Saturday, April 24, 2010

Views: Banking at the bottom of the pyramid: EKO Financial services

When i wrote about the need for banking for a common man in poor Indian villages in February 2009 little did i know that just about the same time elsewhere a start-up was working on this idea. Yesterday this start-up was featured in the Times of India.

The company i am talking about is EKO financial services started by Abhishek sinha and Anubhav sinha. This start-up tied up with SBI to offer no frills account to the people representing the bottom of the pyramid. A common man can walk to a store, similar to buying a Sim card on furnishing identity documents can open an account within 10 minutes. And similar to recharging his mobile currency can deposit money into his account by handing over cash to the shop keeper who acts as a customer service point of EKO. Money transfers can be through the phone. I am immensely happy to see this innovation happening at the grass root levels and also very optimistic about the future of this goldmine. All the best to EKO team.

The following video shows the working of this concept.
http://www.youtube.com/watch?v=xUJnbtqG6Z0

Tuesday, March 2, 2010

Paper Series: Incrementally rewarding your customers based on profitability


Publications: CFO,Rfpconnect
Volume based incremental or tiered pricing is not new to most of the banks. Banks use this technique to incrementally drive revenues from existing customers by giving him volume pricing or discounts. Depending on the capability of the product system, banks may decide to keep the competitive price definition inside or outside the system. The challenge is in building in tremendous flexibility by parametrization of the solution. A white paper co authored by me is published in CFO.COM and RFPCONNECT.COM

Monday, January 18, 2010

Views: Islamic Banking


I wanted to write the first blog of the year about a banking practice that is based on ethics. About 8 years back I had first heard about Islamic banking from Mr. Srinivasan, then the vice president at i-flex. He described Islamic banking as 'Allah gives and Allah takes', an interest free banking practice. For a long time it stayed in my mind as a funny cultural and unsustainable practice that was funded by the crazy oil rich Middle Eastern states. But, since my interactions with banks in Saudi Arabia, UAE and Bahrain, etc I started to better understand the underlying principles of Islamic banking. According to the holy Koran, the Shariah is what is acceptable to Islam. There are a set of Islamic values that are in general applicable to all practices of trade and also applied to the banking practices. Shariah prohibits interest or a time value for money. Money as such is not a marketable commodity, but an instrument that can be only put into productive use based on the values of shared risks and benefits. Therefore most Islamic banking products are structured on the concepts of trade with profit sharing agreements. These ethical values make so much sense today after the global meltdown where billions of dollars were pumped into unproductive assets in the secondary markets. Traditionally Islamic products mostly were consumed by the government sectors and Islamic businesses houses. But today the popularity of these products has been growing not only in the Middle Eastern countries but also in parts of south East Asia and Europe. There also are non Muslim retail consumers increasingly signing on to these products.

Most banking products have an equivalent Islamic banking counterpart across retail, commercial banking, trade finance etc. The products are structured based on the trade concepts of Mudharabah(profit sharing), Musharakah(joint venture), Murabaha(cost plus), Ijarah(leasing), ujr(fee), Kafalah (guarantee), Takaful(Islamic insurance) etc, etc. Every islamic bank is mandated to have a Shariah board that overseas the product management, product development and operations. The Shariah Board periodically reviews, reports and vets on the various pricing, product structures, revenues, etc. Globally there are only a handful of dedicated solutions for Islamic banking practices. Most Islamic banking software solutions are adapted applications at best. I am writing a paper on the challenges existing in these banks today and how technology solutions could help to address those.

Wednesday, August 19, 2009

Research: Costing in transaction banking services and cost based pricing


One of the casualties of a recessionary environment is the luxury of not changing the way businesses price their products and services. In order to keep up their top lines, most organization have started innovating their pricing strategies moving it closer to the transaction based model, factoring in the risk and cost. Knowing the cost at various levels is relevant for price optimization, capacity utilization and operational efficiency.

As there is a growing importance to measure the productivity and profitability of service delivery channels like ATM, Internet payment gateways, branches, etc Banks need to implement costing practices at various departments. Today costing is generally a grey area in banks. This is because most banks do not know what exactly the cost of an individual transaction level is. Unlike manufacturing industries where cost at an individual unit can be arrived easily, banks product cost cannot be fully arrived at until it is consumed, and the costs are distributed across multiple departments which vary from customer to customer depending on the service needs. So the cost that is computed may be always be far from the right figure.

Popular among the costing methods are full absorption costing, capacity based costing and activity based costing. In practice full absorption and capacity based costing are most common. These are traditional methods that are simpler to implement and answers most of the profitability related questions. But, where they find inadequate is to answer detailed questions on process efficiencies, indirect cost allocations, etc which banks would like to investigate to bring in operational efficiencies. Activity based costing (ABC) methodology can help this cause. Many banks have tried to implement ABC as a strategic initiative at organization level. Since ABC is relatively more complex to implement and highly dependent on the quality and level of details the bank is willing to incorporate into, it has found low levels of success. It is difficult to say any one costing method is an ideal one since the application varies from bank to bank. I have researched on this subject with an interest to know more from other industry veterans. I hope to put my research on this blog soon after its publication.
...Read more

Wednesday, July 1, 2009

Views: Believing in what you have done, Patience and just sitting back


I cannot help but think how things go awfully wrong many a times because you as an individual or organization has not believed on what he/it has done through the long time it takes to take the tree to bear fruits.I have seen so many instances both professionally and personally now, how things have gone off track just when you do not know how close you are to where you wanted to go. One of the primary reasons for things to go amuck i see is interference, taking actions for too many things too many times.

