As much as products and services are standardised, customers in different locations do not bank the same way. Joseph DiVanna explains the 10 regional attitudes to retail banking.

Banks in today’s competitive marketplace have three key shareholder objectives: to expand globally, grow organically and reduce operating costs. At times, the goals of this strategy seem to be contradictory as market and product expansion comes with an inherent cost, while cost savings is a continual process of optimisation. The key to implementing this three-tiered strategy requires an in-depth understanding of retail banking customers and their inherent behaviours.

Today’s banks labour to create standardised global services. Expanding into a new market requires carefully engineered investments in infrastructure, back office and ancillary technologies. A merger or acquisition comes with a cost savings potential but in many cases fails to achieve the savings during the process of legacy technology integration. A joint venture offers access to new markets, but rarely provides a means to grow customer relations that lead to long-term organic growth. The advance of technology enables the development of a common set of products appealing to more and more people in ever-expanding geographies.

Therefore, banks face a dilemma: they must grow and achieve economies of scale. The trade-off that banks must make is clear; either find new customers in existing markets with commoditised products by offering lower-cost banking than their competitors, or take established products and introduce them into new markets in distant geographies.

Retail banks often execute the latter strategy by providing standardising services to customers regardless of their global location. Working in concert with technology companies that sell banking software, banks endeavour to optimise their investments by using one standardised information system to support the customer base.

Strategically, a standardised suite of products with an integrated back-office system and a seamless customer interface across all banking channels should provide customers with unparalleled banking services. This task is often difficult to achieve given that most banks are built on a collection of disassociated computer systems. Arguably, product standardisation might be considered the holy grail of the banking industry.

Vanilla or variety

Is standardisation what customers really want, though?

Local customers want access to banking products that reflect their relationships with money and their economic behaviour. Customers’ needs, values, savings and spending habits vary widely within any given nation as societies reflect greater diversity.

Typically, people use banking products to support a specific lifestyle within their economic means, or sometimes beyond their means, such as in the US and increasingly in Europe. This raises an important point that banks should consider when devising retail-banking strategies: do people in Islamabad, New York, Rio de Janeiro, Hong Kong, London, Johannesburg and Cairo all bank in the same way?

As much as products and services are mass customised, customers in different geographies do not bank in the same way. Research shows that there is an average of 10 regional attitudes toward banking. Because the basis of these attitudes is built on local taste in spending and cultural inheritance in savings, we call them “flavours of banking”.

How people use banking services is based on three underlying factors: their relationship with money, their faith in the fidelity of the bank, and their socioeconomic stature. People’s relationship with money is influenced by their parents, partners and social aspirations. What they do with money can be attributed to their trust in the banking system, their faith in the currency, their relationship with merchants and the relativity of their individual needs (luxury spending versus necessity purchases). Subsequently, a person’s place in society and the availability of discretionary income or access to credit plays a key role in spending and purchasing behaviour.

North America

The US is a melting pot of cultures, beliefs and values. This is reflected in the wide range of banking products, such as immigrant banking for Korean and Taiwanese living in Los Angeles (General Bank), Hispanic banking (Bank of America), community banking (American Community Bank) and agricultural finance (Rabobank), faith-based banking (FaithFone Mobile Banking), Islamic banking (American Finance House) and native American banking (Native American Bank).

Within the variety of specialised products available in the US, national trends emerge, such as the US consumer’s voracious appetite for borrowing. It could be argued that US consumers use home equity lending in a way that mitigates any need for short-term savings, trading long-term frugality for short-term liquidity. In Canada, banking products also reflect the needs of their customers, such as aboriginal banking (Bank of Montreal), and the Canadian Defence Community Banking, which offers a broad range of banking products and services tailored to the needs of the defence community workers.

Caribbean and Central America

Here banks are well known for private and offshore banking havens for US and European customers but less known for their services to local people, such as specialised motorbike loans (Bank of Bermuda, an HSBC subsidiary) – bikes and scooters are a common form of transportation on many islands. Island living requires a host of services that cater to lifestyle choices such as purchasing boats and condominiums. Banks must also factor in the high demand for transactions initiated by tourism and non-residents acquiring property.

South America

In Brazil, interest rates have been stable for a number of years; however, the credit system is underdeveloped. Anyone visiting Brazil will find signs in retailers indicating that post-dated cheques are accepted. Some stores will accept cheques post-dated to six months as a means of increasing sales and retaining customer loyalty. However, Brazilian banking customers have had sophisticated banking services available via ATM machines (Itaú bank) for the past decade, enabling them to pay bills, telephone banking, online banking and other services years before European customers.

Europe

Although generalisations about European consumer behaviour can be problematic, there are general trends that set banking customers apart from their global counterparts. Europe is traditionally a continent of savers, risk adverse, frugal in their approach to finance and against extensive credit and borrowing other than mortgages. However, this is changing, as reflected in the attitudes of younger consumers.

