NA_Session 26 - Channel Banking

7/27/2019 NA_Session 26 - Channel Banking

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Changing Banking Paradigm

Growing Importance of Channels

Present Day Delivery Channels

Channels of future planned by Banks

Making the channels deliver

Challenges


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In past,Regulatory restrictions helped keep

competition at bayProximity to potential customers was the

key competitive advantageCustomers were satisfied with onebranch and restrictive timings

Easy comparison of products & serviceswas not possible

Market Realities


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Todays Customer

Anywhere Anytime Anyway customer convenience-Online banking-24/7 service-8 to 8 branch service

-365 days branch serviceInstant comparison of products and servicesReduced Turn Around TimeEnriched interactivity through customized services

Better Informed


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Banks

RedefineTraditional conceptsRole of the branchBusiness processes

Wider and more focused market reachReduced distribution costsCross Sell

Leverage customer databaseCustomer acquisition / retention

Credit screening and data mining


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Challenges


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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

Developmentof AlternateChannels isImportant to


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Branch

Network

m-Banking

ATMNetwork

InternetBank

Call centre

Multi-channel delivery model

Agent

Network


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Central & RegionalProcessing Hubs

Larger depositmarket sharewith fewerbranches

Freeing branchresources forcross-selling andnon-routineservicing

Bank Branch


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Challenges


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Stand Alone ATMs made their appearance in India ,in1990s.

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.


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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 recenttransaction.

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 thebank staff for more productive work.


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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 tobe 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.


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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.


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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 holderembossed on it. Many card issuers being banks, also allowwithdrawals of cash for emergency purposes and levy a service feefor 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.


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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 25to 50 days time to credit his account in case there are insufficientfunds in his account at the time of debit.

Since the transaction are accumulated, it is only charged, i.e. notdebited to the account immediately such cards are charge cards.

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

installments later.


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Debit Cards:- A bank issue a card that allows its user to accesstheir funds for the purpose of paying for merchandise. A debit cardacts like a credit card, the difference being that funds areimmediately 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. Thischip contains memory, may contain a processor, andcommunicates with the external world through contacts on thecard.

Member Card This is used exclusively by the member of a hotel

or chain of hotels/ clubs etc.


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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.


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To the merchant establishment:-

Increase in sales because of increased purchasing power of thecardholder 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 fromthe traders turnover.

Helps in establishing banking relationship with new customers.

This also provides additional customer service to the existingclients. Better network spread of cardholders and their increased

use higher popularity and image for the bank. Etc.


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Dynamic Signature Verification:- It traces the way in which asignature is written- the dynamic signature tablet automatically verifiesweather the signature is genuine or not.

Fingerprint Verification:- It is used to identify weather the user ofthe smart card is genuine or not by electronically scanning fingerprintridges.

Voice Recognition System:- It uses a computer which is programmedto 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 ofcurvature of fingerprints. Systems are available to measure handgeometries by scanning them.

Retinal Pattern Verification:- The pattern of the blood vessels on thehuman eye is a unique physical characteristics; the retina is scanned

using a low intensity infrared beam and the persons identification isthereby ascertained. Vein Recognition:- This method, like retinal pattern identification, use

the unique vein structure of the human body to identify individuals.Visual recognition too.


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With the introduction of computers in Indian banks and with theadvent of ATMs the banking service are provided across the bank.Customers need not to visit branch for their banking transaction liketele-banking, remote banking facility are there. This type of banking iscalled electronic banking.

Anytime Banking:- ATMs have eliminated the time limitations of

customer service, and offer a host of banking services includingdeposits, withdrawals, requisitions, instructions and transfers.

Anywhere Banking:- Interstation connectivity of ATMs has alsofacilitated withdrawals from other stations, a service particularlyuseful for frequent travelers. In some of the Indian public sectorbanks, remote banking is being further extended to the customersoffice and home.


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Home Banking (Corporate and Personal):- Today, banking

customers are more affluent and technologically sophisticated thanever before. With less and less time available to conduct routinebanking business they are being extended home banking facilities.

Corporate Banking:- Remote banking has become very popularamong corporate customers especially big business/industrial houseswhich 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.


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By obtaining a special SWIFT (Society for Inter-bank FinancialTelecommunication) authentication facility in arrangement with theirbankers, Corporate Customers will be able to directly prepare messages inthe SWIFT format by setting in their office, and transfer the particulars inthe respective templates to their bankers.

Personal Banking:- By using tele-banking facility, customers can dial upthe branchs designated telephone number, which is connected to thecomputer and, by dialing his identification number, will be able to getconnectivity to the branchs designated computer. A customer can haveaccess to his balance, and also can place order for statement of account,cheque books and few selected services through this phone banking


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The function of tele banking services is based on the voice

processing facility available with bank computers. The callergenerally a customer of the bank will be able to call the bankanytime and enquire balances or transaction history, and totransfer funds between accounts.

Some banks uses telephone answering machines in which case

the services is not really tele-banking per se but simply atelephone answering system.


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With popularity of PCs and easy access to Internet and WorldWide Web, banks increasingly use internet as a channel forreceiving instructions and delivering their products andservices to their customer. This form of banking is generallyreferred to as Internet Banking.

