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The Disruption of Bankers: Technology makes them mis-sell, But their jobs are in trouble


Bank employment is getting disrupted by technology. As transactions get primarily enabled on cards and mobile (at least in cities) you find that that bank employees have a different mandate: To sell different things that can justify the employee’s salary.

First among this is insurance. Insurance has fat fees, which is made by the bank and thus meets the “fee target” that each employee is given. With banks only performing an agency role (instead of as a broker) there is no rule that they need to sell proper products. So they attempt to

  • sell insurance to widows (see my post on HDFC Crest, a terrible insurance plan they tried to sell to my 60+ year old mother)
  • force people who want to get a locker to buy a policy first
  • Make an insurance policy a prerequisite to get a loan
  • Ask customers who come to the branch when their car insurance is lapsing, or if they would like to buy health insurance, or such

I’ve been hit first hand, and after a screaming match with a poor bloke on the other end of a phone because the guy was giving me totally wrong information, I was told he is the branch manager. Imagine, a branch manager being reduced to this.

Moneylife’s excellent piece highlights the pain from the Manager’s end. The secretary of the “Officers assocation” in the State Bank of Hyderabad writes a letter pouring out his woes:

He cites the example of Life Insurance Corp of India (LIC), where the field staff is offered incentives without keeping the administrative set-up in the loop. If any officer is offered a commission, he is sure to pressure his juniors and other field staff to meet targets that would end up benefiting him more than any customer. Moreover, when the field staff finds themselves in such impossible situations, they end up resorting to unethical practices.

The Problem: Bankers aren’t making enough money for their banks

With banks in urban locations pushing online and electronic avenues more and more, actual branch transactions are getting lesser and lesser. If you go to an HDFC Bank to get a bank statement they just ask you to login to your netbanking from a nearby computer and click print. All bank employees are doing is getting signed forms with your PAN card or a request to open an FD (even that is electronic now) or some random edge case.

Even loans aren’t getting disbursed at branches. With centralized data collection and loan procurement through Direct Sales Agents rather than branches, the branches have no authority on loan processing. All they do is courier forms over. That’s all. After that, the central loan department handles all communication.

With the lack of attributable income from deposits (since deposits are electronic) and loans (since they just push paper) there is no banking function these bankers are really performing (for the most part). So, they’re told to push other products for fee income.

And bankers change location and jobs often. So buyers of these products get no support once they have originated the purchase – for after sales service you are simply directed to the insurance company.

Which has worked till now, but it’s come to a point where people have begun to distrust bankers, almost with a vengeance. I’ve met hundreds of people now who simply won’t buy a product suggested by a banker because they have been duped before.

And It Will Get Worse

If banks are getting their customers to buy fixed deposits online, how long before bankers see customers go buy insurance policies directly online? In the last two years, more direct insurance products are getting released and sold than ever before. Every insurer, including LIC, has a direct Term plan which has lower premiums due to lack of commissions. Your banker isn’t going to be around to service you, so you might as well buy direct and save yourself money.

The Way Out: Go Rural

There was a time when all bankers had to spend a certain amount of time in rural and semi-urban locations. To many today this is not even an option, but this is probably the only way out. Go rural and convert the unbanked to banked people, and it’s quite likely you can justify a salary.

The cities will get more and more aggressive for bankers. There are now branches and ATMs a stone’s throw from each other, and RBI rules ensure an ATM is an ATM is an ATM – doesn’t matter which one you use. Nearly all banks provide NEFT and cards for free. You can literally be a customer of any bank and the whole infrastructure will work exactly the same way. In a remarkable twist, and in a very short time, banks have just become commodities. We need more of them, but that’s only to ensure they remain commodities and fight to reduce margins (and thus give customers a better deal).

Bankers will find it just as tough in cities; they will, in my opinion, have to go rural or to unbanked locations. And when RBI squeezes out banks out of the agency insurance business (and forces them to be brokers), or when there are enough horrible misselling cases to put a quick stop to the practice, we will see this even more: if you can’t earn money for a bank on fees or on banking services, you’re probably dispensible.

This is a Sunday post as I sit in the airport waiting. Do post your thoughts.


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