Corporate_Strategy_Deep_Diagnostics_2 by Sutherland Global Services

Case Study and Sample Slides India: Financial Technology -Self-Service Machines

Disclaimer This document is the proprietary and exclusive property of Sutherland Global Services except as otherwise indicated. No part of this document, in whole or in part, may be reproduced, stored, transmitted, or used for design purposes without the prior written permission of Sutherland Global Services. The information contained in this document is subject to change without notice. The information in this document is for information purposes only. Sutherland Global Services® disclaims all warranties, express or limited, including, but not limited, to the implied warranties of merchantability and fitness for a particular purpose, except as provided for in a separate software license agreement. All confidential or proprietary information contained in Sutherland’s response shall at all times be and remain the sole and exclusive property of Sutherland Global Services, Inc.

©©2012 GlobalServices Services Inc., rights reserved. Privileged and confidential information of Sutherland Global 2010Sutherland Sutherland Global Inc., All All rights reserved. Privileged and confidential information of Sutherland Global Services Inc. Services Inc.

www.sutherlandglobal.com

Disclaimer Disclaimer

THE SAMPLE CONTAINS EXCERPTS FROM A STUDY CONDUCTED BY SUTHERLAND GLOBAL SERVICES FOR ITS CLIENT. THE SAMPLE MAY NOT CONTAIN ALL THE PAGES OF THE ORIGINAL DOCUMENT THIS SAMPLE HAS BEEN PREPARED BY SUTHERLAND GLOBAL SERVICES INC. OR ITS ASSOCIATES OR AFFILIATES (“SUTHERLAND GLOBAL SERVICES”) EXCLUSIVELY AS AN ILLUSTRATIVE SAMPLE ONLY AND IS SENT TO AUTHORISED RECIPIENTS SOLELY FOR THE PURPOSE OF EVALUATING SUTHERLAND GLOBAL SERVICES’S SUPPORT SERVICE CAPABILITIES. THIS SAMPLE SHOULD NOT BE CONSIDERED AS AN OFFER TO SELL, A SOLICITATION TO BUY, OR AN ENDORSEMENT OR RECOMMENDATION OF ANY COMPANY. SUTHERLAND GLOBAL SERVICES DOES NOT GUARANTY THE ACCURACY, COMPLETENESS OR OTHER CHARACTERISTICS OF THE DATA / INFORMATION OF THE REPORT.

This Sample may not be reproduced or distributed (in whole or in part) to any third party without the express prior permission of Sutherland Global Services. Sutherland Global Services may also have (or have had) arrangements with entities whereby Sutherland Global Services receives or is in receipt of information relating to the subject matter of this Sample that is confidential or proprietary to a third party, and thus may not be utilized. Accordingly, Sutherland Global Services may be in receipt of relevant information that is not reflected in this Sample.

www.sutherlandglobal.com January 14, 2013

India: Financial Technology -Self-Service Machines Client • The client is a leading manufacturer of Self-Services Machines and caters mainly to the Banking industry

Client Ask • The client mandated SGS to interview over 200 banks in India across nationalized banks, state banks, state co-operative banks, regional rural banks and district co-operative central bank categories to gauge demand for Self Service machines • The key objective was to assess levels of penetration, potential and issues surrounding the adoption of Self-Service Machines (SSM) in Tier II & Tier III Banks, channel strategy and SSMs deployment behavior for these categories • In addition to this, the scope required SGS to estimate the bank-wise demand of various SSMs across all Indian states

Sutherland’s Solution • A 22 point questionnaire was prepared in consultation with the client which was predominantly close-ended with scaled criteria or multiple-choices and a few open-ended ones • SGS segmented the country by zones and shortlisted banks from each category • SGS conducted telephonic interviews with the main-branch heads or the head-office procurement manager to assess the state of their IT infrastructure, current status of number of SSMs and potential, brands which dominate and reasons for the same, purchase and decision making process, potential to outsource SSM management activities such as cash mgt, security and facility management

• Benefits to the Client • Insights gathered on the SSM installation base across all bank categories indicated amongst all the bank’s category, SUCB1 is the one which has relatively higher installation of SSMs (especially ATMs). This helped in identifying key competitors in the market • Insights like Diebold leads in ATM market, Methodex for teller machines and Olivetti for passbook printing machine markets alongside insights on purchase criteria assisted the client in re-aligning its marketing pitch and tactics, increasing focus on maintenance services as well as restructuring its marketing team to focus on the higher potential areas and categories

www.sutherlandglobal.com January 14, 2013

A Representative Sample of 64 Financial Institutions in the DCCB Category (31%) were Interviewed and Surveyed Overview of DCCB category and Sample Logic

