IRACST International Journal of Commerce, Business and Management (IJCBM), ISSN: 23192828

Vol. 4, No.5, October 2015

Third Party Products by banks

Challenges & Prospects in Insurance and Mutual funds

Authors Name & Address

Ms. Joby Joy

Assistant Professor
SCMS Cochin School of Business
Cochin

Abstract: research, an analysis of theperceptions of

The banking industry in India has grown
tremendously. The banks in our country now
deal with third party products such as Insurance
and Mutual Funds and have diversified
themselves into a large arena of operations.
This indeed has enabled most of the banks to
strengthen their relationships with the
customers. This research focuses on a detailed
study on the various fee based third party
products offered by one of the leading private
sector banks in Chennai Region. Through this
various customers towards the fee-based third
party products and the major impediments as
well as avenuesin the sale of third party
products has been carried out. The banking
industry has been constantly evolving and this
research can be applied to a large extent in the
banking industry as majority of the banks in
our country do offer fee-based third party
products apart from the traditional banking
products.

Keywords

Third Party Products, Insurance, Mutual Funds

Introduction

As the changing era has brought in a new outlook into the field of banking, these daysvarious value
added products and services are being offered bythe banks to its customers to attract them and to
induce them in staying with the bank. It has actually changed the outlook of the banking activities and
has given a new appearance that has indeed been the factor or a pulling force in attracting the
customers.

This research focuses on the various fee based Third Party Products that are offered by the selected
bank. These products includemainly the insurance products and mutual funds. This research involves a
detailed analysis of the reasons or preferences of the customers for accepting the products and also
their non-preference along with various reasons obtained through the survey.

Research Methodology

This research aims at analyzing the various fee based Third Party Products that are offered by one of
the leading private sector banks in Chennai region. The major objectives of the research are;
to evaluate the awareness levels of the customers with respect to the Third Party Products
to identify the factors considered by the customers prior to the purchase ofThird Party Products
to study the preference levels for Third Party Products by various age categories of customers
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Vol. 4, No.5, October 2015

Here, as the research problem is clear and specific in nature and as the problem has been clearly stated
a conclusive research has been carried out. Under conclusive research, descriptive research design is
used as the problem is crisp, solid, definite, specific and well defined in nature. A comprehensive and
detailed explanation of the phenomena under study has been carried out through this descriptive
research.

The sample includes the customers who possess an account with the bank. The sample size of the study
that has been undertaken is 100 customers.

The major sources of data collected are primary and secondary data. Primary data has been collected
witha structured questionnaire by conducting a survey amongst the customers who hold an account in
the bank. The other sources of primary data collected are by interviewing the staff at the bank.A little
amount of secondary data was also collected from magazines, portals, and websites of the company.
This has helped in obtaining the nature of various products and the features that have been included in
each of these products.

The sampling technique that has been used in order to carry out the research is convenience sampling
method whereby all units get an equal chance in getting selected into the sample.

A detailed analysis has been done in this research by studying the various fee based Third Party
Products that have been offered by the bank in targeting its customers. The bank offers third party
products broadly on two categories, namely, insurance and mutual funds.

Data Analysis and key findings

Third Party Productsrefer to those products that are sold by a bank for some other institutions. Here the
bank receives revenue on the sale of these products in the form of commission. The fee based third
party products offered by the selected bank are insurance and mutual funds.

i. Awareness Levels about the various Insurance Products

CHART 1
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 IRACST International Journal of Commerce, Business and Management (IJCBM), ISSN: 23192828
Vol. 4, No.5, October 2015

The above graph shows the awareness level of different customers towards different fee based Third
Party Products offered by the bank. Out of the above five products offered, the product which majority
of customers are aware of is the retirement plans, followed by the mutual funds and health insurance
plans. The customers are more aware of the retirement plans as majority of the people are aiming at a
safe and secure future.

ii. Preference for difference insurance products among different age category

CHART - 2

The above graph represents the preference for different products by the customers of various age
categories. From the graph, it can be interpreted that the respondents of the age category 20-30 prefer
health insurance plans as they are more health conscious. The age category of 30-40 and 40-50 prefer
retirement plansmore. The main reason for the preference of retirement plans by this category of
people to provide security to the future.

Awareness levels about the insurance products and the purchasesdone Is there any
interrelation?

On further analysis with respect to the respondents awareness levelsabout various insurance products
and the purchases done by them, it could be identified that though majority of the customers are aware
about the retirement plans, the purchases done are not much. As retirement plans aim at future benefits,
the premium incurred is on a higher side, which many cannot put as an investment. Many are aware
about mutual funds also but the investment in this case too is less.

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Vol. 4, No.5, October 2015

iii. Factors considered before purchasing insurance

CHART - 3
From the above chart, it can be inferred that within the age group of 20-30, a large majority considers
the factors life coverage and rising health expenses before purchasing an insurance product. While in
the category of 30-40, a large proportion of people consider the factor relaxed retired life feature. Same
is in the case of the age group of 40-50, a small number of people consider the factor relaxed retired
life again as they are concerned about the uncertain future.

iv. Type of account holders and insurance product preferred

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Vol. 4, No.5, October 2015

CHART - 4

The above figure gives a diagrammatic representation of the types of insurance products purchased by
different account holders.Term insurance plans are mostly purchased by the people who possess
normal savings account. Those who have NRI account prefer child plans more, whereas Health
Insurance plans and retirement plans are mostlypurchased by customers who have normal savings
account.

