Safe Deposit Lockers – Are spruced up rules the answer?

Both Public and Private Sector Banks have offered Safe Deposit Lockers (SDL) as a service since long, usually to privileged customers. The locker – useful for storing valuables like gold ornaments or important papers – can be operated by the customer as and when required using the keys provided by the bank.
In addition to annual rent, banks could earn revenue for providing specific services during the locker’s “life cycle”, such as breaking it open if the keys are lost. In most branches, demand for lockers is high and therefore, before allotting one, some banks might insist on a fixed deposit from the customer, which goes towards enlarging the overall deposit portfolio. At times, the locker is a conduit for beginning a new customer relationship, which could blossom into a long-standing one, or at least one that lasts as long as the locker is operational. Another reason why banks maintain lockers is so that they can offer end-to-end services under one roof, and not lose customers to competition.
For banks, the locker is a one-time investment, which earns a return in the manner described above, and from an Income Tax perspective, enjoys the advantage of depreciation. On the flip side, it can be quite an expensive proposition, one that takes up valuable space, as well as entails cost towards software, maintenance, staff and establishment expenses. This often raises the question of viability. In general, it is seen that SDLs achieve break even only in the 3rd or 4th year of operation.
From a servicing perspective, banks need to dedicate an officer to record access of lockers by customers in a manual or electronic register, after necessary checks and validations. Even those banks using software for locker management cannot entirely escape manual or procedural work.
Since banks are not entitled to check the contents of the lockers as per standard agreements and rules, customers could misuse them to stash unaccounted cash. Typically, such funds are stored for a short period of time, whereas, had they been accounted for, they might have found their way into long term saving instruments thereby increasing the banks’ overall business.
To conclude, banks do not profit much from safe deposit lockers, except for the customer relationships they help sustain. On top, there is a rising incidence of cases of unaccounted valuables being stored in these lockers. When one of these is investigated, the bank is forced to assist the authorities, which puts additional pressure on staff. Sometimes, the bank is also drawn into the ring of suspicion. This makes a case for the age-old locker policies to be modified in order to prevent misuse. Some ways to do that include:

  • Attaching a PAN Card to a locker/customer account

  • Prohibiting customers from availing a standalone locker facility, without maintaining a transaction account

  • Demanding additional documentation, such as a declaration of purpose, lockers held with other banks etc.

  • Periodically providing data of customers with lockers to regulatory authorities

  • Avoiding the formation of a bank-customer nexus by frequently changing staff in charge of lockers.

The banking and financial services sector is the watchdog for tax and regulatory policy .One indicator of the maturity of the financial system in any country is the usage of cards and cheques, compared to cash transactions. By devising appropriate policies which prohibit the customer to place unaccounted cash in the Bank provided locker (though it may be a small share of unaccounted money in the overall ecosystem), it can be a stepping-stone in helping the Government in effective policy implementation in that direction. This will help the Government machinery in the long run, by preventing tax evasion, money laundering and other financial malpractices.

Customer Loyalty in Today's Banking

The Indian banking sector grew significantly in size, spread and scope of activity over the last three decades. Its story mirrors that of India’s growth, which is natural, considering that the influences on GDP also favor banking in all its forms – retail, corporate and rural.
This growth has forced banks to become increasingly customer-centric. The demand for one-stop shop integrated financial services has been on the rise for a while. The ability of banks to offer clients access to several markets and different classes of financial instruments, has become a valuable competitive edge. However, doubts still linger over the efficacy of peripheral aspects, such as branch ambience and reward programs, in building customer loyalty. The working of the customer’s mind is a hard to solve mystery and understanding the nuances of customer loyalty, a puzzling task.
A business can be successful only if it has a steady customer base. After all, successful businesses usually realize 80 percent of their revenues come from 20 percent of their customers. Loyal customers are vital to performance and profit. In many countries, business organizations have elevated the role of the customer as a crucial stakeholder, in the past few years. Customers are viewed as a group whose satisfaction with the enterprise must be incorporated into strategic planning efforts. Progressive companies are finding value in directly measuring and tracking customer loyalty as an important strategic success pointer. Evidence is mounting that placing a high priority on customer loyalty is critical to improved organizational performance in a global marketplace.
On the other hand, many businesses neglect their loyal customer base in pursuit of new customers, constantly imposing brands on prospects to gain their attention through various mediums. With the extensive options available, consumers usually find it difficult to stick to one brand and are always moving on to new ones. The brand world is thus on a constant customer loyalty war. In such situations, where every brand is trying to stay on in people’s memory, evaluating customer loyalty and developing a retention strategy are critical to an organization’s success.
Customer loyalty being a multifaceted issue, there is much debate and confusion about how to approach it. Mostly, loyalty is assessed through surveys that invariably capture the apparent and in-the-moment mindset of the customer without trying to uncover the nuances of promised experience or insight into expectation. These are not only important but rather imperative, given the current dynamic market conditions in understanding the ‘experience’ of the customers in comparison with their ‘expectations’ for a service / product.
One must always remember that loyal customers don’t leave even when there’s an attractive offer elsewhere. At the very least, they will give the brand they patronize the opportunity to meet or beat the other offer. Beyond doubt, a loyal customer is an integral part of the sustained growth of any business.

