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Branchless Banking Brands.

A prominent Indian banker recently remarked, in a lighter vein, that in the current state of the economy, assets are in fact liabilities in the balance sheets of banks; and liabilities, assets. Low-cost deposits, which show up on the liabilities side of the balance sheet, are proving to be assets, he argued: they helped banks maintain tight margins. The loans portfolio, on the other hand, which shows up on the assets side of a balance sheet, was really turning out to be a liability, he explained: borrowers were simply unable to repay the loans they’d borrowed.

The global economic crisis, on the positive side, is for sure shining the light on areas that banks but infrequently visited: their business models. Even ‘modern’ banks, which boast sophisticated online and mobile banking facilities, offer these as part of a customer retention strategy—a reaction to changing times and customer demand. It follows, then, than their products are merely being made available over additional channels. From the point of view of their clients, customer on-boarding often remains a tedious procedure—and an expensive one—at these banks.

Contrast this with the success of purely virtual banks: direct banks or banks on mobile devices, such as UBank, Jibun and HBOS. By adopting a different business model, incidentally all branchless, they have been able to straightaway reduce their operating costs and, thereby, compete with better rates as compared to retail banks in the same market. The flexibility to offer compellingly attractive interest rates for deposits, which a normal bank could not afford to, made them successful within weeks of their launch. Moreover, these banks are most productive during the ‘down-time’ of their customers because they are perennially accessible. And, most importantly, these banks actively on-board a customer in time-frames which traditional banks can only wish for—what with scanned or photographed KYC documents being processed online. (At UBank, for instance, customers were promised a 5-minute account opening experience, which they duly delivered.) Another factor going for these banks with respect to their customers is the transparency on offer. Clients can instantaneously compare online, before making a financial decision.

All this may seem to suggest I’m arguing against branch-banking. Far from it. In an environment of a general economic squeeze, quicker and more efficient deposit mobilization is critical to a bank’s success. Banks would benefit from a definitive strategy to launch an exclusive brand, which would help them tap this high-reward business opportunity. In my view, the branch-banking is best reserved for the fee-yielding transactions and advisory services.


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