IT –Implementation Strategy for sustainable growth, in Standard November

Chartered (Consumer Banking) India 24, 2008

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 IT –Implementation Strategy for sustainable growth, in Standard November
Chartered (Consumer Banking) India 24, 2008

Introduction:
India is the second-largest contributor to StanChart’s global profits. The total operating
profits for firt half of 2008 is $ 460 million ( excluding sale of the AMC this year), only next
to Hong Kong at $ 656 million.

Operating profit from Corporate Banking grew by 46.7% to $411 million in the first half,
beating even Hong Kong which was at $343 million. The operating profit from Consumer
Banking grew slower at 22.5% to $49 million.
Corporate banking loans was up by 26% to $5,036 million, SME loan offtake was up 69% to
$1,079 million. Consumer banking loans rose only 13% to $3,762 million, while while
mortgages remained flat at $1,539 million.
( Source: Economic Times)

Key Issue:

The mix of income between corporate and retail banking was at 70:30 while the profit mix
was at 88:12. Clearly there is a need to understand for this skewed contribution of retail
banking and the means by which, Retail Oprations can increase it’s contribution to profits
and also sustain growth amidst economic slowdown and competition.

We look at how to bring about change in strategy, introduce BPR to certain process and
leverage IT as an enabler of this change.

Macro –Level Challenges to Growth of Standard Chartered:

(a) The core products are getting commoditised, in a recent survey by Gartner says that
about 50% of customers select banks based on only one factor — price.

(b) Diminishning product/service differentiation as all major banks has adopted

information technology- ATM, Net Banking, CBS etc.

(c) Reserve Bank Of India restricts the offer of branch banking liscence to a maximum of
4/per year to foreign banks. Inorganic Growth through M&A is an unlikely
proposition, because Public Sector Banks with large AUM cant be aqcuired by law,
high valuation of Tier-1 private sector banks and cultural and technology related
integration issues with low profitable Tier-2 private banks.

(d) National no call or DnD policy has been adopted in accordance with RBI regulation-
restricting telemarketing.

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 IT –Implementation Strategy for sustainable growth, in Standard November
Chartered (Consumer Banking) India 24, 2008

Growth Opportunity & Macroeconomic Conditions:

• Indian retail banking has shown phenomenal growth, last 5 year credit grorth at a
CAGR of 35%
• In 2004-05, 42% of credit growth came from retail
• Retail credit expected to grow to $ 130 billion by 2010.
• Retail Credit Composition: Home Loans 49%, Auto 28%, Personal Loan 16%
• Retail assets are just 22% of the total banking assets of India
• Contribution of retail loans to GDP:
 India - 6%, China-15 %, Thailand- 24% Taiwan- 52%
• Indian population below 35 yrs of Age – 70 %
• Reach of Formal Banking Channels – 20-25% of Indian population

( Source : State Bank of India presentation,2005 at IBA)

Observations on StanChart’s Retail Banking:

1. Existing Customers Segmentation – is based on relationship value as- normal, excel

banking and priorty banking, customers. But only marginal product /service
differencial in terms free check pickups,overdrafts,credit card limits & a separate
banking lobby, but no real value addition to the customers for choosing a higher
segment.

2. Relationship Banking with no real trust- Branch banking mainly focuses on cross-
elling third party products- investments and insurance. Investment advisors dont have
access to any portfolio management softwares, little access to any meaningful
centralised investment advisory report.Globaly the bank doesnt have any equity based
product, it has sold of its AMC in india. Retaining wealth management division
without have having core competance or any major alliance, results in unevaluated
advice.

3. Misselling- Rampant misselling, premature withdrawl and reinvestment of customer

portfolio “ churning” to meet target pressure. Although bank maintains a no mis-
selling policy its largely seen as an internal policy. Cutomers are required to fill a
questionaire on their risk profile, but conformation of the investment portfolio to the
risk profile and tracking subsiquent development is limited in absence any software.

4. Absence of core banking products- like auto loan, restricted lending of mortgage and
pesonal loans.

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 IT –Implementation Strategy for sustainable growth, in Standard November
Chartered (Consumer Banking) India 24, 2008

5. Amongs the largest issuer of credit cards in India. Very high dissatisfaction in credit
card and mortgage servicing- one centralised contact point for the city, customers
accross all segments are required to deal with it or the call centre, branch banking
officers have no control, and required not to have any control on the service process.

6. Cross Selling is not well orchestrated- the same customer will get 10 calls and 3 visits
from different departments, and no one has any clue about it. A highly irritative and
undesirable aspect of banking.