My travel to Africa couple of weeks back was a challenge on my patience. I got a seat next to a lady with a fussy kid. The kid cried, slept, cried, slept, cried slept.... and the cycle continued till we reached Dubai. I did not know what went through the kid and why it was crying. The kid did not let it self be put on the seat belt and was rolling all over creating a mess. I was loosing patience and had a deep urge to scare the child so much that it kept quite for the rest of the journey. But I did not, I saw the mother, all she had was a peaceful, wise look on her face. The gentleman next to me said ‘that’s a mother’s patience and passion’. She has it in her to take the tree to bear fruits.

The current market situation that has had its toll on IT spending, salaries, jobs, growth etc makes me think many times Are things going the way I wanted? Should I move out to a newer organization for money or growth? Should I switch domains? I joined the current organization about four years back with a vision for my future growth. Should i start tinkering with the plans in order to react to the current scenario? May be i should just keep watering my plant in the hope that it would bear fruits.

Recently we saw the Indian markets crash to ridiculously low levels and again ridiculously double within a short period of time. Speculators lost a bundle. Warren Buffet said "Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell". While most investors invested in them, most of them reacted when the market crashed. Many people did not hold out to see their trees bear fruit.

MJ did too many things too many times to himself. It was sad to see this creative legend go down.

The question is whether firms should continue investing in their IT investments? Projects that are budgeted are put on hold. I am sure banks have a vision and a business case with which the projects are budgeted. Should the banks doubt its investment reason and stop watering their plants till the markets improve?
...Read more

Saturday, May 30, 2009

Opinion: Banks and Google wave: whats in it for a common user ?


I watched the google wave developers demo on friday since i was curious about its potential. It has already created waves on the internet and is currently being talked about as the next big thing coming from google. Google wave is a communication protocol built on the principles and architecture of operational transformation. It is a client and server based solution that google aspires to release as an open source so that organization can implement their own wave servers and clients into which their users could login and communicate. So what is a wave and whats in it for an organization like banks and users like me and you that would make our life simpler and more powerful ?

Google wave is a new way of communication that integrates real time messaging, emails and other powerful features into a convergent platform. Waves could be created and sent across multiple users just like email. The waves enable users to concurrently communicate with other users in real time where changes made by other users could is seen online character by character. Unlike traditional emails and documents which is a block of text, a wavelet document is an XML content tree on which Operational Transformation is applied. The wavelet could be edited, embedded with links, comments, rich media, etc all concurrently by multiple users. In the traditional methods a Document is managed with versions where users make changes serially. But in a wave system users dont have to wait till the other person is finished since concurrent changes are made online. The changes to a wave at different timelines can be viewed online using the playback option with a wave.

But what excites me is not the real time document editing, but the powerful feature of collaborating the users with a number of web services inside the same wave. You can drag and drop robots(web services) into a wave that lets you perform activities and workflow related to the wave content from inside the same wave interface. Example: A blog robot what google calls bloggy can be included in the wave that would automatically publish the wave content into the blog with a click of a button. whats remarkable is you can also track the blog inside the same wave where comments posted by others is reflected and you can post your replies all from a single place in real time.

Application of Waves in Banks

1. A wave can help integrate the front office, middle office and backoffice operations workflow through online colloboration of the three functions and a workflow robot. This would help reduce the lead time in transaction processing and decision making immensely affecting the SLA's and improving the customer experience in the bank.

2. Waves can be used for customer communication by making the interaction more open ended than the usual close ended communications through mails and online banking. Waves could be sent to the customers of the bank into which the customers can participate with their views and opinions. This would enhance the customer experience, by making the bank more responsive to the customer needs.

3. Online dashboards could be established with data, graphs and reporting data that could help the various operations, business users in the bank in discussions and decision making.

4. In a requirement gathering session for a new solution, online collaboration among business analysts ans stake holders can work very well through the wave. Requirements could be brainstormed, worked on simultaneously in real time and then on a click of a button the robot could log and track requirements or issues on the requirement management system all inside the same wave.

It is this integration capability that could give organization the flexibility and powerful features of communication, workflow, service intiation all inside a single place. Any one on more ideas of making use of waves through applications while i wait for the wave to be available ?
...Read more

Friday, May 22, 2009

Views: Does your bank have Customer data pollution ?


Over the last three years, any bank i met up with irrespective of the region, size, how tech savvy the bank is, or if the bank had a data warehouse or an enterprise CRM; all had a common concern 'The challenge is clean customer data'. Essentially, since most banks operate on a silo mode, the customer information gets defined in different places to varying levels of data quality, leading to a 'Polluted customer data' from an enterprise point of view.
This is a concern for all banks going in for any new enterprise solution since interfacing and data quality is an issue. The question is 'how do you identify and link up the related customers defined at various business silos'? This answer is in the quality of customer data and the available parameters. In some countries regulations have played their part in the solution by implementing KYC (countries like India now lay a lot of emphasis on KYC) norms. With KYC, linking up customers is possible using parameters like Social security number, Passport, PAN numbers, etc. However, the challenge is the KYC implementation is not complete. Larger banks capable of investing in Master Data management systems (MDM) have gone for ambitious projects creating a centralized warehouse for the customer information. Whereas mid sized and smaller banks are left grappling with the challenge. One of the possible solutions to this problem is having a mediation capability that could deliver the required customer information. Mediation from BFS perspective is an ETL tool working along with a business rules engine. Customer information from various locations could be collated, cleaned and transformed (using Meta data) based on the rules defined in the rules engine. The transformed customer information can then be delivered to the newer solutions with the mediation system acting as a data bus. Later, however if there is a change in the eco system or a new implementation of CRM, the rules could be changed so as to continue to deliver the required information.
...Read more