Digital banking is growing rapidly in India due to regulatory reforms, unique identification projects, and visions of digital transformation. Banks are challenged to transition from traditional legacy systems to digital while investing in new infrastructure. Different branch models are proposed to rationalize costs including high-tech "Gamma" branches and customer-focused "Beta" branches. A mix of branch types is suggested to reduce network costs by 30% while maintaining customer service levels.

2. Digital vs Branch Banking
• The digital revolution is far more significant than the invention of writing or printing
– Douglas Engelbart, Internet pioneer
2000s
2014
2020

3. Executive Summary
• Digital to impact all businesses globally
• Indian Banking Industry also maturing to Digital
– Proactive Regulatory Reforms
– Fast growing Unique Identification Project
– Ambitious Govt. vision of a Digital India
• Vision:
– Analyze customer buying behaviour to serve specialized purposes
– Paper money to be replaced by digital payments – mobile, internet,
POS and ECS
• Opportunity:
– 30% jump in sales productivity through digitization
– Increased productivity can be passed on to customers through
better interest rates
– Better customer service through quicker customer responsiveness

4. Executive Summary
• Challenge:
– Change in mindset from old legacy to new
– Investments in IT infrastructure
– PSBs to become irrelevant if they don’t undergo this
transformation to digital
• Role of RBI & Govt.:
– Financial Inclusion of prime importance, PM’s Jan Dhan
Yojna a great start, more schemes needed
– PayM in UK, Giro Vision in Sweden schemes need to be
emulated in India
– Net Banking in local languages to be looked at to include
people from remote areas

5. Digital Banking
• “Despite a strong demand for digital banking products from customers,
and the fact that customers are willing to pay for these services, banks
have been rather slow to respond to digital innovations” – PwC Report,
2012
• “Around 44% of our Bank transactions originate through Mobile or
Internet” – Head of Digital, HDFC Bank
• Number of digital banking customers in India to increase from 100
million in 2012 to 450 million in 2020 – McKinsey Report, 2014
• Online shoppers growing by 30% each year
• By 2020, India’s average age to be 29 years – a digital demographic

6. SWOT Analysis
Strengths
Easy and Immediate
Operative
24/7 Availability
Service fees saving
Higher Yield
Weaknesses
Internet Mis-trust
Computer and Internet
connection needed
Technology Investment
System Failure
Opportunities
Lack of geographical
constraints
Compare products
Pro-Internet customers
Tech improvements
Threats
Phishing
‘Personal touch’ of
traditional banks
Not achieving ‘critical
mass’ to cover tech
costs
Digital
Banking
Strengths
Individualized customer
service
Physical transactions,
not virtual
All financial products
under one roof
Weaknesses
High overhead costs
Fixed timings
Difficult to reach out
to everyone via
branches
Branch
Banking
Opportunities
Build new client
relationships
Branch Banking
preferred by many
Rural Markets still an
untapped segment
Threats
People switching to
Digital Banking
Branch Banking
losing its relevance

7. Roadmap towards Digital Banking
Despite Emphasis on Digital Banking Channels, customers remain Branch Loyal
−Depositing Cash/En-cashing cheques
−Advice on Complex Financial Products
−Selling cross-functional Financial Products like Mutual Funds
Branches should be looked not as ‘Transaction Centers’ but as
‘Customer Engagement Centers’
Wealth
Management
• Sales staff
armed with
tablets to cater
to customers
Self-service
Branch
• Non-cash
transactions
through kiosks,
video-tellers
• Heavily staffed
• Low level of
automation
Brick &
Mortar
•Access to
financial experts
and RMs through
in-house services
RM Center
• Digital signage
• Call centre
extensions for
cross-selling
Sales
Branch

8. Lessons from Retail Industry
• Banking Industry currently at an inflection point where the
Retail Industry was a few years ago
– Offline only – More Megastore, Subhiksha, Vishal Retail etc.
– Online only – Bluestone.com, Caratlane.com, Dell, eBay etc.
– These offerings either perished or embraced the other format
for survival
• Both formats need to work in conjunction, not isolation
• Banks need to digitize front-end and back-end operations
thus blurring online, offline divide
– Reliance Retail, Tata Group, Wal-Mart planning entry into
Online space
• The Branch in the Digital Age: its all about Online & Offline
Co-ordination

9. Blurring the Online Offline Line
Digital Elements in a Bank’s Physical
Channel help extend a Branch’s presence
−US Bank BBVA Compass’s “Virtual
Banker” an example
−Allows video-conferencing between
consumers in branches and remote bank
advisors
−Integrated document sharing through
Scanner & Printer to send and retrieve
signed documents
Source: KUHF –Houston Public Radio, “Virtual Banking
Links Consumers to Specialists at Other Branches”, Dec,
2009
Physical Elements in a Bank’s Digital
Channel creates a seamless experience
−Hapoalim, one of Israel’s largest banks
integrated a human element into virtual
channel through Poalim Connect
−Simple and intuitive front-end
−Allows customers to connect with a real
personal banker through online banking
without having to go to a branch
Source: Forrester, “Case Study: Hapoalim injects a Human
Touch into Digital Banking”, 2012

