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A LOOK AT BANKING'S BEST PRACTICES AROUND THE GLOBE
-CARL LOBUE

When taking a global perspective of cultural norms, innovation and consumers' growing sophistication about financial services, one is quickly impressed by the range of innovative solutions to banking dilemmas of the 1990s. It is fascinating to observe the migration paths of banking's "best practices" across borders and cultural divides. Clearly, the developed economies hold no patent on best practices in banking and financial services. We find them everywhere, all sharing a common thread-focus on the customer.

Customer focus-not the level of technology-is the tie that binds these practices and products from around the globe that we rank among banking's best. In addition, best practices are not limited to one sector or department of the bank or financial services organization. An institution with a corporate culture that focuses on meeting customer needs in a rapidly changing market place will deliver quality solutions to its customers-all within a flexible corporate structure that fosters innovation for all the right reasons. Our criteria for judging these programs worthy of the "best practices" label are simple and straightforward:
1) They support the organization's business strategy.

2) They position the organization as number one or two in the target market with a particular product or service. (Of course, as the pace of change accelerates, companies find that such competitive advantages have an increasingly short life.)

3) The program or product adds unique value to the customer, thereby creating a market niche. We've identified a wide range of products and services that meet those criteria. Some solutions employ the latest high-technology, but many do not. Often, a best practice is decidedly low-tech. Frequently, it's specific to the local marketplace, reflecting customers' needs and wants. Our list ranges from air-conditioned lobbies in tropical climates, longer service hours and on-site student facilitators to help customers navigate new technology to new systems that border on artificial intelligence. Most focus on best practices in the distribution of bank products and services, while several touch infrastructure issues.


"Customer focus is the key to best practices, enhanced by a touch of management humility."

BEST PRACTICES-INFRASTRUCTURE
  Infrastructure is usually the first frontier for the adoption of a "best practices" approach to banking because it's the least visible to customers. It's possible to introduce a major change in procedures or systems, resulting in lower costs and improved services, without directly impacting how the customer does business with a bank.

Of course, customer focus is key to developing infrastructure changes that yield real benefits to the institution and its customers. Too often, banks and other institutions jump on the latest technological bandwagon, intending to improve their back-office operations. All too often, they find themselves with a hefty capital investment that makes little impact on either the bottom line or market share, all because customer focus was missing from the original equation.

Here's a look at three infrastructure issues that rank (or have the potential to rank) among banking's best practices around the globe.

Beyond Outsourcing MIS (multinational banks). Like many sprawling businesses, some multinational banks operate with a crazy quilt of computer hardware and software, sometimes the fallout from mergers, frequently the result of individual and departmental preferences. At first glance, outsourcing the upgrading and servicing of such systems sounds neat, clean and cost-effective. In fact, it may be more cost effective for the institution to invest the time, talent and dollars to develop a solution before determining if implementation and maintenance should be outsourced.


Such an approach will pay long term dividends because the institution:

1. Won't outsource the inefficiency of its current environment,
2. Will have workable MIS processes and system criteria in place before making any decisions on system upgrades and/or outsourcing, and
3. Will be better positioned to manage its vendor relationship if outsourcing is the eventual course of action; in-house managers and controls are more likely to drive for continuous improvements in the MIS operations than is a vendor.

Whether the MIS function stays in-house or eventually is outsourced, the business rationalization effort should yield more efficient processes that benefit the institution's bottom line and contribute to continued improvements in customer service and product development.

Imaging Systems: Approaching Positive ROI (England). More than a few bankers are Justifiably skeptical about the benefits of imaging systems. They've invested heavily in them and seen returns only in peripheral activities such as check processing and signature verification. Most benefits we've seen from image processing can be attributed to streamlining the process before the introduction of the new technology.

However, a bank in England is approaching a positive ROI in this field because it first reengineered its workflow before introducing an optical disk system six years ago. Once an image (check or document) is captured on disk, the paper trail stops and the electronic takes over. All correspondence and documentation is handled through imaging. As a result, the bank has reduced document turnaround time, improved customer service and maintained a more competitive fee structure.

For imaging, we believe the greatest potential-in terms of cost savings and measurable customer benefit-lies in document-intensive banking products, such as mortgage applications and trade finance.

