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Contents

Introduction: ....................................................................................................................................... 2

Literature Review............................................................................................................................... 3Gaps Identified: .............................................................................................................................. 5

Objective of the study: ................................................................................................................... 6

Methodology ...................................................................................................................................... 7

Method ........................................................................................................................................... 7

Sampling......................................................................................................................................... 7

Data collection................................................................................................................................ 8

Tools used ...................................................................................................................................... 9

Key Findings .................................................................................................................................... 17

Conclusion ....................................................................................................................................... 18

Scope for further research ............................................................................................................ 18

Limitations ................................................................................................................................... 18

Managerial implications ............................................................................................................... 18

Bibliography .................................................................................................................................... 19


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Introduction:

With the time, as the banking horizon expanding and becoming more competitive but the unchanged

challenging economic scenario has made consumers spend lesser time; banking is becoming more dynamic

than ever. Banks have multiple tasks as to be able to manage risks, costs and yet to be able to attract clients

with newer services. Banks across the industry feel need for an ecosystem that can part the silos across

multiple access channels for their customers in order to achieve better customer satisfaction and better

customer service. Competition and computerization have changed the Indian banking scenario. The human

intensive work is eased by desktops and personal computers, saving bank passbooks have been replaced by

electronic statements of account and all those plastic cards have made consumer wallet thinner.


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TowerGroup, a research organization, in 2010 published a report according to which the costs of handling a

customer transaction varies widely by channel, from as much as $3.75 for a call agent interaction and $1.34

for a branch transaction down to as low as $.60 for an ATM transaction and $.14 for a mobile transaction

which clearly states that it would be intelligent to go for automated and digital channels as many as

possible. Unfortunately, its not that easy. From various surveys with banks its found that as the banks

introduce new channels, the typical customer's overall number of interactions also increases. Purely cost-

based analysis is the more important questions regarding how a customer feels about using various channels

to transact business. Customer satisfaction with different channels influences customer's future banking

behavior, which in turn affects key factors such as additional cross-sell, increased profitability, and reduced

cost to service.

Multichannel banking can improve conversion rates. Frustrated customers often give up on trying to

complete transactions online when they find the process too difficult. A strong multichannel offering is

attuned to these moments and proactively offers assistance in form of live online chat pop-ups when

customers stuck in between any transaction. These actions reduce abandonment rates for sales transactions

significantly. The enhanced functionality and experience that define multichannel banking can help increase

customer lifetime value and reduce churn rate. Innovative tools and products such as bill-pay features,

person-to-person transfers and money management tools are all ways to provide a more compelling

experience that builds customer loyalty and value for the bank.

The current economic scenario gives banks an opportunity to identify channels that are most important to

their customers, and provide a positive experience across them. Banks are shifting their customers from

high-cost to lower-cost channels, thus reducing their total cost-to-serve. There is a growing trend to achieve

a seamless multi-channel integration by banks who want to make their customer interactions channel-

agnostic. This will help banks leverage their distribution networks by offering the right products to the right

customer segment through a desired channel, resulting in overall cost savings and an enhanced customer

experience.


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Gaps Identified:

While banks have succeeded in leveraging available technology and provide alternate avenues to customers

for banking services, the challenge it faces today is optimizing the usage of these channels. While ATMs

are becoming popular among customers for cash withdrawal, the other channels like internet banking,

mobile banking, etc. are less popular.

The alternate channels have greatly reduced the transaction costs for the banks. But banks can realize the

full benefit of the roll out of alternate channels only if there is a perceptible increase in the usage by

customers. It is imperative therefore for those banks to take steps to regulate the customers to move to the

new modes of banking so as to cross the minimum critical mass.

Customer education plays an important role to induce customers to use ATMs, e-banking, mobile banking,

etc. They should remove the fear of cyber frauds from the minds of customers by educating them on proper

use of the technology. They should appraise the customers the steps taken by them for securing the systems.

They should also constantly educate the customers on safe keeping of the plastic cards, securing user id and

password, periodically changing the passwords, not sharing the passwords with any one, known orunknown, etc.

