ESLSCA- MBA57A: CRM IN NON-BANKING LENDING SERVICES 1

Customer relationship management in non-banking lending services using financing technology.

ESLSCA Business School

Supervised by: Dr. Ashraf Elsafty

2018
CRM IN NON-BANKING LENDING SERVICES 2

TABLE OF CONTENT

1. CHAPTER 1: INTRODUCTION........................................................................................... 4

2. CHAPTER 2: LITERATURE REVIEW............................................................................. 7

3. CHAPTER 3: THEORETICAL FRAMEWORK AND RESEARCH DESIGN ................ 14

REFERENCES ........................................................................................................................ 18
CRM IN NON-BANKING LENDING SERVICES 3

LIST OF FIGURES

Figure 2.1- Financial Services Value Chain .....................................................................10

Figure 2.2- Conceptual Model of Conceptual Model of The Promise of Fintech in Emerging
Markets……………………………………………………………......................................11

Figure 2.3- Conceptual Model of NEW FACTORS INDUCING CHANGES IN THE RETAIL
BANKING…………………………………………………………………….............................. 12

Figure 2.4- Conceptual Model of Building customer loyalty in digital banking………….14

Figure 3.1- The proposed theoretical framework.................................................................15

Figure 3.2. Customer journey in financial services………………………………………..16

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LIST OF ABBREVIATIONS

VAT Value Added Taxes

CRM Customer Relationship Management
FinTech Financial Technology
SME Small and Medium-Sized Enterprise.
NBFC Non-Banking Financial Companies
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CHAPTER1: INTRODUCTION

1.1Problem definition
The devaluation is the most important factor in our economic analysis. It lead to a higher
inflation rates which were then met by several measures by the government to ensure the
success of its wider economic reform program.

The government began to restructure a subsidy program. A five-year energy subsidy reform
program began in 2014 aiming at stopping energy subsidies by 2019. Electricity prices
increased by 25-40% depending on usage in August 2016]. In July 2017, Electricity prices
increased again by 15-42% for domestic use and by 29-46% for the commercial Sector. Fuel
prices increased 3 times since floatation. The Government announced last June it has
increased fuel prices, two weeks ahead of the start of FY18/19 and the third hike since
November 2016. Average price increases for fuel products stood at 38%.

Which resulted in accelerating the inflation rate to 16% in October from 11.5% in May. As
well as the Increasing VAT that will limit the purchasing power of the consumer markets
that will lead to more positive appetite towards the financing and lending solutions to meet
the customers’ needs.

The community segmentation is highly affected by the inflation effects, where there is a
massively shrinking in the middle class.

All middle class levels are facing troubles financing their essential needs, so they need a fast
and convenient consumer financing solutions with privacy considerations.

Consumer finance is defined as financial services targeting private individuals for the
purpose of purchasing goods or services. This service can take a variety of forms and is
provided by a number of diverse entities

There are many types of lenders, banks and merchants are the most common types but there
are also companies specializing in providing consumer loans for specific products.

The CBE has announced a series of policies aiming at diverting bank credit from household
consumption towards funding SMEs. These policies include reducing the maximum monthly
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payment for households’ loans to 35% of income instead of 65%, as well as increasing
SMEs’ share in banks’ portfolio.

The announced change in monetary policy encourages growth in consumer finance outside of
the banking sector.

“Credit through Non-Banking Financial Companies (NBFCs) is prevalent in developing

economies as it mitigates the adverse effects of banking sector ineffectiveness or
inefficiencies.” (world Bank - Consumer Finance, 2016)

On the other side, Technological trends are on the rise; Big Data presents an opportunity to
better understand customers and innovate new credit rating criteria. (LMC, 2016)

Electronic and mobile payment platforms facilitate the rapid pace of product development
leading to shorter product lifecycle thus higher renewal rates. Both affect consumption
patterns as well as operational innovations.

These technologies present opportunities to reach more people at lower costs.

So, we need to capitalize on the use of financing technology to deliver non-banking lending
services in a much more convenient, customer-oriented, and cost effective with different and
better ways.

