Retail banking challenges for commercial banks

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The economic growth in the country has generated new consumers. The demographic changes in income, emerging middle class and changes in life style have evoked new expectation from customers for any business. For banking sector in the country, it has brought about a significant change. Along with the fundamental banking needs, customers now want loan to finance building of his house, an auto loan for buying  a car, a credit card for ongoing purchases, a long-term investment plan to finance his child's higher education, a pension plan for his retirement and many more.

All these have given rise to an opportunity for commercial banks to focus more on retail base. Retail banking is a consumer-based business. It has the ability to serve a large number of small customers. The banks can make a significant progress and growth in terms of market share of deposits and advances through retail banking.

Demographic changes have  generated many demands from customers to fulfill their needs and indicate that the prospect of retail banking is increasing  in the country. Technological advancement and its use in banking are also  generating new expectations among  customers  as to how many of these demands are to be met and delivered. Changes are now shaping up the way customers perceive the services of a bank in terms of service delivery and quality of service.

KEY TRENDS: It is undeniable that the banking sector in the country has gone through significant changes in recent years. An enabling regulatory framework and prudent decisions from policy-makers have made this sector to grow gradually. Currently, there are 56 various types of banks with around 8,500 branches operating in the country which include several new entrants. Some of the trends that are relevant to retail banking and have significant implications for retail banking are as follows:

l Financial inclusion has been at the forefront for the policy-makers in recent years.   Half of the population is still out of the banking service and the government and efforts have been taken to bring this population into banking service.  Agricultural/SME branches are being opened in rural areas and from 2009 to 2013, 253 agricultural/SME branches have been given permission for agricultural and SME (small and medium enterprise) sector development. Mobile banking has been introduced and efforts are under way to broaden mobile banking. Currently, more than 6.6 million people have opened accounts under mobile banking.  As a part of financial inclusion plan, agent banking has also been introduced by Bangladeshi banks.

l The technological advancement and its gradual usage in the banking sector have transformed itself from a provider of plain vanilla services to a provider of universal banking.  Online Banking Automated Teller Machine (ATM), Point of Sale (POS), internet, mobile application etc have been introduced in the banking sector. The total number of debit-credit card holders has surpassed 4.6 million in 2013. Through online banking, a customer can receive banking service from any branch of a bank disregarding where his account has been opened.  Mobile banking has been introduced in the country and more than 6.6 million mobile banking accounts have already been opened and this number is continuously rising. The mobile network operators through their outlets are collecting utility bills, on an average, around half a million bills per month. Approximately 12,000 railway tickets are being sold per month using mobile financial services.

l The protection of customer's interest and importance of quality customer services are gaining ground day by day. This issue has also been taken seriously by regulators in the country. The central bank has introduced 'Customers Interest Protection Centre (CIPC)' in 2011 to protect customer interest and ensure superior customer service through quick solution of client complaints against below-standard service quality.  Recently the central bank has issued a complete guideline on customer service focusing on aspects of institutional and individual ethical standards, customer service quality and customer awareness programme and complaint management system. According to the Bangladesh Bank,  the complaints it has received are mostly  related to general banking  such as  different types of account opening and operations, wrong calculation of interest, additional interest charge, violation of rules in determining interest rate, irregularity in collecting money against cheque, bill and draft, commission, determining fees, remittance, local or foreign bills, debit card, credit card, ATM operation, payment against guarantee or L/C, time lagging for sanctioning loans, delay for paying salary, pension, allowances etc.

l There has been a positive trend in remittance inflow in recent years. According to the Bangladesh Bank, in the last four FYs (2010-13), total inward remittance was US$ 49.94 billion (average $12.49 billion). The growth in remittance is 13.40 per cent, 6.03 per cent, 10.24 per cent and 12.60 per cent respectively. One estimate suggests that remittance is about 11 per cent of the GDP. In order to make remittance process easier, establishing drawing arrangement between foreign exchange houses and banks in Bangladesh has been simplified. In the last four years and half, 409 approvals have been given in this regard. Private commercial banks have been allowed to set up their own exchange houses abroad.  In order to distribute remittance quickly to remote areas of the country, the Bangladesh Bank has approved using branch offices of micro finance institutions (MFIs) and branches of the Bangladesh Post Office as collection points for remittance money.  Remittance is also being distributed through mobile phone operators. The Bangladesh Electronic Funds Transfer Network (BEFTN) came into being in 2011 to simplify the bank-to-bank clearing process which also helps make quick delivery of workers' remittance.