7. Performance banking @ customers: Sales Culture vs Service culture its a highly

debatable issue. On the record everything is going on fine, financial results are great.
The annual employee ratings for barnch banking officers (ESAU) are entirely based
on sales performance-with particular empahasis to third party products which are
most profitable for the bank. There is no incentive for the service focused- “nice guys
comes last”. The third party customer surveys are manipulated by the branch
managers and only the “ones we know well” are asked to fill the questionaires.

8. Customers data redundancy- a problem particularly with large old branches.

9. Irregular & low, customers walkins about 0.5% of the base on a daily basis. Referals
for Liability products are minimal, no emphasis on asset products.

10. Outbound sales teams account for most of new the aquisition most for new accounts,
mortgages and personal laons. The bank has exited Auto loans.

11. New account opening not followed up as due to lack of information.

12. Netbanking – facility is highly constrained, no third party account transfers are
allowed- practically you can only check your accout status,transactions statements.

13. Mobile banking services –in nascent state and highly constrained user benifits.

14. High Value Cheques clearance is effected after (24hrs), many banks do it same day.

15. Flawed ATM policy- the bank has ATMs only at branches the logic is “we offer 4 free
trasanctions on any other banks ATM” so why waste money.

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 IT –Implementation Strategy for sustainable growth, in Standard November
Chartered (Consumer Banking) India 24, 2008

16. No cash dispencing machine at any major consumer/trade hubs.

17. Statement delivery is a major issue. Statement of account for investments products are
not despatched, no tax statement is generated for customers.

18. The earlier Llyods and Grindlays customers complain- bank’s good old days, It has
lost the personal touch, customer gifts, meets, the officers are very professional they
keep on changing every 6 months etc.The bank’s attitude in general is “ change is the
only constant....move on guys”

(Disclaimer: The above stated observations are based out of my experiance in working with StanChart, 41
Chowringree, Kolkata Branch ,as Personal Financial Consultant, from 2004-2006. The branch is 125 years old
foremerly part of Llyods Bank, then ANZ Grindlays, subsiquently acquired by StanChart. It has a customers
base of 22000 customers and maintains corporate salary accounts for Fortune 500 companiesslike Tata Steel
and FT -500 companies like ITC and Hindalco.These veiws are strictly personal in nature.)

Critical Reasoning of the stated observations :

Impediments Possible Solutions

1. Need to compete on pricing , offer

variable pricing based on customer
relationship value.
2. Customer Service as the
1. Product Commodatisation differentiator
3. Niche Market: Improve business
intelligence and
2. Products not competative, low Target loyal customers with low risk
penetration in mortgages, profile,and in the high-income
discountinued auto loans, restricted bracket.
personal loans

3. Diminishing IT advantage 4. Embrace IT Innovation

5. Increase customer base of existing
4. RBI sanction on Branch Banking branches through increase in scale
Liscence and reach.
6. Enterprise wise Unified veiw of the
customer. Better portofolio
management
5. Misselling & Croselling of Financial 7. And analytical tools to asses
products customer needs
6. Service issues with credit card and
mortgages 8. Application of BPR
7. Lack of customer centricity 9. Application of BPR and Training
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 IT –Implementation Strategy for sustainable growth, in Standard November
Chartered (Consumer Banking) India 24, 2008

8. Payment related issues 10. Leveraging Technology

Developing Corporate Strategies based on contemporary studies on sustainable

competative advantage, and innovation in retail banking:

(I) The Key to sustainable growth is to become the primary financial institution:
According to a report by ICRA Limited, Public Sector Banks hold over 75 percent
of total assets of the banking industry, with the private and foreign banks holding
18.2% and 6.5% respectively. Customers still prefer to make PSU Banks as their
primary bank and save a relatively smaller portion of their wealth in
private/foreign banks largely due to service superiority.

A study suggests that majority of consumers banking customers use their primary financial
institutions for additional services like borrowing, investment and insurance. The survey
indicates that 76 percent have a loan product with the bank where they have a savings
account, while 40 percent of customers have investment products and 20 percent have
insurance products. “ building strong relationships with customers through their retail
banking accounts....................encourages customers to deposit a larger share of their financial
holdings to their primary financial institution—thus creating a positive impact on the bank’s
revenue,” said Lubo Li, senior director of research at J.D. Power and Associates.

