In recent years, a rapid revolution is transforming the banking industry around the world. In early 1990s, banks and other financial intermediaries have been affected by greater risk and sharp competition due the wave of deregulation in India. Due to cross-border flows and entry of new players and products, banks are forced to adjust the product-mix and modify their processes and operations to remain competitive. Also, better tracking and fulfillment of commitments, multiple delivery channels for customers and faster resolution of incoordination is possible due to extensive use of technology.
Today banks are market driven and market responsive and every bank’s CEO is more concerned about how to increase or at least maintain the market share in every line of business against the backdrop of sharp competition. Additionally, the entries of multiple channels and new players have made customers (both corporate and retail) more perceptive and less loyal to banks. This makes it essential that banks offer potential products and services to ensure customer delight. There have been vigorous efforts in the banking circles to switch over to customer-centric business model in order to address the challenge of retention of customers. The approach adopted by banks with respect to customer relationship management and customer data management decides the success of such a model.
Gradually, Indian banks have grown to cover a large geographic and functional area to cater to the developmental needs. They have customer intimacy and a good knowledge of their needs, requirements and cash positions as they have been managing abandon information about customers – their profiles, location, etc. Though this offers them a unique advantage, they face a fundamental problem as the bank products were purchased in India but not sold during the period of planned economic development. What does Indian banks, especially those in the public sector, lack is the marketing attitude. Marketing is considered as a customer-oriented operation and requires the effort on bank’s part to perk up their service image and utilize their large customer information base effectively to communicate product availability. In order to achieve customer focus they should leverage upon current customer information to have a deeper insight into the customer relationship with the institution, and improve customer service related processes so that the services are fast, flawless and suitable for the customers. Additionally, banks need to have very strong market intelligence units and in-house research to face the future competition challenges like customer retention. Marketing is a subject of demand (Customers) and supply (Financial products & services, Customer services through various delivery channels). To carry out focused marketing efforts, both demand and supply have to be understood with respect to geographic locations and competitor analysis. For a diverse country like India, a better strategy would be to focus on region-specific campaigns rather than national media campaigns. Customer-centricity also means increasing investments in technology.
Throughout the last decade, banks all over the world have re-engineered their organizations to improve competence and moved customers to lower cost and automated channels, such as ATMs and online banking. As proved by the experience, banks now realize that one of their best assets to build lucrative customer relationships especially in a developing country like India is through branch. Branches are in fact key channels for customer retention and profitable growth in rural and semi-urban set up. However, Indian banks need to convert their branches from transaction processing centers into customer-centric service centers to maximize the value of this resource. This revolution would help banks achieve bottom line business benefits by retaining the most lucrative customers. Branches could also be used to educate and notify customers about other, more efficient channels, to advise on and sell new financial instruments such as consumer loans, insurance products, mutual fund products, etc.
Indian banks are realizing gradually that it is no longer profitable to have a “transaction-based” operating model and dynamic efforts are made to develop a relationship-oriented model of operations which are focused on customer-centric services. Today, the biggest challenge that Indian banks are facing is to establish intimate relationship with the customer without which all other efforts towards operational superiority are meaningless. Through services, the banks need to make sure that the customers approach back to them. The reason is that most of the banks earns major chunk of income for from existing customers, rather than from new customers.
CRM solutions can significantly help in improving customer satisfaction levels if implemented and integrated correctly. Data warehousing can help in delivering better transaction experiences for customers using different transaction channels. The reason is that data warehousing helps bring all the transactions coming from different channels under the same roof. Data mining provides banks measure and analyses customer transaction behavior and pattern to improve service levels and find new business opportunities.
