One of the mid-sized Indian Banks with a focus on increasing retail deposits charged me yesterday, for not maintaining the Minimum Account Balance (MAB) in my savings account. 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.
This is a trivial issue in terms of the amounts involved but it has far reaching consequences in terms of customer positioning and churn; especially given the many questions that I receive from the “traditional Bankers” about “Neo-Banks”, their role 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 MAB penalties are the administrative overhead of maintaining an active account with the bank and should be charged only to customers who can afford them.
The majority of wallets and neo-banking entities explicitly state that there are no MAB requirements. Let’s look at some numbers first. These are 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|
The variable cost of maintaining an active account
Bankers say that a savings account bundles a variety of services that customers have come to expect, as shown in the table below. So, it is only fair that the Bank expects the customer to maintain some balance in the account to cover the costs for these services. In reality, however, high administrative fees are a thing of the past, and the default services that accompany a savings account may be reduced to a bare minimum in today’s “digital-mostly banking”. The key is to divide the various expected services into those that cannot be billed as pay-per-use services and those that can. If the customer fails to maintain a certain balance, it might make sense to charge them explicitly for these services rather than forcing them to pay for an implicit number of cheques or ATM withdrawals.
|Service||Avoidable/Pay per use?|
|Debit card charges||No|
|Cheque Book and Clearing||Yes|
|Passbook, statement updates||Yes|
The Impact of MAB removal on top-line – sub-1% for SBI (whose numbers are public)
Despite the lack of detailed numbers on this topic as banks rarely break down MAB charges, one data point is the explanation given on the floor of parliament due to SBI’s MAB charges in FY18.
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).
The idea of charging MABs month after month while the customers look the other way isn’t great. The customer affected by MAB charges is certainly less likely to purchase services from the same bank in the future. The importance of this is magnified for Banks that are pursuing low-cost retail deposits and whose first relationship with the customer is a liability relationship.
What should the Banks do? : Acquire – Delight – Nudge
Banking has historically been supported by a strong branch network, a trusted brand, and high economies of scale. Building physical distribution has always been expensive and time-consuming. As a result, the older banks with larger distribution footprints have been larger in size. This is now changing in today’s world of digital-first distribution (think DBS).
Apart from digitization and openness to the digital-mostly Banking experience, another historical tenet that is changing nowadays is the unbundling of the Banking relationships vs strong, bundled, monolithic financial relationships with 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 have both 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.