(Source: Canadian Retail Banking Customer Satisfaction Study by JD Power in 2008)

(II) Building Customer Loyalty : Customer satisfaction is passe, It’s the Loyal
Customers who advocates the banks products and services and forms the most
profitable section of the portfolio.
A IBM study in the US by dividing retail bank customers into advocates, apathetics and
agnostics. Less than a quarter of all US bank customers were advocates of their primary
bank. According to our research, the factors most highly correlated with advocacy are
emotive drivers of the customer relationship. Customers who are advocates of their bank
score these items higher than all other factors. In total, customers give their banks credit for
delivering on the rational factors 52 percent of the time, but only agree their banks deliver on
the emotive drivers 26 percent of the time.

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 IT –Implementation Strategy for sustainable growth, in Standard November
Chartered (Consumer Banking) India 24, 2008

Emotive Attributes Percent agree ( weighted index)

( effective)
• Values my business 38%
• Employees listen and follow-up 36%
• Resolves fairly 32%
• Understands my financial goals 2 8%
• Relevant offers 2 6%
• Employees provide advice to improve my financial well being.22 %
• Seeks my input 1 3%
• Creates custom products 12 %

Rational attributes Percent agree (weighted index)

(efficient)
• Provides plenty of ways to bank 72%
• Corrects errors when they occur 47%
• Uses information already received 47%
• Consistent level of knowledge 42%

Thus, a bad customer experience – is the a primary trigger that develops antagonists – It
result when a customer needs to contact the bank multiple times to resolve an issue. Fixing
broken processes and understanding how to better resolve customer issues can directly
impact the bank’s cost to serve and build a platform for winning customer advocacy.

( Source: IBM Customer Focused Enterprise Retail Banking Study 2006)

Case Study: Loyal customers are the key to revenue growth, and far too few banks know
whether their customers are loyal or not. If a customer believes his primary bank does what is
best for him, he is likely to be loyal and to make it his first stop.Crédit Agricole (CA) has
carried out annual customer satisfaction surveys for 20 years. The bank wants to know if its
staff recognise customers, how the customer’s adviser behaves and if the adviser is trusted.
One reason CA works so hard at developing personal relationships is because this is getting
tougher. The more customers that bank by phone and internet, the less frequently they visit
branches. Banks have to make the multiple channels of branch, internet and call-centre share
information. BNP Paribas, in its annual French customer surveys to finding out if customers
had a good experience when they came in to seek advice, the adviser behaviour is primordial.
Was the advice given appropriate and did the adviser seek out the client to propose services?
The questions also try to discover whether customers see its products as commercially
competitive. The lesson from Pan-European surveys is that one should seek to customer
loyalty. It a challenge, when your most prosperous customers are visiting branches less, and
using the internet more, requires banks to discover customers’ unmet needs.
(Source : Hooking customers- an article , Financial World online)

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 IT –Implementation Strategy for sustainable growth, in Standard November
Chartered (Consumer Banking) India 24, 2008

Another study provides critical benchmarking information for banks across the North
America and identifies the dominant operational factors that impact personal banking
customer satisfaction including:
• Method of Transactions
• Generation & delivery of account statements
• Account initiation and product offerings
• Convenience of banking
• Fees and charges
• Resolution of problems
(Source: JD Power Associates)

(III) A culture of innovation and change is what critically differentiates a consumer

bank from all of the other banking options, available to the customer.

A study suggests - banks need to create robust innovation infrastructure.To create sustainable
differentiation, think through your answers to the following questions:

Source : (Why banking innovation matters now? by IBM )

Recomendations:

We would now seek to leverage information systems to pursue both organisational and
business level strategies.

(I) Customer Relationship Management Solutions: A CRM solution provides a

comprehensive veiw of customer’s relationship with the bank across multiple
banking channels like e-mail, telephone, IVR, branch, web chat and across
multiple products. Enables bankers to make a informed decision and deal
effectively with customers needs. It enables banks to comprehend their customer's
expectations and offer superior personalized service and effectively cross-sell
financial products. Hence the banks can enhance profitability, customer retention
and loyalty. Specialised CRM solutions should be well integrated with other
banking applications like core banking system.

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 IT –Implementation Strategy for sustainable growth, in Standard November
Chartered (Consumer Banking) India 24, 2008

The mid-1990s CRM initiatives by large banks turnedout to be costly, complex enterprise-
wide projects, with lengthy implementation time. However some of the pioneering banks like
Royal Bank of Canada, Lloyds TSB - succeeded in successful implementing CRM.
CRM goes beyond technology, as banks needs to re-organize the structure and processes to
adequately support CRM implementation. No Bank can afford to ignore the philosophy
behind CRM – that the customer centrecity is key to business success.

