product and service innovation in banking industry

FINAL RESEARCH PROJECT REPORT

ON

“Product & service innovation in Retail banking industry”

CONDUCTED FOR

RETAIL BANKING INDUSTRY.

SUBMITTED TO

JAGRAN INSTITUTE OF MANAGEMENT (JIM)

SESSION: 2006-08

UNDER THE GUIDANCE OF: SUBMITTED BY: Ms. Saba Iqbal Mr. Abhishek Srivastava

JAGRAN INSTITUTE OF MANAGEMENT 620, W block, Saket Nagar,Kanpur 208014

Abhishek_Srivastava

Copyright@[email protected]

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ACKNOWLEDGEMENT

A Project usually falls short of its expectation unless guided by the right person

at the right time. Success of a project is an outcome of sincere efforts, channeled

in the right direction, efficient supervision and the most valuable professional

guidance.

This project would not have been completed without the direct and indirect help

and guidance of such luminaries. They provide me with the necessary recourses

and atmosphere conductive for healthy learning and training.

At the outset I would like to take this opportunity to gratefully acknowledge the

very kind and patient guidance I have received from my project guide Ms Saba

Iqbal and her companians. Without her critical evaluation and suggestion at

every stage of the project, this report could not have reached its present form. In

addition, I would like to extend my gratitude towards Dr. S.K. Agarwal,

Director, JIM, for his technical and moral support required for the realization

of this project report.

Lastly, I would like to thank all my colleagues who gave me fruitful information

to finish my project.

Abhishek Srivastava

PREFACE

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Final Research Project during second year of management students is nothing

but a critical analysis of the real managerial situation to which they are exposed.

This gives them an opportunity to apply their conceptual theoretical &

imaginative skills in a real life situations and to evaluate the results there of.

Retail banking services are a group of financial services that includes

installment loans, residential mortgages, equity credit loans, deposit services,

and individual retirement accounts. In contrast with Wholesale Banking or

corporate banking, retail banking is a high volume business with many service

providers competing for market share. While my Final research project, I tried

to observe each steps followed by banks to constitute and deliver the products

and services.

This report is the written account of what I have learnt and experienced during

my project. I wish those going through it will not only find it real but also get

useful information.

OBJECTIVE AND SCOPE OF THE STUDY

The objective of this study is to present a dissertation for the fulfillment of part of

requirement for PGDBM from JIM, Saket nagar, Kanpur.

The broad objective of this study is to give practical knowledge and training to us.

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The main objective was to reveal and put forward those hidden things which are useful

for the customer and that are very fresh which we call it as INNOVATION.

Innovation is more important today because differentiation is more important in today’s

environment, and for two main reasons………...

One is that banks are returning to their focus on growth. Banks did a good job of

reducing costs and increasing efficiency in the last few years. But now,

flattening returns in the areas of operating profit margins and return on assets

have forced banks to rethink their growth strategies in addition the price

earnings ratio has been declining, showing that the market doesn’t have very

high confidence in banks ability to grow.

The second reason for the innovation is so important, and maybe the more

important reason is that the competition from new players both inside and

outside the traditional banking industry, along with consolidation among the

largest banks, as well as commoditization of most of the basic retail banking

products and services has forced banks to really try to stand out in the crowd.

And innovation is a way for them to do that.

CHAPTER NO. CHAPTER TITLE

1 Acknowledgement

2 Preface

3 Objective & Scope of the study

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4 Study of existing products & services

5 Innovation (What & Why)

6 Basic requirements for innovation

7 Retail banking?

8 Problems & their innovative solution

9 Macro drivers for innovation

10 Top trends in banking

11 Emerging bank technologies

12 Role of services & its impact on

customer’s experience.

