RETAIL BANKING

1. Retail banking is the branch of commercial banks executing transaction

directly with individual customers rather than entities or corporations. Money
management services such as seamless deposit of money & access to
credit are extended towards individuals as well as small & medium-size
businesses. Mass retail banking offers standardised products to the large
segment of the population thus risk is spread across the large customer
base which results in a better yield and improved bottom line for a bank.
Talking from the resources side of a bank, retail deposits are stable and
constitute core deposits that are interest-insensitive and involves less
bargaining for additional interest.

Delivery mode of retail banking spans from physical (ATMs, branches) to internet
banking, mobile banking-like virtual channels. Retail Banking enables effective
customer relationship management with retail customers and builds a strong, loyal
customer base. Thus, upper hand at retail banking helps a bank to grow and aids it in
expanding supplementary businesses.

Resource-side/liabilities-side products and asset-side products are the two broad

categories of retail banking products & services. The different set of liability & asset
products are :

• Savings Account
• Fixed Deposit
• Debit & Credit Cards
• Home Loan
• Personal Loan
• Remittance Services (NEFT, IMPS)
The deposits from customers are the liabilities to the bank and loans provided to
customers are the assets for the bank. Savings account, current account, salary
account, senior citizen account, fixed deposits are some examples of resource-side
products while education loan, car loan, personal loan are examples of asset-side
products.

Resource-side Products :

Deposits from retail customers are fundamental as these are low-cost funds for the
banks. There are different types of deposit accounts offered to retail customers
allowing them to park the funds and earn interest (generally).

Four of them are mentioned below in attempt to understand the benefits and
characteristics of resource-side products of retail banking –

Savings Account :

Savings bank account offers easy money management like adding money and
withdrawing money as per convenience of customers that includes properly introduced
individuals singly or jointly, minors of the age of 10 years and above and minors under
natural/legal guardianship. But no business concern can avail savings deposit –
whether proprietary/company/partnership or association.

Savings bank account is essentially beneficial for short-term periods and may or may
not insist on minimum balance requirements. It generally offers 4%-5% interest per
annum on deposited funds. Savings bank accounts can have restrictions on
withdrawal over more than 50 occasions every half year. Savings account offers
facilities as such joint accounts, minor accounts, blind customers’ accounts,
withdrawals by the illiterates, standing instructions and etc.

Current/Transactional Account :

Companies, partnership firms, public entities, and businessmen who have a

high volume of frequent transactions with the bank prefer current bank
accounts. Individuals (singly/jointly), society, trust, association, institution too
can opt for current bank accounts. However, minors, an illiterate or a blind
person cannot access a current account as per current practices of Indian
Banks.

Deposits, withdrawals, and contra transactions, overdrafts constitute the

functionalities of a current account. In most commercial banks, a current
account can be opened. For the same, it has to be ensured that the
prospective account-holder is not enjoying credit facility with any other bank
or branch of this bank itself. Minimum balance requirement for maintaining a
current account differs from bank to banks and when the account-holder fails
to maintain minimum balance specified by a particular bank, penal charges
may be slapped by bank as per internal guidelines.

Current accounts are referred as zero-accounts and are usually associated with
large transactions. Demand deposit pertains huge flexibility in withdrawal and
no limit on transactions. No interest is allowed by banks on current accounts
and service charge can be collected from account-holders.

Fixed Deposit :

Fixed deposits are term deposits with fixed rate of interest and fixed period of
time. These deposits are repayable only on expiry of the term which gives
greater flexibility to banks for using the funds for long-term lending and hence
banks provide more interest on fixed deposits than savings accounts. The longer
the maturity period of a fixed deposit, the higher the interests. This is why it is
best for the customers with sufficient funds looking for higher returns on bank
deposits over a long horizon of time – the minimum tenure being 7 days and the
tenure can be as high as 10 years. Money cannot be withdrawn anytime before
tenure. It might or might not be necessary to create a different account with
banks for fixed deposits. Fixed depositors can get loans up to 75-90% of the
deposit account against fixed deposit receipts. In this case, banks will charge a
higher interest to keep their margin.

