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Changing Banking Paradigm Growing Importance of Channels Present Day Delivery Channels Channels of future planned by Banks Making

g the channels deliver Challenges

In past,

Market Realities

Regulatory restrictions helped keep competition at bay Proximity to potential customers was the key competitive advantage Customers were satisfied with one branch and restrictive timings Easy comparison of products & services was not possible

Todays Customer

Anywhere Anytime Anyway customer convenience -Online banking -24/7 service -8 to 8 branch service -365 days branch service Instant comparison of products and services Reduced Turn Around Time Enriched interactivity through customized services Better Informed

Banks
Redefine Traditional concepts Role of the branch Business processes Wider and more focused market reach Reduced distribution costs Cross Sell Leverage customer database Customer acquisition / retention Credit screening and data mining

Changing Banking Paradigm Growing Importance of Channels Present Day Delivery Channels Channels of future planned by Banks Making the channels deliver Challenges

Development of Alternate Channels is Important to

Reach out to new customers Reach out to remote geographies Improve existing offerings by providing faster processing through cost effective solutions Deliver new products Data collection and mining

Multi-channel delivery model


m-Banking Internet Bank ATM Network Branch Network

Agent Network

Call centre

Bank Branch

Central & Regional Processing Hubs

Larger deposit market share with fewer branches Freeing branch resources for cross-selling and non-routine servicing

Changing Banking Paradigm Growing Importance of Channels Present Day Delivery Channels Channels of future planned by Banks Making the channels deliver Challenges

Stand Alone ATMs made their appearance in India ,in 1990s. ATMs are primarily use for performing some of the banking functions such as withdrawal of cash or the deposit of cash/cheque, etc. by using a Debit Card. The customer provided with an Debit card with a unique personal identification number (PIN). The PIN has to be kept secret by the customer, to prevent any misuse or fraudulent in the event of loss of the card.

To the Customer 24 * 7 access availability. Less time for transactions. Privacy in transaction. Any branch/anywhere banking enabled. Acceptability of cards across multiple bank ATM. Other services like clearing cheques deposits, Balance enquiry, cheque book requisition, details of recent transaction. To the Bank Cost of setting up an ATM is lower than a setting up a branch. Migration of the routine transactions to the ATMs frees the bank staff for more productive work.

ATMs serve as the crucial touch point for cross selling of the banks products. Enables the bank to display products on the screen and serves as a media for publicity for the bank. Less hassle in handling cash. ATM Models in India Offline:- When ATM is not connected to bank database, it is stated to be offline. Online:- When an ATM is connected to bank database, it is stated to be online. Stand Alone:- when ATM is not connected to any ATM network, it is said to be stand alone. Networked:- When ATM are connected to an ATM network, they are said to be networked.

The following components of the ATM provide the customer interface Video Display Monitor. Key board/Keypad. Touch Screen Slots: There are slots in the ATM for various purposes as detailed below. Card Reader Cash Dispenser Envelope Dispenser. Deposit slot. Future Perspective of ATM: Increasing the number of transactions per day per ATM. Establishing connectivity with point of sale (POS) terminals at merchant establishment. E-ticketing in railways, roadways and airways and International payment networks VISA and Master card.

Credit Cards:- A credit card is small plastic card around 8.5 cm by 5.5 cm. it has the name and the account number of account holder embossed on it. Many card issuers being banks, also allow withdrawals of cash for emergency purposes and levy a service fee for such withdrawals. There are different types of credit cards, some of which are discussed below. Charge card. Smart card or Chip card. Debit card. Restricted card/Member card. Credit Card.

Charge card :-In such cards, transaction are accumulated over a period of time, generally a month and the total amount charged, i.e. debited to the account. The credit card holder is given about 25 to 50 days time to credit his account in case there are insufficient funds in his account at the time of debit. Since the transaction are accumulated, it is only charged, i.e. not debited to the account immediately such cards are charge cards.

Credit cards:-In credit card the card holder has the option to pay the entire amount as soon as the account is debited or he may choose to pay only a certain percentage of the amount debited and he gets a credit to extent of rest. i.e. he can pay it in monthly installments later.