Survey Areas and Sample Size

450

Survey State Medium 34%

400

300

High 66%

250

200 North 13% 150

DCCBs

Total # of Tier II / III Institution s in India

350

100

East 5%

Central 12%

50 West 22%

N = 64

Sample Other Tier II/III

Other DCCBs

South 48%

Samples

Andhra Pradesh

Gujarat

Kerala

Karnataka

Madhya Pradesh

Haryana

Maharashtra

Chhattisgarh

Tamil Nadu

West Bengal

Bihar

Himachal Pradesh

Jammu & Kashmir

Punjab

Rajasthan

Uttar Pradesh

Source: Sutherland Research

www.sutherlandglobal.com January 14, 2013

DCCBs are Developing their Consumer Banking Business to Push Their Profitability Margins; but Have a Long Way To GO Key Developments and Issues in Consumer Banking (Non-Agri Lending) among DCCB’s Current Issues and Developments 2009

Not Completed Retail 2009 Retail 7% 2012 2%

• The primary function of District Central Cooperative Banks (DCCBs) is lending towards the priority sector i.e. the agricultural segment • On an average, most DCCBs across India tend to divert 70 – 80 percent of their funds towards the agricultural segment

Agri 2009 91%

• In this process, the DCCBs lend the funds to the Primary Agricultural Credit Societies (PACS), who then provide loans to farmers belonging to the respective PACS

• One of the major concerns of DCCBs in the consumer lending side is issue of default

Asset Growth*

• Therefore, most of the DCCBs are moving to secure loan categories such as gold loans and housing loans

25,000

• In terms of technology and automation, the DCCBs in Southern region are much more advanced than their counterparts in the Western, Northern, Eastern and Central regions

Rps Crores

20,000 15,000 10,000 5,000 0 1

Agri Lendingq

Key Issues and Growth Drivers 2010-2012 • The most significant issue sighted by DCCBs is that they have certain restrictions on the deployment of their funds towards the nonagriculture segment • However, most of them understand that in order to be more profitable, they need to diversify their portfolio towards the nonagricultural loans, which offer them higher margins as compared to the agricultural loans • With an eye on catching customers on the consumer banking side, a substantial number of DCCBs, especially in the South and West region have plans to move from TBA (Total Branch Automation) platform to CBS (Core Banking Solution) platform • A major impetus is the fact that even the State Co-operative Banks are pushing the DCCBs towards attainment of computerization and consequently, CBS • The examples of state sponsored steps are Andhra Pradesh, Tamil Nadu and Madhya Pradesh to name a few, where the SCB has plans to integrate all the DCCBs in the state with CBS within the next 2-3 years

Retail Lending

Source: Sutherland Research

www.sutherlandglobal.com January 14, 2013

DCCBs are Developing Their Consumer Banking Business to Push Their Profitability Margins; But Have a Long way To Go Current Channel Parameter for District Central Co-operative Banks (2009)* 9

Branch Size

Low Median

N = 64

ATM Size

163

Mean

200

High

0.7

Number of Passbook Updating Units

Low, Median Mean 0

High

0 Average Number of Teller Cash Automation Unites per Branch

N = 64

High

Average Number of Transactions per Month (per ATM)

Median Mean 1500

4650

High

5425

Key Priorities in Expanding Channel Network

12000

N=6

• Last on the banks’ priority list is expansion of branches, the reason being a cap on addition on branches by RBI and strict scrutiny of banks giving proposals for addition of branches

150

Low

N=6

• The next major priority is to integrate CBS for their branches. Banks opine that this would act as the base for exploring other channels like internet banking, mobile banking, etc.

132

0 N = 64

Average Value of Transaction per Month (per ATM in INR ‘000s)

100

Low, Median Mean

• The foremost priority for DCCBs is full computerization of their branches • Majority of the DCCBs have already initiated the computerization process and hence are looking at finishing the process by the end of 2010

0 N = 64

Key Priorities in Expanding Channel Network

15,000 Low

Median Mean

2250

5250

7156

0 Low

Median

Mean

High 14438

15,000 High

• For DCCBs, which have a current ATM network and those which have plans, the priority was to set up more onsite ATMs rather than off-site ATMs • The DCCBs would generally roll out their ATM network in phases and would start by experimenting with a few on-site ATMs for some of the bigger branches. Based on the success, they would look at setting up ATMs for smaller branches and eventually off-site ATMs

Source: Asian Banker Research Note: *Parameter are based on Sample

www.sutherlandglobal.com January 14, 2013

A Majority of the Sample Banks Either Do Not Have Any IT Infrastructure or Are In The Elementary Stages

180

48%

22%

11%

Number of branches, 2009

160 140

120 100 80 60 40 20 0

No Computerisation of Branches

No IT Infrastructure

Partial Partial Full Partial CBS Partial Computer- Computer- Computerizatio implement- Computerization ization ization (More n but no CBS ation and few stand(Less than 1/3rd than 1/3rd implementation alone ATMs Branches) Branches)

