Innovative retail banking concepts from CEE – a role model for Western European Banks?
Vienna/Munich, August 2008: Banks in Central and Eastern Europe have developed innovative retail banking models to support their growth. Roland Berger Strategy Consultants analyzed several alternative distribution and marketing concepts of CEE banks and found out that some of them might become relevant for Western European banks in the near future. This includes the franchising model, new ways of direct banking and the distribution of banking products and services via independent financial intermediaries.
"After a wave of foundations in the early 1990s and a phase of privatization between 1996 and 2002, the CEE banking market has seen strong growth over the past few years. Since the local markets offer huge potential in the retail lending and investment fund business, competition is tough due to foreign players", says Hendrik Bremer, Financial Services Partner in the Vienna office. High growth rates in these emerging markets led to an intensifying fight for market share, which became a driver for innovation and stronger client orientation in retail banking.
"Supermarket banking" is a success story
These innovative approaches might also be relevant for Western European banks, so it's worth taking a closer look at them. One successful concept is to focus clearly on certain client groups. For example, Provident Polska focuses on the low income segment by offering small and short-term cash loans at competitive interest rates and with a minimum of bureaucracy. The loans are delivered to the customers' homes by bank representatives. This guarantees close contact to clients and an additional base of risk evaluation.
Eurobank in Poland very successfully operates yet another approach to customer contact: "Supermarket Banking", i.e. small sales outlets in high traffic locations such as shopping centers or high street locations. These low-cost "mini-offices" include two counters, an ATM and room for promotion material. They offer longer and flexible opening hours than regular branches.
While "Supermarket Banking" ensures maximum customer proximity, direct banking focuses on cost-sensitive customers who prefer channels such as the Internet, mobile phones or text messages to do their bank transactions. "For example mBank in Poland initially used exclusively virtual channels to distribute its products but it was recognized that shops outlets were also required to be successful - a smart combination of 'light branders' and direct access", quotes Bremer. The bank actively helps develop Internet communities and cooperates for example with Poland's biggest Internet auction platform: Users can open a bank account directly from the auction's website and make payments free of charge.
Exclusive franchising vs. convenience of choice at independent financial intermediaries
While franchising is not yet widely established in the financial services community in Western Europe, the model nevertheless shows strong growth in CEE countries like Romania, Poland and the Ukraine. Most players in the banking market have plans to expand their market presence. The main advantages of franchising are that it has great potential for enlarging branch networks and creates new entrepreneurship. A key element in this concept is exclusivity, i.e. the franchisee represents only one bank's products, in most cases the complete product portfolio. ING in Romania is for instance very successful and satisfied with its franchise network of around 150 outlets. In contrast to this, independent financial intermediaries offer products of up to 30 banks at one point of sale. This concept addresses a group of clients who want the convenience to choose from a wide range of products. Mainly targeting middle class people living in big cities, the intermediaries are a trustworthy alternative. In Poland, their share in mortgage loans has tripled over the last four years. Some of the intermediaries were even acquired by banks to expand their limited branch network.
Not all banks might be willing or capable of using these alternative retail banking concepts on Western Europe's markets. But the concepts in principle may help to develop further growth there too. Particularly direct banking, franchising and the concept of independent intermediaries will have great potential for Western banks. And more innovations are to come for sure. So the CEE retail banking markets might become an interesting learning pool for Western banks.
"After a wave of foundations in the early 1990s and a phase of privatization between 1996 and 2002, the CEE banking market has seen strong growth over the past few years. Since the local markets offer huge potential in the retail lending and investment fund business, competition is tough due to foreign players", says Hendrik Bremer, Financial Services Partner in the Vienna office. High growth rates in these emerging markets led to an intensifying fight for market share, which became a driver for innovation and stronger client orientation in retail banking.
"Supermarket banking" is a success story
These innovative approaches might also be relevant for Western European banks, so it's worth taking a closer look at them. One successful concept is to focus clearly on certain client groups. For example, Provident Polska focuses on the low income segment by offering small and short-term cash loans at competitive interest rates and with a minimum of bureaucracy. The loans are delivered to the customers' homes by bank representatives. This guarantees close contact to clients and an additional base of risk evaluation.
Eurobank in Poland very successfully operates yet another approach to customer contact: "Supermarket Banking", i.e. small sales outlets in high traffic locations such as shopping centers or high street locations. These low-cost "mini-offices" include two counters, an ATM and room for promotion material. They offer longer and flexible opening hours than regular branches.
While "Supermarket Banking" ensures maximum customer proximity, direct banking focuses on cost-sensitive customers who prefer channels such as the Internet, mobile phones or text messages to do their bank transactions. "For example mBank in Poland initially used exclusively virtual channels to distribute its products but it was recognized that shops outlets were also required to be successful - a smart combination of 'light branders' and direct access", quotes Bremer. The bank actively helps develop Internet communities and cooperates for example with Poland's biggest Internet auction platform: Users can open a bank account directly from the auction's website and make payments free of charge.
Exclusive franchising vs. convenience of choice at independent financial intermediaries
While franchising is not yet widely established in the financial services community in Western Europe, the model nevertheless shows strong growth in CEE countries like Romania, Poland and the Ukraine. Most players in the banking market have plans to expand their market presence. The main advantages of franchising are that it has great potential for enlarging branch networks and creates new entrepreneurship. A key element in this concept is exclusivity, i.e. the franchisee represents only one bank's products, in most cases the complete product portfolio. ING in Romania is for instance very successful and satisfied with its franchise network of around 150 outlets. In contrast to this, independent financial intermediaries offer products of up to 30 banks at one point of sale. This concept addresses a group of clients who want the convenience to choose from a wide range of products. Mainly targeting middle class people living in big cities, the intermediaries are a trustworthy alternative. In Poland, their share in mortgage loans has tripled over the last four years. Some of the intermediaries were even acquired by banks to expand their limited branch network.
Not all banks might be willing or capable of using these alternative retail banking concepts on Western Europe's markets. But the concepts in principle may help to develop further growth there too. Particularly direct banking, franchising and the concept of independent intermediaries will have great potential for Western banks. And more innovations are to come for sure. So the CEE retail banking markets might become an interesting learning pool for Western banks.
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