1.2Claims
Claim 1: Lenient eligibility criteria (↑)
Claim 2: Low transaction and administration cost (↑)
Claim 3: Secureness (↑)
Claim 4: Valid risk assessment parameters (↑)
Claim 5: Low payment barriers (↑)
Claim 6: Transparency and simplicity of service offering (↑)
Claim 7: Efficient credit approval procedure (↑)
Claim 8: Systematic collection procedure with different (Cash & Electronic) payments
alternatives (↑)
Claim 9: Deep customer insights (↑)
Claim 10: Strong customer relationship (↑)
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Research Questions
Major questions

MjRQ: How to use financing technology to deliver non-banking lending services in a customer-
oriented approach?

Minor questions
MinRQ1: How to build strong CRM in Fintech platforms?

MinRQ2: What are the main drivers of the (NBFCs)?

1.3 Stakeholders Analysis

 CEO – EFG Finance

(Our Acquisition power in corporate is based on the differentiated features of our product
than the competitors, the easiness of the onboarding process and the wide coverage of our
network.

And another important factor is that we don’t put any liabilities on the corporates and
entities to guarantee their employees.)

 CEO – Greek Campus

(The tailored offering for any entity is the most important factor for accepting the offer, the
company should have some of special offering with extra benefits than the individual
offering in order to accept the partnership.

Any management can’t communicate any offer for their employees with the same benefits
they can get individually. The company will be only branding for the offer by then with no
return.)
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CHAPTER 2: LITERATURE REVIEW

2.1 Introduction
After The CBE has announced a series of policies aiming at diverting bank credit from
household consumption towards funding SMEs. These policies include reducing the maximum
monthly payment for household’s loans to 35% of income instead of 65%, as well as increasing
SMEs’ share in banks’ portfolio.

A large percentage of the population does not have access to bank loans as at least 51% of the
labor force work in the informal economy which challenges their eligibility to get bank loans.
(International Labor Organization, 2016)

Thus the economic conditions in Egypt are presenting a very good opportunity for non- banking
consumer finance.

Accelerated technology development and social changes are another factor forcing the financial
market towards the financial technology solutions.
Credit through Non-Banking Financial Companies (NBFCs) is prevalent in developing
economies as it mitigates the adverse effects of banking sector ineffectiveness or inefficiencies.

Drivers for Credit by NBFCs instead of Banks

- Size of Informal Economy

- Urbanization

- Banking Sector Development

- Transaction cost

- Information Asymmetry

Where traditional financial institutions are losing market share to technology-savvy and socially
oriented new ventures with exceptional CRM capabilities. The conclusion contains proposed
strategic actions that need to be undertaken in order to prepare the financial services industry for
managing customer relationships in the increasingly techno-social environment. (Kotarba, Vol. 8
(2016))
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2.1.1 Consumer finance Definition

Consumer finance is defined as financial services targeting private individuals for the purpose of
purchasing goods or services. This service can take a variety of forms and is provided by a
number of diverse entities. (LMC, 2016)

2.1.2 Customer Relationship Management (CRM) Definition

Customer Relationship Management (CRM) is a multifaceted organizational process of value
creation (Kotarba, Vol. 8 (2016)), aimed at developing and strengthening relationships with
customers. (Yonggui Wang and Hui Feng, 2012 (50)1)

2.1.3 Financial Technology (FinTech) Definition

The FSB defines FinTech as technologically-enabled financial innovation that could result in
new business models, applications, processes or products with an associated material effect on
financial markets and institutions and the provision of financial services.

2.1.4 CRM Definition in Financial Services

For the purpose of the study, the CRM in financial services is defined as a set of processes designed to
create mutually beneficial, lifetime value between a financial service institution (FSI) and a client.
(Kotarba, Vol. 8 (2016))

2.1.5 The Financial Services Value Chain

Traditional universal banks combine the customer relationship, retail and commercial deposits
and lending, and a wide range of activities in wholesale money and capital markets.