13 Conclusions

14 Recommendations

15 References

Study of Existing Products and Services

Cards

Credit Card

Debit Card

Terms & Conditions

Card member agreement

Fair Practice Code for

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Credit Card Operations

DSA 's code of Conduct

Master Circular on Credit Card Operations of Banks

Debit Collection Standards in India

Cheque Collection Policy

Compensation Policy

Safe Deposit Locker Policy

Accounts & Deposits

Savings Accounts

Current Accounts

Term Deposits

Demat Account


Compensation Policy


Loans

Personal Loans

Home Loans

Home Equity Loans

NRI Home Loans

Model Policy


Compensation Policy


Wealth Management

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Wealth Management Process

ING Positive Life

Investment Products


Compensation Policy

Payment Services

Payment Products

Electronic Fund Transfer

Bill Pay

Smartserv

Collection Services

Doorstep Banking Services


Compensation Policy


Small & Medium Enterprises Business Loans - MPower BLT

Business Loans - Rent

Business Loans (Small Scale Industries) - CGTSI Business Loans (Small Scale Industries) - MPower SSI MPower Business Account (MBA)


Compensation Policy


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Agricultural & Rural Banking

Term Loans

Short Term Loans


Compensation Policy


Why innovation: Dare to be different:Consumer banking plays an important role in banks' profitability. Although the growing economy and further improvements in the level of household income have created many opportunities for consumer banking, there is also increasingly strong competition amongst the financial institutions due to the liberalization and globalization of the banking industry. In order to remain competitive, banks have to take steps to introduce new consumer banking products and services that will make banking more convenient and accessible to the public.

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Banks are increasingly becoming integrated financial entities. Apart from offering the traditional banking products, banks today also provide advisory and wealth management services, such as promoting third-party unit trust funds and insurance products as well as will-writing services and also to remain competitive in this world they need to innovate consistently.

“INNOVATION is nothing but to meet out present need of the customer by consistently making the process convenient and accessible to the public. It also consists of identifying and anticipating the current and future problems and providing future and created requirements”. …………(Abhishek Srivastava)

After knowing what really is an innovation it will be convenient for us to innovate something. First step is to understand the existing and future problems of the customers accordingly to find a very innovative solution. We see three types of innovation being pursued in the market.

The first is product and services innovation. The second is operations innovation. And the third is business and enterprise model innovation.

All these three types of innovations are complementary to each other therefore we will consider each type of innovation. All of these innovations bring benefits to banks, but we see business model innovation as bringing the greatest and most sustainable return.

Basic requirements for innovation

Innovation depends on being able to bring together capabilities with a market

opportunity. These capabilities might be technology or expertise. The market

opportunity is new customers, new markets, or even with rival institutions. But, these

things don’t just happen by themselves. Innovation requires the creation and

management of an innovation infrastructure that will encourage, reward new ideas and

will manage and maintain a portfolio of innovation investments and initiatives over

time.

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So, banks need to be able to make the investment and sustain the environment and the

culture of innovation. And they also need to be willing to fail, because not all

innovations are going to succeed. And so, banks need to consider that and plan on that

happening. There are a few success factors that we see all innovations in banking

sharing, regardless of the type. They need to focus on innovation that matches well-

defined strategic priorities of the entire bank.

The second is that they need to have a vision for success and they need a couple of that

bold vision with smaller pilot projects so they can gain experience and build support for

change across the bank. Also, they need to measure and monitor results on a regular

basis in order to ensure that they maintain world class performance levels. Lastly it

requires senior leadership, banks need to be able to build and maintain support for

development and implementation of innovation over a sustained period.

Leadership and individuals play key roles, while R&D is one of many processes that prioritize innovation.

Retail banking?

Retail banking is typical mass-market banking where individual customers use local branches of larger commercial banks. Services offered include: savings and checking accounts, mortgages, personal loans, debit cards, credit cards, and so forth.

Banking services offered to the general public. Retail banking services are a group of financial services that includes installment loans, residential mortgages, equity credit loans, deposit services, and individual retirement accounts. In contrast with Wholesale Banking or corporate banking, retail banking is a high volume business with many service providers competing for market share. Some retail banking services, for example, credit cards, are among the most profitable services offered by financial institutions.

