Chapter 2 – Delivery Channels

DELIVERY CHANNELS

Customer satisfaction has to happen through different channels and choices are to be offered to customers to experience the optimum channel mix for maximum satisfaction. Multi channel distribution is the practice adopted by almost all banks for total customer experience. Each channel either direct or remote has its plusses and minuses and also depends on the customer segments using the different channels. Direct channels may be the best fit for a conservative customer whereas young and tech savvy customers may opt for remote channels.

Physical and Direct Channels

Branch

• Branch is the primary direct channel that drives retail banking. With all the remote channels available to enhance the customer experience of retail banking services, the preference for the brick and mortar format has been maximum. The main reasons for the same are:
• Branch converts the intangible nature of banking services to tangible. The transactions carried out in the branch premises infuse a sense of confidence in the minds of the customers that they are not only physically involved in the transactions but also feel the service experience at the branch.
• Personnel at the branch relate with the customer for their transactions.
• Communication happens directly between the bank staff and customer and better understanding of the service expectations are achieved from both the customer and the bank end.
• Physically seeing the bank staff and effecting the transactions brings in a sense of bonding with the bank staff and which in turn enhances the loyalty factor.
• Products and services when explained to the customer directly in the branch by the Staff create a better understanding than through other channels.
• A good branch layout and ambience enhances the feel good factor among the customers and strengthens the relationship with the bank.

Though customers have accepted the electronic channels of delivery in retail banking with both hands, they still want to transact personally at the branch for their banking requirements. They want a human intervention for their services than simply go through on-line or-mechanical interventions like ATMs, Internet or Mobile Banking.

Branch Lay Out and Ambience

Layout refers to the arrangement of all physical components within the available floor space to provide maximum effectiveness and coordination of these components into an efficient and attractive unit. Branch layout may be broadly defined as the system of locating the various service facilities within the Branch in order to deliver the most convenient service to the customers. The ambience of the branch should be such that it increases the’ comfort factor’ in the minds of the customers.

Advantages of A Good Branch Lay Out

• Promotes efficiency as it will ensure smooth flow of services which results in time benefits.
• Internal communication effectiveness increases thereby facilitating better coordination among the staff resulting in better customer service.
• Provides a comfortable and congenial work environment to the staff which results in high employee motivation and acts as a morale booster.
• Serves as an image building tool for the bank because the layout creates as good impression and generates goodwill in the minds of the customer.
• Helps in reducing cost as facilities are planned for maximising efficiencies which results in cost optimisation.

Branch Lay Out And Service Delivery

• The advent of technology in banking has changed the concept of counters.
• Total automation of branches across banks and the implementation of core banking solutions have changed the concept of service delivery.
• Single Window Concept has brought the customer close to the service personnel of the bank. The Counters are individually designed as desks to create a one to one relationship with the customers and the customer can avail any of his service requirements from any of the desks.
• The traditional branch layout continues in most of the rural and semi urban branches of public sector banks.

Personal Banking Branches

• Over the years, branch design has moved to specialised branches like Corporate Branch, SSI Branch, Agri Finance Branch, Personal Banking/Retail Banking Branch etc.
• Specialised “Personal Banking Branches” have been opened by almost all the Banks exclusively for retail customers to meet all their retail banking requirements.
• Specialised Retail Asset Processing Centres have been opened for professional and speedy processing and disbursement of retail loans. The objective of opening these branches is to use the specialised branch as a tool to enhance the delivery effectiveness of services by prescribing TAT (Turn Around Time) for different retail loans and to meet the competition in retail banking effectively.
• For opening of different liability accounts, branches perform only the role of the marketing function and front office operations. In almost all the private sector banks as well as in some public sector banks, only the formalities for opening the accounts are completed at the branch level and opening of accounts, issue of Pass Book/Cheque Book, Debit Card, PIN etc. are carried out through a centralised back -office mechanism. This is aimed to achieve standardisation as well as speedier compliance of bank’s requirements and customer expectations.

Extension Counters

• Extension Counters are extensions of Branches opened in specified locations for offering banking services to the specified group within their command area.
• Extension Counters are basically attached to a Branch and controlled by the Branch for accounting purposes.
• They are permitted to offer products mainly in the liability side.
• The areas of operations of Extension Counters were restricted to a closed group like Courts, Educational institutions like Schools and College’ or a specific company in their premises.
• Extension Counters playa very vital role in the retail resources mobilisation for banks especially low cost and no cost resources like Savings and Current Accounts. They bring in core term deposits as well as CASA resources which are held as operative resources of these institutions.
• Though the concept of Extension Counters is getting diluted in the recent past, as a delivery channel these serve in a focused way to a targeted entity/group mainly with liability products.