Payment services traditionally relied on cash, debit and credit cards, and wire transfers. FinTech
companies are providing domestic and cross-border payment services on significant scale
through “digital wallets” or pre-funded “eMoney”. Tech firms take a slice of payment revenues
and, in many cases, the totality of customer transaction data. In the process, they are
systematically capturing the type of knowledge gained from daily interactions with customers in
the bank branch.
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Some providers are leveraging this data to sell their customers non-bank products and services.
This – and the desire to avoid regulation – reduces their incentive to integrate upstream to
conventional banking.

Traditional universal banking begins with the customer relationship. This historic preserve of
established financial institutions is now being opened up. Aggregators, making use of banks’
Application Programme Interfaces (APIs), are providing customers with ready access to price
comparison and switching services. New pro-competition policies are reinforcing this
competition. Meanwhile so-called “robo advisors” are deploying algorithms to deliver affordable
investment advice to retail customers.

As customers become more willing to delegate decision-making to machines, their funds and
loans are being better matched with the best rates from around the system. These flows could
become seamless if public policy initiatives and new technologies combine to create digital
credentials that are universal, durable and reliable.

FinTech players are increasing competition in retail and commercial banking by providing new
lending and borrowing platforms for retail and corporate customers.

It is clear that the regulatory agenda permeates all CRM processes and will constitute the main
driver of their change. The 2014 Global Consumer Banking survey (Ernst&Young, 2014) of an
advisory company Ernst & Young provides evidence that improvements in the CRM processes
are critical to maintaining and expanding the competitive position of client-centered
organizations. At the same time, the study points out a very important empirical notion that
traditional banks are sub-efficient in introducing important CRM changes. (Kotarba, Vol. 8
(2016))

)Carney, 2017( Figure 2.1- Financial Services Value Chain

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The countries witness more fintech startup formations when the economy is well-developed and
venture capital is readily available. Furthermore, the number of secure Internet servers, mobile
telephone subscriptions, and the available labor force has a positive impact on the development
of this new market segment. Finally, the more difficult it is for companies to access loans, the
higher is the number of fintech startups in a country. (Haddad & Hornouf, 2018)
Prior research on fintech mostly focuses on developed markets, in this research the researcher
will focus on the developing markets especially in Egypt from the aspect of CRM.

2.2 THEORIES DEFINED

2.2.1 The Promise of Fintech in Emerging Markets: Not as Disruptive (Zalan & Toufaily,
2017)
Keywords: disruptive innovation, fintech, financial services industry; emerging markets; banks.

Fintech innovations – innovations by financial services providers based on digital technology –

are widely believed to have a disruptive effect on the financial services industry. The purpose of
the paper is to investigate how financial services industry participants perceive the effect of

Figure 2.2- Conceptual Model of The Promise of Fintech in

Emerging Markets
digital disruption as well as to explore what strategies are being adopted by incumbents in the
face of potential disruption from fintech challengers. Based on an exploratory study with
stakeholders from the financial ecosystem in the Middle East and North Africa (MENA), the
findings show that the fintech sector is still nascent, but is likely to be disruptive in selected
product and customer segments. Multiple regulatory, structural, and cultural obstacles stand in
the way of fintech adoption. Incumbents’ preferred strategy to face the future disruption is the
bank-fintech collaboration, which will create new value for ecosystem partners and speed up
CRM IN NON-BANKING LENDING SERVICES 12

innovation. Our study adds useful insights to the body of knowledge related to disruptive
innovations in general and fintech in emerging markets in particular. Specifically, the
collaborative response is inconsistent with the strategies usually recommended for incumbents in
disruptive innovation theory. We hypothesize that our participants’ preference for partnering can
be explained in the light of the distinctive characteristics of the digital economy. We propose a
framework for creating a financial services platform embedded in a broader ecosystem to
facilitate the bank-fintech collaboration.