It's a banking channel No, I think it's another device!

The banker’s definition of a ‘channel’ is notably different from that of the vendor community in general, and this is reflected in the kind of solutions existing today, which claim to solve the multi-channel puzzle.
For a bank, a channel is a conduit to distribute its products and services to customers, either pushed by the former or pulled by the latter. This conduit may be compared to the retail industry distribution network of distributors, retailers and malls. In the retail industry, a product manager is usually responsible for each delivery channel, and each channel comes with its own revenue targets, risks, contracts and so on. Sometimes, a product line manager, responsible for product revenues across all channels in a matrix organization, is also assigned.
Banks have followed the same route while spreading beyond branches. However, the unprecedented growth of electronic channels has posed a challenge of hardware-software misalignment to their channel managers and led to a common tendency among vendors to mix ‘channels’ with ‘devices’.
Let me elaborate this…
Internet banking software arrived around 15 years ago, followed by a barrage of hardware devices. The software designed for desktop Internet browsers could not keep up with the progress in end-user experience ushered in by the hardware industry. Thus, during the last five to seven years, specific software evolved to fit specific hardware, creating new opportunities for banking on USSD, SMS, desktop/PC, Kiosk, Android, Blackberry, WAP, iPhone, iPad etc.
Vendors of different sizes replicated Internet banking software for myriad mobile devices, made their money, and convinced banking product managers to launch a banking solution for the Android, the iPhone and so on.
Initially excited about this wave of innovation, customers woke up pretty quickly to the reality of non-uniform and incomplete experiences across channels. At the same time, the maintenance staff at banks were unhappy about having to repeat business logic, access control parameters and customer data entry in multiple, similar systems.
The ‘multi-channel’ evolved as an absolute necessity for channel transformation.
At this juncture, the definition of the channel became important like never before. It raised questions like, “Is iPhone banking a channel, or another variant of mobile banking with similar risks?” “Can browser-based access to an Internet banking site over a mobile device, be equated to mobile banking or Internet banking?” These questions were underscored by customers’ annoyance with the fact that the context of their transactions, individual preferences and sometimes even identity, on one channel was not available on another channel of the same bank.
This situation necessitated a re-learning of what a channel means to a bank and why so.
When it comes to defining their channels, banks still follow the old parameters, like risk, contractual terms, opportunities, negotiations and revenue targets, with no heed to the device of access or the associated quality of experience.
A customer accessing an Internet site using a browser, whether on mobile, laptop, desktop or IP-TV, perceives it as ONE INTERNET CHANNEL. In contrast, the bank, defining channel by risk (as one parameter) may think of the aforementioned as two unique channels – mobile and internet.  Accordingly, it provides special software in the form of a mobile banking app, complete with separate security and functionality, for the mobile channel, and something else for each of the other modes of access. Things get more complicated when the bank offers a different app for each type of mobile phone – Android, iPhone and Blackberry – because of the current lack of convergence among them.
This doesn’t mean that banks are launching as many new channels. A channel can be accessed using multiple devices, but a device doesn’t become a channel in itself. A bank might like to restrict a FEATURE or SERVICE on a certain CHANNEL if it seems risky; or it might pass up the opportunity of a new channel that doesn’t seem secure. For instance, high value international payments via mobile carry the risk of money laundering, and therefore, are not permitted by some banks. However, those that do allow them should buy the right technology to ensure that regardless of the type or make of the mobile device, the user experience auto-adjusts itself depending on the display characteristics of the mobile device.
A device doesn’t make way for a new channel. In other words, user experience on account of technological differences doesn’t define a banking channel; business risks and opportunities do.
Once a bank establishes a channel to distribute its products and services and assesses the risks and returns thereof, only then does the question of user experience flexibility arise. Even when customers on a multitude of devices affording different user experiences access that channel, the business risks and opportunities remain the same.
Therefore, before embarking on their multi-channel transformation journey, banks must understand the decade old debate on DEVICE versus CHANNEL.

