Retail Banking in Icici by cdp68652


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									retail banking

 Lateral thinking and agility are
 essential in a changing world
 THE PARTICIPANTS                                                                In many parts of the world, the global economy is being
                                                                                 driven as much by trade in information, ideas and services,
                                                                                 as by trade in physical goods. Organisations that were able
                                                                                 to achieve success and predominance through sheer produc-
                                                                     tivity and massive scale are now fewer and far between. Increasingly, it
                                                                     is the ability to think laterally, to operate on an agile basis, to react to
                                                                     global trends quickly and, above all, to innovate that will determine the
                                                                     sustainability of an organisation in future.
                                                                       In the Western retail banking community, these attributes have not
                                                                     always been forthcoming. Driven to a large extent by a service-
                                                                     weighted model, retail banking institutions have, by and large, deliv-
                                                                     ered products and services to their customers with little regard for
 THE CHAIR:                      Sandeep Chouhan, head of
 Stephen Timewell,               global application delivery         whether that product or service suits the immediate needs of that cus-
 editor-in-chief,                services, Barclays, Global Retail
 The Banker                      & Commercial Banking                tomer. Smaller, emerging players are starting to nibble at the banks’
                                                                     traditional revenue streams.
                                                                       Meanwhile, the growing needs of a massive global unbanked popu-
                                                                     lation in emerging markets presents its own problems and opportuni-
                                                                     ties for banks operating in those markets. The need for creative,
                                                                     cost-efficient, usable banking channels, products, services and operat-
                                                                     ing models has never been greater.
                                                                       The short-term prospect of a major global economic downturn, and
                                                                     the related impact on household expenditure, will also force the retail
                                                                     banking industry – particularly in the worst-hit Western markets – to
                                                                     think more dynamically when it comes to investing in and deploying
 Amit Dua,                       Michelle Price,
 head of sales, EMEA, Finacle,   technology editor,                  new products and services.
 Infosys Technologies            The Banker
                                                                       These were the themes that were explored at The Banker’s round table
                                                                     on the future of retail banking. The debate was sponsored by Finacle
                                                                     from Infosys but independently edited and written.

                                                                            The changing global consumer
                                                                                                                                 WATCH NOW
                                                                            In the long view, it is vital to iden-               Videos of the panellists in debate are
                                                                     tify which forces are proving most pow-                     available online. Watch the debate or
                                                                                                                                 individual chapters – visit
                                                                     erful in driving change. This was the             
                                                                     question that Stephen Timewell, editor-
                                                                     in-chief of The Banker put to the round         useful and, in turn, well-adopted and
 George Gorshkov,                Deepak Varghese,
 managing director,              head of retail banking,             table participants. Simon Carter, direc-        profitable.
 retail business, VTB24          ICICI Bank
                                                                     tor of business systems strategy at Co-            In this regard, the banking industry
                                                                     operative Financial Services, identified        could learn a great deal from retailers in
                                                                     the consumer as the ultimate agent of           other markets, Mr Carter said. The
                                                                     innovation: “Innovation has to be driven        successful deployment of powerful cus-
                                                                     by customer demand. If it isn’t, frankly,       tomer relationship management tech-
                                                                     the investment in it is going to be             nologies has allowed major high-street
                                                                     wasted.”                                        organisations to segment their customer
                                                                        Focusing on the customer and what            bases into multiple demographic pro-
                                                                     Amit Dua, head of European opera-               files, and develop an in-depth under-
                                                                     tions at Infosys Technologies, identified       standing of each segment’s needs and
                                                                     as “increasing customer expectation” is         expectations.
 Eric Leenders, executive        Simon Carter,
 director of retail banking,     director of business                fundamental in the battle to create serv-          Ideally, the banking industry should
 British Bankers Association     systems strategy,
                                 Co-operative Financial Services     ices that are not only innovative, but also     aim “to have every single consumer

156    MAY 2008 The Banker
                                                                                                       retail banking

representing a single person segment”,        Having identified each customer, the
said George Gorshkov, managing direc-         next logical challenge would be to offer      THE ISSUES
tor, retail business at Russian retail bank   each customer a personalised bundle of
VTB24.                                        products and services, she said.                  The changing global consumer
  Michelle Price, The Banker’s technol-          The needs of customers are ever-
ogy editor, said that an increasingly         changing, however, determined by a
detailed view of the customer was driv-       range of demographic forces that are              The role of technology
ing the personalisation of a vast range of    constantly in flux: social mobility, popu-
consumer products and services in other       lation migration, population growth, the          Embedding innovation in culture
retail markets. “If you look at the way       rise of globalisation, and increasingly
consumer products have developed, tak-        ethical and religious preferences. Islamic
ing for example the iPod, it’s increas-       banking is a key example of how the               The future of innovation
ingly about allowing the user to enjoy a      religious needs of one demographic
unique, personalised experience. The          group are increasingly being reflected in         The new operating model
same should apply to financial services.”     the products and services of global >>