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Services offered include: savings and checking accounts,

Mortgages (a method of using property (real or personal) as security for the performance of an obligation)

Personal loans,

Debit cards (a plastic card which provides an alternative payment method to cash when making purchases).

Credit cards (a system of payment named after the small plastic card issued to users of the system) and so forth.

Now one by one we will be focusing on customer’s existing and would be requirements and we will try to find out a new way, process and model to accomplish it.

Problem: - Trading of Foreign Currencies

Solution: - Bank may introduce its Foreign Currency-Fixed Deposit account whereby Customers can own a fixed deposit account denominated in a foreign currency. The customer can choose to invest in a choice of 9 foreign currencies with interest rates that vary according to the type of currency. Although the investment is subject to exchange rate risks, it allows customers to diversify their holdings of foreign currencies. It is also beneficial to parents who wish to start saving towards their children's future education abroad.

Problem: - Building relationship with the customers

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Solution: - Bank may implement their “Banking Without Barriers” concept at two or three of their branches. These branches, called “Customer Relationship Centers” have been transformed to focus purely on sales and service. The branches now can boast a comfortable lounge with Internet facilities and plasma TVs. Furthermore, there is no banking counter and the staff sits in the open for easy access to customers. There is also a self-service lobby, which provides customers with 24-hour e-banking facilities. With this concept, the bank promises a more informal atmosphere within the branch and a shorter waiting time for their customers. The emphasis is to build a strong relationship with the bank's customers and reinvent their perception of the banking experience.

Problem: - To be a customized service provider

Solution: - “Branch Transformation Project” (BTP) could be a better technique to serve their different customers differently depending on their location and the composition of their customer profile; branches are categorized into in-store kiosk, service kiosk, retail branch, business branch or flagship. Enhancements are then made to these branches in all aspects of their operations, including the front of the branch and the way customers are served. Under this new concept, the bank hopes to align the branches according to their customers' needs and thereby improve service levels as well as branch economics.

Problem: - Easy access of accounts

Solution: - Mobile banking allows individuals to check their account balances and make fund transfers using their mobile phones. Bank customers may even top-up their mobile phone's prepaid airtime access via SMS. It helps in catering the villagers also. It is nothing but the smart use of technology, such as allowing customers to make payments via contact less cards or mobile phones and intimating clients through SMS alerts..

Problem: -Withdrawn is easier than deposit

Solution: - Apart from ATM there must be deposit machines also that allows consumers to carry out banking transactions beyond banking hours.

Problem: - Frequent & quick check processing

Solution: - Check truncation allows a bank to return to the maker not the original check but a legal substitute for the original check. Thus, checks may be imaged and the physical check truncated and then destroyed with the image or a copy of the

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image passing forward through the payment-processing stream. Clearing checks via image processing thereby ridded the system of the need and cost of physically clearing paper checks. It eliminates the cost of transporting cash letters from their back office transit operations.

The technological and business capabilities that banks need to support the rollout to the consumer segment include:• Customer registration and disclosure of responsibilities and liabilities• Customer authentication• Scalable and robust image quality analysis• Robust fraud detection and fraud management systems, including advanced business rules capabilities• Duplicate detection

Problem: - Challenges at each stage of client’s value chain.

Solution: - Through an extensive collaboration with a distinguished committee of experts as well as with the international network of Capgmini’s Wealth Management practice, it has been possible to identify the greatest challenges that are now being faced by private banking institutions with regard to each stage of the client value chain.The groundwork consisted of market analysis, the benchmarking of a wide-array of financial institutions renowned for their high level of innovation, focus interviews, and workshops with financial market experts as well as with executives and clients from the selected institutions. The preliminary conclusions were greatly enriched and evaluated for their applicability to the local market through cooperation with the committee of experts and opinion leaders in the market

Drivers of Innovation

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Emerging bank technologies: -

In today’s environment without adopting and adjusting themselves with the changing trends of technology no one can gain competitive advantage. Technology is changing because the people who always wish to move forward are changing it. Now we will see how technologies are emerging as far as banking industry is concerned.