Banks should train their staff on new channels, products and services and make them fully conversant with

the new technology based banking products and services. They should make all staff to use them so that

they in turn can market / cross sell these products better and educate the customers on the use of new

devices, products and services.

Banks must realize that giving a hand up to the customers on technology products, rather than handouts will

help their business strategy and provide opportunities to optimize these services.

Many consumers are apprehensive of using their credit and debit cards over the internet because of the

perceived risk of frauds. They do not shop online because they do not trust online payment systems. Banks

would need to address these issues effectively if they have to remain customer centric.

Communication gadgets with enhanced features are launched regularly and customers expect to be able to

transact using these new devices. This requires banks to keep pace and rework / upgrade their systems on a

continuous basis.

As seen through the survey, customers expect the banks to deliver faster transaction processing which

according to customers, banks can achieve reducing wait time for transaction processing and requests.

Corporate organizations expect banks to demonstrate stronger knowledge of their businesses. The

organizations that faced lack of satisfaction with their banks fulfilling their need, suggest banks to improverelationship management and deeper industry knowledge as ways banks can strengthen their services.


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Objective of the study:

Over the period of time, with the advent of information technology, banks in India have introduced various

new products and services that are using modern delivery channels such as ATM, internet and mobile

telephony. Every customer has a channel or multiple channels they prefer as they interact with their bank or

credit union for various needs. Some may prefer a branch, while others prefer an ATM, online or mobilechannel. The core objectives of this study are

1.

To identify the alternative banking delivery channels in India.

2.

The challenges faced in usages of the alternate delivery channels.

3.

To determine the optimal channel mix for each customer that will maximize revenue or reduce

costs without significantly reducing customer satisfaction or engagement.

4.

Difference between channel preference and actual channel used by a customer.

5.

To find out key performance indicators for banking channels.

6.

Scope of further research in future.


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Methodology

Section one discuss the methodological issues of the research. Section two concludes the process ofdeveloping the questions for the research. The twenty questions dealing with satisfaction andimportance of banking are listed and their links to previous research stated. Section three presents the

research design which is consistent with previous research involving quantitative research andsampling. Section four evaluates the quality of the sampling method and the database. The samplingprocedure is discussed in section five. A high-quality database with systematic procedures for removaland new entries is essential. The different sampling methods (probability and non-probability) arepresented. Section six deals with the collection of data. A representative sample of 962 persons wasselected from the database and e-mailed, resulting in responses from 559 persons. Section sevenresents methods for verification of the hypotheses. The section includes the justification for usingfactor analysis, principal component analysis, and cluster analysis68.

Method

Researchers consider different methods on the basis of the research objective. The method chosen forthis research is a quantitative method using a quantitative mode. Because the research objective isfocused on identification of segments with distinct banking requirements the classical, quantitativemethod is applied here. This method is characterized by a relatively large number of respondents whoeach are asked relatively few questions to which they can express to which extent they are satisfiedwith or agree to or not. In the strategy and marketing disciplines of research it is quite common to lookfor patterns of similar behaviors (segments) whereas it in psychology is discussed whethersegmentation (as opposed to fragmentation) of consumers is reasonable.

Quantitative studies are often preceded by qualitative research, which explores the issues to be studiedor tests the questions to be asked. Equally, quantitative studies are sometimes backed by qualitative

follow-up initiatives to explore the subject in more detail. The elements of qualitative analysis are theinitial open-ended semi-structured one-to-one interviews prior to the literature review.

Sampling

A sampling unit is the element or elements (the unit about which information is sought) available forselection at some stage of the sampling process. In the primitive type of sampling, single-stagesampling, the sampling units and the elements are the same (i.e. banking customer selected from a poolof registered people using both branch banking and Internet banking).

Here we have considered the age group of people 21-35 and of both the genders. Their responses onthe given questionnaire are considered.

There are two major types of error that may be found in connection with the sampling process. Theyare random error and systematic error (bias).

