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The New Age Banking-Bank Management Strategies in the 21st Century
Module 1 - The Yesterday, Today & Tomorrow of Banking

Origin of Banking & Banking basics ----- couple of brief videos
Banking origin : History

https://www.youtube.com/watch?v=VksG_1r-gH8
Basics of banking -
https://www.youtube.com/watch?v=I6gzoXIiUmA
2
Born in the 90s / early 2000……
What you may / may not have heard about Banking
• Banks dependent on physical presence – Brick & Mortar Branch model

• Branch connectivity not there – each Branch a separate entity
• Manned predominantly by locals who know customer needs, behaviour & habits
• Books maintained manually in ledgers – predominantly cash & cheques based
• Checks and Controls remained manual – hence higher operations risk
• Very primitive communications and Technology ( Fax, Telex,
Telephone, adding machines, automatic Ledger posting
machines, Limited ATMs etc)
• Service levels revolved on person to person albeit being personalised

• Superior customer experience – extremely selective, incidental and
accidental too !
An era when customer went to the Bank………… 3
Born in the 90s / early 2000……
What you are seeing / hearing about Banking
• Branches are interconnected – inter-branch transactions go through seamlessly
• Banks not dependent on physical presence only –

ATM, Internet & mobile banking co-exist
• Access to Bank through a multi-channel platform; most
often on-line + real time
• Superior computer systems – or transaction processing
& customer interface
• Multiple payment modes – reduced cash and cheque transactions
• Superior customer information & analytics provide high degree
personalisation
• Superior customer experience – a stated intent . Convenience
enrichment is the key
An era when Bank went to the Customer………… 4
The Evolution - Branch Design & Customer Service
Aspect Yesterday Today Tomorrow

‘Sole’ sourcing and delivery ‘Primary’ sourcing and delivery ‘Alternate Channel’ – At the
Branch Delivery
channel channel core, enabling ‘Touch Banking’
Branch based: Extended 12 /
Business Timings Fixed 5 – 8 hour window 24 hour windows, Banking 24x7 everywhere
Direct: 24x7 banks
Ambience and Basic, Transactional Blend of Direct Banking, Re-invented branches
Customer
Friendly Teller Financial superstores advice/solutions/problem
Experience
Dynamic, Fair & transparent
Cross subsidized , other
Charges & Fees Pay up ! (linked to customer
‘internal’ avenues (Float)
profitability)
The Physical Branch has evolved itself to blend with people, process, technology & customer experience 5
The Evolution - Operations
Intense beyond geographic Competition based on

Competition Geography based
boundaries Networks - (Banks + Partners)
Quicker post mortem with
Operational Loss
Pure post mortem restricted prevention Intelligent prevention
and / or Fraud
combined with Insurance
Identified after a quarter,
Reversed after an Approval Reversed before the Customer
Erroneous Debits investigated in the next and
CHAIN knows (Customer is online ! )
resolved later
Customer to Solver – direct
Problem resolution Person Dependent Group dependent
contact
The operational parameters have evolved from being one of inward looking to one of service orientation 6
The Evolution – Customer Experience
What the customer ‘knows’ What the Customer ‘is’

Customer Identity Signature / ‘has’ ( 2 factor) ( multi-factor)
Service Approach Attended to… Served … Get Value Experiences…
More by accident than by Customer Context based –

Personalization design - ‘person Clustered personalization personalization – Spouse gift
dependent’ & deal
Retained locally and
Customer Insight In the mind… captured across multiple Virtual & enterprise -wide
systems
Banking has evolved from the basic ‘are you being served’ mindset to one of providing holistic customer experience 7
Branch Operations & Multi Factor Authentication (MFA)
• Basic Principles in Banking Operations

• Compliance to Operations / Process manuals
• Segregation of duties – always more than one person involved – Dual control for key operations
• Maker, checker, Approver process (Two / Three eyes principle)
• Front office , mid-office, back-office mode of functioning
• Internal control audit, concurrent audit, Bank audit, External audit
• Multi Factor Authentication

• What I know
• What I have
• What I am
• Customer Experience enrichment through risk-based authentication
Banks want to ensure a total Non-repudiation situation 8

Looking through the Lens of Banking.pptx
▪ Typically generalists with higher ▪ Specialized setup with hub and spoke ▪ Highly optimized framework with cross
localization approach channel leverage
▪ Automation / Digitization - albeit in ▪ Choreographed Interplay across
▪ Largely manual , prone to higher
pockets artificial Intelligence, robotics, social,
operational risks
mobility, analytics, cloud, …
▪ Banks built bespoke point-to-point ▪ Largely featured with legacy baggage ▪ Experience oriented approach aptly
solutions that where suitably placed with a urge for platform stitched towards life-style / life-stage
together as core banking solution modernization albeit a bit discrete management
▪ Customer Experience – selective / ▪ Customer Experience - ‘stated intent’ ▪ Customer Experience as ‘superior
incidental / accidental differentiator’
The only thing constant in Banking has been and will remain is ‘CHANGE’ – across People, Process, Technology & Customer Experience 9
Journey towards a world class Wholesale Banking
Corporate O2C
Order
to
Cash
Logistics
Bank Corporate
Banks
Enterprise Service Bus
Bank P2P
Corporate Procure
to
Pay
Cash &
Treasury
Suppliers
Buyers
Service providers
‘Interface’ ‘Integrate’ ‘Fusion’

Corporate went to the Bank The Bank came to Corporate The Bank is within Corporate
Corporate - Commercial - Investment Banking landscape is constantly mobile towards superior experience enrichment 10
‘Over-regulation’ is the number one concern of BFS industry today - Banks
are under severe pressure to sustain growth & profitability in a ‘hands-tied’ environment
What do we see.......
Managing • Multiple bodies injecting plethora of measures directed towards regaining industry
Managing
Shareholder confidence , consumer protection, transparency, fair practices, etc
Growth
Value
• Significant impact on growth & profitability leading to newer costs of compliance
that is galloping
Managing the
• Reduced executive attention on traditional growth & profitability agenda
Managing
Marketplace
Complexity
1
Typical responses by Banks....
• Counter galloping compliance costs - engage Institutional Service Providers
• Robust Regulatory/compliance management - invest on enterprise wide processes
to track, measure & manage impact, risk and changes
• Recognise compliance as a CxO function with responsibilities cutting across
Geographies and lines of businesses.
Banks across the globe are regulated – its only the extent of regulation that differs 11
Organisation readiness to adopt ‘Comprehensive Enterprise wide Risk
Management’ - Banks aspire to make this function into a competitive advantage lever
Managing • Fragmented technology & challenges on data availability / quality / integrity
Managing
Shareholder
Growth
Value • Renewed risk outlook - Need for effective Enterprise Risk Management duly
recognised & continued investments being made
• Rise of non-traditional risks (operational, strategic & reputational)
Managing the
Managing
Marketplace
Complexity
2
• Fixes/ workarounds to address complex data challenges
• Designing & deploying sophisticated risk reporting tools/ dashboards
• Gap analysis, implementation of risk management platforms, multiple levels of risk
aggregation, Basel Implementation, ....
• Enterprise wide Risk & Finance integration
Governance, Risk and Compliance is the new mantra 12