2.2.2 NEW FACTORS INDUCING CHANGES IN THE RETAIL BANKING

CUSTOMER RELATIONSHIP MANAGEMENT (CRM) AND THEIR EXPLORATION
BY THE FINTECH INDUSTRY (Kotarba, Vol. 8 (2016))
Keywords: customer relationship management, omni-channel, financial institution strategy,
FinTech,
banking regulation, retail banking, client behavior, technological progress, process management,
customer
journey, social empowerment.

quality
management Social
Transparency
Empowerment

omni-channel satisfaction
integration measurement

risk-based
Data security
pricing

Customer CRM in Retention

Journey
Fintech managment

Figure 2.3- Conceptual Model of NEW FACTORS INDUCING

CHANGES IN THE RETAIL BANKING

Growing levels of regulation force financial institutions to change their business models toward
lower risk levels, higher capital adequacy, service quality, and more stable revenue pools. In
parallel with the regulatory changes, the banks are subject to pressure from accelerated
technology development and social changes. These two factors influence the behavior of
customers and induce changes in the customer relationship management (CRM). Taking the
example of retail banking, the factors and their impacts are explained. Additionally, a view on
CRM IN NON-BANKING LENDING SERVICES 13

the FinTech industry is presented, highlighting areas where traditional financial institutions are
losing market share to technology-savvy and socially oriented new ventures with exceptional
CRM capabilities. The conclusion contains proposed strategic actions that need to be undertaken
in order to prepare the financial services industry for managing customer relationships in the
increasingly techno-social environment.

2.2.3 Building customer loyalty in digital banking: A study of bank staff’s perspectives
on the challenges of digital CRM and loyalty (Larsson & viitaoja, 2017)
Keywords: CRM, Banking, Relationship marketing, Customer loyalty, Information asymmetry,
Digitalization.

The study contributes to the literature of digital channels and its perceived effects on customer
loyalty from a managerial perspective. The results show that some of the present customer
loyalty theory needs to be revised in order to accommodate for the era of digitalization.
The authors have formulated the following hypotheses:

Customer loyalty is the Direct Variable where;

H1: Customisation. It affects loyalty as it can signal high quality and contribute towards making
a better match between customer and product.

H2: Contact interactivity. It refers to the dynamic component of an engagement that arises
between an e-retailer and its customers via its website. Interactivity is best described as a factor
between accessibility, efficient customer support tools on a website and the degree of which two-
way communication with the customers is facilitated
(Chung et al., 2016). Interactivity is expected to have a profound impact on customer loyalty.

H3: Cultivation. This area denotes the extent to which a company presents relevant information
and incentives to persuade the customer to purchase more (King et al., 2016).
CRM IN NON-BANKING LENDING SERVICES 14

Cultivation serves to increase the company’s understanding of the customer’s needs on a deeper

Care Community

Cultivation Choice

Contact
Convenience
interactivity

Customisation
E- Character
loyalty
Figure 2.4- Conceptual Model of Building customer loyalty in digital banking

and a broader plain which increases the customer loyalty.

H4: Care. “Care” concerns how well a company handles a customer’s purchasing process before
and after a transaction, as well as its ability to sustain a long-term customer relation. The better a
retailer is able to provide service and ensure customer satisfaction, the more likely it is that the
customers will return and stay loyal to the company.

H5: Community. “Community” is a long-term endeavor as it also seeks to sustain customer

loyalty by creating a brand identity the customers can relate to, thus securing long-term loyalty.

H6: Choice. “Choice” is about what an e-retailer can offer in terms of broad selections and
varied assortments compared to a traditional, non-digitalized retailer.

H7: Convenience. This area refers to what extent a customer considers the website to be simple,
intuitive and user-friendly which will impact customer’s loyalty positively.

H8: Character. “Character” concerns how a creative and appealing website can help a company
build up a solid renown and awareness amongst its customers. Character can promote the image
of the company thus the customers may gain positive associations of the company. This may in
turn lead to positive effects on the customers’ attitude towards the company on a broader scale,
opening up the possibility of cross-selling.