Surveys often - as in this case - attempt to obtain information from a representative cross section of atarget population. The objective is to make inferences about the total population based on the responsesgiven by those interviewed (McDaniel and Gates, 1998 p. 157). Even if all aspects of the sample are


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executed correctly, the results will still be vulnerable to a certain amount of error ("random error" or"random sampling error").

The way in which email address databases are created and updated may also initiate potential biases.Some people may not update their email addresses, or the addresses may be wrong. There is also a riskthat slow data transmission highways (modems) results in more frequent bounce back becauserespondents are unable to upload illustrative material (logos, interior environments such as a retail banksetup etc.).

There may also be the risk that some groups of respondents are more vulnerable to the quality of thespam filters in use. This could be the case if one particular Internet provider is using spam filters thatdelete all incoming mails containing specific words such as banking (because such word may berelated to investment that might be considered as just another attempt to persuade people to pay or

engage in banned or illegal financial activities).

This weighting - however - is not necessarily adjusting for the key attitudinal differences that couldexist between current Internet users and non-users. Most Internet market research companies are

adopting propensity weighting which means that appropriate adjustments are made on the basis ofempirical based understanding of attitudinal and behavioral characteristics of online and non-online(offline) samples.

Here we are using the survey conducted through the E-mails.

Data collection

There are two main types of data collection from respondents - those obtained by communication andthose obtained by observation. Communication requires the respondent to actively provide data(verbal, written or by filling out an electronic questionnaire) while observations involves the recording

of the respondent's behavior e.g. in a retail branch. Observing customers behavior in a branch is similarto the observations which retailers often undertake of their retail customers.

The two types of data collection may be combined in the sense that a respondent firstly are observed inthe branch and/or by web-camera, secondly handed a questionnaire to fill out/ interviewed, or uponfinalization of the Internet banking transaction - measured by means of clickstream analysis - invited tofill out a pop-up questionnaire. The two sets of data (behavior and attitude) will often provide betterand more reliable conclusions.

Online data collection is currently one of the fast growing trends in the market research industry as itallows researchers to collect data at lower costs, faster and with better response rates than moretraditional data collection methods.

Generally, there are three criteria which need to be examined before proposing the use of Internetbased surveys:1) Level of access of participants to information technology,2) Lowest level of computer literacy of participants, and3) Level of acceptance by participants of undertaking online task.


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Generally, the acceptance of Internet surveys among academics has become still more positive as thenumber of Internet users has increased and the response rates from postal surveys have dropped. Suchpositive attitude is particularly strong in research areas and topics where the main focus is on Internetusage or elements of the Internet channel.

Tools used

Two different types of e-mail questionnaire have been considered for the research:1. Questionnaires that appear as text in an e-mail (with tick boxes and spaces for response as in paperself-completion exercise) and2. Executable questionnaire programs that are sent as an attachment within an e-mail (and arecompleted similarly to a Computer-Assisted personal interview (CAPI) exercise

Questionnaires that appear as text in an e-mail (as used in this survey) are mini-questionnaire

programs sent as a file attachment in an e-mail. Once received, the respondent clicks on the attachmentand starts the questionnaire which runs with routing build in. If an e-mailed questionnaire fails to workfirst time accessed it is unlikely that respondents will redo the test which may results in problem withboth reliability and validity.

Data analysis

Data is collected from the responses this will give the direct indication of the distribution of thecustomer preferences. We have the data collected as customers going to give their correspondingpreferences on the usage of the ATM, Bank, POS, Contract centers, Social media, Mobile etc.

Data is presented in tables and figures. The objective is to present the appropriate data in support of theresearch questions supplemented by different tables of general importance such as channel frequencyusage. Only the most important data tables are presented here. The total documentation with thecommonly used SPSS filing structures applied is available upon request.


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Survey

Survey is done on the Indian public with the age group 21-35 and of both gender. The

questionnaire for the collection of the data is as follows. We havent focused on the particular bank

but its an overall data of all banks and the consolidated result is put in tabular form after the

questionnaire.


