Retail Banking and Role of Information Technology in Customer Experience

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1 Retail Banking and Role of Information Technology in Customer Experience Chapter I: Retail Banking Definition and Activities Role of Information Technology and Internet in Retail Banking Importance of Information Technology in Retail Banking Chapter II: Videoconferencing in Retail Banking Advantages of Using Videoconferencing in Retail Banking Chapter III: Mobile Phones in Retail Banking M-banking Impact on Retail Banks Threats to Retail Bank Strongholds Real M-banking Silver Lining for Retail Banks Chapter IV: Information technology in retail banking Sustaining Growth Chapter V: Improving Customer Experience Key to Growth Path for Next Generation Retail Banks

2 Chapter I: Retail Banking Definition and Activities Retail Banking may be defined in many different ways. The distinguishing factor of retail banking is that it deals with consumers directly and not with corporations or businesses. Services range from savings account, transactional accounts, personal loans, home mortgages, credit cards, ATM cards, traveler s check, term deposits and debit cards. Extended services include facilities for paying utility bills, car loans and money transfer. The term Retail Banking is often used to show how it is different from investment banking, commercial banking and wholesale banking. Retail banking servicesare often offered to customers as packages, which means the terms and conditions of offer are often not amenable to customization. Retail banking is usually an extended arm of a commercial bank and operates as a separate division. Commercial banks generally deal with corporations and large-scale businesses, and accept deposits and extend loans on negotiated terms. There is however some gray areas where retail banking operates like investment banking. Typical services in this category are wealth management, brokerage accounts, private banking and retirement planning. That they do due to the reason that they intertwine with core retail banking activities like savings and checking account. However the basic reasons are that they allow easier money transfer and maintenance. Besides commercial banks, there are also other sub-type banksthat offer retail banking services whose activities too are regulated. They include the following: Community Development Banks primarily intended for under-served areas or populations Private Banks for servicing high-worth individuals Off-shore banks, savings banks and postal savings bank Role of Information Technology and Internet in Retail Banking The advent of information technology and internet has drastically changed the ways in which retail banking is delivered to customers, especially internet banking. Internet banking is nowadays an important source of revenue for banks and the quality of delivery is the differentiating factor in determining the quality of service.

3 Benefits of Internet Banking Channel Internet banking is currently growing at a rapid pace across all geographies. In North America, for example, 60% of all basic transactions are done through online channels, and in Europe, reports show, that at least 40% of internet users visit online banking sites. The main driving factors of internet banking are: Gen Y customers (young users) who prefer the convenience of internet banking Lower cost of internet broadband service and easy access to it Increased confidence in internet banking General boom in retail banking Advanced solutions and offerings through technological advancements Customers these days are also demanding a richer experience, especially the Gen Y users who are tech savvy. They expect services to be seamless and multichannel oriented. However, there is still a section of banking customers who prefer the age-old traditional branch banking who tend to use the internet sub optimally. Importance of Information Technology in Retail Banking It was the original intention of banks to use information technology as a formidable tool to bring down costs and increase efficiency. They did not foresee the possibility of internet technology permanently altering consumer expectations and behavior. In reality what happened was that information technology was embraced to the point where consumer demandis driving business changes.

4 During the last few years, the web has transformed dramatically. Today, consumers use the ability of information technology to search, view, and order products online over the Internet. This the retail banks see as an opportunity to lower costs by enabling consumers to manage their accounts online. In the current scenario consumers are actively embraced in building relationships with online businesses. The impact of 3G mobile technologies on retail banking is also being felt with consumers using the web to determine at what time of the day they want to do business. Retail banking has been generally slow in reacting to newer trends brought about in the consumerdriven environment. Strangely though consumers are able to establish real relationships with others through the web, retail banks are still sweating out to build meaningful customer relationships through the use of information technology. This inability on the part of retail banks has increased the threats from new generation web-oriented newcomers like peer-to-peer lenders and payment services like PayPal. To counter these potential threats, retail banks will have to do at least two things on an urgent basis. Discover ways and means to remain relevant to consumer needs through the use of information technology Translate this knowledge to bring in more economic returns and increase profitability Another area in which retail banks are lagging behind is in understanding consumer needs. That they expect their banks to be secure, accurate and accountable has not changed, but what counts more these days is that they expect to be associated in designing the products. It has also come to light that more than ever, individuals are spending more time in the internet than on television. It is therefore evident that consumers will increasingly depend on peer groups for information on products and service. The days of passive consumption are almost dead. At least in two case studies, the need for associating consumers ahead of product launch has been established. Del Monte had created an online community called the I Love My Dog and invited 400 dog owners to solicit opinion on their products. With the information they could muster on look, packaging and taste they could successfully launch their product and improve sales.

