DISTRIBUTION OF

BANKING
SERVICES

Types and Functions

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Functions of a Bank are as follows:Accepting deposits from Public

Lending money to public
Remittances/Collection Business
Keeping valuables in safe custody
Government business
Acting as trustee
Treasury services
Capital Market activity

Types of Banking
When we talk about banks, we are talking about several different types of
financial institutions, conducting different kinds of business. Some banks are
very large and carry out many different functions, others are more
specialized. Some have operated for hundreds of years and some have taken
on new kinds of business quite recently.
Not all banks carry out the same range of activities. Banking activities can
be generally divided into the following types:

 Central Banking
The duty of central banks is to maintain financial stability, otherwise a
country's economy will not operate properly. Central banks act as regulators
of their country's interest rates by controlling the amount of money in
circulation and buying and selling currencies. They amass reserves and act
as lenders of last resort, should another bank get into trouble. They exist as
a separate entity from all the other banks.

Retail Banking
Retail banks are the high street banks we are all familiar with. They take
deposits from individuals, provide saving facilities and pay interest on these
accounts. They also lend money to individuals, in the form of loans and
overdrafts, and charge interest on the money they lend. They provide a
range of other financial services.

Commercial Banking
Commercial banks, or divisions of banks, provide banking services to
businesses, from small companies through to corporate banking directed at
large corporations. They help companies raise finance to expand their
businesses and to maintain their cashflow by lending them money. They
provide a wide range of other financial services.

 Investment Banking
Investment banks distribute and underwrite (guarantee the sale of) share
and bond issues; they trade securities on the financial markets and advise
corporations on capital market activities such as mergers and acquisitions.
Investment banks originally developed in the USA and these banks have now
taken over many roles that were previously carried out by UK merchant
banks.

Universal Banks
Although some investment banks exist as separate institutions (in the United
States between 1933 and 1999 investment banking and commercial banking
had to be kept apart by law) in the United Kingdom, most larger
commercial/retail banks also have an investment section in the company.
The divisions work separately, as the work and knowledge required for each
division is very different. These very large banks are known as universal or
conglomerate banks.
However, there is now pressure from many governments to keep investment
banking separate from commercial and retail banking. If an investment bank
gets it wrong and buys the wrong commodities, they can lose vast amounts
of money and even go bust. Investment banking, if it goes well, can make
huge amounts of money. Unlike retail and commercial banking, investment
banking is a very high risk form of banking.

Products and Services offered by Banks

The different products in a bank can be broadly classified into:
Retail Banking
Trade Finance
Treasury Operations.
Retail Banking and Trade finance operations are conducted at the branch
level while the wholesale banking operations, which cover treasury
operations, are at the head office or a designated branch.

Retail Banking:
Deposits
Loans, Cash Credit and Overdraft
Negotiating for Loans and advances
Remittances
Book-Keeping (maintaining all accounting records)
Receiving all kinds of bonds valuable for safe keeping

 Trade Finance:
Issuing and confirming of letter of credit.
Drawing, accepting, discounting, buying, selling, collecting of bills of
exchange, promissory notes, drafts, bill of lading and other securities.

Treasury Operations:
Buying and selling of bullion. Foreign exchange
Acquiring, holding, underwriting and dealing in shares, debentures, etc.
Purchasing and selling of bonds and securities on behalf of constituents.
The banks can also act as an agent of the Government or local authority.
They insure, guarantee, underwrite, participate in managing and carrying
out issue of shares, debentures, etc.
Apart from the above-mentioned functions of the bank, the bank provides a
whole lot of other services like investment counseling for individuals, shortterm funds management and portfolio management for individuals and
companies. It undertakes the inward and outward remittances with
reference to foreign exchange and collection of varied types for the
Government.

Banking Services at a Glance

Banking covers many services, these basic services have always been
recognized as the hallmark of the genuine banker. These are
The receipt of the customers deposits
The collection of cheques drawn on other banks
The payment of the customers cheques drawn on himself
There are other various types of banking services like:

Advances Overdraft, Cash Credit, etc.

Deposits Saving Account, Current Account, etc.

Financial Services Bill discounting etc.

Foreign Services Providing foreign currency, travelers

cheques, etc.

