Jostling for Retail Customers

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Nigerian banks have increasingly shifted their focus to retail customers in their bid to enhance earnings and develop sustainable sources of income, following the withdrawal of public sector deposits from the system. Obinna Chima reports

Clearly, there has been a structural shift in banks’ business model in Nigeria. This development which is visibly in the aggressive campaigns and reward schemes being churned out in the industry reflects adjustments in their business strategies.

Specifically, across the industry, banks have intensified strategies to remain dominant in the retail segment of the market. A lot of banks have also refreshed their retail and treasury products to make them attractive to customers. As part of their campaign drive, several banks offer to reward customers willing to deposit more cash with them through promotions where prizes such as cash, cars, generators, refrigerators, and other electronic gadgets are won in electronic draws.

Some of the factors responsible for the decision to continue to woo retail customers include the implementation of the treasury single account (TSA), weak economic activities, the restrictive monetary policy stance in the country as well as the removal of oil subsidy. Indeed, the current trend was largely influenced by the TSA implementation by the President Muhammadu Buhari administration through which it was estimated that commercial banks lost up to N3.5 trillion of their deposits in the full rollout of the policy.

Banks’ Rising Savings Deposits
Indeed, the third quarter 2016 unaudited financial statements of most Nigerian banks revealed an uptick in their savings deposits. This clearly reflects the benefits the financial institutions are reaping from their aggressive drive towards mobilising retail deposits. With group profits and revenues decreasing because of the economic recession and credit crunch, the retail business has assumed a bigger share of total banking revenues.

For instance, the United Bank for Africa Plc’s third quarter 2016 results showed that its savings deposits improved by 23 per cent to N501.256 billion as at third quarter of last year, compared with the N407.036 billion recorded in the comparable period of 2015.

Also, Zenith Bank Plc’s recorded a 44 per cent growth in its savings deposits to N331.375 billion as at the third quarter of last year, higher than the N229.396 billion it realised as at third quarter 2015. Similarly, Fidelity Bank’s savings deposit improved by 35.4 per cent to N143.385 billion as at third quarter of 2016, higher than the N105.925 billion recorded in the comparable period of 2015.

Guaranty Trust Bank Plc also benefited from the rise in savings deposits seen in the industry as its third quarter 2016 results showed a 30 per cent growth in savings, to N432.342 billion, higher than the N332.781 billion it garnered in the comparable period of 2015. In the same vein, First City Monument Bank’s savings deposits also rose by 14.6 per cent, from N112.728 billion as at the third quarter of 2015, to N129.170 billion as at third quarter of last year. Also, Access Bank’s results showed that its savings deposits improved by 18 per cent from N137.963 billion as at the end of third quarter 2015, to N162.362 as third quarter last year.

The retail business model has proven to be an irreplaceable source of stability for most banks as well as by providing cushion against sharp downturns.

Therefore, banking experts insisted that given the huge population of the unbanked in the country, retail banking would drive the future of banking in Nigeria. They stated that banks have no choice but to remain innovative and also to continue reinforcing their core businesses to as to remain competitive in that segment of the market. According to financial market analysts, the new focus of banks would strengthen the industry performance and enable the financial institutions record sustainable profitability.

Banking in developing countries, especially in a country like Nigeria where banking is a huge industry, is not useful except to the extent that it is contributing to economic growth, they added. For banking to contribute to economic growth, the retail segment should be actively involved.

Analysts at Afrinvest Securities Limited had in a report, pointed out that with the increased focus on the retail segment, “the future of banking is set to take a dramatic turn.”
“We believe banks will begin to specialise in specific areas of business to ensure they compete effectively in the new banking landscape. While most banks are hinged on product differentiation strategy using innovation to remain afloat; we keep a keen watch on the industry’s competitiveness as events unfold.

“The era of double digits earnings growth in the Nigerian banking industry has gradually begun to thin-out. The numerous liquidity tightening policies introduced by the CBN has constantly exerted pressure on the banks profitability,” Afrinvest added.

The Managing Director/Chief Executive Officer, Fidelity Bank Plc, Mr. Nnamdi Okonkwo recently said the next phase of growth in the bank would among other things, be driven by a fierce competition in the retail banking segment.

Furthermore, the Fidelity Bank boss said the bank intends to remain steadfast in encouraging Nigerian entrepreneurs through delivering special products and services.

“The need to respond to our growing customer base and deepen our operation in the growing retail market vis-à-vis our commitment to make financial services easy and accessible necessitated further expansion in our products and services distribution capabilities,” he added.

Similarly, the Chief Executive Officer, Guaranty Trust Bank Plc (GTBank), Mr. Segun Agbaje said the bank would continue to drive its presence in the Nigerian market through retail focused products.

A former Chief Executive Officer, Citibank Nigeria Limited, Mr. Omar Hafeez, had stressed the need for to focus on their core competence and strength. He urged financial institutions to design retail strategies that focuses on what he termed “widening the net” as opposed to playing in the “same narrow net and trying to beat each other by offering five per cent more or one per cent more would not be proper.”
He however pointed out that every change in regulation means bankers have to be smart in order for their organisations to remain profitable.

Hafeez added: “If you were basing your model on public sector deposit, you can’t do that anymore, so you just have to alter it. I think that each bank needs to have specific strategy from the asset-liability perspective. Repeating what everybody else is doing won’t work as it always increase cost as you go wider and wider to attract customers.