5 Dell s Ideastorm again has successfully created an online community that they use to gain insight into user preference for products and product development. Dell s effort has paid off well at a fraction of the cost it would otherwise have taken to do research. This is typically the kind of advantage retail banks can deploy in their own context by using information technology. It is therefore self evident that user experience is a prerogative to the success of products and services to retail banks as much as it is to manufacturing business. Chapter II: Videoconferencing in Retail Banking The opportunity for using videoconferencing in delivering retail banking has come to stay. The first few retail banks that tried videoconferencing way back in 2000 and again in 2003 were unsuccessful, but subsequent events has proved their utility and usefulness beyond doubt. The reason for their initial failure can be attributed to a general unawareness on both the consumers and the banks. It is now estimated that retail banks can retain upward of 40% of enquiries through use of videoconferencing. Videoconferencing technology has matured enough to the point where true-to-life video conversations can substitute for in-person selling. It holds the means to drive to improve revenue generation and deliver service. Enterprisesare already using video for enhancing executive-employee interactions. More and more consumers are using PC and mobile-based video calls thus making them perfect targets for retail banks to sell products and services. Videoconferencing can be particularly helpful for large retail banks when they wish to project themselves as small banks that can provide personalized services. It helps to bridge the gap between consumers and the bank sadvisor. Smaller banks on the contrary can use it as a means to present themselves as bigger than what they are by supplementing their branch services. Videoconferencing holds the potential to manage demand for services more effectively, make optimum use of skilled staff and improve revenue generation. What makes videoconferencing the preferred tool for retail banking is its ever increasing patronage among a wide section of users. Findings show that: 53% of Gen Y consumers in the US born between 1980 and 1992 used desktop video for communicating with their families, and 41% use mobile phones for watching video and

6 interacting with others. 28% of those over 50 years of also used videos for communicating with others. 63% of US private-banking clients expressed great interest in using high-definition video at their office for interacting with experts located outside their offices. 38% under 50 expressed interest in using video at least once a week. The corresponding figure for those over 50 is estimated at 7%. Advantages of Using Videoconferencing in Retail Banking There are multiple ways in which retail banks can increase revenue flow and help themselves from other banks through use of video. They can be used for selling products and for consulting branch adviser as against a branch visit. The benefits to retail banks are that they don t have to invest in increasing their branch network or spend additionally on staff. The 4 four major areas to concentrate for retail banking are: Remote Adviser Remote Private Banking Remote Concierge Remote business-to-business meeting It can be safely concluded that past failures in using video conferencing were due to immature technology, poor quality of video experience and lack of awareness of videoconferencing among user segments. All these obstacles have since been overcome with the advent of superior equipment and improvement in information technology, though there is still room for improvements. It may take some more time for retail banks to decide on the optimum configurations on equipment and the class of customers they will want to service through videoconferencing. Some banks that made early entry are already reaping the benefits of videoconferencing over their rivals. In this aspect videoconferencing seems to be making inroad in offering opportunities for transforming the retail banking scenario. A friendly user interface is yet another important aspect that banks need to consider in video conferencing. Chapter III: Mobile Phones in Retail Banking

7 Mobile banking or M-banking as it is often known is the term commonly used for delivering retail banking services using mobile phone networks using cell phones. They are for depositing, sending, saving money and withdrawing. M-banking is generally an additive service and is an extra channel of access to users accounts. M-banking generally comes in handy where internet is generally not accessible. It proves its utility in unbanked areas. Mobile Banking Operations M-banking is largely projected as a tool for providing financial services to unbanked areas and finds extensive use in both developed as well as developing countries. The key rationale behind extending M- banking is the perception that they are an affordable and within the means of most commoners in rural areas. It is an alternative to users who are used to living in regions where cash is the means for making transactions. Mobile-banking technology has transformed from being device-driven service to user-centric service. Users today expect the mobile devices to perform multiple functions of a PC. Spurring this revolution are smartphones and tablets that have transformed the mobile device into an interactive device through which they can engage service providers in real-time. Mobile-banking is all set to change drastically and some of them are already a reality. Mobile technologies are expected to play multiple roles like authentication and authorization. There is also a wide possibility of mobile device replacing traditional methods of establishing identity as face and voice recognition technologies are perfected through biometrics. M-banking Impact on Retail Banks

