Distributing financial services products has more nuances than are often appreciated by bankers. Different customer segments have different needs. Thus, for example, large companies behave very differently from individuals. This should seem obvious enough, but many financial services companies use the same distribution channel to serve these customers in an undifferentiated manner. This leads to customer dissatisfaction and often customer desertion.

Large companies have skilled managers in their treasury and finance functions whose job depends upon a better understanding of how different financial structures can serve their company?s finances better.

They like talking to experts who can help them with this. They care about top-quality advice by professionals who understand their specific situation. They expect these experts to be available to them and don?t really care where these people are located as long as they reach out to them proactively.

Foreign banks in India, with 0.4% of branches to the 62% of nationalised banks, have organised operational structures to deliver on large customers? need for expertise, and have experienced relationship managers serving them from a few specialised metropolitan branches. Resultantly, as example, foreign banks have Rs 2,763 crore as foreign exchange income, at Rs 12 crore per branch, to Rs 1,595 crore for nationalised banks, at Rs 4 lakh per branch. Clearly, large companies prefer the expertise on offer in foreign banks.

However, individual customers are rather different. The ticket size of their transactions is smaller and many more of their needs can be standardised. What they seek is convenience, simplicity and speed. They would like to be able to withdraw money when they want at a place that is close to either their home or their office. Some of them feel more at ease doing this in a branch through a branch teller whom they know, while others (typically younger people) like doing it at an ATM at a time of their choice.

When we consider the Indian banking system, we find some players listening to their retail customers more carefully than others. Let me share some statistics of the banking system to make my point. As on 31 March, 2007, there were 57,042 bank branches and 27,088 ATMs in India. Nationalised banks had 35,636 branches and 9,888 ATMs; SBI group had 14,030 branches and 6,441 ATMs; old private sector banks had 4,606 branches and 1,607 ATMs, while new private sector banks had 2,497 branches and 8,192 ATMs and foreign banks had 227 branches and 960 ATMs. The ratio of ATMs to branches for India as a whole is 0.47, but the ratio for foreign banks and new private sector banks is 4.2 and 3.3 ATMs per branch. The average for countries like the UK, US and Australia is also over four ATMs per branch. The Indian retail customer has rewarded the recognition by the new private sector banks and foreign banks of their love for ATMs by giving them more of their transactions account business. Thus, the new private sector banks and foreign banks have grown their current accounts and savings accounts (Casa) by 7% and 11% between 2002 and 2007, respectively, compared to the 3.5% improvement in this ratio for nationalised banks and old private sector banks.

Channel preferences for retail loans are also quite clear. Individuals hate to borrow. They take loans on the back of their need to buy a car or house, or on important occasions like their daughter?s wedding. Thus, finance companies that have tied up with builders or car dealers and can quickly process these loans in a hassle-free manner get most of the business. I am not surprised that ICICI and HDFC have more than 50% of the mortgage market. Customer preferences are clear and rewarded by those who listen. Why don?t some banks listen? The inertia of old habit, I guess.

Janmejaya K Sinha is managing director, The Boston Consulting Group, India. These are his personal views