Luận văn thạc sỹ - Improving retail banking distribution BIDV

Subject: Improving retail banking distribution channels at Bank for
Investment and Development of Vietnam

INTRODUCTION

Rationale
Customers, competition and technological advances are rapidly changing the
landscape of the provision for financial services globally. Customer
requirements, current and anticipated preferences need to be centre of the
banking/financial services experiences. One of that is to allow the customers to
have choice of how, when, where they can interact with the banks. Customer
interactions need to be increasingly accessible, efficient and simple, tailored to
individual requirements and trustworthy. Recently, these market drivers are
rapidly transforming the retail distribution landscape for banking services from a
branch-dominated paradigm to one of integration and balance among multiple
channels.
Owing to deregulation, new technology and changing customer behavior,
competition in Vietnam banking sector is getting fiercer. The intensified
competition recently, especially in retail banking has resulted in a number of
banks, specifically Joint-stock commercial banks (JSCB) like Asian Commercial
Bank (ACB), Techcombank, Sacombank, etc have already launched some stateof the art distribution channel like on phone banking, internet banking, mobile
banking, call center, act. These new changes in banking channel strategy of JSCB
has more and more impact on State-owned commercial banks (SOCB) like BIDV
in the battle for customer as well as for growth and future of banks.
Bank for Investment and Development of Vietnam (BIDV) founded in 1957 is
one of the 4 biggest states – owned banks in Vietnam. Its main customers are
large state owned companies with project finance and long term loan and SMEs
for other banking services. Therefore, its core businesses are fund mobilization,
lending, guarantee, agent banking, etc. However, starting from 2005, realizing
the increasingly importance of banking services to the stability development of
the bank in common as well as retail banking in specific, BIDV is in the change

its direction from focusing mainly on wholesale banking to promoting retail
banking. Recently, BIDV has set up its objective to become one of 3 leading
banks in retail banking in Vietnam in 2015.


The branch presently dominates BIDV’s distribution approach. It has a
nationwide network of branches with vast coverage of around 108 branches and
more than 200 face-to-face transaction points. Almost all these branches are full
service ones which offer an entire range of products and services under the BIDV
umbrella. Other methods of interaction such as ATM network, POS play not very
important role in delivering financial services to customers. Other remote
channels such as Internet banking, Mobile banking, etc are just emerging in
BIDV. Up to now, the retail banking distribution channels in BIDV are
insufficient, not good enough to serve even more and more demanding
customers. That might be a greater problem in case they would like to become
one of 3 leading banks in retail banking in Vietnam in 2015.
When studying about the changes in retail banking distribution channel
landscape globally and nationwide, as an officer of BIDV with responsibility to
study, propose and implement some new channels for the bank, the author would
like to choose the topic for the final thesis “Improving retail banking distribution
channels at Bank for Investment and Development of Vietnam”. The author hopes
that the results of this research would bring useful suggestions for BIDV in
developing optimal retail banking distribution channels.
Objectives and research questions
The objective of the study is to examine the changes and trends of retail banking
distribution channels recently as well as best practices in developing retail
banking channels; analyze the current situation of retail banking distribution
channel development at BIDV. In doing that, the study also identify some
problems in BIDV’s retail banking distribution channel development and propose
suggestions and recommendations for the successful setting up and implementing

an optimal retail banking distribution channel at BIDV.
Here come the research questions (specific objectives):
(i)

What are the changes and trends in retail banking distribution channel
development recently? What are the best practices in developing these
channels?

(ii)

How is the situation in BIDV?

(iii)

What BIDV should take into consideration to improve retail banking
distribution channels in the coming time in order to reach its desirable
objective?


Scope and limitation
The author limits the scope of study in BIDV retail banking distribution channels
from 2006 up to now.
The thesis deals with retail banking distribution channel management in term of
customer’s perspective instead of trying to analyze as well as give out proposals
related to commercial management of these channels.
Research methodology
To conduct the analysis in preparation for this final thesis, intensive data
collection has been carried out to categorize primary and secondary data for the
research:
Primary data includes official data and findings, reports published by BIDV

related to banking channel management.
Besides the above source of information, the author conducted some in depth
interviews with BOM of BIDV, the head of some departments at BIDV who are
in charge of channel management to explore different views and interests in
banking channel management.
Secondary data on the other hand is extracted from the World Wide Web and
from the reports published by some international institutes such as McKinsey,
IBM, Capgemini, Boston Consulting Group, etc as well as from the domestic
journals.
Structure of the thesis
The thesis will aim at pointing out some problems and propose suggestions,
recommendations for improving retail banking distribution channels at BIDV in
coming time. Apart from the Introduction and Conclusion, the content of the
thesis consists of three parts as follow:
Part 1: Theoretical background of retail banking distribution channels.
This part goes through the overview of retail banking activities and then
discusses retail banking distribution channels. The thesis mentions from the
evolution of such kinds of distribution channels to its changes, recent trends
globally, its practices for best retail banking as well as some considerations the
channel managers should pay attention in retail banking distribution channel