Recurring Deposits :

Recurring deposit is a variation of term deposit giving opportunity to customers to

structure & grow their savings through monthly deposits of a fixed sum over a fixed
period of time. It is great for people with regular income to avail higher interest rate i.e.
of a fixed deposit through disciplined recurring deposits.

The interest is deregulated by RBI. Banks have placed penalty guidelines for non-
payment of regular deposits.

Deposits collected from customers are used by the banks to provide credit facilities to
their needy customers, in return banks charge some interest rate on the lent amount.
So, it can be concluded that retail banking is a prime arm of banking for building up
and to grow its resources side.

2. Transformational shift - ‘Customer went to the Bank’ to

today’s era when ‘Bank goes to the customer’

Retail Banking is the one-stop search of financial services for retail customers.
Retail Banking, involving ‘high volume-low-value’ accounts and operations by its
very nature, renders overall profitability and the strength to a bank’s Balance Sheet
through stable volumes of customer assets and customer liabilities. Due to its
 significance, retail banking has become a competitive space and banks do a
number of things to reach out to more and more customers to build a profitable
base by attracting new customers as well as retaining existing customers.

❖ Competitive levers used to enrich market share in Retail Banking :

✓ Pricing
✓ Returns
✓ Ease of doing business
✓ Customer Service
✓ Technology & Digital
✓ Overall Customer Experience
✓ Advisory
✓ Investment Services
✓ Focussed / specialised sub-segmentation

Customer expectations for service levels, advisory quality, and integration of channels
are ever-growing. The way forward is reshaping banking business models to become
more customer-centric. It’s a deeper level of engagement built on the premise of
Customer Needs Assessment followed by developing channels, processes, and
products tailored to meet the needs of different segments.

Customer needs assessment is a process consisting of :

Capturing Factual Information –

➢ Breakdown of income/expenditure and assets/liabilities held by customers

➢ Details of their present savings/investments/pension & life assurance
agreements
➢ Occupation status & prospects

Soft Facts & Customer Goals –

➢ Personal goals i.e. financial priorities, objectives, expectations and landmarks

of customers & assessing their risk appetite
➢ Previous investment experience and knowledge of customers
 Customer-centricity stretches beyond transactional relationship between bankers
& customers. Retail banks thrive by being convenience champion, relationship
champion and customer-service champion.

Some of the mechanisms/tools to elevate retail banking service to meet wider scope
of customer needs are :

❖ Electronic Fund Transfer –

EFT is the digital movement of money. It’s features are paperless, cheap, fast
expedition and independent of bank employees. Once the sender initiates the
transactions with furnishing details like receiver’s name, bank account number,
account type, bank name, city, branch name etc., the request channels through a set
of digital networks originating from the internet or a payment terminal to the sender’s
bank and then reaches to the receiver’s bank. Listed below are few ways to participate
in EFT :

➢ Electronic Cheques
➢ Direct Deposit
➢ Phone Payments
➢ ATM transactions
➢ Card Transactions (Debit card/Credit card)
➢ Internet Transaction

EFT transactions are fast, reliable and require less efforts & minimal processing cost.
Setbacks are non-availability of information at all times to initiate and go through the
verification for the process and funds need to be available right at the point-of-
transaction.

Through EFTs, retail banking services have expanded like never before.

❖ Self-Service tools –

ATMs : This computerised telecommunication device provides most services

operated by a bank’s branch. To name a few would be –
 ✓ Cash withdrawal & deposit
✓ Cheque deposit
✓ Print statement/record of account activity/transaction
✓ Balance inquiry
✓ Transfer of money

Public Banks have gone out of their way to operate in hearts of rural India. State Bank
of India (SBI) ATMs are seen even in inaccessible forests adjacent to tourist spots.
Private players like Bandhan Bank among many others are also tapping semi-urban
customers.

The demerits attached with ATMs are they may run out of cash and there is a ceiling
on funds that can be withdrawn in a day which discourages large transactions.