CHAPTER 3: THEORETICAL FRAMEWORK AND

RESEARCH DESIGN
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3.1 THEORETICAL FRAMEWORK

The proposed theoretical framework is based on the model of (Kotarba) representing factors
affecting Customer Relationship Management in Financial technologies platforms is shown as in
figure 3.1

omni-channel
integration
quality
Transparency
management

Social
Empowerment

Customer satisfaction
Journey measurement

Risk-based CRM in Data

Pricing
Fintech Management

Figure 3.1- The proposed theoretical framework

The dependent variable: CRM in Fintech Platforms, a set of processes designed to create
mutually beneficial, lifetime value between a financial service institution (FSI) and a client.
Customer intelligence is likely to emerge as the most important driver of financial firm
profitability, and regulators will become as active with fintech innovations as the firms it
oversees.
The independent variables:
1- Risk-based Pricing, applying risk-based pricing founded on statistical with Low transaction
and administration cost through valid risk assessment parameters.
2- Customer Journey, definition of customer experience journeys (needs and experiences)
with real-time relevance and reactivity and customer lifecycle anticipation and monitoring.
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The classical customer journey (Fig. 1), financial institutions initially focused on the
purchase (transactions) and aftersales as core capabilities of the digital channel. The
relational components of the journey were treated with less attention and more dependence
on traditional .channels and advisor interactions.
3- Transparency increasing the transparency of business transactions will affect the CRM.
4- Quality Management is a process through which a business seeks to ensure that product
quality is maintained or improved with either reduced or zero errors.

5- Social Empowerment, a set of behavioral changes that stem from social empowerment and
the rising awareness on the advantages of building communities. Community opinions
become the starting/ending point of customer journeys, community influencers are gaining
higher attention than institutional experts.

6- Satisfaction Measurements, by operationalizing satisfaction to determine its measurements.

7- Data Management, management of customer data (master data, transactions, profiles,

patterns), personal data security with antifraud, identity theft protection, and fast resolution,
preventing abuse of client information and enforcing actions based on documented consent.

The moderating variables:

MV. 1: Omni-Channel Integration, Omni-channel assumes that a process can be started in one
channel and continued in another, with all of the available information from all channels being managed
and integrated in real time. The omni-channel integration affects the customer lifecycle if better
understand. The migration of banking services to the digital space both online (home banking) and offline
started a multidimensional revolution taking into account the classical customer journey, financial
institutions initially focused on the purchase (transactions) and aftersales as core capabilities of the digital
channel.

Research Hypothesis
H1Ø : The Risk-based Pricing does influence the CRM in Fintech Platforms
H1a : The Risk-based Pricing has a positive impact to CRM in Fintech
H2Ø : Customer Journey does influence the CRM in Fintech Platforms
H2a : Customer Journey has a positive impact to CRM in Fintech
H3Ø : Transparency does influence CRM in Fintech Platforms
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H3a : Transparency has a positive impact to CRM in Fintech Platforms

H4Ø : Quality Management does influence CRM in Fintech Platforms
H4a : Quality Management has a positive CRM in Fintech Platforms
H5Ø : Social Empowerment does influence CRM in Fintech Platforms
H5a : Social Empowerment has a positive impact to CRM in Fintech Platforms
H6Ø : Satisfaction Measurement does influence CRM in Fintech Platforms
H6a : Satisfaction Measurement has a positive impact to CRM in Fintech Platforms
H7Ø : Data Management does influence CRM in Fintech Platforms
H7a : Data Management has a positive impact to CRM in Fintech Platforms
H8Ø : Omni-Channel Integration does influence CRM in Fintech Platforms
H8a : Omni-Channel Integration has a positive impact to CRM in Fintech Platforms

3.2 RESEARCH METHODOLOGY

3.2.1 Research type

The paradigm is quantitative for a descriptive purpose due to depending on models not
scattered variables, and starting the investigation with descriptive statistics, it is used to describe
the main features to give an overall sense of the data being analyzed using the frequency
analyses. Second step the correlation analysis will be used. Collecting data from a natural
environment for variables as a field study in a noncontrived (no control) setting with no
interference (0% minimal).
Time horizon is a cross-sectional study where collecting data once.
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(2107, 3 26). Retrieved from http://prakashneupane.com.np/category/ict/page/2/

Carney, M. (2017, January 25). The Promise of FinTech – Something New Under the Sun? Retrieved from
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CBE. (2018). Central Bank of Egypt. Retrieved from http://www.cbe.org.eg

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22). FinTech credit: Market structure, business models and financial stability implications. UK,
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Haddad, C., & Hornouf, L. (2018). The emergence of the global fintech market: economic and
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