In today's competitive world of retail banking, pricing can usually be a differentiating factor and make or break a sale. With most of the pricing becoming deregulated, banks are now faced with a challenge on how to fix the right pricing for their products and services. If the pricing is expensive, there is a risk of customers moving away to competition. If the pricing is cheap, there is a real threat to profitability.
The pricing dilemma has no easy answers. It is a complicated question which is interlinked with a variety of factors. Should one price a product based on costs or competition? Should one be aligned to market and try to control or manage costs? Does service levels and customer convenience have any bearing with price? Should one consider differential pricing for different customer segments or geographies? The list of questions goes on and on..
Traditional marginal costing principles teach us that it is better to price on marginal or incremental cost basis. That means, the fixed costs which do not change with volume need not be included in cost for pricing purposes. Hence, only the cost that is directly linked to providing the service should be factored while computing costs. This, however, is easier said than done especially in organisations which have multi-products, multi-locations etc.
The easiest method would be to look at what competition is offering and be priced somewhere near that. One would have to, of course, consider factors that help in getting a premium or giving a discount (like special services, flexibility, convenience etc.). While deciding the pricing, one should also consider the likely business volumes that one is expecting to determine whether this business will be profitable in the medium term.
Smart companies realize that even if the first transaction with a customer is not profitable due to lower than expected pricing, one can always look for ways & means of becoming profitable by either cross selling multiple products to the same customer, increasing the tenure of the loan to spread the acquisition costs, giving top up loans, making extra income on delayed payments (if any), selling fee based products to own customer etc. All of this is possible if the service levels are high and the customer is delighted with the services.
To summarize, in an excessively competitive market, one does not have too much flexibility on pricing. It will have to be dictated by market forces and the only factor that one can control is the costs. Each business should be constantly looking at ways & means of becoming & remaining profitable by managing costs and looking at other means of increasing revenue with the customers who have been on boarded.
Tuesday 2 July 2019
Wednesday 20 March 2013
Internal Audit
One of the most critical functions of a bank is that of internal audit. This function performs several important roles such as:
a. Ensures laid down processes are followed
b. Confirms internal checks and controls are functioning
c. Contributes in the development of processes and controls
d. Identifies areas of improvement in efficiency and compliance
e. Provides assurance to the management
The internal audit team needs to be equipped with staff with relevant skills and knowledge / expertise across various areas / functions. Ideally, staffing should be of qualified people with prior work experience across functions.
Besides qualification and skills, the audit team should have an ability to anticipate issues and proactively work to discover them. Interpersonal skills and communication skills would help them to informally gather inside information. Most importantly, the integrity levels of the audit staff should be impeccable and they should have the courage and conviction to report their findings.
It is always a challenge to decide how many people are required in this function. Too many would be an over-kill and create unnecessary pain in the working and too little would reduce audit coverage. The team has to prepare an audit plan which covers both periodic as well as as surprise audits. The extent and frequency of coverage should depend on the level of risks & controls in each area / function.
Besides covering the business & operational areas, audit should also cover the control & support functions. Areas such as risk management, HR, legal, compliance, facilities management, IT etc. also need extensive audit coverage as these functions are critical to the effective functioning of a bank. For each area under audit, there should have a plan which will test the effectiveness of the controls and the evidencing of the same.
Audit team should create a climate of trust wherein the auditee realises that the auditor is interested in helping improve the performance & compliance. It should not appear as too suspicious in its approach.
Each audit should be concluded with the sharing of the draft report, a discussion on the same to incorporate the auditee comments / suggestions and the preparation of the final audit report along with Key Audit Observations. Audit findings should be discussed with a view to improve the process or the controls. An interim body or committee comprising Audit Head, Business / Geography Head and Compliance Head would discuss the report and the actions taken subsequent to it. They would recommend additional actions / controls if they feel it is necessary.
The Audit Committee (AC) of the Board is where all key audit findings are placed for information and decisions on broad actions to be taken. The AC would also review Audit plans and suggest improvements on the same. The AC would need to get a comfort on the overall coverage and the quality of the Audit team for it largely relies on this team report on the ground realities.
Audit is one of the key pillars to ensure stability, controls and compliance in any bank.
I would love to hear your views on this blog. Please feel free to leave a comment on the blog or send me a mail at vish.sesh@gmail.com and I will quickly respond.
a. Ensures laid down processes are followed
b. Confirms internal checks and controls are functioning
c. Contributes in the development of processes and controls
d. Identifies areas of improvement in efficiency and compliance
e. Provides assurance to the management
The internal audit team needs to be equipped with staff with relevant skills and knowledge / expertise across various areas / functions. Ideally, staffing should be of qualified people with prior work experience across functions.
Besides qualification and skills, the audit team should have an ability to anticipate issues and proactively work to discover them. Interpersonal skills and communication skills would help them to informally gather inside information. Most importantly, the integrity levels of the audit staff should be impeccable and they should have the courage and conviction to report their findings.
It is always a challenge to decide how many people are required in this function. Too many would be an over-kill and create unnecessary pain in the working and too little would reduce audit coverage. The team has to prepare an audit plan which covers both periodic as well as as surprise audits. The extent and frequency of coverage should depend on the level of risks & controls in each area / function.
Besides covering the business & operational areas, audit should also cover the control & support functions. Areas such as risk management, HR, legal, compliance, facilities management, IT etc. also need extensive audit coverage as these functions are critical to the effective functioning of a bank. For each area under audit, there should have a plan which will test the effectiveness of the controls and the evidencing of the same.
Audit team should create a climate of trust wherein the auditee realises that the auditor is interested in helping improve the performance & compliance. It should not appear as too suspicious in its approach.
Each audit should be concluded with the sharing of the draft report, a discussion on the same to incorporate the auditee comments / suggestions and the preparation of the final audit report along with Key Audit Observations. Audit findings should be discussed with a view to improve the process or the controls. An interim body or committee comprising Audit Head, Business / Geography Head and Compliance Head would discuss the report and the actions taken subsequent to it. They would recommend additional actions / controls if they feel it is necessary.