management. This part places the ground for the author to look into BIDV
current retail banking distribution channels in the journey to point out its
problems.
Part 2: Current status of retail banking distribution channels at BIDV.
This part will assess and discuss retail banking distribution channel development
at BIDV. This starts with the current status of retail banking and retail banking
distribution channels in Vietnam to give the reader an overview of the whole
playing field in which BIDV is operating and ends with pointing out all problems

related to retail banking distribution channel management as well as its
limitations for each specific channel (branch, ATM system, Internet banking,
Mobile banking, Call Center, etc).
Part 3: Some suggestions and recommendations for improving retail banking
distribution channels at BIDV.
Based on assessment from part 2 of this thesis, the author gives out some
suggestions as well as recommendations for some critical problems in retail
banking distribution channel development and management at BIDV in the
coming time in order to reach its desirable objective as the first retail bank in
Vietnam in 2015.

CONTENTS
Subject: Improving retail banking distribution channels at Bank for
Investment and Development of Vietnam.................................................1
INTRODUCTION.......................................................................................1
ACKNOWLEDGMENTS...........................................................................6
EXECUTIVE SUMMARY.........................................................................8
.....................................................................................................................11
ABBREVIATION......................................................................................12
LIST OF FIGURES, TABLES AND CHARTS......................................13
CHAPTER I...............................................................................................14
THEORETICAL BACKGROUND OF RETAIL BANKING
DISTRIBUTION CHANNELS................................................................14
I.1.Retail banking distribution channel overview.....................................................................14

I.1.1.Retail banking and retail banking market.............................................14


I.1.2.Retail banking channel.........................................................................15
I.1.3.Evolution of retail banking channels....................................................17

I.1.4.Classification of retail banking distribution channel............................20
I.2.Challenges in the distribution of retail financial services...................................................22

I.2.1.Changes in Customer Behavior............................................................22
I.2.2.New technologies.................................................................................24
I.2.3.Competitive dynamics in retail financial services................................26
I.3.Trends of distribution of retail banking services.................................................................26

I.3.1.Trends of distribution retail banking services via branches..................26
I.3.2.Contact Center......................................................................................29
I.3.3.Self-service – ATM...............................................................................30
I.3.4.Mobile banking....................................................................................30
I.3.5.Internet banking....................................................................................31
I.3.6.Telephone Banking...............................................................................32
I.3.7.Other new channels..............................................................................32
I.4. Some considerations in Retail banking channel management..........................................33

I.4.1.Organizational Structure.......................................................................33
I.4.2.Technology...........................................................................................34
I.4.3.Human Resource..................................................................................35
I.5.Conclusion............................................................................................................................35

CHAPTER II.............................................................................................37
CURRENT STATE OF RETAIL BANKING.........................................37
DISTRIBUTION CHANNEL AT BIDV..................................................37
II.1.Current state of retail banking market and retail banking channel development in
Vietnam......................................................................................................................................37

II.1.1.Current state of retail banking market in Vietnam...............................37
II.1.2.Current state of retail banking channel development in Vietnam........40

II.2.Overview of BIDV and retail banking channel at BIDV.......................................................41

II.2.1.Overview of BIDV and retail banking at BIDV..................................41
II.2.2.Retail banking channel development at BIDV....................................42
II.3.Conclusion...........................................................................................................................52

CHAPTER III............................................................................................53
SOME SUGGESTIONS AND RECOMMENDATIONS FOR
IMPROVING BIDV RETAIL BANKING DISTRIBUTION
CHANNELS...............................................................................................53
III.1.Overall direction: Integration of multi-channel through the distribution of the
customer’s preference..............................................................................................................53
III.2.Specific solution and suggestions for improving physical branch channel......................54

III.2.1.Evolution of physical branch.............................................................54
III.2.2.Transformation of Organization Structure toward sales – oriented....54


III.2.3.Redesign the look and feel as well as the workflow of retail branches
...................................................................................................................... 56
III.2.4.Setting up some new different kind of roles in branch layout............58
III.3.Specific Solutions and suggestions for improving electronic channel..............................59

III.3.1.ATM/POS System..............................................................................59
III.3.2.Internet banking/Mobile banking.......................................................61
Customer segmentation................................................................................61
Marketing Strategy.......................................................................................61
III.3.3.Contact Center...................................................................................63
III.3.4.Technology........................................................................................63
III.3.5.Human resource.................................................................................64

III.4.Conclusion..........................................................................................................................65

CONCLUSION..........................................................................................66
REFERENCES..........................................................................................68
APPENDIX................................................................................................69

ACKNOWLEDGMENTS
I would like to express my sincere thanks to MD. Dang Manh Pho for his
valuable guidance and advice for my research. I also would like to thank
all ULB members for their valuable arrangement and kind support during
my studying period.
I greatly thank BIDV Retail Products and Marketing Department for their
consultations and providing valuable documents for my research.
Finally, I am heartily indebted to my family for their help, encouragement
and support during my study.



