|
A Financial
Institution Goes Exclusive
By Michael Alan Hamlin
June 9, 2003
One of the most interesting side
effects of protectionism has to do with Citibank. Citibank has been
around for decades, but until deregulation during the administration
of Fidel V. Ramos, was limited to a single branch. Because of the
perception of security and prestige associated with strong foreign
brands, Citibank has traditionally had far more eager potential
customers than it could ever dream of servicing with just one location.
Rather than accept customers on a
first-come, first served basis, Citibank decided therefore to qualify
customers, requiring that they deposit the equivalent of US$10,000
to open an account. As a result, while Citibank in the U.S. is a
financial supermarket for consumers, in the Philippines it is an
exclusive bank for well-heeled clients. While it may not have many
customers, those it has are really, really good customers. As a
result of that image, and its longevity, Citibank is the number
one top-of-mind foreign bank according to industry research.
After deregulation, and before the
central bank pronounced a moratorium on new branch openings in an
effort to force consolidation in the industry, Citibank opened just
a couple of more branches. And they are in very exclusive neighborhoods.
Clearly, the bank recognizes - and wants to preserve - a good thing
with its upscale client pool. While it will give a credit card to
just about anybody that earns a regular paycheck, you must have
considerable expendable income in order to qualify for "membership"
by way of the privilege of opening an account.
There are good reasons for this.
The Philippines has lots of potential bank customers, but the industry
isn't growing very fast. Consider that there are around 38 million
registered voters, depending on whose numbers you choose to believe.
However, there are only around 14 million ATM cards issued nationwide.
And a good many of the individuals who do have ATM cards have more
than one. While credit cards have plenty of room to grow - only
around three million have been issued - ATM and account growth has
stalled. That's because despite respectable economic growth reported
by government, it's not being felt where it's most desperately needed:
the lower middle-class and the poor.
As a result, in order to grow, banks
are increasingly targeting well off clients. They want to become
investment advisors and fund managers to the very wealthy, who they
can charge robust professional fees. Every banker I meet these days
talks about ways to distinguish his bank from his competitors who
share the vision of soaking the wealthy to grow their own wealth.
The focus on exclusivity is most
apparent in the "wealthy consumer" segment, but a recent
development with my own principal bank showed a similar shift in
the corporate sector as well. My firm has banked with Bank of the
Philippine Islands (BPI) for several years. Not by choice, mind
you. It's just that it has purchased the other two financial institutions
we used to bank with, CitiTrust, which was swallowed by the BPI
Family Bank network, and Far East Bank. Prior to the takeover of
CitiTrust, we avoided BPI because of extremely poor service. BPI
Family service proved so bad that we quickly switched to Far East
Bank (FEB), only to be captured again.
Fortunately, enough FEB managers
remained behind this time that service actually improved. Service
took another step up recently when BPI introduced gold ATM cards,
which made it possible for the bank's most profitable customers
to actually zoom in and out of the bank, avoiding the long, slow-moving
lines typical of BPI branches. The productivity drain those lines
cause the bank's customers and their businesses is just staggering.
So the gold ATM card was a real plus in terms of strengthening relationships
with those well-heeled customers that Citibank has cornered.
Now, when it comes to corporate accounts,
rather than improve relationships with big corporations, BPI's approach
to exclusivity is to alienate its smaller enterprise clients, like
my firm. For instance, we learned last week that unless a corporate
client maintains a daily balance of P1 million, the company will
no longer be allowed to maintain payroll accounts for its employees.
Instead of having payroll distributed to employees' ATM accounts
automatically, small corporations will be forced to go back to issuing
payroll checks.
To give you an idea of how ridiculous
this new minimum is for small corporations, consider the results
of a survey we conducted in an effort to identify a new bank. In
our area in Northgate Cyberzone in Alabang, there are two banks
we considered in relative proximity, MetroBank (MB) and RCBC. MB
is the Philippines' largest bank, and is its best-known as well.
The minimum daily balance at MB is just P200,000. At RCBC, it's
just P50,000.
According to bank mangers we've talked
to, BPI's small and medium corporate clients are furious, and at
least threatening to end relationships. I have no way of knowing
whether they actually have or not, but I do know that we're definitely
moving everything out of BPI to MB. BPI appears not to care, insisting
that the administrative costs of maintaining employee ATM accounts
for small firms are just too high. While that action may seem callous,
it is true that companies shouldn't waste their time on customers
who aren't profitable, and offer little indication that they ever
will be.
While small and medium enterprises
(SMEs) account for 65 percent of the labor force and over 99 percent
of all enterprises, they produce only 25 percent of total sales
volume. BPI wants to concentrate on the companies responsible for
the other 75 percent. I can't argue with the logic, frankly, and
this strategy might work for BPI. There's just one potential vulnerability:
big corporations are lousy customers because they squeeze margins.
And SMEs are banks' most profitable
corporate customers.
(Michael Alan Hamlin is the managing
director of consultancy TeamAsia and the author of three books on
Asian economies and companies. His latest book is Marketing Asian
Places, of which he is a co-author (Wiley, 2001), and he is currently
at work on High Visibility: The Making and Marketing of Asian
Professionals into Celebrities. Write him at mahamlin@teamasia.com.).
Copyright © 2003 Michael Alan
Hamlin. All Rights Reserved.
|
