Rohin ThomasSIMSREE

Digital vs Branch Banking• The digital revolution is far more significant than the

invention of writing or printing – Douglas Engelbart, Internet pioneer

DIGITAL BANKING

Branch Banking

2000s DIGITAL BANKING2014

2020

Branch Banking

Because of1. Ease of use2. High Speed Internet3. Regulatory Reforms

4. Instant Transactions

Executive Summary• Digital to impact all businesses globally• Indian Banking Industry also maturing to Digital– Proactive Regulatory Reforms– Fast growing Unique Identification Project– Ambitious Govt. vision of a Digital India

• Vision:– Analyze customer buying behaviour to serve specialized purposes– Paper money to be replaced by digital payments – mobile, internet, POS

and ECS

• Opportunity:– 30% jump in sales productivity through digitization– Increased productivity can be passed on to customers through better

interest rates– Better customer service through quicker customer responsiveness

Executive Summary

• Challenge:– Change in mindset from old legacy to new – Investments in IT infrastructure– PSBs to become irrelevant if they don’t undergo this

transformation to digital

• Role of RBI & Govt.:– Financial Inclusion of prime importance, PM’s Jan Dhan Yojna a

great start, more schemes needed– PayM in UK, Giro Vision in Sweden schemes need to be emulated

in India– Net Banking in local languages to be looked at to include people

from remote areas

Digital Banking• “Despite a strong demand for digital

banking products from customers, and the fact that customers are willing to pay for these services, banks have been rather slow to respond to digital innovations” – PwC Report, 2012

• “Around 44% of our Bank transactions originate through Mobile or Internet” – Head of Digital, HDFC Bank

• Number of digital banking customers in India to increase from 100 million in 2012 to 450 million in 2020 – McKinsey Report, 2014

• Online shoppers growing by 30% each year• By 2020, India’s average age to be 29 years – a digital demographic

Digital Banking is the future of Indian Banking

SWOT Analysis

StrengthsEasy and Immediate Operative24/7 AvailabilityService fees savingHigher Yield

WeaknessesInternet Mis-trustComputer and Internet connection neededTechnology InvestmentSystem Failure

OpportunitiesLack of geographical constraintsCompare productsPro-Internet customersTech improvements

ThreatsPhishing‘Personal touch’ of traditional banksNot achieving ‘critical mass’ to cover tech costs

Digital Banking

StrengthsIndividualized

customer service Physical transactions,

not virtualAll financial products

under one roof

WeaknessesHigh overhead costs

Fixed timingsDifficult to reach out

to everyone via branches

OpportunitiesBuild new client

relationshipsBranch Banking

preferred by manyRural Markets still an untapped segment

ThreatsPeople switching to Digital BankingBranch Banking

losing its relevance

Branch Banking

• Sales staff armed with tablets to cater to customers

Wealth Management

• Non-cash transactions through kiosks, video-tellers

Self-service Branch

Roadmap towards Digital Banking

• Heavily staffed • Low level of

automation

Brick & Mortar

• Access to financial experts and RMs through in-house services

RM Center

• Digital signage• Call centre

extensions for cross-selling

Sales Branch

Despite Emphasis on Digital Banking Channels, customers remain Branch Loyal− Depositing Cash/En-cashing cheques− Advice on Complex Financial Products− Selling cross-functional Financial Products like Mutual Funds

Branches should be looked not as ‘Transaction Centers’ but as ‘Customer Engagement Centers’

Lessons from Retail Industry

• Banking Industry currently at an inflection point where the Retail Industry was a few years ago– Offline only – More Megastore, Subhiksha, Vishal Retail etc.– Online only – Bluestone.com, Caratlane.com, Dell, eBay etc. – These offerings either perished or embraced the other format for

survival• Both formats need to work in conjunction, not isolation• Banks need to digitize front-end and back-end operations thus

blurring online, offline divide– Reliance Retail, Tata Group, Wal-Mart planning entry into Online space

• The Branch in the Digital Age: its all about Online & Offline Co-ordination

Blurring the Online Offline LineDigital Elements in a Bank’s Physical Channel help extend a Branch’s presence−US Bank BBVA Compass’s “Virtual Banker” an example−Allows video-conferencing between consumers in branches and remote bank advisors−Integrated document sharing through Scanner & Printer to send and retrieve signed documents

Source: KUHF –Houston Public Radio, “Virtual Banking Links Consumers to Specialists at Other Branches”, Dec, 2009