‘Revitalization of customer engagement models to remain competitive &
establish supremacy’-Banks look upon Technology to Engage, Transact & Conduct Business
Managing
Managing • Customer getting deeper into digital world - mobile/social media on the rise
Shareholder
Growth
Value • Physical mode of distribution is back in the fore as a catalyst for expanding the reach
while achieving multichannel distribution
• Cohesive customer services model remains crucial for customer stickiness
Managing the
Managing
Marketplace
Complexity
3
• Advent of CCO (Chief Customer Officer) to take complete ownership of customer
across engagement, experience and services
• Evolve towards a comprehensive multichannel collaboration framework across
People, Process & Technology
We are a Technology Company with a Banking Licence – Ralph Hammers, CEO , ING 13
‘Unleashing the Power of Data’ - Banks look at newer ways to enrich business from
more informed & collaborative customers along with superior risk management
Managing
Managing • Utilization of data power limited predominantly to structured internal data
Shareholder
Growth
Value • Big data, Analytics/ Business-Intelligence becoming mainstream in bank’s IT
landscape
• Attempts / exploration to build ability to access and utilize unstructured data (voice)
Managing the
Managing for superior customer engagement
Marketplace
Complexity
4 •
•
•
Internal data management challenges - multiplicity of data systems
Roadmap definition for comprehensive data management solution covering
structured and unstructured data
Application of analytics /BI to go beyond regulation, risk, security/ fraud to arrive at
360° view of customer
Data is Power and Banks with this power can expand business, reduce risk and increase profitability 14
‘Going lean/nimble primarily to enhance enterprise productivity’ - Banks aspire
to pursue a comprehensive approach across people, processes & technology to become agile
Managing
Managing • Complexities and redundancies in the existing operating model continue to
Shareholder significantly strain bank’s efficiency and cost run rate
Growth
Value
• Continued obstinacy to retain existing technology and operations model owing to
‘close to the heart’ syndrome
Managing the
Managing
Marketplace
Complexity
5 •
•
•
Attempts to rationalize organizational structure and optimize workforce while
keeping them motivated and garner innovation
Initiatives to streamline process cycles through automation ,STP..
Ongoing efforts to consolidate/standardize/renew the IT infrastructure -towards ‘X’
as a service to eventually sustain scale and scope
Banks are looking for doing more and more for less and less while remaining very responsive to customers 15
Global Outlook - Banking of tomorrow will be held in a new playing field -
structure, participants and customer equation
Customer life Trusted Advisor Customer
style / stage Role Preferences
orientation Management
Experience Customer
Eco-system Experience
orientation enrichment
Collaborative Customer focused

competition Decisioning
mechanism
Bank of the Future will
Innovation
as a
Targeted + Focused go beyond money,
X sell & up-sell
Culture make banking
Comprehensive Customer incidental to life style /
Pro-active Risk +
GRC & Privacy Fraud Management
Management stage management
Charting the
Effective and convert challenges
Acquisition &
Digital Agenda
Attrition Mgmt. into opportunities
Unleashing the
Operational through …
Efficiency & Cost
Power of Data Management
Superior experience -across the eco- Distant model - yet close thro’ digital
Customer Centricity Trusted Advisory
system pervasiveness
……….. And for all these ‘digital’ will play a huge role 16
Bank of the Future – Key Characteristics -1
Do you like to Sir, when you next

consider applying buy your air ticket We now have
for our new thro’ us, 5 ATM a beautiful
credit card transactions will be package to
free of charge Bali
Cross-Sell / Up-sell will cross the boundary of banking
ABC Bank ...we also perform Banking

Banking will go ‘beyond money’ 17
Bank of the Future – Key Characteristics - 2
I have a number of things to do

I have a lot of ………….will get all those things done
work at the Bank – need ...my bank will take care of the
to take the morning off for rest....no worries for me
getting those organised
Banking will no longer be in the main agenda for me
ABC Bank ...we are there with you always

Banking will move from money management
to Life- stage / Life-style Management
Banking will become more & more ‘incidental’ 18

My Bank knows all I need-

We are in total control of all all I want...they know me well, they
your accounts and know my family needs,..
transactions. I do most things on their advice. My
We are here to ensure that all bank remains committed to my
your dealing with the bank are overall well being
correct, safe and secure.
What’s your customer number
M’am?
“Owning” a customer and building

loyalty will be the key to success
Banks will distinctly move from being ‘custodian of transactions’ to being true ‘custodian of customers’ 19
Why is it you Banks don’t talk to each other?

Why should I visit each of my Banks?
Why is it taking so much M’am, now all our Why should I log into different bank sites?
time to get this done – branches are Why is it each one of you have separate
after all its your own interconnected and its mobile app?
Branch? almost like one Branch
connection for you
Banks will move from Branch level banking to Bank level banking to ‘Banking level banking’ 20
Sir, our report will take care of all

your bank accounts with us. ABC Bank
We have now also added all the Financial Products Non- Financial Products
FD - with Bank Travel
other investments you have made
FD - with companies Hotels
through us FD-with other Banks Special Tours-Domestic
Investments-Equity Special Tours-International
Investments-MF Life style stores
Investments-Deb Yoga
Credit Card-ABC Bank Health Club
Credit Card-other ........
Motor Insurance-XYZ Co
Please login to www.abcbank.com for
comprehensive info including banking
Banks will be come ‘customer centric aggregator’ of financial & non-financial products & services 21
Partnership network of ABC Bank
ABC Bank
Car Hire Global
Correspondent Banking will just be one of the many ‘partnerships across the eco-system’ 22
Physical Phygital
Digital
Banking will become more & more Digital – less paper, less plastic & less physical – leading to ‘Phygital’ age 23
Bank of the Future will convert challenges into opportunities through…..
Customer Centricity
Superior &
comprehensive
Trusted Advisory experience -across the
eco-system
Distant model - yet

close thro’ digital
pervasiveness
Digital Revolution
Banking will rely on ‘data driven insights’ for customer experience enrichment & to fight financial crimes, privacy invasion & risk 24
This is not a ‘Food Court’!!!

Collaborative Competition and Co-existence
25

Appendix
Banking History & Evolution (1/3)
• Origin
• ‘Bank’ the word - derived from the Italian word ‘Banco’ (meaning bench)
• ‘Bank’ the word - from word ‘Banck’ (meaning joint stock fund for financing)
• Banking existed from 2000 BC in Babylonia, Egypt and Jewish states
• Temples were used for storing coins/valuables in Greece/Rome
• Cheques/drafts were in use in Rome from Caesar’s time
• Europe’s oldest Banks
• Bank of Venice - 1171 AD
• Bank of Barcelona - 1401 AD
• Bank of Genoa - 1407 AD
• Bank of Amsterdam -1609 AD
• Banking in England started during the reign of Edward III - around 1350
28
Banking History & Evolution (2/3)
• Goldsmiths – considered trustworthy – Became the Bankers
• Original safe keepers of gold , valuables and later on money
• Realized all money / gold deposited - not be withdrawn at the same time
• Commenced lending some parts of those deposited with them
• Public started depositing their surplus money with banks
• Over the years, nature & scope of services have changed dramatically
• Economic growth in the 1990s
• Commoditization of financial products
• Globalization of financial markets
• Expansion of local and Foreign banks in most economies due to
• Advances in technology
• Products and Services
• Financial market integration
29
What is Banking?
• Banking* is defined as “Acceptance of deposits of money from public for the purpose of Lending or
Investment, repayable on demand or otherwise and withdrawable by cheque, draft, or otherwise”
• A banking company must perform both these essential functions

• Acceptance of deposits
• Lending or investing
• If the purpose of accepting of deposits is not to lend or invest, then the business will not be called as
a banking business.
* Commercial Banking
30
Financial Intermediation (1/2)
• The need
• Any society consists of

• Salaried persons
• Self employed
• Businesspersons
• Legal persons ( companies etc) carrying on business activities
• Some have surplus money - some who need money

• Low feasibility of direct connects between both these sides
• Need for wise, safe and trust-worthy intermediaries – absolutely essential
• Financial intermediaries like Banks - fulfil this vital role
31
Financial Intermediation (2/2)
• Financial Intermediaries – what do they do ?

• Facilitate the productive use of community’s surplus money
• Make funds from savers available to entrepreneurs- with care and diligence
• Manage the following risks while performing this role
• Credit risk
• Liquidity risk
• Market Risk
• Operations Risk
• Other Risks
• Generate employment and promote economic welfare / progress
• Incentivize depositors by giving a return on their investment with Banks
Banks are in the business of taking risk.

