If you’re preparing for the JAIIB exam, don’t neglect the key and important topic of “Bank operations in retail banking.” View the course outline and thorough notes here!

Depending on the significance of retail banking and their business projections, banks implement various strategies for their retail banking operations. Public, private, and foreign banks all use distinct models and processes, while the public, private, and foreign banking sectors all use different models.

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Key Approaches

For seamless and effective customer experiences in today’s competitive financial environment, streamlining and optimizing bank operations in retail banking is essential.

The Strategic Business Unit (SBU) Approach, Departmental Approach, and Integrated Approach are the three basic strategies for retail banking in India. 

While one of the top five public sector banks in Mumbai embraced the SBU model, public sector banks in India have chosen the departmental approach. 

While newer private sector banks have established Strategic Business Units (SBUs) to have a defined focus and business objectives, older private sector banks are more conservative. Foreign banks likewise adhere to SBUs with clear business objectives.


Business models

Banks design their retail banking models to be the best/top three among competitors or peers. Often than focusing on positioning, foreign banks often use business objectives, customer, business, and profit targets.

Where retail banking concepts can be applied

For high-quality client service and to ensure profitability, bank operations must be managed effectively in retail banking.

The success of retail banking is influenced by several factors, including implementation models, business process architecture, and product and process models. The following explains how these notions can be applied.

Implementation models

Banks adopt different models for implementing their retail banking initiatives, such as end-to-end outsourcing, predominant outsourcing, partial outsourcing and in-house sourcing. 

End-to-end outsourcing, primary outsourcing, partial outsourcing, and in-house sourcing are the most popular tactics. Most PSBs use only in-house resources for retail banking, while old private sector banks also use in-house resources. 

Although slightly tilted towards outsourcing, the paradigm in new-generation private sector banks is a balanced mix of outsourcing and in-house work. According to the business model, the implementation model is typically outsourced to overseas banks.


Business process structure in retail banking

Success in the dynamic world of retail banking is crucially dependent upon optimising business process structure and bank operations.

Boston Consulting Group conducted a study on retail banking processes and introduced four broadly defined process models: 

  1. Horizontally Organised Model
  2. Vertically Organised Model
  3. Predominantly Vertically Organised Model
  4. Predominantly Horizontally Organised Model

A vertically structured model offers functionality across goods with a customer database orientation and a centralized customer database, whereas a horizontally organized model is a modular structure using distinct process models for different products. The horizontally organized strategy is primarily product-focused and includes shared customer information for some items.

Business Approach (Domain Specific) in Retail Banking

The business strategies relating to the targeted areas are tackled by different banks in different ways. The following are the common methods:

Segmented approach

For PSBs with extensive networks, the segmented approach is a successful business strategy. In this approach, branches are categorized according to their business potential and then specifically targeted with targeted marketing techniques. To have a clear business emphasis, these branches are divided into Resource Centres, Profit Centres, Priority Centres, and General Centres. In several public sector banks, this idea has already been put into practice.

Geography-based strategy

Retail models are constructed based on regions.

Classification based approach 

The classification-based approach helps in better product structuring for specific branches. Most PSBs adopt a holistic model based on corporate objectives for retail. 

A segmented approach is being built in the corporate model, but only to a limited extent. To fully realise the potential of the retail market, new-generation private sector banks combine segmentation and classification-based approaches. Foreign banks use the retail plan of the banks. Helps in better product structuring for specific branches. 

Most PSBs adopt a holistic model based on corporate objectives for retail. A segmented approach is being built in the corporate model, but only to a limited extent. To fully realise the potential of the retail market, new-generation private sector banks combine segmentation and classification-based approaches. Foreign banks use the retail plan of the banks.


Product models in retail banking

The architecture of product portfolios, which includes liability, assets, other services, and third-party goods, is a crucial component of retail banking strategy. Third-party products have grown in importance as a part of retail banking operations in recent years.

The product models of banks

Delivering outstanding retail banking services to customers depends on the strategic alignment of product models and effective bank operations.

Liability products

Liability products are offered to retail banking customers under three categories: Savings Accounts, Current Accounts and Term Deposit Accounts. Product differentiation is achieved by adding value propositions such as built-in ATM/Debit Cards, Credit Cards, Multi City Cheques, Internet Banking, Telephone Banking, Mobile Banking, and sweep facilities from savings accounts to fixed deposit accounts. All banks offer term deposit products with interest payment options.

Retail asset

Retail asset financing is a major component of retail banking, with a focus on product, price, process and delivery innovations. Its main advantage is the stability of the asset base, better spreads in income, risk diversification and scope for capturing additional revenue streams. The standard retail asset products offered by banks include Housing Loans, Consumer Durable Loans, Car Loans, Credit Cards and Personal Loans.