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With the exception of cash withdrawals and balance enquiry - which many customers prefer to perform via

the ATM the branch remains a prominent channel for other activities and is thus key to customer

satisfaction. The results show a gradual shift in the role of the branch from a transactional channel to a sales

channel as more than 90% of customers would like to seek financial advice and take out new products at the

branch. This is in spite of an increasing reluctance to stay on long queues about half of retail customers

from this years survey are not satisfied with the length of queues at bank branches. The desire for

continued branch interactions may be explained in part by the fact that overall satisfaction with allelectronic channels still trails the branch experience by a huge margin. As such, amidst the push to migrate

customers to alternate channels, there must be corresponding investments to provide a consistent, high-

quality experience across all channels. Such investments also offer banks the opportunity to take advantage

of the digital channels for marketing and deepening of customer insights.

As banks explore more avenues of engaging their customers, we believe they should continue current

efforts to promote the use of alternate channels as our findings reveal these are yielding positive results.


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Across the industry, we have seen a variety of approaches aimed at encouraging customers to use other

channels including the use of incentives such as cash back on POS usage. Customers are using alternate

channels for their banking transactions. 13% of retail customers surveyed use internet banking, POS 15%,

mobile payments 6%, contact center 12% and mobile banking 10%. The ATM remains the most utilized

alternate channel with nine-in-ten customers using it within the last year. Customers of different age groups

also demonstrate varying channel usage patterns. Majority of customers (70%) above 60 still prefer to visita branch to enquire about their balance compared to only 30% of customers under 30. On a weekly basis, a

slightly higher number of older customers visit the branch than the ATM.

Amidst the proliferation of these channels, we note a year-on-year decline in overall satisfaction with the

internet banking and ATM channels. Customers still want improved online security and more user-friendly

internet banking platforms as well as reduction in cash dispense errors at ATMs. As penetration deepens, it

is imperative for banks to remember that customers are primarily looking for convenience and service

quality beyond mere availability of these channels. Overall, we have also seen a two-fold increase in the

number of people using at least one other channel in addition to the branch and ATM, a sign that customers

are continually looking for convenience across a variety of channels.

Surprisingly, people aged under-30 account for 50% of all internet banking users but only 15% of them ever

use internet banking. With an estimated 12.5 million total active internet subscriber population1, adoption

of internet banking at 15% suggests there is still untapped potential for this channel as has been witnessed

in other markets. Online retailing in the country was estimated at over N77.5bn in 20122 and is expected to

grow further with increasing internet penetration. Online banking presents banks with the opportunity to

deepen relationships with younger customers. Four-in-ten internet banking users indicated a weekly usage

of the channel. Loyalty amongst very satisfied internet banking customers is also high, with seven-in-ten

saying they will absolutely recommend their banks to other customers. When the same people were asked

about their branch experience, less than three-in-ten expressed similar levels of satisfaction. Social media

(i.e. Facebook, Twitter etc.) is also gaining ground as a means of customer interaction. However, only 9%

of customers interact with their banks using these platforms against 70% of users who use it for other

personal purposes. Currently, only a few banks in the country have fully embraced social media but much

of it still remains at the level of information dissemination. With younger customers increasingly using

social media as a primary filter that informs their purchasing decisions, banks can no longer afford to ignore

this medium. In the corporate segment, eight-in-ten organizations expressed satisfaction with the quality

and availability of their banks internet banking platform an eight percentage point increase from last

year.

Percentage wise distribution of the following:

Channel Preference

What is your preferred channel for carrying out the following?


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Branch ATM Internet

Social

Media

Contact

Centre Mobile POS

Cash Withdrawal 25 75 0 0 0 0 0

Funds Transfer 86 8 6 0 0 0 0

Getting FinancialServices 91 0 3 1 4 1 0

Balance Enquiry 37 55 3 0 2 3 0

Making Complaints 93 0 2 1 4 0 0

Bills Payments 84 8 3 1 0 2 2

Buying Financial

Services 95 3 0 0 2 0 0

0

10

20

30

40

50

60

70

80

90

100

POS

Mobile

Contact Centre

Social Media

Internet

ATMBranch


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Channel Usage - All Age Groups

How often do you interact with your banks through the following channels?