RFID payments Dynamic Pricing Tools Front-Office Fraud Detection Instant Messaging (IM) for corporate use Check Image Capture (CEM) Customer experience management Real-Time Customer Analytics Mobile Apps: corporate, staff, customers Tablet-PCs in branches Document imaging & retrieval IP Video in branches

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Advanced function ATMs Mobile Payments Instant Messaging, web-chat for customers Remote Document Capture IP-services in bank branches.

Technologies that look promising for banks: -

Speech & Voice in banking Web Services in banking Offshore services for banks Business Process Outsourcing (BPO) for banks Open Source Software for banks Text Mining by banks Push-technology: Alert services Digital Certificates Business Process Management (BPM) for banks Business Rules Engines

Innovation must deliver better customer experience, which is

• Event- and demand-driven• Powered by intelligence• RTE-level integration front-to-back, end-to-end• Common look-and-feel• Consistent information• Managed messaging

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Innovating Customer Service Between hidebound marketing ideas, long-standing structural limitations, and

complex regulatory requirements, banking by and large lags far behind most

other consumer retail industries in developing leading-edge products and services.

Innovating customer services is far more difficult task than any other task because

of the following reasons: -

Tangle of regulations acting as “speed bumps” Privacy laws.

Debt security guidelines.

Fair lending practices.

Internal structural problems

Risk aversion and inertia

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Besides these constraints company still looks for innovating customer services.After several years of focusing on cost reduction, banks are now concentrating on revenue growth. Key to this is managing a high and consistent quality of the many customer interactions while selling products and providing customer service across different sales and service channels.

Future Profit Sources

While Retail Banks understand that the quality of customer interactions is a key competitive differentiator, their challenge has become how to rethink their distribution models to ensure the right customer relationship formed and managed. The 2006 World Retail Banking Report, a joint publication by Capgemini, EFMA, and ING, evidences the Bank’s need to evolve their remote channels while crafting their marketing effort to greater precision and adapting their branches to deliver strong client relationships and ‘key account moments’.

Paradigm

Retail Banks have moved away from a product-management model towards a more customer centric approach with the holistic customer relationship central to decisions on pricing, marketing, channel management and service however they have experienced frustrations with high costs and slow, limited results from their transformation efforts. I have identified five key enablers that help ensure successful transformation.

1) Customer insight

Capturing and effectively using extensive customer data, emphasizing customer preferences and an enterprise-wide view of the customer. Central to achieving this is fostering management systems that embed and sustain a customer centric culture, both attracting and retaining the right behaviors and attitudes.

2) Offer optimization

Establishing tools and practices that develop the right product offers— and the right way to package and deliver them—to individuals or customer segments.

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3) Cross-selling

Effectively cross-selling by identifying customer trigger points in the sales process. Specific customer interactions signal a potential cross-selling opportunity, triggering a reactive response.

4) Common processes

Ensuring standardized sales and service processes across lines of business and delivery channels so the customer experience remains consistent and predictable.

5) Service efficiency and effectiveness

Developing front and back office service processes that allow for economical mass customization of a higher-value banking experience, which can be replicated through more automated, lower-cost means for other customer segments.

Banks have achieved varying degrees of success with each of these sales and service enablers. Nearly every bank had adopted, or was in the process of adopting, some degree of improvements to their relationship approach.