          THE KEY ISSUE
The new operating model                                                                    channels that the banks do not own:
                                                                                           optimising the established commer-
Embedding innovation in the culture           added-value or novelty status in             cial infrastructures to reduce oper-
of the organisation will not, ulti-           established markets, consumers are           ating costs. “The presumption is
mately, be the conclusive factor              happy to pay a charge. But there is a        always that the bank will own and
where realising innovation is con-            “double-edged sword” for emerging            control the channel. But, in future,
cerned. More important is under-              markets banks, observed Mr Vargh-            banks will have to integrate their
standing how banks can develop a              ese: to be able to offer these services,     services with channels that are not
sustainable operating model, said Mr          they have to operate at a fifth of the       under their full control,” she said.
Timewell. That means determining              cost of their counterparts in mature           This model has already been suc-
“who is going to pay”.                        markets; but in achieving a low-cost         cessfully deployed by some of the
  The UK is in a difficult predicament        operating model, they are at a dis-          world’s most successful financial
in this regard, said Mr Leenders. Dur-        tinct advantage competitively.               organisations, American Express
ing the past 25 years, disadvanta-              ICICI, for example, was able to fol-       being a key example, said Mr
geous cost-structures have become             low non-resident Indians into devel-         Gorshkov. Among the most profitable
well established. In general, “there is       oped markets through its online              financial services organisations
an expectation among consumers                banking offering. “In doing so, you          globally, American Express has con-
that banking is fee-free”, he said. The       are bringing that cost advantage to a        quered what he called the “invisible
current account is just one example           developed market,” said Mr Varghese.         concierge” model. “It’s a service that’s
of this phenomenon – a service for              From a Western-based bank’s per-           embedded in your life; you don’t really
which consumers pay a fee in other            spective, the ICICIs of the industry         look at American Express as a pay-
markets, including the US.                    “have really got the world of banking        ment instrument: you use it to book a
  Online banking, too, is a conven-           worried”, said Mr Chouhan. If ICICI is       restaurant, to book hotels and cars.
ience for which customers do not pay          now playing in developed markets,            Although the UK is a fee-free banking
in the UK, and through which they             with an operating capability that            space, you look at the American
can often derive better deals on prod-        allows them to drive down cost, then         Express British Airways co-branded
ucts such as savings bonds. “To move          the conclusion seems inevitable, he          card and the APR is 36% in pounds.
away from a fee-free model is a diffi-        said. “What will they do with that           Yet it’s one of the most successful
cult move,” said Mr Leenders. Some            cost? With that operating cost, they         co-brand projects in the world.”
niches have been identified, for              will price their products in a way             The card is a key study, he said,
which consumers are willing to pay a          that will wipe everybody out.”               because consumers are prepared to
fee. “But to start to fundamentally             In established markets, where the          pay for a product that costs three to
attack the nub of the problem will be         majority of consumers’ needs are             four times more than its average
a long, hard-fought campaign.”                being met through sophisticated              competitor because of the high level
  To some extent, this problem is the         technology infrastructures, innova-          of convenience it offers. It is also a
product of commoditisation often              tion must become a network con-              model in which the bank deploys,
seen in mature commercial markets.            cept, said Ms Price. This means              but does not own, multiple distribu-
In emerging markets, where the vast           building out collaborations with             tion channels. This, he concluded, is
majority of banking services still hold       non-banking players and delivering           the “new paradigm” for banking
what would be regarded as an                  products and services through                services in established markets.

