35 years of age (young population).The BRIC report of the Goldman-Sachs, which predicted a bright future for Brazil,Russia, India and China, mentioned Indian demographic advantage as an importantpositive factor for India.• TECHNOLOGICAL FACTORS played a major role. Convenience banking in theform of debit cards, internet and phone-banking, anywhere and anytime banking hasattracted many new customers into the banking field. Technological innovations relatingto increasing use of credit / debit cards, ATMs, direct debits and phone banking hascontributed to the growth of retail banking in India.• TREASURY INCOME OF THE BANKS which had strengthened the bottom lines ofbanks for the past few years, has been on the decline during the last two years. In such ascenario, retail business provides a good vehicle of profit maximization. Considering thefact that retail’s share in impaired assets is far lower than the overall bank loans andadvances, retail loans have put comparatively less provisioning burden on banks apartfrom diversifying their income streams.• DECLINE IN INTEREST RATES have also contributed to the growth of retail creditby generating the demand for such credit.6
  7. 7. INNOVATIONS IN RETAIL BANKINGOPPORTUNITIES AND CHALLENGES FOR RETAILBANKINGRetail banking has immense opportunities in a growing economy likeIndia. As the growth story gets unfolded in India, retail banking is going to emerge a majordriver. How does the world view us? The BRIC report is viewing India as an economicsuperpower. A.T. Kearney, a global management-consulting firm, recently identified India asthe “second most attractive retail destination” of 30 emergent markets.The rise of Indian middle class is an important contributory factor in this regard. Thepercentage of middle to high-income Indian households is expected to continue rising. Theyounger population not only wields increasing purchasing power, but as far as acquiringpersonal debt is concerned, they are perhaps more comfortable than previous generations.Improving consumer purchasing power, coupled with more liberal attitudes towards personaldebt, is contributing to India’s retail banking segment.The combination of above factors promises substantial growth in retail sector, which atpresent is in the nascent stage. Due to bundling of services and delivery channels, the areasof potential conflicts of interest tend to increase in universal banks and financialconglomerates. Some of the key policy issues relevant to the retail-banking sector are:financial inclusion, responsible lending, and access to finance, long-term savings, financialcapability, consumer protection, regulation and financial crime prevention.7
  8. 8. INNOVATIONS IN RETAIL BANKINGSERVICES OFFERED IN RETAIL BANKS• Any Time Banking: -(a) This refers to banking service available 24 hours a day and 365 days a year.(b) Such facility is made available to the customer through the Automated Teller machine.(c) Banking, being a service industry, is primarily driven by customers needs.(d) Each customer is willing to pay a price for the services provided it is made available tohim when he wants and where he wants.(e) In the present day of server competition, banking services are driven by technology,which is more oriented towards providing better services to the customer.(f) The concept of banking hours has been changed from the fixed 4 hours to 24 hours.(g) This has been made possible through use of ATMs. Even under the manual service, thebanks have stated to extend the service from the traditional 4 hours to 5 hours and evenup to 12 hours say from 8 AM to 8 PM.(h) Some banks have introduced the practice of Sunday Banking or Holiday Banking.• Automated Teller Machine (ATM): -(a) ATM is a machine in the nature of a computer in general sense, but is dedicated to docertain types of specific jobs only.(b) The hardware and the proprietary i.e. the software used in one machine can not be used inone machine.8
  9. 9. INNOVATIONS IN RETAIL BANKING• Customer Services: -The following customer services are offered through the system:(a) Cash withdrawal (up to a specified limit)(b) Cheque/Cash deposit (the receipt being only for the deposit of the envelope containingcash but not for the amount therein).(c) Enquiry about balances(d) Printing of statement of accounts(e) Request for cheque book and standing instructions.(f) Transfer of funds(g) PIN change• Telebanking: -(a) From the conventional banking, where the services were provided manually across thetable, it has come to a stage where the customer is not required to visit the bank enquiryof balance in the account, sending a remittance, to get a statement of account, etc.(b) The concept has become so popular that in USA customers do not visit the bank for 97%of their transactions and these are done from either customer’s residence or office using atelephone or a home PC.(c) In telebanking the customer is required to open the account with the bank initially byvisiting the bank.9
  10. 10. INNOVATIONS IN RETAIL BANKING(d) Telebanking services are, generally, provided by the bank over the telephone on a specialnumber.(e) The number at the bank is connected to a terminal in the bank, which is either handledmanually or is automated by connecting the same to the computer network.(f) Where the system is automated, two types of technology are used.• Home Banking: -(a) Under home banking the customer is served at his residence and there is no need for thecustomer to visit the bank’s premises for a number of routine transactions.(b) If the customer needs some information the same can be got by contacting the bank overthe phone as described in the telebanking.(c) If the customer wants to put through transaction and wishes to see his account or to get astatement of his account, he may have to use a PC.(d) This type of facility is available with a town, city or metropolitan area.(e) Under such a situation the customer should have a:(i) PC(ii) Modem(iii) Telephone line(iv) A compatible software for the home PC(f) The home banking service can be broadly classified under two groups, one without usingthe information technology and another using information technology.10
  11. 11. INNOVATIONS IN RETAIL BANKING(g) When customer contacts the bank o the phone no specific technology is involved and theservices of telebanking are provided to him.• Electronic Fund Transfer (EFT): -(a) In India the fund transfers are basically done through Mail Transfer, Draft or TelegraphicTransfer.(b) In case of Telegraphic Transfer (TT) again the Department of Telecommunication wasthe sole provider of Telephone, Telex and Telegram facilities.(c) With the process of liberalization private operators have started providing alternativevoice communication channels through mobile phones and vast communication as analternative channels for data communication.(d) It was normal for any TT to be credited to the beneficiary’s account after delay of 2 to 4days(e) The different forms of EFT prevalent in the use are:(i) EFT through Electronic Data Interchange11
  12. 12. INNOVATIONS IN RETAIL BANKING(ii) BANKNET(iii) RBINET(iv) IDRBT VSAT Network(v) EFT from Point of Sales(vi) Electronic Cash(vii) SWIFT- Global System for Funds Transfer(viii)Electronic Clearing Settlement• Internet Banking:-Introduction: -The delivery channels include direct dialup connections, private networks, public networks,etc. with the popularity of computers, easy access to Internet and World Wide Web (WWW),Internet is increasingly used by banks as a channel for receiving instructions and deliveringtheir products and services to their customers. This form of banking is generally referred to12
  13. 13. INNOVATIONS IN RETAIL BANKINGas Internet Banking, although the range of products and services offered by different banksvary widely both in their content and sophistication.Banking Services through Internet: -(a) The Basic Level Service is the banks’ web sites which disseminate information ondifferent products and services offered to customers and members of public in general. Itmay receive and reply to customer’s queries through e-mail,(b) The Second level are Simple Transactional Web sites which allows customers to submittheir instructions, applications for different services, queries in their account balances,etc. but do not permit any fund-based transactions on their accounts,(c) The Third level of Internet banking service are offered by Fully Transactional Web siteswhich allow the customers to operate on their accounts for transfer of funds, payment ofdifferent bills, subscribing to other products of the bank and to transact purchase and saleof securities, etc. The above forms of Internet banking service the customer or by newbanks, who deliver banking service primarily through Internet or other electronic deliverychannels as the value added services. Some of these banks are known as ‘Virtual’ banksor ‘Internet only’ banks and may not have physical presence in a country despite offeringdifferent banking services.CHAPTER-2 OVERVIEW OF ICICI BANK• OVERVIEW• HISTORY• 7 P’S OF MARKETING MIX OF ICICI BANK PRODUCT(1)DEPOSITS(2)LOANS13
  14. 14. INNOVATIONS IN RETAIL BANKING(3)CARDS(4)MOBILE BANKING OF ICICI BANK(5)DEMAT(6)INVESTMENTS(7)INSURANCE(8)INTERNET BANKING PRICE PLACE PROMOTION PROCESS PHYSICAL EVIDENCE PEOPLEOVERVIEWICICI Bank is Indias second-largest bank with total assets of Rs. 3,997.95 billion (US$ 100billion) at March 31, 2008 and profit after tax of Rs. 41.58 billion for the year ended March31, 2008. ICICI Bank is second amongst all the companies listed on the Indian stockexchanges in terms of free float market capitalization*. The Bank has a network of about1,308 branches and 3,950 ATMs in India and presence in 18 countries. ICICI Bank offers a14
  15. 15. INNOVATIONS IN RETAIL BANKINGwide range of banking products and financial services to corporate and retail customersthrough a variety of delivery channels and through its specialized subsidiaries and affiliatesin the areas of investment banking, life and non-life insurance, venture capital and assetmanagement. The Bank currently has subsidiaries in the United Kingdom, Russia andCanada, branches in Unites States, Singapore, Bahrain, Hong Kong, Sri Lanka, Qatar andDubai International Finance Centre and representative offices in United Arab Emirates,China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Our UK subsidiary hasestablished branches in Belgium and Germany.ICICI Banks equity shares are listed in India on Bombay Stock Exchange and the NationalStock Exchange of India Limited and its American Depositary Receipts (ADRs) are listed onthe New York Stock Exchange (NYSE).HISTORYICICI Bank was originally promoted in 1994 by ICICI Limited, an Indian financialinstitution, and was its wholly-owned subsidiary. ICICIs shareholding in ICICI Bank wasreduced to 46% through a public offering of shares in India in fiscal 1998, an equity offeringin the form of ADRs listed on the NYSE in fiscal 2000, ICICI Banks acquisition of Bank ofMadura Limited in an all-stock amalgamation in fiscal 2001, and secondary market sales byICICI to institutional investors in fiscal 2001 and fiscal 2002. ICICI was formed in 1955 atthe initiative of the World Bank, the Government of India and representatives of Indian15