Debit Cards:- A bank issue a card that allows its user to access their funds for the purpose of paying for merchandise. A debit card acts like a credit card, the difference being that funds are immediately taken from the cardholders accounts Smart Card:- The Smart card looks exactly like any other plastic card or an ATM card with an integrated circuit (IC) installed. This chip contains memory, may contain a processor, and communicates with the external world through contacts on the card. Member Card This is used exclusively by the member of a hotel or chain of hotels/ clubs etc.

The advantages of credit card system to the concerned parties are as under:To the Card Holder: It is convenient to carry. It inculcates a sense of financial discipline in him. It provides a proof of purchase through banking channels. It also gives exposure to banking. It also allows him to delegate spending power to add-on-members. It also extends additional facilities like insurance cover/discounts.

To the merchant establishment: Increase in sales because of increased purchasing power of the cardholder due to unlimited credit available to him. Preferred location by card holder. Advertising of a promotional support on a national scale. Development of a prestigious clientele base. Etc.. To Banks: Scope and potential for better profitability out of share earned from the traders turnover. Helps in establishing banking relationship with new customers. This also provides additional customer service to the existing clients. Better network spread of cardholders and their increased use higher popularity and image for the bank. Etc.

Dynamic Signature Verification:- It traces the way in which a signature is written- the dynamic signature tablet automatically verifies weather the signature is genuine or not. Fingerprint Verification:- It is used to identify weather the user of the smart card is genuine or not by electronically scanning fingerprint ridges. Voice Recognition System:- It uses a computer which is programmed to recognize different voices and compares the voice with the recorded original. Hand Geometry:- Researches shown that individual hands have unique features such as finger lengths, skin web opacity and radius of curvature of fingerprints. Systems are available to measure hand geometries by scanning them. Retinal Pattern Verification:- The pattern of the blood vessels on the human eye is a unique physical characteristics; the retina is scanned using a low intensity infrared beam and the persons identification is thereby ascertained. Vein Recognition:- This method, like retinal pattern identification, use the unique vein structure of the human body to identify individuals. Visual recognition too.

With the introduction of computers in Indian banks and with the advent of ATMs the banking service are provided across the bank. Customers need not to visit branch for their banking transaction like tele-banking, remote banking facility are there. This type of banking is called electronic banking. Anytime Banking:- ATMs have eliminated the time limitations of customer service, and offer a host of banking services including deposits, withdrawals, requisitions, instructions and transfers. Anywhere Banking:- Interstation connectivity of ATMs has also facilitated withdrawals from other stations, a service particularly useful for frequent travelers. In some of the Indian public sector banks, remote banking is being further extended to the customers office and home.

Home Banking (Corporate and Personal):- Today, banking customers are more affluent and technologically sophisticated than ever before. With less and less time available to conduct routine banking business they are being extended home banking facilities. Corporate Banking:- Remote banking has become very popular among corporate customers especially big business/industrial houses which are already automated. At present by utilizing remote banking facility, corporate customers will be able to get to following services: Getting their current balance or getting their statement of accounts for any pre-defined period. Ordering cheque books. Ordering intra-bank and inter-bank fund transfers. International remittances. Opening letter of credits.

By obtaining a special SWIFT (Society for Inter-bank Financial Telecommunication) authentication facility in arrangement with their bankers, Corporate Customers will be able to directly prepare messages in the SWIFT format by setting in their office, and transfer the particulars in the respective templates to their bankers. Personal Banking:- By using tele-banking facility, customers can dial up the branchs designated telephone number, which is connected to the computer and, by dialing his identification number, will be able to get connectivity to the branchs designated computer. A customer can have access to his balance, and also can place order for statement of account, cheque books and few selected services through this phone banking

The function of tele banking services is based on the voice processing facility available with bank computers. The caller generally a customer of the bank will be able to call the bank anytime and enquire balances or transaction history, and to transfer funds between accounts. Some banks uses telephone answering machines in which case the services is not really tele-banking per se but simply a telephone answering system.

