Vijayalakshmi Iyer, chairperson & managing director, Bank of India
Retail or consumer lending across the globe has always been a showcase of innovation in the commercial banking sector globally. We have seen its vast expansion in the matured economies and now in the emerging economies.
The higher growth of consumer lending in emerging economies like India today is attributable to fast growth of personal wealth, favourable demographic profile, rapid development in information technology, the conducive macro – economic environment, financial market reforms, and several micro – level supply side factors.
As per some estimates, by 2025 a continuing rise in personal incomes will spur a ten-fold increase, enlarging the middle class to nearly 40-42% of the population in With nearly 40% of the population still unbanked, mass consumer banking has unimaginable prospects. And therefore, as the drive for new and bigger markets is intensifying, banks are increasingly looking down the income strata of the society.
The scramble really is to capture the fortune that lies at the 'bottom of the pyramid'.
While at one end it presents a big market, at the other it throws out enormous challenges. Capitalising on this opportunity requires delivering basic banking and financial services to these communities.
These complexities throw immense challenge on the product innovation, delivery mechanism and on the business model itself. The challenge is of creating products for specific target groups (which means larger portfolio of products and services) and ensuring that it reaches the target market at the lowest possible cost (choice of delivery channel). This brings us to the choice of strategy and model of doing business in the mass consumer banking segment.
During the recent past, consumer banking strategies have undergone major transformations, as banks adopt a mix of strategies like organic growth, acquisitions and alliances. This has resulted in paradigm shifts in the marketing strategies of the banking/financial products and services too. Public sector banks are adopting aggressive strategies, leveraging their branch network and their customer base to earn a larger share of the retail pie.
Crucial to any consumer banking model is the flexibility of the delivery channels in being responsive enough to meet the demand at any time. Hence, the branch-based model of taking deposits and extending credit may not be delivered both affordably and sustainably in the amounts that characterise the big consumer banking space.
That means moving customers towards electronic and remote means of accessing savings services, although of course a basic network of reliable cash-in/out points remains a vital reassurance to those the banks want ultimately to move away from Considering this, the consumer retail banking model should combine maximum gearing of relatively simple and standardised core IT systems and business processes with very structured frameworks that feed these to all business areas of the bank and its supply chain partners. Although, standardisation would be required here to deliver services and products at low costs.
The opportunity that the mass market banking offers is tremendous. And it is growing at a much faster rate, supported by development policies like NREGA, MSME lending and enhanced urban-rural infrastructure, are likely to spend proportionally much more on discretionary items and new product categories like healthcare, education, banking, financial, insurance, etc.
Recent budget and RBI guidelines (on small and payment banks) are going to deepen and expand the consumer banking banks and other financial institutions have started working on strategies for servicing the segment in cost-effective way by creating targeted products and employing right banks are at the threshold of unlocking the true potential of this market. Although banks have increased their focus on the financial inclusion drive, there is lot of ground to be captured. The importance of technology (internet & mobile) and partners (like banking correspondents, mobile network operators, etc.) would be critical in this exciting journey ahead.
As the mass consumer banking segment presents enormous challenge and complexities, a very different and 'out-of-the-box' approach at every level and for different segments would be required. However, having the right proposition, pricing, technology and distribution can go a long way in helping make the economics for mass consumer market work.