The Audit Committee (AC) of the Board is where all key audit findings are placed for information and decisions on broad actions to be taken. The AC would also review Audit plans and suggest improvements on the same. The AC would need to get a comfort on the overall coverage and the quality of the Audit team for it largely relies on this team report on the ground realities.
Audit is one of the key pillars to ensure stability, controls and compliance in any bank.
I would love to hear your views on this blog. Please feel free to leave a comment on the blog or send me a mail at vish.sesh@gmail.com and I will quickly respond.
Thursday 10 March 2011
The Ops Shop
One of the most critical functions in a bank, yet much neglected, is the back office function. The Ops role begins once a prospect has decided to set up his account with the bank and applies for the same. And the customer experience, whether pleasant or otherwise, is really dependent on the Ops shop. The following broadly covers the different activities and services done in an Ops shop:
a. Processing the application
b. Setting up the account
c. Recording the customer details
d. Communication to / with the customer
e. Delivering account related documents etc. (sometimes called the "Welcome Pack")
f. Timely and accurate recording of transactions
g. Accurate computation of interest, charges etc.
h. Processing customer transactions / requests
i. Reconciling customer and other accounts
j. Providing information, statements, certificates
k. Managing complaints (if any)
l. Safe storage & handling of documents
m. Processing account closure (natural or otherwise)
n. Return of documents
Some of the support functions / systems critical for a good Ops shop are:
1. A comprehensive and robust system connected across all branches
2. Multiple channels for capturing customer requirements (eg. Internet, call center, branches, snail mail etc.)
3. A strong service provider for printing & courier with tracking
4. A high quality data capture / verification shop
5. A good storage service provider
6. A good customer management software integrated across channels
The different areas of focus in any good ops shop are - Quality, Speed, Service, Risk management and Cost Management. More about these in part 2 of this blog.
Besides sincere, dedicated, well-trained staff, a good ops shop also needs periodic reviews and enforcement of a strong discipline across the bank. It will be a disaster if the Ops shop is treated as a factory which has to process anything that this thrown their way without complying with the process or order that has been preset.
Quite often it is observed, especially amongst newly set up banks, that in the quest for speed, the Ops shop is poorly organised / supported. It is felt that once customers are acquired, it will be easy to manage them. Some banks make a mistake of loading the ops function with sales goals. It is only a question of time for customers to be disillusioned by the marketing gimmicks if they are not backed by a strong dedicated and focused Ops shop. It may be a good idea to spend more time in creating a strong platform before launching any business. Alternately, a pilot run when the robustness of ops is tested will be a good option.
It goes without saying that a well run Ops shop can do great wonders for a bank in terms of ensuring customer loyalty, references etc. It can also enable a bank to withstand competition on the pricing front as customers will prefer a reliable bank who charges slightly more rather than go only for lower pricing. It can attract faster acquisition and better profitability on the long run.
A well run Ops shop can give a bank a strategic advantage over competition.
I would love to hear your views on this blog. Please feel free to leave a comment on the blog or send me a mail at vish.sesh@gmail.com and I will quickly respond.
a. Processing the application
b. Setting up the account
c. Recording the customer details
d. Communication to / with the customer
e. Delivering account related documents etc. (sometimes called the "Welcome Pack")
f. Timely and accurate recording of transactions
g. Accurate computation of interest, charges etc.
h. Processing customer transactions / requests
i. Reconciling customer and other accounts
j. Providing information, statements, certificates
k. Managing complaints (if any)
l. Safe storage & handling of documents
m. Processing account closure (natural or otherwise)
n. Return of documents
Some of the support functions / systems critical for a good Ops shop are:
1. A comprehensive and robust system connected across all branches
2. Multiple channels for capturing customer requirements (eg. Internet, call center, branches, snail mail etc.)
3. A strong service provider for printing & courier with tracking
4. A high quality data capture / verification shop
5. A good storage service provider
6. A good customer management software integrated across channels
The different areas of focus in any good ops shop are - Quality, Speed, Service, Risk management and Cost Management. More about these in part 2 of this blog.
Besides sincere, dedicated, well-trained staff, a good ops shop also needs periodic reviews and enforcement of a strong discipline across the bank. It will be a disaster if the Ops shop is treated as a factory which has to process anything that this thrown their way without complying with the process or order that has been preset.
Quite often it is observed, especially amongst newly set up banks, that in the quest for speed, the Ops shop is poorly organised / supported. It is felt that once customers are acquired, it will be easy to manage them. Some banks make a mistake of loading the ops function with sales goals. It is only a question of time for customers to be disillusioned by the marketing gimmicks if they are not backed by a strong dedicated and focused Ops shop. It may be a good idea to spend more time in creating a strong platform before launching any business. Alternately, a pilot run when the robustness of ops is tested will be a good option.
It goes without saying that a well run Ops shop can do great wonders for a bank in terms of ensuring customer loyalty, references etc. It can also enable a bank to withstand competition on the pricing front as customers will prefer a reliable bank who charges slightly more rather than go only for lower pricing. It can attract faster acquisition and better profitability on the long run.
A well run Ops shop can give a bank a strategic advantage over competition.
I would love to hear your views on this blog. Please feel free to leave a comment on the blog or send me a mail at vish.sesh@gmail.com and I will quickly respond.
Saturday 13 November 2010
Wealth Management
Let me start this blog by confessing that I have never worked in the wealth management function of any bank. I remember that earlier high net worth clients (HNC) used to get a dedicated "relationship manager" (RM) to ensure quick and efficient service. Of late, in the last few years, the RM has got substituted with more appealing term - Wealth Manager (WM).
Banks have gone about slicing their customers based on relationship value into 2-3 levels of HNC. As the relationship value increases, a higher level of WM is assigned to the client. The attempt of all banks seems to be to retain and enhance the relationship value of the clients by getting a higher "share of wallet".
Banks should not be inward looking when dealing with HNC. For example, the very definition of HNC should not be based on existing relationship value but on potential value. It does not matter that the customer hsa a small balance in the savings account if you know that the customer is a high potential / high profile client. So, some amount of local knowledge and some amount of research would be required while defining clients.