Credit-Scoring Systems Approach Artificial Intelligence (North America). Credit-scoring systems tied to individual credit histories have evolved into systems that combine behavioral scoring based on individual attributes cross-matched against current economic events. These "intelligent" systems are designed to gradually rein in credit limits in times of economic weakness or downturn. Such systems continue to be tested in North America, and it's only a matter of time before they will be upgraded to permit sequential loan underwriting and enhance cross-selling efforts.

The infancy of credit data base services is one impediment to the introduction of such programs in many emerging economies, but already some major credit research companies are moving into areas where demand for consumer credit is growing with the local economy. Such systems offer positive benefits for the provider, the customer and the local economy because they manage the provider's risk with fewer constraints on the marketing of credit products, thereby making it easier for many consumers to establish credit or raise their credit limits, thus helping fuel local economic growth through consumer demand for goods and services.


"Often, a best practice is decidedly low-tech."

BEST PRACTICES-DISTRIBUTION
  Now we turn to best practices in distribution channels, where the customer often is aware of-and initially disenchanted with - "improvements" in his/her banking services. Here again, customer focus is the key to best practices, enhanced by a touch of management humility. We'll cite some decidedly low-tech best practices, many designed to ease the customer's transition to a new delivery system such as ATMs. These banks' low-cost investment in customer-friendly tactics accelerated the conversion cycle for new technology.

ATMs in Singapore & India; Quick Deposit Systems in Argentina. Singapore's sophisticated population demands-and gets-sophisticated, convenient service from its ATMs that goes far beyond the funds-transfer capability readily available in the U.S. Customers can and do buy securities, transfer funds between single and multi-currency accounts, and pay bills through ATMs. Customers benefit from convenience while providers benefit from cost-effective payment systems and fee income.

In India, customer focus was key to a bank's successful launch of an ATM program. The bank added air conditioning to its ATM lobbies (a local-market first) and it found a cost-effective, yet personal, way to ensure success of this low-touch technology. Initially, few customers were using this bank's freestanding ATMs. So the bank hired college students to facilitate use of the machines. For a relatively small investment over several months, the bank increased the velocity of use of its new ATMs, significantly shrinking the payback cycle for the new technology. Meanwhile, customers directly benefited from increased convenience and comfort while enjoying indirect benefits associated with controlling operating costs and limiting customer fees.

A similar low-tech, high-touch approach was adopted by an Argentinean bank introducing quick deposit drops for retail customers. Again, user-friendly, on-site customer education was the key. During an introductory program, this bank assigned staff to assist customers using the new systems-a simple solution, yet highly effective in shortening the adoption cycle for new services and procedures. In fact, we find overseas institutions much more willing to invest in up front customer education and facilitation than their U.S. counterparts, whose take-it-or-leave-it attitude may be one reason some banks' most desirable customers are leaving the fold, taking their business to non-bank competitors.

Forex Machines: A Global Phenomenon Where Technology Meets Customer Demand. Meanwhile, in Western Europe and most major overseas commercial hubs, the ATM as foreign exchange agent is almost taken for granted. Ten years ago, credit cards and travelers' checks were the currency of choice for travelers. Five years ago, ATMs as foreign exchange machines began appearing in major market airports. Today, they've made the leap from airport locations to city streets in many overseas destinations. In the U.S., such machines are only beginning to make an appearance, most often in airports in Western cities that draw travelers from the Pacific Rim. At such facilities, few long-term banking relationships are built. But these forex customers are willing to pay for the convenience, and the institutions generate fee income with a stronger ROI than their predecessors, the "bureaus de change."

Increased Market Share Through Longer Hours, the Introduction of Universal Tellers and a New Approach to Lobby Design (Middle East). Anticipating the introduction of longer hours by its competition, a Middle Eastern bank chose to examine its entire product distribution system to determine if it not only could lengthen its hours without disrupting its workforce, but also create a more customer-focused institution. The answer was a resounding "yes."

At the time, standard banking hours were 8 a.m. to noon, with employees ending work at 3 p.m. By streamlining back office procedures, this bank was able to stay open until 2 p.m., while maintaining a 3 p.m. "quitting time." The bank had a significant market advantage, since most competitors could stretch their hours only until 1 p.m.