  16. 16. INNOVATIONS IN RETAIL BANKINGindustry. The principal objective was to create a development financial institution forproviding medium-term and long-term project financing to Indian businesses. In the 1990s,ICICI transformed its business from a development financial institution offering only projectfinance to a diversified financial services group offering a wide variety of products andservices, both directly and through a number of subsidiaries and affiliates like ICICI Bank. In1999, ICICI become the first Indian company and the first bank or financial institution fromnon-Japan Asia to be listed on the NYSE.After consideration of various corporate structuring alternatives in the context of theemerging competitive scenario in the Indian banking industry, and the move towardsuniversal banking, the managements of ICICI and ICICI Bank formed the view that themerger of ICICI with ICICI Bank would be the optimal strategic alternative for both entities,and would create the optimal legal structure for the ICICI groups universal banking strategy.The merger would enhance value for ICICI shareholders through the merged entitys accessto low-cost deposits, greater opportunities for earning fee-based income and the ability toparticipate in the payments system and provide transaction-banking services. The mergerwould enhance value for ICICI Bank shareholders through a large capital base and scale ofoperations, seamless access to ICICIs strong corporate relationships built up over fivedecades, entry into new business segments, higher market share in various businesssegments, particularly fee-based services, and access to the vast talent pool of ICICI and itssubsidiaries. In October 2001, the Boards of Directors of ICICI and ICICI Bank approved themerger of ICICI and two of its wholly-owned retail finance subsidiaries, ICICI PersonalFinancial Services Limited and ICICI Capital Services Limited, with ICICI Bank. Themerger was approved by shareholders of ICICI and ICICI Bank in January 2002, by the HighCourt of Gujarat at Ahmedabad in March 2002, and by the High Court of Judicature atMumbai and the Reserve Bank of India in April 2002. Consequent to the merger, the ICICIgroups financing and banking operations, both wholesale and retail, have been integrated ina single entity.16
  17. 17. INNOVATIONS IN RETAIL BANKING7 P’S OF MARKETING OF ICICI BANKPRODUCTS(1)DEPOSITSICICI Bank offers wide variety of Deposit Products to suit consumer requirements.Convenience of networked branches/ ATMs and facility of E-channels like Internet and17
  18. 18. INNOVATIONS IN RETAIL BANKINGMobile Banking Savings Account(a) Debit-cum-ATM Card(b) Money Multiplier Facility(c) Internet Banking(d) Customer Care(e) Mobile Banking(f) Standing Instructions(g) Nomination facility(h) Bank @Home(i) DD Call and Collect Fixed Deposit(a) Wide range of tenures(b) Choice of investment plans(c) Partial withdrawal permitted(d) Auto renewal possible(e) Loan facility available Life Plus Senior Citizen ServicesICICI Bank brings the following benefits along with new Life PlusSenior Citizen account(a) Designated Senior Citizen Desk(b) Higher Interest Rates on Term Deposits(c) Demand Loans against your deposit(d) Free collection of outstation cheque drawn on any ICICI Bank18
  19. 19. INNOVATIONS IN RETAIL BANKINGlocation(e) Special Senior Citizen Life Plus Debit card(f) Money Multiplier Facility(g) Anywhere Banking(h) Internet Banking(i) Customer Care(j) Nomination Facility, and more Young Stars Savings AccountYoung Stars is a banking service for children, aged up to 18 years,brought to consumers by ICICI Bank to help the parents meet thepresent and future aspirations that they hold for their child. It offersvarious savings and investment options to the parent along withteaching the child to manage his/her personal finance in a moreresponsible and independent manner. Recurring DepositICICI Banks Recurring Deposits are the ideal way to invest small amounts of money everymonth and end up with a large saving on maturity.(a) Encourages savings without stress on your finances.(b) High rates of interest (identical to the fixed deposit rates).(c) Non-applicability of Tax Deduction at Source (TDS).19
  20. 20. INNOVATIONS IN RETAIL BANKING Easy receive Saving accountEasy receive account is a unique savings account that caters to domestic banking needs,while offering additional benefits for remittances received in the account from abroad.(2)LOANS Home Loan(a) Home Loan tenure upto 25 years(b) Simplified Documentation(c) Doorstep Delivery of home loan papers20
  21. 21. INNOVATIONS IN RETAIL BANKING(d) Sanction approval without having selected a property.(e) Free Personal Accident Insurance (Terms & Conditions)(f) Insurance options for your home loan at attractive premium Personal Loan(a) Key Benefits of ICICI Bank Personal Loan:(b) Loan up to 15 lakhs(c) No security/guarantor required(d) Faster Processing(e) Minimum Documentation(f) Attractive Interest Rates(g) 12-60 Months repayment options Farm Equipment Loans(a) Comfortable repayment tenures from 1 year to 6 years.(b) Flexible repayment options in tandem with the farmers seasonal liquidity(c) Financing farm equipments in over 381 locations spread across the country Business Installment Loans(a) Loans upto 25 Lakhs(b) No security/guarantor required(c) Faster Processing(d) Minimum Documentation(e) Attractive Interest Rates21
  22. 22. INNOVATIONS IN RETAIL BANKING(f) 12-48 Months repayment options Farmer FinanceProviding finance to the farmer for his various needs of inputs andconsumption in the form of crop loans, dairy loans and loans forallied activities to agriculture like irrigation etc. For input needs andauto loans (two, three and four wheeler) and personal loans forconsumption needs. The customer can also avail of working capitalterm loan for setting up a poultry project. Flexible repaymentpattern and tenure to align to the cash flow of the customers(3)CARDS Travel cards22
  23. 23. INNOVATIONS IN RETAIL BANKINGThe ICICI Bank Travel Card is a powerful new concept for international travelers: a pre-paidcard that you can buy using Indian rupees, and withdraw in any local currency in the world.The ICICI Bank Travel Card has made travel abroad convenient and safe. Available in USDollars, Australian Dollars, Canadian Dollars, Swiss Francs, Euros and Pound Sterling, theInternational Traveler gets the widest of the choices. Some of the powerful features areReplacement Card (part of kit), SMS alerts for every transaction, online access both tocustomers and corporate, card useable over the Internet etc. making travel totally hassle-free.BENEFITS(a) Easy Purchase: Easy purchase through ICICI Bank branches or select authorizedMoney Changers. For a location nearest to the customer, he should call up 24 hourcustomer care center. Pay in rupees; buy across the counter ICICI Bank Travel Card inthe currency of your choice(b) Easy Cash: Access to over 1 million VISA ATMs all over the world. Although the cardmay be in the base currency i.e. currency with which it was loaded, you can withdrawcash in the local currency of the country you are in.(c) Easy Shopping: The ICICI Bank Travel Card can be used to shop at over 14 millionMerchant Establishments accepting VISA cards. So there is no need to carry cash.Besides, there are no charges for using the card at Merchant Establishments but the cardcannot be used in India, Nepal and Bhutan.(d) Replacement Card: A Replacement card is issued along with the Primary Card, as partof the Travel Card Kit. This ensures that incase you misplace your Primary card; youdont have to wait 2-3 days for the Replacement Card to be couriered to you.(e) SMS Alert: SMS Alerts for each and every transaction act as a very powerful securityfeature incase there is a misuse of the card.(f) Online Account Access: Both the customers and the corporate can have online access tothe card details. Card balance, card statement, card blocking etc are some of the features23
  24. 24. INNOVATIONS IN RETAIL BANKINGavailable online.(g) Internet Transactions: The ICICI Bank Travel Card has been enabled for usage overthe Internet. The card first needs to be activated for Internet Usage, by the customer,through the customer log in screen, before the card can be used over the Internet.. User idis 16 digit card number and password is the web password (given along with ATM Pin)FEATURES(a) Life Long Activation: The card can be kept active for internet usage lifelong(b) Activation in Hours: The card can be activated for Internet Usage for a certain numberof hours. After the expiry of the said number of hours, the card would again be disabledfor Internet Usage.24
  25. 25. INNOVATIONS IN RETAIL BANKING(c) Activation for Days: The card can be activated for Internet Usage for a certain numberof days. After the expiry of the said number of days, the card would again be disabled forInternet Usage.(d) Limit on the Amount per Transaction: Limit can be placed on the maximum amountper transaction, for which the card can be used over the Internet. If card is attempted to beused for an amount exceeding the amount as defined, the transaction would be rejected.(e) Easy Refund: At your nearest ICICI Bank branch or Money Changer. Fill up a refundform and provide a copy of your ICICI Bank Travel Card and passport. Your money willbe refunded immediately. You can also request for your foreign exchange refundcertificate.(f) Easy Reload: Easy reload on your existing card with an additional amount before yournext trip. Visit an ICICI bank branch or authorized Money Changer. Use the reloadcoupon that comes with your card.(g) Remote Reloading: Corporate travelers can reload their ICICI Bank Travel Cards evenwhen they are abroad. Contact your office, the ICICI Bank branch or the Money Changerfor details. Subject to RBI regulations—currently the maximum is $10,000 per year forindividuals—higher for corporate travelers.(h) Easy Replacement if Misplaced: Customer has to call up the 24-hour customer carecenter and request for hot listing the Primary Card and activation of the ReplacementCard. Incase customer loses the Replacement card also, his existing card will be blockedand a replacement card along with its ATM-PIN will be couriered to the customer within48 hours. Customer has zero liability from the time he reports it. As a security measure,the new card will be sent to him in a deactivated state. Call up the customer care centerand confirm receipt of the card in proper condition to activate it.(i) Easy Statements: Easy Statements of monthly transactions on email, so the customercan access it wherever he is traveling.(j) Best Security Features: All cash transactions on the card are protected by customerspersonal 4 digit ATM-PIN. All purchases at merchant outlets are protected by thesignature on the card. The card also comes with Zero Lost Liability.(k) Best Account Management Features: Internet access of the card statements,statement /balance alerts on email and free SMS alerts when card is loaded, reloaded orrefunded, or for available balance25
