Innovative banks go retail to win customers

Borrowing a page from the playbook of top retailers, bankers in Asia are beginning to transform traditional branches into attractive "stores" that sell products that are packaged and priced to appeal to the customer segments they are best able to serve.

By Seow-Chien Chew and Bertrand Facq

The Edge

Innovative banks go retail to win customers

By Seow-Chien Chew and Bertrand Facq

First published on junho 22, 2009
min read


With global financial services in turmoil, the pressure on banking industry executives to reduce costs and boost efficiency has ratcheted up. One idea at the top of many banks' list of ways to cut costs is to close expensive full-service branches and shift customers' transactions to automated teller machines and Web sites. But banks cannot shrink their way back to growth and prosperity. There is a better way. Borrowing a page from the playbook of top retailers, bankers in Asia and other emerging markets are beginning to transform traditional branches into attractive "stores" that sell products that are packaged and priced to appeal to the customer segments they are best able to serve. The "light retail" approach is well-suited for providing entry-level banking services to hard-to-reach rural and low-income populations. Banks are also using it to market financial products to new middle-class customers who comprise less than 20 percent of the population, but more than half of the consumer-banking revenue pool. Compact light-retail outlets have a smaller footprint than full-service branches, which can cost four times as much to build and operate. The boutique-sized stores typically occupy between 50 and 80 square meters of floor space in premium high-traffic locations. Yet, for all its apparent simplicity, the successful implementation of a light-retail model can be challenging. It requires a bank to rethink how and where it wants to compete, how its compact branches relate to its other distribution and service channels, and how it recruits and trains its frontline workforce to deliver an exceptional customer experience. For any bank looking to adopt light retail, the starting point is to find the best fit between customers, products and the way those products are delivered. One Southeast Asian bank is using a light-retail model to power its rise to the top ranks of consumer financial service companies in its home market. The small institution could not match its better-capitalized competitors by building a branch network that served a full range of individual and small-business customers. Instead, it homed in on key segments of middle-class customers: younger urban single and family households earning between $2,000 and $8,000 per month that were underserved by the better-established banks. The bank set out to design credit, savings and investment products to fit the active singles who enjoy travel and leisure, and younger families who are saving to buy a first car or home or are looking to accumulate assets for retirement. Using just one application to qualify new customers, the bank bundles branded products (such as cash-back debit cards, credit cards offering travel insurance, and low-interest personal lines of credit) with features that anticipate account holders' needs. Banks use their light-retail branches as a principal channel for acquiring new customers in a distribution network that offers customers many points of entry. The Southeast Asian bank, for example, knows that its technologically-savvy, young target customers are comfortable handling most ordinary transactions via electronic kiosks, resolving account inquiries through its 24-hour call centers and managing their finances or paying bills online. That frees the branches from having to absorb high back-office support costs to process routine transactions. It also liberates bank employees to mingle with clients and focus providing a high level of customer service. The branches serve chiefly as sales and consultation centers and use an open floor plan, eye-catching displays that invite customers to pick up and handle the products, and extended opening hours. The shops also use innovative traffic generation strategies, such as video game competitions and store-in-store partnerships with other retailers like mobile-phone providers, to bring customers through the doors. Yet even as they add amenities, light-retail operators significantly reduce their costs. They typically offer just eight or so carefully targeted products instead of the more than 200 offered in a conventional bank branch. And they are freed from the expense of handling and securing cash at teller windows. An additional bonus: The streamlined operations require a smaller investment in information technology to run the offices. The Southeast Asian bank is training employees to serve as financial advisers. Branch workers are given monthly sales targets and earn bonuses for exceeding them. The bank expects that its new focus on sales, combined with capital outlays and operating costs that are half those for a full-service branch, will significantly boost profit margins. However, the ultimate test of whether the sales-centric approach is working is whether the outlets are increasing the number of profitable and loyal customers who are willing to recommend it to colleagues and friends. Seow-Chien Chew is a partner in the Singapore office of Bain & Company. Bertrand Facq is a Bain partner based in Brussels. Both are members of the firm's Financial Services Practice.

