Red Book

IT in Retail Banking Pavan Murali Visram R

Retail Banking in India

1. 2. 3. The Retail Banking Industry in India is worth $300 Billion Majority customer base in the retail banking sector belongs to the middle aged, working class section People are dissatisfied with the public sector banks especially due to bad customer service

1. 2. 3. 4.

Mature in terms of money supply, product range & reach Resilient to economic crisis , regulated by RBI standards Retail lending constitutes 12.36% of the Indian banking system Expected CAGR growth of 25% reaching Rs.575000 crore

Strategy Retail Banking

Constant product innovation to match requirements of the customer segment Quality service and quickness of delivery

Introduction of new delivery channels

Tapping of unexploited potential and increasing the volume of business

Detailed Market Research

Cross Selling of Products

Tie Up Arrangements

Business Process Outsourcing

How can technology enable delivering a competitive advantage which is consistent with a banks strategy?

Major IT Applications
1
Mobile Banking & SMS Banking Solutions

Currently, NGPay is a dominant service, but has several drawbacks

Incompatibility across platforms Fewer Services Full range is not available No SMS Reminders or Alerts No integration of accounts No bill pay facility Non consumption Non convergence of commerce

Major IT Applications
2
Green Banking Solutions
Paperless banking achieved through online banking, online bill payment & e-Statements Eliminate pass books & cheques Seamless transactions between banks

NEFT & RTGS options to customers

Tax filing e-Payroll Management Subscribe to services & alerts Complaint registration facility at all ATMs

Major IT Applications
3
Branch Automation & Self Service

Self Service Kiosks

Extends number of customer touch points - channels at public transit places Drive adoption of online channels Statements & account enquiries Order cheque books & demand drafts Increase member loyalty Kiosk users are 80% less likely to leave Providers: Celent, NCR Corp

Major IT Applications
4
Business Transformation through IT

EGG.COM - Most profitable bank in the UK

World's largest internet bank

2 million customers $20 billion worth transactions every year No physical branches (Egg.com) Accounts opened only through internet &/or customer care centers Services such as Tax filing Cross sells services such as investment advice, portfolio management

Major IT Applications
5
Customer Relationship Management

Analytics to cross sell & up sell services

Tie ups possible with other services too (Convergence)

Can be used in the entire lifecycle management of customer

Provide information and enhanced services to customers

Resource intensive implementation but high returns

Sales Force Automation tool can be used for opportunity

Sign up for the UID Service

Instead of going in for UID, attempt through PAN (KYC) to reach market faster & gain a first mover advantage

CRM is a comprehensive approach that aligns business strategy, corporate culture and supporting information technology, so that the customer relationship proves mutually beneficial to both customer and enterprise

CRM in India
Methodology of study - Customer Relationship Management

Secondary Research on the theme

Initial Hypotheses

Primary research based on the hypotheses

Secondary Research

Analysis and Findings

Learning

Conclusion of study

Initial Hypothesis - Customer Relationship Management

CRM solutions are a mainstay for banks to manage their HNW clients

CRM solutions are expensive, and difficult to implement and use. Banks which do not have the scale are unlikely to go for these at this juncture

Banks which have implemented CRM solutions still are unsure on how to use them, and returns are not being measured

CRM in India
The NEED
To provide one view for the customer and to provide one view from the Banks perspective. Ease of transaction and lessen transaction costs

To supplement deposits, loans, mutual funds and insurance products

To give customers options to transact on all their accounts using multiple channels like internet, phone and SMS

Telemarketing, need for corporate retail banking customers

Tools
CRM systems always need a core banking ERP system to sit on top of. Most banks tend to use solutions from known CRM vendors. They lack the technical expertise to build custom solutions. I Flex core banking system is used at SBI. It also provides a built in CRM solution. Only class A cities use CRM systems at SBI Custom CRM package developed by i2 is used by Axis Bank, supplements core banking platform ICICI uses home grown solutions, but we are fast outgrowing it. 80 different systems in place, there is a need for consolidation

CRM in India
Parameters paramount for technical implementation
Initial cost of software is just 20% of the total initiative cost - the rest being those pertaining to implementation, training, maintenance etc. Prior relationships are key for vendor selection

Cost of development is a main driver

Implementation Problems

Change management. Bank employees are not aware of how to use these systems

IT support staff are always short in number and are overworked

Training costs are high, during training employees are unavailable for regular work

Integration with all other systems

CRM in India
Benefits
Technology in initial stages. There is a need to fine tune and use these systems in ways consistent with how other banks use them

One view of the customer for both the customer and for the bank

Turnaround time for closing leads, opening accounts and closing service requests has been drastically improved. Campaign definition and performance tracking can be done better

Helps manage high net worth clients, helps offer a range of end to end services which HNWs expect from their banking partners

Returns
Indian banks still do not know how to measure returns from a CRM system. It is also difficult to measure unless customer retention gains higher priority than customer acquisition, which is not going to be the case in Indian markets for at least another 10 years IT spends for small projects are a part of discretionary spending. Unaware and unsure if returns are measured Customer staying with a bank utilizing more services brings us 5 times more revenue than a new customer. That justifies any amount of IT spend on CRM systems

CRM in India
Non Implementation

Most banks are experiencing high growth (>100% YoY). Financial Inclusion is on its way up

CRM makes sense only when you need to cross sell

Costs are prohibitive for smaller banks, returns are minimal

Traditional mechanisms of generating leads are working, why invest in something new?