ELECTRONIC/REMOTE DELIVERY CHANNELS

Automated Teller Machines (ATMs)

ATMs are the starting point of remote channels that moved the customers away from the branch.

The main objectives of banks to set up AIMS are

1. To offer convenience to customers an additional choice to withdraw money during any time of the day according to their will and pleasure.
2. To move the customers away from the counters as service cost is comparatively less through ATMs than across the counter at the branch.

There are basically two types of ATMs to deliver services to retail customers

1. On Site ATMs and
2. Off Site ATMs.

On Site ATMs are intended to offer the facility of Cash Withdrawals, Cash Remittances, Balance Enquiry etc., at the branch premises itself.

Off Site AlMs are designed to be situated away from the braches at convenient and busy locations to enable the customers to access it for their different needs but not necessarily from the branch.

The transaction in ATMs mainly happen through either Debit Cards or Credit Cards.

Earlier there were restrictions on usage of ATMs by customers and they could use ATMs of only those bank where they maintained account. Now customers can withdraw from other banks’ ATMs also. For that purpose, a common networking arrangement “National Financial Switch” was initiated for ATM operations. Two of the important net working arrangements called “Cash Tree” and “INFINET – National Financial Switch offered networking facility across banks.

Earlier, charges were levied for operations in ATMS of other banks. Subsequently, RBI issued guidelines in 2009, allowing operations free of any charge to saving bank customers using other banks’ ATMs subject to the following conditions:

• With regard to Savings Bank Customers, five withdrawals through other Bank ATMs per month are allowed free of charges and thereafter a charge of RS.20/- per transaction will be levied.
• With regard to our non-Savings Bank customers, there will not be any free withdrawals through other bank ATMs and all withdrawal transactions in other bank ATMs are chargeable at the rate of RS.20/- per transaction. Maximum cash withdrawal would be Rs.I0,000/- (Rupees Ten thousand only) per transaction for the customers of other Banks w.e.f October 15, 2009.

ATM Operations

• All banks have several ATMs and they are located across geography based on their priorities of business and connected via a wide area network to a central server.
• Each and every ATM has the following important components viz. Card Reader, Cash Dispenser, Key Board/Display Unit/Touch Screen and a Receipt Printer and the entire package is bundled in the ATM machine. Customers normally have the following options for operations — (a) Withdraw cash from their accounts and (b) Balance Enquiry.
• When a customer inserts an ATM card into the card reader, the transaction starts.
• On the back of the ATM card, the card number, the start date, and the expiry date are encoded on the black magnetic strip.
• In the next stage, card is recognized by ATM. If the-card is recognized, the system will ask for the Personal Identification Number called the PIN Number and the customer has to enter the PIN number. The PIN number will be a unique number and consists of four digits.
• ATM validates the PIN number and checks up that the expiry date has not passed, that the user entered PIN matches the PIN maintained by the system, and that the card is not lost or stolen.
• The customer is allowed three attempts to enter the correct PIN and if the same is not entered correctly in all the three attempts, the card is confiscated if the third attempt fails.
• Cards that have been reported lost or stolen are also confiscated.
• After verifying with the correctness of the PIN number, the customer is prompted for a withdrawal, query, or transfer transaction.
• Before approval of a withdrawal transaction, the system will verify for the sufficiency of funds in the account. If the amount is available in the account, again verifies whether the requested amount is within the maximum daily limit and whether the requested cash is available in the cash dispenser of the ATM.
• After verification of the above, transaction is approved and the requested amount of cash is dispensed, a receipt is printed containing information about the transaction, and the card is ejected.
• Cash dispensed is collected by the customer.
• On a regular basis, cash is replenished by the bank either directly by them or through an outsourcing agency.

ATMs — Issues and Risks

Though, ATMs are one of the most successful remote channels for service delivery, there are risks associated with the functioning efficiency of ATMs. ATMS are always complaint prone because of the break downs and cash out situations. These two faults would result in reputation risk for the bank and may result in customer switching also.