Assets in the form of their Loans & Advances are called Risk Assets
32
The Business of Banking
• When bank accept deposits - pays interest on the deposit to the customer
• When bank lends money - levies interest on money lent to the customer
• Difference between interest received (IR) on the amount lent and interest paid (IP) on the deposits– Spread
• Bank also provides certain services to its customers – fees / commission
• Revenue stream for Bank is : IR-IP + Fees & Commission
• Business Profit for Bank : {(IR – IP) + F&C} - Costs
33
Banking – the Two main Engines
SOURCES OF FUNDS APPLICATION OF FUNDS
✓ Loans & Advances

✓ Owned funds • To individuals
(Paid-up capital, Reserve fund,
other reserves) • To businesses
✓Investments
✓ Borrowed funds
( Deposits & Borrowings) • Securities
• Shares & Debentures
• Others
Services
In a bank, vis-à-vis other companies, % of owned funds is very less

Profit for Bank : {(IR – IP) + F&C} - Costs
34
Banking Products & Services
Liability Products Asset Products Other Products
------------------------------- ------------------------------- & Services
• Savings Bank • Overdraft -------------------------------
• Current Account • Cash Credit • Payments
• Checking Account • Demand Loan ✓DD
• Term Deposit • Term Loan ✓Funds Transfer
• Recurring Deposit • Auto Loan ✓Cable / TT
• Call Deposit • Mortgage Loan ✓RTGS
• Certificate of deposit • Home Equity Loan ✓Direct debit
• Variations of above • Personal Loan • Collections
• Student Loan ✓Clean
• Pay Day loan ✓Documentary
• Credit card ✓Direct Credit
• Bill Purchase/discount • Credit / Debit card
• Export Loan • Safe Custody
• Import Loan • Safe Deposit Locker
• Bills negotiated - L/C • Cash Management
• Others • Letter of Credit
• Guarantee
35
Regulations – The Need
• Necessary to ensure
• Safety and soundness of banks and financial system

• Monetary stability – global environment
• An efficient and competitive financial system
• Integrity of payments system
• Consumer protection
• A few social goals that banks are required to fulfill
• Banks essentially take and manage risk
36
Banking – Deposits (Engine 1)…. (a quick revision)
• Acceptance of Deposits from public – an essential function

of Bank
• Basic raw material Every Deposit in a Bank is a Liability item for
the Bank i.e. money owed by the Bank to its
• Growth engine for a Bank customers
• Sign of customer confidence & trust
This gets further sub-classified as
• Demand Liability (immediately payable by
the bank)
• Time / Term Liability (payable by the bank
• Deposits can be classified as only on term basis / due date)
• Demand Deposits – e.g. savings account, current

account, call money
• Time Deposits - e.g. fixed / term deposits, recurring
deposits
37
Banking – Loans & Advances (Engine 2)… (a quick revision)
• Lending funds to individuals, traders, business & enterprises –

prime function for a Bank
• Main product for generating revenue & profit Every Loan / advance in a Bank is an Asset
item for the Bank i.e. money due to the Bank
• Growth engine for a Bank
from its customers
• Sign of Banks’ professionalism in Risk Management
This gets further sub-classified as
• Loans & Advances can be classified as • Demand Asset (immediately payable by the
• Demand Assets – e.g. Demand loans, Overdraft , Call Loans borrower)
• Time / Term Asset (payable by the borrower
• Term Assets - e.g. Term Loans, Project Finance only on term basis / due date)
• Loans & Advances - generally used interchangeably
• Loans – Fixed disbursements - no cheque book is issued
• Advance - drawings against a pre-approved line of credit –
credits allowed in account-approved for a period of time – eg
O/D, C/CC accts
38
Banking – The Two main engines….. (a quick revision)
SOURCES OF FUNDS APPLICATION OF FUNDS
(Liabilities) (Assets)
✓ Loans & Advances

• A Bank is not a charitable organization
• It is like any other commercial undertaking
✓ Owned funds • To individuals
(Paid-up capital, Reserve • Risk taken due to intermediation is rewarded as Spread
• To businesses (IR-IP)
fund, other reserves)
✓Investments • Various services provided by Banks produce income as
✓ Borrowed funds
( Deposits & Borrowings)
• Securities Fees & Commission
• Shares & Debentures • Risk taken due to absorption of Contingent liabilities is
• Others
rewarded as Commission
• Essentially, a Bank has the following income streams:
• Funds-based revenue
Services
• Non-Funds based revenue
• Funds-based revenue refers to income arising out Bank’s
applying the funds that were mobilised through deposits
Profit for Bank : {(IR – IP) + F&C} - Costs
• Non- Funds based revenue refers to income arising out
of products / services where bank’s funds are not
deployed ( provides as services & contingent liabilities)
39
Liability Products - Savings Bank
• As the name implies, saving is the objective

• KYB – a quick re-look • Lending Functions
✓ Financial Intermediation ✓ Principles of Lending
• Convenience to withdraw any time – cheque, ATM, …. ✓ Business of Banking & ✓ Lending values
operations ✓ Lending Life cycle
✓ Revenue model & ✓ Lending – asset
• Used extensively - individual customers and non-business entities profitability categorisation
✓ Customer on-boarding ✓ Loan stages
✓ Legal aspects, KYC, ….. ✓ Collateral Management
• Interest rate lower than Term deposits
• Restrictions on number of withdrawals – Cost / Benefit proposition – Service charges • Liability Products
• Asset Products
✓ Products – Loans
✓ Savings Bank ✓ Products – Advances
✓ Current Account
• Minimum balance requirements – to balance cost to serve ✓ Term Deposit •
✓ Documentary Bills
Other Products
✓ Recurring Deposit ✓ Credit / Debit Cards
✓ Call Deposit ✓ Payment Products
• Value added facilities – Debit Card, multi-channel usage, MF / Insurance, …. ✓ Certificate of deposit ✓ Safe custody
✓ Variations of above ✓ Safe Deposit Lockers
• Part of core customer deposits- Base for cross-sell products / services

Banking Fundamentals - 1
• Provide stable and low-cost source of funds – distinctly figures in CASA ratio
• Bank is liable to return the money to its customers – Hence it is a Liability for the Bank
• Repayable by Bank on Demand – Hence it is a Demand Liability for the Bank
• Interest is paid by the Bank and is represented as Interest Paid (IP)
• Interest is the main expenditure component for savings Bank
• Interest is accrued on a monthly basis and paid to customers Quarterly / Half yearly
40
Liability Products – Recurring Deposits (Term Liability)
• KYB – a quick re-look • Lending Functions

• Traditionally used by individuals for saving over a period – to aggregate for ✓ Financial Intermediation ✓ Principles of Lending
✓ Business of Banking & ✓ Lending values
specific need /purpose operations ✓ Lending Life cycle
profitability categorisation
✓ Loan stages
• The installment amount and period - agreed at account opening time ✓ Customer on-boarding
• The agreed amount is paid into the account at specified intervals – monthly • Liability Products
• Asset Products
✓ Savings Bank
✓ Products – Advances
✓ Current Account
✓ Term Deposit
• Loans / advances can be taken with lien marked on this ✓ Recurring Deposit
• Other Products
✓ Credit / Debit Cards
✓ Call Deposit
✓ Payment Products
✓ Certificate of deposit
✓ Safe custody
✓ Variations of above
• Relatively safe investment – especially with insured & regulated entities ✓ Safe Deposit Lockers
Banking Fundamentals - 1
• Interest generally aligns with FD / Term Deposit rates
• Essentially a multi-FD product packaged to suit savers
• A popular product in savings oriented / mind set economies
41
Liability Products – Fixed / Term Deposits (Term Liability)
• Fixed rate of interest paid for commitment of deposit for a fixed period • KYB – a quick re-look • Lending Functions
✓ Financial Intermediation ✓ Principles of Lending
✓ Lending values
• Interest rate varies from Bank to Bank – Time to time – normally carded ✓ Business of Banking &
operations ✓ Lending Life cycle
• Repayable on fixed maturity date profitability categorisation

✓ Customer on-boarding ✓ Loan stages
• Funds placed usually cannot be withdrawn prior to maturity

• Asset Products
• Liability Products
• Withdrawable with advanced notice and on Bank’s consideration ✓ Savings Bank
✓ Products – Advances
✓ Current Account
✓ Term Deposit
• Penalty levied for premature withdrawal – multiple reasons ✓ Recurring Deposit
• Other Products
✓ Credit / Debit Cards
✓ Call Deposit
✓ Payment Products
✓ Certificate of deposit
• Prime product in Bank’s ALM agenda ✓ Variations of above
✓ Safe custody
✓ Safe Deposit Lockers
• Cost of funds – important tool for Bank – balancing cost & competition Banking Fundamentals - 1
• Traditionally used by customers for storing their liquid funds for future use
• Banks now offer for shorter terms – mostly used by non-individuals
• Loans / advances can be taken with lien marked on this
• Relatively safe investment – especially with insured & regulated entities
• Known as term deposits in Australia, Canada and New Zealand, as bank bonds in UK
and Fixed deposits in India
42
Letter of Credit
A Letter of Credit comes to play for giving the comfort for the Trading parties
• Contingent Liability • Treasury Functions
• Buyer and seller may not know each other products ✓ Role & activities
✓ Letter of Credit (LC) ✓ Treasury Operations
•
• Advance Payment to supplier – carries risk to buyer – Domestic &
International
Capital Market
✓ Financial market
✓ Bank Guarantee players
• Payment after receipt of goods – carries risk to seller ✓ Bankers’ Acceptance ✓ Characteristics,
players & products
• Investment Banking
•
• Documentary Credit / LC addresses concerns of both buyer and seller Asset Products
✓ Pre-shipment credit
✓ Definition & role
✓ Functions & offerings
✓ Post-shipment credit
✓ IB vs Commercial
• Documentary Credit or Letter of credit is a document ✓ Import Loan
✓ Negotiation of Bills
Banking
• Risk Management
✓ It plays a key role in settlement of international trade payments • Other Products
✓ Concept and types
✓ Cash Management
✓ It is irrevocable undertaking given by LC issuing Bank to make payment on behalf of ✓ Basel Accord
the importer subject to fulfillment of terms & conditions in the LC
✓ Governed by ICC (International Chamber of Commerce) - the main rule making body
internationally on LC Banking Fundamentals - 2
✓ Rules- known as Uniform Customs & Practices of Documentary Credit (UCPDC)
A key principle underlying Letters of Credit - Banks deal only in documents and not in goods.
Bank is not responsible for quality of goods
43
Module 2 - Unleashing the Power of Digital in Financial Services

