Competition in European markets can be summarized simply as a large number of banks all vying for the same customers, or a continuous process of fighting over market share. Banking in Africa is about finding new customers across all levels of the economic pyramid. To be successful, African banks must learn to think like customers, spend time with customers and ascertain how banking can be used to facilitate today’s changing African lifestyles. The key is to change our perspective on banking and payments. Where bankers see transactions, customers simply see payments. Writing a check or using direct debit or a credit card is of course, making a payment. When customers deposit money in savings is they see it also as making a payment to themselves. Putting money into an investment product is making a payment towards one’s future.
To customers, all retail banking is simply variations of payments
Customers across Africa use banks simply to move money from one place to another in three distinct ways: transactions, precautions and speculations. All transactions initiated by a customer are to directly or indirectly support of his or her lifestyle. Spending, savings and investment habits are characteristically variations of payment that they make to buy things, put away for a future purchase or make continual payments in investments so they can make more payments on things when they retire. Customers see their financial future within the bank in two ways: they see the bank either as a mediator to pay their bills, or as the catalyst, which processes payments in a manner, that supports the many activities of their daily life.
The fundamentals of strategic thinking
If we strip away the exotic packaging of banking products or wash away the veneer of technological sophistication, all banking breaks down to payments. Savings products are simply designed so that customers make a payment to the bank for safekeeping. Current accounts are used for banks to make payments on our behalf. The problem is that today’s retail banks are focused on transactions, not on the total relationship. Banks need to know their customers not to sell them products but to learn how to facilitate their lifestyles. Similar to banks in other global markets, the value proposition for banking products is made up of many characteristics. Convenience is the key.
The new strategy to be used by banks operating in Africa is to understand local customers’ behaviours such as savings / spending habits or risk attitudes, and to engage customers through multi-faceted multi-purpose products and deliver services through multiple banking channels. Simply: “know your customer” translates to getting to “know” your customer. This means to understand the customer; engage the customer with the right products to facilitate their lifestyle and consistently deliver value is the key to customer attraction and retention. To embrace this concept, African banks must learn to use transaction data as a record of dialogue between customers and their lifestyles. Customer credit cards, ATMs and POS transactions tell us a lot about customers’ lifestyle, so banks need to learn to manage relationships using these convenient channels.
How customers will measure their relationship with African banks in the future?
Smart customers are more problematic than uninformed customers are, as they are beginning to question banking fees and compare value for money on banking services across competing banks. Today, African bankers have three key strategic ideas when considering the mix of customer product offerings: selling services to high net-worth customers, providing basic banking products to employed people and engaging the unbanked. To engage these three customer types, banks have devised the following operational attitudes that are reflected in their strategies:
many customers have never banked, so sell them anything and they will be happy;
our ideal customer is the high net-worth customer - everyone else is secondary;
our customers are relatively unsophisticated so sell a suite of generic products that exemplifies one size fits all.
What these strategies fail to consider is that as the selling of retail banking products become ubiquitous, customers will view their relationship with banks as just another company trying to sell them “stuff” continuously. Banks blend into the continual barrage of retailers trying to sell them a cadre of products. As banking in Africa becomes more commoditized paralleling European baking, customers will begin to evaluate their relationship with a bank. Soon customers will evaluate a bank’s value proposition by asking themselves “Am I better off financially with my relationship with this bank?”
Attracting new customers
Some African banks are developing an assortment of new products and complex promotions designed to attract customers specific market segments mostly the top one third of the economic pyramid. Promotions and special offers are ingenuously composed with incentives to lure customers away from existing banking relationships. The vast majority of these customers are simply shoppers who look at fees, interest rates and other expenses assessing whether or not they are getting the best deal. Perhaps the big question banks need to ask themselves is: are you attracting the right kind of customer or are you simply attracting customers who will be easily attracted by another bank with a slightly better offer? Deal shoppers are rarely loyal, often centring their attention on the transaction not on the total relationship with a bank. The type of customer a bank needs to attract must be persuaded to build a relationship based on value not bargains.
