Business

Saturday August 8, 2009

Ample potential in consumer banking

By YVONNE TAN and ELAINE ANG


There’ll be less face-to-face interaction with consumers and more self service in future.

TALK to commercial banks and most, if not all, will list consumer banking as a top income earner and business segment to focus on.

The consumer banking business has become an important aspect of the country’s banking industry, contributing to more than half of most commercial banks’ bottom lines at present.

As AmBank group chairman Tan Sri Azman Hashim aptly describes its importance: “Every stage of an individual’s life is linked to consumer banking – from savings to education, buying a car or a house, building a home or a business, making daily payments or receiving dues, as well as investing or insuring an asset or oneself.”

The momentum for the consumer banking business accelerated after the Asian financial crisis in 1997. Post-crisis, the size of the consumer banking business expanded significantly from 28% of total loans outstanding in the banking system in 2000 to 45% in 2009.

In the decade ahead, the future of consumer banking will be shaped largely by the environment – economic, demographic, regulatory, technological, payment system and competition – in which it operates.

Nevertheless, the concensus is that consumer banking will continue to be a thriving business in the future, growing in tandem with consumers’ needs.

As Public Bank Bhd managing director Tan Sri Tay Ah Lek says: “There is still ample potential for consumer banking to expand, in particular for banks that can quickly seize opportunities from the rising number of high-income consumers, growing prosperity of the Asian economies and the advent of modern technology.”

A pillar of the industry

His counterpart concurs. Says OCBC Bank (M) Bhd director and chief executive officer Jeffrey Chew: “Consumer banking will continue to be one of the main pillars of the banking industry. One of the lessons of the current banking crisis is that banks need a strong consumer franchise to buffer against the fluctuations of wholesale financial markets.”

In future, Azman expects less face-to-face interaction with consumers and more self-service banking.

“At the same time, consumers will expect more personalised and higher quality service from banks when they need to interact with banks. They will want the channels to be seamless and integrated,” he says.

Azman foresees the current global recession sparking a growing trend towards saving for retirement, education, investment vehicles and loans for children.

United Overseas Bank (M) Bhd (UOB) director and CEO Chan Kok Seong agrees.

“Over time, it is expected that financial literacy will improve, especially when it comes to issues such as spending prudence, savings for retirement, provisions for children’s education, and protection against uncertainties.

“For higher net-worth individuals, they will be more conversant with the need for wealth transfers,” he says.

As the market matures, Hong Leong Bank Bhd chief operating officer (personal financial services) Moey Tan expects to see a return to basics, that is, relationship development where banks will develop customer loyalty and profitability and an orientation towards need-based selling.

“We foresee more direct points of sale concept, for example, terminals/kiosks in convenience stores, petrol stations and probably retail outlets as well as more wireless payment systems – all to bring speed and convenience to the market,” she says.

OCBC’s Chew says the key word driving the relationship between banks and their customers will continue to be “value”.

In future, we will see the rise of “Gen Y” (those born in 1982 and later), who would create significant impact, Chew says.

“We think that banks will need to embrace social media as a new means to establish customer contact to reach out to this new wave of customers.

“Banks will have to start employing tools such as customer blogs to give individuals an informal channel for discussions, also Internet/mobile phone banking that provides a “true” alternative (focusing on ease of use) for self-service customers not wanting the traditional brick-and-mortar banking model,” he says. Branches, he adds, will become less relevant.

Apart from the increased usage of Internet banking and credit cards as payment modes, the use of other payment cards, such as debit and prepaid cards, as well as mobile phone wallets will also become popular.

Banks’ strategies

Azman says AmBank will continue to grow its consumer banking assets and deposits in the future. Currently, consumer banking contributes some 71% to group net profit.

“We plan to double the number of bank customers in this segment and attain top market rankings in auto financing, mortgage and credit cards,” Azman says, adding that the bank will work at producing more innovative and yet simple products and services for its customers.

Public Bank, meanwhile, will focus on retail deposits and a growing wealth management sector, which includes unit trust, bancassurance and structured investment products.

Its consumer banking contributes about 60% to the group’s total loans outstanding.

The bulk of the group’s consumer banking business comes from loans for the purchase of residential properties and hire-purchase financing for passenger vehicles.

Hong Leong’s Tan says the bank will continue to push for assets and loans growth while remaining focused on its core personal financial products and services.

“We do not predict a major shift from the mortgage business as it is a cornerstone of our customer behaviour to own a house,” she says.

Its consumer banking business contributes more than 60% to the bank’s total profit, of which mortgage is a key driver.

Says UOB’s Chan: “Fundamentally, a bank is a professional service provider and we are expected to continually improve and differentiate the service we provide to our customers.

“This is especially important because we service different segments of clients and customers with different needs,” he says.

Standard Chartered Bank Malaysia Bhd country head of consumer banking Tiew Siew Chuen says tuning into customer behaviour and preferences will be critical.

“We will focus on wealth management and small and medium enterprises, for the owners and total business needs.

“We will continue to innovate and develop customer solutions on a total customer experience and lifestyle approach based on needs basis,” she says, adding that the bank will also focus on Islamic banking.

Tiew sees an uptrend towards more moderate investments that provide constant yields in the future while for services, the trend is technology and convenience driven.

Public Bank’s Tay points out that competition in the consumer banking industry is already intense as reflected in the pricing of housing loans and hire-purchase financing for passenger vehicles.

“It will further intensify due to ample liquidity in the banking system.

“Furthermore, the playing field has been and will continue to be levelled for incumbent foreign banks to operate in a more liberal operating environment as well as the potential entry of new players,” he says.

Hong Leong’s Tan sees competition stepping up greatly, extending beyond conventional licensed banks.

“The future may see more of post banks, car banks, retailers, direct banking, finance companies … all as added distribution channels reaching out to the community,” she says.

While competition in consumer banking remains intense, banks should also take note of non-bank entities offering bank-like products, she adds.

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