Physical Elements in a Bank’s Digital Channel creates a seamless experience−Hapoalim, one of Israel’s largest banks integrated a human element into virtual channel through Poalim Connect−Simple and intuitive front-end−Allows customers to connect with a real personal banker through online banking without having to go to a branch

Source: Forrester, “Case Study: Hapoalim injects a Human Touch into Digital Banking”, 2012

Branch Models of Future• Traditional banking Network using ‘One-size-fits-all’ strategy no longer

sustainable• Need for differentiated branches targeting specific customer segments• Based on levels of digitization and integration of Online & Offline elements,

4 main Branch formats are proposed:

Branch Format

Level of Customer Intimacy

Level of Advice

ComplexityALPHA LOW HIGH

BETA HIGH LOW

GAMMA HIGH LOW

LION LOW HIGH

Branch Models of Future• ALPHA

– Offers retail-like displays, opportunity to browse self-serve aisles– Focus on standard products like account opening, loan application etc.– Low levels of digitization, low staffing required hence Low Operating costs– Cannot offer customized and tailored services & products– Suited for students and first-time bankers– Implemented successfully by Danish Bank Jyske Bank

• BETA– Provides customers with terminals for online banking needs– Low digitization with minimal banking staff to address customer queries– Staff has knowledge of basic financial products, not complex advisory skills– Primarily developed to build strong customer relations by providing a

relaxed environment and simultaneously offering basic financial advice– Target high income individuals for cross-selling of services– Implemented successfully by Virgin Group

Branch Models of Future• GAMMA

– Employs advanced digital tools like video-conferencing, online document sharing, digital signatures etc.

– Focus is on providing customers with evolved and immersive digital experience– Requires significant investment in technology– High levels of digitization with minimal branch staffing– Target Generation Y customers who need flexibility to transact anytime and are open to

use new technology– Successfully implemented at Brandesco Bank, Brazil

• LION– Comprehensive full service branch comprising all aspects of self-serve and online banking– Self-service kiosks, ATMs, service staff with iPads etc.– High Online/Offline co-ordination– Staff well equipped to provide complex personalized advice– To be used as flagship branch to attract new and existing customers showcasing

innovative tools and high standards of service– High operating costs due to large size, staffing and digital requirements– Should be located at prime locations to attract maximum footfalls

Rationalization of Branch Models• Assume a mix of branch models: 45%, 20%, 20% and 15% for ALPHA,

BETA, GAMMA and LION• Based on Annual Reports of ING Vysya Bank for FY 2013-14:

• Proposed costs of target branch Models:

Total Network Cost with homogenous branchesNet Banking Income 6072

Operating Expenditure 1492Capital Expenditure 524

Total Cost (Capex + Opex) 2016

Branch Model Type CAPEX (As a % of regular Branch)

OPEX (As a % of regular Branch)

LION 160% 160%

GAMMA 80% 75%

BETA 65% 50%

ALPHA 50% 65%

Rationalization of Branch Models• Total Branch network cost with branch differentiation

• Total Current Expenses: ₹2016 Crore• Total Expenses post rationalization and new Mix: ₹1408 Crore (Savings of

30%)The transformation from Branch to Digital Banking may not happenovernight, but banks need to re-think the role of physical branch

andhow it blends with digital channels

Branch Model

Branch Split Target CAPEX

Target OPEX Total (CAPEX +

OPEX)

LION 15% 114 322 436

GAMMA 20% 75 201 276

BETA 20% 61 135 196

ALPHA 45% 107 393 500

Total Cost 1408

References• http://www.ingvysyabank.com/• https://www.linkedin.com/company/12936?trk=vsrp_companies_cl

uster_name&trkInfo=VSRPsearchId%3A3605988161411669059285%2CVSRPtargetId%3A12936%2CVSRPcmpt%3Acompanies_cluster

• http://www.thehindubusinessline.com/industry-and-economy/banking/for-aam-india-cash-is-still-king/article5538950.ece

• http://www.pwc.in/press-releases/digital-banking.jhtml• ‘Future of Bank Branches Co-ordinating Physical with Digital’ by

Capgemini Consulting, 2013• ‘Branch Bank of the Future – Transforming to stay relevant’ Anil

Radhakrishnan, Abhinav Jaipuriar et al. www.infosys.com• ‘Digital Banking in Asia’ McKinsey & Co., January, 2014• ‘Bank governance Leadership Network – Leading the digital

transformation of banking’ Aug, 2014• ‘The Global Retail Banking Digital Marketing Report 2013’, May, 2013