When dealing with HNC, many banks make a classic mistake of looking at things from their own perspective rather than the client's. What does the client seek from the bank? Given below are some of the key expectations of HNC:
1. Recognition without introduction
2. Exclusive service in terms of speed & treatment
3. Security & confidentiality of personal information
4. Information on opportunities to increase wealth based on risk appetite
5. Solution for all banking requirements - domestic & international
6. Advisory services
Without identifying the needs of the HNC, wealth management cannot make much progress. Many banks make a mistake of not securing the customer's confidential information. Also, a lack of coordination between marketing, sales and service departments can prove disastrous.
A classic mistakes some banks do is try to target all segments of customers and increase its numbers of customers. While this may look exciting in the short run, it results in confusing the customers about what the brand stands for. A bank needs to create exclusive zones / branches / channels for its HNC. If it tries to mix up the HNC with ordinary customers, the HNC might feel delineated and upset.
The other interesting fact is that most HNC do not come themselves to the branch but send a representative who could be a domestic servant, a driver etc. The banks should have an ability to 'spot' such proxies and serve them well. An error or oversight here could have indirect repercussions.
Many banks are happy to have large savings balances from the HNC as it helps reduce their cost of funds. However, if the bank does not attempt to educate the customer or give options to improve his earnings, it can boomerang in the long run. Similarly, banks should always feed information to the HNC on opportunities to increase wealth. Exclusive offers, special schemes, off market deals etc. which are not ordinarily available to regular customers should be offered. The customer should be made to feel that the bank is working for him and is interested in increasing his wealth.
Banks with strong research capabilities stand a better chance of impressing its HNC with their timely information, insightful analysis etc. The bank should be in a position to Suo Motu offer specialist advice to the HNC on every significant event that occurs which can impact the HNC's portfolio.
Wealth management is not every bank's cup of tea. Unless the bank is prepared to work smartly towards it and does everything necessary to stay clued on with the customers needs and the latest developments in the market place, it may have a wealth management function only on paper.
I would love to hear your views on this blog. Please feel free to leave a comment on the blog or send me a mail at vish.sesh@gmail.com and I will quickly respond.
Banks have gone about slicing their customers based on relationship value into 2-3 levels of HNC. As the relationship value increases, a higher level of WM is assigned to the client. The attempt of all banks seems to be to retain and enhance the relationship value of the clients by getting a higher "share of wallet".
Banks should not be inward looking when dealing with HNC. For example, the very definition of HNC should not be based on existing relationship value but on potential value. It does not matter that the customer hsa a small balance in the savings account if you know that the customer is a high potential / high profile client. So, some amount of local knowledge and some amount of research would be required while defining clients.
When dealing with HNC, many banks make a classic mistake of looking at things from their own perspective rather than the client's. What does the client seek from the bank? Given below are some of the key expectations of HNC:
1. Recognition without introduction
2. Exclusive service in terms of speed & treatment
3. Security & confidentiality of personal information
4. Information on opportunities to increase wealth based on risk appetite
5. Solution for all banking requirements - domestic & international
6. Advisory services
Without identifying the needs of the HNC, wealth management cannot make much progress. Many banks make a mistake of not securing the customer's confidential information. Also, a lack of coordination between marketing, sales and service departments can prove disastrous.
A classic mistakes some banks do is try to target all segments of customers and increase its numbers of customers. While this may look exciting in the short run, it results in confusing the customers about what the brand stands for. A bank needs to create exclusive zones / branches / channels for its HNC. If it tries to mix up the HNC with ordinary customers, the HNC might feel delineated and upset.
The other interesting fact is that most HNC do not come themselves to the branch but send a representative who could be a domestic servant, a driver etc. The banks should have an ability to 'spot' such proxies and serve them well. An error or oversight here could have indirect repercussions.
Many banks are happy to have large savings balances from the HNC as it helps reduce their cost of funds. However, if the bank does not attempt to educate the customer or give options to improve his earnings, it can boomerang in the long run. Similarly, banks should always feed information to the HNC on opportunities to increase wealth. Exclusive offers, special schemes, off market deals etc. which are not ordinarily available to regular customers should be offered. The customer should be made to feel that the bank is working for him and is interested in increasing his wealth.
Banks with strong research capabilities stand a better chance of impressing its HNC with their timely information, insightful analysis etc. The bank should be in a position to Suo Motu offer specialist advice to the HNC on every significant event that occurs which can impact the HNC's portfolio.
Wealth management is not every bank's cup of tea. Unless the bank is prepared to work smartly towards it and does everything necessary to stay clued on with the customers needs and the latest developments in the market place, it may have a wealth management function only on paper.
I would love to hear your views on this blog. Please feel free to leave a comment on the blog or send me a mail at vish.sesh@gmail.com and I will quickly respond.
Wednesday 10 November 2010
Call center basics
Most banks have realised the importance of having a call center to address customer requirements. Banks do realise that servicing customers at branch can be an expensive affair for the bank and inconvenient for the customer. Many have either set up or are planning to set up a call center.
There are several basics to be kept in mind while setting up a call center and I try to capture a few of the important ones below.
1. Should ideally be accessible 24 x 7 - If not, should be available during normal working hours.
2. Should ideally be centralised but not necessary. Centralisation helps in managing costs and standardising output.
3. If centralised, should have at least 2/3 locations to manage disruptions
4. Should have adequate staff to cater to incoming calls. Optimising is required.
5. Staff well trained on
- Different products & technologies used
- Customer handling skills
- good listening / comprehension skills
6. Multi lingual staff capabilities
7. Top notch technology which can give
- On line status of accounts
- Status of deliveries
- Current offerings
- Single view of customer's various accounts
- ability to divert customer to correct desk depending on status, need etc.
- recognise the customer based on number
- authentication of customer
- speed in capturing requirements
- trail information of all past calls to / from customer
- ability to assign and track tasks till completion
- Recording calls for audit / training purposes
Banks have to take a hard look at the services that they would like to continue at the branch and those that they wish to migrate to the call center. While some essential services need to be done physically at the branch, there are many opportunities to innovate and migrate most of the activities to the call center.