With global financial services in turmoil, the pressure on banking industry executives to reduce costs and boost efficiency has ratcheted up.

One idea at the top of many banks' list of ways to cut costs is to close expensive full-service branches and shift customers' transactions to automated teller machines and Web sites.

But banks cannot shrink their way back to growth and prosperity.

There is a better way.

Borrowing a page from the playbook of top retailers, bankers in Asia and other emerging markets are beginning to transform traditional branches into attractive "stores" that sell products that are packaged and priced to appeal to the customer segments they are best able to serve.

The "light retail" approach is well-suited for providing entry-level banking services to hard-to-reach rural and low-income populations.

Banks are also using it to market financial products to new middle-class customers who comprise less than 20 percent of the population, but more than half of the consumer-banking revenue pool.

Compact light-retail outlets have a smaller footprint than full-service branches, which can cost four times as much to build and operate. The boutique-sized stores typically occupy between 50 and 80 square meters of floor space in premium high-traffic locations.

Yet, for all its apparent simplicity, the successful implementation of a light-retail model can be challenging. It requires a bank to rethink how and where it wants to compete, how its compact branches relate to its other distribution and service channels, and how it recruits and trains its frontline workforce to deliver an exceptional customer experience.

For any bank looking to adopt light retail, the starting point is to find the best fit between customers, products and the way those products are delivered.

One Southeast Asian bank is using a light-retail model to power its rise to the top ranks of consumer financial service companies in its home market.

The small institution could not match its better-capitalized competitors by building a branch network that served a full range of individual and small-business customers. Instead, it homed in on key segments of middle-class customers: younger urban single and family households earning between $2,000 and $8,000 per month that were underserved by the better-established banks.

The bank set out to design credit, savings and investment products to fit the active singles who enjoy travel and leisure, and younger families who are saving to buy a first car or home or are looking to accumulate assets for retirement.

Using just one application to qualify new customers, the bank bundles branded products (such as cash-back debit cards, credit cards offering travel insurance, and low-interest personal lines of credit) with features that anticipate account holders' needs.

Banks use their light-retail branches as a principal channel for acquiring new customers in a distribution network that offers customers many points of entry.

The Southeast Asian bank, for example, knows that its technologically-savvy, young target customers are comfortable handling most ordinary transactions via electronic kiosks, resolving account inquiries through its 24-hour call centers and managing their finances or paying bills online.

That frees the branches from having to absorb high back-office support costs to process routine transactions. It also liberates bank employees to mingle with clients and focus providing a high level of customer service.

The branches serve chiefly as sales and consultation centers and use an open floor plan, eye-catching displays that invite customers to pick up and handle the products, and extended opening hours.

The shops also use innovative traffic generation strategies, such as video game competitions and store-in-store partnerships with other retailers like mobile-phone providers, to bring customers through the doors.

Yet even as they add amenities, light-retail operators significantly reduce their costs.

They typically offer just eight or so carefully targeted products instead of the more than 200 offered in a conventional bank branch. And they are freed from the expense of handling and securing cash at teller windows. An additional bonus: The streamlined operations require a smaller investment in information technology to run the offices.

The Southeast Asian bank is training employees to serve as financial advisers. Branch workers are given monthly sales targets and earn bonuses for exceeding them.

The bank expects that its new focus on sales, combined with capital outlays and operating costs that are half those for a full-service branch, will significantly boost profit margins.

However, the ultimate test of whether the sales-centric approach is working is whether the outlets are increasing the number of profitable and loyal customers who are willing to recommend it to colleagues and friends.

Seow-Chien Chew is a partner in the Singapore office of Bain & Company. Bertrand Facq is a Bain partner based in Brussels. Both are members of the firm's Financial Services Practice.