Retail asset products

Credit cards, debit cards, ATM cards, telephone, mobile, internet, depository services, distribution of third-party products, bill payment services, payment gateways for rail and airline ticket purchases, wealth management services, portfolio management set bookings, wealth management services, portfolio management services and private banking. Old private sector banks offer standard services, while new-generation private banks and foreign banks offer the complete bouquet of all the above products/services.

Product development in retail banking

Banks attempt to develop products in a variety of ways, including in-house product development, hybrid cross-pollination, the leadership approach, adhering to top management directives, segmentation, a geography-based approach, a classification-based appreciation-based approach, or an approach based on specific customer segments. 

In private sector banks, product development is done in-house independently, incorporating market dynamics, segmentation, classification, customer segments, market dynamics and the product positioning adopted by other players. In PSBs, a market survey is done only through in-house resources and not outsourced. 

In some banks, no market survey is done and products developed are launched based on industry practices and need to be expressed by customers.

Centralised Retail Assets Processing Centres

Banks adopt different process models for retail asset products, such as Centralised Retail Assets Processing Centres, centralized processing for some products, regional processing centres or stand-alone processing at branches for other products, and regional processing hubs to cater to specific clusters or geography of branches. The end goal is to create unbeatable process efficiency. Additionally, public sector banks are gradually using the centralised asset processing approach. Banks adopt different models for retail asset processing, such as stand-alone and blended models. In private sector banks, the model is mainly stand-alone and in new banks, a blended model is followed.

For the handling of retail assets, centralised processing is typical in foreign banks. Products with single-stage and multi-stage processes, such as opening a fixed deposit and producing receipts, have different process models.

The processing time is an important factor in retail banking operations, reflecting the confidence and process efficiencies of the bank. The faster the processing time, the more delivery exigency and customer recognition.

Pricing of Products and Services

Banks develop pricing models based on market dynamics, risk perception, return expectations, tenor/duration, resources position, asset liability management positions and customer profile. Pricing is market driven and competitive but is mainly driven based on asset liability management practices. In the housing loan market, several banks have adopted aggressive pricing techniques to attract new customers and concentrate on bank migration. Pricing is always aggressive and in front of the market in new private banks and international banks to create a price race in the market for demand-driven products.

Price structuring for products and services 

Banks try to structure prices for goods and services in a variety of ways, including stand-alone pricing, price preferences and rebates, special quotes for large deposits, and concessional interest rates. 

Price reductions and refunds are common features of PSB pricing structures, but they are handled differently based on quantities, amounts, and relationships. Indirect pricing strategies, such as free remittance services, the issuance of draughts, and the elimination of service fees, and processing fees, are being structured by some banks. The aforementioned framework is adopted by almost all banks for both cross-selling and pricing initiatives.

Technology Models in Retail Banking

Technology models in retail banking are a major part of the process and delivery efficiencies of banks. The technological models that banks use include internal models, external models, partially internal models, and external models. The majority of PSBs employ largely internal models with some outsourcing. Technology is the enabler for building and translating a customer database into a retail banking business. The technology projects of PSB banks have been redesigned, and they have begun deploying core banking solutions that connect customers and accounts on a unified platform.

The level of implementation of core banking will directly increase the chances of availability of customer databases across products and will increase the scope for cross-selling and up-selling. Core banking gives clues about the level to which the database is horizontally or vertically organized, which refers to whether data is available product-wise on a stand-alone basis or customer-wise on an integrated basis.

IE & IFS (Indian economy and Indian financial system) Click here
PPB (Principles and Practices of Banking) Click here
AFM (Accounting and financial management) Click here
RBWM (Retail banking and wealth management) Click here
IE & IFS ENGLISH (Indian economy and Indian financial system) Click here
PPB ENGLISH (Principles and Practices of Banking) Click here
AFM ENGLISH (Accounting and financial management) Click here
RBWM ENGLISH (Retail banking and wealth management) Click here

The distinction between retail and corporate/wholesale

The fundamental methods of banking used by Corporate or Wholesale Banking and Retail Banking are different. While corporate banking primarily serves businesses, retail banking focuses on the individual market. While wholesale/corporate banking focuses on a comparatively smaller subset of the business/corporate client base, retail banking is a mass-market banking approach. Business to customer (B2C) is the strategy used in retail banking, whereas business to business (B2B) is used in corporate banking. While corporate loans have a high-ticket value, retail banking loans have a modest ticket size.

Retail banking has a large customer base, which increases risk. Since there are wider disparities between different asset classes in retail banking, returns are higher. Retail asset recovery and monitoring are more difficult. The cost of deposits is generally lower on the liability side and follows the card rates. NPA will have a more noticeable effect on corporate banking than on retail banking.

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