Digital re-imagination, revolution & transformation
What was the most significant

development in human history?
A difficult thing to pin point….but 2

It’s the Steam Engine
“It made mockery of all that had

gone before it”
Ian Morris - Historian
3
Are we entering the most

transformative period in history?
• Certainly Yes
• Does not mean future will not see something superior to what is there today
Number of things around us are transforming the world across multiple dimensions 4
The Third Revolution
Ushered in by a convergence of
multiple forces and a new general
purpose technology platform
Agricultural revolution, Industrial Revolution…and now 5

It’s the Digital Revolution

It’s the convergence
of multiple forces of
Social Mobile Analytics Cloud AI Robotics

6
What has Digital done to this world?
FarmVille is a farming simulation social network game
There are more players of Farmville than Farmers in the Western World 7

More people in the world own a Mobile phone than a Toothbrush 8

People perform 3,000 > 3 million search
Twitter sends >540
million tweets a What has Digital done to this Instagram
Foursquare check-ins a world?
queries a minute in
Google
shares
day minute >5,600 new photos a minute
Mobile Web receives 317

new participants a minute People send > 244.8
Consumers spend billion email 3,125 new photos a
> $ 472,000 on Web
shopping a day
messages a day minute in
Flickr
What has
> 971 new websites are
created in a minute
Digital done
> 4,500,000,000,000,000,000 bytes of
data (4.5 exabytes) are produced every
to this
WordPress bloggers day Brands receive >34,000 world?
publish550 new blog posts Facebook ‘likes’ a minute
a minute
People on Face
Book share > Apple receives 67,000 app
People upload 984,000 bits of downloads a minute
➢72 hours (259,200 content a day
Tumblr blog > 37,000 new
seconds) of video posts a minute
to YouTube a minute
Digital has converted this great world to a Global Village 9

Industrial Age Digital Age

Physical Production Connections
Manual labour Human Intelligence
Humans: Robots Humans: Innovators

Digital Age sees humans as creative & innovative value-adders 10
What is Digital ? Why Digital?
• The meaning of digital
➢ has been evolving over the last few years

➢ because of ongoing enrichment – almost every day
➢ because of refinement due to ever growing technological innovations
• Digital generally refers to
➢ all products & services delivered through virtual technology
• Digital channels refer to
➢ media that conveys information digitally, such as the internet
• Digital support/device refer to
➢ a product used to receive information conveyed by digital channels such as a tablet

Today, Digital is also about enabling deep dive into customer intimacy and stickiness 11
Why Digital & What is Digital?
Passive Changing
role of the Interactive, Engaged, Iterative Buyer
Curtailed feedback Customer
Influencer
Uninformed Innovator
Opaque Solution Integrator/Developer
Digital era
Physical era
Peer Advisor
High person dependence
Empowered
Accepted shelf products
Conditioned mindset to organization Conditioned mindset to her/his needs
Security/identity - 1 dimensional Experience driven - security/identity
Experience incidental/accidental High experience orientation
The truly empowered customer in the digital age is the real King in the Digital Era 12
Growth-oriented
Structural change
Relationship-based
The Future Edge drives design - Core adapts
Flat
Business
Ecosystem Services
Effective Place
Key Enablers
Characteristics
Insight-driven Next Generation Experiences
Experiential Systems of Engagement

Open, agile and collaborative Sense and Respond Systems
Responsive and adaptive
Collective Intelligence
Fast, iterative and experimental
Descriptive to prescriptive
Powered by knowledge
Powered by creativity and ideas Think differently
The future Business place deploys the key enablers to have characteristics that would create empowered customers 13
➢ Mobility: The ability to constantly connect to customers and the

products sold to them
➢ Big Data: enables companies to make sense of the data explosion
➢ Social Media: allows companies to make the whole world a

perpetual focus group
➢ Cloud : enables companies have huge computing resources at their

disposal without having to invest in them
➢ AI and Robotics: optimize the need for human intervention
These 5 forces will be the weapons of power for the future of an organization 14
The Digital play ground ……
Omni-channel engagement : reach through Contextualized propositions: quicker dissemination,

preferred touch point for each segment flexible bundling, intelligent advisory
Positive - Cross sell/Up sell DIGITAL

Negative - Regulations, Profitability orientation Seamless offerings subscriptions -
AGENDA leverage ‘Paperless’, virtual support
Serve and shared KYC
Intelligent service proposition to accommodate

workforce enablement & optimization
The Digital playground will enrich & enhance quality of Engage, Transact & Conduct ! 15
Digital in the Retail World ……
What is driving the change?
CUSTOMER …today
Connected
Aware
Demanding
Today’s customer is demanding because of his awareness and is always connected too ! 16
The world of Channels …… What is a Channel?
• It is a medium / platform / mechanism through which customers can

get delivery of Bank’s products & services
• It typically extends the reach and expands the hinterland of a bank
Today’s customer is demanding because of his awareness and

• Essentially a conduit
is always connectedfor
too exchange of data / information
• A vehicle for obtaining / rendering a banking service
• A convenient window to avail banking products 24/7
• Provides appropriate security and mechanism for electronic

mandate / authority
Customers’ opinion about Banks are increasingly being influenced by these touch points 17
Banking Channels & Transformation
‘We want to be a tech company with a banking license’

– Ralph Hamers, CEO, ING
Development in Banking channels over the years owe

predominantly to Innovation in Information and
Communication technologies
Innovation remain focussed and concentrated on Customer

experience enrichment and the most important cog in this
wheel has remained customer touch points / channels
Banks have generally been early adopters of new Technologies that emerge from time to time 18
Banking Channels & Transformation
Channels were and will continue to be the pivots of digital

disruption in the transformation journey of progressive Banks
Customers tend to rate their Bank experience based

on their experience with the channels
Channels serve as valued differentiators in banking where

most offerings are predominantly commoditized
Channels go a long way towards making banking incidental 19

The world of Channels …… Store / Branch Channel
Strengths Challenges Collaborative

tenets
▪ Preferred channel for ▪ Revenue perspective - ▪ Compliments
client acquisition, time- steady decrease of other channels
tested for conversion of transactional contacts that requires
leads to tangible sales in-person
▪ Cost perspective - on
▪ Recommended channel interaction for
average around 50% of
for provision of advisory sales closure
operating costs are
services persuasion
identified with retail
Store / etc.
▪ Still considered for store network
Branch
various transactions by
the extended
generation
Source: Celent
‘The Physical Channel that used to be the ‘sole’ channel….now its still the ‘soul’ Channel 20
The world of Channels …… Call / Contact Centre
Strengths Challenges Collaborative tenets
▪ Large employee base ▪ Banks have experienced ▪ Potential to

that are dedicated to mixed bag with the appropriately
support various contribution towards compliment various
aspects of customer sales performance services: lead
care and other allied ▪ Cost intensive mode generation, sales
services. when compared with support and enhanced
internet channel for high value client
▪ High dependency on experience primarily
customer service
individual skills in for branch, internet ,
handling customers, ▪ Growing dissatisfaction ATM
Contact / query resolution, with client experience
Call Centre customer emotions, and service quality
etc
Source: Celent
Call / Contact Centres have historically been an ideal candidate for outsourcing 21
The world of Channels …… Automatic Teller Machine (ATM)
▪ Primarily cash ▪ Initial infrastructure ▪ Cohesively

transaction investments are compliments retail
fulfillment channel relatively perceived on stores to support basic
that has the strong the higher side transactions and
prospect of augment the contact
▪ The gradual dip in usage
supporting sales flow at prime
of physical cash;
/advisory services locations
compels bank to extend
through humanizing
ATM the service reach of ATM
ATM
Source: Celent
By the very purpose of existence, ATM became synonymous to ‘ Any Time Money’ 22
The world of Channels …… On-line Channel / Internet Banking / e-Banking
▪ Growing acceptance as ▪ Compliment branches

