An online forum for thought leaders to discuss the challenges and opportunities impacting the changing world of banking.

March 29, 2014

Synchronizing customer service with the times

As I finished registering for ICICI's latest Facebook app, known as Pockets, I felt that I always wanted such a feature. Pockets allows an individual to transfer money to Facebook friends without knowing their account details. This also obviates the need to log on to a banking website. Even though this was a new innovation, I could not help but feel that it was long awaited.

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Dashboards and Analytics Overload in CBS?

Banking has evolved from maintaining manual ledgers for accounting and book keeping to deploying core banking solutions for maintenance of customer data and products, as well as accounting across branches. Critical activities, including top management and regulatory compliance reporting, which were processed manually moved to multiple on-demand/ batch reports accessible to top management at any point of time. With MIS (Management Information System) and reporting tools available through software solutions, it became possible to analyze data at the central office easily and quickly. The information could be used for monitoring business at remote branches, conducting business reviews, formulating strategy and recasting and planning for the future, which was previously done at defined intervals.  Regulatory reporting could be completed as per periodicity of demand, without delay.

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March 24, 2014

How different is selling an FMCG product to selling a banking product or software solution?

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In the early 2000s, when Indian banks hired field staff with FMCG (Fast Moving Consumer Goods) experience to sell banking products, there was a huge uproar in the community. There was a belief that only experienced bank staff could sell banking products to new consumers. Even cross selling a new concept or banking product to an existing customer, required banking expertise, persuasion and marketing skills. It was perceived that since the educated urban customer was aware of the nuances of conventional banking products offered by most banks, as well as their advantages and disadvantages, a novice would not be as effective in selling those products as an experienced bank hand. Pundits proclaimed that getting new sales staff to push banking products, which were becoming increasingly complex, would not work.

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March 3, 2014

Using voice of customer analytics for better insight

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Attrition models typically consider only structured attributes and past behavior of customers to segment them based on their propensity to defect.  However, this methodology has its shortcomings. Specifically, it does not take into consideration the unstructured data, which is generated in customer conversations.  For instance, a customer, while interacting with a bank's customer service agent might show his displeasure with the bank's services and bring it to their notice through chats or messages in Facebook or Twitter.  Frequent incidents of this nature are a good indicator that the customer is ready to defect. Models based on text mining of unstructured data have clearly indicated a strong correlation between certain customer queries and intent to defect.

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February 27, 2014

New ways of branch banking

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The current pace of change in banking can be mind boggling for customers. Much of that change is due to the influence of the retail sector, and banks' implementation of "retail style" banking to cater to the new generation of customers.

To be sure, banks need to attract the younger demographic segments, as they are the source of future revenues. The younger generation is accustomed to retail-like consumption experience, such as the one provided by malls and interactive smart stores. These customers, being highly digitally driven, will expect to use digital channels like Internet and mobile for regular banking activity. But when it comes to more complex or significant transactions, these customers will feel the need to visit their bank branch to seek advice and guidance.  

That being said, bank branches cannot hope to cater to next generation customers in the age-old way. They should prepare strategies for making retail banking more customer-centric with the help of innovations based on smart banking technologies and best practices from around the world. This could well call for going the way of retail - with branches in supermarkets and malls, smart stores like those from Apple complete with touchscreens, self-serving kiosks, 'muzak', and live video help from banking specialists and advisors.

However, while looking to secure their future revenue streams, banks must not neglect the interests of their existing and traditional customers. This means that they must change branch banking in other ways too.

For instance, banks should effectively utilize smart banking technologies and practices to provide access to all the details of the customer relationship, such as credit scores, banking history, and other accounts held. This can be augmented by offering access to software that predicts customer preferences and future banking service requirements based on past behavior. All of these together would help the banks provide more personalized and suitable sales and service offerings in order to retain their existing customers.

February 24, 2014

The Right Way to Financial Inclusion

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India's tryst with Financial Inclusion is not new. Although the RBI formally introduced the term in its annual policy statement of 2005-06, prior initiatives, such as the nationalization of banks and the imposition of priority lending targets were aimed at improving the weaker sections' access to financial services.

However, the nation's performance leaves much to be desired. CRISIL Inclusix, which measures India's progress in Financial Inclusion, rates it quite low, at 40.1 on a scale of 1 to 100. Only 50 percent of Indians have a bank account, and barely 15 percent have access to credit even today.

Part of the problem lies in the solution itself. Financial exclusion in India has many facets - the inability to open an account owing to lack of documentation; the inability to transact on an account because of inadequate literacy or savings; the inability to avail of credit because of cost; and so on. However, the approach to achieving financial inclusion is largely one-dimensional, relying overly on channel expansion as if it were a magic bullet. Accordingly, the regulators mandate the opening of rural branches; banks recruit business correspondents and establish kiosks; and technology vendors extol the role of mobile platforms in extending financial services to the unbanked.

