MANAGEMENT OF BANKS

CIA -3
Article Analysis

Submitted to
Prof. T S Ramachandran
By
Angadi Deepasetty – 1927760-F2

Institute of Management
CHRIST (Deemed to be University), Bengaluru
29th February, 2020
 ARTICLE 1 ;-BANKING ON HUMANS

Published by INFOSYS in the year 2019

Introduction-

The article links the human mind and banking. By connecting the dots between the two, various
strategies are made to offers us a deeper understanding on the psychological aspects involved in
banking. Exploring this side of banking helps in identifying ways to improve the operations
involved in banking along with the development of actionable business strategies.

Objective-

To explore the link between the human psychology and banking and make use of the data to
develop smart business strategies.

Methodology-

The White Paper has collected data via secondary sources. The data collected for the study is
from online articles and blogs.

Analysis-

The science behind the human mind is a very vast and complex field that is yet to be completely
explored. The human behaviour especially is one of the factors that influences psychological
theories about decision making. A business can only run when the collective hands are put
together and contribute towards the operations of the organization. Just like every other
organization, this is how the banking industry runs as well.

The various emotions held by all the stakeholders affect the outcome of any business. The
researchers have said that understanding “behavioural economics’ would make more sense in

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improving bank’s performances rather than just economics and deems this as a point to note to
utilize for the benefit of the organization.

Psychology and its Impact on Banking

The researchers have identified three major drivers of psychology that impacts banking namely –

 Heuristic – Most humans make use of the knowledge they possess to make decisions.
 Framing – Humans tend to arrive at conclusions based on the collective framework that
builds characteristic layers.
 Market Inefficiencies – Market doesn’t operate well due to pricing not related to demand
and supply, decision making being irrational, etc.

The researchers have identified various theories to probe deeper into the impact that psychology
has on banking.

1. Regan’s Reciprocity Experiment

Reciprocity is when things are exchanged for mutual benefit with others. This induces a
social behaviour among humans that fosters qualities such as improved customer relationship
which is vital for a bank to operate. Understanding this study will also help banks come up
with efficient incentives to offer to the customers to foster better customer service thus
increasing customer loyalty and as a result retain them in the organization. This theory can
also be used to leverage ethical practices in banks to improve governance and provide a sense
of trust worthiness to its customers. Incorporating CSR practices are also ways in which this
study can be put to use in banks.

2. Kahneman’s Framing Experiment

This experiment connects cognitive bias to how people react in a different manner when they
are presented with different kinds of choices. Banks can make use of this experiment to
design products based on the behaviour shown by its various customers. This will help the
bank increase its profitability Also, consumer behaviour can be studied to modify its sales
and marketing strategies accordingly. Banks can also make use of this experiment to identify
how an increase or decrease to interest rates, pricing, etc. will affect consumer’s attitude

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 towards the bank. This in turn will help the bank escape risky ventures and keep its processes
under control.

3. Freedman and Fraser’s Compliance Experiment

A person who has agreed to a small request will most likely comply with larger requests.
This theory says that as pressure is increased, compliance will increase as well. Banks often
require backers and a constant flow of customers to grow. By making use of this experiment,
banks can develop strategies to complete deals and improve their marketing and sales
practices especially in the case of direct selling/marketing.

4. Zajonc’s Mere Exposure Study

The human mind is such that when we are familiar with something, we tend to lean towards
them more. Similarly when this study is applied to banks, banks can make better
advertisements by showing something that the customers are familiar with to attract them
into the business. This will help the bank to sell its credit policies, insurance policies, etc.

5. Asch’s Conformity Experiment

Psychologically speaking, people in a group tend to respond based on group thinking rather
than personal choices, that is to say, when a person makes a decision about anything, peer
pressure will play a major part in the decision making process. This conformity theory can be
taken advantage of to improve the marketing and sales strategies in the organization and
whilst trying to sell a new product. It also helps in brand building for a brand when they
introduce a niche into the market by developing the appropriate strategies.

By making use of the above experiments, the researchers of the study have identified ways to
improve the benefits for the banks in the long run. One of the most common thing noticed in all
the experiments was the human behaviour, i.e. the consumer behaviour. This can be taken
advantage of by the banks to foster improved customer loyalty towards the banks. Another point
to notice is the ability of banks to become better decision makers with regards to investments,
marketing and selling strategies and being averse to risk. Understanding the psychology between
people of different generation are another major benefit the banks will possess in the long run.

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The behaviour of the current generation Z and the previous generation, the millennial can both be
catered to in an efficient manner such that both parties are satisfied.