  26. 26. INNOVATIONS IN RETAIL BANKING Credit Cards(a) Auto Debit`Customer having an account with any ICICI Bank branch,has the option of making payment of his monthly credit-26
  27. 27. INNOVATIONS IN RETAIL BANKINGcard statement (either the minimum amount due or the total amount due) directly throughcustomers bank account(b)Internet BankingICICI Bank offers access to Credit Card related information through the Internet Customer can make transactions like accessing account information -current and last statement - getting payment status, viewing monthly statement by e-mail,requesting a duplicate PIN, recording a change of address, ordering a draft, giving auto debitinstructions, requesting a replacement card or an add-on card, redeeming points online fromthe Rewards catalogue and subscribing to statement by e-mail and mobile alerts.(c) Payment options:(i)CashCustomer may deposit cash towards his credit card payment at any ICICI bank branchesfrom 8 a.m. to 8 p.m. The payment would reflect in his account within 24 hours. Paymentshould be made before the due date to avoid late payment charge and interest charge.(ii) ChequeMake a cheque or Draft in favour of ICICI Bank Credit Card and drop it at any of theICICI Bank branches / ATM locations / Skypak drop boxes.An ICICI Bank cheque will take 3 days to clear, whereas a non-ICICI-Bank cheque will take5 days. Drop cheque well in advance to avoid any Late Payment charge and Interest charge.(iii)Internet Bill Pay facilityIf customer holds a savings account with ICICI Bank he may even pay online through BillPay.(iv)Phone27
  28. 28. INNOVATIONS IN RETAIL BANKINGCustomer may even pay over the phone if he holds a savings account by calling at any ofICICI Banks 24-hour Customer Care numbers closest to you. It will take 3 working days forthe payment to reflect in credit card account.(d)Email Statement / Mobile AlertsStatement Online is a very simple, powerful and convenient way to view credit-cardstatement details instantly without any postal delays. Sign up for Statement Online and getfaster, reliable access to account statement. Mobile alerts from ICICI Bank provideinformation to customer about his ICICI Bank Credit Card even when he is on the move.(e) Balance TransferICICI Banks Balance Transfer gives the option of transferring outstanding balances fromany other banks credit card to your ICICI Bank Credit Card.(f) Cash AdvanceWith an ICICI Bank Credit Card in your wallet, customer will not be strapped for cash everagain. A customer can withdraw cash on his card, 24 hours a day from any VISA orMasterCard participating member bank ATM using APIN. During banking hours cash canalso be withdrawn over-the-counter, from any ICICI Bank branch in cities where the ICICIBank Credit Card has been introduced.For each cash transaction, there is a fee of 2.5% leviedon the amount withdrawn subject to a minimum of Rs.300. In addition to the Transaction fee,an Interest charge will also be levied from the date of transaction to the date of repayment(g)Dial-a-draftTo order a draft from the customer’s convenience, he can simply call the ICICI Banks 24-hour Customer Care and ask for a draft, payable anywhere in India and favour of anycompany or individual. The draft will be delivered to your mailing address. For each draftrequest, a transaction fee of 3% of the amount withdrawn, subject to a minimum of Rs.300,will be levied. In addition to the Transaction fee, an Interest charge will also be levied fromthe date of transaction to the date of repayment. The amount of the draft will be billed incustomer’s monthly Credit Card statement.(h)EMI on Call28
  29. 29. INNOVATIONS IN RETAIL BANKINGEMI-on-call gives the option to pay back credit card purchases in easy installments. Nowcustomers can convert any of their credit card purchases of over Rs. 2,000 into EMI-on-callwith just a phone call.They can avail of the EMI-on-call facility instantly without submitting any documents.Simply call 24-hour Customer Care and customer can put in his request.(i) Cash InCash-in is a personal loan on credit card. The loan can be against the credit/cash limit or overand above the credit limit. Not only is Cash-in pre-approved, it can be availed of withoutsubmitting any documents. Customer need to do is call 24-hour Customer Care and checkeligibility limit. Cash-in is available at a very attractive rate of interest and at tenures of 6,12, 18, 24, 36 and 48 months. A one-time processing fee will be applicable. Service tax asper the prevailing rate will be applicable on the interest component of the EMI, fees and allother charges.(j)Add on CardCustomer can freely present a maximum of two add-on Cards to his wife, sister, brother,parents or children above 18 years of age. To apply for this add-on Card, referred to as"Bandhan", customer can call 24-hour Customer Care and place request with the executivewho answers. A form will be sent to customer and customer can also place your requestonline if he is linked with Internet Banking user-ID.(k)Self Set LimitThe only Card that allows you to pre-define your own credit limits. Customer can request alimit lower than what he is eligible for. He can even preset the monthly spending limits onthe "Bandhan" Card. Any transactions over the specified Spend Limit will be declined. Thismonthly spending limit can be reset every billing cycle by simply calling 24-hour CustomerCare and placing the request with the executive. Customers spend limit will be changed on-line and come into force from the following billing cycle.(l)Temporary Credit Limit Enhancement29
  30. 30. INNOVATIONS IN RETAIL BANKINGThere may come a time when customer would feel the need for an increase in his credit limitto enable himself to make increased purchases on his Card. This facility is available onlyafter 9 months of membership and on the basis of customers credit history.(m)Permanent Credit Limit EnhancementThere will be times when customer often feels the need for an increase in its credit limit toenable himself to make increased purchases on his Card. To avail of a permanent credit-limitenhancement, all customer need to do is to call 24-hour Customer Care.(n)Rewards ProgrammeA special bonus plan that allows to earn points every time customer use his Card, everyRs.200 that customer spends earns him 1 point. One can redeem reward points against theproducts and services in the rewards catalogue or against his renewal fees. Debit CardsCombining the wide acceptability of a credit card and thethoughtful prudence of an ATM card, the ICICI Bank Debit Cardis the most convenient accessory for the customer. “No more fear30
  31. 31. INNOVATIONS IN RETAIL BANKINGof overspending, No more searching for the nearest ATM, only more comfort andconvenience!”(a) Cashless Spending!This debit card enables instant on-line debit to customers ICICI Bank account. Every time thecustomer swipes his card at restaurants, shops, petrol pumps, multiplexes, etc., the amount that he spends is debited tohis account.(b) Use Online Safely!Customer can now use his VISA Debit Card online to shop, buy airline and movietickets, pay bills and all of this from the convenience of home or office. To ensure thatmoney stays safe, ICICI Bank has added a second level of security for online usage ofcard – in addition to card details, customer also need to enter his Internet Banking UserID and Password to complete the transaction. VISA Debit Card can only be used onwebsites which are secured and Verified by VISA.(c) Lost Card Protection!Card is safer than cash! Customer can feel safe even in the event of losing his card!! Thecustomer need to do is to call 24-hour Customer Care, and a new card would be issued tohim within a week. Customer is also protected from any financial liability arising fromany purchase transaction made on his lost card. This insurance is valid only on non-cashtransactions made at merchant outlets within 30 days prior to the date of reporting.(d) Countrywide Acceptance!Customers debit card is accepted at over 3.5 Lakhs merchant establishments in India i.e.restaurants, department stores, grocery stores, petrol pumps, etc. Besides, customer canuse it conveniently at more than 3,000 ICICI Bank ATMs and more than 18,000VISA/Master Card ATMs all over India.(e) Worldwide Acceptance!“Travel the world and enjoy the freedom of using your debit card”. This debit card givescustomer the access to over 24 million shops and 1 million Visa ATMs all over theworld, giving him the freedom of payment anywhere in the world31
  32. 32. INNOVATIONS IN RETAIL BANKING(4)MOBILE BANKING OF ICICI BANKBank on the move with ICICI Bank Mobile Banking. With ICICI Bank, Banking is no longerwhat it used to be. ICICI Bank offers the Mobile Banking facility to all its Bank, CreditCard, Demat and Loan customers.32
  33. 33. INNOVATIONS IN RETAIL BANKINGICICI Bank Mobile Banking can be divided into two categories of facilities:Alert facility: The ICICI Bank Mobile Banking Alert facility informs customer promptly ofthe significant transactions in his accounts. It keeps customer updated wherever he goes.Request facility: ICICI Bank Mobile Banking Request facility enables customer to ask forhis account information.ICICI BANK LAUNCHES IMOBILEiMobile is a breakthrough innovation in banking where practically all internet bankingtransactions can now be simply done on mobiles phones. Customers can now transfer fundsto ICICI and Non ICICI Bank accounts just with the click of their mobile. The applicationcovers Savings bank, Demat, Credit Card and Loan accounts.Customers can also pay their utility bills and insurance premium through this facility. ICICIBank offers this facility free of charge to customers.(5)DEMATWith Mobile Banking customer can remain updated while he is on the move, without evenmaking a phone call or a visit or logging on the Internet. ICICI Bank Mobile Banking forDemat Accounts can be divided into two categories:33
  34. 34. INNOVATIONS IN RETAIL BANKINGRequest FacilityThrough the ICICI Bank Mobile Banking Request facility, one can request informationpertaining to your demat account anytime at his convenience. Customer can ask for:• Balance enquiry• The status of a transaction• Bill enquiry• ISIN enquiryAlert FacilityThrough this facility, customer will receive SMS alerts from ICICI Demat on the followingevents:• Demat account getting credited• Demat account getting debited• Pledge creation• Pledge closure• Rejection of submitted instruction(6)INVESTMENTSAt ICICI Bank, they care about all customer needs. Along with Deposit products and Loanofferings, ICICI Bank assists customer to manage his finances by providing variousinvestment options ranging from ICICI Bank Tax Saving Bonds to Equity Investments34
