CEM Scores Can Help Bank Understand Future Business Viability: Amitayu Basu, CEO, Numr Research
Amitayu Basu, CEO of Numr Research says INR 70,000 crore in Public Sector Banks in recent budgets will not do much good. Banks need to invest in measuring and improving Net Promoter Score (NPS)
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Q: The banking sector in India is going through a lot of stress lately. Your comments.
Amitayu: 2018 was the very difficult year for the banking industry. This was the first time since 93-94 that the entire sector has seen losses, primary driven by the huge losses suffered by the state owned lenders that make up two-third of the market. Though the private players have remained profitable as a whole, there has been a huge spill over in terms of public perception and have taken a real hit over the past 12 months.
Added to this, the extreme turbulence at the top of some of the biggest private players, the wind has been taken out of the sails.
It is now time to consolidate and build on small gains. A focus inward, towards their investments – current and potential - can have a multiplier effect on the 2019’s performance.
Q: In the recent budget the Govt. has proposed to infuse INR 70,000 crore in Public Sector Banks. Will that change anything?
Amitayu: This bail out using the tax payer's money, does not do anything about the root cause - making bad investments. Using an external measure that really understand the creditors' future business outlook is the only way forward. Using a measure like the NPS which evaluates the creditors customer experience is one of the quickest and least intrusive way that a bank can evaluate its future investments.
Q: What do you think the banks have done wrong in India? Why are the NPAs increasing so much when the disposable income for the citizens have seen a steady growth?
Amitayu: Bubbles will pop! The early 2000’s optimism created this issue that we are seeing the ramification of nearly a decade later. During this period, banks issued loans to all and sundry without much of an idea about the potential success of the investment they were making. Majority of the loans currently classified as NPA originated in this bubble. When the 2008 downturn happened, we faced what is called the ‘twin balance sheet’ problem where both the bankers and the corporates who took the loans came under financial stress. This compounded with widespread fraud, accumulated about 85 thousand crores in losses by the end of 2018.
While the government is taking measures to deal with this debt burden, like the bankruptcy law and remedial processes to restructure stressed assets, the need today is to find the right set of creditors who will add much needed cash infusion to the system.
The funny thing is, that the disposable income of the retail banking customers has actually being going up. There is more money in the economy. Hence there are companies/creditors who are generating higher revenue to drive the economy forward. This time around, the trick will be to be able to correctly predict which company/creditor will enjoy future growth that will outpace the market. Fortunately, there is a proven way to predict this future growth direct from the horse’s mouth – the creditor’s customers.
Q: How does customer insights help in such cases?
Amitayu: A consolidated customer experience management (CEM) score can be a good proxy to help banks understand the future viability of a business they would like to invest in. While the financial and operational measures give a perspective of the current health of their creditor, a customer experience program implemented at the creditor’s end can provide the much needed insight that can indicate the future viability of their investment.
A uniform measurement of this human insight can reduce the risk of the investment and improve the ratio of NPA significantly.
Q: You have been associated with research for a long time. Have you worked with banks in such customer insight researches? Can you share examples of any specific case?
Amitayu: This is a common practice for a lot of VC and PE companies already, where they incorporate a customer experience program as one of the evaluation criteria for their investments. For banks to give a loan they too can make such a measure compulsory.
In order to make this happen a bank can vet, and select a group of CEM implementation agencies that their creditor can choose from to implement a CEM system. Every month the bank along with the other financial measures would also get a Net Promoter Score (NPS) which is a proven indicator of future growth.
Q: Tell us about Numr and its offerings for the banking sector
Amitayu: Numr is one of the few CEM agencies that enable organizations to use NPS as an operational metric on the same lines they would use a measure like sales or inventory. Most banks already use NPS as a measure to manage their own operations and Numr has been working with bankers large and small to help them become operationally aligned with such a program. These organizations have already identified the power of an end to end CEM system in helping them predict growth. However, few banks realize the advantage such a system can bring to evaluation potential creditors and monitoring their progress. Numr has standardized programs in place that can be implemented within a few days that would allow banks to evaluate their creditors in a uniform and structured way and avoid the pittfalls of ‘evergreening’ a losing venture.
Q: How do you predict an “at risk” customer using Numr? How does the data help a bank?
Amitayu: Numr CEM programs can highlight the potential risks in customer experience just as an audit agency highlights the issues with the creditor’s balance sheet. Numr uses data across the industry and is able to predict with a lot of accuracy about the relative positioning of an investment. The system uses machine learning to aggregate millions of customer feedback both structured and unstructured, and cull out inferences that gives directional inputs to the creditor.
From the bank’s point of view, If they are able to quickly identify the non-performing creditors via the experience their customers are having, they can take an action before it becomes too late. Having a future looking measure in the arsenal would be a differentiator for a bank that is vary of offering new lows in this current market outlook.
Q: It is not easy to measure Customer experience in banking. What are the exact metrics a banker should focus on?
Amitayu: The holy grail is to be able to ensure a uniform measure that can be used across industries that can help them protect their investment without too much of an outlay from their creditors. And NPS is just this measure that can fill that role. NPS has been used across the world for industries as varied as technology to finance to airlines to healthcare – it works for B2B as well as B2C operations and is equally effective in both situations to predict future growth. Just like we have benchmakrs for how profitable a company in an industry needs to be, a similar benchmark for NPS can help banks evaluate the performance of their asset in an uniform and objective manner.
Q: …..And measuring customer insights leads to an increase in bank’s business. How?
Amitayu: The last 10 years has seen a rise of NPA to a level never seen before in the Indian market. While there were systemic issues that allowed this to happened, the challenge in identifying future winners remain. Bankers who are able to predict with greater accuracy will win! To that effect, banks who understand the power of a CEM system in identifying future winners will be ones who catch the wind in their sails to sail on through these choppy waters.