General-increasingly consumption driven GDP growth (7-9% p.a) Branch Banking-15 million urban Chinese earn $4500-$9000 p.a;segment doubling every year, the man affluent have $118 bn to invest or save - Although only 4% of Chinese have household, income of more than $20M, still that translates into a market of more than 50 million, who are spending increasing amounts of money on services Credit cards – Consumer credit culture is evolving, only 0.5% of China’s consumers hold credit cards (63% in Taiwan) Mortgage – fast economic growth will put home ownership within reach of hundreds of million people-in the past 5 years, more than 5 million homes have been sold.
Different customers may use different channels Key is to maintain great and consistent customer experience across all channels Maintain customer trust and loyalty Same customers may use different channels for different part of transaction or buying cycle Discover when banking customers”wears” himself from the human contact to online/remote channels
Customer needs will drive channel strategy and therefore also the organizational, technology and marketing strategies.
Whether it is a self-service terminal, a bank clerk conducting a transaction on a computer terminal or invisible offsite processing, branch customers are being dealt in a whole new way. Traditional branch banking systems consist of a variety of platforms and applications for data, teller transactions, lending and call centers, all of which have to be accessed separately. These were sufficient when the branch¡¯s role was transaction focused, but as branches become a key element of multi-channel delivery they are no longer up to the task.
Sanjoy Sen - Asia Pacific Retail Banking Conference - The future banking in china
The Future of Retail BankingIn ChinaMulti Channel StrategiesIn an Era of Rapid GrowthSanjoy SenChief Operating OfficerGlobal Consumer GroupCitibank, N.A.,China
Financial Services in ChinaThe growth storyBy 2013, profits of retail banking will surpass corporate banking- McKinseyBranch Banking- Large deposit pool (>$1 trln) - highsavings rate, limited product alternatives- Branch is dominant channel - long termcross-sell potentialInsurance- 30% CAGR to continue given economicgrowth and reforms- Traditionally sold by large agent forcesBanking for “High Networth Individuals”- Pent-up demand (~240,000millionaires)Asset Management- Nascent retail Mutual Fund market (moneymarket, bond funds dominate; distributionbottleneck); Pension market attractiveCredit Cards- Nascent market; significant potential- Strong debit culture could limitshort term prospects- Infrastructure (merchant acceptance,terminalization) developing rapidlyMortgages- Currently represent 80% of consumercredit- Strong demand driven by housingreformsPersonal Lending- Pent up demand for auto loans (12% carsfinanced vs 70% in the U.S); high defaultrate- Unsecured personal lending - long-termopportunity
Retail Banking in ChinaThe Challenges• Regulatory restrictions and lack of level laying field leads toinefficiencies -- interest rates regulated; semi-fixed lending rates;inability to fully price risk• Risk assessment skills for evaluating retail customers nascent -- canresult in unpredictable losses; no established credit bureaus• High cost ratios of banks; significant non-performing corporate loans• Alternative channels in retail banking still evolving; and owing tosheer size of China, market players need to continually invest tomaintain market shareDespite risks and challenges, attractive opportunities exist
Changing Nature of Retail Banking in ChinaIncreasedCompetitionDeconstructionof financial services( Information, Transaction,Processing Services )Customer drivenbusiness modelGreater use oftechnologyGreater pressureon operationsSupporting multiple delivery channels is now critical
Operating in a multi channel environmentBankBankCore BusinessCore Business ChannelChannelCustomerCustomerAsset MgmtCards, loans, auto loansHousing loans, etcAsset MgmtCards, loans, auto loansHousing loans, etcLiability BusinessDeposits, checking accounts,etcLiability BusinessDeposits, checking accounts,etcWealth MgmtBonds, Structured notes,Mutual fund,equityWealth MgmtBonds, Structured notes,Mutual fund,equityInsuranceLife,non-life, annuity, etcInsuranceLife,non-life, annuity, etcBranchCall CenterDirect Salese-Business(web)m-BusinessATMMailBranchCall CenterDirect Salese-Business(web)m-BusinessATMMailHigh NetworthIndividualsMass MarketSalaried/Self-employedHigh NetworthIndividualsMass MarketSalaried/Self-employedTechnologyPlatformRiskManagementCustomerRelationshipManagementCustomer focused model – shift of focus from price to service delivery
Understanding your customer needsTailoredChannelUsageTailoredMktg Programsand CommunicationsKnowledgeof Customers•Demographics•Behavior•Psychographics•Personal Data•Household Data•Segment Data•Relationship•Product Needs•Service Needs•Purchase•Pricing•Channel Utilization•Higher Targeted Acquisitions•Higher Cross Sell•Higher Retention•Higher Differentiation•Higher Loyalty Higher•Higher ProfitabilityLower ExpensesIncrease Revenue•Lower acquisition costs-Targeting vs. Mass Marketing•Lower cost to services-Right customer to right channel•Lower unprofitable behavior via-Optimal and targeted pricing-Right product bundle•Lower Re-Marketing Costs-Costs more to buy customerthan to keep oneRight channel strategy enhances revenue/expense dynamics
Drivers of multi-channel strategy – a customer centric modelChannel StrategyCustomerSegmentsProductStrategyTechnologyStrategyChannel Strategy and Product strategy needs tobe managed interdependently.
Branch renewalsKey element of multi channel delivery strategy• Changed design, greater functionality, better efficiency; and thetechnology inside them is revolutionary• Focus shifting from transactions to selling; branches now slotted into amulti-channel delivery strategy• New branch technology - client server or web based - allowsintegration of customer information across all channels; quickertransaction processing; more effective cross-selling• Self Service Terminals and ATMs dispensing cash and providing basicaccount information – but also accepting cheque/ cash deposits;carrying advertising; selling bank products; and allowing people toload up mobile phone cardsBranch revenues rising and costs falling –andcustomers like the new branch experience
Alternate Channel Strategy – Service DeliveryMultiple Channel- acquisition of ‘New to Bank’ customersStrategic cost management -leveraging alternative channels for service deliveryDeepen Customer Relationship(Cross-sell, data-mining, retention, usage maximization)Increased customer volumes leading to transactionpressure in the branches and higher costsTransaction OffloadCost peraccountmoves from$100 to $30Cost perTransactionmoves from$5 to $2Multi- channel acquisition strategy leads to multi- channelservice delivery
Successful Alternate Channel Strategies – Some CitibankexamplesIndia “Suvidha” model – bulk acquisition of payroll accounts vialow cost acquisition model; remote servicing; cross-sellloans/investments/insuranceAustralia online cash management – fully online acquisition ofliabilities; x-sell investmentsHongkong “skybranch” – remote customer acquisition andrelationship deepeningCitifinancial model in India – “sub-prime” , “unsecured” loansto individuals through a large number of low cost,retail outletssupported by “mobile vans” to reach remote customersKoram – large branch footprint, mass market propositionDirect sales model for credit card Acquisition –Indonesia/ThailandCross-sell to cards database, cross-sell investments todeposit customers, upsell fundsBranchDirect SalesCross-SellLow CostBranchCall CenterE-BusinessATM