With popularity of PCs and easy access to Internet and World Wide Web, banks increasingly use internet as a channel for receiving instructions and delivering their products and services to their customer. This form of banking is generally referred to as Internet Banking.

Broadly the level of banking services offered through the internet can be categorized in to three types The Basic level Services is the banks website. In the next level is Simple Transactional Website. The third level of Internet Banking services are offered by Fully Transactional Websites.

It removes the traditional geographical barriers as it could reach out to customers of different countries/legal jurisdiction. This has raised the question of jurisdiction of law/supervisory system to which such transactions should be subjected. It has added a new dimension to different kinds of risks traditional associated with banking, heightening some of them and throw new risk control challenges and risk perceptions. Security of banking transactions, validity of electronic contract, customers privacy, etc. which have always been matters of concern, given that the Internet is a public domain, not subject to control by any single authority or group of users. It poses a strategic risk of loss of business to those banks who do not respond in time to this new technology, being the efficient and cost effective mechanism of banking services.

Mobile banking comes with features like 128 bit encryption and open Internet technology, i.e. it is not dependent on any specific service provider and the handset company. This service is free of charge. A customer on his/her mobile screens can check his bank balance or order a demand draft, stop cheque payment, request for a cheque book etc.

A cheque truncation is defined by the new section 6(b) of the NI Act as a Cheque which is truncated during the course of a clearing cycle either by the clearing house or by the Bank whether paying or receiving payment immediately on generation of an electronic image for transmission, substituting the further physical movement of the cheque in writing. Characteristics: It is an electronic image of a paper cheque. Only the Banks involved and the clearing house can truncate a cheque ( i.e. create an electronic image of a cheque). The electronic image of the cheque truncation will substitute the physical cheque from the point and time of truncation onwards Truncation is to be done only during the course of a clearing cycle to reduce the time taken for realisation. The paper cheque after truncation is to be kept in the custody of the bank/ clearing house that truncated the cheque.

Addition of digital signature of the truncating bank/ clearing house to the electronic image of the cheque truncated is optional. Ways in which truncation can be done: Using MICR data: MICR cheques have the cheque number, city, bank and branch number and transaction code pre-coded. Abroad even the account number of the customer is precoded. During encoding the collecting bank, the amount as well as the payees name is inserted in the MICR line. The entire MICR line is then captured electronically. The electronic information is then exchanged with other for clearing (Inter Bank Data Exchange or IBDE). The cheques do not move further. Using Image Processing: Image Processing is the latest document handling system. It involves scanning of both sides of the cheque and storing the image in the digital form. The cheque is moved to off-site storage and the image is used for further processing.

Advantages: Cheque truncation truncates or stops the flow of cheques through the banking system. Information from the cheque is converted into a medium for electronic processing. The cheque itself is then truncated and stored. Further processing is done through the electronic medium. Truncation can also occur at the branch where the customer deposits the cheque.

Changing Banking Paradigm Growing Importance of Channels Present Day Delivery Channels Some Channels of future - ICICI Bank Making the channels deliver Challenges

High speed, User Friendly


Features

Complete Financial status information like account balance, transaction history, stock quotes, etc. and processes requests like stop cheque, etc. Small denomination transactions executed instantly Useful for small transactions in places like petrol pumps, toll booths, etc. Mobile to mobile payments

Applications

Source: Presentation by ICICI Bank

Specific and Secure


Features

Octroi Card

Closed user group card that allows transfer only with select merchants In use at Ahmedabad Municipal Corporation for Octroi collections Used by transport agencies for paying octroi. Ensures that there is no misuse Could be combined with other cards for multi-service usage

Applications

Source: Presentation by ICICI Bank

Offline, low risk, low cost


Features

Prepaid cash card with value stored in the card Ability to recharge

Eliminates cash replenishment

Applications

Travel cards

Public Transportation

Source: Presentation by ICICI Bank

Features

Banking Transactions Balance Enquiry Cash Withdrawal Cash Deposit Utility payment

Proprietary payment devices PCs/Cash Registers


Wide reach to provide financial transactions

Applications

Increased customer convenience

Source: Presentation by ICICI Bank

Multipurpose, Cost Efficient, Wide Reach


Features

Wireless / telephone line based internet access. Could be solar-based for India

Applications

Extend reach of our products to rural customers in remote areas at low costs Supplement by value-added services like video-conferencing for loan disbursal, online health checkup for insurance, etc.