Point Of Sale Terminal (POS)

• Point of Sale terminals enable payment of credit and debit cards in merchant establishments.
• The POS process is as under:
• POS is simply an electronic transaction terminal used in an electronic Point of Sale system.
• The terminal interacts with a computer file to approve transactions and transmits sales information for posting against customer accounts.
• There are two basic types of POS terminals: electronic cash registers that are used by high volume merchants, such as department stores, and dial-up terminals that automatically dial a special telephone number, often a toll-free number, to obtain authorization.
• Net Settlement when the transfer of funds actually takes place, may occur at the same time or soon afterward, or it may occur later in the day in POS systems that operate Off-Line in a Store and Forward mode. This type of system operates off-line, that is, the merchant terminal is not connected directly to a central computer for authorization or processing of sales receipts.
• A POS terminal is predominantly used for payment for sale and purchase transaction, while an ATM can be used for several other services like balance enquiry.
• The bank pays charges which are split among the card-issuing bank, the bank that owns the POS terminal, the payment company, Mastercard or Visa, and the place where the POS terminal is located.
• In July 2008, the Reserve Bank of India (RBI) allowed cash to be withdrawn from any merchant establishment with a POS terminal with a ceiling of Rs 1,000 a day on withdrawal of cash at merchant outlets using debit cards. The charges to be levied are decided by banks – themselves which is generally nominal and anywhere between free and Rs 20.
• The rationale behind RBI allowing cash withdrawal was to enhance financial inclusion. There are about 450,000 POS terminals in the country, against 40,000 plus ATMs.

Mobile Banking

• Mobile banking is the latest and the most convenient delivery channel.
• Mobile banking is convenient, simple and readily accessible.
• Globally, mobile banking initiatives were stared by Wachovia in 2005 and the full fledged mobile browser in 2007. Most US banks viz. Bank of America, Citibank, Wells Fargo launched their mobile banking services in 2007.
• Because of the operational conveniences, the reach and time flexibility afforded by Mobile Banking, banks are aggressively planning and executing their marketing strategies for mobile banking.
• The mobile banking initiatives in India were started by foreign and private banks followed by public sector banks.

Benefits Mobile Banking to Customers

• Facility for using banking facility from anywhere
• Easy operations – instructions carried out by self;
• Option to pay utility bills;
• Transfer of funds between accounts – same bank and other banks;
• Facilities for setting up alerts for different transactions like account debits for various reasons;
• Balance Enquiries;
• Facility for shopping and paying through mobile.

Benefits Mobile Banking to Banks:

• Easy and most acceptable delivery channel.
• Cost effective solution as compared to ATMs.
• Lesser transaction costs as compared to other channels.
• Tool to attract next generation clients.

Internet Banking

• Internet Banking as a service channel was initiated by foreign banks and new generation private sector banks. With the advantage of technology right from their inception, new generation private banks aggressively implemented their Internet banking channels and increased their customer base and particularly of younger generation. The usage of electronic channels was more in private banks due to these younger generations of customers.
• The level of acceptance of Internet Banking, generally, from the public sector bank customers was initially lukewarm. This is basically due to the older age profile of the customers as well as staff as compared to private sector banks. Over a period of time, public sector banks also have marketed their Internet banking initiatives in a phased manner. But the level of penetration of internet banking in public sector banks is low as compared to private sector banks.
• Internet banking service enable customers to transact online with the bank and from any where at any time of the day.
• Services offered by banks over the internet include – (i) View of balance in account. (ii) View of last few transactions. (iii) Generate statement of Account (iv) Transfer of funds from Savings, Current, Cash Credit accounts to another Savings, Current, Cash Credit, Loan or Recurring Deposit accounts within the bank. (v) Transfer of funds to accounts with other banks through NEFT mechanism. (vi) Viewing of Recurring Deposit/Loan Accounts. (vii) Pay indirect taxes (Excise and Service taxes). (viii) Pay direct tax (IDS and Income Tax dues, etc.) (ix) Utility Payment facility like payment of insurance premium, telephone bills, energy bills. (x) Book air tickets, hotel rooms through popular travel sites. (xi) Purchase of units in select mutual funds, (xii) Payments to several other merchant establishments, etc.
• Eligible Customers: The eligibility of the customer depends on the type of branch at which the customer is having the account and also the type of customers. The following types of customers can open Internet banking accounts – (i) Individuals and Corporate customers of networked branches. (ii) Proprietary concerns. (iii) Corporate customers which include Limited Companies, Partnership firms, Trust, Society, Association etc where the operation of the account is entrusted to a specific—person/persons by the Corporate/partnership firm/Trust/society/ Association.These customers should register only through ‘Corporate Banking’ module. (iv) The Customer should comply with KYC and AML norms. (v) In the case of individuals (or proprietary concerns) the mode of operation of the account should be ‘Single’ or ‘E or S’ or ‘Any One or Survivor’. (vi) If the account is operated ‘Jointly’ or if the account holder is a minor, they are not eligible. (vii) if an account holder has more than one account, he/she can register all the accounts under the same login-id. However an account holder cannot add accounts that are not in his name.