Commerce Bank

Commerce bank has built its operation on the Premise that core Banking services can be
enhanced by introducing the element of retail experience which they termed as
‘Retailtainment’. They believed that when customers can pay $6 for a cup of coffee at
Starbucks just because of the retail experience, so the customers should be willing to accept
lower interest on the deposits if they are provided with the experience which the customer
valued. One of the important advantage of ‘Retailtainment’ is customer is more willing to
spend more time in the Banks premises and is not too much concerned about the waiting
time .

Schedule Nature of Service

Seven days a week, open 10 min Branch Visit
beyond midnight in some locations.
Banking Service

Customer Role
Level of Service Customer needs to visit Bank branch
and perform basic set of banking
WOWing customer activities

And the differential can be ploughed back into operation to create experience for the
customers for the Bank; they have envisaged multitude of the benefits emerging from this
kind of customer experience, since it leads to greater amount of customer involvement
which helps in generating WOW effect.

This also meant that such experience will lead to:

a) Increased Footfall.
b) Retention of the customers which gets translated into higher lifetime value of the
customer
c) Strengthen the belief of the customer about the Brand Commerce bank that it is
committed towards building customer relationship.

All the above mentioned factors will lead to increased satisfaction among the customers
because of WOW effect.

While the competitors were in the process of shifting customer to low cost channels ,
commerce bank though provided option for alternate channels but did not forced
customers to use them ,they thought like retailers the more the customers visited bank
more revenue can be generated per customers.
Banking industries income can be classified into two major parts interest income which is
nothing but amount earned because difference in the spread of deposit and lending rates,
and Non-interest income earned through banking transactions.

For commerce bank non-interest income has increase much faster compared to interest
income from the period of 1998 to 2001.

Commerce bank
Year 2001 2000 1999 1998
Interest income 624986.00 522941.00 392980.00 296765.00
Interest Expense 218754.00 219976.00 141855.00 116711.00
Net Interest Income 406232.00 302965.00 251125.00 180054.00
         
Non-Interest Income 197894.00 155527.00 96831.00 73837.00
Non-Interest Expense 424574.00 324470.00 237151.00 171420.00
         
Net income 105012.00 83240.00 69446.00 52232.00
         
Net interest income/Non
Interest income 2.05 1.95 2.59 2.44
         
Rate of growth of Interest
income 2.26      
Rate of growth of Non-
Interest income 2.68      
         
Employee 5329.00 4228.00 3407.00 2424.00
Branches 185.00 150.00 120.00 88.00
Employee/Branch 28.81 28.19 28.39 27.55

Commercial bank Industry

Year 2001 2000 1999 1998
Interest income 402853.00 428448.00 367291.00 362016.00
Interest Expense 187696.00 224488.00 175149.00 179265.00
Net Interest Income 215157.00 203960.00 192142.00 182751.00
         
Non-Interest Income 157049.00 153370.00 144373.00 123642.00
Non-Interest Expense 222297.00 216111.00 204213.00 194133.00
         
Net income 73978.00 70945.00 71491.00 61752.00
         
Net interest income/Non
Interest income 1.37 1.33 1.33 1.48
         
Rate of growth of Interest
income 1.18      
Rate of growth of Non-
Interest income 1.27      
 Employee 1701721.00 1670861.00 1657602.00 1626978.00
Branches 65654.00 64079.00 63684.00 61957.00
Employee/Branch 25.92 26.08 26.03 26.26

By comparing the two Financial matrices one for the industry and other for the commercial
bank it could be observed for the period 1998 to 2001 , that Commercial banks Non-interest
income has grown at 2.68 time which is much faster rate compared to the industries non-
interest income growth at 1.27 . These figures clearly demonstrate people do value the
services of Commerce bank and are willing to pay additional price, strengthening the
premise of ‘Retailtainment’.

At the same time is also observed while average no of employees per branch has decreased
from 26.26 in 1998 to 25.92 in 2001, it has increased for commerce bank from 27.55 to
28.81 for the same period. This is also an indicator that cost of operation for each branch of
commerce bank is higher compared to that of industry and decrease in ratio for banking
industry could attribute use of alternate channels for banking.

Till this stage commerce bank has done good enough to maintain the customer expectation
through ‘Retailtainment’ ,however now bank needs to decide if it could continue with same
existing model , since customer perception is changing and decrease in the customer
satisfaction will have direct impact on Commerce Banks operations .

 Referrals will go down, which means cost of new customer acquisition will increase.
 Opportunity for cross-selling and up selling that was possible because of high
customer involvement will be lost, which means cost of serving per customer vis-a-
vis revenue generated will go up.
 One of the important concerns of the banking industry is customer churn rate
because of the dissatisfaction with service levels expected and this may hit
Commerce bank as well, which would mean cost of operation across branches will
increase since the occupancy rate of the customers will decrease. All the more
Commerce banks cost of operation per branch is higher compared to other
competitors.

From the case facts it appears that because of increased growth now even those segments
are customer of Commerce bank for which ‘Retailtainment’ does not carry the value similar
to the one which this premise was built, for them service efficiency is more important
compared to Employees greeting customers and doing nothing,also some of the aspects of
‘Retailtainment’ has disrupted the core banking operations failure in quite a few incidences.

Over all operations seem to have stagnated, at this time strategy should be to build User
patronage through shaping perceptions of value, quality, and increasing user base further
though free hand to the branch managers in designing ‘Retailtainment’ for their branches
should be curtailed, but it should not be done away with.
It is natural for the Commerce bank to have more revenue in the form of Non-interest
income because of the way its operations is designed , so commerce bank should try to
introduce more such services for which customers are willing to pay at the expense of retail
experience they would have when they visit the bank, but at the same bank should try to
streamline/standardize some of the activities in ‘Retailtainment’ which are valued least by
customers , this will also help in reducing the cost of operations of Commerce bank .

Commerce bank should also focus on personalization of the banking services and try to
bring in more prospects for its Loan products which are non-customers of commerce bank
on selective basis , this will increase interest income of commerce bank, and this time
conversion can be from loan customers to banking customers.