Money Transmission Funds transfer etc.

Savings Fixed deposits, etc.

Services of place or time ATM Services

Status Debit Cards, Credit Cards, etc.

Distribution of Banking Products and Services

Starting with the 90s, retails banks have faced several challenges. One of the most
important challenge of a bank is how to efficiently reach the customer, with the
right product or service, at the right time. Today, they can choose between
branches, contact centers, ATMs, online channels, portals and web banks.
Multichannel banking is, therefore, more relevant than ever. Multichannel banking is
more than just offering multiple channels, but offering integrated channels, with the
optimal balance of services, prices and offer across channels. Banks should have the
ability to deliver the right service at the right time in the right channel.

Retail bank distribution 2015Full digitalization with a

human touch
The digital transformation of retail banking has so far taken place in two stages but
the most exciting and groundbreaking one is only just starting. As a result banks will
have to make changes to all their distribution channels. We believe that the key
developments will be as follows:
Branch networks will be radically transformed into sales and advice outletsthey will
be 20 percent more productive than today and their costs will be up to 50 percent
lower.

Digital channels will be designed to create a wow experience for the user,
thereby capturing these channels full sales potential (more than 20 percent
of all product sales at the moment start with an online enquiry or
investigation)
Call centers will become a profitable, professional channel in which video
technology is increasingly used. As a result 15 percent of service requests
will typically be converted into sales.
Banks will manage these different channels so that service from the
customers perspective is seamless and end-to-end and from its own
perspective it captures sales that are currently being lost.
Minimum amount of all product sales that start with an online enquiry or
investigation.
Without decisive action, banks risk being stuck with an expensive and
inflexible distribution set-up. To start the journey, top management should
look at metrics and governance in a less branch-centric way and should
launch a series of multichannel mini-transformations both within and across
the different channels.

An overview of retail bankings distribution transformation

1980-2000 Digitalization of payments: In this period ATMs, cards and tele-banking
replaced paper-based payments as banks sought to capture new cost saving
opportunities and reach customers previously excluded from the mainstream banking
system. All banks have now completed this part of the journey.
2000-2010 Digitalization of basic banking: Over the first decade of the 21st
century most customers started being able to access their banks remotely 24/7 for
the bulk of low-value added activities. Benefits included greater convenience for
them and further cost efficiencies for the bank. This part of the journey is not yet
complete but most European players are well advanced along the road.
2010-2015 Full digitalization with a human touch: Banks are only just beginning to
provide the ultimate client experience, namely digitalization of sales and after-sales
service combined with continued face-to-face interactions for the more complex
products. Thanks in part to the development of mobile banking, sales of products
either transacted online or influenced by online marketing are expected in the
medium term to grow to the point where they represent roughly 60% of the total.
In the following chapters we will discuss whats involved in the third part of the
digital journey, as well as how a bank can make the transformation happen.

Distribution in banking
A distribution channel is a route to the market for a supplier. In the case of a bank,
the distribution channel is the way the banking product or service takes from the
bank to the customer.

Types of distribution channels

1.

Branches

These are the face of the bank and the place where the client meets the bank. The
distribution is made by the traditional counter. The banks president is far away and
not always known to customers. However, the client manager is close, he advises,
listens to the client, makes clients financial life easier790.

2.

Specialized branches have been created

as an alternative for the

classic branches. These specialized branches are focused on a certain type of activity
such as: operations for individuals, for small business or for corporate clients. Banks
have opened such branches in supermarkets or malls. The main reason for
establishing such branches was to have a close relationship with these corporate
customers and to provide services of interests for their clients. Their primary
activities are the consumer loans and basic operations for individuals (payments,
foreign exchanges etc.). BRD-GSG, ING Bank were the first banks to open such
branches in Romania.

3.

Among the specialized branches, we can also mention: the mortgage branches
whose focus is on selling mortgage loans. Raiffeisen Bank created such a branch
named Raiffeisen Casa Ta as a result of the high demand for mortgage loans
and the complexity of these products.

4. Self banking branches were first created by ING. These branches have two
areas: one where the customers are served by bank employees (usually 3 or 4
persons) during the normal working hours and one where the customers can use
self banking devices. These can be used all day long (24h/24, 7 days/7). Here,
the clients can make deposits, payments, cash withdrawals, invoice payments,
repayments of loans installments. BRD-GSG, RBS have also created such self
banking branches.

