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Over the last 5 years, Pakistan witnessed
a phenomenal growth of consumer banking. This unprecedented
development has followed privatization of nationalized banks,
banking reforms brought about by the State Bank of Pakistan and
an increasingly marketing-oriented approach primarily aimed by
banks at a large urban consumer base.
Be they large or small bank, multinational
or local, each one of them is geared towards making its mark in
an already competitive environment that is the outcome of
consumer banking. Multinational banks such as ABN AMRO, Citibank
and Standard Chartered have the support of the knowledge base
and funds of their foreign principals which made them first to
introduce products, services and innovative technologies to
their consumer base.
Hot on the heels were the newly privatized
banks, UBL, HBL and MCB which have embarked in consumer
financing activities in not just big cities but smaller ones
too, by virtue of their huge branch network. In doing so, they
have generated huge volumes of business while at the same time
driving down the prices of the products they offer. For
instance, in 2002, HBL’s consumer banking portfolio was worth
less than a billion rupees. By the end of 2004, it is worth Rs.
17 billion. Similarly, since 2003 when it was privatized, UBL
has launched 12 to 14 new products and according to its Deputy
Chief Executive M.A.Mannan, each one of them has been a market
leader on month-to-month acquisition volume. And where the local
banks such as Soneri, Askari and Union lack in technology, they
make up by offering similar services at a much lower costs in
our urban centers.
While the foreign banks have played the
pipers’ role when it comes to introducing new products, they
have targeted the same segment which may be one of their
limitations in this area. On the other hand, industry experts
predict that the real growth will come from local giants such as
the UBL, HBL and MCB which have the necessary experience and
knowledge of customizing products to specific local preferences.
Prodigious Advertising
One factor that has led to an incredible
upsurge of consumer financing products has been the drastic
reduction in the qualification benchmarks for premium products
such as credit cards. For instance, back in the 1990s when
consumer banking was still in its undeveloped phase, only three
banks were offering credit cards and they were all multinational
concerns. That was the time when the size of the total portfolio
was a mere 200,000 cards. The scene all of a sudden changed when
Bank Al Falah launched a no fee credit card and its consumer
base ballooned to 100,000 new consumers. The success of no fee
credit card was followed by low interest packages on automobile
loans and home loans. Things would never be the same again.
Today, by investing prodigiously on
advertising and sales promotion efforts, banks have created
awareness about their product menus in a huge way. Now personal
loans have longer tenures and posses easy payment options, along
with many other inducements. Yet with so many banks offering the
same product, how does one bank differentiate its portfolio from
its competitors? The answer lies in differentiation, which in
turn is created by continuous innovation and of course a deep
insight of consumer needs and requirements be the advertising is
BTL or ATL. Apart from that, customer relationship management
is one area in which the banks need to raise their bar
especially when loyalty thresholds are low. Many consumers
have expressed their reservations about the low level of service
and don’t think twice when it comes to switching over to other
banks. The lesson: Never trust a bank on face value or simply
what they boast in ads.
The Image Factor
When all is said and done, banks still
have to concentrate on continuous product development to retain
their customers. The logic is simple: While advertising helps to
build the image, it is the product that sustains that particular
image. Banks also need to remember that while advertising
works big time to attract both old and new customers,
word-of-mouth remains the most effective way of communication
for their products and offerings. So while big names
continue to spend their huge advertising budget to promote their
products, they also face competition from smaller banks (with
less advertising budget) whose terms and conditions may turn out
to be more attractive especially for consumers with less money.
At the end of the day, however, it is the quality of service and
quick turnaround time that will make the consumer an ardent
customer of any bank’s products and services.
It has been nearly five years since banks
started emphasizing on consumer financing and although majority
of our population do not have the means to cash in on this
development, there are many and especially the rising middle
class who have started utilizing their services for improving
their lifestyle. Currently, the default rate is low. For
instance, in the auto-financing sector, the recovery rate is
around 97% and even if the customer is unable to pay up, with a
mortgage the bank can always foreclose one’s property. Some
industry experts, however, say that the real test of default
will come once the products started ageing and people will start
getting tired of long loan repayments.
Now what does the future hold for consumer
financing? Have the banks done enough homework to create
awareness about their products through right strategies? Some
top notch banks continue to hire professionals who have worked
laboriously on brand development and building identities for
their products. And to a great extent they have succeeded,
although the sky remains the limit when it comes to exploring
the full potential of consumer banking because a large portion
of urban Pakistan still remains untapped. Aggressive marketing
along with an effective and innovative mix of ATL and BTL has to
continue at an impressive enough pace. The best, however, is yet
to come.
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