10. Branch Models of Future
• Traditional banking Network using ‘One-size-fits-all’ strategy no longer
sustainable
• Need for differentiated branches targeting specific customer segments
• Based on levels of digitization and integration of Online & Offline elements,
4 main Branch formats are proposed:
Branch
Format
Level of
Customer
Intimacy
Level of
Advice
Complexity
ALPHA LOW HIGH
BETA HIGH LOW
GAMMA HIGH LOW
LION LOW HIGH

11. Branch Models of Future
• ALPHA
– Offers retail-like displays, opportunity to browse self-serve aisles
– Focus on standard products like account opening, loan application etc.
– Low levels of digitization, low staffing required hence Low Operating costs
– Cannot offer customized and tailored services & products
– Suited for students and first-time bankers
– Implemented successfully by Danish Bank Jyske Bank
• BETA
– Provides customers with terminals for online banking needs
– Low digitization with minimal banking staff to address customer queries
– Staff has knowledge of basic financial products, not complex advisory skills
– Primarily developed to build strong customer relations by providing a
relaxed environment and simultaneously offering basic financial advice
– Target high income individuals for cross-selling of services
– Implemented successfully by Virgin Group

12. Branch Models of Future
• GAMMA
– Employs advanced digital tools like video-conferencing, online document sharing,
digital signatures etc.
– Focus is on providing customers with evolved and immersive digital experience
– Requires significant investment in technology
– High levels of digitization with minimal branch staffing
– Target Generation Y customers who need flexibility to transact anytime and are
open to use new technology
– Successfully implemented at Brandesco Bank, Brazil
• LION
– Comprehensive full service branch comprising all aspects of self-serve and online
banking
– Self-service kiosks, ATMs, service staff with iPads etc.
– High Online/Offline co-ordination
– Staff well equipped to provide complex personalized advice
– To be used as flagship branch to attract new and existing customers showcasing
innovative tools and high standards of service
– High operating costs due to large size, staffing and digital requirements
– Should be located at prime locations to attract maximum footfalls

13. Rationalization of Branch Models
• Assume a mix of branch models: 45%, 20%, 20% and 15% for ALPHA, BETA,
GAMMA and LION
• Based on Annual Reports of ING Vysya Bank for FY 2013-14:
Total Network Cost with homogenous branches
Net Banking Income 6072
Operating Expenditure 1492
Capital Expenditure 524
Total Cost (Capex + Opex) 2016
• Proposed costs of target branch Models:
Branch Model Type CAPEX (As a % of regular
Branch)
OPEX (As a % of regular
Branch)
LION 160% 160%
GAMMA 80% 75%
BETA 65% 50%
ALPHA 50% 65%

14. Rationalization of Branch Models
• Total Branch network cost with branch differentiation
Branch
Model
Branch Split Target
CAPEX
Target OPEX Total
(CAPEX +
OPEX)
LION 15% 114 322 436
GAMMA 20% 75 201 276
BETA 20% 61 135 196
ALPHA 45% 107 393 500
Total Cost 1408
• Total Current Expenses: ₹2016 Crore
• Total Expenses post rationalization and new Mix: ₹1408 Crore (Savings of
30%)
The transformation from Branch to Digital Banking may not happen
overnight, but banks need to re-think the role of physical branch and
how it blends with digital channels

15. References
• http://www.ingvysyabank.com/
• https://www.linkedin.com/company/12936?trk=vsrp_companies_cluster_
name&trkInfo=VSRPsearchId%3A3605988161411669059285%2CVSRPtarg
etId%3A12936%2CVSRPcmpt%3Acompanies_cluster
• http://www.thehindubusinessline.com/industry-and-economy/
banking/for-aam-india-cash-is-still-king/article5538950.ece
• http://www.pwc.in/press-releases/digital-banking.jhtml
• ‘Future of Bank Branches Co-ordinating Physical with Digital’ by Capgemini
Consulting, 2013
• ‘Branch Bank of the Future – Transforming to stay relevant’ Anil
Radhakrishnan, Abhinav Jaipuriar et al. www.infosys.com
• ‘Digital Banking in Asia’ McKinsey & Co., January, 2014
• ‘Bank governance Leadership Network – Leading the digital
transformation of banking’ Aug, 2014
• ‘The Global Retail Banking Digital Marketing Report 2013’, May, 2013