We’ve been here before: What mobile money providers can learn from the end of communism – Part 1

This post is written by William Dewey, SBI Vice President.

In a recent workshop with a Pakistani client, I was struck by the extent to which the dialogue recalled discussions I’d had in central and east Europe (CEE) 15 years ago.

The transformation of financial sectors in the CEE region began in 1995-96 when the first state-owned banks were privatized.  Bank privatization continued for the next decade with activity migrating from the Northern Tier accession countries (Poland, Hungary, Slovakia, and Czech Republic) to countries further east and south.

Several aspects of this process were notable:

In the first instance, the mix of acquirers was different from what many observers projected at the outset.  Absent at the top of the league tables were major German banks, the UK clearing banks, and other banks presumed to assign strategic importance to the region.  Instead, the major acquirers turned out to be smaller, second-tier (regional) European banks.

One of the most active banks in the privatization sweepstakes was Erste Bank from Austria.  Erste went into the new millennium as the third largest bank in Austria—a bank not counted among Europe’s 50 largest banks (its world ranking was 368th).  Five years later, Erste had extended its home market into a regional banking empire comprising 8 countries (including Austria) and 12 million customers.

For Erste, franchise value was denominated in terms of numbers of customers, and largely for this reason, it targeted the large national savings institutions in respective countries.  CEE was a retail play for Erste, and it wasn’t alone.  All the major acquirers had strong retail operations in their home markets, and they were enthusiastic about leveraging the demand for retail banking services on the part of individuals (consumers) who had been denied access to retail products and services for five decades.

During the nascent phase of transformation, efforts by the acquirers to develop retail banking centered on fairly conventional savings and credit products.  Distribution was one-dimensional—the acquiring banks inherited networks largely defined in terms of brick-and-mortar (branches).  Customer service—speed, responsiveness, communication—was spotty.

However, the evolution of banking sectors throughout the CEE regional marketplace moved with impressive velocity, particularly in retail.  The pioneers were Citibank in card-based products and GE Credit in consumer finance.  In time, indigenous monocline companies challenged major banking groups in various consumer finance business lines.  The new owners of the privatized commercial banks responded by implementing strategies which had led to success in their home markets, e.g., bancassurance (KBC), direct banking (ING), Internet-based marketing (Citibank).

The discussion at the workshop that prompts me to reminisce about the CEE experience related to channels, in particular, how to structure agent networks, the utility of kiosks, and the use of technology.  In fact, channels management and the development of alternative channels was a dominant theme in CEE during the period 1995-2000.

Poland was the most competitive banking market among the accession countries; therefore, it is not surprising that some of the most innovative approaches to distribution and channels management were developed by Polish institutions.  For example, in 2000, mBank, a direct banking operation was launched as a de novo venture.  It based its strategy on leveraging technology effectively (speed), coverage (convenience), and simple products responding to customer needs and preferences (relevance).  In short order, the mBank model was duplicated by other greenfield retail banks, notably Handlobank and Lukas Bank. Today, mBank has over 2.5 million customers and is the third largest retail bank in Poland.

To understand how CEE retail banks went about integrating their channels and encouraging customers to open accounts, as well as how this connects to the evolution of mobile banking today, please stay tuned for Part 2.


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