MAIN CHALLENGES: In view of the above, the issue is now: what are the emerging challenges for retail banking and how can these challenges be addressed? All commercial banks in the country offer retail products. With increasing competition between competitors in terms of expanding business while maintaining sound financial health, the main retail banking challenges are:

Product innovation: The demographic changes have generated the need for   introducing new products.  Changing life-style has created demand for many new products and services. Banks need to develop new products for both asset side and liability side based on demographics. The expectations normally vary from customers to customers. Salaried employees may need loan for car, housing etc while small businessman or agro-based business may need quick and hassle-free loan. On the other hand, senior citizens or retired persons want better deposit rates. With the traditional products, banks need to develop products which will focus on individual needs and provide a customised solution for customer based on their individual circumstances. Lending products should be designed to cater to the needs of various income groups. Banks need to develop low-cost retail banking products. The emerging opportunity to reach various groups of unbanked customers will require banks to innovate products that can better match customer needs at a lower cost to both bank and customer.

Reaching to new customers: Customers now are not only present in major divisional cities, but also in districts, towns, thanas and villages. Reaching these customers is one of the challenges which banks need to think. It is now becoming far more easier to reach new customers than ever before. Technological advancement has made it possible to reach new areas without physically presents there.  The agent banking and the mobile banking are the two very effective tools to reach new customers at a lower cost. Bank can use internet banking, ATM booths etc not only as customer-focussed but also as  tools for selling various products.  The emerging opportunity to reach new areas will require banks to use effectively agent banking and  mobile banking.

Use of technology: Use of technology such as computerisation of the banking sector has already enabled banks to increase their operational efficiencies. Although ATM, internet banking etc have increased banks' capacity to provide better customer service, banks still have a long way to go in this direction.  Customers now want speed and efficiency, but at a lower cost.  Banks need to invest more on technology to achieve faster connectivity between branches, setting up of Central Data Repository, generation of MIS, prevention of frauds and reducing transaction costs. The use of internet banking is now restricted to balance check and some other basic functions. But the balance transfer between various banks through internet banking is emerging as demand now.  The use of ATM cards at any booth of any bank irrespective of the provider of the cards, the replacement of ATM card which is a merely a cash card now with debit cards with brand owners such as VISA facilitating many more services along with cash withdrawal are evolving as customers demand.  Banks will have to cater to these needs to acquire more customers and improve service delivery. Banks now need to deliver its products in an innovative and cost-effective way by taking full advantage of technology.

Improved customer service: Providing superior customer services is becoming an important issue for any bank.  Customers now want quick service with minimum response time, efficient service delivery, tailor-made and value-added products to suit specific needs, hassle-free procedures, minimum transaction cost and pleasant and personalised service.  The issue of superior customer services has been one of the priorities in the agenda of regulatory authority and the Bangladesh Bank has issued guidelines to improve customer service.  For complying with these guidelines, banks now need to focus on customer service more than ever before. They need to train their staffs adequately to provide better quality services without fail. Part of the future success  now depends on how good a bank at its customers services is.

Customer relationship management: Along with superior customer service, banks will have to focus on customer relationship management (CRM). In the era of intense competition, banks now need more customer retention and loyalty. Banks now need to develop right products and services and cross- selling products to lower promotional costs which is only possible by developing long-term mutually beneficial relationship with the customers. Customer Relationship Management (CRM) is, therefore, becoming one of the strategies that every commercial bank will consider to increase the company's revenue performance.

Banking for NRB: Serving the non-resident Bangladeshis (NRBs) through retail banking will become one of the challenges for banks in the country. According to the Bangladesh Bank, about eight million Bangladeshi expatriates are now working in 155 countries in the world. Every year, nearly 600,000 people are employed abroad. Therefore, the flow of remittance is likely to increase more. However, the distributing remittance money is not the only option to serve the NRB segment.  Banks can develop a retail banking plan for this particular segment. Many NRBs become  established in new countries, and at one point of time, money sent to their home country for family support  will change into funds used for inward investment, property or businesses. These NRBs can be good retail banking customers. Migrants from some countries eventually may come back. So a better savings plan may attract them to open accounts in the country. The opening of exchange houses abroad by Bangladeshi banks in recent years  can provide an opportunity to acquire more retail customers. The success of these banks in this regard will depend on how these banks develop long-term relationship with migrant workers and how effectively address the changing needs of these particular groups. Not all banks are opening exchange houses abroad. Those which are not going there can partner with an established payment provider which will enable banks to cater to the needs of the growing number of migrant customers, while innovating new products and services to compete successfully in the market.

The future retail banking success will depend on how effectively a bank can innovate new products according to the demand of customers, position them in the market, use the full advantage of technology to retain their customers through superior customer services and cater to the needs of the emerging market niches. Banks focusing on retail base now should prepare themselves to face the above challenges along with traditional ones such as  non-performing loans, liquidity risks, credit risks, interest risks etc.

The writer, who has a post-graduate degree in Islamic banking, finance and management from the UK, works in a private bank in Bangladesh.

akbar.chowdhury@yahoo.com

Source: http://print.thefinancialexpress-bd.com/2014/10/04/59624