5. Mobile branches were first used by Raiffeisen Banca pentru Locuite. The bank
did not have a branch network and the products were delivered by the help of
sales agents. The bank started a banking caravan which reached the most
important cities in Romania. The aim of this caravan was to promote and to sell
the banks products. These branches had a rapid installation (2 weeks) and can
be easily relocated to another place (if necessary). The opening hours were 2-3
days/week, 3-4 hours/day.

6. Banking cafes were first settled in Romania by Banca Transilvania. The banking
cafe is the result of a partnership between a bank and a cafe. The branch that is
located in a cafe can offer a full range of products and services. This concept was
later developed by ING, Volksbank, BRD.

7. Direct mail is another distribution channel for banking products and services.
The aim of delivering the banking products and services by mail can be, not only
just simply informing the clients about a new product but also convincing the
client to buy a certain product. The main advantage of delivering by mail is the
fact that the bank can promote its products and services to a certain segment of
clients. In this way, the bank can target a certain group of clients in order for the
message and products to be tailored accordingly.

8. Automatic teller machines (ATMs) were first introduced in Romania in 1995.

ATMs have been rapidly moving from just a cash-dispensing machine to a selfservice banking channel. ATMs can increase the marketing potential by providing
services to clients in others places than the bank branches. ATMs are an
alternative for crowded desks in branches. The clients appreciate the userfriendly feature of ATMs , the large number of operations that can be done
through ATMs, the speed and the security of these devices and last but not least
the theoretically unlimited availability of ATMs.

9. EFTPOS (Electronic Funds Transfer at Point of Sale) is a payment method

that can be described as a distribution channel. EFTPOS is a system by which the
clients pay the services they acquired just by using a bank card. This system is
very used when shopping, travelling, buying tickets. The client has the
possibility of choosing from a large variety of channels: phone, ATM, POS,
Internet. Martini banking is a new form which signifies the presence of the
banking products and services, anywhere and any time.

10. Call centers - Raiffeisen Bank was the first bank to start up a call center in
Romania in 2004. Up until that moment, the only possibility to contact the bank
by phone was through the branches numbers. The only dedicated phone-line for
a bank was the one related to card problems. Through call centers, all the
information is received for free and one client can choose from a large range of
services. The most important issue is to ensure the security of this service.
Nowadays, the call centers are used as a marketing tool.

11. Internet banking. The Internet-driven information revolution is widely seen to

be transforming the way both business and consumer operate. The Internet
became a distribution channel by providing an entire range of services:
payments, information about account balances. The Internet is also a tool for
acquiring new clients by online applications for different products.

Innovation In The Banking Industry

Biometric ATMs
These ATMs use the finger print of the card holder or eye retina scan as a PIN for verification purpose
Banks are more focused to put these ATMs in rural areas because biometrics makes it possible for the low literacy
population to use banks

M-Pesa
M-pesa is a mobile-phone based money transfer and micro financing service, which allows users with a national ID
to use their money easily with a mobile
Vodafone is expected to launch M-pesa in India, in association with ICICI & HDFC bank

Plastic Money
Plastic money, cash cards, credit/debit cards and polymer notes will boom as the e-commerce space boom in
India and people get used to the idea of carrying less cash
Many cards have a micro chip embedded in them which makes it a transit card also

Virtual Banking
This technology will have a deep impact on the lives of professionals who believe in the life-on-the-go approach
A user can have access to his/her bank accounts at a nominal cost and at a fast speed from anywhere in the world

Retail banking - challenges ahead in distribution

channels in urban/rural India
The promise of lower transaction costs, increased sales productivity, and more
convenient service has lured banks into setting up new delivery channels. Earlier,
vast brick and mortar branch network has been considered as an inherent advantage
of established banks and new entrants were at huge disadvantage. The goal for
banks senior management is to turn todays all things to all people branch
network into highly differentiated system for delivery of multiple products. These
can come in many forms, but at their most basic they entail understanding customer
needs for the delivery of different products, how these needs vary by customer
types, current customer behavior, and customer profitability. It is this multifaceted
understanding of customers that yields actionable implications for distribution
strategy.
The steps to be followed in making a new distribution channel successful:
a) Understand customers current channel/transaction behavior and their
underlying attitude;
b) Use sophisticated experimental customer research to assess the economic
impact of tactics designed to change that behavior;
c) Develop an integrated channel migration plan which blends economic and noneconomic incentives to ensure that right initiatives are targeted at the right
customers;

d)
e)
f)

