Julien Faye, Partner, Bain & Company for Middle East and Head of Financial Services, and his Paris-based colleague Thierry Quesnel, held a day-long meeting with decision-makers of leading banks in an event called the “Majlis” in Riyadh last week. “Bain & Company is in the final stages of establishing its office in Riyadh. We help management make the big decisions on strategy, operations, mergers and acquisitions, implementing innovative technology and organizational set ups,” Faye said. He added that the event, entitled “Light Retail: Simplified banking for the next customer wave in emerging and maturing markets”, and also dealt with current issues, strategic competition against the backdrop of emerging world's financial markets. “We have received some encouraging responses from banks that showed a keen interest to diversify business from a customary corporate-based clientele to retail banking,” said Faye. He said that the Gulf Cooperation Council (GCC) states have been experiencing a healthy growth rate – which in 2011 is expected to reach six percent – and has a large bankable population with 50 percent in the 20 to 50 year age group. The current bankable population represents a large middle class customer base that the banks in Saudi Arabia are targeting to capture, he said. Currently, the number of customers per branch is high compared to other international countries. In Saudi Arabia this stands at 17,000, compared with the United Arab Emirates' 6,000. “While the number of customers per branch is high in Saudi Arabia, opening full-fledged branches will require two to three years to break even, which is in no way advisable,” he said. In order to obtain a better market share, banks need to establish a presence in every neighborhood and remote areas of the Kingdom and know about the number and kind of inhabitants, explained Quesnel. This could be done by mapping the areas that differentiates wealthy business executives from other categories of customers. “People in remote areas are used to keeping their hard currency at home, because the banks are not present there,” he said. He added that Bain's Light Retail model minimizes the focus on elaborate branch formats and instead addresses utility and meeting customer needs with simplified offerings and “ready to sell” products; implementation of light IT infrastructure; lower staffing requirements; standardized processes and limited back-office; integrated multi-channels and targeted and low-cost marketing among others. There are at least three banks in the Kingdom, which are more local in their operations, with a huge banking network in place and interested to consolidate their market share, he said without providing the names of the banks. The interesting part of the discussion, Faye said was that the banks expressed their willingness to expand their business even faster, “because of the ensuing competition and to achieve bigger market share”. With retail banking set as the target, banks in Saudi Arabia are more than likely to double the number of small branches during the next five to seven years from the existing figure of roughly 1,500, said Faye. He said opening branches rapidly needs a strategy that covers a number of issues such as choosing the right people and training them, offering incentives and identifying the clientele base by establishing micro-market – a comparatively new and emerging banking concept in Saudi Arabia. The banks are required to initiate many pilot studies, besides engaging in trials, particularly in terms of creating different area-specific zones, he said. The banking business is very simple and mainly addresses the customer's basic needs such as payment, deposits and loans. However, the challenge is delivery, he explained, saying, “it is better to focus on how to deliver rather than the products.” The priority for banks is to assess what products the customers are interested in buying and to conduct customer surveys and identify exact customer needs. The basic requirement of the micro-market is to identify between different communities such as the affluent, small business and lower-income groups, besides the top earners. “We have demonstrated several times that smaller zones would be the most ideal option to offer better banking services, because banking is purely a local community business, similar to retail supermarket chains,” he said. The ideal per branch number of customers would be 2,000, as against the current 17,000, he added. This will offer lower capital spending while cutting down on operation costs, which in turn leads to shorter break even time. “This will also open hundreds of job opportunities for Saudi nationals,” Faye stated. “The smaller banks' branches will also be equipped to issue ATM cards to those customers who don't have one. The ATM cards can be issued within one hour or even less.” Another issue discussed at the “Majlis” was the tendency to sell too many products to customers. Customers hardly buy four products from a basket of 100.