Improving retail banking distribution channels at BIDV

EXECUTIVE SUMMARY
Jean Paul Votron from Bank Foties in Stephen Timewell Magazine on retail market
used to say that "Retail is the problem of distribution". This is especially true for
retail banking today as banks are moving nearer and nearer to be alike as retailers.
Distribution channels are playing more and more important role in retail banking
nowadays. In retail market, beside the quality of the service as well as reasonable
price, a convenient method of distribution which is used to deliver the financial
services also has great impact on the customer’s buying decisions. Banking
customers are today demanding access to their finances through a range of
traditional and emerging customer touch points anytime, anywhere. They are

demanding seamless, multi-channel sales and service experiences. These demands
are rapidly transforming the retail banking distribution channel landscape all over
the world from a branch – dominated paradigm to one of integration and balance
among multiple channels.
The same situation is taking place in Vietnam retail banking recently. Starting from
2003 up to now, retail banking distribution channels in Vietnam have gradually
developed in the battle among banks to catch as many retail customers as possible.
These banks, especially some joint – stock commercial banks have launched many
state – of – art distribution channels like Internet banking, Phone banking, Mobile
banking, Call Center, etc. This period also witnessed the financial turmoil and
economic downturn all over the world in general as well as in Vietnam economy in
particular. In this context, all banks are eyeing into retail banking as a stable market
for development. BIDV is not an exception. Starting as corporate banking since
1957, BIDV now is one of the 4 biggest state-owned banks in Vietnam providing a
wide spectrum of commercial banking products and services to their retail and
corporate banking customers. From 2005, the banks started to promote its retail
banking and recently stated its objective to become one of 3 leading banks in retail
banking in Vietnam in 2015. To realize its dream, the bank has been putting great
efforts on reinforcing its distribution channels.
Although BIDV now is among three banks that have extensive branch as well as
ATM network, retail banking distribution channels at BIDV are still not highly
appreciated by customers. A recent survey on customer satisfaction in 02 typical
BIDV branches in Hanoi showed that around 32% of asked customers complained
about BIDV service quality in almost of its channels such as not good staff attitude,
so many procedures, long waiting queue at branches, errors of ATM system, poor
functionalities and less competitive in services supplied in such channels as Internet

Nguyen Le Dung –MBM7

Improving retail banking distribution channels at BIDV

banking, mobile banking in comparison with other banks, etc. These facts
encouraged me to find out the real problems lying behind and made me ask myself
what can be done to improve retail banking distribution channels at BIDV where
now I am working as an officer.
Starting from studying retail banking distribution channel landscape globally, the
thesis has realized some important trends as follow:
• There is a increasing recognition that a change in the role of the branch, from
being transaction-oriented to advice – oriented, brings with it a change in role
of key people in the branch – especially the branch manager and the staff
responsible for selling an increasingly broad and more complex portfolio of
financial services products. The branch of the future is likely to be a lot
smaller, more sales and advice oriented, automated and better connected to
all other channels.
• As banks cannot return to the single channel worlds, banks heavily invest in
alternative channels to keep up with market development and customer
demand. Moreover, technological advances can enhance the ability for direct
channels to fulfill their potential as a source of banking sales and service with
higher convenience at lower costs.
• Banks are aware of the increasing importance of channel interconnectivity
from a customer experience perspective.
• Whenever rethinking of the distribution channels, the banks should take into
consideration such problems as the change of organizational structure, new
technology enhancement as well as human resource challenges.
Returning to BIDV current status of retail banking distribution channels, the thesis
has point out some critical problems, as follow:
• Retail banking distribution channel at BIDV is limited in number as well as
services supplied with customers. At the moment, branch is the dominant
channel. Such direct channels like Internet banking and Mobile banking is

emerging and just provide some basic information such as balance, interest
rate, location of ATM, etc.
• Retail banking distribution channel management at HO as well as at branch
seems to be not good enough. Specifically, each channel is managed by a
separately department at HO, lack of overall management.
• Branch organizational structure shows the lack of retail oriented with the
absence of a dedicated team to serve individual customers. Now at BIDV
branch, there is only one department called Customer Relation Division
which serves both individual and corporate customers without segmentation.