Basic IT Infrastructure

IT Infrastructure Expansion

7 Full CBS implementation and few on-site ATMs

8 Full CBS implementation and both, on-site as well as off-site ATMs

Self Service/ATM Expansion

Note: Figures at the top of each column depict the proportion of banks in the particular category

www.sutherlandglobal.com January 14, 2013

Cash Counting Units are the Most Commonly Used SSMs, Followed by Fake Currency Detection Units and Passbook Printing Machines

Customer Self Servicing ATM (Cash Dispensing Machine)

Promote

Exploit

Cheque Depositing Machines Cash Depositing Machines Cash Recyclers

Pilot

Current Status

Fully integrated

Potential Growth for Alternative Forms of Self Service Automation for DCCB Category

Teller Platform Cash Counting Units

Educate

Cheque Reading Units

None

Fake Currency Detection Units Passbook Printing Machines

Weak N = 64

Likelihood of Intro/further expansion

Strong

Future Status

Source: Asian Banker Research

www.sutherlandglobal.com January 14, 2013

Most of the Banks Plan to Puff Up Their Existing Teller Based SSMs, While Placing Relatively Lower Emphasis On Customer Centric SSMs Current and future automated self-service network deployment by bank type (2009-2012) No Plans Yet Major Emphasis Minor Emphasis

District Central Co-operative Banks 2009

2010

2011

2012

ATM (Branch)

Most of the banks going for CBS introduction by 2010 and planning on-site ATMs in 2011

ATM (off-site)

Only a handful of banks placing emphasis on offsite ATM expansion in near future

Passbook Updating Machine

Banks, especially in South, are placing huge emphasis on expanding Passbook Updating Machines across the branches

Cheques Deposit Machine

None of the banks interviewed talked about current or future plans to invest in these automated machines

Cash Deposit Machine Manual

None of the banks interviewed talked about current or future plans to invest in these automated machines

Cash Deposit Machine Real Time

None of the banks interviewed talked about current or future plans to invest in these automated machines

Fake Currency Detection Teller

Few banks are now moving towards Fake Currency Detection units integrated with Cash Counting Units

Cash Counting Unit Teller

This is, by far, the most emphasized upon, SSM by all banks and will continue to remain so in the future

Cheques Reading Unit Teller

Only a handful of banks are planning to lay a secondary emphasis on Cheques Reading Machines

Source: Asian Banker Research

www.sutherlandglobal.com January 14, 2013

With Gradual Computerization of Branches, a Large Number of Banks Are Planning to Expand Their Passbook Printing Units in Future

Ambitious

110%

# 1 in terms of Future Passbook Expansion Plans (Thrissur District Co-operative Central Bank Ltd.)

90%

# 1 in terms of Current Passbook Adoption Strategy (Kaira District Central Co-operative Bank Ltd.)

70%

50%

Conservative

Future Passbook Printing Expansion Plans (as % of current and future branches)

130%

30%

10%

-10% 0%

10%

20%

30%

40%

50%

60%

70%

Current passbook adoption strategy (current passbook/ Total Teller Machines), 2009 Pilot Stage 0-5%

Restricted 5-20% of Teller Machines

Limited 20-40% of Teller Machines

Going Mainstream Above 40%

Source: Asian Banker Research

www.sutherlandglobal.com January 14, 2013

DCCBs Prefer ATMs from NCR Due to its Product Quality and Brand Name, Followed By Diebold, Which Is Preferred Due to its Service Interview Quotes/Comments “We got quotes from both NCR and Diebold. Although, the product was comparable in all other factors, we chose NCR as they offered a better price and also had previous installation experience with our bank.”

NCR

-Thrissur District Co-operative Bank Ltd

Diebold

“We prefer Diebold over other players like NCR and Wincor because they have the best quality product with good service / maintenance and a better pricing as compared to others.”

Wincor Nixdorf Axis Technologies

-Ernakulam District Co-operative Bank Ltd

1 2 3 4 Number of Respondents

“We got quotations from Wincor, NCR and Diebold. But once again, we went for Wincor as we were getting a decent price. Also, over years we have realized that it is a highly reliable product.” -Alappuzha District Co-operative Central Bank Ltd

Source: Asian Banker Research

www.sutherlandglobal.com January 14, 2013

Purchase Decision-Making Architecture at District Co-Operative Banks in India Provides

Recommends

Banks/ NABARD

Requests

Board of Directors

Branches 1,2,3,X

Requirements

Approval Proposal

SubCommittee Technical Consultants

1st Time Policy Decisions

Recurring Purchase

Above INR 10 Lacs

Below INR 10 Lacs

Above INR 10 Lacs

Below INR 10 Lacs

Open Tender

Select Tender

Open Tender

Select Tender

Existing Vendor Quote

Vendor 1

Vendor 2

Vendor 3

Frequently used Channel Seldom used Channel

Source: Sutherland Research