▪ Largely perceived as
an mainstream channel for sales initiation that
an alternative /
from rudimentary can be closed by
substitute for
transactions to online branches, promote
physical distribution
comparison services and product packages and
network
cross-sell up-sell garner relationship with
fulfillment platform ▪ Security aspects customer who rarely
remain a major visit branch
▪ Larger flow of contacts
Internet concern for banks
(5 ~ 6 times larger than
branches) with low costs
Source: Celent
Main reason for success of this channel is the numerous benefits to both customers & Banks 23
The world of Channels …… Mobile / Mobile Banking / Mobile Devices
▪ Touts immediate access ▪ Channel nascence is still a ▪ Compliment other

feature that has to be major concern for banks channels for
appropriately harnessed transaction fulfillment
to support sales and ▪ Skewed clients’ readiness
like authentication
service models to adopt various features
services etc. and also
that are possible over
▪ Disruptive technological for contextualized
mobile devices
Mobile advancement in this sales development
arena throws up ▪ Security concerns still exercises
innovative options for loom large
banks
Source: Celent
Mobile channel has been a great beneficial disruptor especially for the individual user 24
The 3 Cs in Banking -Channels------- Channels------- Channels-------1/3
• A newer way of engaging and / or transacting with a Bank
• A newer way to expand the reach of services beyond

the traditional brick-n-mortar prime channel
• Enables appropriate changes to Bank’s target market
criteria and add / reduce customer segments
• A newer way of providing extended transaction

hours and going beyond bank holidays
• A newer way to reduce transaction and other costs –

thereby overall profit enrichment
The terminology ‘Alternate channels’ came up at a time when only branch / store channel existed 25
The 3 Cs in Banking -Channels------- Channels------- Channels------- 2/3
• As the name implies…..its an environment of Bank providing multiple

channels to its customers for transacting various business
• These have evolved over a period of time – thanks to development

Multi-Channel
and innovation in Information & Communications Technology (ICT)
• Typically the channels were developed as independent silos – hence

there was lack consistency in delivery of products & Services
• Channels even compete with each other – all channels trying to

provide all products / services
• Optimising the potential of each channel and balancing them with

customer preferences remain a challenge
The terminology “Multi-Channel’ slowly started to replace the original terminology ‘Alternate channel’ 26
The 3 Cs in Banking -Channels------- Channels------- Channels------- 3/3
• Progressive banks will exploit untapped opportunities by unlocking

value of each channel
• The physical branches of progressive banks will promote alternate

channels for use by its customers and retain its presence for
Multi-Channel
advisory functions, relationship bonding and for those functions

that other channels are unable to deliver
• ‘Branch Tellers as Bank Sellers’ – they will no longer be human cash

dispensers.
• Call Centre operators will no longer remain as query resolution

robots – but positioned as advisors reaching customers across
multiple channels
Banks started enriching its people behind some of the channels to positions of importance / specialization 27
Expectations from a Channel ……. 1/2
• User friendliness and Convenience enrichment take the pole

position from customers’ perspective
• Security, Confidentiality and Privacy are the prime parameters that

determine the acceptability and usage of a channel
• Channel up- time and availability for consumers greatly

influence usage density
• Cost effectiveness to both Bank and customers - an absolute

imperative for a channel to sustain
Customer Experience provided today is predominantly determined by ‘channel-value’ experienced by customers 28

Expectations from a Channel ……. 2/2
• Ability to collaborate and complement with

other channels and not compete with each other
• Customer satisfaction and customer experience are the corner

stones of a banking channel to remain successful across all
parameters
• Ability to counter markets & competition
• Transaction enrichment and ability to scale-up the value chain
Channels are becoming the differentiators as products & services get commoditized 29
What’s next on the Channels space?
Omni= From Omnis(Latin)

Omni Omni = all, every, everywhere, whole
Channel Eg. Omnipresence, omnibus, omnichannel
Banking
It’s essentially both digital & non-digital channels

made available to the customer for availing same set
of products & services
Not mere choice of channels….. but seamless

and consistent interaction / engagement
Essentially NOT transaction oriented

But Customer oriented, relationship oriented
and customer experience oriented
Omni Channel is not another channel…….it is an environment……an eco-system for superior experience 30
The next generation in the Channels space
Multichannel Environment Omnichannel Environment

Transact through multiple Interact / Engage through multiple
channels channels
Analytical insights to understand Analytical insights to understand

clients’ needs clients’ wants & likes
Bank-centric view Client-centric view

Bank gets single view of customer Client gets single view of Bank
Based on system of records Based on system of engagements
Integration- SoA reliant Application Collaboration – Reliant on Big data for

with message integration integration of customer context
Omni Channel environment can elevate from transaction mode to Engagement & Conduct mode 31
Why Omnichannel when multi channel is there ?
Unlike multi channels that get bracketed as

service enhancement and experience
enrichment, this can contribute significantly to
business creation and / or expansion by giving
insights into customer preferences and behaviour
It is not a fashionable Buzz word !

It does not replace multichannel
– in fact enriches the channels !
Today’s customers are used to sophisticated and extremely

personalised offerings based on individual preferences from
other industries like Airlines and Retail. Similar expectations
from Banking is natural. Omnichannel is the answer!
Any Time Banking to Any Where Banking to Any how Banking feasible through Omni Channel Banking 32
Few examples of omnichannel applicability in Banking
• Customer on-boarding process
• Mortgage origination – huge value chain enrichment
• Insurance – making the whole process extremely incidental
• Wealth Management
• Equity and other securities Trading
• Risk based security and access permission
• Concierge Services, location based advisory, ….
Convenience enrichment is singularly the biggest benefit of omnichannel 33

Few examples of omnichannel – video Links
Bank of America Digital Mortgage

https://youtu.be/nVVz84YNanw
CISCO omni channel offering - CISCO

https://www.youtube.com/watch?v=fGDy0x_stqg
Insurance Drone – IoT + channels collaboration

https://youtu.be/3gOUT7NOy9E
Convenience enrichment is singularly the biggest benefit of omnichannel 34

Omnichannel will change the rules of the Game
When the ‘rules of the game’ change…….
the ‘weak’ will perish ….…..
the ‘mediocre’ will just comply….
the ‘good’ will adapt fast to usher a quick BaU
the ‘smart” will innovate to capitalise on the change
…………………….and its Omnichannel that will enable this 35


Appendix

• Banking* is defined as “Acceptance of deposits of

money from public for the purpose of Lending or • When bank accept deposits - pays interest on the
Investment, repayable on demand or otherwise and deposit to the customer
withdrawable by cheque, draft, or otherwise” • When bank lends money - levies interest on money lent
• A banking company must perform both these to the customer
essential functions • Difference between interest received (IR) on the
• Acceptance of deposits amount lent and interest paid (IP) on the deposits–
• Lending or investing Spread
• If the purpose of accepting of deposits is not to lend
• Bank also provides certain services to its customers –
or invest, then the business will not be called as a
fees / commission
banking business.
* Commercial Banking • Revenue stream for Bank is IR-IP + Fees & Commission
• Business Profit for Bank : {(IR – IP) + F&C} - Costs
Banks are in the business of taking risk.