Technology and its Role in Linking Psychology to Banking

Technology is a major part of our world and has been constantly growing ever since its birth.
Banks too have utilized it strategically to link human psychology to banks. Predictive analysis
and social networks are a few examples of ways that banks have integrated into their operations
via the use of technology to understand the human mind. The study also shows that “Computing”
is a common accelerator prevalent in both psychology and banking and this accelerator is what
has helped banking make a huge leap forward on a global scale.

Findings-

The study fails to take into account biases such as complexity bias which says that people tend to
see complex things in a better light than the straightforward things in our lives. Bankers tend to
think along the lines that the more complex the solution, the better. But, companies like Apple
have proven otherwise where they have shown that a user friendly, easy to use piece of tech is
more in demand than a complex one.

From the study, we have come to know that gaining an understanding on human and the
psychology around them will help banks make use of it and develop itself greatly in the long run.
By taking into consideration the concepts mentioned in the article, we can see that banks can
mainly grow with respect to marketing and sales and also in incorporating the right motivational
and reward plans for its employees and customers whilst at the same time develop itself ethically
thus fostering a sense of trust in the customers towards the banks.

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Conclusion-

From the article, we have to come to understand that in addition to linking the human mind and
the psychology around them to banks, making use of technology strategically is what acts as a
point of growth for banks. Bankers need to constantly come to perceive the world similar to how
a user of the bank would and understand them better. This would create a huge impact in the
banking world. The banking sector is larger than we know and there is a lot of potential and
scope for it to grow even further. By making use of human psychology, banks can create a
delightful and positive banking experience to their customers.

Bibliography-
 Mohan, K., & Barman, D. D. (2019). Banking on Humans - How Humans Psychology
Shapes the Banking Industry. Retrieved 2019, from
https://www.infosys.com/industries/financial-services/insights/documents/banking-
humans.pdf

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 ARTICLE 2;- THE FUTIRE OF DIGITAL BANKING

Published by KPMG in the year 2019

Objective ;- The main objective of this study which is conducted by KPMG is to understand how technological
advancements and innovation lead banking sector towards successful journey. This article throws light on how
banking sector transforms from traditional form of banking to digital banking.

Introduction

The banking sector of India will certainly look very much different from what it is right now in
the aspect of technological advancements and innovations. Banking sector will tend to grow in
faster phase and digitalization will tend to continue. Some evolutionary and different radical
changes are expected. This article is basically designed to stimulate thinking about how the
banking industry can be smarter and better. On the other hand all the technological
advancements and innovations should impact positively on consumers, their relationships with
banks and ultimately the customers well being should be achieved accordance with their
financial requirements.

KPMG have been partnered with commonwealth Bank of Australia on the above mentioned
initiative and KPMG commend the Bank for considering financial well being of customers at the
core of their strategy.

Over the next decade we will probably see more changes in Banking sector which we have never
witnessed over past 100 years. In the above article KPMG speaks about how banking sector is
going to get transformed into very much different way. This is not alone because of advancement
in technologies but it is also a impact of interrelated, structural factors-demographic factors like
Age, gender, educational level, income and occupation which have direct impact on banking
sector. Socio-economic, in simple terms refers to society related economic factors. Regulatory
aspect includes government’s regulation which banks are supposed to follow which includes
requirements, restrictions and guidelines.

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All the above mentioned factors are certainly to have a impact on people living, people living in
the sense overall life style of people and their well being including financial well being.

When it comes to financial well being banks should make sure that customers are able to meet up
their financial obligations. Banks should make sure that its customers are having financial
security for all type of its customers even under adverse circumstances.

CUSTOMER DATA AND ITS IMPORTANCE

Consumer data is a major aspect of any business sector and same with banking sector too.
Application of consumer data right in Australia is spreading across the nations which could
certainly lead banking sector in providing a different data related services to customers. And
more the data is collected it is risky for individuals. It is a matter of concern for individuals when
they share data. While sharing data it is important to know what we are sharing, to whom we are
sharing and for what purpose we are sharing. In this aspect trust plays a major role. Even
customers are expected to be honest with providing data.

Winning the trust of customers who are aware of value of their data, banks are expected to meet
the trust factor of customers and are expected to maintain the confidentiality of the data of
customers. Even if banks are sharing data it should be in concern with wellbeing of customers.
Customers are becoming very much concerned about value of their data and importance of
keeping it safe and secure

Banks in future are expected to build 360 degree view of their customers, not just because of
compliance and regulation but also for increasing value of services they offer to customers in
different forms.

How can Banks become trusted personal data banks by 2030.

Customers always trust banks and other financial institutions to protect their personal data
compared to any type of organizations. Banks will manage data and keep data of customers like
it does in financial aspects. On the other hand allowing customers to give standard instructions to
banks to share the data if they are of the opinion that it is beneficial and they can withdraw the
data if they feel it is risky to share is expected from banks. Banks may turn into trustable place
for customers to securely manage their data consent in all aspects of their lives. Survey results

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shows that more than half(52%) said that they trust their banks in concern with specifically to
protect their personal data.