Nguyen Le Dung –MBM7


Improving retail banking distribution channels at BIDV

• Branch look and feel seems to be transactional – oriented in which there is no
room for private banking customers, no financial advice corner, just place for
teller to conduct all kinds of financial transactions.
• About self-service channels, services provided through this channel (such as
ATM, POS) are so poor. There is no call center for supporting customers and
merchants, just a hot – line which is routed to one card center staff at a time.
• Lack of integrated channel management platform to manage channels
including ATM, POS, mobile banking, internet banking, IVR, etc.

To deal with such problems, the author suggests BIDV to take into considerations
some recommendations to improve its retail banking distribution channels such
as:
• Setting up multi-channel approach which means the banks need to
combine and balance its strength in network of branch with other
alternative channels to provide customer a fully integrated customer

experience across all channels. It also helps to satisfy customers anytime,
anywhere according to customer’s preferences.
• Transforming the branch organization structure towards sales – oriented
by redesigning the branch layout, refining some processes as well as
adding some more new roles at branch for some new customer segments
such as loan advisers, Service Customer Representative, Private banking
officers, etc.
• For self-service channels, it is necessary to improve customer service by
newly setting up a call center for customer and merchants support,
diversifying services provided via this channel by partnership with some
service providers.
• For Internet banking and Mobile banking, it is high time to set up a clear
strategy of development in which at first setting the purpose of catching as
many customers as possible as high priority to win the challenge in the battle
with other banks because BIDV is a follower in this field.
• Taking into consideration of implementing some critical technological
projects such as CRM, MIS, Autobank, etc as well as designing careful
training plans to set up the ground for retail banking development as well
as its human resource improvement.

Nguyen Le Dung –MBM7


Improving retail banking distribution channels at BIDV

Nguyen Le Dung –MBM7


Improving retail banking distribution channels at BIDV

ABBREVIATION
ATM

Automated Teller Machine

CRM

Customer Relationship Management

SMS

Short Message Service

HSBC

Hong Kong Shang Hai Banking Corporation

P2P

Peer to Peer

PC

Personal computer

IVR

Interactive voice response

ICT

Information and Communication Technology

TV

Television

IT

Information Technology

POS

Point of Sale

GSM

Global System for Mobile communication

GDP

Gross Domestic Product

FDI

Foreign Direct Investment

SBV

State Bank of Vietnam

BIDV

Bank for Investment and Development of Vietnam

AGRIBANK

Vietnam Bank of Agriculture and Rural Development

VCB

Vietnam Commercial Bank

TA2

Technical Assistant Phase 2

VIETINBANK Vietnam Joint Stock Commercial Bank for Industry and Trade
FTD

Fixed Term Deposits

CSR

Customer Service Representative

HO

Head Office

WTO

World Trade Organization

Nguyen Le Dung –MBM7


Improving retail banking distribution channels at BIDV

LIST OF FIGURES, TABLES AND CHARTS
Figure
Figure 1

Retail banking customer segmentation

Figure 2

Service channel

Figure 3

Global Consumers: Preferred Purchasing Channels

Figure 4

Banking channel evolution

Figure 5

Models of channel Organization

Figure 6

Retail and Networks Group Organization Structure

Figure 7

BIDV Brach Organization Structure

Figure 8

BIDV Card Center Organization Structure

Figure 9

Multi - channel approach

Figure 10

Proposed Organizational Structure at HO

Figure 11

Proposed Organizational Structure at Branch

Figure 12

Proposed Branch layout

Figure 13

Proposed strategy for Internet banking and Mobile banking
development

Table
Table 1

New role description in proposed branch layout

Chart
Chart 1

Physical network from 2006 - 2009

Chart 2

Teller workload

Chart 3

BIDV ATM in comparison with the whole market from 2006-2009

Nguyen Le Dung –MBM7


Improving retail banking distribution channels at BIDV

CHAPTER I
THEORETICAL BACKGROUND OF RETAIL BANKING
DISTRIBUTION CHANNELS

I.1.
I.1.1.

Retail banking distribution channel overview
Retail banking and retail banking market

According to the Bank for Foreign Trade of Vietnam: "retail banking is activities
between banks and individuals and/or small and medium enterprise customers”.
For Asian Institute of Technology-AIT, retail banking can be understood as "the
provision of banking services to each individual, small and medium business
through a network of affiliates or customers direct access to banking services
through means of information technology, electronic telecommunications.
So, in general, retail banking refers to banking in which banking institutions
execute transactions directly with consumers, rather than corporations or other
banks. It is also known as consumer banking or personal banking. Services
offered normally include savings and checking accounts, mortgages, personal
loans, debit cards, credit cards, and so forth.
The retail banking market is not a homogeneous market segment, but consists of
several levels of client groups that can be targeted with their own set of products
or service levels.
Generally the retail market can be divided into four market segments, in which
the next level market segment typically consists of private individuals who have
Nguyen Le Dung –MBM7

14


Improving retail banking distribution channels at BIDV

an higher income and more assets than the previous level. Typically the higher

customer segments will demand better services for the bank, thus requiring the
bank to assume a more tailor - made approach to the client.
The market segmentation for the retail market is depicted in the Pyramid below,
in which also the most appropriate distribution channel is mentioned.