Protect sales effectiveness by utilizing the ability of non-branch channels to

select amongst prospects and differentiate the marketing message;
Design non-branch channels to emphasize personalized interaction to counteract
decreased loyalty among remote customers;
Develop tracking mechanisms to allow you to assess and revise your migration
strategy on an ongoing basis.

Turning our attention to delivery channels used by banks in India, in comparison with
their international counterparts, it is observed that the banks are yet to exploit the
delivery channels to the maximum extent technology permits. Increase in off-site
delivery channels has led to new product development, speed of transaction
processing and reduction in transaction costs. In India the major issue about new
technology related delivery channels is their impact on the processing of
information, which lies at the core of banking business. Inspite of their advantages,
reliance on technology based delivery channels often exacerbates traditional risks:
operational risk, reputational risk and legal risk, besides emergence of other risks.
ATMs still remain the most successful delivery channel followed by internet banking
and Telephone banking.

Distribution Network of various Commercial

banks in India
1. HDFC Bank
HDFC Bank is headquartered in Mumbai. As of June 30, 2015, the Banks distribution
network was at 4,101 branches. All branches are linked on an online real-time basis.
Customers across India are also serviced through multiple delivery channels such as
Phone Banking, Net Banking, Mobile Banking and SMS based banking.

2. ICICI Bank
The Bank continued to leverage its strengths in the use of modern banking
technology to further improve its customer service. Initiatives in this regard included
launch of new products, such as bank@campus for students and kid-e-bank for small
children. Both these products are web-enabled and offer many innovative and
attractive features to the target customers. The Bank's web-enabled credit cards
launched during January 2000 have received a good response.
The Bank has concluded arrangements with various service providers and along with
other companies in the ICICI group, offers its customers a suite of banking and utility
products through the Internet. Towards this end, it provides a whole range of
services under B2B, B2C, mobile banking, etc.

Network expansion
During the quarter, the Bank crossed two milestones by opening more than 100 offices
and installing more than 200 Automated Teller Machines (ATMs). During the first
quarter, the Bank expanded its distribution network by opening 4 branches and
installing 33 additional work-site and off-site ATMs. As at June 30, 2000, the Banks
physical network consisted of 85 branches and 16 extension counters. The Bank had
208 ATMs the largest network of ATMs in the country - spread across 49 centres in 17
States and Union Territories. This physical distribution network is complemented by
other technology driven delivery channels such as web-enabled kiosks, call centres,
mobile phones and the Internet.

3. Central Bank of India

Among the Public Sector Banks, Central Bank of India can be truly described as an All
India Bank, due to distribution of its large network inall 29 States as also in6 out of 7
Union Territories in India. Central Bank of India holds a very prominent place among
the Public Sector Banks on account of its network of4695 Branches,4 Extension
counters,along with29 SatelliteOffices (as on May 2015)at various centres
throughout the length and breadth of the country.

Conclusion
As we could see, most banks operate through various distribution channels. The
expectation was that customers would eventually conduct most of their business
online or by phone. However, current studies suggest that customers still prefer
the branches. Over the last decade, banks have made considerable investments in
the development of services that are not based in the branch. (this has led to a
dramatic increase in the use of Internet and mobile banking, whilst the role of the
ATM has also increased). Multichannel banking is, therefore, more relevant than
ever. Multichannel banking is more than just offering multiple channels, but
offering integrated channels, with the optimal balance of services, prices and
offer across channels. Banks should have the ability to deliver the right service at
the right time in the right channel. The bank should define exactly how they are
going to use each channels, which services and products in which channels, how to
mix and integrate the channels and how to support the channels. To do this, they
need to understand customer behavior, channels performance and the channels
operating cost. However, managing and integrating the distribution channels within
an increasingly complex and challenging operating environment has become very
difficult.