Assets in the form of their Loans & Advances are called Risk Assets
38
• Acceptance of Deposits from public – an essential • Lending funds to individuals, traders, business &
function of Bank enterprises – prime function for a Bank
• Basic raw material • Main product for generating revenue & profit
• Growth engine for a Bank • Growth engine for a Bank
• Sign of customer confidence & trust • Sign of Banks’ professionalism in Risk Management
• Loans & Advances can be classified as
• Deposits can be classified as • Demand Assets – e.g., Demand / call loans, Overdraft
• Demand Deposits – e.g., savings account, • Term Assets - e.g., Term Loans, Mortgage loan,..
current account, call money • Loans & Advances - generally used interchangeably
• Time Deposits - e.g., fixed / term deposits, • Loans – Fixed disbursements - no cheque book
recurring deposits
• Advance - drawings against a pre-approved line of
credit – credits allowed in account-approved for a
period – e.g., O/D, C/CC accts
Funds Based Cost – Liability based Costs Funds Based Revenue – Asset Based Revenue
39
Funds Based Cost Funds Based Revenue
Interest Paid / Payable (IP) Interest Received / Receivable (IR)
Funds Based Income (Spread) = IR - IP
Non- Funds Based Revenue ( Fees & Commission)
Contingent Liabilities Other Services

✓Letters of Credit ✓ Payments ✓ Safe Deposit Locker rental
✓ Bank Guarantees ✓ Collections ✓ Account maintenance charges
✓Acceptances ✓ Cards ✓ Cash Management services
✓ Safe Custody ✓ Bills
40
Contingent Liability – Letter of Credit / Documentary Credit
• International Trade – the need for comfort for Trading parties

• Buyer and seller may not know each other
• Advance Payment to supplier – carries risk to buyer
• Payment after receipt of goods – carries risk to seller
• Documentary Credit addresses concerns of both buyer and seller
• Documentary Credit or Letter of credit is a document

• It plays a key role in settlement of international trade payments
• It is irrevocable undertaking given by LC issuing Bank to make payment on behalf of the importer subject to
fulfillment of terms & conditions in the LC
• Governed by ICC (International Chamber of Commerce) - the main rule making body internationally on LC
• Rules- known as Uniform Customs & Practices of Documentary Credit (UCPDC)
A key principle underlying Letters of Credit - Banks deal only in documents and
not in goods. Bank is not responsible for quality of goods
41
Contingent Liability – Bank Guarantee
• Bank Guarantees
• Issued by a Bank on behalf of its customers to a third party (beneficiary) - for specific
performance/obligation of its customer
• Guarantees a specified amount for the beneficiary in case of breach of contract or performance
by the applicant customer
• Issuing bank will pay the amount specified to the beneficiary - on written demand within a
stipulated period
• Valid till the specific period and for specific amount beyond which claims cannot be entertained
• Stamp duty payable as per applicable laws of the land
42
Banking – Principles of Lending (Commercial – Cash Credit / Overdraft
• For working Capital - Repayable on Demand - normally, no specific date of repayment

• Rolled out as a facility for a period – normally 1 year
• Limit / line of credit is approved after due diligence & process
• Bank needs to have liquidity to meet the total of limits of all CC customers
• But, earns interest only on actual utilisation - interest on daily products
• Bank has discretion to charge “commitment fee” if extended ‘un-utilisation’
• Used for working capital requirements of the Borrower
• Collateral – Pledge / Hypothecation of goods, Receivables / Book debts, ..
• Collateral valuation basis and frequency of stock statements submission – as per agreement - Daily
/ Weekly / Fortnightly / Monthly
• Margin / Hair cut applied and Drawing Power (DP) determined
• Customer allowed to draw up to DP or limit which ever is lower
• Healthy swing in account balances - co-relate to business activities
43
Banking – Principles of Lending (Commercial – Cash Credit / Overdraft
• Raw materials, WIP, Finished good of a mfg organization

➢ Charge registered with appropriate authorities applicable to the geo
➢ Should carry the charge intimation conspicuously at storage location(s)
➢ Board will read as “ Goods Hypothecated to ABC Bank”
➢ Banks will make surprise inspection to verify stock, valuation basis, movement records, suppliers’
bills, sales invoice, etc to co-relate stock made available for inspection
➢ Banks record the Bank inspector’s visit in the books of Bank & Borrower
• Against Bills for Collection / Book debts
➢ List of all receivables with details of invoice, like date amount, drawee / buyer name with
address – submitted to bank
➢ Buyer wise details submitted – check for Bank for concentration risk etc
➢ Bills/debts overdue-removed by Bank while calculating Drawing Power
44
Risk Management
RISK
Credit Risk Market Risk Operational Risk Liquidity Risk
1. Defined as the 1. Risk of losses due to 1. Risk of loss arising from 1. Liquidity Risk is the
potential of a movements in financial inadequate or failed risk that the business
counterparty failing to market variables i.e. internal processes, will have insufficient
meet its obligations in interest rates, foreign people and systems or funds to meet its
accordance with exchange rates, security from external events financial
agreed terms prices etc., commitments in a
2. Could arise on 2. Also referred to as Price timely manner
default in payment Risk due to possibility of Market Liquidity
of interest or not receiving the Risk
repayment of expected price
Fraud Risk
principal Risk that a firm cannot
3. Closely associated with
3. In respect of Compliance Risk easily eliminate a
Trading Book
investments, the position at the market
performance of the Legal Risk price b’cos of disruption
Interest Rate Risk or lack of market depth
instrument is
dependent on the
Documentation
Currency Risk Funding Liquidity
financial solvency Risk
Risk
of the issuer, which
Equity Risk Transaction Risk Inability to create
is also called
issuer risk positive cash flows to
Commodity Risk Reputational Risk meet obligations
45
Bank of the Future
When we start to think of the “Bank of the Future”, the following are some of the thoughts
and questions that flash in front of us with specific reference to consumer banking / retail
banking:
1. What is the time line of the ‘future’ we are talking about?

2. Before we look at the Bank of the future, should we not try and answer the question
“is there a future for the bank”?
3. This is such a topic that almost everyone will have some point of view or opinion and
it’s pretty difficult to say whether one is even approximately right or absolutely
wrong
4. There is no crystal ball that’s available today to guess or predict the look and feel of
the typical ‘bank of the future’
5. Is ‘Bank of the Future’ restricted to or equal to ‘Branch of the Future?’
6. Will the ‘bank of the Future’ be ‘branchless, people less, paperless and plastic less?’
7. How will the ‘bank of the Future’ be different from the ‘bank of the present’ across
multiple parameters of its People, Products, Services, Process, Technology and
Customer Experience?
Let us look at each one of the above mentioned ten points in some level of detail.
1. What is the time-line of the ‘future’ we are talking about?
For any conceptual view point, the definition of the time-line or the reference period is a
very important component. It becomes doubly important when the reference is made
relative to the past and/or present. So far as this paper is concerned, the ‘future’ is defined
as a meaningful and reasonably foreseeable period and has been put as 2020-25.
A Point of View – Document by R. Krishnan Page 1

Bank of the Future
2. Before we look at the Bank of the future, should we not try and answer the question “is
there a future for the bank”?
a. Analysts in the BFS world, industry practitioners, adjacent business verticals and banks’
customers have also been asking the question as to whether there is a future at all for the
bank.
b. While the question has remained as direct and blunt as this, I strongly feel that the intent
of this is more to dis-aggregate the multiple views and predictions in order to arrive at some
sort of a three dimensional visual of this entity called ‘Bank of the Future’.
c. Notwithstanding the various theories / views that have been talked about on this, I am of
the view that Banks will necessarily have to exist irrespective of the newer alternate players
who will come into the fray to take some pieces of the banking cake. I expect that the rules
of the banking game would change to the extent of even going beyond recognition and will
primarily revolve around institution stability, consumerism, consumer protection, customer
experience, regulatory, privacy and security
When the rules of the game change for the ‘bank of the future’…
..The ‘weak’ will perish
…The ‘mediocre’ will just comply
….The ‘good’ will adapt fast to usher a quick BaU
…..The ‘smart’ will constantly innovate to capitalise on the change
What will determine the relative success of one bank over another would lie on those
‘smart’ banks that would adapt faster to varying eco-system based partnership models that
would go beyond the conventional banking of yesterday and today.
3. This is such a topic that almost everyone will have some point of view or opinion and
it’s quite difficult to say whether one is even approximately right or absolutely wrong
Absolutely true. One does not necessarily need to be an analyst, an industry practitioner or
a consultant to express his / her view or opinion on this subject. Even a consumer of banking
products and services considers himself / herself qualified to throw the towel on the subject
and rightfully expect to be counted in this crowded opinion space.
However, I feel that a logically tailored view or opinion on the ‘bank of the future’ would
only be feasible if one analyses the various parameters across the evolution of yesterday,
today and tomorrow and associating them with global trends and outlook. This is precisely
the reason for my belief that ‘future’ needs a clear definition (1 above) while bringing out a
point of view and also not get extremely influenced by such things that would probably exist
in the fringes of illusion and theoretical imaginations.

