This post is written by William Dewey, SBI Vice President.
As we saw in Part 1, the banking sectors in CEE (particularly retail) were quick to innovate and expand distribution networks. To improve distribution and customer access, the new retail banks set out to integrate their channels—branches, ATMs, call centers, and, in the case of Handlobank, Internet and direct sales platforms. They used branches to get consumers to open accounts (the ATMs served as the lure), but they promoted call centers as a transaction point for payments. Handlobank favored high-traffic central-city locations; Millennium opted both for those locations and residential suburbs. Both banks expanded nationwide (Lukas Bank largely focused on large cities).
What is the point of this history lesson? There are several, I think:
- Velocity of change: Once first banks were privatized and the logjam was broken, change occurred with astonishing rapidity in CEE. I believe advances in technology and pent-up demand will conspire to promote even faster change in the many of the markets we serve. The recent dialogue with our Pakistani client was far more advanced than anything I heard in CEE 10 years ago;
- Our clients’ customers want the same things CEE bank customers wanted: They want to be treated with dignity and respect; they want products geared to their needs and preferences; they want convenient access to their money; and, they want their requests to be handled quickly. The more time I spend in the inclusive finance industry, the more I see the issues we deal with as simply another iteration of a slate of issues the banking industry has looked at for decades. In other words, it’s all just retail banking;
Change will be led by institutions; in many cases, larger ones. Their chief executives might be motivated by idealism, but they seek primarily to create shareholder value. The ones who recognize the profit-making opportunity represented by low-income segments will be the winners. In addition, I suggest the ones with a tradition and culture defined by retail banking operations will have enormous advantages;
- Learn from experience: We should not waste time trying to restructure institutions that will never be competitive. In this respect, we should heed the lessons from the CEE experience. In CEE, acquirers faced significant challenges: rampant overstaffing, employees unschooled in customer service, political obstacles to radical restructuring including powerful bank unions, inadequate IT systems, and less than optimal branch networks. Even so, acquirers saw the incumbent banks which already had large customer base provided an expedient way of entering the market. This meant that they spent enormous time and money trying to restructure and transform banks whose cultures were denominated in terms of corporate banking and trade finance. It was a long, hard slog, and, in many cases, a process whose outcome did not justify the effort.
- Innovation and risk-taking: Thus, we should expect that, in some cases, existing institutions might not be the winners. They won’t have the vision, the risk appetites, or the cultures to play effectively in this space. New entrants, however, are not burdened with legacy IT systems, entrenched employee practices, dysfunctional back rooms, and poorly configured branch networks. They begin with a clean slate. As we saw in the case of mBank in Poland, there is enormous scope for creativity and risk-taking that lead to successful greenfield ventures.