Responsible lending and customer value proposition

Devashish Das Gupta

There is no gainsaying the fact that the Internet is, by far, the most defining innovations of the modern era. Internet best illustrates Joseph Schumpeter’s process of “creative destruction” where relentless improvements result in new products and technologies rapidly replacing outdated ones. Schumpeter considered such “destructive” obsolescence an “essential fact about capitalism”.

In several ways, the Internet has democratised the world. This has been aided greatly by the telecommunication revolution and the ever-declining mobile handset acquisition costs. There cannot be a better illustration of this phenomenon than India itself.

More than two-decades ago, when the first services launched, a mobile phone was a luxury. Today, your milkman or the kabadiwala (the guy who picks up junk from your home with a benign smile) or even the guy who helps you commute in crowded city streets by pulling a cycle rickshaw carries one. In 1995, a basic voice-only mobile cost was more than Rs 25,000. Today, a smartphone costs less than Rs 5,000 making palmtop internet browsing as simple as brushing your teeth or tying your shoelaces.

Responsible lending aims at making a better and safe marketplace for all the lenders and borrowers so that there is no exploitation of the people and technology helps to maintain that relationship. I believe responsible borrowing is a key factor in the relationship between the lender and the borrower as well as in our customers’ long-term prosperity and growth. As a responsible lender, the organisations should be committed to doing the right thing by taking appropriate steps to ensure that the debt our customers take on is appropriate as per their needs and financial capacity and the internet is making it easier for them.

The benefit of technology has perhaps best manifested itself in banking and financial services operations. A recent paper in the Indian Journal of Science and Technology titled "Banking Technology Innovations in India: Enhancing Customer Value and Satisfaction" by YV Rao and Srinivasa Rao Budde of the Department of Management Studies, Vignan’s University shows that two-thirds of customers demand a consistent service offering through multiple banking channels.

The survey quoted in the paper shows that 67 percent of customers prefer to interact with their bank through multiple channels. Almost one-third of customers (34 percent) rate the availability of banking services through the branch, Internet, and mobile channels as “very important”. Only 21 percent of customers still prefer to interact with their bank through a single channel such as through branch, Internet, or mobile banking. The message coming out of the survey is clear: it is absolutely essential for banks, non-banking finance companies (NBFCs) and other financial institutions to integrate Internet, branch network, and mobile banking channels in order to attract and retain customers.

Rapid technological changes have catapulted customer value proposition at the heart of modern banking operations. A customer value proposition, by conventional definition, is a description of the experiences a target user will realise upon purchase and use of a product. Many banks have launched their own mobile applications like State Bank Anywhere by SBI Bank, Pockets by ICICI Bank, CanMobile by Canara Bank, etc. which is making taking loans and other banking transactions easier and safer for the customers thereby keeping the customers aware about their plans and offers.

As a study by MicroSave has noted, traditional financial services can be irrelevant or of limited value to the low-income market. Vodafone’s initial research in Kenya, quoted by the MicroSave study, has noted a key customer requirement for a financial product to succeed: (a) the ability to answer the simple question, “What is in it for me? I need a secure, convenient and lower cost service for financial products that meet my requirements”.

This, in a sense, encapsulates the importance of customer value proposition in the modern financial services industry, particularly in areas where companies seek to extend loans in unbanked areas. It would not be incorrect to say that customer value proposition is, perhaps, the most important apparatus in the product marketer’s toolset. In many ways, a thoroughly researched and carefully crafted customer value proposition gives a complete understanding about how a product will realistically be valued by the target user.

“Disruptive” hyper-efficient innovations will drive business decisions. Companies that focus on lateral or horizontal thinking will stay ahead of competition as revenue models will have to foresee or, at the very least, keep pace with technological developments and customer expectations. In a new ‘smart’ world, technology will form the back-bone of revealing and delivering people’s preferences. Digitisation is inevitable. Smart banking is about adapting the fruits of technology through models that are scalable, profitable and, importantly, commercially more responsible through focused, rather than templatised, customer value propositions.

Organisations need to ensure that the customers are able to access their products and services and are not exploited through any unfair means. Internet can be the best and the most secure way to reach customers and make them feel happy and satisfied.

(The author is a Marketing Faculty at IIM Lucknow)