WeeklyAt least once in 2

weeks

Once a

MonthRarely Never

ATM 56 13 9 8 14

Branch 32 14 30 19 5

Internet

Banking5 1 2 5 87

POS 3 2 2 8 85

Mobile banking 3 1 2 4 90

Contract

centres1 1 2 8 88

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

ATMBranch

Internet

BankingPOS

Mobile

bankingContract

centers

Never

Rarely

Once a Month

At least once in 2 weeks

Weekly


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Key Findings

1] Cash withdrawal is done through the ATM and Branch. ATM maximum with 75%.

2] Funds transfer is done mainly through Branch (86%).

3] Financial services are mostly opted through Branch (91%).

4] Balance inquiry is done through again mostly through ATM & Branch.

5] Making complaints, Bills payment & Buying financial services are mostly opted through the

branch mode.

6] People often visit Bank & ATM. Sometimes they go for internet banking also to have

interaction with the bank about new schemes, any complaint, inquiry etc.

These key findings are mostly based on the survey conducted and it gives the glimpse of Indian

market which is still tilted towards the physically going and speaking with people rather than

having online communication.


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CONCLUSION:

Scope for further research

Moving customers to less expensive channels is required based on the economics of today's

banking industry. But migrating customers who are already set in their ways comes with bothsatisfaction and engagement risks which could result in attrition, reduced balances, lowerprofitability and the unintended consequences of digital as opposed to human interaction.

As channel migration strategies are developed, it will be important to segment a bank's and creditunion's customer base based on profitability and current channel use to develop an optimumchannel strategy. Understanding the impact of potential channel migration strategies will beimportant and the use of multichannel communication and training will be key to acceptance.

Limitations

While moving customers to less expensive channels is imperative due to the high operational andregulatory costs in banking, there can be unintended consequences to an increased reliance ondigital channels according to Gallup.

One of the impacts of moving less emotional and involved transactions out of the branch is thatcustomers will rely more on branches for involved advisory and problem solving transactions. Inaddition, transaction levels will continue to plummet, eliminating the need for traditional tellers.Most bank and credit union branches are not adequately configured for these changes either from apersonnel or physical perspective. Without the reduction in personnel and real estate costs, movingcustomers to alternative channels could actually increase costs.

Another unintended consequence is that as more customers move to self-service channels, theability to interact, provide advice and sell will be reduced. In addition, the ability to moverelationships to another institution is made easier in an online/mobile world.

Managerial implications

Technology advancements and changing client preferences (such as the demand for convenienceand around-the-clock access to banking services) have driven a shift in customer demands and

usage patterns of traditional banking channels such as branches. The shift has resulted in directchannels emerging as important media to reach a larger audience at a much lower cost.

Global retail banks are investing and innovating to better align their distribution channel strategieswith evolving customer needs and preferences. They are increasingly focused on achieving multi-channel integration to achieve seamless customer navigation across different channels. Thoughmulti-channel interconnectivity is not new and banks have already made some progress in this


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direction, delivering a true seamless experience across channels will require banks to overcomesome key challenges. Banks face challenges around their existing legacyapplications, systems, and processes which often operate in silos, and the lack of staff training tofunction in a multi-channel environment.

The growing influence and popularity of direct channels, supported by changing channel usagepatterns, has resulted in need for a role transformation of traditional channels such as the branches.Though customers continue to see the branches as an important channel for carrying out financialtransactions, they expect their role to gradually evolve to one which also focuses on providingmore advisory and relationship-based services. The issues related to queue management andwaiting times across traditional channels such as the branches and call centers are also resulting ingreater use of direct channels such as online and mobile.

The distribution of banking services is becoming channel-independent due to the emergence ofinnovative technologies such as interactive multimedia screens and multi-utility ATMs, which arehelping banks to deliver products and customer service through multiple channels and touchpoints.


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Channel Usage by Banking Customers

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