HDFC being the largest private bank of India has even installed devices in few of their
branches that takes query from customers to direct them with specific counter number
that will address their service request which gives a new meaning to the term ‘self-
service’.

❖ Internet Banking & Mobile Banking –

Digitalisation has taken the banking industry by a storm. Today internet banking
enables customers to manage accounts and perform transactions directly with the
bank through internet. Internet Banking is further explored with Application
Programming Interphase i.e. mobile applications for banks. Mobile banking also has
the element of text messaging. Due to these retail customers now have more financial
control by means of –

➢ 24 hours account access

➢ Chatbots to quality service by bankers with personal attention

Many banks now offer –

➢ Self-registration
➢ Instant Account Opening
 ➢ Loan origination
➢ Buying insurance & more

Real-time credit bureau checks, instant approvals have empowered retail customers
with quick access to credits – personal loans, mortgages etc.

E-wallets, mobile banking, net banking, Unified Payment System (UPI) etc have
changed the way bank used to communicate with clients.

Technological issues, security issue, inconvenience in making deposits, inefficiency

at complex transaction are its major drawbacks.

❖ Relationship Management for Better Customer Service –

Expansion of Retail Bank Service Professionals’ roles :

Service & sale can co-exist. Retail banks are now reasonably using service
conversations to solve & then sell. By active listening, retail professionals can identify
opportunities for new products & services that are later sized by operations.

Mindsets do drive margins & business value. Today retail customers are allotted
particular relationship managers to own the issue, personalize the experience, be
authentic, understand & solve, be curious to exceed expectations. Customer
Relationship Management system is heart of problem-solving skills. Even in a
machine-dominated world, developing the cores of understanding, intuition, empathy,
judgement & persuasion could command a premium. The same is reflected when a
SBI customer recently shared his experience on LinkedIn and pointed out the branch
manager’s kind consideration to circumstantial disadvantage of his elderly father’s
physical visit to bank and swift efforts by the manager at their disposal in this regard.
This is just one of the instances of bank executives going out of their ways to serve
the customer and these acts of delivering unexpected customer values in turn have
gained public confidence into banking.
Customer service is definitely a competitive advantage. The setback here is of
shortage of human resource – to find the right fit of caring & capable.

Ensuring a seamless experience is a win-win for both customers and bankers. Retail
Banks have really redefined banking with credit card, overdraft facility, NEFT, RTGS,
IMPS like services. All these have stimulated banking operations and participation of
customers as well as driven a large section of population towards banking sector.

3.(a) The banking business model of the past is not the model of the future.

This is the era of customer choice. Computer & internet technology boomed. Banking
industry not only has adapted to the change but rather have been leaders of
transformation and true agents of change by implementing mobile banking, cloud
computing, artificial intelligence (AI) & machine learning. Contactless & paperless
banking is the future as it evokes an image to the customers of them being in control
of their finances. Internet is the gateway to endless possibilities and the some of the
digital services include :

✓ Money Deposits, Withdrawals, and Transfers

✓ Checking/Saving Account Management

 ✓ Applying for Financial Products

✓ Loan Management

✓ Bill Pay

✓ Account Services

Landscapes of financial transactions are dramatically changing but it comes with a

cost that is the exclusion or digital divide.

A large section of population grew up with rotary dial telephones, solving complex
mathematical problems with pencil and paper. Their worlds revolved around black &
white television and reading encyclopedia. The shift from analog to digital is a
fundamental change shaking their foundations and profoundly impacting the direction
of their lives. From banking sector, they expect desk-based processes and systematic
stream of operations for customer interaction.