  35. 35. INNOVATIONS IN RETAIL BANKINGthrough Initial Public Offers and Investment in Pure Gold. ICICI Bank facilitates followinginvestment products:• ICICI Bank Tax Saving Bonds• Government of India Bonds• Investment in Mutual Funds• Initial Public Offers by Corporate• Investment in "Pure Gold"• Foreign Exchange Services• Senior Citizens Savings Scheme, 2004(7)INSURANCEICICI Provides:-Travel Insurance-Motor insurance-Home insurance-Life insurance-Health insurance(8)INTERNET BANKING(a) Transaction History(b) Transfer Funds Online35
  36. 36. INNOVATIONS IN RETAIL BANKING(c) Card-2-Card Fund Transfer(d) Use your Debit Card Online(e) Pre-paid Mobile Recharge(f) Pay your Utility Bills(g) Send a Smart Money Order(h) Open Fixed Deposits and Recurring Deposits(i) Order a Demand Draft / Pay Order(j) Subscribe for Mobile Banking(k) Request a Cheque Book(l) Stop Payment Request(m)Re-issue/Upgrade of ATM/Debit Card(n) Request a Debit Card(o) Monthly Bank Account Statement by E-mail(p) Link Bank Accounts to ATM/Debit Card(q) Renewal / Premature Closure of FD/RD(r) Request a Duplicate Physical Bank Statement(s) Secure MailboxPRICING36
  37. 37. INNOVATIONS IN RETAIL BANKINGThe pricing decisions or the decisions related to interest and fee or commission charged bybanks are found instrumental in motivating or influencing the target market. The RBI and theIBA are concerned with regulations. The rate of interest is regulated by the RBI and othercharges are controlled by IBA.The pricing policy of a bank is considered important for raising the number of customers’with reference to the increase of deposits. Also the quality of service provided has directrelationship with the fees charged. Thus while deciding the price mix customer services rankthe top position.The banking organizations are required to frame two- fold strategies. First, the strategy isconcerned with interest and fee charged and the second strategy is related to the interest paid.Since both the strategies throw a vice-versa impact, it is important that banks attempt toestablish a correlation between two. It is essential that both the buyers as well as the sellershave feeling of winning.(a) Pricing Bank Products:Steps for bank to meet its financial objectives:Some considerations for loan and deposit pricing are:(a) ROA or ROE objectives(b) Related income taxes(c) Earning assets to total assets(d) Equity-to-asset ratio(e) Cost to service earning assets being funded or deposits funding an earning asset(f) Pricing for the activities and risks associated with the product(g) Rate tiers based on product balances(h) Asset and liability mixAnother element to consider in the pricing of earning assets is the risk of loss. Most notably,this is relevant in loan pricing. Many banks assign a risk weighting to individual loans overa certain size or based on loan type and assign a credit risk charge based on those ratings.37
  38. 38. INNOVATIONS IN RETAIL BANKINGCustomer relationships are difficult to assign a value to in the pricing process. Customerswill generally press for some price concessions in consideration of other relationships theyhave with the bank.Asset and liability mix also impacts pricing results. Generally speaking, banks operating withhigher loan-to-asset ratios are able to afford to pay more for deposits. Likewise, banks canafford to be more competitive on certain deposit products if they have fewer maturities in aparticular timeframe or less total outstanding balances in a product line.(b) Need right balance:Pricing is a key issue for the associates who sell bank products to your customers. The factis, lenders want the lowest rates, and people dealing with depositors want to pay the highestrates. You need the right balance of fee income, strategies to reduce operating costs, and ahealthy asset and liability mix to change your required pricing.PLACE38
  39. 39. INNOVATIONS IN RETAIL BANKINGThis component of marketing mix is related to the offering of services. The services are soldthrough the branches. The 2 important decision making areas are: making available thepromised services to the ultimate users and selecting a suitable place for bank branches. Thenumber of branches OF ICICI: 1900 in India and 33 in Mumbai.Headquarters ICICI Bank Ltd.,ICICI Bank Towers,Bandra Kurla,Mumbai, IndiaReasons of selection of Bank(a) The selection of a suitable place for the establishment of a branch is significant with theview point of making place accessible.(b) The safety and security provisions a Convenient to both the parties, such as the users andthe bankers(c) Infrastructure facility(d) Market coveragePROMOTION39
  40. 40. INNOVATIONS IN RETAIL BANKING• Advertising: Television, radio, movies, theatres• Print media: hoardings, newspaper, magazines• Publicity: road shows, campus visits, Sponsorship• Sales promotion: gifts, discount and commission, incentives, etc.• Personal selling: Cross-sale (selling at competitors place),personalized service• Telemarketing: ICICI one source Call center (Mind space)PROCESS40
  41. 41. INNOVATIONS IN RETAIL BANKING(a) Flow of activities: All the major activities of ICICI banks follow RBI guidelines. Therehas to be adherence to certain rules and principles in the banking operations. Theactivities have been segregated into various departments accordingly.(b) Standardization: ICICI bank has got standardized procedures got typical transactions.In fact not only all the branches of a single-bank, but all the banks have somestandardization in them. This is because of the rules they are subject to. Besides this,each of the banks has its standard forms, documentations etc. Standardization saves a lotof time behind individual transaction.(c) Customization: There are specialty counters at each branch to deal with customers of aparticular scheme. Besides this the customers can select their deposit period among theavailable alternatives.(d) Number of steps: Numbers of steps are usually specified and a specific pattern isfollowed to minimize time taken.(e) Simplicity: In ICICI banks various functions are segregated. Separate counters existwith clear indication. Thus a customer wanting to deposit money goes to ‘deposits’counter and does not mingle elsewhere. This makes procedures not only simple butconsume less time. Besides instruction boards in national boards in national andregional language help the customers further.(f) Customer involvement: ATM does not involve any bank employees. Besides, duringusual bank transactions, there is definite customer involvement at some or the otherplace because of the money matters and signature requires.PHYSICAL EVIDENCES41
  42. 42. INNOVATIONS IN RETAIL BANKINGPhysical evidence is the material part of a service. Strictly speaking there are no physicalattributes to a service, so a consumer tends to rely on material cues. There are manyexamples of physical evidence, including some of the following: Internet/web pages Paperwork Brochures Furnishings Business cards The building itself (such as prestigious offices or scenic headquarters)The physical evidences also include reports, punch lines, other tangibles, employee’s dresscode etc.Financial reports: The Company’s financial reports are issued to the customers to emphasisor credibility.Tangibles: Bank gives pens, writing pads to the internal customers. Even the passbooks,cheque books, etc reduce the inherent intangibility of services.Punch lines: Punch lines or the corporate statement depict the philosophy and attitude of thebank. Banks have influential punch lines to attract the customers.Employee’s dress code: ICICI bank follows a dress code for their internal customers. Thishelps the customers to feel the ease and comfort.PEOPLE42
  43. 43. INNOVATIONS IN RETAIL BANKING All people directly or indirectly involved in the consumption of banking services are animportant part of the extended marketing mix. Knowledge Workers, Employees,Management and other Consumers often add significant value to the total product orservice offering. It is the employees of a bank which represent the organization to itscustomers. In a bank organization, employees are essentially the contact personnel with customer.Therefore, an employee plays an important role in the marketing operations of a serviceorganization. To realize its potential in bank marketing, ICICI become conscious in its potential ininternal marketing - the attraction, development, motivation and retention of qualifiedemployee-customers through need meeting job-products. Internal marketing paves wayfor external marketing of services. In internal marketing a variety of activities are usedinternally in an active, marketing like manner and in a coordinated way. The starting point in internal marketing is that the employees are the first internal marketfor the organization. The basic objective of internal marketing is to develop motivatedand customer conscious employees. A service company can be only as good as its people. A service is a performance and it isusually difficult to separate the performance from the people. If the people don’t meet customers expectations, then neither does the service. Therefore,investing in people quality in service business means investing in product quality.CHAPTER-343
  45. 45. INNOVATIONS IN RETAIL BANKINGHow can a retail bank promote its growth, reduce costs, and deal with regulatory compliancein an increasingly competitive environment? To rise to these challenges, HP has developedthe Retail Banking Initiative (RBI), an approach that allows it to work with its bankingcustomers to identify their current and future needs in terms of growth and value creation,compliance and cost reduction.With this goal in mind, HP is working hand in hand with banks to anticipate customerneeds and design the bank of the future. This approach and style are very different from whatis generally seen on the market, but it is bearing fruit.Dexia Bank chooses HP for its branch of the futureTo prepare its branch of the future, Dexia Bank – like other institutions such as Bank ofIndia– has opted for customized banking solutions developed by HP. This ambitious projectto transform Dexia Bank consists of consolidating the 1,100 servers in the branches into 300HP Blade System servers installed in a data center. In addition, the 6,000 PCs in the brancheshave been replaced by 6,000 HPCompaq t5710 Thin Clients.OBJECTIVES ACHIEVED:45