However, it must be noted that customer-centric banking comes with many risks. The banking industry all over the world is being pushed into a wild new world of privacy controversy. The banks need to set up serious governance systems for management of privacy risk. It must be kept in mind that customer privacy issues threaten to compromise the use of information technology which is at the heart of e-commerce and CRM – Two areas which are crucial for banks’ future. The important issue for banks is that without undermining the most thrilling innovations in banking banks will not be able to preserve customer privacy completely. These innovations promise huge remuneration, both for customers and providers. But to get benefited from them, financial services companies and their customers will have to make some critical tradeoffs.
Importance of CRM in Indian Banking Sector
Since long, Indian banks had presumed that their operations were customer-centric, simply because they had customers. These banks ruled the roost, protected by regulations that did not allow free entry into the sector. And when the banking sector was opened up to their credit they survived by adapting quickly to the new rules of the game and many managed to post profits. For them an unexpected bonanza came from government bonds in which most were hugely invested.
Ironically, the Reserve Bank of India’s moves, to cut the interest rates aggressively after 1999, pushed up the prices of bonds. Hence, banks had a windfall doing almost nothing. The bond profits, like manna from heaven, improved the balance-sheets of all banks irrespective of their core performance. However, the era of lazy banking is soon to end and the mesh of rules that propped up the Indian banking industry is now being dismantled rapidly.
According to a RBI road-map, India has been a very competitive banking market after 2009. As one of the most attractive emerging market destinations, India had seen foreign banks come in, what with more freedom to come in, grow and acquire. Therefore, it is imperative that Indian banks wake up to this reality and re-focus on their core asset – the customer. A greater focus on CRM is the only way the banking industry can protect its market share and improve growth.
CRM would also make Indian bankers realize that the purpose of their business is to “Create and keep a customer” and to “View the entire business process as consisting of a tightly integrated effort to discover, create, and satisfy customer needs.”
What is CRM and what will it deliver to the banks? CRM is, probably, one of the least clearly defined business acronyms, as there is no single definition for it. It is probably easier to say what CRM is not. Unfortunately, CRM has also become a misnomer for a range of solutions from IT vendors, each providing its own spin on the idea.
CRM is variously misunderstood as an expensive software product, a fancy sales strategy, or even a new method of data collection. However, CRM in the Indian banking system is fundamental to building a customer-centric organization as it links customer data into a logical and single customer repository. It is a key element that allows a bank to develop its customer base and sales capacity. The objective of CRM is to manage all aspects of customer interactions in a way that enables banks to maximize profitability from every customer. Increasing competition, deregulation, and the internet have all contributed to the increase in customer power. Customers, faced with an increasing array of banking services and products, are expecting more from banks in terms of attractive returns, customized offerings, transparency in dealings and ease of access. Major concern for banking institutions is retaining customers which underscore the importance of CRM. Banks can turn customer relationship into a key competitive advantage through strategic development across a broad spectrum.
CRM is a simple philosophy that places the customer at the heart of a business organization’s activities, processes and culture to improve his satisfaction of service and, in turn, maximize the profits for the organization. A successful CRM strategy aims at understanding the needs of the customer and integrating them with the organization’s strategy, people, and technology and business process. Therefore, one of the best ways of launching a CRM initiative is to start with what the organization is doing now and working out what should be done to improve its interface with its customers.
While this may sound quite straightforward, for large organizations it can be a mammoth task unless a gradual step-by-step process is adopted. It does not happen simply by buying the software and installing it. For CRM to be truly effective, it requires a well-thought-out initiative involving strategy, people, technology, and processes. Finally, it requires the realization that the CRM philosophy of doing business should be adopted incrementally with an iterative approach to learn at every stage of development.
Implementation of CRM in Indian Banking Sector
Even though CRM as a concept originated some years earlier in the past however its principle has been around for some time in the India banking industry. Field officers of various banks have always contributed in building strong relationship with the customers; however the focus on customer orientation rather than product orientation as a philosophy has been in the Indian banking industry for around a decade now. But then, to implement customer relationship management is a hard nut to crack.
