Not many people know but Rabobank is Europe’s biggest internet bank. Micheal Imeson explains how the Dutch bank is building on this, while striving to maintain its dominance in other sectors.

A small, unpaid army is at work in the Netherlands. A band of 40-50 men and women – all Rabobank pensioners – are targeting old people’s homes throughout the country. Their mission: to recruit as many elderly people as possible to the bank’s internet service. Their tactics: to be invited to care homes to teach residents en masse how to use computers, surf the web and make the most of internet banking.

Their reward: the satisfaction of passing on their internet expertise to people only a few years older than they are – while simultaneously helping their former employer.

It’s an unorthodox but successful strategy that has added about 70,000-80,000 internet banking customers. It isn’t costing Rabobank a cent, except for the recruiters’ travel expenses. And it is a strategy that has not been copied by the bank’s competitors in the Netherlands – mainly ING and ABN AMRO – nor, to the best of its knowledge, by other banks abroad.

Internet reach

Rabobank is Europe’s biggest internet bank, with 1.6 million customers, ahead of Egg (1.5 million), Credit Agricole (1.4 million), Germany’s Postbank (1.3 million) and Lloyds TSB (1.3 million). How has it got to this position? A combined strategy of capitalising on its bricks-and-mortar foundations, a marketing concept called Rabox (the internet banking service packaged in a box like a computer game sold in shops) and education.

The bank accepts that one day it will be overtaken because there is a natural limit to what can be achieved in the Netherlands since its population is much smaller than that of the UK, Germany and France. But for now it is basking in the glory.

The man in charge of the bank’s channel strategy – covering the internet, branch, telephone and other delivery methods – is Klaas van der Laan, manager, channel management, retail banking, Rabobank Nederland. “It’s a beautiful sight to see former staff working with our customers again,” he says of the pensioners who have been mobilised to promote the internet in the country’s residential care homes.

“The essence of our channel strategy is to keep as close as possible to customers, closer than any of our competitors can,” he says. The pensioner initiative for internet banking illustrates this point, but branches are still very much the bedrock of Rabobank’s retail franchise. It has the densest network of branches and ATMs of any bank in the Netherlands – 1322 branches (nearly 40% of the nation’s total) and 3026 ATMs (again, about 40% of the total).

Being close to customers is not the only priority. The other is to provide as wide a range of products as possible. As Bert Heemskerk, chairman of the executive board, said when announcing the 2004 interim results: “The aim of Rabobank Group’s strategy is to be and remain the largest all-finance group and bank-near-you in the Netherlands.” It is the market leader for mortgages (26%), personal savings (38%) and small and medium-sized enterprises (39%).

New retail products were launched this year and others are in development. “Our key product developments this year have been in mortgages,” says Mr van der Laan. “Home loans are the main battleground in Holland today. We’re still the market leader, but we have to do all we can to maintain that.”

Rabobank’s structure

Rabobank Group is a co-operative, owned by 321 local banks. Some 1.4 million of its nine million customers have chosen to become “members”, and although they do not own the member banks they have a strong and formalised influence on their policies.

The umbrella co-operative is Rabobank Nederland which, with its HQ in Utrecht, provides retail banking support services to the member banks around the country. This central entity also provides banking services direct to wholesale customers and owns various subsidiaries providing insurance, pensions, asset management and investment services, leasing, real estate and other services.

Rabobank Nederland has substantial overseas as well as domestic operations. It is rated triple A by Moody’s and S&P and is recognised as one of the world’s top five safest banks. “The Aaa/P-1/A ratings of Rabobank Nederland reflect its leading position in the Dutch banking system, the consistency of the bank’s earnings, and the group’s cross-support mechanism, which would ensure that resources of the whole Rabobank Group would be available should Rabobank Nederland, the rated entity, encounter difficulties,” says Moody’s latest analysis.

On the retail side, its main competitors at home are ING and ABN AMRO. Abroad, it has retail financial services operations in Belgium, Australia, New Zealand, California and Ireland. In the first half of 2004, its retail banking profits rose by 24% to E797m.

Branch strategy

Mr van der Laan says in recent years the bank has developed three new types of branch – known as Bank Shops, Advice Centres and Service Shops – and and intends to continue with this strategy. Bank Shops sell services to the mass market. “They look more like shops than banks,” he says. Staff are sales-oriented and there are no traditional tellers; customers wanting cash, to make deposits or to perform other basic services have to use automatic teller machines (ATMs). They are “high traffic” establishments, usually situated on busy street corners and high streets in cities and towns.

Advice Centres provide a more personalised service and advise to customers who have more complex needs – for example, the more affluent and small and medium-sized enterprises (SMEs). The centres have a sophisticated and comfortable interior design, more like consultants’ offices than retail outlets. Typically they are located on the periphery of towns and cities, making them handy for people and businesses in and just outside the suburbs, with ample parking.

Service Shops provide basic banking services, largely through self-service terminals, in rural areas and villages. They can be in traditional bank buildings; be mobile, travelling from area to area like library buses; or – in a new departure – be situated in a village shop, post office, town hall or other non-bank building. Rabobank’s roots lie in providing services to the agricultural sector, and it still dominates, with a market share of personal and SME customers in rural areas of up to 85%.

The bank is developing its strategy of being “near” to its customers by making greater provision for the profitable SME and private banking market. It has therefore embarked on a programme called Vision Rabobank 2005+. This entails encouraging smaller member banks to merge, creating larger banks with the critical mass to cover these markets. The objective is to reduce the current number of member banks from 321 to around 150 in a few years. But the bank insists this will not entail cutting branches or alternative customer contact points, which will remain – but as components of the larger banks.

Efficiency drive

As part of the ‘Vision’, in June the group announced that Rabobank Nederland would be restructured to provide better services to its member banks by becoming more efficient and more customer-oriented. The project, known as Operation Service, will result in 1200 job cuts and an annual cost reduction of E200m. It will take up to two years to implement.

“This is much more than a plain reorganisation,” Mr Heemskerk said at the time. “The focus is clearly on re-establishing Rabobank Nederland as a true service organisation for the benefit of the local member banks, which in turn must be a true service organisation for our customers.” Because the group is a co-operative, it does not have to distribute part of its profits as share dividends, or stick to ambitious performance targets set by external investors. This allows it to operate on lower profit margins and charge lower prices, giving it an advantage in managing customer relations.

In this respect, it is like other co-operative or mutually owned organisations around the world, such as Britain’s building societies or America’s mutual thrift institutions As Mr van der Laan puts it: “We have no shareholders, so our focus is not on shareholder value, but on customer value.”

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