Figure 1

Retail banking customer segmentation

(Source: Rabobank research)
I.1.2. Retail banking channel
Let talk about “Place” in Marketing Mix, distribution channels help in the
“place” aspect of the marketing mix; distribution provide place, time and
possession utility to the consumer.
The distribution channel is generally understood as a chain of intermediaries,
each passing the product down the chain to the next organization, before it finally
reaches the consumer or end-user. This process is known as the 'distribution
chain' or the 'channel.' Each of the elements in these chains will have their own
specific needs, which the producer must take into account, along with those of
the all-important end-user.
Stern and Ansary11 in a book called “Marketing channels” defined that
distribution channels are sets of independent organizations involved in the
process of making a product or service available for use or consumption.
Bucklin in theory of distribution channel structure published in 1966 defined a
channel of distribution comprises a set of institutions which perform all of the
activities utilized to move a product and its title from production to consumption.
1

Louis Stern, Adel I. El-Ansary, Marketing channels

Nguyen Le Dung –MBM7

15


Improving retail banking distribution channels at BIDV

In any marketing mix, the place component (distribution) is concerned with
making sure that a product reaches the target market at a convenient time and
place. In relation to physical goods, distribution decisions are concerned with
both channel management and logistics. Channel management refers to all those
activities involved in managing relationships between the producer and the
various organizations that distribute the product (e.g. wholesalers and retailers).
Logistics is made to the place where they will be purchased. Within the consumer
goods domain, retailing represents the dominant channel through which goods
are purchased. This channel may operate on a direct basis by which products are
shipped direct from manufacturer to consumer. Supermarkets represent the best
example of the direct distribution channel for consumer goods. Alternatively,
goods can be moved from site of manufactures to the site of purchasers on an
indirect basis. Indirect distribution channel may involve some combination of
agents, brokers and wholesalers interposed between producers and retailers. The
logistical dimensions of tangible – goods distributions is often referred to as
supply chain management. Success in the field of tangible – goods distributions
require expertise in both the strategy and management of sales channels, and in
supply chain management.
Of course with financial services there is no physical product, so the logistics
elements of distribution are of little relevance. Instead, distribution in financial
services marketing is concerned with how the service is delivered to the
consumer, making sure that it is available in a location and at a time that is
convenient for the customers.

Meidan2 (1996) in his book as marketing financial services stated that channels
of distribution for financial service should be thought of as means to increase the
availability and/or convenience of services that help satisfy the needs of existing
users or increase their use among existing or new customers. In order to envisage
such a criterion, the financial services marketers must facilitate the right product
for the right people at the right price and in the right place.
Distribution channels for financial services are usually direct channels that mean
the banking services are delivered directly to the consumer as illustrated in the
following diagram:

2

Arthur Meidan, Marketing Financial Services

Nguyen Le Dung –MBM7

16


Improving retail banking distribution channels at BIDV

Figure 2

Service channel

(Source: Author’s illustration)

As far as financial services concerned, distribution fulfils the following roles:
-

The provision of appropriate advice and guidance regarding the suitability
of the specific products.
The provision of choice and a range of product solutions to customer
needs.
The mean for purchasing a product.
The means for establishing a client relationship.
Product sales functions.
The provision of information concerning relevant aspects of financial
services.
Access to the administration systems and processes required for the
ongoing usage (consumption) of the product or service.
The mean for managing a customer relationship over time.
The cross-selling of additional products to existing customers.

I.1.3. Evolution of retail banking channels
Over the past twenty years, the evolution of banking channels in both number
and sophistication has been extensive. The change has been undeniably
significant: from the humble branch – based model to the concierge type services
offered today; from the cash machine (or ATM) to the self-service kiosk; and
from the simple telephone banking inquiry to the self-servicing capability
delivered by the internet. The subsequent introduction of mobile banking has
given rise to a complex distribution landscape. Whilst this has delivered
increased convenience and access to customers, it has often added in creased cost
and complexity to bank operations without a commensurate increase in sales or
wallet-share.
The branch model has remained the principal channel and despite previous
branch rationalization programs it has enjoyed a renaissance in recent years as a
critical customer touch point and ideal vehicle to deliver advice and sales.
Nguyen Le Dung –MBM7