(Source : 2nd Generation of CRM Systems, Infosys Technologies)

Analytical CRM – consolidates data from operational CRM and uses analytical tecniques like
OLAP (online analytical processing), data mining, orther techniques like fuzzy logic, nueral
networks etc. Such data sets are then used to identify buying patterns, pinpoint profitable
customers.

Imporve Data Mining in Retail Banking:

1. Do “what if” analysis. If standard Chartred reduces interest rates by 100 basis points?
What is the probability of getting attracting 25% more customers?
2. Analyze past product sales to determine success or failure attributes.
3. Bankruptcy prediction, fraud detection, customer risk and credit analysis.
4. Use the existing database to create customers segmentation that have a high response
rate to specific cross-sell offer.

Synergy Between Data Mining and CRM

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 IT –Implementation Strategy for sustainable growth, in Standard November
Chartered (Consumer Banking) India 24, 2008

Data Mining CRM

(Source : 2nd Generation of CRM Systems, Infosys Technologies)

I would like to touch upon certain process implications also, An automated Transaction
statement analysis, term deposit maturity anlysis can be done and report sent at at branch
level. Branch managerin tern can followup the customer, and cross sell products based on
customer profiling done by the CRM system. He may be given the Flexibility to approve a
higher interest rates on high value term deposits, in order to compete with any other bank the
customer prefers to bank with.

Another area in customer rewards program, which is widespread tool for enhancing customer
experaince, an auto generated emails can be sent to customers on their birthday, together with
self-customised reward programs, on purchases made on that day. Eg: 5% cash discount to
credit/debit card purchases.

One important aspect is data redundancy and its important that feild sales persons be given
laptops or pda through which they can feed in relevent data like customer contact nos, current
address, profile etc.

(II) To be able to Compete on Pricing, implemtion a Relation based Pricing

Solution: Pricing has become a critical differentiator. In such a scenario, banks
can adopt relationship-based pricing (RBP)-a centralised and automated approach
that cuts across product silos to create new customer-centric model for pricing.
With RBP, a bank can now price, service or bundle a product based on the value
of relationship it has with a customer. It’s a practical innovation that progressive
banks are adopting globally.
(Vinson Kurion- CEO SunTec)

Example: TBMS-F software has inbuilt processing engines that can effect and create
enterprise-wide relationship-based pricing, billing, discounting and compute profitability of
micro-level transactions. DBS uses it to enhance Cash Management Services. The bank
examines better ways to serve its customers, through customised offering product bundling
and pricing. SunTec's clients includes ING Bank, HSBC Group, Lloyds TSB and ICICI
Bank”
( Business Wire, Mar 2007)

The means that together with CRM soultions the financial advisors of StanChart would be in
a position to make customised offering to higher customer segments like Excel and Priority
Banking Customers. This would truely bring product differenciation of value to the customer-
like differential interest rates on assets, liability & mortgage products, charging lower
commision on investment/insurance products.

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 IT –Implementation Strategy for sustainable growth, in Standard November
Chartered (Consumer Banking) India 24, 2008

Similarly the data analytics capabilities of CRM and RBP solutions can be used to engage in
niche market strategy- like offering auto loan to select customers segment and may be on
upscale car models only.

(III) Increase scale and reach of existing branches by innovative use to IT.

(IV) Enhance & improve payment capability :

Innovative retail payments:

• Radio Frequency Identification: (RFID) applications will grow due to its speed and
convenience. Example: RFID contactless chip as in proprietary petrol payment cards
protects the confidentiality of account details and financial transactions, Electronic road-toll
collections. Citibank has launched a credit card with combined application of transit smart
card for New Delhi Metro.

• Mobile Banking – Mobile payments are increasing globally, key challenges are dominance
of credit cards, technology and lack of industry standards. Example: ICICI Bank has
introduced , iPruMobile,for managing your mutual fund portfolio , it requires a data
connection (GPRS/3G), and allows you to check the current portfolio value as well as
individual mutual fund scheme value. Stanchart customers can now transfer cash through
SMS, irrespective of whether the beneficiary has a SCB account or not.

• Biometrics – Demand for biometric authenticated payments will grow due as its faster and
provides secure access of account , further older generation of clients in developing
economies who are not tech-savvy can also benefit. Example: Diebold makes Biometric
access control Vaults – currently used by Bank of Hawaii. In the developing regions of the
world biometrics is helping banks to reach the vast rural population largely underserved due
to illiteracy and distance from bank branches. Bancafe Bank has deployed hundreds of non-
AFIS fingerprint-enabled biometric ATMs in rural Columbia to serve coffee growers. Similar
machines were installed by Citibank India to allow its microfinance customers to access
funds.

