A STUDY OF THE IMPACT OF ELECTRONIC CUSTOMER RELATIONSHIP MANAGEMENT ON CUSTOMER LOYALTY BY USING STRUCTURAL EQUATION MODELING IN BANKING SECTOR

Abstract

INTRODUCTION:The Indian banking sector has undergone phenomenal change with the initiation of financial sector reforms leading to opening up of sectoral markets and emergence of private banks in the otherwise nationalized bank dominated domain. The change has been further stimulated with the introduction of technologies, particularly internet and information technology. Modern bank customers are enlightened enough to make investment decisions and other transactions and thereby choose a bank or a combination of banks. The transition of the banking sector has also ensured that the banks increase their spectrum of activities from a linear service to a host of cross and up-selling services. Historically, CRM has been a feature of the service marketing sector, where intangible nature of services and its inseparability fromits delivery and consumption process have made service provider-customer dyadic relationship quite pivotal in determining customer loyalty, retention of valued customers, profitability etc. The financial services industry has gone through a rapid structural change (Peter, 2012). Competitive pressure and customer demand has compelled the financial services providers focus on core competencies in order to deliver better value to their customers. Consequently, companies that were formally highly integrated have split into divisions or independent companies focusing on different parts of the value chain (Heinrich & Leist, 2002). On the other hand, many customers demand a complete range of financial products in order to satisfy their financial 'on-stop' needs. This forces financial services companies to collaborate with providers of complementary products and services. Ultimately, networks of financial services companies emerged (Alt & Reitbauer, 2005). This emergence stimulated initiation of networks consisting of relationship managers, product providers and transaction processors (Heinrich & Leist, 2002); (Hagel & Singer, 2014). CRM emerged as a response to decreasing customer loyalty in different industries. The reasons for decreasing customer loyalty in the financial services industries are manifold and closely interconnected. Three fundamental factors can be identified (Walter, 2015); (Kamer, 2013); (Krisnan, 2012):■ New technological opportunities.■ Increasing competition from new market entrants.■ Customers' changing behaviour.Community and retail banking system has evolved as a major domain of CRM application. As banks automated back-office functions with mainframes, and the number of products and services, particularly related to cross - selling and up-selling activities, grew, banks found it increasingly necessary to introduce and replace its branchbased filing cards with a Central Information file (CIF). At the beginning of the 1970s, CIFS were equivalent to centrally located file cards which during the latter half of the decade was replaced by mainframe based hierarchical database management system. Even with computerized CIFs it became difficult to update customer records particularly at a time when the banking sector proliferated rapidly and expanded its business spectrum in cross-selling and up-selling product lines like insurance, mutual funds, cards etc. A customer investing in a diversified portfolio across the product/service line offer of a single bank has different data for different accounts. Banks that are organized around product 'silos' with separate systems for deposit accounts and other transaction involvements, found that effective customer relationship revolves around retrieval of data from different databases and synchronizing it according to homogeneous information provided. (Panda & Parida, 2009) pointed out the needs for implementation of CRM solutions in retail banking which are as follows:(i) Need for increase in operating efficiencies.(ii) Need to derive more values from the employees.(iii) Dealing with increasing competition(iv) Managing the rise in NPAs(v) Increasing importance of Fee-based income(vi) Lack of clarity regarding branch banking(vii) Emergence of Universal banking concept(viii) Vasudevan Committee recommendations. …