17


Improving retail banking distribution channels at BIDV

Internal debates rage as to whether the ATM represents a cost centre or channel.
When considering that, for many customers, ATM often represents the most
frequent touch point with their bank, recent investment in CRM and
personalization support the notion of a channel that is more than just a cost of
current account provision. The introduction of telephone banking in the late
1980s and later the full service contact center represented a significant departure
from previous relationship-based models. Whilst decreasing in usage in certain
geographies, the contact center remains a pivotal part of the distribution mix and
for some direct players this represented their primary channel, such as the launch
of HSBC’s direct-only subsidiary First Direct in 1989, before the advent of
Internet and mobile channels.
Then launch of the online channel in the late 1990s initially focused on providing
increased frequency and access to account information driven by customer
requests as opposed to monthly statementing processes. However, as adoption
grew and technology infrastructures evolved, the channel moved to a self-service
model offering transactional capability and elements of financial services
planning. Although the branch model remains the preferred channels in markets
such as Spain and Italy, the Internet dominates in terms of usage across other
European geographies. Undeniably the Internet channel has become an integral
element in the customer interaction process. Whilst multi-channel integration
continues to represent the “holy grail” for retail financial service providers,
perhaps this challenge is no greater than the integration of online and offline
capabilities where customers increasingly desire and demand a more seamless
interaction that combines the convenience and information access supported by
the Internet with face-to-face sales and advice delivered via the branch.

To bring recent channel development up to date, much analyst commentary is
devoted to the adoption of mobile banking and its future implications for
established banking channels. The introduction of SMS-based account
information represented first generation mobile banking services and positioned
the mobile as a potential fifth channel. Recent technology developments have
achieved a level of integration with core systems to deliver not only
informational but also transactional-based services. Its potential as a platform to
support cross-selling and deepen the customer relationship is acknowledged,
especially when considering its appeal to the anytime, anywhere financial
demands of an increasingly technology-savvy generation. According to Juniper

Nguyen Le Dung –MBM7

18


Improving retail banking distribution channels at BIDV

Research 3, the number of people accessing banking services via mobile phones
will reach 816 million by 2011. The largest adoption is forecast to occur in the
Far East and China followed by western Europe and India. Despite these
forecasts banks need to define how mobile fits within their overall channel
strategy and whether it should indeed evolve into a full-service banking
proposition given the potential to conflict or replicate existing internet offerings.
However, it would seem that the fifth channel has finally arrived.
Whilst the growth of the Internet, and latterly mobile channels, can be part
explained by users determining when and what information they would like to to
“pull” from their financial institution, the one constant has been that banks have
owned and controlled the customer interaction in the provision of financial
services. Until recently, the perception that banks possessed exclusive rights to

this relationship was supported by the belief that customers placed high import
on trust and security offered by these organizations. However, this basic premise
is being challenged through the growth of financial social networks such as P2P
lenders and by a 2006 United Kingdom survey on Internet-based social lending
conducted by Social Futures Observatory (SFO). A key finding highlighted how
respondents felt social lending schemes offered a more authentic and transparent
financial service guided by the experience of lending and borrowing directly
form people than a mainstream bank.
Recent developments in the banking sector – deregulation, mergers and
acquisitions, the rise of the Internet, etc have all significantly altered the way that
the financial services industry does business. At the same time, new entrants to
the market, global competition, diversification of products and services and an
increasingly sophisticated customer base are presenting serious challenges to the
banks. In order to survive in the increasingly competitive environment the banks
are looking for cost reductions and more efficient ways of delivering their
services, development of technology has facilitated the delivery of banking
services and widened the portfolio of delivery channels. ATM and phone based
banking systems were in the forefront of change in the 80’s, followed by PC-and
Internet-based banking services in the 90’s. The role of digital television and
mobile services is yet to be seen. In any case, the technology is likely to be the
key factor driving the change within the banking sector for the foreseeable future.
As the result the bank customer is faced with a range of different channels and
different services to choose from. Banks attempt to direct customers towards
3

Juniper Research, Mobile Financial Services: Banking & Payment Markets 2007-2011

Nguyen Le Dung –MBM7

19

Improving retail banking distribution channels at BIDV

electronic channels by reducing branch offices and pricing products in favor of
self-service channels.
Increasing customer sophistication, broadening competition and changing
technologies have significantly impacted retail financial services and the
channels through which customers interact with financial institutions. It is not
only the number of channels that has increased dramatically, but also the
functionality of those channels has expanded significantly.
I.1.4. Classification of retail banking distribution channel
Physical retail banking distribution channels
-

Brach office: This traditional brick-and-mortar channel was the first
channel offered by banks, and many times the impressively designed
building is confused with the bank institution image. It regularly offers all
kinds of transactions, from teller-oriented transactions to more complex
solution-oriented transactions. Highly personalized interaction will most
likely lead to a more upscale version of this channel in the banking
strategies of the future.

