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
ā¢ The digital revolution is far more significant than the invention of writing or printing
ā Douglas Engelbart, Internet pioneer
2000s
2014
2020
3. Executive Summary
ā¢ Digital to impact all businesses globally
ā¢ Indian Banking Industry also maturing to Digital
ā Proactive Regulatory Reforms
ā Fast growing Unique Identification Project
ā Ambitious Govt. vision of a Digital India
ā¢ Vision:
ā Analyze customer buying behaviour to serve specialized purposes
ā Paper money to be replaced by digital payments ā mobile, internet,
POS and ECS
ā¢ Opportunity:
ā 30% jump in sales productivity through digitization
ā Increased productivity can be passed on to customers through
better interest rates
ā Better customer service through quicker customer responsiveness
4. Executive Summary
ā¢ Challenge:
ā Change in mindset from old legacy to new
ā Investments in IT infrastructure
ā PSBs to become irrelevant if they donāt undergo this
transformation to digital
ā¢ Role of RBI & Govt.:
ā Financial Inclusion of prime importance, PMās Jan Dhan
Yojna a great start, more schemes needed
ā PayM in UK, Giro Vision in Sweden schemes need to be
emulated in India
ā Net Banking in local languages to be looked at to include
people from remote areas
5. Digital Banking
ā¢ āDespite 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 innovationsā ā PwC Report,
2012
ā¢ āAround 44% of our Bank transactions originate through Mobile or
Internetā ā Head of Digital, HDFC Bank
ā¢ Number of digital banking customers in India to increase from 100
million in 2012 to 450 million in 2020 ā McKinsey Report, 2014
ā¢ Online shoppers growing by 30% each year
ā¢ By 2020, Indiaās average age to be 29 years ā 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
āPersonal touchā of
traditional banks
Not achieving ācritical
massā 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
āDepositing Cash/En-cashing cheques
āAdvice on Complex Financial Products
āSelling cross-functional Financial Products like Mutual Funds
Branches should be looked not as āTransaction Centersā but as
āCustomer Engagement Centersā
Wealth
Management
ā¢ Sales staff
armed with
tablets to cater
to customers
Self-service
Branch
ā¢ Non-cash
transactions
through kiosks,
video-tellers
ā¢ Heavily staffed
ā¢ Low level of
automation
Brick &
Mortar
ā¢Access to
financial experts
and RMs through
in-house services
RM Center
ā¢ Digital signage
ā¢ Call centre
extensions for
cross-selling
Sales
Branch
8. Lessons from Retail Industry
ā¢ Banking Industry currently at an inflection point where the
Retail Industry was a few years ago
ā Offline only ā More Megastore, Subhiksha, Vishal Retail etc.
ā Online only ā Bluestone.com, Caratlane.com, Dell, eBay etc.
ā These offerings either perished or embraced the other format
for survival
ā¢ Both formats need to work in conjunction, not isolation
ā¢ Banks need to digitize front-end and back-end operations
thus blurring online, offline divide
ā Reliance Retail, Tata Group, Wal-Mart planning entry into
Online space
ā¢ The Branch in the Digital Age: its all about Online & Offline
Co-ordination
9. Blurring the Online Offline Line
Digital Elements in a Bankās Physical
Channel help extend a Branchās presence
āUS Bank BBVA Compassās āVirtual
Bankerā an example
āAllows video-conferencing between
consumers in branches and remote bank
advisors
āIntegrated document sharing through
Scanner & Printer to send and retrieve
signed documents
Source: KUHF āHouston Public Radio, āVirtual Banking
Links Consumers to Specialists at Other Branchesā, Dec,
2009
Physical Elements in a Bankās Digital
Channel creates a seamless experience
āHapoalim, one of Israelās largest banks
integrated a human element into virtual
channel through Poalim Connect
āSimple and intuitive front-end
āAllows customers to connect with a real
personal banker through online banking
without having to go to a branch
Source: Forrester, āCase Study: Hapoalim injects a Human
Touch into Digital Bankingā, 2012
10. Branch Models of Future
ā¢ Traditional banking Network using āOne-size-fits-allā strategy no longer
sustainable
ā¢ Need for differentiated branches targeting specific customer segments
ā¢ 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
ā¢ ALPHA
ā Offers retail-like displays, opportunity to browse self-serve aisles
ā Focus on standard products like account opening, loan application etc.
ā Low levels of digitization, low staffing required hence Low Operating costs
ā Cannot offer customized and tailored services & products
ā Suited for students and first-time bankers
ā Implemented successfully by Danish Bank Jyske Bank
ā¢ BETA
ā Provides customers with terminals for online banking needs
ā Low digitization with minimal banking staff to address customer queries
ā Staff has knowledge of basic financial products, not complex advisory skills
ā Primarily developed to build strong customer relations by providing a
relaxed environment and simultaneously offering basic financial advice
ā Target high income individuals for cross-selling of services
ā Implemented successfully by Virgin Group
12. Branch Models of Future
ā¢ GAMMA
ā Employs advanced digital tools like video-conferencing, online document sharing,
digital signatures etc.
ā Focus is on providing customers with evolved and immersive digital experience
ā Requires significant investment in technology
ā High levels of digitization with minimal branch staffing
ā Target Generation Y customers who need flexibility to transact anytime and are
open to use new technology
ā Successfully implemented at Brandesco Bank, Brazil
ā¢ LION
ā Comprehensive full service branch comprising all aspects of self-serve and online
banking
ā Self-service kiosks, ATMs, service staff with iPads etc.
ā High Online/Offline co-ordination
ā Staff well equipped to provide complex personalized advice
ā To be used as flagship branch to attract new and existing customers showcasing
innovative tools and high standards of service
ā High operating costs due to large size, staffing and digital requirements
ā Should be located at prime locations to attract maximum footfalls
13. Rationalization of Branch Models
ā¢ Assume a mix of branch models: 45%, 20%, 20% and 15% for ALPHA, BETA,
GAMMA and LION
ā¢ 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
ā¢ 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
ā¢ 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
ā¢ Total Current Expenses: ā¹2016 Crore
ā¢ Total Expenses post rationalization and new Mix: ā¹1408 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
ā¢ http://www.ingvysyabank.com/
ā¢ https://www.linkedin.com/company/12936?trk=vsrp_companies_cluster_
name&trkInfo=VSRPsearchId%3A3605988161411669059285%2CVSRPtarg
etId%3A12936%2CVSRPcmpt%3Acompanies_cluster
ā¢ http://www.thehindubusinessline.com/industry-and-economy/
banking/for-aam-india-cash-is-still-king/article5538950.ece
ā¢ http://www.pwc.in/press-releases/digital-banking.jhtml
ā¢ āFuture of Bank Branches Co-ordinating Physical with Digitalā by Capgemini
Consulting, 2013
ā¢ āBranch Bank of the Future ā Transforming to stay relevantā Anil
Radhakrishnan, Abhinav Jaipuriar et al. www.infosys.com
ā¢ āDigital Banking in Asiaā McKinsey & Co., January, 2014
ā¢ āBank governance Leadership Network ā Leading the digital
transformation of bankingā Aug, 2014
ā¢ āThe Global Retail Banking Digital Marketing Report 2013ā, May, 2013