v. Mutual fund investment preferred

CHART - 5
The above graph shows the different combinations of mutual funds that are offered by the selected
bank and the combinations preferred by the customers. Among the three types, i.e equity, debt and the
combination of both, majority of the customers prefer a combination of both since the risk is
proportionate and also owing to the probable better returns on the investments made.

vi. Factors considered before investing in mutual funds

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Vol. 4, No.5, October 2015

CHART - 6

The above graph represents the various factors considered by the different age categories of people
before making an investment in mutual funds. The age group of 20-30 considers tax benefits as a very
important factor whereasthe age group of 30-40 considers the factor of reduced risks as important. The
age group of 40-50 too considers the factor reduced risks as they are at the age of retirement and hence
do not prefer to take up large volume of risks.

vii. Type of account holders and preference towards mutual funds

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Vol. 4, No.5, October 2015

CHART - 7

The above graph shows the types of mutual fund investments made by the customers who possess
different types of accounts. From the above graph, it can be inferred that with respect to investment in
equity, it is the NRI account holders who invest more. The privilege account holders do the majority of
investment in debt whereasthe combination of both is preferred mostly by the NRI account holders.

What more may be considered to make Third Party Products attractive

The fee based Third Party Products that the bank offers to the customers is highly beneficial as the
customers can get their work done by simply visiting a bank branch and as far as the bank is
concerned, it generates large amount of revenue.

Besides the traditional banking business in which margins are becoming lesser, it is advisable for the
banks to judiciously market the Third Party Products, such as insurance and mutual funds. For many of
the customers, ease in buying the Third Party Products from the banks coupled with the trust factor
towards the banks prevent them from doing too much of premium comparisons. They normally choose
to purchase all the available financial products from their bank itself, rather than shopping around at
different places. Nevertheless, when the bank is unable to provide Third Party Products to its
customers, they would definitely purchase it from the others.

It is indisputable that the Third Party Products become attractive when the costs involved are low.The
Relationship Managers should be given incentives in order to motivate them to bring high volumes at
low costs.In general, theBank employees are more service oriented.This marketing culture for Third
Party Products can spread onand can build a new sales orientation in the banks.

The trainings given to the bank employees should not be limited to thesales aspects. Thrust on the
procedural and technical aspects focusing on post purchase servicing should also be given to facilitate
customer retention.
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Vol. 4, No.5, October 2015

From the research it could be identified that though the awareness levels about retirement plans is more
irrespective of the age category, when it comes to purchase of products, it is not preferred much. It
could also be found out that there is a strong relationship between the age of the customer and the
nature of the insurance product preferred. Another major issue to be addressed is with respect to the
minimal purchase in insurance by the senior citizens. Appropriate steps can be taken by the bank to
cater to that category too.In the mutual funds sector, the bank generates less business. It is imperative
for the bank to probe more into the areas of concerns and to devise prudent promotional activities to
improve the business volumes.

Conclusion

The demands of todays customers change rapidly. They look for flawless multichannel sales and
services from the banks, which in turn force the banks to go for a more balanced and integrated
approach to position their Third Party Products as value addition for their customers. The
customersexpectations from the bank are mainlybased on how this proposition is structured.The
success of Third Party Products depends on whether those are feasible enough to generate sufficient
revenue that justifies the costs involved.

The research undertaken reveals the challenge for banks to transform to a model that focuses more
effectively on the customers requirements, identifying that theymostlydiffer across various segments.
Many banks in our country doventure to such new opportunities, but the industry as a whole needs to
be open to cater to the needs of a more challenging and assorted customer base.

Bibliography

[1]How banks can improve third-party product distribution,http://articles.

economictimes.indiatimes.com

[2] Alexandre, C &Redcliffe, D. Regulating New Banking Models that can Bring Financial Services
to All, Bill & Melinda Gates Foundation, 2010.

[3] DeYoung, R and Rice, T (2004), How do banks make money? The fallacies of fee income,
Federal Reserve Bank of Chicago Economic Perspectives, Vol. 28

APPENDIX

QUESTIONNAIRE

Name: ..
Marital Status: Single Married

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Vol. 4, No.5, October 2015

Occupation:
Business person Professional Self- employed Student Housewife

1) What type of account do you possess?

Normal savings account Privilege account NRI account
Fixed deposit Recurring deposit

2) Are you aware of the following investment products?

Products Awareness Invested
(Yes/ No) (Yes/ No)
Term insurance
Children plans
Retirement plans
Health plans
Mutual funds

3) How frequently do you invest in various products? Also, specify the type of investment which
you do usually.
Weekly Monthly Yearly Rarely Never
Type of investment(s) ..

4) Which type of insurance product do you prefer?

Term insurance Retirement plans Children plans
Health insurance I dont prefer
Reason .
5) If you have availed an insurance cover, please specify the factors considered by you before
purchasing the same.

Attributes Very much Important neither unimportant Not at all

important important important
nor
unimportant
Life cover,
Protection
against rising
health expenses
Financial
security for
family
Planning for
Childrens
education
Planning for
Childrens
marriage

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Vol. 4, No.5, October 2015

Planning a
relaxed retired
life
Long-term
investment
Tax Benefits

6) Which mutual fund investment do you prefer?

Debt Equity Combination of both I dont prefer
Reason .
..

7) Factors generally considered by you before investing in mutual funds:

Attribute Very much Important neither unimportant Not at all
important important nor important
unimportant
Reduced risks
Affordability
Tax benefits
Convenience
and
Flexibility

8) Feedback or suggestions
.
.
.

Authors Profile

The author is an Assistant Professor at SCMS Cochin School of Business and also a research
scholar at Bharathiar University, Coimbatore.

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