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Virtual University of Pakistan

Department of Management
Sciences
Consumer Banking
Course Code
BNK603

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Lecture # 5

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 INTRODUCTION
When we talk about Consumer Banking, it
means that we talk about facilitating the
common and ordinary people of the society
by providing them an opportunity to acquire
the necessities and accessories of life that
are needed by them to maintain/sustain an
affordable, pleasurable, easy, and
comfortable life.

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 Consumer Banking: Definition
Services provided by commercial banks to individuals (as
opposed to business customers) that include Current
Accounts, Deposit and Savings Accounts, as well as Credit
Cards, Auto Loans, House Loans (Mortgages), Personal
Loans and Investments.
It is also called “Retail Banking” & may be used
interchangeably.

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 Consumer Banking
Consumer Banking is the provision of
products and services to meet the financial
needs of individuals in order to generate
products that will boost the bank’s deposit
base as well as quality risk asset portfolio.

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 Real Meaning of “Education”
Eliyahu M. Goldratt, author of "The Goal" , says that:
 “Presenting us with final conclusions is not a way that
we learn. At best, it is a way that we are trained”.
 "I sincerely believe that the only way we can learn is
through our deductive process”.
 “I do not believe in absolute truths. I fear such beliefs
because they block the search for better
understanding. Understanding of our world is not
something to be pursued for its own sake”.
 “Knowledge should be pursued, I believe, to make
our world better ---to make life more fulfilling. This is
the Socratic way of learning”.

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 Real Meaning of “Education”
 The Consumer Banking environment today is changing
fast.
 The changing customer demographics demands to create
a differentiated application based on scalable technology,
improved service and banking convenience.
 Higher penetration of technology and increase in global
literacy levels has set up the expectations of the customer
higher than never before.
 Increasing use of modern technology has further enhanced
reach and accessibility.

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Real Meaning of “Education”
 The market today gives us a challenge to
provide multiple and innovative contemporary
services to the customer through a
consolidated window as so to ensure that the
bank’s customer gets “Uniformity and
Consistency” of service delivery across time
and at every touch point across all channels.
 The pace of innovation is accelerating and
security threat has become prime for all
electronic transactions.
 High cost structure rendering mass-market
servicing is prohibitively expensive.

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 Changing Trends
Present day bankers are now more looking at reduction
in their operating costs by adopting scalable and secure
technology thereby reducing the response time to their
customers so as to improve their client base and
economies of scale.

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 Changing Trends
 The solution lies to market demands and
challenges lies in innovation of new offering
with minimum dependence on branches, a
multi-channel bank and to eliminate the
disadvantage of an inadequate branch network.
 Generation of leads to cross sell and creating
additional revenues with utmost customer
satisfaction has become focal point worldwide
for the success of a Bank.

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 Consumer Financing
 Consumer financing is a type of service that is
designed to provide the individuals with necessary
finance for personal purchases ranging from buying a
car, shopping purchases, to buying a house.
 The concept of consumer financing is based on the
need for an institutional arrangement that provides
consumers with financing support to enhance their
consumption and, as a result, improve their standards
of living.

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 Advantages of Consumer
Banking
Consumer banking has inherent advantages outweighing
certain disadvantages. Advantages are analyzed from the
resource angle and asset angle.
Resource/Liability Side:
o Retail deposits are stable and constitute core deposits
o They are generally insensitive to profit/return with less
bargaining for higher rate
o They constitute low cost funds for the banks
o Effective customer relationship management with the
retail customers build a strong customer base
o Retail banking increases the subsidiary business of the
banks
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 Advantages of Consumer
Banking
ASSETS SIDE:
o Retail banking results in better yield and improved
bottom line for a bank
o Retail segment is a good avenue for funds deployment
o Consumer loans are presumed to be of lower risk and
NPA perception
o Helps economic revival of the nation through increased
production activity

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 Advantages of Consumer
Banking
o Improves lifestyle and fulfils aspirations of the people
through affordable credit
o Innovative product development
o Retail banking involves minimum marketing efforts in
a demand driven economy
o Diversified portfolio due to huge customer base
enables bank to reduce their dependence on few or
single borrower
o Banks can earn good profits by providing non fund
based or fee based services without deploying their
funds

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 Disadvantages of Consumer
Banking
 Designing own and new financial products is very costly
and time consuming for the bank
 Customers now-a-days prefer net banking to branch
banking. The banks that are slow in introducing
technology-based products, are finding it difficult to retain
the customers who wish to opt for net banking
 Customers are attracted towards other financial products
like mutual funds and NSS

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Disadvantages of Consumer
Banking
 Though banks are investing heavily in
technology, they are not able to exploit the
same to the full extent
 A major disadvantage is monitoring and follow
up of huge volume of loan accounts inducing
banks to spend heavily in human resource
department
 Long term loans like housing loan due to its
long repayment term in the absence of proper
follow-up, can become Non Performing Assets
(NPAs)
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 Disadvantages of Consumer
Banking
 The volume of amount borrowed by a single customer is
very low as compared to wholesale banking. This does
not allow banks to exploit the advantage of earning
huge profits from single customer as in case of
wholesale banking

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 Challenges to Retail Banking in
Pakistan
 The issue of money laundering is very important in retail
banking. This compels all the banks to scrutinize diligently
all the documents which they accept while entering into a
relationship
 Outsourcing has become significant in recent past
because various core activities such as hardware and
software maintenance, entire ATM set up and operation
(including cash, refilling) etc., are being handled by
outside vendors
 Banks are expected to take utmost care to retain the
ongoing trust of the public
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Challenges to Retail Banking in
Pakistan
 Customer service should be, at the end, all in retail
banking. Someone has rightly said, “It takes months to
find a good customer but only seconds to lose one.”
Thus, strategy of Knowing Your Customer (KYC) is
important
 The dependency on technology has brought IT
departments’ additional responsibilities and challenges
in managing, maintaining and optimizing the
performance of retail banking networks
 It is equally important that banks should maintain
security to the advance level to keep the faith of the
customer
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Challenges to Retail Banking in
Pakistan
 The efficiency of operations would provide the
competitive edge for the success in retail banking in
coming years
 The customer retention is of paramount important for
the profitability of retail banking business & increase in
the market share
 One of the crucial impediments for the growth of this
sector is the shortage of manpower talent of this
specific nature, a modern banking professional, for a
modern banking sector

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Operational Excellence in Banking

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