• Online Banking– Reduction in the unit cost for processing incremental payments online
is expected to drive the growth in online merchandizing. Intelligent websites which
cutomises in accordance with customers profile like age, income, usage etc.
Banks can make life easier for customers through electronic payment processing,
strengthening existing client relationships and thereby improving profit . However concern
over security continues to remain a key issue with indian consumers. Example: HSBC is the
only bank in India to issue RSA token- secure IDs to online banking customers. It generates
authentication code at intervals 60 seconds, using a built-in clock and the card's encoded
random key.

Innovations in electronic payments:

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 IT –Implementation Strategy for sustainable growth, in Standard November
Chartered (Consumer Banking) India 24, 2008

• Electronically integrated procurement system, invoice presentation and payment

(EIPPP)
– (typically focused on B2B billing and payment). StanChart can earn additional revenues by
using software to link buyers and sellers through the bank. It will make purchase and
payments processes efficient, and decrease payment and credit risk. This is service currently
not avilable in India. RTGS- or Real time gross settlement available enables electronic fund
transfer, only when the bank is notified in writing by the client.

• Electronic bill presentment and payment (EBPP) – the consumer makes payments to
multiple billers that are pre-registered with the bank, called Electronic Clearing System is
available with all banks in India.

Source : (Why banking innovation matters now- IBM Institute of Business Value)

In my veiw, certain policy impediments like allowing online third party fund transfers, has
been removed, enabling broader application of mobile banking payments. Similarly more
ATM and Cash Deposit Machines should be installed near major Trade Hubs, Malls and
Residential Locality. ATMs have become also suedo banks and basic banking can be done
without the customer having to go to branch, this would enhance customer conveneniance.

( V) Investment Workstations : Correct investment advisory is an critical aspect of creating

loyalty thus a functional portfolio management tool is important- which not only gives a
unified veiw of customers investment portfolios but built-in fuctions like auto triggers-
buy/sale or switch to debt/equity funds to optimise gains/losses – in line with customers
stated investment objectives, risk bearing capacity can be conformed to. It can integrate a
wide range of data from both internnal and external sources, and handle process like fund
selection to updatinf clent records . For high net worth individuals like priority banking
customers. PMS, Fund Of Funds schemes in alliance with ASK Raymond James is already
existant. A VMS- vendor management system may also be tied to CRM. “Independent
advisors who use the Web to access the Raymond James systems, the company placed a link
to Microsoft Dynamics CRM on a navigation console, where it lives with all of the other
applications used by branch offices. By providing an easy-to-use CRM solution that works
with the applications advisors already use, the home office and advisors can draw upon
centrally stored data to improve tracking for regulatory compliance, increase branch
efficiencies, and enhance advisor performance. “ (Source: Microsoft Dynamics).

IT – Business Alignment: Its important that for the bank to use the correct application in
accordance to the organisations process, IT infrastructure- example- compatible with legacy
systems if any, Core Banking Sys etc, its important to note there is probably no major bank
which has attained total integration of IS Syatems and delivers products and services on a
shared common platform. Hence a framework is given below:

To deliver a packaged software solution to enable financial institutions to:

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 IT –Implementation Strategy for sustainable growth, in Standard November
Chartered (Consumer Banking) India 24, 2008

• Improve customer service

• Comply with regulatory requirements
• Reduce IT costs

To be viable, that solution must address the following technical demands:

• Modularity
• Scalability & reliability
• Openness
• Extensibility
• Security
• Value for money

The solution must also deliver specific functionality that is:

• Business process driven

• STP driven
• Flexible
• Customer centric
• Multi-channel

( source : Misys Banking Sys –the future of retail banking)

Conclusion:
In consumer banking throughout the world large capacity continues to be coupled with little
growth. It has become a zero-sum game with huge resources being spent to retain relatively
stagnate market share. In order to compete for share banks offer free checking, no fees, and
other incentives that are easily replicable and hence sustainable competitive advantage, is not
achieved.What is difficult to duplicate is superior customer satisfaction. Hence the banks
strategy should be to become customer centric rather than product centric and leverage
information systems to serve customers better.

List of References:

1. http://www.cse.msu.edu/~cse891/Sect601/CaseStudy/BiometricsBankingIndustry
.pdf
2. Frost & Sullivan Report: Banking on Biometrics: A Snapshot of Biometrics in
Financial Services by Imran F Khan, Research Analyst, Auto ID & Security
3.

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