Saudi Gazette

Gulf banks focusing on "light retail" for growth

Gulf banks focusing on "light retail" for growth

Focus in the UAE and Saudi Arabia has been on finding ways to grow in a high-potential market.

  • min read


Gulf banks focusing on "light retail" for growth

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 market.

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.

With such an underdeveloped banking sector, the challenge of attracting new customers—many of whom have never used a bank before—is central to bankers in the region.

Some banks are adopting a nimble approach to expansion, opening small "stores" and kiosks in malls and other high-traffic locations. These outlets have a fraction of the footprint of a traditional, full-service branch, which can cost five times as much to build and operate. Their open floor plans, customer-friendly sales and service agents, and interactive product displays are well-suited to attracting customers new to personal banking.

This "light-retail" model emphasizes product sales and new-customer acquisition over routine transaction processing, which is increasingly carried out through low-cost electronic channels like ATMs and the Internet. By using technology to centralize back-office activities, GCC banks can leapfrog the conventional branch model and quickly position themselves to attract the many first-time bank users. In the UAE, light retail also allows banks to expand their networks despite regulatory restrictions on the number of branches that can be established.

For smaller players, light-retail outlets can also be an affordable way to gain market share and expand geographic reach. 

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 has doubled its original branch network, which had taken it 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.

The idea of opening light branches sounds easy, but it can be challenging to execute. It takes much more than simply opening scaled-down branch offices to implement a light-retail strategy successfully. Each customer-focused storefront needs aggressive marketing support and attentive, cost-efficient customer service.

The bank revamped its marketing efforts by deploying both a mobile and in-store salesforce trained to identify and meet customer needs. It has simplified its branding strategy to add appeal to its products and draw more customers into stores. 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.

As banks race to bring financial services to the region's consumers, those that take a nimble, customer-focused light-retail approach will be ahead of the pack.

Julien Faye and Philippe De Backer are partners in Bain & Company's Dubai office and members of the firm's Financial Services practice.


Ready to talk?

We work with ambitious leaders who want to define the future, not hide from it. Together, we achieve extraordinary outcomes.