Although, servicing of customers is the key activity of call centers, it is also used by banks for recovering loans, reminder management, selling products, market research activities etc. While inbound calling forms the bulk of the activities of call centers, outbound calling is also resorted to on 'need basis'.
One of the key challenges in the call center would be to ensure that customer calls are closed, to the satisfaction of the customer, with high level of speed and efficiency. In general, customers desire to have a quick resolution and an end to the call. The whole process at the call center should be designed to make this happen. For example, the IVR (Interactive Voice Response) system should follow the 'KISS' principle (Keep It Simple and Short). Customers would get irritated if there are too many options or if they are not clear. Also, there should be no loops or dead ends.
The staff capacity should be managed so as to keep the 'wait time' to the minimum. Of course, this can be adversely impacted by sudden or unexpected surges of call volumes. If the customer finds the wait time unreasonably long, it will result in dropped calls and increased 'walk ins' by irritated customers in the branches. Also, if the wait time is too long, it may result in more calls coming in during 'office hours' when customers call call from their place of work without worrying about the call duration. This results in bunching of calls and a vicious cycle of delays.
Keeping the staff energetic, enthusiastic and motivated can be a challenge esp. if they are dealing with complaints or delinquent customers. A lot of counselling and hand holding may be required with regular breaks interspersed with recreation. Staff should be encouraged to share experiences and learning. Replay of recorded conversations is a useful method of imparting and enhancing call handling skills.
Staff should also be trained to identify / prevent potential frauds. The processes should be robust to ensure this is continuously monitored and improvised. Data security is a challenge and steps must be taken to prevent data thefts. This can be done in a variety of ways like preventing data copying facilities, non-use of pen & paper in the work stations, non-use of mobile phones at work stations etc.
If managed well, a call center can enhance the bank's efficiency and profitability significantly. It can also enhance the bank's reputation and help it sell and recover more.
I would love to hear your views on this blog. Please feel free to leave a comment on the blog or send me a mail at vish.sesh@gmail.com and I will quickly respond.
There are several basics to be kept in mind while setting up a call center and I try to capture a few of the important ones below.
1. Should ideally be accessible 24 x 7 - If not, should be available during normal working hours.
2. Should ideally be centralised but not necessary. Centralisation helps in managing costs and standardising output.
3. If centralised, should have at least 2/3 locations to manage disruptions
4. Should have adequate staff to cater to incoming calls. Optimising is required.
5. Staff well trained on
- Different products & technologies used
- Customer handling skills
- good listening / comprehension skills
6. Multi lingual staff capabilities
7. Top notch technology which can give
- On line status of accounts
- Status of deliveries
- Current offerings
- Single view of customer's various accounts
- ability to divert customer to correct desk depending on status, need etc.
- recognise the customer based on number
- authentication of customer
- speed in capturing requirements
- trail information of all past calls to / from customer
- ability to assign and track tasks till completion
- Recording calls for audit / training purposes
Banks have to take a hard look at the services that they would like to continue at the branch and those that they wish to migrate to the call center. While some essential services need to be done physically at the branch, there are many opportunities to innovate and migrate most of the activities to the call center.
Although, servicing of customers is the key activity of call centers, it is also used by banks for recovering loans, reminder management, selling products, market research activities etc. While inbound calling forms the bulk of the activities of call centers, outbound calling is also resorted to on 'need basis'.
One of the key challenges in the call center would be to ensure that customer calls are closed, to the satisfaction of the customer, with high level of speed and efficiency. In general, customers desire to have a quick resolution and an end to the call. The whole process at the call center should be designed to make this happen. For example, the IVR (Interactive Voice Response) system should follow the 'KISS' principle (Keep It Simple and Short). Customers would get irritated if there are too many options or if they are not clear. Also, there should be no loops or dead ends.
The staff capacity should be managed so as to keep the 'wait time' to the minimum. Of course, this can be adversely impacted by sudden or unexpected surges of call volumes. If the customer finds the wait time unreasonably long, it will result in dropped calls and increased 'walk ins' by irritated customers in the branches. Also, if the wait time is too long, it may result in more calls coming in during 'office hours' when customers call call from their place of work without worrying about the call duration. This results in bunching of calls and a vicious cycle of delays.
Keeping the staff energetic, enthusiastic and motivated can be a challenge esp. if they are dealing with complaints or delinquent customers. A lot of counselling and hand holding may be required with regular breaks interspersed with recreation. Staff should be encouraged to share experiences and learning. Replay of recorded conversations is a useful method of imparting and enhancing call handling skills.
Staff should also be trained to identify / prevent potential frauds. The processes should be robust to ensure this is continuously monitored and improvised. Data security is a challenge and steps must be taken to prevent data thefts. This can be done in a variety of ways like preventing data copying facilities, non-use of pen & paper in the work stations, non-use of mobile phones at work stations etc.
If managed well, a call center can enhance the bank's efficiency and profitability significantly. It can also enhance the bank's reputation and help it sell and recover more.
I would love to hear your views on this blog. Please feel free to leave a comment on the blog or send me a mail at vish.sesh@gmail.com and I will quickly respond.
Thursday 28 October 2010
The human element
It is an undeniable fact that the human capital is the most critical for any organisation especially one in the service industry as a bank.
I had an interesting episode with my bank recently. I discovered that my son's account opened a few years ago was misspelled in their records due to a data entry error. When I tried to get this rectified, I was asked to fill up a new form. I asked them to check their records but was informed that the records were lost in the floods in 2005.
I escalated this issue to their head of service who deputed a junior officer to deal with me. She called me several times for routine information like account number, name of the officer I spoke to earlier etc. Yet there was no progress.
I then went to the bank and checked out in their system. There, I could see the scanned image of the original form which had the correct spelling. When the officer called me yet again for some minor detail, I told her that this info. is already available in the bank in the scanned image.
She had more questions for me like where did I see this, which branch, which desk etc. When I expressed my irritation with the delay and approach, she gave me a piece of her mind !! Rather than being apologetic, she seemed to be the one who was offended.
