BFSI VISION | Alternate Channels


Anand Gupta

Former EVP & Head, Alternate Channels,
Dhanlaxmi Bank & Former Head, ATMs, ICICI Bank

Transactions through Alternate Channels lesser than traditional banking

Banks- On encouraging users to adopt Alternate Channels
  • Customer Training
  • On-line Realtime transactions through Alternate Channels
  • Ease of operations
  • Vernacular
  • Easy accessibility
  • Online / Immediate and easily available help in case of need
  • Incentivising use of alternate channels
  • Discouraging branch visit of the customers

Justification for ATM usage fee

ATM installation, maintenance and management is an expensive preposition. In the beginning the ATMs were deployed and managed by banks itself and number of transaction were also comparatively less, hence more number of transactions were really not impacting the banks. In today’s scenario, most of the banks have adopted to either managed services or total outsourcing model, wherein the outflow is on “pay per transaction” model. Hence the payment to service providers is directly linked to the number of transactions, and the bank has to make the payment for every transaction done on the ATMs irrespective of the amount of transaction. In case the customer does not use it judiciously, it is a direct financial hit to the bank. There are instances that customers use ATMs for the amount needed on daily basis or as much as 10 to 15 times a month for an amount as small as Rs. 100/- and Rs. 200/- per withdrawal. In these cases, every such withdrawal hits the bank by Rs. 15/- to Rs. 20/- depending upon deal he has signed with the service provider. The accounts maintaining a lower QAB become unviable just because of the higher number of ATM transactions. For the accounts maintaining higher QAB, banks anyways have some different offers.

I feel, with introduction of ATM usage fee the customers will use it more judiciously
Cost benefit analysis of Alternate channels

Not in a very accurate way, but there has been some thumb rule of 1/3rd – 1/3rd – 1/3rd

This means that in an ideal scenario the cost of doing an ATM / Call Center transaction is approx. 1/3rd of cost of doing a transaction through the branch channel and similarly the cost of doing an internet / mobile banking transaction is approx. 1/3rd of cost of doing a transaction through ATM / Call Center channels.

Definitely the 1/3rd taken here is a symbolic representation and will vary from bank to bank depending upon their sunk cost, number of transactions etc.

Therefore, Channel Migration of customers from Branch to ATM / Call Center to Internet / Mobile Banking will definitely be beneficial to the banks and in a way add to bottom-line of the Bank.

To further explain the case of cost benefit analysis, I would like to give a real time example:

Suppose, somebody wants to buy an air ticket worth Rs. 10,000/-. The options available to him along with the cost hit to be taken by the bank in the process of the person making the payment for ticket purchase:

Option Mode of Payment Cost to Bank (Rs.) Benefit to Bank
1 Buys the ticket through travel agent    
  Makes the payment by issuing a cheque 50 to 60 NIL
  Visits the bank branch withdraws Rs. 10K and hands over the cash to the travel agent 50 to 60 NIL
  Visits ATM, withdraws 10K, and hands over to travel agent 15 to 20 NIL
  Pays through Debit / Credit card 2 to 5 Around Rs. 100
2 Buys the ticket online through Internet / Mobile Banking    
  Pays through Debit / Credit Card 2 to 5 Share in interchange revenue
  Pays through Internet / Mobile Banking 2 to 5 Share in revenue

The above illustration clearly shows that cost of doing a transaction through Alternate Channels is much lesser than traditional branch channel and is also a mode of revenue generation in some cases.

Business case for Alternate channels

The details provided in the point above clearly justify the business case for Alternate Channels. However the another important aspect in the life cycle of Alternate Channels is that, It plays a role of marketing tool in the beginning of its life cycle then along with being a service delivery channel, plays the role of customer acquisition tool as well.