Risk Management and the Role of Core Banking Systems

It’s all about future-proofing the bank’s risk and compliance. The recent credit crisis has underscored the importance of proactive risk mitigation for banks. Banks need to first effectively and efficiently identify the potential risks associated with each and every banking process and then measure the same. Every process, operation and service performed at the bank needs to run through the ‘X-Ray machine’ of the risk department so that every possible transactional risk becomes known. Doing so can mitigate risks well before they turn viral.
A sophisticated core banking system with: adequate risk controls embedded within; the ability to churn out consolidated risk-data in reports showing deviation in any banking process from the prescribed norm; the ability to represent data such that it can be audited; the capability to supervise over and above human supervision with automated trigger mechanisms for highlighting deviations; the “four eyes” concept; proper access and transaction controls; and a proper rule based engine with process orientation is the answer.
A core banking system with the capability to capture, classify, measure and report data and operational processes in accordance with most prescribed guidelines in its specific geography, is the ideal solution. Today the role of a core banking system is not just that of a transaction processing engine; it is the key repository of information to further analyze and detect risks. It is a single source of truth which is accessible by all stakeholders in a transparent way. Providing risk management capabilities as an embedded component of a core banking system will enable banks with a more effective and accurate view of risk across the enterprise. On the other hand, if a bank does not have a flexible, modern and optimized core banking system with proper risk controls, it could find it extremely difficult to function in a complex, high-risk, financial environment. So the critical drivers for core banking management are reinforced by the need for more disciplined risk management practices; rigorous regulatory compliance capabilities and oversight; and most critical of all, the strength and stability of the balance sheet.
That being said, the role of a bank’s risk department cannot be undermined. Most have existed as purely advisory units; it is now time for them to take on a more proactive role, and function hand in hand with the business. A risk culture pervading all levels of hierarchy; a strong internal audit procedure; and a strong IT system to monitor and mitigate business risks over and above what a human eye can detect, makes risk identification, ownership, control, measurement and reporting part of the DNA of a progressive bank. This is the only way to achieve sustained, stable and risk free growth.

People and Processes: Banking Twins

The idea of a world ruled by machines has inspired many a work of science fiction. That’s just one manifestation of man’s machine fascination. Another – which is both more real and meaningful – is the increasing device dependence of each generation. The advent of computers has further accelerated this process and it is, today, impossible to think of a sector or industry or facet of life untouched by technology. The banking sector, in particular, has been a major benefactor of technological advances. What remains to be seen is whether this trend will make people redundant in this sector.
Technology, in the form of software solutions and processes, has transformed banking beyond description – from a model where banking circulars dictated staff activity to one where automated Straight Through Processes have become the foundation of business continuity. These processes help simplify complex transactions like corporate loan origination, trade finance bill processing etc. However, process noncompliance by inexperienced or untrained staff can result in huge losses.
On the other hand, processes or solutions are not entirely foolproof despite all efforts at flawless implementation, resulting in transaction delays and longer turnaround times. The dynamic nature of the banking sector is one reason for these shortcomings. Additionally, these processes are largely designed based on generalizations and often fail to recognize the exceptions. Intervention by skilled and experienced staff can help tide over such issues.
To sum it up, the banking industry cannot function on just processes or people in isolation. There has to be a happy middle ground which combines the best that both these resources have to offer. Processes need to be simple, transparent and readily integrated into the banking functions and lifecycle activities. In the same vein, skilled people have to be hired and trained to enable smooth operations.