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Innovation games bankers play
Tamal Bandyopadhyay | May 22, 2003
Last month, Deepak Mathur, a 36-year old software professional, approached a public sector bank for a loan to buy a flat at Powai, a western suburb of Mumbai. His application was processed at lightning speed and the bank agreed to lend him 90 per cent of the value of the property in addition to the cost of stamp duty and registration charges.
When he got the sale deed registered, Mathur discovered that the valuation of the property by the state government (which collects stamp duty in accordance with the value of the property) was much lower than what he was actually paying the seller.
Since this particular bank could pay him only up to 90 per cent of the value of the property, this meant that Mathur had to put in more money from his pocket. The deal would have fallen through but for an alert branch manager. He hit on the idea of extending the extra bucks (over Rs 100,000) as a short-term personal loan. This spot innovation earned the bank not just the customer's smile but life-long loyalty as well.
And it's the loyalty that matters for banks. They are willing to do anything to engage their customers. This is best illustrated in ABN Amro Bank's Bancafe. The Dutch bank tied up with the Barista chain of coffee shops last year to open its first Bancafe in Bangalore. Now, there are three others: two in Delhi and one in Kolkata.
While the bank branch attached to the coffee shop opens at 1000 IST and closes at 1900 IST, the coffee shop is open from 0730 IST to 2300 IST. Here, a customer can walk in anytime and look at the interactive screen on insurance and mutual fund products and strike deals for car loans or personal loans for foreign travel even as he sips hot coffee with the travel agent sitting next to him.
ABN Amro's Bankcafe marks one apogee of the innovation game for retail financing that took off in 1997 when ICICI Bank set up the first ATM in a corporate headquarters (Infosys) to tap the company's salary accounts. This was the first instance of a bank leveraging its corporate relationship for retail banking.
Today, even the traditionally staid public sector bankers have started walking that extra mile in search of new businesses. Innovations are taking place at every level -- from the branch manager's glass cabin to the sanitised treasury rooms and the chairman's sprawling office.
State Bank of India chief A K Purwar is trying to bring his big bank to the doorsteps of different professional groups in a unique way. Soon after he took over as chairman, Purwar introduced a product called "Teacher Plus", where the teaching community was offered a bundle of products like home loans, car loans, personal loans and so on at a concessional rate.
Similar products were subsequently introduced for lawyers, doctors and policemen. Now Purwar is extending the segmented approach further to launch a package for the tourism industry covering travel agents, hoteliers and holiday-makers.
How far does this help? HDFC Bank managing director Aditya Puri thinks that bankers cannot change the market. What they can do is to respond to demanding customers.
For companies, HDFC Bank introduced the concept of supply change management where a manufacturing company, product distributors, suppliers and end users are kept in the same loop.
"Nothing is impossible if you have the right technology platform. Tomorrow, if the idea of set-top boxes for TV takes off, we will be able to offer to our customers TV banking on the lines of Internet banking," Puri says.
Another new private bank, IDBI Bank, is also playing hard to feature on the innovation index. Two years ago, for instance, it introduced instant account opening to its customers. The account holders are given account numbers, ATM cards and chequebooks as soon as they filled in their account opening forms.
Last year, it introduced 110 per cent home loans. The provocation for launching the product is the fact that for the first few years, most people live in a home devoid of the things that make it a home. IDBI Bank's home loan allows customers to buy their home and use the additional 10 per cent to furnish it and add amenities immediately.
Home loans seem to be one area where most of the innovations are taking place. At least three financial intermediaries -- HDFC, ICICI Bank and HSBC -- claim to have been the first to start home loans with floating rate interest. Today, over 75 per cent of incremental home loans are disbursed at floating rates.
Standard Chartered Bank went one step ahead and linked its customer's home loan account with a current account, where the principal amount of the loan gets reduced on a daily basis as the excess cash in the current account automatically flows in towards repaying the home loan.
Car loans is another turf where competition is forcing innovation. For instance, Standard Chartered is offering loans of up to 75 per cent of the value of a car less than five years old. Even though it is classified as a personal loan, the rate is cheaper because the loan is secured against the car and the money can be used for anything. Normally, personal loans are costlier because they are unsecured loans.
Another innovation comes from IDBI Bank managing director Gunit Chadha. This is "ATM Next" -- possibly the first service of its kind in the world. The bank is downloading information from the Internet and making it available to customers at the ATMs. This includes live cricket scores, news headlines, local movie listings and emergency contact numbers -- clearly a service beyond banking.
Standard Chartered's M-alert is a similar product with a difference. Here, the country's largest foreign bank alerts its customers on the exchange rates twice a day. The objective is to meet its clients' treasury requirements.
A StanChart customer can also access his account through the mobile phone by sending an SMS. ABN Amro uses mobile phones to alert its customers on their credit card transactions. "Card Alerts", which come in the form of an SMS, are not necessarily a customer demand, but Romesh Sobti, ABN Amro India's chief, believes that this is one way of keeping the customer engaged.
Mobile phones are playing an important role in Indian banking -- both directly and indirectly. They are increasingly being used both as a banking channel and for other services.
Both IDBI Bank and HDFC Bank are offering instant mobile refill facilities through ATMs and SMS banking. This service has only just been launched in Europe and India is among the few countries in Asia to have it.
While StanChart is SMSing mini-account statements, IDBI Bank is e-mailing its clients' statements. ABN Amro, on its part, is offering a statement analyser which allows a customer to analyse his spending pattern -- how much money he has spent on food, entertainment, education, travelling and so on.
Citibank launched possibly the greatest innovation in Indian banking a few years back when it decided to take the bank to the suburbs by introducing the "Suvidha" scheme in Bangalore, which was later expanded to other metros. Low net-worth individuals were given access to sophisticated multi-channel banking through Suvidha.
That marked a new innings for Citi in India, which is evident in its "Junior Package", where the bank's specially trained investment counsellors help parents to create wealth to meet the long-term needs of their children through regular investment schemes. It also allows the child to learn money management through India's first child ATM/debit card.
There is only one lesson to be learnt from all these innovations: technology is the greatest leveller. Till recently, bankers used to talk about preferred customers; now the dividing lines between priority customers and ordinary customers are breaking down (except for the very high net worth group) as services can be offered to all at virtually zero cost.As a result, bankers are shifting focus from precision bombing to carpet bombing. At bottom, it's all about customer satisfaction.