                                                                                                            The Banker MAY 2008   157
retail banking

 “THE WORLD IS                               been driven by the ubiquity of technol-
                                             ogy, said Mr Dua. Many of these tech-
                                                                                          areas of their lives – has far outstripped
                                                                                          the technologies being delivered to the

                                             nologies have proven vitally important       enterprise space, said Mr Chouhan. But
                                             in rolling out and supporting new, inven-    the vast majority of consumer technol-
                                             tive banking delivery channels – a key       ogy is not yet industrial grade, he added.
 CUSTOMERS ARE                               example being mobile banking and             There is a huge gap between the inno-
                                             remittances. But in turn, technology has     vative technologies seen in the consumer
 DEMANDING                                   also been disruptive, he said. The emer-
                                             gence of the comparison engine, for
                                                                                          realm, and what the traditional software
                                                                                          community and systems integrators can
 SERVICES ACROSS                             example, had served to depress profit
                                             margins on products and to erode cus-
                                                                                          offer the banks as a complete package.
                                                                                             “They are bringing reasonable ‘cookie
 GEOGRAPHIES”                                tomer loyalty.
                                                Meanwhile, low-cost online platforms
                                                                                          cutter’ solutions to market, and then
                                                                                          banks like us are spending an arm and a
                                             and free Web 2.0 technologies have dra-      leg to customise it,” said Mr Chouhan.
                                             matically reduced the barriers to entry.     “Everybody sells the car in parts: nobody
                                             “We have seen the disruptive influence of    sells you the car.” This is proving a major
                                             newcomers to the UK market, who enter        barrier to innovation, he said. “Vendors
                                             with very low cost-income ratios and         need to be collaborating much more
                                             compete very well in certain niche mar-      than they do today,” he added.
 retail banks, said Mr Timewell. In other    kets,” said Mr Dua. Many of those new-          Mr Dua conceded that, in many
 regional geographies, such as Japan and     comers include non-banking players           respects, the two spaces are “out of
 Germany, ageing populations are             boasting major brands, such as super-        synch”. It is incumbent upon the tradi-
 demanding products specific to retire-      market giants Tesco and Wal-Mart.            tional vendor community to keep in
 ment, including high-yield savings plans    “More than ever before, customers are        touch with technology developments
 and a vast range of health insurances.      expecting and using a variety of             emerging in the consumer realm, partic-
    Other factors also affect customer       technologies to bank,” he said. Like their   ularly those platforms associated with
 needs. Banks that target younger demo-      emerging competitors, established bank-      Web 2.0 technologies, he said. “For all
 graphics – for example, Spanish banks       ing players will have to continue to use     you know, the best ideas can come from
 that are hoping to capture the immi-        technology as the underlying platform        that space. There is a lot more the ven-
 grant Hispanic population in the US         through which to achieve differentiation.    dors could do to improve the situation,”
 market – will need to adapt to their cus-      But banks should not pursue technol-      he added.
 tomers’ changing requirements. Today,       ogy for its own sake, participants agreed.      Banks that “push the vendor to bring
 such customers might only need to           The importance of deploying tech-            you what you want in your marketplace
 make remittances. In future, as their       nology-driven products and services in       are going to be there tomorrow,” said
 earning power grows, they may need a        the right way is vital. “We have seen, at    Mr Chouhan.
 car loan, a mortgage or a savings prod-     points in time, excellent technology
 uct. “As long as the bank can tap that      products. But the front line did not know          Embedding innovation in
 entire life cycle, the bank is going to     how to use them for the best benefit of            culture
 make money,” said Mr Dua.                   the customer,” said Deepak Varghese,         Understanding how innovation can be
    And it would be a mistake to assume      head of retail banking at ICICI Bank.        embedded in the fabric of the organisa-
 that the needs of customers will be con-    “The front line has to be as aware of        tion is a key issue, said Mr Varghese.
 fined to the geographies in which they      technology and contribute to the devel-      Because market developments emerge
 are located. “The world is shrinking,”      opment jointly.”                             and change so rapidly, it is not enough
 said Sandeep Chouhan, head of global           More importantly, banks must ensure       that organisations create innovative
 application delivery services, Barclays,    the “structural integrity” of the tech-      products or services he said: an innova-
 Global Retail & Commercial Banking.         nology infrastructures by which they are     tive culture must become ingrained
 “Customers are demanding services           delivering new products and services,        within the processes and organisational
 across geographies. They not only want      said Eric Leenders, executive director of    structures that underpin those products
 to be able to move money, but to access     retail banking at the British Bankers        and services. “Organisations need to
 products in various markets.”               Association. “I think it is very important   look at how they can embed innovation
                                             while talking of innovation to make          across business units, from risk to com-
       The role of technology                sure that the underpinnings are              pliance to operations.”
       Increasingly, established banking     absolutely solid. Otherwise, I think            ICICI is a good case in point, Mr
 players will have to compete against a      we’re adopting a very high risk strategy     Timewell pointed out. The bank is one
 broader and more diverse set of players     with technologies.”                          of few – if not the only – banks in the
 in a broader and more diverse set of           Participants also agreed that the ven-    world in which the CEO also assumes
 channels, and in a range of global mar-     dor community is not serving the space       responsibility for IT operations. “His
 kets. Here, the use of innovative tech-     as well as it could. In terms of its intu-   understanding of what he could do with
 nology will be critical.                    itive ease of use and flexibility, con-      the technology was critical to how he
   To a large extent, changes in cus-        sumer technology – to which banking          managed to change the model,” said Mr
 tomer expectations have themselves          customers are exposed daily in other         Timewell. In the vast majority of cases,