Bank of the Future
4. There is no crystal ball gazing that’s available today to guess or predict the look and feel
of the typical ‘bank of the future’
If one does not want to take refuge on this statement and is inclined to take a bold view, it is
important to undertake a very logical journey of assimilating and applying the various
incremental and disruptive innovations that are taking place. This way, one could potentially
assist banks in their objectives across superior customer experience, ability to provide more
for less, simplification, digitization, digital banking, business models etc. This aspect of
assimilation of innovation needs to be strongly backed up with a sense of the destination
themes. I strongly feel that innovation should be looked at through the lens of these
destination themes and not just modelled on what more we can do over what we have
today.
5. Is ‘Bank of the Future’ restricted to or equal to ‘Branch of the Future?’
Most articles and papers on the topic of ‘bank of the future’ tend to focus mostly on ‘Branch
of the future’. ‘Bank of the future’ is definitely a much wider topic with larger implications
and to me ‘Branch of the future’ is not only an integral subset of ‘bank of the future’ but
also a very significant element in the ‘bank of the future’ in view of rapid technology
developments that endeavour to replace or at least minimize the expensive physical touch
points.
The most important view point around Branch Banking has of course been and for some
with great degree of passion and conviction is that “all other channels available today and
those that will emerge tomorrow will jointly & severally render the swan song for Branches
and even write the dreaded obituary for Branch Banking".
Based on all what is heard from the wise men in this business and my own research, I
am certainly of the opinion that Branches are here to stay for a variety of reasons that are
driven by multiple market forces. Branches, albeit in different forms of size, shape and
business-mix will be there and brave-out extended competition through its ability to provide
consistent user experience while building or re-building intrinsically important strengths like
Trust, Confidence and Brand value. I am also of the opinion that exponential growth in
digital channels uptake can only go to strengthen the “Power of the Branch”. I am seeing
Banks that were fairly myopic in shutting down branches to meet some short term
objectives have re-looked at their distribution strategy and in a way given re-birth to
branches although manifesting through genetically modified to dwarf or Bonsai versions. At
least for the period of reference for this paper (2020-22), I maintain that it will be period of
co-existence of physical and digital albeit the distribution is bound to move more and more
in favour of digital.
With reference to branches, let us look at the practical challenges of today that are only
expected to multiply for the period under reference for this paper. The dynamic banking
landscape has catapulted newer challenges to branches. Why are Banks saddled with this
dilemma of “To have” or “not to have” branches?

Bank of the Future
Essentially, branch banking has been haunted with multiple challenges and some of them hit
the very purpose of its existence. We are now seeing bank branches needing to “justify its
very existence” and perhaps the only way to do that is to innovatively transform.
Appended below are some of the most common challenges and how these are being
addressed by various players today in preparation for being in readiness for the period
2020-22.
• Firstly, the one that is hard hitting everyone is the aspect of “cost”. Various research
outputs talk about branches taking 40 to 60 percent of total costs. Hence
innovations are taking place in this aspect and we have been seeing things like
“Branch flexing”, “Branch refresh’, - all essentially trying to live with “less real
estate” and / or newer types and higher utilization of existing real estate.
• Rationalization of branches is an ongoing phenomenon. While some branches are
being shut down for multiple reasons some are being opened as well in order to
provide optimal presence and customer convenience.
• Superiority, ease of use, convenience and adoption levels of newer channels that
were hitherto called “alternate channels” have started taken the front stage driving
Branch to now be relegated as “alternate channel”. It’s in this aspect that Branch has
the onus of proving its superiority through its ability to “engage, transact & conduct”
with the added flavour of providing “Trust, Confidence, Brand value and above all
Human connect for face to face advisory services etc”
• As per some research reports, although transaction volumes have been in the
decline at branches, newer offerings and regulatory compliance overheads have
increased the interactional and operational complexities.
• From a people perspective, impending staff cost has forced banks to optimize the
staff mix. Leading banks have come up with innovative people structures to ready a
knowledgeable, highly motivated work force that not only aid in optimizing the cost
but also help the top line grow. Hub and spoke kind of mechanisms are growing in
popularity with banks. Empowering Tellers to become Bank’s ambassadors through
cross sell and up-sell is receiving tremendous attention. Value-add of branches is
seen coming from tellers not being mere Robots or ATMs dispensing cash or reading
out balances – but capitalize on ‘human connect’ to be “wise and timely” in
exercising cross sell / up-sell leads provided by technology.
• The continued regulatory regime focusing on transparency, service levels, customer
protectionism etc have imposed newer constraints for branches. Towards this
branches are resorting to multiple innovative ways aided by technology and other
channels in order to minimize / eliminate customer dissatisfaction triggers. eg.
Advance notice / preparation, concierge services etc
• Customers are human and humans are subject to “mood swings”. Branch Tellers /
advisors need to capitalize on their ability to read “customers’ mood and body
language” – the unique capability of this powerful channel which no other channel
can match.
Branches will endeavour to take more and more of innovative steps to comprehensively
take on the present and the future.

Bank of the Future
Let us now look at the role of a branch and what are the enablers for the branch to function
efficiently.
Essentially, a typical branch does the following activities:
• Transactions
• Sales
• Service and
• Advisory
To do these we have the enablers in the form of Bank staff, customers, infrastructure and
real estate
• The Power of multi-channel is enabling self-service and transaction automation

significantly. Extension of the other channels into the branches is contributing
towards overall efficiency enrichment of the Branch.
• We are seeing more and more of encouragements for Branch visitors to use self-
service channels. Things like intuitive assistance greatly enrich customer experience
and in a subtle way prepare the “gadget-hesitant” customers to use these channels
outside the branch as well.
• Research shows pre-staging transactions in the branch will go a long way towards
enhancing Branch experience by not only bringing down the service time through
“branch readiness”, but also to streamline branch footfall through queue and traffic
management alerts and even diverting to alternate service points.
• Cohesive concierge services are something that is fast maturing in certain markets
where the customers themselves visit a branch. This is however a challenge in
markets where the actual customers use third party or ‘bearers’ to get their
transactions done.
• Security and authentication is an aspect where there is scope for innovation to
contribute in a Branch environment. Essentially, the scope lies around discrimination
in selective lowering of security and authentication in a visible and ‘pre-qualified
Branch environment’ vs a completely ‘invisible digital environment’.
• When it comes down to Sales, servicing and advisory, the components that gather
momentum for innovation are around:
o Multi-distribution frameworks that permit deployment of varying levels of
expertise and the power to bring them into the Branch with focused
relevance and through the right media
o CRM and SCRM based analytical abilities that can empower the Teller and the
advisors with information that can be used and conveyed through
streamlined conversation – something that other channels would struggle to
do.
o Innovative collaboration models with partners ( mutual funds, insurance, real
estate, investment houses etc) is another aspect that comes out pretty handy
for a branch by physical and logical housing of them in the branch or branch
itself being housed at these partner locations.

Bank of the Future
• When it comes to Real Estate and infra-structure, differentiated layouts, apt-2-serve
logistics and virtual Branch through augmented reality approach etc are some of the
areas where multiple innovations are taking place.
• Perhaps the most important component comes in the Customer and people side as
its only through this channel the bank is able to build the most critical aspect of
“Human connect”. One of the important things that we see is the readiness of the
bank to address customer obsession through multiple innovative ways. The future
Branch is not one of being human ATMs spitting out cash or reading out balances.
It’s going to be a place where the Bank enables meeting customers’ procurement
needs that obviously go beyond normal financial transactions.
6. Will the ‘bank of the Future’ be ‘branchless, peopleless, paperless and plasticless?
As mentioned in 5 above, I maintain that it will be period of co-existence of physical and

digital. While all these terminologies of ‘branchless, peopleless, paperless and plasticless’
are oft quoted, there is definitely a need to draw some reality across these aspects with the
time-line that I have specified in this paper for the ’bank of the future’. While, most
progressive banks have been constantly addressing these aspects with varying degrees of
success rates, I feel that the most pragmatic way to describe the possible scenario in ‘bank
of the future’ environment is
• Less branches
• Less people
• Less paper and
• Less plastic
7.How will the ‘bank of the Future’ be different from the ‘bank of the present’ across
multiple parameters of its People, Products, Services, Process, Technology and Customer
Experience?
I am of the opinion that the singularly largest difference between the bank of today and the
‘bank of the future’ will lie in the enrichment of the products and services that will be
provided to its customers directly and indirectly.
Without going into the multiple line items that would possibly be part of the enhanced
scope of products & services, I feel that it would suffice to state that the following will be
the characteristics of the /bank of the future’:
• Banks will direct its energy towards being custodian of customers rather than mere
agents of origination & destination of funds
o Today, we see banks being reduced to mere warehouses of money for its
customers and nothing more. ‘The bank of the future’ will look to be much
more than this for its customers by playing a much larger role in the overall
customer wellbeing and not restricted to only financial wellbeing. This is
neither going to be easy for banks to elevate themselves to this status nor its
going to be an overnight phenomenon. The ‘bank of the future’ will have to