My bank later rectified the problem without any further communication with me, after I spoke to their head of service again. Yet, the whole incident left a bad taste and reduced my confidence and comfort with my bank.
A bank may have great technology, seamless systems, on line information etc. However, if it does not have the right people, it could end up losing clients. In my case, the operations staff were bureaucratic and not keen to find a solution. The customer service staff was not trained to look through the system and had an attitude problem too.
It is imperative for every bank to make sure that its staff are customer centric and sensitive. It is not enough for a bank to talk about service and it should also take steps to ensure this. Training and close supervision is critical. Every complaint and customer issue needs to be taken up earnestly to find a solution and fix the root problem. Every staff member who is found to be lackadaisical in approach needs to be retrained. If this is not bringing about a change in the attitude and performance, it is best to weed out such people.
In the long run, for a bank to survive and out-perform its peers, it needs to be filled with high quality people and the right culture in place. Any bank ignoring this key area will become unattractive for its customers.
I would love to hear your views on this blog. Please feel free to leave a comment on the blog or send me a mail at vish.sesh@gmail.com and I will quickly respond.
I had an interesting episode with my bank recently. I discovered that my son's account opened a few years ago was misspelled in their records due to a data entry error. When I tried to get this rectified, I was asked to fill up a new form. I asked them to check their records but was informed that the records were lost in the floods in 2005.
I escalated this issue to their head of service who deputed a junior officer to deal with me. She called me several times for routine information like account number, name of the officer I spoke to earlier etc. Yet there was no progress.
I then went to the bank and checked out in their system. There, I could see the scanned image of the original form which had the correct spelling. When the officer called me yet again for some minor detail, I told her that this info. is already available in the bank in the scanned image.
She had more questions for me like where did I see this, which branch, which desk etc. When I expressed my irritation with the delay and approach, she gave me a piece of her mind !! Rather than being apologetic, she seemed to be the one who was offended.
My bank later rectified the problem without any further communication with me, after I spoke to their head of service again. Yet, the whole incident left a bad taste and reduced my confidence and comfort with my bank.
A bank may have great technology, seamless systems, on line information etc. However, if it does not have the right people, it could end up losing clients. In my case, the operations staff were bureaucratic and not keen to find a solution. The customer service staff was not trained to look through the system and had an attitude problem too.
It is imperative for every bank to make sure that its staff are customer centric and sensitive. It is not enough for a bank to talk about service and it should also take steps to ensure this. Training and close supervision is critical. Every complaint and customer issue needs to be taken up earnestly to find a solution and fix the root problem. Every staff member who is found to be lackadaisical in approach needs to be retrained. If this is not bringing about a change in the attitude and performance, it is best to weed out such people.
In the long run, for a bank to survive and out-perform its peers, it needs to be filled with high quality people and the right culture in place. Any bank ignoring this key area will become unattractive for its customers.
I would love to hear your views on this blog. Please feel free to leave a comment on the blog or send me a mail at vish.sesh@gmail.com and I will quickly respond.
Friday 8 October 2010
Diversify risk
The last blog was about the importance of market share as well as product focus. We also saw how single product organisations like HDFC have done so well over the past few decades.
It is not true, however, that all single product companies will do well or have done well. In many ways, success depends on a variety of factors like vision, strong plan, processes, people, focus etc. Success also depends on the products chosen and how well the products do in the market place.
The housing sector, in India, has seen very few blips in its upward journey - thanks to the ever growing population and a growing economy. There have been a few 'corrections' in the past due to over-heating of the sector but overall the scenario has been good. As long as the organisation is conservative in its lending practices and not encouraged too much speculation, it is in a safe zone.
We are all aware that, in general, each sector has its cycle of ups and downs. When the going is good, every move that an organisation makes seems to be a winner. At the same time, when the cycle is down, a 'one-product-bank' soon finds itself in big time trouble.
Which brings us to the need for diversification of risk. Even though there are compelling reasons for product focus, the need to balance out the portfolio calls for a judicious mix of products which will help negate the effects of a bad cycle. The mix of products should be such that there is a support from one sector when there is a weakness in another.
Of course, when there is an overall weakness in the economy affecting most sectors, one can only fall back on the overall quality of the book in terms of selection and strong predictions / collection ability.
Each bank should analyse the source of its liabilities and assets to make sure that there is no over-dependence on any source. There should be a proper mix in terms of geography, sector etc. One thumb rule to be applied here is to be "mapped to market" - which means that the bank's sources would be similar to the demographic pattern of the market. For instances, if 80% of the savings accounts in the market comes from salaried individuals, the bank's pattern should match that. And within that if 10% comes from the IT sector, a similar pattern should be reflected in the bank. This rule does not apply if there are any emerging markets or new opportunities missed out by others.
Similarly, on the assets side also the mix of products and the sectors where the lending is done should be mapped to the market. When choosing product mix, attention should be paid to the mix between secured and unsecured assets. Within secured assets (which should normally form the bulk of any bank's assets), re-sale values and loan-to-value forms the bulk of the consideration. Ability to recover in the event of default either through collection or repossession is critical.
To summarise, product and market share focus is important for a bank to make best use of available band width of management and to avoid getting lost in a mire of products. Yet, diversification of risk is required to manage the inevitable market cycles.
I would love to hear your views on this blog. Please feel free to leave a comment on the blog or send me a mail at vish.sesh@gmail.com and I will quickly respond.
It is not true, however, that all single product companies will do well or have done well. In many ways, success depends on a variety of factors like vision, strong plan, processes, people, focus etc. Success also depends on the products chosen and how well the products do in the market place.
The housing sector, in India, has seen very few blips in its upward journey - thanks to the ever growing population and a growing economy. There have been a few 'corrections' in the past due to over-heating of the sector but overall the scenario has been good. As long as the organisation is conservative in its lending practices and not encouraged too much speculation, it is in a safe zone.
We are all aware that, in general, each sector has its cycle of ups and downs. When the going is good, every move that an organisation makes seems to be a winner. At the same time, when the cycle is down, a 'one-product-bank' soon finds itself in big time trouble.