  46. 46. INNOVATIONS IN RETAIL BANKING(a) The solution streamlined operations and reduced maintenance costs.(b) Personnel mobility was increased by using HP Mobile Office solutions. Bank agentsnow have easy access to all IT resources regardless of the branch. In addition, bankagents can visit customers for all types of operations with a laptop and portableprinter, both contained in a business suitcase trolley.(c) Lastly, the architecture and technologies used allow more than cost reduction,streamlined management and increased reliability; most importantly, they offercustomers a completely novel banking experience outside the walls of the branch.(d) "With HP, its branches were able to acquire a powerful infrastructure that is perfectlysuited to their needs. Whats more, the HP solution will allow major savings."Transforming retail banking:Though HP is known worldwide for its technology solutions for consumers and businesses,its operations in the world of banking seem to be a well-kept secret. Yet the company hasbeen strategically investing for several years in vertical solutions specially designed to meetthe needs of financial institutions. Heidi Ezzouaoui, Director Financial Markets, WorldwideFinancial Services Industry, HP tells us about this HP strategy. "Just because were showingan interest in the banking industry doesnt mean that HP wants to develop a financialconsulting service. Our business is and remains IT technology and related services.However, by better understanding the needs of our bank customers, we can designtechnological solutions that are better suited to this industry.SPECIAL REPORT:As part of HP’s Retail Bank Initiative (RBI), the CIO’s and business managers of the 1546
  47. 47. INNOVATIONS IN RETAIL BANKINGlargest European banks were interviewed in order to gain insight into their priorities andmore specifically what they are looking for in a company such as HP. They then built a suiteof banking solutions that are based on their technological portfolio and especially suited tothe priorities stated by their customers."THREE-PRONGED STRATEGY:47
  48. 48. INNOVATIONS IN RETAIL BANKINGFor a bank, this requires that it implements automated processes for reporting, on businessprocesses that are sometimes still manual. As a company, HP has had to implementautomatic reporting mechanisms, relative to the Sarbanes-Oxley Act for instance, and ittherefore has the know-how to implement compliance solutions. The third area, cost control,remains a priority, though the goal today is to support growth and comply with therequirements of the regulatory authorities. 2 to 3 sales a day: Statistics show that out of 100visits per day to a branch, only two customers leave with new products. How can thesebranch sales be increased? HP is working with John Ryan Ltd., specialized in consumerbehavior. "Together we examined how a branch can optimize customer interaction. Forexample, when the customer is waiting in line, interactive screens can display information.HP employs roughly 151,000 people in 178 countries, with 86 billion dollars in revenues, 8billion dollars in cash and 3.5 billion dollars invested in R&D per year.To Support its growth, HP has developed a three-pronged strategy:48
  49. 49. INNOVATIONS IN RETAIL BANKINGCapital Strategy: Optimum management of the companys financial, intellectual and humancapital.Efficiency: Increased efficiency in the production of technological solutions and in theirdeployment and monitoring. Deliver customers more value at less cost. The combinationof these two areas supports the companys growth.” Based on our experience as amultinational, we have applied it to the banking industry," explains Heidi Ezzouaoui."Relative to RBI our customers encounter three types of problems.(a)They need to ensure steady growth.(b)One of the banks priorities is to acquire and retain customers, not only through unique on-line services, but also by bringing customers back to the branch, where interactions aremore conducive to the sale of new products than the Internet.(c)Furthermore, after the scandals in the business world and on the financial markets, theregulatory authorities are stepping up pressure to monitor the operations of financialinstitutions. The strategic importance of these three areas has been confirmed by all ourcustomers."PORTFOLIO OF 23 SOLUTIONS:49
  50. 50. INNOVATIONS IN RETAIL BANKINGTo better meet the needs of its customers in each of these three areas – supporting growth,compliance and cost reduction – HP has defined 23 solutionsGROWTH:(a) Acquire-retain customers: With 1 billion customers, HP has extensive customer50
  51. 51. INNOVATIONS IN RETAIL BANKINGexperience. "We have detailed insight into consumer behavior and the parameters thatinfluence their satisfaction. We can share this insight with our bank clients and see howto optimize direct and indirect channels to attract and retain customers. By simplypressing a button, a customer can request information on a personal loan, and perhapsprint information sheets. There are also other techniques, such as RFID. They identifycustomers as soon as they enter the branch, and are valuable in offering tailor-madeservices."(b) E-statements: HP is known as a leader on the printer market. This experience is valuablefor a bank seeking to reduce bank statement printing and mailing costs. "The goal is toencourage consumers to print their bank statements at home, reducing costs for the bank.We have developed a project with a bank in the form of a promotion. Any young personopening a new account receives an HP printer free. Consequently young people have anincentive to open a new account, and the bank acquires a new market share. In addition, itallows the bank to reduce its printing costs."(c) Forthcoming innovations: The idea is to provide exposure to IT strategy managers inthe banks and business managers on our R&D programs to help them design possibleapplications for our future technologies."(d) Call centers and portals: Nothing is more frustrating than to start a procedure on a bankwebsite, for example to request a loan, and then to suddenly run up against a parameterthat you cant provide. "If you contact the call center, most of the time the operator cantaccess the data already entered during your Internet session, so you have to repeat thewhole process on the phone. HP offers solutions to integrate these channels."(e) Bank transformations and Branch of the future: Many banks still have vast branchnetworks that are cumbersome to manage, with PCs that are often obsolete, servers thatare expensive to maintain, and applications that must be downloaded and updated. Thismeans that deploying new applications is a slow process, incurring high costs. "With thebanks, HP is examining how to streamline this model, for example by replacing PCs withthin clients that connect remotely to a centralized system. By reducing computerhardware in the branch to the strict minimum, we greatly decrease both investment andoperational costs. Lastly, by centralizing the application logic of the branches, application51
  52. 52. INNOVATIONS IN RETAIL BANKINGupdates can be managed more easily and more efficiently.CONFORMITY:(a)Disaster Recovery Plan (DRP) Solutions: Operational risk management is a key factorin compliance. For example, if you centralize the services of 1,500 branches in a datacenter, a Disaster Recovery Center must be established since there is an increased risk offailure in the data center. Banks therefore need to plan DRP solutions. "This is an HP corebusiness. We have data centers for customers and we can provide the best in the field."(b)Compliance and audit: HP has implemented efficient techniques to achieve complianceand they share them with the banks. This is particularly true for all aspects of traceabilityof customer advice, whether provided in paper or digital form or via voice, video orInternet sessions.(c) Business Process Insight and Continuous Measuring and Monitoring: Ourapplication and process monitoring technologies are a natural fit for enabling the banks tomeasure their business processes and meet customer service levels.COSTS:(a) Outtasking and Outsourcing: The Canadian Imperial Bank of Commerce (CIBC) firstcalled on HP services more than 10 years ago."Gradually, the bank entrusted us with the52
  53. 53. INNOVATIONS IN RETAIL BANKINGmanagement of their entire IT system - a 2 billion dollar contract that has just beenextended through 2013. This is an excellent example of the level of responsibility we areready to shoulder, in partnership with a bank, though in Europe the current trend is moretoward selective out tasking."(b) Migrations and re-platforming: Most of a banks IT costs pertain to mainframesand their applications. HP believes that the use of mainframes or their equivalent inthe form of a unix platform is justified. "In fact, we see a banks architecture ashaving three layers. The first layer comprises factories that process the basictransactions, payments, credits, operations, etc. Since this consists of large volumesof simple transactions, a monolithic server is perfectly suited for the job. However,the second layer that implements the business logic needs to change quicklyaccording to business needs. In this case, mainframe-type central platforms are nolonger appropriate. We discuss with the customer about how to reduce mainframecosts and selectively migrate the applications on the central mainframe to lessexpensive platforms such as Unix, Linux and .Net. The third layer is the userinterface,. Whether in a branch or on an electronic system, it becomes increasinglythin using virtualization techniques."(c) IMAC services and Branch in a box: A bankers job is not to manage branchinfrastructures. "We offer packaged services in which we take ever-increasingresponsibility in managing the branchs infrastructure. If we send an engineer on site torepair the servers, PCs or printers, he can use the opportunity to check the network andATMs as well. The bank reduces its costs and can focus more on customer services. Ourother solutions are Thin Client Transformation, Information Life –Cycle Management,Security Solutions, Integrated Network and Systems Management, Business ProcessOutsourcing, and Transformation of IT to Commodity TCO.Business value assessment: a consultative approach: HP organizesdiscovery workshops with customers to present the 23 solutions tailored for retail banking."Its a shared investment between the customer and HP; with the CIOs support, we explore53
  54. 54. INNOVATIONS IN RETAIL BANKINGthe potential our RBI initiative represents for the bank. We interview both the CIOs teamand the business managers that the CIO designates," explains Hédi Ezzouaoui. "With a jointcustomer-HP team, we evaluate each RBI solution and assess their applicability from atechnical, functional and even economic standpoint. Together with the customer, HP selectsthree or four priority areas. For these areas, we develop the business case (current costs,future costs, transformation costs, risks and implementation plan). Weve named thisapproach Business Value Assessment, or BVA. Its a consultative and partnership approach.BVA has drawn the interest of many of our large European bank customers."CHAPTER-4CUSTOMER RELATIONSHIP MANAGEMENT IN RETAILBANKING54
  55. 55. INNOVATIONS IN RETAIL BANKING• INTRODUCTION• BENEFITS• CRM IMPLEMENTATION OF ICICI THE RETAIL STRATEGY THE CRM ROADMAP IMPLEMENTING CRM SELECTING AND IMPLEMENTING A TECHNOLOGYBASED CRM LESSONS SO FAR FROM THE ICICI EXPERIENCEINTRODUCTION:Retail banks are facing greater challenges than ever before in executing their customermanagement strategies. Intensifying competition, proliferating customer contact channels,55