The change effort did not stop at restructured work processes and longer banking hours. The bank lobby was redesigned, with desk space for loan officer and customer service representatives relocated up front, while the teller stands were moved to the back of the floor. Every time a customer came in to visit a teller, that customer was introduced to the bank's full array of products. (A typical floor plan in the U.S., perhaps, but not in many other countries.) Finally, the bank created a universal teller system, making banking a more efficient, convenient task for both business and retail customers. The bank launched a campaign to inform the market about its improvements, and not surprisingly, its deposits, loans and market share grew.

This bank's initial dilemma over "bankers' hours" may have a familiar ring to those who witnessed a change in U.S. bankers' hours 20 to 30 years ago. Back then, staffing a Saturday morning operation required closed lobbies on Wednesday afternoons to accommodate the 40-hour work week. Consumer demand, flexible staffing and revamped back-office procedures quickly made those Wednesday afternoons a banking relic.

Whether we're talking the Middle East or the U.S. Midwest, both situations reinforce the notion that "best practices" are relative to the markets where the institution operates.

Almost Checkless Societies (Europe, especially the Benelux Countries). It is standard operating procedure for Europeans to pay a variety of bills through ACH systems at their neighborhood branch bank. In fact, they don't even need an account at the corner branch to facilitate these ACH transactions. Such ACH payments are not the automatic monthly electronic fund transfers for a mortgage or a utility bill that have growing acceptance in the U.S.

In Europe, the customer controls the timing and the amount of the payment, providing a teller with an ACH form. There the paper stops, eliminating check-handling on the part of the corresponding business, its bank and the return of a paper check to the customer's bank. Customers retain control of funds disbursement, merchants reduce processing time and receive payment more quickly, and the banks for both merchant and customer reduce handling costs.

The U.S. ACH system is capable of offering such service, but by and large, U.S. banks are now skipping this step, moving directly to banking and bill-paying by telephone and PC.

Credit Cards as a Retail Market Leader (Asia, Middle East, South America). In emerging economies where consumer credit had been almost non-existent due to cultural norms, banks are using credit cards to create a retail base of business. The aggressive introduction of "easy" credit in such economies has risks, but anticipated losses of 10% to 20% may be no more expensive than an aggressive marketing campaign. As consumer appetites for material goods and services catch up with the economy, these banks should be well positioned to build consumer deposit and loan business from the initial credit card relationship.

In Venezuela, technology provided one major bank an enormous, but short-lived, marketing advantage. This bank introduced credit cards carrying the customer's photo identification, a successful answer to credit card fraud problems in many emerging economies. Local competitors were running scared, worried about losing market share. But soon they were able to offer similar products. Whether they purchased or developed the capability on their own made no difference to the marketplace. The large competitor had a market advantage and built share, but with a much smaller window of opportunity than anticipated.

Telephone Lending Programs (U. S.) and Telemarketing Programs (South America). Telephone lending telescopes the consumer loan process into a single event, involving only one phone call from the customer and a single point of contact at the lending institution. This requires the person answering the phone to make the credit decision; it leads to decisions in 20 minutes or less. The end result: Additional loan volume processed cost-effectively for the bank and conveniently for the consumer. A by-product is that customer good will fosters a more successful cross-selling environment. In South America, a concerted telemarketing effort by a major money center bank relies on leads developed from the third-party checks it processes. It costs about 25% less to generate a new demand deposit account through the phone center than through telemarketing departments at the branches.

In both locations, the customer enjoys a variety of conveniences - handling all account transactions by telephone or ATM, frequently with the new account materials delivered directly to his or her workplace. This customer doesn't have to leave the office (or home) to handle formerly time-consuming banking transactions.

The next logical step for such systems is an upgrade to expanded programs allowing the bank to immediately offer this prospective customer a wider array of bank products, such as a home equity loan, a car loan or a revolving line of credit. Such programs currently are being tested in select U.S. markets.

Beyond new loan application systems, what does the future hold for such telephone-savvy banks? A growing share of the financial services business, if they remain open to non-traditional, customer-friendly avenues of product distribution such as home computers and the Internet.

As one investigates banking activities around the world, it becomes evident that best practices can be found from Istanbul to Brussels, from Singapore to Chicago, and from New Delhi to Buenos Aires. In fact, best practices can be found anywhere that bankers focus on customer needs and wants, with back and front-office agility, market savvy and competitiveness.

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