Source: Presentation by ICICI Bank

Convenient, authentication, fast processing

Features

Storage as well as processing capabilities Easy to carry and useful for offline processing

Applications

Can be used by Agents to carry out transactions on behalf of the users Ideal for simple processing like generating insurance illustrations and rural banking

Source: Presentation by ICICI Bank

Changing Banking Paradigm Growing Importance of Channels Present Day Delivery Channels Some Channels of future - ICICI Bank Making the channels deliver Challenges

Foundation of creating superior channel is superior insight into customer behaviour


Creating Superior Channel Network

Channel requirement for delivery of different products vary with Customer Type Customer Behaviour Customer Profitability Adaptability by Customer

Multi-product view to the customer across different channels like Branches, Web and Call Center

Consistent view across channels

Consistent identification of the customer across the channels

Offer customized products and services

Availability

The channel should be readily available to customers Location ATMs spread across the country for easy accessibility Time 24X7 ATM access 24x7 Internet Banking access Extended 8 to 8 branch access

Simplicity

Simplicity Technology should be simple and user-friendly Customer should feel comfortable with the technology Simpler process for authentication and Verification Regional language ATMs

Reliability

Expected service levels to be met at all times Customer confidence must be built over a period of time When ATMs were introduced managing cash replenishment to ensure ready availability of cash at any time was of utmost importance Today ATMs are being managed remotely and with more efficiency through usage of technology

Consistency

Customer should not have conflicting experiences across various channels Need to provide integrated platform that can accept information from various other platforms used by various product groups of the Bank

Channels must continuously strive to add greater value to customers in terms of services
Mobile top-ups at ATMs
Value-added services

Benchmark innovative products / services across the world to add newer perspectives to electronic transactions
Card to Card funds transfer

Customer education on
Channel potential Channel usage through hand-holding for the initial period

Customer Education and Migration Plan

Channel migration plan


Clear plan on migrating customers and scale-up of new channel Accordingly incentivise customers to shift to the newer channels

Continuous improvement customer inconvenience


Avoiding Inconvenience

to

remove

Avoid calls at odd hours Avoid mobile alerts at odd hours Process and systems improvements for reducing prolonged wait times at Phone Banking

Changing Banking Paradigm Growing Importance of Channels Present Day Delivery Channels Some Channels of future - ICICI Bank Making the channels deliver Challenges

Integration across channels

Integration with back-end to deliver a one-bank experience to the customer

Across various channels Across various product lines

Service integration

Seamless service integration between the front-line (branches/ Phone Banking) and back-office (Operations units)

Channel Integration
Product Systems
Banking

Channels
Internet Banking Branches

Credit Cards

Customer

Auto Loans

Middleware

ATMs Cyber Centers Call Center m-Banking Agents

Home Loans

Bonds

Web Trade

Channel placement

Complementary placement of various channels branches / ATMs to be located judiciously to ensure maximum coverage at minimum costs

Managing the logistics involved in servicing the customers across the various channels
Logistics

Cash filling and replenishment across 1950 ATMs even at remote locations Handling drop-box requests at every nook and corner of country 8 to 8 banking Managing huge number of Phone Banking seats

Trade off between security, convenience & cost

Added convenience Vs. compromise on security or quality aspects


Latest technologies and complex logics to avoid fraud Vs. Simplicity and user-friendliness Scale Vs. Affordable cost

Employee Training and Customer Education

Training of front-line staff manning all service points across branches, Phone Banking, sales force to handle customer queries and service expectations
Educating customers to encourage multiple channel usage

Foundation of creating superior channel is superior insight into customer behaviour


Creating Superior Channel Network

Channel requirement for delivery of different products vary with Customer Type Customer Behaviour Customer Profitability

References: IIBF Publications Google ICICI Bank Presentation on making channels deliver RBI Website

Thank You

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