Africa

African banking customers are significantly disadvantaged because of the lack of land tenure rights, which inhibits homeowners from leveraging their biggest asset. Banks are less willing to underwrite mortgages on property whose ownership may come into contention in the future, which results in consumers holding billions of dollars in dead capital. Microcredit and microfinancial services are quickly rising to meet the needs of customers that are somewhere in between poverty and middle class.

Middle East

In the past few years, Islamic banking has taken centre stage as Muslim customer needs provide a backdrop for a new banking industry. However, in many parts of the region, banking services need to reach higher levels of penetration. This can be seen in Egypt, with only 4.5 million people having a banking relationship out of a population of 74 million. Across the Middle East, the rise in mobile phone use has propelled mobile banking even in cash-based societies.

Southern Asia

On the Indian subcontinent, people acquire gold and other material items as an inflation hedge, leading to a vast amount of wealth existing outside conventional banking systems. Agricultural communities and customers with low or little income are finding services from microfinance banking specialists such as ICICI. In Pakistan, First Woman Bank provides services exclusively for the needs of women and female entrepreneurs wishing to start a small business.

Asia

Surveys of Chinese customers indicate that banking services like internet banking and mobile banking appeal mostly to males, though not necessarily those who are young or highly educated. In the Chinese market, security is the key factor in motivating consumer adoption of online banking. The traditional Chinese cash-carry banking culture is now being swayed by a rise in credit cards and personal debt, which are relatively new concepts to local customers and difficult to manage given a lack of credit history. China’s credit card market may be too good to ignore for European banks such as Royal Bank of Scotland and HSBC. In Japan, companies in a keiretsu (business network) have a symbiotic relationship with their bank, which is often their primary funding source, reducing their need for external funding such as the stock market.

Australasia

In the Solomon Islands, local people consider banking an inconvenience to their daily business, preferring to keep money at home so it is readily available. Although the geographic distribution of the Islands contributes to the lack of accessible banking institutions, people turn to copra-buying centres to convert goods into cash. In this cash-based economic environment, when people do use financial intermediaries, they would typically turn to one of the 40 credit unions for personal or small business lending. The same behaviour can be observed in the Philippines and Indonesia. In Australia, banks such as Westpac have products designed specifically for community groups and agriculture financing.

Russia and the former Soviet Union

Estonia has seen a rapid rise in online banking. Customer behaviour indicates that one person in a family or social group will typically establish an online account and act as an agent to pay for the bills of many individuals within a household.

Variations and social diversity

Within each region, cultural idiosyncrasies present opportunities for banks that are willing to tailor their products and services to fulfil the needs of each market niche. Generalisations on social behaviours are not meant to be definitive. They are to be used to place societal trends into a geographic context as input to strategic planning. Significant differences in attitudes across age, gender, marital status, occupations, income levels, educational levels and other societal views on savings, credit and debt vary within nations.

Banks are learning that to create new products is not enough; promotional messages must be culturally appropriate and targeted at a specific demographic profile, not merely to general audiences. This, too, varies by product as general marketing campaigns can sell current and savings accounts while specialised campaigns must be devised for lending and investment products.

Understanding macro-level consumer behaviour reduces the chances of a bank pursuing valueless product offerings. For example, in 2001, a Swiss bank made a significant investment in developing share trading for high-net-worth customers using mobile phones, which resulted in very few customers using the technology. Why? Simply because it did not understand the relationship that high-net-worth people have with their money. Investors wanted to see charts, graphics and more data to make an informed investment decision.

Universal behaviour constants

Unlike other industries, financial institutions play a pivotal role in the economy because they provide a nation with societal cohesion. Retail banking services endow communities with various forms of payments based on an explicit trust that a transaction will take place. Trust or faith in the banking system and banks in general is relative and is open to cultural interpretation. What is clear when looking across the global flavours of banking is that several socioeconomic patterns emerge as universal constants:

  • Consumers hedge by hoarding material goods, currency or commodities when they have little faith in the economy or banking system.
  • Customers are less likely to seek out banking services in cash economies simply because cash is more convenient, and cash offers lower operating cost for small business customers.
  • Longer-term consumer behaviour regarding savings and spending is generational and largely shaped by parents and local events, such as stock market crashes, unemployment, changes in domestic rates and bank failures.

Basically, what it boils down to is that banks really must understand their customers to create products. Today, they must foresee the next generation of banking in global context because the European and US baby-boomer savers will pass their wealth on to a generation of live-for-today spenders. As the young populations in Africa and the Middle East rise with aspirations of entrepreneurship and access to capital to participate in their rapidly growing economies, bankers will need to develop one key capability to capitalise on the diversity of global customer need: an innovative approach with a keen understanding of cultures.

Joseph DiVanna is managing director of Maris Strategies.

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