Privacy will remain at paramount with customers being the ultimate owner of their data with
banks providing data consent management services to their customers. Banks can retain
customers trust by building customer confidence that they have things under control.

How traditional form of banking business will certainly disappear by 2030

reason being

4 important aspects that will lead to improved financial well being of wide range of customers

1. Data;-Data plays a major role in each and every aspect of life for each and everyone. When it
comes to consumer data it is very much important to all the sector of businesses. Banks should
make sure that its customers data is very much safe and is not misused at any cost. Big data
analytics will aid banks in understanding customer behavior pattern from the investment pattern,
shopping habits and other financial and personal information. Data plays a crucial role in
winning customer loyalty which helps banks to provide its customers with personalized and
better services.

2. Business models ;- As technological developments and innovations catch up, different kind of
business models are being developed for instance like shadow banks, investment banks, micro
finance banks etc.

3.Regulation;-Banking sector will require governments and regulating bodies to come up with
completely new ways to identify and manage risks, regulate activities being undertaken by a
broader range of participants and judged on the outcomes they deliver to customers. By 2030
regulation is likely to move away from product specific and focus much on activities and
outcomes of their activities.

4.Technology;-This is both the enabler and driver of change. We all have seen how technology
have a great impact to the financial services on industry over 10-15 years. Artificial intelligence,
block chain, 5g,cloud computing, internet of things,-All these aspects transforms both the nature
of services, as well as how they are delivered and consumed.

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Traditional boundaries within the financial services industry will disappear by 2030 with a move
towards platformication where this aspect provides customers to chose their personalized needs
from range of providers. On the other hand it also helps banks to provide services in accordance
with customer needs. The above mentioned goal will be achieved by new entrants like fntech
companies, neo banks, startup companies.

On the other hand fin tech will certainly plays a major role in behavior of customers because as
we all know now a days customers can do all their transactions sitting at their home which will
certainly have Impact on traditional form of business.Even with technological advancements
banks should make sure trust of customers are maintained at any cost.

TECHNOLOGY IN BANKING SECTOR

New regulator technology which are powered by AI will enable much more efficient and
effective supervision. This will make sure that banking services are more personalized. This will
ensure about increasing promising innovations and their benefits. In this particular article KPMG
identified eight technological advancements and developments that may have great potential
impact on bank and customer relationship by 2030.

Artificial and Machine Learning

AI and MI will automate the tasks concerning human intelligence, and analysis of immense
quantities of data produced by IOTwill be analysed and security will be done.

Block chain’-This aspect will decentralize the management of customer transaction data,and
block chain ensure that previous data cannot be altered and enforces transparency.

Biometrics;-passwords and pins will cease and more aspects like facial and voice
recognition,enabling constant,real time user identity validation and advanced behavior profiling

5G this super fast internet will have a capacity to reach around 1gb per sec downloads,which
will ensure the better user experience and delivery of services in real time.

Cloud computing;-this will remove the hardware burden of data storage and processing.

IOT;this aspect will gain the ability to connect to the internet and produce data in highly
personalized form in all aspects of lives of customers.

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Virtual Reality;-will allow banks to display rich information in the real world to help customers
to make decisions more effectively.

Quantum computing’-this helps in processing volumnous data which is made available through
IOT.

FUTURE CUSTOMER NEEDS OF 2030

Banks need to consider to individual customer desire for control and knowledge.

Customers will always need to save, borrow, invest and make payments with digital
advancements and financial literacy helping them find smarter and better ways. On the other
hand technology is likely to make traditional banks invisible.

 Customers want banking to be easy.

 Customers want personalized service
 Customers want responsive customer service
 Customers want them to be better understood.
 Customers expect great value for their financial products and services.

Our trust on technology will continue as it pushes into new creative innovations.

 Everything and everyone will be connected

 AI to power mass personalization
 Highly automated systems will instill trust among customers
 Products and services will be consolidated into one platform
 Digital currencies go from emerging market to mainstream
 Cyber system will be powered by AI to protect data

CONCLUSION;- From the study of above article it was very clearly evident that technology is
going to play major role in banking sector and how digitalization of banking sector will improve
the services provided to customers at large. In the article, it clearly speaks about how each and
every technological developments has positive impact on growth of banking sector and
improving its well being of its customers at large.

