Indian Banking Giant

I: Your client is an Indian Banking giant, that is facing a decline in profit for the last 6 months. Analyze the problem and provide recommendations

C: Great, so before going forward I would like to understand the company a little more. Which sector of banking does it operate in?  Is it private or public?

I: It is a national private bank with a presence all over India. 

C: How much is the decline in profit? Are the competitors facing a similar decline? Is there any regional bias in profitability?

I: It is seeing a 5-10% decline in profit across India and competitors are in fact seeing an increase in profits.

C: I think I have enough information to break down the problem. Let us look at the revenue and costs of the company to isolate the problem.

I: The costs have been constant, but the client is seeing a decline in revenues.

C: Great! Banks typically have retail and commercial segments. Is this same for our client ? If so, which segment is facing the decline ?

I: Good approach, the client has both segments and is facing decline in retail segment.

C: We can divide revenue from the retail segment into fee-based, interest-based, and investments based. We can look at each segment one by one to see.

I: We can look at interest-based streams of revenue first. In particular, short-term loans.

C: Okay, in short-term loans I understand we have personal loans, credit cards & EMIs. Am I missing any segment? 

I: No, this is pretty comprehensive for retail customers. Our client is seeing a decline in revenues from credit cards.

C: Great! I would like to break revenues from a credit card into a formula –
Rev = #of credit cards x % Utilization x Value Per Credit Card
Am I missing any components? If not, I would like to dig into each component to see where we are seeing a decline.

I: No, the formula is good. We are seeing a decline in # of credit cards in circulation.

C: I understand number of credit cards can be divided into new cards issues + old cards still in circulation. 

I: Correct, so we have no problem selling new cards, but our churn rate of older cards is very high when compared to our competitors.

C: That is interesting. So, I understand there can be either a supply or demand issue. But I feel since we are able to sell new cards, it is not a supply issue, and would like to focus on the demand side.

I: Good observation, go ahead.

C: So, I understand demand could further decrease because of either competitor action or customers simply going out of the credit card system. However, since our competitors are seeing an increase in profit, I would like to rule out the second and focus on the first.

I: Go ahead.

C: Okay so we can break down the decline in demand due to competition further into need, accessibility, awareness, affordability, and customer experience. But since we are seeing an increase in new credit card acquisition and an increase in churn rate, I think there is a problem in customer experience and would like to focus on it.

I: That sounds good, go ahead.

C: I would like to break customer experience into pre, during, and post-usage. 

I: Okay, you can look at post-usage experience.

C: Okay so in post-usage experience, I would think of the renewal of cards. I would divide that into awareness of the renewal process, the process of renewal, and pricing issues. 

I: Great. So, we have recently changed our mode of notification due to which customers are not aware of their renewal deadline and thus miss out on it. Why don’t you suggest some solutions?

C: That’s good. Before going ahead with solutions, I want to know more about the change in the notification. Was it an internal issue from our side or some external change like privacy regulation or OS update on devices

I: Great you asked but we don’t have data on that. You can focus on the solutions.

C: Okay so I will look at multiple factors. In the short term, we can change the renewal period so that more people get more time to respond. Secondly, the client can add permission settings or add renewal alerts to the monthly billing reports to increase awareness.

I: Okay that’s enough. We can end the discussion.