Of course, ‘Bank Traditional Limited’ has chosen to go along with digitalisation. But
they will thrive by taking view of the long-standing customers. In their case highly-
valued loyalty based customers are the senior citizens. To be responsive towards this
segment of customers, the next section discusses the challenges faced by elderly and
seniors and their perception of digital banking :

➢ Illiterate
➢ Limited literary skill sets
➢ Inadequate knowledge
➢ Lack of comprehension to digital world
➢ Absence of technical acumen
➢ Inaccessibility of technology
➢ Lack of infrastructure
➢ Unsuitable location
➢ Misuse of ATM cards
➢ Fears of system crashing, virus entering the system or power cut
➢ Privacy Perspective
➢ Prone to hacking & frauds
The transformation from traditional banking started from use of automatic teller
machine (ATM) & now banks offer a variety of electronic services linked to cash
deposits and withdrawals. The number of electronic transactions is expanding every
day but for seniors the digital transformation has been more of a digital disruption. One
factor distancing banks from their aim of digital unity is also perception and mindsets
of the senior customers. Their fear, trust, frustration, doubt & denial are being the
resistance to the change. Some of the myths of digital banking are listed below :

➢ It takes longer to access

➢ Only for tech-savvy
➢ It is impractical

Banks are to burst the myths, offer the glimpse into the future of digital world, a world
brighter than they are used to. Customer is the core of development, so a smooth
transition must be ensured for them. Physical touchpoints become necessary for
senior citizen who seek personal banker relationship. However, addressing the
disparities and raising awareness level are not the only ways as many some senior
citizens have failing eyesight compelling them to seek external help to manage an
online account. So, digitization should not be pushed for sake of digitization and a
financial inclusion plan must be adopted.

3.(b) Digital banking has given people the power to bank the way they want to
bank. What we earn is what we learn and India has learnt the power of digitisation and
modelled UPI (United Payment Interphase) which is now being replicated by
Singapore & Thailand. For banking, technological competence should not be the only
goal but organisational competence that must address diversity of generations. Digital
leadership must manage the process to provide the most benefit & less damages to
ensure that digital transformation is no more a horror-story to the senior citizens who
are victims of digital dark age. Banking sector should value the differences, embody
empathy to the elderly people but at the same time not make it a lasting negative
legacy of not looking through the current lenses.

Banks need to account for the the holistic financial needs of their senior customers
and develop a framework that facilitates financial inclusion and access.

Banks need to adopt omni-channel strategy.

Omni channel stands for delivery of standard set of services to customers

across all channels, whether virtual or physical. In banking context, this implies
empowering customers with the ability to perform banking transactions using a
website, mobile app, bank branch, contact centre – whatever aligns with their
preference & convenience.

Online banking sites have customer service departments, demanding you to work
through tree of phones and wait on hold only to be speaking with someone who has
no knowledge of your needs or banking history. Personal relationships are fostered in
physical touchpoints which can serve better in some regards.

‘Bank Traditional Limited’ should aim at shifting the focus from operations to people in
order to serve better. Banks can –

➢ Provide customized digital channel offerings such as easier navigation, large

and bright fonts, simple text
➢ Elderly Friendly Design
Basic changes can help make use of ATM and credit cards easier, such as embossing
different shapes and colours indicating the direction to insert the card into the ATM
machine to counter vision problems.

➢ Biometrics will give easy access and authentication and save the elderly from
the trouble of forgetting passwords

➢ Enable older people to structure their accounts online such that caretakers or
relatives are allowed only limited privileges to reduce exposure to fraudulency.
Privacy perspective of senior citizens can be meet with cookie permissions to ensure
user data is in no way being exploited.
 ➢ Developing guidelines & easy instructions of digital banking, also to address
any ambiguity the old-age people can have
To avoid hacking, phishing & spoofing, it is strongly recommended to always use safe
websites.

Steps to get senior citizens onboard with digital banking –

• Rewards always play a major role in catching the attention of the customers
• Cross-promotion can significantly benefit banks in generating the habit of online
banking facilities amongst the customers

Heading down the path of digital literacy is crucial to enable senior citizens to cross
the digital divide. A strategy for the same can be –
Ask : Computing background, interests in learning
Explain : Overview
Invite : Building trust by answering concerns
One on One : Reduce fear by means of hospitality
Understand : Cater to specific needs
e.g. lure into digital modes of banking by highlighting how it can enable them to pay
utility bills from the comfort of home, without standing in hour-long ques. Present the
world of opportunities to connect with them as well as retain the trust, integrity and
core values of traditional banking - the aim being convenience & overall rich customer
experience.