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Lack of customer-related data and services squeezes banks' profitability: KPMG study

The bulk of retail customers in Indian banks are destroying the shareholder value due to lack of customer-related activities promoted by the banks.

According to KPMG consulting firm, Indian banks may be missing out on substantial profit opportunities in retail banking through lack of attention to customer-centric management.

A research paper of KPMG indicated that the top 20 per cent of customers of Indian banks account for between 130 to 170 per cent of profits. Protecting and nurturing profitable customers whilst improving or removing the rest offers a key to profit improvements potentially of the order of 20 per cent, said Philip Middleton, European head of financial sector strategy of KPMG.

However, one major problem for many Indian banks is that they currently have no means of identifying the good customers from the bad, Middleton said.

Identifying four areas -- customer retention, customer acquisition, cross-selling and customer profitability management -- where bankers are passing over profits, Middleton observed that best customer relation practices were not yet found in the financial sector as was noticed generally in other service sectors like air travel, hotels and automobile sector. Banks, due to to the regulated environment, adopted a fragmented approach to improve their customer services.

Middletone said that banks make no efforts to retain their customers because they do not have the knowledge on their customer profile. Similarly, many banks acquire customers willy-nilly without any regard for attractiveness that fit with existing strategy.

Lack of understanding of customer behaviour and preferences results in ineffective and wasteful cross-selling. Banks must understand the profit dynamics of its customer segments. The road to profitability starts with building the capabilities to collect, analyse and act upon detailed information about customers, Middletone said.

UNI

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