Banks’ customer interface raises questions

Recently, the State Bank of India obtained approval in principle from the RBI to establish an Operations Support Subsidiary (OSS), intended to improve operational efficiency. . Information and communication technologies (ICT) have rapidly changed the operating models of banks.

As assistance services become more and more centralized, bank branches are gradually being transformed into sales and service outlets. Staff workloads at some banks are reduced, with chatbots to respond to routine customer inquiries and robots deployed in branches to greet customers. Processing support – a standardized, well-formatted mechanical part of banking that normally does not require mental discretion – is increasingly confined to centralized back offices working on the hub-and-spoke model.

Such support started small with the process of opening an account, KYC verification via scanned documents, sending checkbooks, and assigning a PIN for debit cards. It now extends to personal and small business loan processing, wealth management and advisory services.

Different banks have adopted different back-office support models depending on their technology and means of processing. Some non-essential and one-time routine activities that do not have access to customer accounts are outsourced to reduce costs and improve efficiency.

Mixed models are also used in many entities depending on their competence, their activity and their customer profile. The focus on centralizing non-customer-facing activities should ultimately result in improved profitability ratios.

Scope of the OSS model

The transaction cost of banking services has three main components: (i) infrastructure—physical and digital; (ii) labor — own/outsourced; and (iii) the business process, including regulatory and compliance costs of services.

When adopting free software, the key enabler is technology and its integration with internal processes. Of the three components, even if infrastructure costs are assumed to remain constant in the short term, the biggest challenge is how to utilize the unavoidable downtime of resources – labor and technology – in the short term. to improve profitability while continuing to focus on quality customer service.

Creating an ecosystem for sharing resources between the different user services is the main challenge of any back-office model. Since activities can be sporadic in branches, it is difficult to create a full load of activity in supporting entities, resulting in idle resources – a drag on bank profitability.

The effectiveness of the OSS will therefore reside in the optimization of the deployment of resources in a short-term vision based on the sharing of resources, both human and technological. Since support activities will flow from different departments in the bank, employees will need to be prepared for multitasking.

In the long term, all forms of resources could be realigned with trade flows, but not as precisely as is necessary to bring resource waste towards zero tolerance. Although technology facilitates faster processing of transactions, the service side continues to be labor intensive. Therefore, achieving profitability is a challenging goal that requires the combined synergy of people, process, technology, and rapid business process reengineering (BPR) intervention.

The most difficult part of institutionalizing OSS will be identifying activities that could be centralized and executed more efficiently. OSS needs specific checks and balances and micro-controls to detect and mitigate nascent stage risks. Seamless digital connection of branch offices with centralized hubs and faster communication between them, including document exchange, will be important if these help desks are to function as an extended arm of the branch offices while operating from locations distant.

Banks with a fiduciary relationship with customers must rely on rigid encryption standards for data that passes from branches to the OSS and vice versa so that there is no compromise of information. It is therefore preferable that the basic activities of a bank be managed by its own employees. Supervision of the work of outsourced employees by bank staff may not be feasible. When OSS becomes a 100% subsidiary, the bank — the principal — will continue to be responsible for the actions of OSS.

Therefore, OSS employees cannot be gig workers. They need to be on track, accountable for their action in handling business and supporting branches as an outstretched arm. They must be trained, mentored, paid and assured of career growth like any other reputable established entity.

While going digital under OSS, banks will have to institutionalize appropriate methods to resolve grievances of customers who find it difficult to use the digital mode and fear cyber threats. Simultaneous efforts will be needed to invest in client education. Home banking services should be further enabled to serve older people who may have constraints in using banks’ digital services.

With the OSS model adopted by the largest bank, it will be replicated by other financial intermediaries in the future. The differentiated strategic approach to optimizing resources through the OSS model can potentially benefit consumers significantly. And it will depend on how operational risk is managed in the design and implementation phases.

The author is Adjunct Professor, Institute of Insurance and Risk Management, Hyderabad. Views are personal

Published on

July 13, 2022