Bank of the Future
necessarily address a series of sub-optimal operations of today and gradually
build various point solutions that would aggregate to increasing customer
stickiness and loyalty. ‘Bank of the future’ will capture back their inherent
strength i.e. Customer ownership that is fast eroding today - thanks to smart
and possibly smaller nimble players in the industry who are not necessarily
Banks. They will focus on immersive customer engagement technologies
rather than the mundane transaction enablement technologies. This is where
I can see the power of multiple digital forces coming to banks' rescue. Almost
all the initiatives (best described as line items) that Banks and Consultants are
talking today as part of Digital Revolution, re-imagination or similar
terminologies fall under this broad category of regaining customer
ownership. Becoming a trusted advisor is easier for a Bank as the factor of
trust is in the very DNA of banks. Banks always stand for trust when
compared to the fringe players outside. This inherent advantage will have to
be capitalised by the ‘bank of the future’.
• Banking will go beyond money
o By this statement, what I really mean is that the ‘bank of the future’ will
possibly elevate itself from being a mere bank to an enriched financial
services provider to an entity that will facilitate life style and life stage
management for its customers. The banking component of the overall life
style / life stage event would be made extremely incidental and not as a
separate stream or activity. I see the ‘bank of the future’ becoming a
customer centric aggregator of financial and non-financial services.
• Banks will see partnerships that go beyond the realms of conventional financial
services providers and will see more and more of 'shared services'
o I see Banks entering into partnerships that not only go beyond the realm of
financial services but also enlarge to cover those that align with the life style /
life stage of its customers. I also see that the level of shared services would
rise to a significantly high levels that various infrastructure components
including branch/store would be shared. Multiple models of workplace
banking and banks going to customers will evolve and become key elements
of differentiation.
• Banking will move from branch level banking to bank level banking to banking level
banking.
o I see the ‘bank of the future’ as a well graduated entity from being a provider
branch level banking to bank level banking to banking level banking. Towards
the period under review, I can see a significant multi-banking practice /
experience of customers and the industry itself would have matured in terms
of inter-operability and collaboration that the customer would see no
difference between a branch level banking and banking level banking.

Bank of the Future
About the Author:
R Krishnan (Krish) has about 40 years of experience in Banking, IT/BPS, Consulting and
Competency enrichment. He has held several senior management positions in Tata
Consultancy Services (TCS) and ANZ Grindlays Bank (now Standard Chartered Bank). Krish
was with the erstwhile ANZ Grindlays Bank until Dec 2000 and the last position held by him
was Director–Operations, Transaction Services in Corporate Banking. Between early 2001
and until Dec 2014, Krish was with Tata Consultancy Services and the last role performed by
him was that of Global Head & Vice President Banking Industry Practice.
In his professional career spanning about 40 years, Krish has interacted actively with Board /
CxO level and senior / middle management of various global institutions and contributed
towards building a distinct brand and providing Thought Leadership & accelerated solutions
embedded with futuristic outlook / vision.
Krish is an Independent Consultant providing ACT (Advisory, Consulting & Training) services
to IT companies, BPS organizations and academic / professional institutions. Krish has
designed and conducted several training programmes in Banking Financial Services space
across the globe for multiple organizations.
As an industry veteran, Krish is one of the most sought after practioners in the Banking
Financial Services space.
• Krish is a Senior Advisor by Manipal Banking Academy for Banking & Insurance - the
pioneer in training, competency enrichment and transforming talent for the BFSI
industry and has been India’s leading talent development and employee productivity
solutions provider to leading Banks, Financial Services and Insurance Industry.
• Krish is a member of the Board of Studies (BoS) of the reputed Thiagarajar School of
Management in Madurai. The BoS has eminent members from both Academia and
industry and is the school's apex academic advisory and policy framing body. Krish is
also a visiting faculty in this reputed Management School
• He is a Council Member of GLG (Gerson Lehrman Group) - World's largest
membership network for one-on-one professional learning, comprising over 500,000
thought leaders and practitioners, business leaders, scientists, academics and
foremost subject matter experts.
• He is the advisory Board member of a leading Talent Acquisition and HR consulting
firm that bridges the gap between “talent wants & needs” while partnering with
clients towards enrichment of their Human Capital.
• He is a Senior Advisor at a Skill development and training company providing
corporate training solutions, project and technology consulting services to corporates
across all industry domains

Bank of the Future
• He has also taken up the role of Principal with a boutique management consulting
company partnering with professionals in designing the Future – Future of workplace
-Future of Talent.
• From Aug 2015 to Aug 2017, Krish was engaged by NIIT - a leading global institution
that offers competency enrichment to corporations, institutions and individuals in
over 40 countries. Krish’s role as a Consultant to this organization, involved pre-sales
support, creation / designing of contents / portfolio for corporate training
programmes, development of content for programmes as per clients’ requirements,
delivery of corporate training, tracking & sharing global trends /outlook of financial
services industry, etc. Has designed and conducted number of training programmes
in Banking Financial Services space for multiple clients
• Krish has had an impeccable academic record starting from his school days to his
post-graduation and professional career. Krish is a post-graduate in Management
and a Certified Associate of Indian Institute of bankers (CAIIB)
Disclaimer:
The views and opinions expressed in this ‘Point of View’ article are those of the author and
do not necessarily reflect the views and opinions of any organization and / or client the
author has served or currently serving. Analysis performed / used within this article are only
examples. They should not be utilized in real-world analytic products as they are based only
on limited and dated open source information.

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The New Age Banking-Bank Management Strategies in the 21st Century

Module 1 - The Yesterday, Today & Tomorrow of Banking

Banking origin : History

• Banks dependent on physical presence – Brick & Mortar Branch model

• Service levels revolved on person to person albeit being personalised

• Branches are interconnected – inter-branch transactions go through seamlessly

• Banks not dependent on physical presence only –

Aspect Yesterday Today Tomorrow

Aspect Yesterday Today Tomorrow

Intense beyond geographic Competition based on

Aspect Yesterday Today Tomorrow

What the customer ‘knows’ What the Customer ‘is’

Service Approach Attended to… Served … Get Value Experiences…

More by accident than by Customer Context based –

• Basic Principles in Banking Operations

• Multi Factor Authentication

Banks want to ensure a total Non-repudiation situation 8

‘Interface’ ‘Integrate’ ‘Fusion’

Typical responses by Banks....

Governance, Risk and Compliance is the new mantra 12

Typical responses by Banks....

Typical responses by Banks....

Typical responses by Banks....

Collaborative Customer focused

Do you like to Sir, when you next

Cross-Sell / Up-sell will cross the boundary of banking

ABC Bank ...we also perform Banking

I have a number of things to do

Banking will no longer be in the main agenda for me

ABC Bank ...we are there with you always

Banking will become more & more ‘incidental’ 18

My Bank knows all I need-

“Owning” a customer and building

Why is it you Banks don’t talk to each other?

Sir, our report will take care of all

Partnership network of ABC Bank

Distant model - yet

This is not a ‘Food Court’!!!

Module 1 - The Yesterday, Today & Tomorrow of Banking

• A banking company must perform both these essential functions

• Any society consists of

• Some have surplus money - some who need money

• Financial Intermediaries – what do they do ?

Banks are in the business of taking risk.

• Bank also provides certain services to its customers – fees / commission

• Revenue stream for Bank is : IR-IP + Fees & Commission

• Business Profit for Bank : {(IR – IP) + F&C} - Costs

SOURCES OF FUNDS APPLICATION OF FUNDS

✓ Loans & Advances

In a bank, vis-à-vis other companies, % of owned funds is very less

• Safety and soundness of banks and financial system

• Banks essentially take and manage risk

• Acceptance of Deposits from public – an essential function

• Demand Deposits – e.g. savings account, current

• Lending funds to individuals, traders, business & enterprises –

✓ Loans & Advances

• As the name implies, saving is the objective