While the global financial crisis has forced commercial banks in other parts of the world to close expensive branches and look for ways to cut costs, the focus in the UAE and Saudi Arabia has been on finding ways to grow in a high-potential , burgeoning market, according to experts.
“Consider that for every 17,000 people in Saudi Arabia there is only one bank branch. To put that in perspective, there are roughly 2,000 people per branch in most European countries,” Julien Faye and Philippe De Backer in a report said.
“With such an underdeveloped banking sector, the challenge of attracting and retaining new customers – many of whom have never used a bank before – is central to bankers in the region. Banks looking to meet this challenge need to think through their expansion ambitions and plans on a number of fronts,” Julien and Philippe, who represent Bain & Company based in the Middle East, in report said.
According to experts the first step is gaining a deep understanding of clients’ behaviour and needs. For instance, less sophisticated customers may find the vast array of product choices offered at many banks confusing.
“Lacking an understanding of the benefits of basic banking services, they may not be inclined to respond to products and advertising campaigns that work in other markets. Banks also need to assess the degree to which potential customers require face-to-face service or are tech-savvy enough to transact electronically. Products, distribution channels and marketing tactics need to be adapted to these client needs,” they added.
In the UAE, light retail also allows banks to expand their networks despite regulatory restrictions on the number and locations of branches that can be established.
“One local bank is using this approach to accelerate its growth in retail banking by building on the foundation of its strong position with corporate clients. Instead of trying to go head to head with larger competitors on their own turf, it has opened small, product-centric stores in strategic, high-traffic locations convenient to where its target customers live and work.
“Just one year after deploying the light-retail branches, the bank doubled its original branch network, which took 20 years to develop. The new branch model requires only 20 percent of the capital investment of its predecessor and costs nearly 50 percent less to operate. Whereas its traditional branches took four years to reach profitability, the bank anticipates that its light-retail outlets will be profitable in less than two years.”
In GCC markets, these efforts are a must for reaching the many first-time bank customers.
In parallel, the bank has tailored its customer-service procedures to match the needs of a lean branch network. Willing to invest in expensive real estate in high-traffic locations in order to acquire customers, the bank has shifted routine customer service to cost-efficient call centers. It reconfigured its ATM network and web platform to encourage self-service for basic transactions. And it shifted back-office processing activities from local branches to regional service hubs.
The combination of lean, product-focused storefronts, aggressive marketing and cost-effective service is hard to beat.
However, all of these elements of a light-retail banking growth strategy need to be grounded in a firm understanding of the customer and an ability to effectively implement electronic solutions. As banks race to bring financial services to the GCC’s consumers, those that take a customer-focused light-retail approach will be ahead of the pack.
“GCC banks can leapfrog the conventional branch model and quickly position themselves to attract the many first-time bank users, thanks to the high-tech back-office,” the experts added.