Chapter 4 – CRM in Retail Banking

CRM

In the context of banks, CRM means managing the customers and their relationships. Bank has to manage the customer by offering the right products matching the needs of the customer. Relationship with the customer means that (i) the service quality of the bank should match the customer expectations in total and result in total satisfaction of the customer (ii) the total need spectrum of the customers should be addressed (iii) service delivery should result in absolute satisfaction for the customer. Customer Relationship Management (CRM) is having a 360 degree view of the customers and their profile, dynamically tracking their requirements, offering matching products and services, cross selling relevant products to his changing needs and keeping him happy for ever.

Need for CRM

CRM is required for the following

1. Need to increase operational efficiencies.
2. Need to derive more value from employees.
3. Increasing Competition in retail banking.
4. Rising NPAs.
5. Increasing Importance of Fee Based Income.
6. Delivery Channel Efficacy
7. Application of Technology

CRM is not just an option for the banks but a compulsion to achieve business synergies and optimization of resources. CRM can be effectively utilized to explore new frontiers in product development and management. CRM can be used to improve the per customer profitability. CRM can be used to building and sustaining customer loyalty and brand equity.

Need to increase operational efficiencies: Operational efficiencies means managing operational costs for the bank in general and delivery cost in particular. For example shifting the customers to electronic and remote channels like ATM. The cost of direct delivery in the branch across the counter is much higher than delivery through ATM. CRM enables to identify the customers segments which can be migrated to ATM.

Need to derive more value from employees: Employee productivity can be increased by redefining their roles to deliver service to customers who are more profitable. There are two value dimensions – employee value and customer value. Employee value is increased by deploying them in marketing and for cross selling/ upselling opportunities, better business values and volumes. Customer value means per customer profitability by making the customers availing the maximum number of products/services. Effective CRM solutions would improve the quality of output by employees and would improve the overall employee productivity.

Increasing Competition in retail banking: As retail banking is a profitable business model, banks compete with each other to grab their market share. For achieving this, banks implement a whole range of activities in product development, process efficiencies, delivery channels, pricing and value additions to acquire, retain and improve their customer base. CRM helps banks to achieve the above objectives.

Rising NPAs: While Retail Banking is profitable, there is a fear of high level of NPAs particularly in credit cards and personal loans. This requires an effective customer tracking mechanism for monitoring and recovery of retail loans. CRM helps to rank customers and follow up for recovery.

Increasing Importance of Fee Based Income: Profits can be increased from fee Based income through Third Party Distribution. Marketing of insurance products (both in the life insurance and non life insurance), mutual funds, retail sale of Gold coins offer very good scope to earn fee based income by selling these products to targeted customer segments. CRM solutions help the bank to identify potential customers for selling these products.

Delivery Channel Efficacy: CRM solutions help banks to offer the right channel mix from direct channels like branches and remote channels like ATMs, Mobile Banking, Internet Banking to their different customer segments to enhance customer loyalty and retention.

Application of Technology: Core Banking Solutions, Mobile Banking and Internet Banking are different manifestations of technology. To optimise profits, banks have to use technology to maximize business through customer mining and cross selling. CRM solutions enable this through application of technology.

The backbone of CRM lies in the robustness of the customer data. Data Warehouse and Data Mining are two important tools which are critical for any meaningful CRM. The sourcing of data for the Data Warehouse has to seamlessly flow from the Core Banking Solutions (CBS) platform without any manual intervention to ensure the accuracy of the data.

Implementation Process of CRM in banks

Business Processes: The evaluation of the current business processes is essential to determine the nature of products the bank wants to offer and the way it wants to develop its customer portfolio.

Information Processes: This involves the analysis of the existing information processes used currently by the bank. The integration of these processes in the CRM system and suitable restructuring is essential for implementation of the CRM systems in the bank.

Information Systems: The existing information infrastructure of the bank needs to be analysed and the implementation of the CRM infrastructure should be customized. The focus has to be reinforcement rather than replacement.

Internal Organisational Culture: For effective CRM, the bank’s systems should be in line with the organizational change. The success of the CRM implementation depends on responsiveness of the organization to it.

IMPLEMENTATION STAGES IN CRM

There are four stages through which CRM is implemented.

Identification of Customers

The bank need to identify the customers based on their products availed and focus of the bank so that bank can focus the segment it wants to target. For achieving this, Banks need to build a repository of data base about customers who buy different types of products and services.

Classification of Customers

From the data compiled, classification of customers with different perspectives, focus and attention has to be done. Banks have to use the large repository of data collected in the previous stage, clean this data and apply data mining and clustering techniques to classify customers on various parameters like profitability, product sage rate and cost to serve the customers. This will help the banks to develop different kinds of strategies to target the segments and design effective campaigns for generating higher returns from existing customers.

Interaction With the most Valued Customers

CRM solutions define customer segments and helps in devising a particular type of strategy for them.

Customisation of Bank’s Products and Services for Different Customer Segments

The mass customized products can be developed for each of the target segments based on selection of media mix, customer interaction points, customers past usage data and intention forecasts. This will complete the CRM implementation process. New customer data will be available from feed back from the customers which will help in refining the strategy further to target the segment with profitable product propositions.

BENEFITS OF CRM

• Improves the customer satisfaction and cross selling potential for the banks.
• Helps the banks to derive increased share of wallet from the customer.
• Enhances the operational efficiencies of the banks.
• Helps to take on competition as CRM results in more customer focus and retention.
• Helps to understand Customer Lifetime Value through the structured data base on a dynamic basis.
• Improves customer service through effective integration of all remote delivery channels.
• Helps to manage multi delivery channels in a better way to adopt and maintain uniform service standards across channels.
• Enables to achieve seamless information flow across functions in delivery.
• Results in better relationship marketing as customer segments are better target based on the data available in CRM