Race for Retail Banking Supremacy

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Nigerian banks are increasingly shifting their focus towards retail customers in their bid to develop sustainable sources of income, writes Obinna Chima

Clearly, there has been a structural shift in banks’ business model in Nigeria. This development which is visible 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. 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.
This drive to have an increased share of the retail banking market is expected to take a new shape this year, following the ongoing business combination deal between Access Bank and Diamond Bank Plc.

The deal if finalised, is expected to create Nigeria and Africa’s largest retail bank by customers. The Central Bank of Nigeria (CBN) had approved the deal.
For the Group Managing Director, Access Bank, Mr. Herbert Wigwe, the combined enterprise would be a large and diversified bank with an extremely extensive retail footprint.

He added, “Together, we would have 27 million customers, which is the largest customer base of any bank on the continent. We would have 33,000 point of sale (PoS) terminals, 3,300 automated teller machines (ATMs) and all of that.”
Speaking further, Wigwe said the combination of Access Bank and Diamond Bank would ensure that “we are able to take and solve customers’ issues right from the wholesale end, down to the man in the village, just because of the use of technology.”

Increasing Competition
The development in the banking sector is expected to deepen the level of rivalry between commercial banks the country, the Managing Director/Chief Executive Officer, Financial Derivatives Company Limited, Mr. Bismarck Rewane has said.
Rewane, who stated this in a report he presented at the Lagos Business School, noted that: “Banking industry attractiveness is deteriorating and rivalry intensifying. Because the industry is consolidating, the level of rivalry between competitors would intensify and when they compete, they reduce price and they give consumers more choice.

“The banks are being cannibalised from the outside by the telecom companies (telecoms) because the telecoms are going to have mobile payment systems and they (the telecoms) have very deep pockets, so they invest significantly.

“Telecoms are the ones that invest in capital expenditure. They invest on average between $1 billion and $2 billion annually on capital expenditure, which the banks can never afford to spend.
“So, because of this, the banking industry is going to go through a major shake out. The banks are already under pressure, but the pressure would intensify in the coming years.”
MTN Nigeria and Airtel Nigeria recently announced plan to set up a Payment Service Bank (PSB) in Nigeria, following the Central Bank of Nigeria (CBN) issuance of guidelines for licensing PSBs in the country.

The PSBs are expected to leverage on mobile and digital channels to enhance financial inclusion and stimulate economic activities at the grassroots through the provision of financial services
Airtel had commended the CBN for issuing guidelines for licensing of PSBs in Nigeria, saying the move would help promote financial inclusion as well as enhance access to financial services to the rural poor, low income earners and financially excluded of the society. It had said it would apply for the PSB licence through a subsidiary and in line with the CBN guidelines, as it has a vision of becoming the largest and most secured PSB in Nigeria.

Commenting on the CBN guidelines for Mobile Banking Licence, the Chief Executive Officer and Managing Director of Airtel Nigeria, Mr. Segun Ogunsanya, had said, “We welcome the development and we express profound appreciation to the CBN for its commitment to driving financial inclusion through technology.
“In line with the guidelines shared by the CBN, we have commenced the process of applying for a license as we believe that we are at a vantage position to empower and connect more Nigerians as well as deliver mobile banking services to the door steps of the financially excluded. Folks will no longer need to keep their money inside cooking pots or under their beds because we will securely connect them to the financial system.”

On his part, the Chief Executive Officer of MTN, Mr. Rob Shuter, had said it would next month, apply for a mobile-money licence. He had said after securing the licence, it would be followed by a concerted financial-services roll out in 2019 to its more than 60 million Nigerian subscribers.

Winning Strategies for Retail Banks
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.

Also, PricewaterhouseCoopers International (PwC) had in a report stated that banks recognised 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.

“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 fulfil 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.