“It is interesting to note that the number of unbanked people in our market is quite large. When you have financial inclusion targets, especially around the agency banking model, that gives you an avenue to reach out to people traditionally that were not really being banked.”
According to him, with agency banking, financial institutions can attract a wider fraction of savers.

“I think development of the assets side of the balance sheet from a consumer perspective, which is credit cards, car loans, which have started but at a very early stage, would really bring about a viable retail banking business. Really, retail banking should be about the asset class. It should be about buying a house, cars, without having cash in your pocket. You should be able to leverage on banks’ products. So that really is the progress that needs to happen in that business to make it viable,” he added.

On his part, the Managing Director, Diamond Bank Plc, Mr. Uzoma Dozie believes that to be successful in retail banking, banks must adopt strategies that are convenient, accessible and cost effective to their customers.

According to him, one of the responsibilities of financial institutions especially in developing economies is to develop the market.

“If we don’t bring more people into the financial system, then we don’t have the customer base with which our business can grow. So for us, why the retail business is important for our future sustainability is that if they are not financially included, they will not have access to finance and will not be able to grow,” Uzoma added.

Retail Banking Winning Strategies
The Boston Consulting Group (BCG) in a report titled: Retail Banking: Winning Strategies and Business Models Revisited,” noted that retail-focused banks are less likely than more diversified banks to experience wild swings in performance.

“It is important to note, however, that every market has its own champions—banks that outperformed their peers over the long term or during crisis. Banks that are striving for better performance should look first and foremost at the top performers in their own markets. These local peers provide the best lessons for tackling challenges that are endemic to the local market. “Their second reference point should be banks that share a similar business model, irrespective of the market. For as much as banking performance depends on the prevailing conditions in a specific market, it also reflects the strengths and weaknesses of different business models. And the characteristics of these business models remain fairly constant across markets,” the BCG report stated.

Furthermore, it noted that in other to achieve strong performance, banks need to strike a balance between growth and risk. Some of the most competitive banks, according to the report, had invested in advanced risk-assessment and portfolio-structuring capabilities, allowing their credit policies to deftly combine prudence with sophistication. At the same time, these banks had been careful not to become overly dependent on mathematical models.

“By regrounding their risk-management models on the basis of richer information from customer relationships—reflecting new behaviors shaped by the crisis—these top performers are using risk management to drive the business. All banks have been mobilised to upgrade their risk-management skills while getting ready to deal with a rising tide of defaults.

“Early-warning systems, product flexibility (the ability to restructure a product to reflect a customer’s changed circumstances), collection departments, and debt-restructuring skills are being strengthened to meet the requirements of a far more demanding, stressful environment,” it added.

Also, PricewaterhouseCoopers International (PwC) in a report titled: “Retail Banking 2020:Evolution or Revolution?” stated that nearly all bankers surveyed view attracting new customers as one of their top challenges over the next two years, adding that banks are hungry for growth, and finding new customers would be the first response of a good product banker.

However, banks also recognise the need to deepen their customer relationships and focus more on specific customer outcomes. Hence, enhancing customer service is the number one investment priority for banks, globally, PwC added.

It pointed out that innovation has become a major concern for most chief executive officers (CEOs), stating that 97 per cent of CEOs consider innovation as a key priority for top- and bottom-line growth, but only 10 per cent of CEOs viewed their organisations as innovation leaders. Further, 64 per cent of CEOs agreed in the PwC survey that neither innovation nor operational effectiveness are dominant – and are looking to succeed at both.

“Banks today typically do not know their customer very well. Now, at the product level, many banks have invested significantly in customer analytics – plenty of credit card providers, for example, understanding a customer’s value potential, can track spending patterns and make targeted offers. Yet, many still send customers multiple product offers in the hope that something will stick.

“The winners of 2020 will develop a much deeper, holistic understanding of their customers. They will need to acquire, integrate and analyse multiple sources of internal and external data. They will be able to understand their customers’ needs, and be present with a relevant solution at the time of need. They will simplify their product sets. And they will redesign their core processes from a customer point of view.

“Further, they will (re)answer the most fundamental questions of who are their target customers, what is their value proposition to those customers and what competitive advantages will distinguish them in the marketplace. A bank does not need to be all things to all people to succeed.

“Much is changing in the banking landscape – with regulation, technology, demographics, changing customer expectations, greater competition and issues with banks’ own legacy business and operating models. The challenges are clear, even if the ultimate endgame is not,” it added.
According to the report, banks need to get ahead of these challenges and retool to win in 2020.

It added: “They need to make hard choices about which customers to serve, how to win and where not to play. They need to rebuild their organisations around the customer, simplify and structurally reduce cost. They need to learn to be agile, innovative and adaptable in order to execute effectively – and deal with uncertainty as the future unfolds. They need to do things differently.

“Each bank’s unique response will depend upon the bank’s current position, aspirations for the future, desired customer focus, organisational capabilities, brand promise, regulatory situation and capital constraints. Banks should consider the posture they wish to adopt. Do they want to shape this future, rapidly follow, or manage defensively, putting off change? Staying the same is not an option.”

From the foregoing, in other for banks to be relevant in the retail segment of the market, there is need for them to adopt unique strategies to achieve success. They must consider products that improve the lifestyle of their customers as well as to help them fulfill their aspirations.

Every bank needs to develop a strategy to tackle these challenges. One that transcends the status quo and considers all possibilities. One that can adapt to an uncertain future. And one that takes an end-to-end view – integrates the changes in markets, customers, risk, regulation, operations, technology – and the challenges of implementing real-world large- scale change.