Which brings us to the need for diversification of risk. Even though there are compelling reasons for product focus, the need to balance out the portfolio calls for a judicious mix of products which will help negate the effects of a bad cycle. The mix of products should be such that there is a support from one sector when there is a weakness in another.
Of course, when there is an overall weakness in the economy affecting most sectors, one can only fall back on the overall quality of the book in terms of selection and strong predictions / collection ability.
Each bank should analyse the source of its liabilities and assets to make sure that there is no over-dependence on any source. There should be a proper mix in terms of geography, sector etc. One thumb rule to be applied here is to be "mapped to market" - which means that the bank's sources would be similar to the demographic pattern of the market. For instances, if 80% of the savings accounts in the market comes from salaried individuals, the bank's pattern should match that. And within that if 10% comes from the IT sector, a similar pattern should be reflected in the bank. This rule does not apply if there are any emerging markets or new opportunities missed out by others.
Similarly, on the assets side also the mix of products and the sectors where the lending is done should be mapped to the market. When choosing product mix, attention should be paid to the mix between secured and unsecured assets. Within secured assets (which should normally form the bulk of any bank's assets), re-sale values and loan-to-value forms the bulk of the consideration. Ability to recover in the event of default either through collection or repossession is critical.
To summarise, product and market share focus is important for a bank to make best use of available band width of management and to avoid getting lost in a mire of products. Yet, diversification of risk is required to manage the inevitable market cycles.
I would love to hear your views on this blog. Please feel free to leave a comment on the blog or send me a mail at vish.sesh@gmail.com and I will quickly respond.
Thursday 23 September 2010
Market share focus
I recently visited the web site of a few banks. I noted that these banks take pride in making available all products for their customers. The idea seems to be that the customer need not go elsewhere to satisfy his financing needs. This is a strong proposition to make to customers and is no doubt very attractive.
In reality, however, it is found that most banks, which have multiple products and services to offer, do not have a process to manage cross sell or to fulfill the expectations of the customers. Most of their products are managed in silos and the staff do not care or are not aware of the other products. This results in dis-satisfying customers and leads them to move to competition.
This blog is not attempting to cover cross sell which will the topic in some future blog. This blog is aimed at driving the importance of market share and product focus.
No bank has unlimited resources - we all know that. Therefore, it is important for the bank to decide which products they want to focus on and how much capital is needed for that product. When any product / service is proposed to be offered to customers a lot of work needs to be done in the background before the launch. Some of the key activities is captured below:
1. Have a business plan in place
2. Recruit the team which has expertise in the product.
3. Buy / Make the system to run the product.
4. Have the policies and processes well defined
5. Train the staff and create internal awareness
6. Create the distribution channels - branches / sales points / agents etc.
7. Promote the product by creating awareness
8. Tie up with key stake holders
9. Create back end processing capabilities
10. Get regulatory / other approvals for launch
All of these result in a substantial amount being invested for launch. When one is investing in people / other resources like systems, one cannot afford to get inferior quality because these has a direct impact on the earnings / quality of the product / portfolio. All these investments can only be recovered if a certain level of market share is met.
Moreover, to sustain the interest of staff / channel in the product, one has to be an active player in the business. For example, if one were to lend against commercial vehicles, one needs to be a serious player to attract customers, dealers, manufacturers etc. to support and work together. If the stakeholders find that the bank is not serious to gain market share, they will move to other more serious banks.
Thus it makes a lot of sense to consider specialising in a few manageable products and gain market share there rather than be a "Jack of all trades, master of none" bank. With focus on a few products, it is possible to gain mastery over it completely and become the preferred brand for customers. Take Housing Development Finance Corporation (HDFC) in India as an example. They have been in business for almost 3 decades focusing only on housing finance. So much that they have become synonymous with mortgages and are really experts in it. Very few customers would think mortgages without considering HDFC. They have done this without compromising on quality or profitability or size.
In conclusion, I would like to state that it is not necessary to have multiple products to become successful or a sought after bank. It makes a lot of sense to focus on a few related products and become a dominant player it it rather than be a one stop shop.
I would love to hear your views on this blog. Please feel free to leave a comment on the blog or send me a mail at vish.sesh@gmail.com and I will quickly respond.
In reality, however, it is found that most banks, which have multiple products and services to offer, do not have a process to manage cross sell or to fulfill the expectations of the customers. Most of their products are managed in silos and the staff do not care or are not aware of the other products. This results in dis-satisfying customers and leads them to move to competition.
This blog is not attempting to cover cross sell which will the topic in some future blog. This blog is aimed at driving the importance of market share and product focus.
No bank has unlimited resources - we all know that. Therefore, it is important for the bank to decide which products they want to focus on and how much capital is needed for that product. When any product / service is proposed to be offered to customers a lot of work needs to be done in the background before the launch. Some of the key activities is captured below:
1. Have a business plan in place
2. Recruit the team which has expertise in the product.
3. Buy / Make the system to run the product.
4. Have the policies and processes well defined
5. Train the staff and create internal awareness
6. Create the distribution channels - branches / sales points / agents etc.
7. Promote the product by creating awareness
8. Tie up with key stake holders
9. Create back end processing capabilities
10. Get regulatory / other approvals for launch
All of these result in a substantial amount being invested for launch. When one is investing in people / other resources like systems, one cannot afford to get inferior quality because these has a direct impact on the earnings / quality of the product / portfolio. All these investments can only be recovered if a certain level of market share is met.
Moreover, to sustain the interest of staff / channel in the product, one has to be an active player in the business. For example, if one were to lend against commercial vehicles, one needs to be a serious player to attract customers, dealers, manufacturers etc. to support and work together. If the stakeholders find that the bank is not serious to gain market share, they will move to other more serious banks.
Thus it makes a lot of sense to consider specialising in a few manageable products and gain market share there rather than be a "Jack of all trades, master of none" bank. With focus on a few products, it is possible to gain mastery over it completely and become the preferred brand for customers. Take Housing Development Finance Corporation (HDFC) in India as an example. They have been in business for almost 3 decades focusing only on housing finance. So much that they have become synonymous with mortgages and are really experts in it. Very few customers would think mortgages without considering HDFC. They have done this without compromising on quality or profitability or size.