Broadly the level of banking services offered through theinternet 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 byFully Transactional Websites.


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It removes the traditional geographical barriers as it could reachout to customers of different countries/legal jurisdiction. This hasraised the question of jurisdiction of law/supervisory system towhich 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 newrisk control challenges and risk perceptions.

Security of banking transactions, validity of electronic contract,customers privacy, etc. which have always been matters ofconcern, 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 andcost effective mechanism of banking services.


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


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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 theclearing house or by the Bank whether paying or receiving paymentimmediately 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 physicalcheque from the point and time of truncation onwards

Truncation is to be done only during the course of a clearing cycle toreduce 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.


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Addition of digital signature of the truncating bank/ clearing house to theelectronic 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 andbranch number and transaction code pre-coded. Abroad even the accountnumber of the customer is precoded. During encoding the collecting bank,

the amount as well as the payees name is inserted in the MICR line. Theentire MICR line is then captured electronically. The electronic informationis then exchanged with other for clearing (Inter Bank Data Exchange orIBDE). The cheques do not move further.

Using Image Processing: Image Processing is the latest document handlingsystem. It involves scanning of both sides of the cheque and storing theimage in the digital form. The cheque is moved to off-site storage and theimage is used for further processing.


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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 thecheque.


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Some Channels of future - ICICI Bank


Challenges


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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

Applications

Useful for small transactions in places like

petrol pumps, toll booths, etc. Mobile to mobile payments

High speed, User Friendly

Source: Presentation by ICICI Bank


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Features

Closed user group card that allows transfer

only with select merchants

In use at Ahmedabad Municipal Corporation

for Octroi collections

Applications

Used by transport agencies for paying octroi.

Ensures that there is no misuse

Could be combined with other cards formulti-service usage

Octroi Card

Specific and Secure



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Features Banking Transactions

Balance Enquiry

Cash Withdrawal

Cash Deposit

Utility payment

Proprietary payment devices PCs/Cash

Registers

Applications

Wide reach to provide financial transactions Increased customer convenience



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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.

Multipurpose, Cost Efficient, Wide Reach



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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

Convenient, authentication, fast processing



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Challenges


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Foundation of creating superior channel is superiorinsight into customer behaviour

Channel requirement for delivery of different

products vary with

Customer TypeCustomer Behaviour

Customer Profitability

Adaptability by Customer

Creating

SuperiorChannelNetwork


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Multi-product view to thecustomer across differentchannels like Branches,Web and Call Center

Offer customized productsand services

Consistent viewacross channels

Consistent

identification ofthe customeracross thechannels


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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

Availability


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Simplicity

Technology should be simple and user-friendly

Customer should feel comfortable with the

technology

Simpler process for authentication and

Verification

Regional language ATMs

Simplicity


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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

Reliability


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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

Consistency


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Channels must continuously strive to add

greater value to customers in terms of services

Mobile top-ups at ATMs

Benchmark innovative products / servicesacross the world to add newer perspectives to

electronic transactions

Card to Card funds transfer

Value-added

services


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Customer education on

Channel potential

Channel usage through hand-holding for

the initial period

Channel migration plan

Clear plan on migrating customers and

scale-up of new channel

Accordingly incentivise customers to shift to

the newer channels

Customer

EducationandMigration Plan


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Continuous improvement to remove

customer inconvenience

Avoid calls at odd hoursAvoid mobile alerts at odd hours

Process and systems improvements for

reducing prolonged wait times at

Phone Banking

AvoidingInconvenience


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Challenges


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Integration with back-end to deliver a one-bank

experience to the customer

Across various channels

Across various product lines

Integration

across channels


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Seamless service integration between the

front-line (branches/ Phone Banking) and

back-office (Operations units)

Serviceintegration

Ch l I t ti


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Channel IntegrationChannels

Middleware

Banking

Credit Cards

Auto Loans

Home Loans

Bonds

Web Trade

Product Systems

Agents

CallCenter

CyberCenters

InternetBanking

ATMs

Branches

m-Banking

Customer


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Complementary placement of various

channels branches / ATMs to be locatedjudiciously to ensure maximum coverage at

minimum costs

Channelplacement


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Managing the logistics involved in servicing

the customers across the various channels

Cash filling and replenishment across 1950

ATMs even at remote locations

Handling drop-box requests at every nookand corner of country

8 to 8 banking

Managing huge number of Phone Banking

seats

Logistics


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Added convenience Vs. compromise on security

or qualityaspects

Latest technologies and complex logics to avoidfraud Vs. Simplicityand user-friendliness

ScaleVs.Affordable cost

Trade offbetween

security,convenience& cost


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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

EmployeeTraining and

CustomerEducation


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Foundation of creating superior channel is superior

insight into customer behaviour

Channel requirement for delivery of different

products vary withCustomer Type

Customer Behaviour

Customer Profitability

CreatingSuperiorChannelNetwork


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References:IIBF PublicationsGoogleICICI Bank Presentation onmaking channels deliverRBI Website


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Thank You

Documents

NA_Session 26 - Channel Banking