Consulting Case Interview Questions - Retail Bank is facing Decline in Profit

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Profitability Case for Consulting Interview

Retail Bank is Facing Decline in Profit

Interviewer: Our client is a retail bank which has been facing a decline in profits. Please identify the root cause of the issue and provide recommendations. 

 

Priyanka: To get a better understanding of the problem, I would like to ask some clarification questions. 
Interviewer: Yes, please go ahead. 
 

Priyanka: What are the services that our bank provides? In which geographical location is our bank operating?  
Interviewer:  Our bank is like any other retail bank in India. It operates across all regions of India. It has the same services and customer base as other retail banks. 

 
Priyanka:  Is there a particular department that is facing this issue? Also is the issue restricted to a particular geography? And since how long has the client been facing this issue? 
Interviewer:  Yes, the issue is being faced by the ATM Department of the bank. The issue is specific to the Mumbai region. And the client has been facing this issue since past one year. 

 

Priyanka: Is this decline in profits in Mumbai been observed only for our client or other retail banks also witnessing the same? 
Interviewer:  The issue is restricted to our client only. 
 

Summary 

Priyanka: Our client who is a major retail bank has been facing decline in profits in the ATM department located in Mumbai. The decline is specific to our client. We want to understand the root cause of the decline in profits & help him solve this. 
Interviewer:  Yes, that’s correct. 

 
 

Priyanka: Decline in profit can be due to decrease in revenue, increase in cost or both. Do we have any idea on what has been affected? 
Interviewer: Although both have been impacted, you can proceed with the analysis of cost side first. We will come to revenue side later. 

 

Priyanka: The cost for an ATM can be broken down in fixed and variable costs. 
Fixed costs include – Electricity cost, Rent and maintenance, Employee Salary like Security guard salary, Staff salaries etc. 
Variable costs include – Cost of transaction slips, Cost of ATM cards etc. 
Interviewer:  Can you talk more about the transaction cost ? 


Profitability Framework for Analysis

Priyanka: Ok, as I understand, when I am using a card from bank A in ATM of bank B, I have to incur a transaction cost. First few transactions are free as the bank bears this cost but beyond a certain point there is a transaction cost which I have to bear.  

Has this transaction cost increased for our client? 

Interviewer: Yes indeed. Why do you think this should have happened? 

 

Priyanka: Well, has our client launched some new cards in the market? Also have the number of ATMs for our client increased? 
Interviewer: So, we launched some promotional cards in Mumbai post our tie-up with a major e-commerce partner. These promotional cards have gained traction and our card users have gone up. Also, our ATMs have not increased. 

 

Priyanka: As I can understand, the new card users are using our cards in other ATM branches. Since the client must pay for the first 3-4 transactions hence the transaction cost for our client has increased.  

This is because of two reasons: 

  • Our new customers are acquainted with the old ATMs 
  • Our client has not increased the number of ATMs 

Interviewer: This is correctly identified. Can you think of why the ATM Department’s revenue might have decreased?  

 

Priyanka: Earlier customers might be using other bank cards in our ATM for which we will earn revenue from transaction fees. Now that they have stopped using other bank cards and are using our card, we are not earning that money. 

Interviewer: True, what should our client do now? 

 

Priyanka: So, we can look at short-term & long-term picture. 

Short-term: 

  • The impact will die down because after 3-4 transactions the customers will have to bear the cost themselves. 
  • We can incentivize the customers to use our ATMs by providing a small discount. 

Long-term: 

  • Our client should open ATMs in strategic locations should they plan to launch other cards. 

Interviewer: That was a great discussion. Thank you. 



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