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Conclusion

Financial institutions serving this segment are quite heterogeneous, including private banking specialists, private banking affiliates of universal banks, brokerages, commercial banks offering niche services, and insurance firms. This wide range of institutions has an equally wide range of commercial offerings. There are models that target a very personalized service-offering just as there are others that are centered on the commercialization of investment products; There are models with a high level of process automation just as there are others that are more oriented toward a high level of agent involvement; Finally, there are models that follow today’s market trends and others that seek to pave the way for the future. According to the report, specialized private banking institutions have clear competitive advantages that permit them to differentiate their service offerings from those made by traditional commercial banks (i.e. brand, experience, quality of advisory services, and the wide range of product offerings) but also have competitive drawbacks (lack of client base, inferior commercial acumen, and weaker operational efficiency). In contrast, traditional commercial banks have less to offer with regard to advisory services and the range of products, but have a much stronger client base, sales capability, accessibility and efficiency.

The most innovative initiatives center on four stages of the client value chain:- Prospect and referral management. This stage focuses on the creation of

a team model to reach and convince clients regarding the service offering, the development of a systematic plan to identify potential clients, and the establishment of a permanent research area to study important trends in the wealth management market. Innovations were particularly prevalent in the process of following-up with prospects, in the management of referrals, and in their assignment to financial advisors/agents.

- Needs analysis and wealth plan? Best Practices are found in the development of procedures that facilitate the understanding and planning of client profile-specific needs, in leveraging an open-architecture environment and in the generation of advanced financial plans that take into account the client’s full life cycle.

- Beginning of the client relationship and implementation of the operational model. At this stage, best practices are oriented towards leveraging advanced systems and solutions in order to execute trades and integrate real-time market data for decision-making purposes.

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- Continuous portfolio review and estate planning. At this stage, best practices have included advanced Internet-based service models, internal and external aggregated client financial data, and sophisticated approaches to estate planning.

Recommendations: -

Formulate and communicate a viewpoint for all prevalent and emerging technologies.

New technology may deliver value earlier in banking! Avoid those that don’t support your business strategy!Don’t assume that opportunities don’t exist just because a technology is over- hyped.Geographies count! Anticipate hype cycle progression based upon YOUR unique locale and industry niche.

Elevate multichannel design to “customer experience management.”

Invest in advanced real-- time analytics and extend BPM and BI into your channels.

Architect to assure business strategy execution.

Use BPM and Web services for business process excellence.

Prepare for changes in payments and regulation.

Focus attention on the scale of changes and look closely at outsourcing opportunities.

Departments within banking organizations are usually highly segregated from one another; the people who know what kind of technical innovations are needed are often completely isolated from those in a position to deliver the innovations.

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Banks must be exceptionally careful not to overcomplicate their offerings

For better customer services banks should open their branches on public holidays; offering foreign language services in areas with large migrant populations; or renovating branches to create a more customer friendly environment. What is clear is that most of this so-called innovation occurs on the consumer side of the fence.

Value for Money; Loyalty to the Relationship; and Quality of Bank’s People should be their top three most important service/relationship factors.

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REFERENCES

Wikipedia.com Google.com Altavista.com Answers.com Capegemini.com Ingvysyabank.com

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My Message

“Hello Friends I am Abhishek Srivastava student of Jagran Institute of Management. I wish to share moments with you readers about this report. This report is nothing but my sincere effort towards fulfillment of PGDBM. This report could not be completed without direct and indirect support of my teachers. They have given important suggestions and guidance to accomplish that task.

I choose that topic because today the whole world is heading towards innovation to differentiate themselves from others. I take that topic to be more relevant in today’s environment so I started pursuing it. I planned certain steps to accomplish that task initially I collected information about the existing products and services prevailing in the market then I moved forward to make it more innovating and fresh for the society. I searched for people’s problems and tried to find out an innovative solution of it.

I want you people to read that document and try to find some relevance out of it. I am hungry for your precious comments on to that which you can post to my mail ID if you wish finally I want to say best of luck for your future and lastly I would like to convey my gratitude to my honorable teachers for making me what I am”.

Thank you My respected teachers: -

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Mr. Vinod Kr SharmaMs. Shatarupa SarkarMr. Sanjay SrivastavaMrs. Charu Yadav and my project guideMs. Saba Iqbal

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product and service innovation in banking industry

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