In conclusion, I would like to state that it is not necessary to have multiple products to become successful or a sought after bank. It makes a lot of sense to focus on a few related products and become a dominant player it it rather than be a one stop shop.
I would love to hear your views on this blog. Please feel free to leave a comment on the blog or send me a mail at vish.sesh@gmail.com and I will quickly respond.
Friday 27 August 2010
On managing risk
In banking, as it is in any enterprise, managing risks constitutes a very important aspect of the business. The longevity and even survival of the organisation depends on how well are risks managed. There are instances of otherwise well run organisations with long vintage facing bankruptcy due to misses in this important domain. And yet, we see many organisations treating this important subject with surprisingly low attention and priority.
This blog is no thesis on risk management and is rather a introduction to the subject. The objective of this blog is to create awareness and ensure due weightage is given to this important subject in the course of managing ones business.
There is a story of a man who once fell inside a well and was shouting for help. One good Samaritan, who was passing by, came to the well and offered to throw down a rope and pull the man up. The man who had fallen down asked the following questions:
1. What if the rope is not strong enough to bear my weight?
2. What if it slips off your hand when I am on my way up?
3. What if you are unable to lift me up due to lack of strength?
4. What if you too fall inside attempting to rescue me?
Obviously, he would have made a good risk manager. A good risk manager always thinks of the risks of any plan, process or strategy. He is always obsessed with failure possibilities. Besides thinking of known risks, he should also ponder about unknown risks. His objective, of course, is only to ensure success and come up with a fool proof plan. Under no circumstances should he keep thinking risks without offering solutions. Otherwise he risks staying inside the well !!
Risk management is covered under the following broad heads:
a) Operations Risk - Risks arising out of the operations of the bank due to failures in the design of the processes or in the execution of the same.
b) Market Risk - Risks arising out of changes in the market place which are beyond the control of the bank - for e.g. change in the interest rates or changes in share prices which can impact profitability of the book or reduce the security cover for credit lines.
c) Credit risk - Risks arising out of failure of the borrower to repay due to a variety of reasons like business failure or wilful default.
Each of the above needs to be managed differently and I will cover them at length in future blogs.
Every bank needs to have a structure in place to manage risks and I cover some of the key elements of a good structure below:
1. Well established process for creating and approving products, policies and processes.
2. Clear guidelines on trigger events which can cause alarm.
3. Systematic and objective analysis of data and periodic reviews of each product / portfolio.
4. Strong system of internal checks and controls including audit at regular intervals.
5. A proper system of delegation of authority and empowerment.
6. A process of reporting - frequency based on type and significance of transactions.
7. Fraud management processes.
8. An effective recovery system and process.
9. Good documentation and custodial function.
10. An overall control in form of limits.
11. A strong culture in the organisation which prevents problems.
The operative word for effective risk management is to have independence and objectivity in the process. Also, risk management needs to have independent reporting to the board to ensure that issues are highlighted to the appropriate level. Sufficient empowerment in form of veto rights may also be considered to prevent disasters from occurring.
Risk management is one of the pillars which give a solid foundation to any organisation and its importance cannot be belittled. An organisation which cultivates a strong risk culture will be able to deliver a steady and profitable growth with no surprises. At the same time, risk management should not forget the prime objective of the organisation - which is to do business.
To reach a port, we must sail – sail, not tie at anchor – sail, not drift – Franklin Roosevelt
I would love to hear your views on this blog. Please feel free to leave a comment on the blog or send me a mail at vish.sesh@gmail.com and I will quickly respond.
This blog is no thesis on risk management and is rather a introduction to the subject. The objective of this blog is to create awareness and ensure due weightage is given to this important subject in the course of managing ones business.
There is a story of a man who once fell inside a well and was shouting for help. One good Samaritan, who was passing by, came to the well and offered to throw down a rope and pull the man up. The man who had fallen down asked the following questions:
1. What if the rope is not strong enough to bear my weight?
2. What if it slips off your hand when I am on my way up?
3. What if you are unable to lift me up due to lack of strength?
4. What if you too fall inside attempting to rescue me?
Obviously, he would have made a good risk manager. A good risk manager always thinks of the risks of any plan, process or strategy. He is always obsessed with failure possibilities. Besides thinking of known risks, he should also ponder about unknown risks. His objective, of course, is only to ensure success and come up with a fool proof plan. Under no circumstances should he keep thinking risks without offering solutions. Otherwise he risks staying inside the well !!
Risk management is covered under the following broad heads:
a) Operations Risk - Risks arising out of the operations of the bank due to failures in the design of the processes or in the execution of the same.
b) Market Risk - Risks arising out of changes in the market place which are beyond the control of the bank - for e.g. change in the interest rates or changes in share prices which can impact profitability of the book or reduce the security cover for credit lines.
c) Credit risk - Risks arising out of failure of the borrower to repay due to a variety of reasons like business failure or wilful default.
Each of the above needs to be managed differently and I will cover them at length in future blogs.
Every bank needs to have a structure in place to manage risks and I cover some of the key elements of a good structure below:
1. Well established process for creating and approving products, policies and processes.
2. Clear guidelines on trigger events which can cause alarm.
3. Systematic and objective analysis of data and periodic reviews of each product / portfolio.
4. Strong system of internal checks and controls including audit at regular intervals.
5. A proper system of delegation of authority and empowerment.
6. A process of reporting - frequency based on type and significance of transactions.
7. Fraud management processes.
8. An effective recovery system and process.
9. Good documentation and custodial function.
10. An overall control in form of limits.
11. A strong culture in the organisation which prevents problems.
The operative word for effective risk management is to have independence and objectivity in the process. Also, risk management needs to have independent reporting to the board to ensure that issues are highlighted to the appropriate level. Sufficient empowerment in form of veto rights may also be considered to prevent disasters from occurring.