  56. 56. INNOVATIONS IN RETAIL BANKINGescalating attacks on customer information, rising customer expectations and capitalizing onnew market opportunities are at the top of every bank executive’s agenda.In looking for ways to drive growth, banks need to evaluate their customer managementstrategies.BENEFITS OF A CRM SOLUTION:Faced with these numerous and varied trends, retail banks are reshaping the way they mustinteract with their customers. A fully integrated, enterprise wide CRM platform ensuresbanks have the core capabilities to take full advantage of their customer relationships andcapitalize on these market dynamics, rather than losing out because of them. Gaining Sales MomentumIn today’s increasingly competitive environment, where maximizing organic growth is abank’s priority, sales momentum is essential. To build this momentum, banks need to focussimultaneously on:(a) Increasing acquisition rates of new and emerging customer segments.(b) Improving retention of existing customers and saving “at risk” customers(c) Increasing profitability of customer relationships, either at the top-line through increasedsales, or at the bottom-line through more cost-effective service(d) Improving integrated channel distribution strategies to get the right product, to the rightclient, at the moment the customer has the need(e) Maximizing the value and return from CRM investments that have already been made. Increasing acquisition of new customersA CRM solution should help a bank target customers based on the “value” they bring to thebank, now and throughout the life of the customer (and beyond through “next generation”marketing). Banks need to ensure that their value propositions have grip with the rightmarket 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. CRM56
  57. 57. INNOVATIONS IN RETAIL BANKINGsolutions (people, applications, systems and processes) must support these strategies to getthe right products and services to the right customers. Improving Retention Of Existing CustomersCustomer 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 foradditional revenue – if handled correctly. However, the greatest danger for banks is either notidentifying “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 signalthat the customer is switching funds to another bank. Or the customer may be buying ahouse, or paying college coaching, in which case there are clear opportunities to selladditional products or investments. The identification and treatment of this customer shouldreflect his or her lifetime value. CRM-driven techniques will help retain customers and canmigrate mere “account holders” into loyal, long-term, profitable customers. Increasing the Profitability of Customer Relationships57
  58. 58. INNOVATIONS IN RETAIL BANKINGBoosting revenues requires improving the product pipeline and close rates, while reducingsales and service costs. On the revenue side, the bank’s CRM solution should use customerintelligence to target specific offers and manage marketing campaigns for a high likelihoodof acceptance. Customer treatment strategies should be fully integrated with a CRM platformand the processes to support them. On the cost side, better channel management, CRMautomation and integration will help increase the efficiency and effectiveness of sales andservice. Improving Distribution And Channel ManagementTo win profitable customers and build long-term relationships with them, banks need to havethe right insight, products and services for the right customer at the lowest possible cost.From call centers to Web sites, every one of a bank’s multiple channels must be scalable,flexible, low-cost and fully integrated with all the other channels. This is the only way toconsolidate customer information and provide consistent treatment across the enterprise.Each of the bank’s channels must also be able to accommodate change and adapt to futuretrends in the marketplace.CRM IMPLEMENTATION OF ICICI BANK58
  59. 59. INNOVATIONS IN RETAIL BANKINGICICI has transformed itself into a technology intensive financial services group in the lastdecade. To achieve its long term goal of being in a position to practice 1 to 1 marketing.ICICI has taken a series of initiatives. As part of the plans, it is implementing variousprojects to establish world-class CRM practices; which would provide an integrated view ofits customers to everyone in the organization. The paper discusses some of the lessons learntwhile implementing these projects.INTRODUCTIONICICI, set up as a Development Bank over four decades ago to provide products and servicesfor the corporate segment, diversified into the retail segment of the financial markets in theearly 1990s. In the last decade it has transformed itself to a technology intensive financialservices group. The first such move came in the mid-nineties when ICICI raised debt fromthe retail market. Since then, ICICI has been increasing its reach to this segment in terms ofresources mobilization, and by offering quality investor service through ICICI InfotechServices, its subsidiary. In 1994, it established ICICI Bank as a commercial bank that isflexible, In addition to the bank, the retail initiatives include –(a) Prudential ICICI AMC – a tie up with the Prudential Group of UK for its foray into themutual funds business,(b) ICICI Personal Finance Services (PFS) – to offer retail assets products like homefinance, automobile finance, durables finance etc.(c) ICICI Capital Services – to service retail liability products like bonds and deposits.(d) ICICI Web trade – to facilitate end-to-end integrated web based trading service throughthe web site Prudential ICICI Life Insurance – to offer the insurance services, and(f) ICICI Lombard General Insurance – the latest venture to offer non-life insuranceservices,This apart the retail initiatives of ICICI also include a plethora of web-basedbusinesses including city portals and various other utility sites such,,, among others. All thesegroup companies are jointly spearheading ICICI Group’s foray into the retail market. THE RETAIL STARTEGY59
  60. 60. INNOVATIONS IN RETAIL BANKINGICICI has ambitious plans for its retail business initiatives. The retail strategy revolvesaround intensive deployment of technology. Information technology will help reduce cost ofservice, increase customer retention, help in cross-selling and up-selling while improvingprocess efficiencies. Electronic channels including internet, ATMs , call centers, contactcenters, desktops, kiosks, mobiles and other hand held devices will perform financialactivities while ensuring that customer has multiple options for access and transactions.The group has adopted a ‘click and brick’ strategy to leverage the power of electronicchannels and physical presence to ensure rapid product delivery, fulfillment of financialdeals and documentation.As part of the plans, it is implementing various projects to establish world-class CRMpractices, which would provide an integrated view of its customers to everyone in theorganization. CRM at ICICI involves increased communication between the virtualuniversal bank and its customers and prospects, as well as within the group itself. Theunderlying idea is to enhance every instance of contact with the customer. ICICI believesthat a true customer-centric relationship can only be accomplished by considering the uniqueperspectives of every single customer of the organization. Hence the pressing need to put inplace a technology enabled CRM solution. THE CRM ROADMAP60
  61. 61. INNOVATIONS IN RETAIL BANKINGCRM, at ICICI, is viewed as a discipline as well as a set of discrete software technologies,which will focus on automating and improving the business processes associated withmanaging customer relationships in the areas of sales, marketing, customer service andsupport. The organization aims to achieve the end goal of one-to-one marketing.The CRM software applications will not only facilitate the coordination of multiplebusiness functions but also coordinate multiple channels of communication with thecustomer-face to face , call centre, ATM, web, telephone, kiosk, bank, branch, salesassociates, etc. – so as to enable ICICI carry out cradle-to-grave customer management moreefficiently. It should allow ICICI to engage in one-to-one marketing by tracking completecustomer life-cycle history. To begin with, it will automate process-flow tracking in theproduct sales process, and be able to generate customized reports and promote cross productsales process, and be able to generate customized reports and promote cross face fordefinition, tracking, execution and analysis of campaigns.From an architecture perspective, the enterprise-wide CRM solution shouldseamlessly integrate non-transactional information housed in the Back Office. Creating theenterprises CRM strategies required the combination of nine distinct steps as shown below.By combining these nine steps can one really start listening to the customers, andunderstand what they are saying, maybe even in real time. Once that is achieved, profitsCUSTOMERSTRATEGYPROCESSORGANISATIONPEOPLEINTELLIGENCEAUTOMATIONDATATECHNOLOGY61
  62. 62. INNOVATIONS IN RETAIL BANKINGbegin to follow as optimization techniques are applied. Only then will the two crucial goalsfor a successful business-case driven project be achieved, viz.1. Effective change management2. Technology-enabled evolutionCRM will essentially focus on providing optimal value to customers – through thesay we communicate with them, how we sell to them, and how we service them – aswell as through the traditional means of product, price, promotion and place ofdistribution. ICICI recognize that customers make buying decisions based on morethan just price … more than just product. Customers make buying decisions based ontheir overarching experience that includes product and price,-and sales, service,recognition and support. IMPLEMENTING CRM62
  63. 63. INNOVATIONS IN RETAIL BANKINGA very detailed and comprehensive CRM Action Plan was developed based on theunderstanding that CRM will require an enterprises wide transformation.The CRM Business Transformation Map below shows the various aspects of that change.There are five inter-related areas. These include:1. Business Focus2. Organizational Structure3. Business Metrics4. Marketing Focus5. TechnologyFIVE FOCUS AREAS OF BUSINESS TRANSGORMATIONThe Key to building the CRM action plan was in understanding where the organizationstood relative to each of the five aspects of change. Interviews with key individualsBUSINESS FOCUSProduct Sales Channel Marketing Service CustomerORGANISATIONAL STRUCTUREProduct Place Promotion Channel Contact CustomerManagement Management Management Management Management ManagementProduct Place Program Customer Customer patterns CustomerPerformance Performance Performance Revenues and Profitability lifetime valueBUSINESS METRICSMARKETING FOCUSMass Sales Marketing Integrated Segment CustomerAdvertising Promotion Campaigns Marketing Specific RelationshipCommunication Marketing ManagementTECHNOLOGYTransaction Data Data Data Data CustomerProcessing Maintenance Access Warehouse Marts Touch pointSystems63