Banks are shifting their focus to organic growth by cross-selling products to existing customers. Few institutions are considering the long-term implications of this strategy and the message their cross selling strategy is sending customers. Customers who base their relationship with a bank on value are translating cross selling as “each interaction I have with a bank is a moment where the bank is trying to sell me something.” Typically, customers do not go to a bank to buy things; they go to a bank to save their money, pay bills, cash a pay check, take out a loan, make investments and protect their wealth.
Customer retention is a product of building a relationship whereby a customer sees every interaction with the bank as a part of process which helps them fulfil their lifestyle, save for the future or increase their overall wealth. Financial instruments, in the mind of the customer, are products they value because they help him or her achieve financial goals. Today’s customers are inundated with banking products choices and rarely understand which product can actually assist them in achieving financial objectives. This is where savvy bankers spot real opportunities: not to cross sell, but to tailor banking products to best fit a customer’s financial situation.
Often customers don’t know what they want; bankers must help them navigate to the right products
Understanding customers’ financial goals and objectives in their banking relationship is only half the equation, as bankers must also learn how to guide customers to the products that best fit their financial needs. Product navigation starts with branding as a key component of strategy. If a bank has a clear value proposition, branding becomes the way in which a customer associates that value back to a specific aspect of their banking relationship.
Customers are not loyal to banks that are disloyal to them
African bankers need to ask themselves one key question: does product automation simply pander to the customer’s frustration with banks today or will automation really build a solid long-term relationship with a customer? Product automation equals commoditization of transactions which translates into the minds of customers as self-service. Is self-service for people who do not value their own time, or does self-service facilitate a set of lifestyle choices? As banking products become more commoditized, it is easier for customers to switch, unless they have a high product density within the bank. Why do today’s customers value self-service? Simply because they are tired of the inefficient way banks handle them and the way they are treated. African banks need to re-examine their customer services to provide the same level of services that are traditionally provided to high net worth individuals to the masses by leveraging technology and human capital. Running a bank with highly commoditized technologically sophisticated products sold by under-trained customer service people is not a sustainable competitive model.
The good news for African banks is that in most markets more than 86% of the African population has yet to experience formal banking of any kind. If we examine Botswana (one of Africa’s wealthiest countries on a socioeconomic scale) as an example of banking services distribution, the majority of services available to people fall in the High Net-Worth and Rising Affluent segments of the economy. Several banks offer services in the Middle Class and the Under Banked segments. Finally a few NGOs and microfinance organizations offer services to the Non-Banked population. Overall Botswana’s banking profile illustrates that approximately 208,000 people are banked in a bankable population (people over age 16) of 946,590. Therefore only 22% of the country’s population is banked. A closer examination of the data shows that of the employed income producing segments of the population only 29% of people in that category have any banking relationship or use of banking products.
Perhaps the best news for African banks is that there is a great deal of opportunity to provide banking services to all customer segments in the economy. Reaching these customers is the challenge as a shortfall in technological infrastructure is often our Achilles heel. However, new delivery technologies that make payment easier, more convenient and demonstrate higher degrees of safety, and financial fidelity are increasing the reach of banking services across the African continent. The opportunity for African banks is to determine what products they can offer profitably to which customers segments. Engaging customers requires the creative adaptation of technology to overcome some of the infrastructure problems we currently face. The opportunities for African banks are only limited to the drive and determination of the senior management teams and their ability to harness the resources of their institutions to capitalize on the current market conditions.
About the author: Joseph DiVanna is the Managing Director of the Cambridge think tank Maris Strategies and author of numerous books on financial services including The Future of Retail Banking: Delivering Value to Global Customers (Palgrave-Macmillan) and the forthcoming Inside African Banking: Local Challenges in a Globalized World (Leonardo and Francis Press).