Clearly, that's not enough. While channels are important, they should be tailored to suit the context in order to be effective. For instance, Spain's high bank branch density of 900 per million population has been instrumental in taking the country to 90-percent-plus financial inclusion. This is appropriate, given the country's cultural preference for branch banking. On the other hand, countries like Norway and Sweden have achieved near universal coverage with a far lower branch density. These nations have been quick to adopt online and mobile channels. Kenya sits at the other end of the spectrum, where a mere 50 branches serve a million Kenyans; here branches have contributed to just 20 percent inclusion, but the mobile (financial services) has achieved more than 65 percent.

In contrast, most channels of inclusion, including the branch, kiosk and ATM, have underperformed in India owing to a variety of social, cultural and economic barriers. But even as the Indian financial system discovers the optimal channel mix from an inclusion perspective, it needs to take action on other fronts. 

Imposing the right amount of regulation, appropriate to the level of risk, is extremely important. Here, one can cite the case of Bangladesh, which has modified its regulations to suit microfinance, and thereby enabled microfinance institutions to grow sustainably. Mexico applies differentiated norms for the opening of bank accounts, depending on the associated risk. This tiered strategy has allowed it to spread the use of basic, low value accounts, while curbing the possibility of money laundering.

Also, there is a need to strengthen savings, even before easing access to credit. A comparison within the developing world shows that while India avails of formal credit at a rate similar to other countries, it saves less than better-off nations such as China.  The Philippines has reported that farmers who save more by using "commitment" savings accounts are able to deploy better inputs and reap higher crop sales. India must learn from that experience to focus on creating products that enable the poor to build savings.

Last but not least, there is a need to revise the mindset of the unbanked, who are still quite wary of using formal financial services. This can only happen with patient and persistent literacy and awareness building initiatives. 

So, unless India takes a holistic approach as above, the country's financial inclusion agenda will continue to languish.


February 19, 2014

Cloud: Clear Opportunity for Banking

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The transformational possibilities of the cloud model have started to outweigh security and governance concerns in the banking sector. These concerns are increasingly being considered as challenges to be overcome, rather than impediments to cloud adoption.

Cloud empowered banks are integrating multiple technologies, from mobility to social to analytics, into banking strategy to redefine customer experience, engagement and choice. They are also changing traditional IT structures by delivering various functionalities as services to business users.   

Large banks, with the wherewithal for private clouds, have been able to simplify their infrastructure acquisition cycles by shifting to the IaaS model. The logical progression is towards PaaS, where business partners migrate their applications to the same platform that internal users access as a service. Banks will increasingly move towards a standardized multi-tiered solution, comprising a front end, middleware and database, as well as a platform integrating with their administrative and development solutions. 

IaaS and PaaS are also streamlining the procurement and delivery of infrastructure, applications and services. Infrastructure provisioning is much simpler and the resultant efficiency and transparency is changing organizational processes and structure. With the advantage of full visibility into self-service IT consumption, resource usage can now be instantly charged back to the appropriate functions, a process that earlier used to take weeks.  

Software upgrades in the cloud are seamless, automatic and frequent, which is in stark contrast to the long upgrade cycles in an on-premise environment. Imagine the implications for something as vital and large as core banking. That being said, banks and their technology partners are yet to resolve the challenge of delivering customized components of each bank's core banking software on top of the basic cloud solution. 

If there's a downside to the cloud, it is that the transition from on-premise to private to public IT infrastructure is also characterized by the loss of control over service providers. Smaller banks, without the encumbrances of legacy hierarchies and processes, are able to deal with this more easily. The larger banks just need to adapt their internal structures to the reality of multi-vendor IT environments. That's a small adjustment to make en route to huge opportunities in the cloud.

January 16, 2014

Modernization without the mayhem

On the one side there is the legacy; a complex patchwork of disparate technologies integrated at random, upgraded incrementally and rooted in an era when product-centric silos were avant-garde. On the other is the new paradigm of banking under unrelenting pressure from customers, regulators and competitors.

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January 15, 2014

A la carte your cloud

According to an IDC Infosys global cloud adoption study conducted late last year, the top two sectors to have formalized cloud strategies were telecoms and financial services, in that order. But when it comes to hybrid cloud adoption, financial services were the clear forerunners. 

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Finding value in simplicity

Every year strategic branding agency Seigel+Gale compiles a Global Brand Simplicity Index, across 25 industries, to generate separate brand and industry simplicity scores. In 2012, retail banking came in at #15 on an industry simplicity listing headed by online retail and closed by health insurance. This year, that ranking has slipped to 19th. And some of the industries that beat out retail banking? Shipping/mail and automotive!

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