A few of the organizations are really enhancing customer experiences at all the points of contacts with the customer. It is essential to understand following things:
- Who are your target customers and what they value the most
- Careful selection of customers
- Make products and services which provide the desired value
- Plan operational sales channels and customer touch points
- Recruit and prepare employees to provide and increase customer value
- Continuously enhance your value proposition to guarantee customer loyalty and retention
With the advancement in banking machinery and subsequent automation and networking of bank branches, customers are becoming more and dynamic and less loyal in their behavior. The development and easy accessibility of the Internet is acting as a catalyst and the whole market is becoming transparent and thus making customers efficient to move easily from one bank to another. In such a situation, by satisfying customer at all point of contacts will helps in retaining old customers and brings in new customers.
CRM deserves differential treatment to different class of customers at times. Service can be given to customers in two ways depending on the value of relationship with the customer:
- Personally through individuals such as customer service manager.
- Automate the process using computers.
Where personal management of relationship will be given to high value and business customers on the other hand automated relationship management can be given to low margin or mass market segments.
CRM system can open up new more cost effective channels of service delivery. We can mention example of the Internet and call centers. According to an estimate, up to 90% reduction in cost per transaction is achieved by using these modes when compared to cost of transaction at branch. In order to give enhanced and extensive services to customers new technology platforms are being created by shelling out huge investment in Information Technology in this sector. With the recent development in this field by introducing CBS (Core Banking Solutions) banks can offer seamless transactions across different channels (branches, the Internet, the telephone and Automated Teller Machines or ATMs). CBS helps in centralizing the transactions of branches and different banking channels and the customers start banking with the bank instead of at different branches. As such nowadays a customer is called a customer of the bank rather than of a branch.
Another problem generally faced by a bank in implementing CRM is resistance to change. The banking industry is facing major transformation in:
- Market : changing from sellers’ market to a customers’ market,
- Economy: regulated economy to a more liberalized and open economy,
- Technology: high advancements in technology.
Thus it is forcing the banks to change the way they do business. A change denotes making things in a different manner. Now the things should be properly planned, proactive and dedicated to a defined. This in turn requires two things:
- Increase in the ability to adapt changes in the business environment.
- Training and motivating the employees so that it develops skills, right attitude, expectations, perceptions and behavior.
Implementation of CRM in Indian banking is still in its nascent stage and has to travel long and tough path in order to raise it to the global standards. But the Indian private banks in association with their public counterparts are considering the issue on a large scale in order to remain competitive to foreign and other private sector banks.
CRM, being the soul of future banking, proper understanding of the key principles, its theories and practices should be revisited and redefined to provide a road map to generate new ideas and technique in the turf. Over the years, banking institutions have been feeling the pressing need of putting up greater force on this initiative for improving their operation and appearance.
The main principles of CRM can be grouped into seven guiding factors:
1. Customer focus
This is the first and foremost guiding principle in CRM. Who is a customer? A customer is a person or group of persons who receives the product or service, the final output of a process or group of processes. As a part of this focus on customers, banks must make sure that clients are correctly identified; requirements are appropriately determined, understood and met enhancing customers’ pleasure.
2. Leadership
Some of the basic characteristics viz. Integrity, Dedication, Magnanimity, Humility, Openness, Creativity, Fairness, Assertiveness, Sense of humor must be properly imbibed within a leader in order to take out the assist the confused customers and thus help in resolving the matter in best possible manner. A leader does not suffer “analysis paralysis” but is always doing something in pursuit of the vision, inspiring others to do the same.
“Good business leaders create a vision, articulate the vision, passionately own the vision and relentlessly drive it to completion.” – Jack Welch, former Chairman and CEO of General Electric Co.
When there is a slight chance of getting a business but the client is hesitating or in a fix, or not in a position to decide properly, proper follow up by relationship manager by patient hearing, kind counseling and to stand by the side of the prospective client to help clear his doubts and to make him feel happy by realizing that he is going in the right direction and he is very right in choosing his requirements.
