The concept of Retail Banking in Bangladesh is relatively new. This approach of banking struggled quite a bit before establishing its own position in the conventional banking system. Now a days, most of the progressive banks have their dedicated ‘Retail Banking Division’ and the contribution of Retail toward the Bank’s overall bottom line is quite significant.
By the nature of the business, Retail banking deals with quite a large number of customers with very small exposure on each of them. Mostly there is no scope of treating any particular customer in isolation, except the cases where some banks have separate segment of High Net Worth (HNW) Retail customers who are managed through individual Relationship Managers. On top of managing a large volume of customers, often Retail faces challenges from the ‘perceived’ miss-alignment between retail approach and overall bank’s approach, and sometimes with the approach of the whole Financial Sector. Therefore there are grievances that the supporting departments, senior decision makers of the bank and the regulators often fail to understand the approach of Retail Banking and therefore cannot ensure a suitable environment for the sustainable growth of Retail Banking. Let us discuss some of the major areas of Retail Banking in Bangladesh.
A) Channels Optimization:
As branches are highly expensive channel as opposed to ATMs and Internet banking, business drives initiatives to migrate customers to use more of electronic channels. The challenge Retail Bank faces to implement its Channel Optimization and Digital Banking Strategies starts from convincing the Management and the Regulators about the plan and continues through the process of acquiring and installing the appropriate technologies through IT and Procurement department. In most cases, the senior management and regulators remains very sensitive about the security aspects of the technologies and prefers to have human validation rather than electronic, which eventually jeopardizes the whole idea of having electronic channels.
B) People Management:
Managing a large group of people with diversified objectives and associated tasks is a real challenge. A well-segmented target and a target based Incentive structure help the Business to drive its Sales and Collection staffs toward the preferred strategies. Some Banks also find it operationally convenient and cost effective to perform certain activities through Outsourced Staffs. Traditional Human Resource department sometime fail to align themselves with this kind of performance management approach and variable payout practice. Also, delay in processing the bills of third party companies who provide outsourced staffs leads to demotivation of the impacted staffs.
C) Process Enhancement:
Retail processes should be realigned keeping the customer needs and convenience in mind. Turn Around Time (TAT) of Loan Application is a major KPI to understand how efficiently the processes are running. In this digital environment, TAT for facilities with low exposures like Credit Cards and Personal Loans should be in days, if not in hours. Appropriate SLA (Service Level Agreement) with Retail Operation, Retail Risk (where Risk department is separated from Retail Business) should be in place to ensure that no ‘bottle-neck’ exists in the system, even in the peak business seasons.
D) Customer Service:
Day by day, customer service and Service quality is becoming very crucial for retail banking businesses. Historically, this area used to deal with customer complaints and issues only. However, now a days they performs a varieties of work including different front office visit to ensure all the service guideline are followed, social media monitoring and answering social media complaint, reviewing customer satisfaction surveys results and take initiatives based on the same, etc. Some banks have already moved to customer centric approach and started treating Customer Service and Service Quality with utmost importance, whereas most others are keeping this department just for the name sake.
Retail banking business is a number game. Analytics, sometimes refer as ‘Decision science,’ provides insights on internal and external factors, so that the Management can take informed decision. Most of the Retail banks do not have a structured Analytics team in place and each business unit use some descriptive approaches on their own data. Some Analytics team has a Market research wing through which the Business gets to know the information on Competitors, Regulators and other outside environmental entities. With the rise of digitalization, this is a good time the Management should invest on a central Analytics team to leverage on the stored data.
Retail Banks Marketing activities are largely different compared to the traditional marketing activities that overall banks do. Retail approach of marketing is very granular and customized messages are communicated to target customers via various channels. Studies showed that generalized marketing communications in Newspapers and Billboards are less effective compared to targeted communication through Call, SMS or Mail. Now a days ‘Social Media Marketing’ has become very popular in Retail Business where the desired customer segment can be reached with very minimum effort & cost. The efficiency of specific marketing activity or campaign for a particular product or service can be increased significantly with the help of Predictive Analytics. Management should encourage doing some pilot and gradually adopt these kinds of low-cost solutions.
G) Risk Appetite:
Risk behavior of Retail customers is also very different from SME or Corporate Customers. Management needs to clearly understand the Risk KPIs of the Retail portfolio and also should have a clear direction on how much risk the business should take. The losses incurred in Retail business should purely be treated as the cost of doing business. The trends of Retail Losses and trend based forecasts always need monitoring along with the potential upside and downside, which may occur due to any economic turmoil in the market. Risk based pricing and alteration of credit policies or scorecards are two popular approaches to keep Risk within the acceptable threshold and to obtain the desired risk-reward balance.
The majority of the challenges for Retail banking come from the dilemma that ‘Retail Banking should act like a Retail Business or like a Bank’. Large Retail banking business has their own supporting units like ‘Retail HR’, ‘Retail Finance’, ‘Retail IT’ etc, which takes care of ‘Retail type’ supports from respective areas. Where the size of the Business does not justify having separate units can also ensure proper support by enforcing a detailed and robust SLA (Service level Agreement). Whichever the approach is, with the advancement of knowledge and technology, Retail banking is gradually establishing its own eco system within the traditional banking environment.
Author: M Moniruzzaman
Moniruzzaman is the Head of Group Retail Business Intelligence
of the largest bank in the Middle East.