STRATEGIES REQUIRED FOR BANKS TO DRIVE CONSUMER BANKING GLOBALLY
SAAD ANWAR HASHMI
July 30 - Aug 5, 2012
Banks are involved in the prime business of earning a spread through lending and deposit rate. Advances are primarily channelized through consumer or corporate lending globally. The most successful banks in the world are known for the degree of financial innovation inculcated in asset based lending, primarily the strength of the consumer business. There is increased focus on marketing to drive the consumer business primarily through alternate channels where consumers are not required to visit the branch and can execute banking transactions through handheld divides mainly mobile phones and the internet. According to the Ernst and Young conducted a Global Consumer Banking Survey for 2012, 47% of the customers prefer online banking than having to visit the branch. Since the subprime mortgage crisis leading to slowdown in lending, banks globally are now making an effort to obtain a larger share of deposits which would eventually lead to higher advances. The challenge which the banks face is pressure on margins, threat of counter strategies from current and new entrants, transaction costs and more stringent regulatory pressures.
Ernst and Young Global Consumer Banking Survey for 2012 covers responses received from 28,000 customers covering 35 countries. According to the survey, consumer confidence in the banking sector has decreased by 40%. Consumer lending post the subprime crisis was disrupted and now the European crisis has kept banks in Europe cautious with the lending. Developing markets which includes countries in Middle East including Pakistan and India continue to show high potential since quantum of population do not either operate bank accounts or do operate bank accounts but do not take advantage of consumer products including cards, personal loans and mortgages. Considering USA, mortgage financing is being executed by the banks, however with much more stringent requirements to ensure those qualifying for a loan will not default leading to foreclosures. With such requirements in place, obtaining a fresh loan for purchase of property has become tough leading to hike in rentals for both apartments and homes. With multiple options available and stiff competition from banks in Europe and USA, borrowers who qualify for a loan find themselves being pulled from various banks for credit being offered best possible rate.
From the perspective of banks having global presence, regional strategies differ which respect to geographic location of the borrowers. Slowdown in consumer lending has led to alternate ways to earn revenue where banks strive to increase non-interest income mainly from services through upward revision in charges which is has been a cause of concern for the borrowers. Once again with stiff competition in the market and several banks competing for same borrowers and deposits, customer loyalty is low whereas only 27% of global consumers who use consumer banking are induced under a loyalty or reward program. New entrants in the market aim to beat conventional banks through better rates, loyalty programs, personalized services and technology to provide the maximum possible services not offered by competing banks. Marketing budgets specially in western markets have been squeezed and the only channel through which customers can be informed about products and serviced being offered by each individual bank. Since banks are in the business of services, in absence of marketing, customers tend to take advice from friends, family and colleagues. The success of word of mouth and the influence of one customer to sway towards an individual bank depends on the quality of customers services. It is said that since banks tend to offer homogeneous products within minimum differentiation, the success of a bank globally primarily resides on customer services and offering something which is considered bound the expectation of the customer.
With advancement in technology and speed with which information is available, customers also obtain banking advice from blogs and websites specializing in financial comparisons of products. Customers can carry out their own research and analyze the offering giving little control to banks to sway this decision making process with the reviews existing on social media and various websites. Once again, positive implication is dependent on technology, products, pricing and above all the customer services which results with experience customers carry forward and share with others. Demanding customers need specialized and tailor made services which has led to premium banking offered to currently only high networth customers. Others tend to complain that in order to improve the level of service offered, banks do not place outbound calls to obtain customer feedback and inculcate the opinions received towards product and service improvements. Once again, the challenge faced by the banks is to offer specialized, one to one, or tailor made services to all customers independent of financial worth.
In the long run what is bound to benefit banks bottom line that runs alongside customer services is competitive pricing and marketing efforts which results in customer loyalty leading to cross sell opportunities. In emerging markets, loyalty programs and rewards have a crucial role in customer retention keeping with opportunities to provide banking services to those who remain unbanked.
Consumer Banking is the most critical business line for any bank globally and is the reason for banks long term recognition and brand value in the eyes of the customer. Customers are more technology savvy and with information available instantaneously through various websites, bogs, social media and television, can make informed decisions with bank offerings. Retaining the customers has posed a tough challenge for the banks due to stiff competition where customers tend to switch from bank to bank seeking better pricing and customer services. Globally banks are keen to retain the customers despite recessionary impact through increased focus on technology, product improvements, customer services and fine pricing. Customers seek specialized products and services tailor made to their needs which means that banks are required to create a business model where products can be modified and offered based on consumer needs to generate long term loyalty and product usage.
Differentiated effect will depend on financial innovation and strive to create and launch new products to tap into consumer needs. Marketing is required to be shifted from push to pull strategy where customers are driven towards the bank based on product offering and services with each customers acting as an influencer in their own right to promote the bank through word of mouth. Since the world is globally connected, customers require deposit and asset based products to be available online to apply for and avail without having the need to visit the branch. Credit assessment is requited to be automated and online where customers obtain an immediate response to be eligible for a product offering. There is no one strategy that can work for a single bank, however, banks can modify their offering based on customer focus and modify the product and services offered to increase the customer base and retain loyal customers.