Electronic retail banking distribution channels
-

-

ATM: The automatic teller machine (ATM) was one of the first remote
channels to bring customers out of branch offices, offering beyond the

branch office’s time, convenient operations. During the last five years, the
implementation of new and sophisticated channels, such as Internet and
web phone have decreased the volume of transactions through the ATMs;
however, currently new redesigned ATM has been implemented, offering
full-service operations in convenient locations. The ATM has the
advantage of supplying cash, which is not yet available in any other
remote channels. Use of debit and credit cards to pay for products and
services as well as for withdrawing cash from ATMs became common
rapidly recently.
Call Center/Contact Center: This was also one of the first remote
channels offered to customers. It has increased its importance for banking
channel strategy as a channel of basic deliveries, with a great part of
customers interested in processing simple account transactions. Therefore,
banks are struggling to implement new applications and technologies like
multi-channel integrations, as a way to support attendants in offering more
complex solutions. This trend also helps to move the basic transactions to

Nguyen Le Dung –MBM7

20


Improving retail banking distribution channels at BIDV

-

-

-

-

-

IVR systems that can handle these operations without attendants in a very
efficient and low cost structure.
PC Home-banking: This channel was the precursor of Internet banking.
Banks offer an exclusive line and modem system to connect customers’
home PCs directly to the bank’s central computer, from which they can
execute several transactions similarly to the Internet banking operations.
Internet banking: This is the most stylish adoption in recent channel
management. It has been attracting customers based on its easy operation
and low cost structure, representing an open window to several aggregate
services, such as business-to-business solutions with payment through
online websites or PC financial planning software. Services enabled by
ICT make it possible for the customers to manage their banking needs 24
hours a day, seven days a week. The customer can connect to the services
either through Internet with a graphical interface, or a proprietary network
with a text based interface. Use of text-based services has decreased
considerably as the Internet has become more popular with other types of
services as well. In addition to the connection to the Internet, the customer
needs to make a contract with a bank and receive means for secure
identification, typically a user ID and a password as well as a list of
session passwords. Basic functionalities of the different electronic banking
systems are roughly the same: balance and activities information,
payments, ordering new credit and debit cards.
Web phone/Mobile banking: This channel has been increasing its
penetration with the high adoption of wireless phone. Although it is very
convenient, banks are still struggling with matters of connection speeds
and customization. Moreover, the lack of a “comfortable” keyboard or

easy operability is a restriction that wireless phone producers and banks
are improving to increase usage of this potentially lucrative channels.
Digital TV: This is one of the most recent channels to emerge, as well as
the least adopted. Banks in partnership with cable operators offer a series
of banking transactions that are available on the TV screen, where
customers can navigate and perform transactions with the help of a remote
controls. Similarly to the web-phone channel, lack of keyboard could be a
restriction for the further development of this channel, but TV familiarity
and easy operation mean it has the potential to attract lots of customers.
Telephone banking: Most banks offer telephone banking systems utilizing
push-button phones and a speech synthesizer integrated with banks
information systems. These services are interactive with the system

Nguyen Le Dung –MBM7

21


Improving retail banking distribution channels at BIDV

-

I.2.

requesting given information, the customer keying them in with the
phone, and the system then replying with a response. The customer only
needs a push-button phone and identification means provided by the bank.
Despite the easiness of use and low costs for the customer, use of phone to
pay bills has not gained popularity, only a few percentage of population
use this channel regularly.

Mail: is part of the postal system which itself is a system wherein written
documents typically enclosed in envelopes, and also small packages
containing other matter, are delivered to destinations around the world.
This can be used to deposit cheques and to send orders to the bank to pay
money to third parties. Banks also normally use mail to deliver periodic
account statements to customers.
Challenges in the distribution of retail financial services

I.2.1. Changes in Customer Behavior
The pressure towards new distribution channels comes from the demand sides of
financial services. A general increase in organizations’ customer orientation,
owing to increased competition, has heightened customer expectations in retail
baking, too. Customers are becoming more demanding in terms of the level of
service they expect and how they are able to access services when required.
Demands of greater convenience and accessibility are reflected in longer branch
opening hours and an increase in the choice of delivery mechanisms.
The changes in consumers’ demographic, economic and social factors alter the
demand for distributions channels of financial services as well. Changing work
patterns and an increase in time pressure raise the demand for greater flexibility
in attending bank affairs. As a more computer literate generation emerges, far
more trusting of and at ease dealing with technology, the IT based delivery
systems are likely to become more popular.
Booz Allens’s4 consumer research in 2007 reveals that despite the development
of alternative channels, customers still prefer to purchase in the branch. However,
the importance of the branch is in decline and the mass affluent form the group
leading the march away from branches, and towards mobile sales force and the
Internet. When it comes to alternative channels, customers prefer online to
telephone transactions, particularly when the product and the transaction itself
4

Booz Allen Hamilton, Striving for Growth Best Practices in Retail banking Sales and Service
Channels,2007, p.2

Nguyen Le Dung –MBM7

22


Improving retail banking distribution channels at BIDV

are relatively simple. One area in need of significant development is limited or
nonexistent in all but a few countries.