8 The mindboggling speed at which information technology is changing is sure to make an impact on retail banking service users. Retail banking should expect a general change in consumer behavior in the ways they use their service. It is significant to note that in 2012 only 40% bank customers believed banks are able to adapt to their requirements, leaving behind 60% who thought otherwise. Survey results also indicate that 70% of customers are willing to trade in their personal information for products and services that meet their growing expectations. It is therefore imperative for retail banks to model their products and services within the expectations of customer preferences. Indications are that retail banking will further have to move away from conventional banking methods and make way for self-servicing channels like online, M-banking and social networks. It will therefore be safe to say that M-banking is now too important in building relationship with customers in the future and further they need to be tailored to the expectations of users. Threats to Retail Bank Strongholds Real New and innovative information technology products that are affordable and user-friendly are likely to challenge retail banking in a big way on a global scale. Foremost challenging technologies include NFC (Near Field Communications), virtual personal financial assistants, mobile wallets and other customized applications that are being developed. The transformation we foresee in the immediate future is irreversible it may be concluded. Retail banks will increasingly have to compete with technology companies to retain customers without doubt.

9 The incursion of mobile airtime providers into the bank s traditionally held domain is yet another cause for concern to banks in retaining customer loyalty. This is borne out by the fact that already information technology applications are able to transfer money between smartphones with just an account and a phone number. Unless the retail banking industry takes a serious view of the situation and comes out with its own brand of solutions, they may become redundant in the mobile banking sector. M-banking Silver Lining for Retail Banks However, there is at least one area in which retail banking still has an edge over internet and mobile technology companies The remittance corridor. Building a remittance corridor is an expensive affair that not all competitors can think about at present because of its limited potential in generating profits, and that is besides the regulatory measures of governments. To exploit this strength, retail banks will have to streamline their M-banking offerings and streamline its operations for bill payments, shopping and peer-to-peer money transfers, just as much as they will be required to make the interface intuitive and friendly. Chapter IV:Information technology in retail banking Sustaining Growth Retail banking is gradually recovering from the aftermath of economic downturn. It had strained the industry vastly and retail banks are thinking in terms of sustaining growth over longer periods and making their operations more efficient. It is now clear that banks, to survive and grow, must adopt newer information technologies in its totality to remain in business. There are 3 strategies that retail banks can use to sustain growth over an extended period: 1. Attract younger users to open accounts and give them a rich experience 2. Offer enhanced services to customers who are dissatisfied with other banks 3. Make the interface attractive and friendly to give users a memorable experience

10 This is the banks can do by adopting the latest in information technology and give users an unforgettable experience. To sustain new accounts and keep growing, retail banks must improve operations, push for sales and improve existing process. What Banks Need Towards achieving this objective, banks must provide their staff the right tools through information technology.it includes: Customized dashboards for different role players within the bank Comparing different products & services before decision making Tracking & calculating the various management ratios Obtaining information for pricing decisions, and Alerting systems for decision making Chapter V:Improving Customer Experience - Key to Growth Path for Next Generation Retail Banks Surveys indicate that, towards improving customer experience, banks will

11 A Futuristic Bank Branch Increase the use of videos to acquire new customers Setup Smart Kiosks that are functional 24/7 Give customers multi-channel support (expert consultation, interactive display) Interactive Video Teller Machine Enable personalized advice and services through unmanned branches with: o Interactive digital screen co-located with ATM or at a branch o Fully interactive Virtual Teller co-located with ATM(s) or at a branch o Fully automated branch model with a dedicated expert interaction space; no physical staff All these require the development of information technology solutions on an exclusive basis for the retail banking sector with superior interfacing to keep customers engaged.