  64. 64. INNOVATIONS IN RETAIL BANKINGthroughout the organization helped identify different initiatives that have been launched,all focused on CRM. While all of these initiatives may have merit, failure to address thetotal business transformation requirements can lead to very short-lived success.The next step in the planning process was a Gap Analysis. This analysis essentiallyand specifically describes the gaps. In addition to the more obvious gaps, this analysishelped identify the CRM organizational holes:1. Marketing Sales and services practices2. Collection, capture, processing and deployment of customer information3. Distribution and operations effectiveness at customer touch pointsAnother key factor in identifying gaps is to understand how the organizationfunctions relative to the CRM Business Cycle. There is a universal, underlying cycleof activity that should drive all CRM initiatives and infrastructure development. Allinitiatives and infrastructure development should somehow be tied to this core cycleof activity. Careful evaluation of he organization’s ability to execute this cycle willpinpoint and qualify additional organizational gaps.64
  65. 65. INNOVATIONS IN RETAIL BANKING SELECTING AND IMPLEMENTING A TECHNOLOGYBASED SOLUTIONTechnology:The success of the CRM initiatives was contingent on various decisions pertaining totechnology. Some of the key issues were:(a) Make or Buy – the decision to buy was based on an evaluation of an identified set ofcriteria. The criteria set included the following :• Functionality• Flexibility in incorporating changes.• Fit with existing architecture (legacy systems)• Fit with global best practices• Upgradability – which basically means that if the technology that enables CRMadvances tomorrow, the installed system should be able to take into its fold theincreased functionalities?• Commercial impact – evaluated in terms of the life time of the solution.Taking into account all the above factors, it was decide to purchase an off-the-shelf CRMsolution and customize it to suit ICICI’s requirements.(b) From whom to buy – Once the decision to buy was made, the next step was toidentify the product seller and the system integrator.The global CRM product market was scanned to shortlist about 15 large players froma very fragmented market comprising of over 150 players claiming to have some sortof CRM capability. Based on discussions with a global technological analysis group,another set of criteria was drawn to shortlist the prospective product providers. Thisincluded:• CRM expertise• Retail finance expertise• Implementation worldwide specially in Asia Pacific• Company focus on CRM (specially important in the context of many large ERP providershaving moved into the CRM space in recent times).• Credentials including financials, client list, life history etc.65
  66. 66. INNOVATIONS IN RETAIL BANKING• Understanding of ICICI’s experience• Suggested solution including implementation timeline.• Technical handholding expected• Training and maintenanceA similar process was followed to shortlist the system integrators. Some of the criteriaincluded.• CRM expertise & Retail finance expertise• Focus on CRM• Project team specifics including indicative CVs of project team• Product preferencesAfter short listing two product vendors and system integrators, reference calls were made toseveral of the past clients of all the short listed companies. The reference calls followed aspecific pattern, and were qualitatively adjudged. Some of the parameters included strengthsand weaknesses of the vendor/system integrator, timeliness, cost and time overruns,commitment, training, quality control of customization and post-implementation support.Processes:All processes were mapped on to product by understanding the details. During the course ofthe process mapping, several opportunities for improvement were identified andimplemented. To illustrate, the buying process of a loan product involves the following steps–(a) Prospect contacts the call center and leaves details(b) Call center personnel passes on this lead to the DMA responsible for the areafrom where the lead has come in(c) The DMA contacts the prospect and collects documents. The DMA also firesa Field Investigation (FI) request from a FI agency. The FI agency is externalto ICICI, and checks on the basic veracity of the statements submitted by theprospect (e.g. that he has his own house in New Delhi etc.)(d) The documents collected by them are filed and forwarded to the CreditProcessing Agency (CPA). The CPA also receives the FI report.66
  67. 67. INNOVATIONS IN RETAIL BANKING(e) The CPA checks for completion of the file, generates a credit scorecard, andpasses on the document to the Credit Buyer.(f) The Credit Buyer (CB) is an ICIC personnel, and takes the final call on theloan sanctioning. He in turn passes oin the documents to the centraloperations team for the processing. The central operations team is alsointernal to ICICI.The Sales Process Pre-CRM and Post-Implementation of CRMIndependent databaseSimilarly, even the customer service and support function also has well defined processesdepending on the nature and type of query/complaint.Call Centre Sales Agent Scrutiny Credit Agent OperationsDatabaseCall Centre Sales Agent Scrutiny Credit Agent Operations67
  68. 68. INNOVATIONS IN RETAIL BANKING LESSONS SO FAR FROM THE ICICI EXPERIENCEIf CRM involves optimizing product, price, place of distribution, promotion, salesand service, why are so many companies struggling? Hasn’t anyone really mastered the artand CRM is difficult because it is an enterprise-wide initiative.(a) CRM is not a technology initiative. Many have confused CRM as a technology initiative,and assigned the CRM implementation project to their information system or IT group.CRM conferences after equate to technology exhibits and demonstrations. Technologyis needed in order to implement CRM- particularly the customization part-buttechnology is not the driver of CRM – or the solution to successful CRMimplementation.(b) CRM is not exclusively a marketing initiative. Many organizations have merely equatedCRM with customer-focused marketing or date-driven/database marketing. CRM resultsin more effective, data-driven marketing efforts: CRM requires marketing expertise.But CRM is not strictly a marketing initiative.(c) CRM is not exclusively a sales initiative. Similar to marketing, CRM is often lodgedwithin the sales department. The sales-force, after all, is extremely close to theircustomers… understanding their needs and wants, and trying to fulfill them. Sales,however just one functional area that can benefit from CRM and that is necessary foreffective CRM.(d) CRM is not exclusively a service initiative. As with sales and marketing, customerservice is one functional aspect of success CRM implementation. But customer serviceis not the sole driver of the process.CRM involves marketing, sales, service and technology, as well as the other inner-workings of an organization.Thus, it is properly described as an enterprises-wide initiative. It involves all areas ofthe organization and all functions of the organization, and it requires areas of theorganization to be working together in harmony. CRM requires all areas of theorganization to not only exist in harmony, but to be working toward the common goal ofstronger customer relationships.68
  69. 69. INNOVATIONS IN RETAIL BANKINGHaving even one “broken spoke in the wheel”… one area of the organization that isless than committed to CRM… can make the difference between success and failure.69
  70. 70. INNOVATIONS IN RETAIL BANKINGCHAPTER-5FUTURE OF RETAIL BANKING(a) Retail banking will remain the dominant source of revenue for banks worldwidethrough 2015. In 2006, the retail banking business accounted for 1.22 trillion poundin revenues, or about 57% of the global banking revenue pool of 2.15 trillion euro.• Fourteen banking groups earned retail revenues in excess of 10 billion pound in 2006,with five groups bringing in more than 25 billion euro each. Even for most of the top tenbanking titans, retail business is still a critical revenue source-representing an average of37 percent of total revenues.• Through 2015, retail revenues will expand at an estimated compound annual growth rate(CAGR) of 3.2 percent in real terms. Factoring in an inflation rate of roughly 3 percent,overall growth should add up to about 6 to 7 percent. The retail banking business alsocontinues to deliver high return on equity (ROE) than other banking segments. Mostmajor banks currently achieve ROE above 25 percent (before taxes) from their retailbanking activities.• By 2015, the share of global retail-banking revenues generated collectively in the top fiveEuropean countries and in the United States-which are all mature markets-will haveshrunk by an estimated 5 percent, with matching collective gains in strongly growingmarkets in Asia-pacific and the Middle east.• Vast numbers of “unbanked” consumers in emerging markets-what we call the nextbillion- will take up banking relationships over the next generation. If such consumers inChina, India and brazil were to generate 50 percent of the revenues currently provided by“banked,” low income customers in these countries, the amount of total new revenuesproduced by 2015 in these markets could be above 20 billion euro-the bulk likely comingfrom china.70
  71. 71. INNOVATIONS IN RETAIL BANKING(b) Competition in the global retail banking industry will become increasingly intense,driven by the continuing deregulation and opening of international markets, theopening regionalization and globalization of the industry, the expansion of directand online banking, and rising customer expectations• The number of new entrants with attacking mindsets in the regional markets willincrease. Aggressive players-be they direct banks, product specialist, or traditional banksseeking to expand their scope-will continue to battle incumbents with fresh price andvalue prepositions all over the globe.• The well known trend towards direct and online banking will change the nature ofindustry significantly in terms of channel usage. The trend will gain momentum asadoption rates across all age groups increase and as more young people-who have raisedusing the internet-reach bankable age. The dynamic will inevitably lead to a furtherdecline in the importance of bank branches for some sale activities, although brancheswill remain critical for customer acquisition and advice-intensive products.• The transparency of the online world and the ability of sophisticated customers tocompare offers and price positions will push the pendulum of power in the retail bankingindustry increasingly towards the customer, thus further pressurizing the competitivelandscape.71
