Yesterday, one of the mid-sized Indian Banks with a focus on increasing retail deposits charged me for non-maintenance of Minimum Account Balance (MAB). One of the Term Deposits (TD) matured and the Bank charged me for non-maintenance of MAB for the last 3 months at one go after the maturity proceeds were credited to my account.
Trivial issue in terms of the amounts involved but one having far reaching consequences in terms of customer positioning and churn; especially in the backdrop of many queries that I receive from the “traditional Bankers” about the “Neo-Banks”, the role they will likely play in the future of Indian Banking, their impact on the traditional Banks and how should the “traditional Banks” prepare.
Most Banks in India charge an MAB penalty to their customers for non-maintenance, other than for the “Salary accounts”. Bankers say that it is the administrative overhead cost of maintaining an active account with the Bank and should be charged to the customers who can afford it. Whereas, most of the wallets and neo-Banking entities explicitly advertise that they do not have any MAB requirements.
Let’s first look at a few numbers. Here’s a look at the MAB charges of some of the major Banks in India and their neo-Banking counterparts.
|Bank||MAB in INR|
|Bank of Baroda||5/1000|
|Bank of India||500/5000/10000/20000/100000|
|Bank of Maharashtra||1000|
|Central Bank of India||50|
|Indian Overseas Bank||500-1000|
|Jammu & Kashmir Bank||500/1000|
|Kotak Mahindra Bank||2000/3000/5000/10000/20000|
|Punjab National Bank||500/1000/2000/50000|
|Punjab and Sind Bank||500/1000|
|RBL Bank Ltd||1000/2000/2500/5000/10000|
|South Indian Bank||2500/5000|
|State Bank of India||1000/2000/25000|
|Union Bank of India||20/100/250/500/1000|
|Neo-Bank||MAB in INR|
Variable cost of maintaining an active account
Bankers say that there are a lot of services that the customers do come to expect with a Savings account as highlighted in the table below and thus it is only fair that the Bank expects the customer to maintain some balance in the account to cover the cost of such services. However, in reality, high administrative charges are a thing of the past and the default services offering may be reduced to a bare minimum in the today’s “digital-mostly Banking”. The key is to divide various expected services into the ones that cannot be charged as pay-per-use services and the ones that may be charged so. For example, instead of forcing the customer to pay for a certain implicit number of cheque issuances or ATM withdrawals, it may make sense to charge them explicitly for these services if they fail to maintain a certain balance.
|Service||Avoidable/Pay per use?|
|Debit card charges||No|
|Cheque Book and Clearing||Yes|
|Passbook, statement updates||Yes|
Impact of MAB removal on top-line – sub-1% for SBI (whose numbers are public)
Even though detailed numbers are not available on this topic as Banks do not tend to give break-up of MAB charges, one data point available in this regard is the explanation given on the floor of the parliament because of the uproar caused due to SBI’s MAB charges in FY18.
According to this data, SBI charged a total of ~Rs. 1,771 Cr MAB charges across non-PMJDY accounts between Apr-17 and Nov-17. Annualising this number at ~Rs 2,656 Cr in FY18 forms a mere ~1% of the Bank’s overall standalone interest income in the same year (FY18 SBI Interest income at ~Rs2,65,100 Cr).
In a fierce battle for customer’s mind-share, you do not want to leave a bad taste of MABs being charged every month while the customer was looking the other way. This will certainly impact any future probability that the customer might purchase some service from the Bank. This is more critical for those Banks which are after low cost retail deposits and for whom the first relationship that the customer initiates with the Bank is a liabilities relationship.
What should the Banks do? : Acquire – Delight – Nudge
Historically, Banking has been driven by a strong branch network, a trusted brand and high economies of scale. Building physical distribution is expensive and requires time. This meant that the older Banks having larger distribution footprint had bigger size. This, however, is now changing in today’s world of digital first distribution (Think DBS).
Apart from digitisation and openness to the digital-mostly Banking experience, another historical tenet which is changing nowadays is the unbundling of the Banking relationships vs strong, bundled, monolithic financial relationships of the customers in the past. So, people are having more Banking relationships for specific Banking products (Home loan from Bank A, Deposits in Bank B, Credit card with Bank C).
The two trends highlighted above present a small window of opportunity for the newer Banks (Brands?) to thrive as the world migrates to digital financial services if they are able to:
- On-board a new customer through a frictionless digital experience, and at a very low cost
- Remove all the negative experiences in the customer journey – Avoid fixed charges/MAB and design a gamified pay-per-use platform with free services as the usage of services goes up
- Have specifically designed end-to-end digital offerings in the areas of focus and strength
- Nudge the customer through a gamified strategy to get a larger share of customer’s engagement/transaction pie
How can MAB be gamified?
Imagine the following MAB regime for a small retail Bank aiming to get a larger share of CASA (And eventually customer’s overall Financial services lifetime value).
- The Bank has 1-1.5% higher deposit rate vs. larger incumbents and a completely digital onboarding for new accounts
- The Bank has zero MAB requirements
- The Bank, through 1/2, seeks to initiate new liability customer relationships with the customers of other larger Banks
- The customers get charged for every additional facility mentioned in the table above that they request (At the time of onboarding or later through the App)
- The customers earn engagement points for every facility they avail or every transaction they undertake
- Customers pass through various thresholds and at every threshold one of the pay-per-use service becomes free
- The Bank, in the interim, has a very well defined nudge strategy to present various Bank offerings to the customer
- The Bank optimises acquisition for a particular set of customers/target Bank where it sees movement of the customers from lower tiers to higher tiers of engagement.
In my case, since the charge was levied by a relatively small deposit seeking Bank, I am outlining a customer journey for them but even larger Banks may employ a modified version of the following strategy.
A happy customer and a seamless customer journey has become a necessity in Financial services thanks to more and more customers getting used to such experiences with various consumer tech companies. It is only a matter of time when the customers make such a journey as their prime selection criteria in selecting their primary Bank.