Some of the following points will assist the employees:
- Ways and means should be identified and practiced of getting and staying closer to customers.
- It is to be communicated to all employees that all customers should be given a proper hearing and it should be supported from all levels.
- There should be proper re-action to the information and feedback provided by the customers in designing, developing and providing desired products at afford-able cost.
- Proper respect should be extended to the customers. All relevant information should be collected from them with humble and polite approach. Proper value should be given to their feedback.
3. Process approach
For effective functioning of an organization, it has to identify and manage numerous linked activities with the help of different processes for accomplishing its goal.
Proper attention should be given to the following points:
- All processes should be de-signed keeping in view the requirements and desires of the customers, within the policy, resource availability, strategy of the company.
- There should be in built control mechanism for ease of measuring, reviewing and taking corrective action.
- All processes should meet the legal and statutory requirements to perform the activity or deliver the product or service.
- All the processes should be properly integrated to meet the goal congruence and should not function at cross-purpose.
- Time involved in processing should be minimum with least waiting time to the customers. If required delegation of authority and assignment of account-ability at various executive levels should be addressed, revised and fine-tuned to meet the requirements.
4. System approach
The system should be responsive and deliver to customers what they desire. Additionally, the target should be to accomplish more and to surpass the customer’s expectation to accommodate future requirement and to bolster against the competitors’ attributes. CRM represents the management of the complete system and is not limited to only one or the other sub-systems or departments. Its main objective is to increase value to the bank’s customers on a endless basis by designing and refining organizational processes and systems on an continuing basis.
5. Involvement of people
People involvement at all stages is indispensable for the success of a CRM program. The bank’s managers and other staff must be in a position to exploit the customer relationship completely.
Customer relation is that aspect of relationship marketing that pursues and guarantees customer loyalty by fulfilling promises. It continues to satisfy the bank’s customers’ wants and needs so that defection is absent. It involves of three levels of relationships – financial relationship, social relationship and structural relationship.
The key focus of financial relationship is frequent marketing programs founded on financial incentives such as lower rate of commitment charges, reduction of processing fees, organizing Loan-Mela on special occasions etc. A social relationship program is based on the social attachment between a company and its customers and creates brand loyalty. The optimization of structural relationship relates to the replacement of physical resources by total service replacement.
To order to experience the full benefits of people participation, the human resource management must focus on employee empowerment, zero defeat service oriented training, and productivity linked reward and total quality management.
6. Mutually beneficial customer relationship
The relationship with the customer should be based on a mutually beneficial relationship. A bank should not focus its attention on earning of profits only, but focus should be directed to the customers’ wealth creation or value augmentation with the aim of earning through service. Retention of customers and building a long lasting relationship is the central criteria under this concept.
7. Continual improvement
One more objective of CRM is the efforts towards constant improvement in the customer relationship by providing value added services at reasonable cost. An effective way of bringing improvements is through innovation and change management. The successful organizations must encourage and foster innovation and perfect the art of change. Organizations that maintain their spontaneity, flexibility and unpredictability, repeatedly improve their quality and, beat their competitors in the market place by continuously innovative new products and services.
Challenges for CRM Implementation
The most persistent challenges faced by banks in effectively using knowledge about their customers include:
- Difficulty is obtaining a complete insight about their customers
- Need to move away from disorganized, individual, and unreliable channels to provide an organized, multichannel offering
- Problem of separate legacy systems and different databases that store client financial data
- Cost and difficulty in meeting rigorous government regulations, client security and privacy requirements
- Pressure on margins and growth prospects from increased competition
- Costs related to retaining the bank’s customers and increasing customer loyalty
Even though CRM can aid the banks to efficiently manage their customers, several banks remain unsuccessful in merging this concept into the existing work culture. However, the high frequency of CRM failure is not directly related to the CRM concept itself. Generally it’s as a result of the banks’ failure to pay due consideration to customer data they already have access to.