The major reasons for the recent radical changes in banking industry's asset portfolio are competition, consolidation, information technology and the need to be customer-centric. Banks could improve the profitability by adopting strategies like market segmentation, innovation, price bundling and relationship. Technology has a major role to play in retail banking, but its role is complementary to customer service initiatives.

The success of retail banking lies on market segmentation, innovation, and pricing of products or services. Banks have to focus on market segmentation to identify differences between groups of potential customers and to decide which products can be served to which groups. McKinsey has identified four principal segments combining personal attitudes to finance and demographic data (see Figure 2). This segmentation is suitable to all emerging Asian markets. The ICICI Bank in India has adopted `Life Stage Segmentation Strategy'. This approach aims to minimize overlaps between two segments by categorizing customers into various segments based on the stage of life they have reached. The bank's philosophy is to have a product ideal for every stage of an individual's life from childhood to retirement and the bank has a wide product range. ICICI Bank is also adopting a strategy of creating a liability-based product along with an asset-based product and vice versa. The potential segments which many banks have not explored so far are self-employed people and housewives.
Self-employed people due to lack of proper identity (i.e., either salary certificate or PNR Number) are still borrowing at a higher rate and banks are not assessing the credit risk premiums properly. Similarly, a suitable banking product is required, which makes the housewife to feel liberated and empowered. The survey of NCAER shows that rural India is gradually possessing variety of consumer durables and electronic goods. Banks have to design suitable products to meet the requirements of rural rich and rural poor. Census of 2001 shows that India has 423 towns (Eight Metros, 19 Mini Metros, 396 Towns), and that financial products are very rare for urban poor and low salaried persons.

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