We can automatically build CRM systems when UID becomes more widespread is the general notion

There is no need to generate leads. Pull based customer relationships is the driver for growth

Existing systems and core banking platform helps generate more than sufficient (much more than usable) reports

Retention is not a problem A customer is a customer for life

CRM in India
Future Outlook

Indian banking industry is maturing differently from other developed economies. This is primarily due to the large section at the bottom of the pyramid in India. Mainstream banking will take a longish amount of time to adopt CRM systems. CRM systems for high net worth individuals is key in the near future

CRM systems will be put into place, but how effectively they will be used will be the differentiator

CIO and top management drive will only increase as years go by Real Time forecasting and cash management will be a real need for all banks however small they are. Therefore, CRM becomes an absolute necessity in the future

CRM in India
Conclusions
Most of the CRM implementation's failure can be attributed to over-emphasis on technical aspects and on neglect of strategy and people. The choice of technology should be derived from the strategy that the firm has visualized and who are going to use it The processes involved in customer management need to be aligned to the best in practice

Firms start implementing CRM without even deciding upon the objectives to be achieved through the exercise

There should be proper performance measurement mechanism and control methodology that can give insight (and control) into the status of the implementation process as well as on its success Owing to CRMs' high initial costs as well as high implementation costs, the downtime requirements, lack of clear ROI measurements, long gestation period before the profits start showing up etc. have also served as important factors in slow and gradual penetration of CRM

Major IT Applications
6
Virtualization & Server Consolidation

Lower number of physical servers - reduce hardware maintenance costs By implementing a server consolidation strategy, space utilization efficiency in data center goes up Prevent one application from impacting another application when upgrades or changes are made - Sandboxing Develop a standard virtual server build that can be easily duplicated which will speed up server deployment Deploy multiple operating system technologies on a single hardware platform (i.e. Windows Server 2003, Linux, Windows 2000 etc)

Virtualization
Virtualization in Banking
Increasing customer base, leading to a need to handle large volume of data Banks expect to scale rapidly. IT infrastructure is expected to be complex. Need to simplify Allows for an agile infrastructure Banks can focus on their core competencies Banks implement different kinds of virtualization application, network, OS, presentation, storage Server Presentation Application OS Tools
VMware Microsoft virtualization solution Hitachi storage solutions at work Composite data virtualization software Red hat KVM Virtualization

Dynamic and responsive data center Seamless remote execution of applications Change how Line of business applications are managed Multiple OS on single desktop

Virtualization
Methodology of study - Virtualization
Secondary Research on the theme Primary research based on the hypotheses Analysis and Findings

Initial Hypotheses

Secondary Research

Conclusion of study

Initial Hypothesis - Virtualization

Banks go for virtualization to cut costs and save space and utilize resources effectively

Banks look to improve performance through virtualization

Only large banks go for virtualization. Hardly any of the small banks see a need for the technology

Virtualization
Successful implementation of Virtualization in Banks
Need: arrest infrastructure cost and save data center space Server and desktop virtualization using VMware Deployment cost cut down by 1/3 Need: Support its formidable growth Desktop virtualization using VMware 3 times decrease in cost and increase in lifetime Need: Cut costs. Manage applications centrally Desktop virtualization using VMware 50% reduction in TCO. 70% reduction in upgrade time Need: Save space. Reduce power consumption Server virtualization using Microsoft virtualization solution 40% energy savings Need: Reduce power consumption. Group consumed 5 to 6 MW of power Adopted Server virtualization. Cut increase in utilization to 200 KW from 600 KW.

St. George Bank, Largest banking group in Australia Woodforest bank, Large bank operating from Houston Mahesh bank, Large Coop bank in South India

Bahrain Islamic Bank

Credit Suisse, largest banking group in Switzerland

Virtualization

Findings from primary survey

Typical objectives of virtualization in Banking

Save on power, cooling and rack space. Increase uptime. Handle standby efficiently without disturbing production. Server/network consolidation is a key objective More efficient usage of space in datacenter is another. Overall result in less cost and improved efficiency

Virtualization
Implementation Methodology

Planning

Business Case

ROI Model

Vendor Selection

Cost Features Market Share Licensing Maturity

Ability to handle information security Support provided, time to recovery Financial strength Client testimonials

POC

Network => Hardware => Desktop Application

Virtualization
Post Implementation and other findings
Performance Monitoring
Collect historical data. Add corresponding costs to it. VMWare Capacity planner Checks resources over a period and gives consolidation recommendation

Old and Legacy Systems

Usually not touched. Dont want to disturb operations Old systems - reuse if possible. Scrap if out of warranty

Classic problems post of Implementation

Application not supported Over provisioning Network mapping Remote addressing Application communication breakdown

Why banks dont implement virtualization

Dont trust the technology Costs outweigh benefits, given the risk Management doesnt want to disturb what works fine Unable to get user buy-in Bank size is too small to achieve noticeable benefits

Virtualization
Conclusions
Most Implementation project failures are because of poor planning Create peak volume during normal hours Reduce costs, use less resources and get same performance Banks that have outsourced find it easier to virtualize

Vendor strategy and company strategy must match

Importance of vendor being financially stable Banks are never sure that all scenarios have been handled during testing.

A bug can be because of the component virtualized, or because of the virtualization itself