  72. 72. INNOVATIONS IN RETAIL BANKING(c) The grip of margin pressure will continue to tighten. From 2001 to 2006, the banksin our benchmarking survey showed average margin decline in their retail segmentsof about 21 percents.• Many attackers’ poses highly cost efficient and scalable business models that allow themto offer cheaper prices on a sustained basis. This fact along with the ongoing shifttowards online and direct banking will lead the industry towards a new structuralequilibrium at lower margin and cost levels.• In some markets, attacking players have already taken sizable share from incumbents thathave reluctant to fight proactively on the price front. This trend will gain momentum asmore new competitors enter the fray. Incumbents will either have to offer commodityproducts for certain segments at competitive prices or accept loss of market share.• A key result of heavy price competition and its expansion into a wide range of products isthat revenue pools will grow at a lower rate in many major markets over the next fewyears. This will make necessary for banks to drive down their cost growth in order tokeep cost-to-income ratios and profitability levels stable-let alone achieve moreambitious targets. Resizing and reconstructing platforms to help achieve this will be a tallchallenge for many banks over the next decade.(d) Tougher competition and tighter pressure on margins and costs woll encourageincreasing merger and acquisition (M&A) activity, especially in mature marketswith low growth rates.• In the future, we will see bigger, differently structured, and increasingly internationaldeals. Given the current speed of both M&A activity and the forging of alliances,especially in the Asia-pacific region, it is very likely that by 2015 there will be five to tentruly global banks.• Cross border mergers should be seen having two, three or more phases to allow sufficienttime for factors such as platform, scale, and market dominance to come into play-and forall potential synergies to materialize.72
  73. 73. INNOVATIONS IN RETAIL BANKING(e) The winning business models of the future have been taking shape in recent yearsand will continue to evolve. These models are exemplified by six general types ofretail banks: global titans and regional expansionists, domestic champions, retail-oriented attackers, direct banks, specialists, and trading-up players.• The first five categories of players have clearly outperformed the pack or showed thestrongest improvements in recent years. They have an average advantage in their cost-to-income ratio of 10 percentage points, an average ROE advantage of 10 percentage points,and a revenue growth rate more than twice that of most other banks. They also dare toinvest in organic growth and in acquisitions-their top-line growth allowing cost growththree times as high as that of most other players. The sixth category, trading-up banks, iswell positioned to catch up in the future, especially if the leading players maintain thefocus and expand more aggressively.• Between 2001 and 2006, direct banks and retail oriented attackers showed the sharpestrevenue growth of the six groups, with a CAGR above 20 percent, and at the same timeachieved significant improvements in cost-to-income ratios. Nonetheless, despite directbanks’ strong influence on overall industry margins and channel strategies, the largestshare of direct and online banking will remain with multi channel banks. All models willshow a stronger online profile going forward, and some interesting new combinationsmay evolve as new players arrive on the scene.(f) Over the next ten years, traditional incumbents will find themselves more engagedthan ever on several fronts.• Incumbents will need to develop sharper positioning and coherent new business modelsin order to defend their home markets and fight for share against an increasing number ofattackers. Because they have mature footprints, many incumbents seeking competitiveadvantage will turn to product innovation and better customer service. Products andpricing should remain easy to copy, the latter providing sustainable advantage only to lowcost players. Yet a small number of retail banks will realize long-term advantage bydelivering a difficult-to-copy superior customer experience• Incumbents will also need to make direct and online banking a stronger part of their multichannel strategies and upgrade their skills in online customer acquisition and loyaltymanagement. Winners will learn quickly from other industries and will transfer recipesfor success to retail banking73
  74. 74. INNOVATIONS IN RETAIL BANKING• Most future winners will have to be strong acquirers and integrators. Those that want tolead in emerging regional markets should be prepared to initiate at least one or two majormergers or acquisitions over the next five to ten years. Such movescan serve as powerfullevers for defending market positions, widening scope, and increasing efficiency.• To deliver asuperior customer experience and achieve better cost efficiency, incumbentswill need to fully exploit the power of process. On average, cost savings of 15 to 30percent can be achieved through improved process efficiency, internally shared services,and outsourcing and offshoring. Strong consolidators can go even beyond that level. Thecontinuing deconstruction of the value chain will help banks improve efficiency and fightmargin pressure. A number of incumbent banks, however, may not be able to closeprocess efficiency gaps.• Incumbents will also need to build meaningful presences in chosen emerging markets thatoffer the steepest growth potential. Simply planting flags in numerous markets andachieving inadequate shares will not be a successful and value-creating strategy.74
  75. 75. INNOVATIONS IN RETAIL BANKINGCHAPTER-6PARADOX OF RETAIL BANKING-2015Any serious discussion of the future of the retail banking industry eventually raises a basicquestion: will future customers still need retail banks? The answer, it turns out, depends onbanks themselves. With technology and nonblank businesses providing new options forsafeguarding and managing their finances, customers will continue to depend on banks onlyas 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 fortheir 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 ownresearch before buying financial services products.2 As a result, banks have begun to rethink what, where and how they serve an increasinglyinformed and demanding customer base.At the same time, a confluence of industry developments, including consolidation,regulation, industry specialization, changing workforce needs and new technologies areputting additional pressure on banks operating models and raising questions about traditionalstrategies for growth and value creation. So, what will the future look like? How will bankscontinue to grow revenues and remain profitable? What will it take to create and maintainadvantage in this highly competitive industry? An examination of the forces shaping theindustry reveals that the future will require superior efficiency and operational excellencefrom all banks, while industry leadership will be attained by those institutions most adept atharnessing 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 everythingelse: achieving more by doing less. On the surface, the competitive landscape of the retailbanking industry in 2015 will not look much different than it does today. Mergers andacquisitions will likely have reduced the total number of banks, especially mid-tier regionalbanks, and industry specialists and non-bank banks will play a more prominent role. Butmost of today’s players, including universal banks, community banks, industry specialistbanks and non-bank banks, will still be vying to differentiate themselves in a crowded75
  76. 76. INNOVATIONS IN RETAIL BANKINGmarketplace. However, traditional approaches to creating value through growth andefficiency will no longer be enough. Advantages gained through acquisition, new marketentry and reconfigured product offerings will be fleeting at best, while partnering andoutsourcing will make efficiency a basic requirement for all. Through market research andinterviews with industry executives, the IBM Institute for Business Value identified livemajor industry trends that will impact the retail banking industry. By 2015, the combinedimplications of these trends will create an environment in which nothing less than sharpfocus and excellence in day-to-day operations will be acceptable, and banks will have togenerate 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 ever-presentinformation, are giving customers the power to demand much greater responsiveness andtransparency from their banks. Universal banks and ultra-focused niche players thrive –Large 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 theirneeds 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 complexityand require flexible approaches to compensation and performance management. Regulatory burdens intensify –Heightened requirements around privacy, security, partnership risk andoperational risk will require banks to take a more proactive, enterprise wide approach tomanaging compliance issues. Technology improves inexorably to enable breakaway value –Advanced technologies will allow banks to infuse their legacy operating models andinfrastructures with unprecedented functionality. Emerging technologies such as gridcomputing, service-oriented architectures, virtualization of data and storage, and predictive76
  77. 77. INNOVATIONS IN RETAIL BANKINGintelligence will cause entrenched insourcing philosophies to perish in favor of a partnershipmodel where specialized enterprises thrive. Of these trends, the first two increasinglypowerful customers and intensifying competition stand out as the most significant forces thatwill drive industry change over the next decade. The other three trends changes in managinghuman capital, regulations and technologies will strongly contribute to and reinforce theeffects of intensifying competition and customer empowerment on banks’ strategic choices.In this emerging environment, innovation will take many forms, including advances inproducts and services, markets, operational processes, customer intimacy, and new channeland diversification strategies. But innovation will not be possible, nor will it have the desiredimpact, unless banks create the requisite conditions for innovation development.There are four strategic imperatives banks must follow to cultivate innovation and positionthemselves for sustainable growth: Focus on core strengths and partner for everythingelse – Leading banks will optimize their performance by becoming specialized enterprises,managing only strategic, differentiating business components internally and partnering withbest-in-class specialists for thosecapabilities 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 superiorcustomer insights to offer the most appropriate and profitable products, tools and services totargeted segments. Harness the potential of the workforce through effective performancemanagement– Banks will need to realign skills and set the right performance metrics tomotivate a changing workforce to continuously pursue innovation. Recognize that technology will be a critical element of success – By makingtechnology a central component of the strategic decision making process, banks will be77