Risk management is one of the pillars which give a solid foundation to any organisation and its importance cannot be belittled. An organisation which cultivates a strong risk culture will be able to deliver a steady and profitable growth with no surprises. At the same time, risk management should not forget the prime objective of the organisation - which is to do business.
To reach a port, we must sail – sail, not tie at anchor – sail, not drift – Franklin Roosevelt
I would love to hear your views on this blog. Please feel free to leave a comment on the blog or send me a mail at vish.sesh@gmail.com and I will quickly respond.
Sunday 8 August 2010
Find, Win & Keep Customers
The title of this blog is based on a slogan I heard long ago while working for GE Countrywide. Essentially, it is a strategy for customer management. I will explain this in the following paragraphs.
In the retail banking space, one of the key challenges is how to identify customers. Products can only be successful if it addresses the needs of customers and are designed with the customer in mind. It is, therefore, essential to identify our target customers and their needs. We must remember here that we are not talking about 'a' customer but about segments of like minded customers. The find part of the title is all about how to identify customer segments.
This can be done in a variety of ways. The easiest of these is to look at competition and what they are doing and whom they are focused on. There is no need to 're-invent the wheel' in a mature market. However, by doing this, a bank is only successful in taking away share from competition with better offerings. Sometimes, one can discover flaws in the competitors products and improve on them.
The other approach would be to do a market research to identify possible segments. Market research can be a costly affair and time consuming and, with changing needs of the customer, may also not be the best method. Most of the time, the best method would be to 'hear' the voice of the customers through formal / informal feedback and move accordingly. Most effective organisations extensively use the method of making 'test' offerings and closely analysing the results.
Once the activity of finding customers has progressed, the task of winning the customer is upon us. There are many imperatives for this. I will try to capture them in the form of bullet points below:
1. Solid brand image built through past performance and not merely 'brand ambassadors' or marketing efforts
2. Well designed product meeting customer needs
3. Smooth and speedy processing of transactions
4. Convenience and reach through multiple channels
5. Simple documentation
6. Effective methods of reaching out to target customers
7. Motivated and passionate sales team
Winning customers is not easy especially when there are so many banks offering similar products. More often, the banks with an effective sales team and sales management process wins the battle. More on this in a future blog.
The costs of winning / acquiring customers is usually high. This can best be offset by putting efforts on retaining the customer. Also, when one retains a customer, it provides opportunities to increase income by cross-selling or up-selling more products to the customer. This where the 'keep' part of the title plays a role. Most organisations fail in this crucial area.
In order to retain the customer, banks have to make sure that the customers is delighted with its services. This includes things like speedy processing, transparent dealings, value for money, convenience, complaint redressal and tracking etc. This is also about understanding the need of the customer through regular communication and also about anticipating the customer's changing needs. An effective team with its 'ears to the ground' and focus on customer can make this happen.
There is a need to constantly monitor attrition levels and have triggers based on this. Tracking of customer longevity and share of wallet is also important. Every customer attrition, whether natural or voluntary, whould be treated with concern and attempts must be made to retain the customer. A useful method would be to have an exit interview with attriting customers to understand the causes. A bank which is sincere with the customer and has an empowered front desk stands a better chance of retaining customers than others without these.
Find, Win & Keep Customers is a simple and effective slogan capturing the essence of customer management.
I would love to hear your views on this blog. Please feel free to leave a comment on the blog or send me a mail at vish.sesh@gmail.com and I will quickly respond.
In the retail banking space, one of the key challenges is how to identify customers. Products can only be successful if it addresses the needs of customers and are designed with the customer in mind. It is, therefore, essential to identify our target customers and their needs. We must remember here that we are not talking about 'a' customer but about segments of like minded customers. The find part of the title is all about how to identify customer segments.
This can be done in a variety of ways. The easiest of these is to look at competition and what they are doing and whom they are focused on. There is no need to 're-invent the wheel' in a mature market. However, by doing this, a bank is only successful in taking away share from competition with better offerings. Sometimes, one can discover flaws in the competitors products and improve on them.
The other approach would be to do a market research to identify possible segments. Market research can be a costly affair and time consuming and, with changing needs of the customer, may also not be the best method. Most of the time, the best method would be to 'hear' the voice of the customers through formal / informal feedback and move accordingly. Most effective organisations extensively use the method of making 'test' offerings and closely analysing the results.
Once the activity of finding customers has progressed, the task of winning the customer is upon us. There are many imperatives for this. I will try to capture them in the form of bullet points below:
1. Solid brand image built through past performance and not merely 'brand ambassadors' or marketing efforts
2. Well designed product meeting customer needs
3. Smooth and speedy processing of transactions
4. Convenience and reach through multiple channels
5. Simple documentation
6. Effective methods of reaching out to target customers
7. Motivated and passionate sales team
Winning customers is not easy especially when there are so many banks offering similar products. More often, the banks with an effective sales team and sales management process wins the battle. More on this in a future blog.
The costs of winning / acquiring customers is usually high. This can best be offset by putting efforts on retaining the customer. Also, when one retains a customer, it provides opportunities to increase income by cross-selling or up-selling more products to the customer. This where the 'keep' part of the title plays a role. Most organisations fail in this crucial area.
In order to retain the customer, banks have to make sure that the customers is delighted with its services. This includes things like speedy processing, transparent dealings, value for money, convenience, complaint redressal and tracking etc. This is also about understanding the need of the customer through regular communication and also about anticipating the customer's changing needs. An effective team with its 'ears to the ground' and focus on customer can make this happen.
There is a need to constantly monitor attrition levels and have triggers based on this. Tracking of customer longevity and share of wallet is also important. Every customer attrition, whether natural or voluntary, whould be treated with concern and attempts must be made to retain the customer. A useful method would be to have an exit interview with attriting customers to understand the causes. A bank which is sincere with the customer and has an empowered front desk stands a better chance of retaining customers than others without these.
Find, Win & Keep Customers is a simple and effective slogan capturing the essence of customer management.
I would love to hear your views on this blog. Please feel free to leave a comment on the blog or send me a mail at vish.sesh@gmail.com and I will quickly respond.
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