158   MAY 2008 The Banker
                                                                                                            retail banking

it requires forceful leadership of this
kind to permeate the organisational
structure with a chosen cultural value.
   Mr Gorshkov found this to be the case
when conducting his own research. “If
you look at corporations like Microsoft
or Apple, the innovative drive comes
from someone you can identify: Bill
Gates or Steve Jobs, or Richard Bran-
son. These people become flagships of
innovation,” he said.
   Mr Carter agreed that culture will play
a major role in the pursuit of innovation,
adding that this role would be more
important even than that of technology.
This was the experience of the Co-opera-
tive Bank which, in the early 1990s,
underwent a rebranding exercise, the cen-
tre of which was the bank’s now well-
recognised ethical positioning. “Suddenly,
the Co-operative Bank meant something
different that became a launchpad for
innovation,” said Mr Carter.                   operate my life as freely as I can without
   The bank was among the first in the
industry to offer an online banking serv-
                                               thinking about the bank,” he said
                                                  Mr Chouhan suggested that the speed
                                                                                             “INNOVATION IS
ice. “We had legacy in terms of technol-
ogy, but people found ways around that.
                                               of service fulfilment would become a
                                               key differentiator. “Banks will differenti-
                                                                                             A MINDSET: IT
Innovation is very much a mindset: it
has to become the blood of the organi-
                                               ate themselves on the one-minute loan
                                               and the one-minute deposit, and the
                                                                                             HAS TO BECOME
sation,” said Mr Carter.                       instant gratification of fulfilment if you
                                               may,” he said.
                                                                                             THE BLOOD
       The future of innovation
       To what extent the Western retail
                                                  Mr Varghese agreed that the banking
                                               services that customers receive would in
                                                                                             OF THE
banking community will go on to
embrace this model remains to be seen.
                                               time become entirely customised. “Your
                                               bank is going to become like iGoogle,”
In the UK, argued Mr Carter, the most          he said. But to achieve this model for
successful banks will be those that            each customer, banks will have to start
develop an in-depth understanding of           using resources as incremental, rather
their customers. “Consumers don’t              than fixed costs. “This means having the
think they’re a demographic: they just         ability to draw on your resources when
think ‘I’m me’.” Banks have to create          you need them, across a global pool, but
services and products that are relevant        without paying fixed costs for having an
to the individual if they want to fully dif-   idle engine,” he said.
ferentiate their brand, he said. “At the          Achieving economies of scale globally,
moment there is not a huge brand dif-          particularly where technology infra-
ferentiation in most financial services        structure is concerned, will also be criti-
organisations.”                                cal, Mr Dua pointed out. Banks have to
   In turn, those brands are likely to pro-    keep standardising and rationalising
duce and own less themselves and               their infrastructures continuously, he
instead source more from other third           said.
parties, he said.                                 Meanwhile, in emerging markets,
   For Mr Gorshkov, however, a utility         banks will be forced to undergo major
model is preferable. Much like water or        infrastructure roll outs to reach more
                                                                                             Sponsored by
electricity suppliers, banks should            than 500 million people who are forecast
become invisible, but their service ubiq-      to move from rural communities into
uitous, he said. “In 20 years’ time, I         conurbations and aggregated societies,
don’t see the banks at all. When I need        said Mr Varghese. “It will therefore force
water today, I open the tap and water          banks to innovate, and legacy embed-
flows and I don’t have to apply to the         ment will have to change. Technology is
water company to adjust the tempera-           going to play a major role, but the key is
ture of the water. I want to be able to        what do banks ask of technology?” TB

                                                                                                              The Banker MAY 2008   159

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