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REFERENCES

https://assets.kpmg/content/dam/kpmg/au/pdf/2019/future-of-digital-banking-in-2030-cba.pdf

https://cloudblogs.microsoft.com/industry-blog/financial-services/2017/12/07/the-top-five-things-a-customer-
needs-from-their-bank/

https://www.google.com/search?
q=different+and+innovative+business+models+in+banking+sector&rlz=1C1CHBD_enIN759IN759&oq=different+an
d+innovative+business+models+in+banking+sector&aqs=chrome..69i57.18390j0j7&sourceid=chrome&ie=UTF-8

https://www.google.com/search?
q=data+role+in+banking+industry&rlz=1C1CHBD_enIN759IN759&oq=data+role+in+banking+&aqs=chrome.2.69i57
j33l4.9693j0j7&sourceid=chrome&ie=UTF-8

https://www.helpnetsecurity.com/2019/04/26/consumers-trust-banks-most-with-their-personal-data/

https://www.google.com/search?
rlz=1C1CHBD_enIN759IN759&ei=07NZXp7tFseCyAPLwa_oDw&q=environmental+factors+affecting+banking+sector
&oq=environmental+factors+affecting+banking&gs_l=psy-
ab.3.2.0l3j0i22i30l3.109032.125000..128818...3.10..1.488.7937.1j28j10j1j1......0....1..gws-
wiz.....0..0i71j0i273j0i131j0i67j0i131i67j0i67i70i251j0i10.PmAgkiS79yE

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ARTICLE 3 DIGITAL BANKING TRANSFORMATION;-REDEFINE THE
BANKING CORE.

Published by INFOSYS in the year 2019.

Introduction;- Basically this paper tries to bring out the journey of banks towards
digitalization. This paper also explains how technology is applied in banking sector and what the
challenges banks are going to face in this process.The banking sector has come across
tremendous change over the past two decades. These transformations are clearly explained in the
article through focusing on the below discussed aspects.

1.USHERING IN THE DIGITAL TRANSFORMATION ERA;-

The first aspect is consumerism which took place in late nineties which was followed by
globalization and this ultimately led to new business models in banking sector. And in the next
few years concept of anywhere and anytime banking concept started playing major role in
banking sector. This wave was encouraging for prudent and paperless banking sector.

On the hand banks was challenged by fintech,and banks were enforced to cope up with digital
transformation. According to senior banking officials going digital means doing right,quickly
and with no error simultaneously enriching the customer well being and maintaining operational
cost.

THE BANKING TRANSFORMATION IMPERATIVE

No doubt that bank has come long way from traditional way of banking to digitalized banking
system. New technologies were adopted to bring new developed way of enriching the well being
of its wide range of customers. Banking sector was challenged with changing regulations and
statutory requirements.

Reasons why digital transformation is very important

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  Changing customer behavior pattern;-As all most all customers are technically well
educated and updated. they just do need to full fill their financial needs but also cater to
its complete financial well being and understand their needs.

 Emergence of Fintechs:-Emergence and Development of fintech companies lead banking

sector to cope up with the fintech companies innovation. For this goal to be achieved
banks need to be more well organized,more agile and efficient to survive.

 Legacy IT systems.;-With development of banking sector in digitalization aspects

customers expects quick access to products and services.So banks should make sure that
their IT system is al set to meet the needs of customers.

DIGITALIZATION HELPS BANKING SECTOR TO GET FOLLOWING ADVANTAGES.

 Increase in market share;-When banks not only just concentrate on providing with
financial services to its customers and concentrate much on improving their well being in
financial terms it will certainly increase the customer loyalty and which will lead to
growth of banks and expand theor market share.

 Rise in profitability:-As digitalization focus on cost cutting aspect which will certainly
have positive impact on Return on equity of banks. Digitalization aims at reducing
transaction costs.

HURDLES IN THE JOURNEY

 Fear of failure;-In banking sector when banks try to bring up new technological
innovations it is not always sure that changes are very easily accepted by management.
 Lack of execution capabilities:-According to the report which is mentioned in the article
it says that 36 percent of respondents feel that lack of talent is a big drawback and hurdle
for the banking sector.

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  Cocoon syndrome:- Some banks are happy with their present situstion and do not show
much interest towards development and adopting to changes. This mindset of banks is a
big hindrance for its growth in this dynamic economy.

HOW BANKS SHOULD OVER HURDLES

 Valuate the team’s strengths:- Management should evaluate the present strength and
weakness of employees and should have clear idea about its employees potentials
 Open candid communication channels:-Communication with multiple layers of employee
will helps everyone to understand the requirement of transformation.

 Compare with competitors;-Any bank for the matter should evaluate itself considering its
competitors performance, which will certainly helps banks to understand their strengths
and weaknesses.

Conclusion:-In the above article Infosys have clearly explained Journey of transformation of
banks towards digitalization, gives a clear picture about how banks face hurdles and how should
they manage with hurdles and move on with success.

References;-

http://www.dbr.shtr.org/v_1n2/dbrv1n2k.pdf

https://thefinancialbrand.com/71733/four-pillars-of-digital-transformation-banking-
strategy/

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