Figure 3

Global Consumers: Preferred Purchasing Channels

(Source: Booz Allen Hamilton Revenue Enhancement Study 2007)
Industries across the board have raised customer expectations for service.
Moreover, customers themselves are technologically aware and willing to use
competition in the market place to their advantage. Hence, consumers in today’s
24 hour society expect and are able to eat at a café in the small hours, go grocery
shopping at midnight and to register a complaint at whatever time of day they
wish and through whichever means they can access – email or phone. Why
should they expect any less from banks?
Customers have strong demands from banks too and want to transact their
financial business on their own terms. In an age of instant gratification and
personalized service, they want access to their money anywhere, and they want it
now – every time they ask for it. They want exemplary service, tailored products
and a rich and positive experience from the bank. Unfortunately, it is not the

simplest of tasks to fully satisfy this demanding breed of customers. This is
underscored by a recent survey of customers from the top 32 United State
Nguyen Le Dung –MBM7

23


Improving retail banking distribution channels at BIDV

financial institutions which reveals that 58% of clients feel that their bank does
not do what is in their best interest.
A primary way by which a bank can delight customer is by seamlessly
integrating its multiple channels. Today, the customer hopes between different
channels, depending on her convenience, location, time of day and the
transaction being made. The quality of her experience is affected by the
consistency of service the bank provides. By ensuring that each channel offers
the same products and displays the same information, channel integration creates
a better use experience.
As customers interact with their banks over a variety of channels, they demand a
consistent experience and the same information, updated in real time, regardless
of the channel. For instance, a customer withdrawing funds from an ATM or
making a deposit at a branch needs to see those transactions when she logs into
her online banking accounts.
According to a White paper of Temenos 5 issued in 2007, if we were to be ask the
customer what they wanted from a bank, a customer describe the experience that
they expect from a retail bank today:
-

Treat me consistently, whatever the channel
Treat me as a customer not as a number

Be aware of the products I have bought and those I have rejected
If I say “no”, then don’t ask me again
Let me use the channel most convenient to me
If I start a “transaction” in one channel, let me include it in another
If you pass me on to another member of staff, don’t ask the same
questions again
If you already have my information, don’t request it again
Communicate in a way that is convenient to me and of my choice
Give me the use of automated channels whenever I want

I.2.2. New technologies
Internet banking has received the most coverage in the past decade; however, the
adoption of new technologies may profoundly influence the distribution of retail
banking services. One area of impact may be the movement toward greater
mobility as mobile phones become more sophisticated and, therefore, more
capable of handling advanced applications and services. Banking via mobile
5

Temenos, Changes in bank delivery channels in the pursuit of customer centricity and efficiency, 2007,
p.4

Nguyen Le Dung –MBM7

24


Improving retail banking distribution channels at BIDV

phones appeals to consumers on multiple fronts. Customers may not know the
location of their closest branch or even where their credit or debit cards are, but

they always have their mobile phones nearby. Mobile phones also serve as an
efficient vehicle for making contactless payments or person-to-person transfers,
providing greater security protocols and storing in-depth preference information.
This is efficiently accomplished via an existing device, without the need to load
an extra smart card. Various software platforms for mobile phones and other
devices will allow customers to use the Web through their handhelds as easily as
they do through their computers. It is anticipated that this will spur rapid demand
for mobile-banking services over the next decade.
Other technology development is also poised to affect the distribution of retail
banking services. For instance, growing broadband internet penetration and wider
use of low-cost, high-quality webcams will allow banks to use Web 2.0 or other
collaborative tools to reach customers at their homes offices, in branches and at
ATMs. This capability is providing banks with fresh alternatives for customer
interaction such as video conferencing or co-browsing to support dynamic
consultations at convenient locations. Additionally, the growing use of instant
messaging as a business tool, the expanded use of social networking sites, and
increasing consumer acceptance of self-service kiosks are likely to influence
consumer preferences for banking delivery channels going forward. Dramatic
improvements in security and authentication are addressing the concerns of those
customers who have been hesitant so far to use mobile technologies or to bank
online as well.
Meanwhile, technological progress is also providing the means for banks to
operate more efficiently and cost-effectively. Advances in network capabilities
and “thin client” computing are enabling banks to deploy different IT
configurations in branches and remote offices, thereby reducing the cost and
complexity per outlet while providing more functionality to staff and customers.
Other developments such as Radio Frequency Identification (RFID) can be used
to provide increased security and better risk management while enabling banks to
more rapidly access customer information. Web-based approaches, such as online
assistance, can enable banks to provide person-to-person assistance more

productively than branch-based staff, while also allowing them to employ leading
off shoring techniques at a far lower cost per interaction. Finally, the growth in
aggregate knowledge sources and tools will likely enable banks to better

Nguyen Le Dung –MBM7

25