Banks specialize in race for new customers

Lenders have been racing to get more customers for years in Romania. But the current downturn has intensified the need to do so, both in the banking industry and other economic sectors. Many players, no matter what field they are active in, are using significant discounts, grace periods and other incentives as marketing tools to increase their number of customers, and keep the existing ones. But things are a little bit different in the banking industry in this respect.
Before the crisis, local lenders' efforts to attract customers consisted of launching an increasing number of branches, designed to give them nationwide coverage and thereby a larger number of customers. The lending boom of the last few years also drove banks to scrabble to attract new borrowers. But since the crisis, things have changed dramatically: lenders' plans for future development have been canceled or postponed, as a result both of significant cost-cutting measures and the freeze in lending. In such a context, entering accessible market niches seems to be banks' new weapon of choice.
Pensioners, members of the liberal professions, children, teenagers, students and tenants associations are some of the available niches that lenders have set their sights on. At present, there are two categories of banks active on such niches in Romania: those that had already had one or more such products in their portfolio for years and those that have tackled this business line more recently. A visible trend on the local banking market is segmentation, both for individual customers and corporate ones. Moreover, banks of all sizes have taken a similar approach. The focus is now on launching products for specific categories of customer. BRD-Groupe Societe Generale, BCR, Raiffeisen, ING, Piraeus, OTP, Alpha Bank, CEC, UniCredit and Bancpost are among the lenders that have entered different niches in recent years.
For example, OTP launched a savings account for retirees in April. “Pensioners play a significant role in Romania as individuals who intend to save money and are an important segment of customers that need specific products and services,” says Adrian Chichita, deputy manager of the retail division at OTP Bank Romania. He adds that this account is the first step towards a wider range of products and services for these customers, which also includes, for example, the payment of pensions into debit card accounts and free withdrawals from ATMs.
Meanwhile, Piraeus Bank has launched a banking service to deposit allowances, allocations, other social benefits and pensions into its customers' accounts. According to Piraeus representatives, the service was launched both to meet the needs of its existing customers and to attract a new segment with high potential and low coverage.
But how do specialists on the local market see this trend? “Specialization and segmentation are normal trends while the banking system is maturing,” says Dragos Cabat, managing partner at consultancy firm Financial View. Chichita of OTP shares this view, adding that banks have understood that they need to take a different approach for each category of customers, due to the increased competition.
But the reasons for entering such niches differ depending on the size of the institution. Cabat says that small lenders in particular cannot compete on multifarious segments of the market and so have set about trying to attract the kinds of customers that bring them the maximum benefit.
“But available niches are profitable for large lenders too,” says Cabat. In his opinion, the key issue is loyalty: once people choose a bank, they hardly ever move their money to another one. But he cautions that for lenders of every size, this specialization had advantages and disadvantages. It offers higher yields but also exposes the bank to the higher risks of such a customer portfolio. Entering new niches is also a response to the current crisis. With lending stalling, banks need to find new ways to generate income in order to get through this difficult period. “If lenders don't grow quickly, distressed loans will increase very rapidly. So, they need to attract customers as fast as they can. This trend is more visible at the end of the year when banks will rake in money from many sources,” says Cabat.
But while Chichita believes that banks' orientation towards specific categories of customers is an important condition to get new ones, Cabat says that it is more difficult to attract new clients in this context. The reason is that the main way to do it is still through loans. The Financial View representative says that the easiest thing is for banks to retain their existing customers – due to the higher costs of refinancing a loan – while the hardest is to attract new ones. In his opinion, entering new niches means specializing in different segments of the market and eventually improving the bank's activity rather than upping the number of customers. “Banks are pushing their existing customers while offering new products to other ones. Customers are no longer moving to another bank for the same products,” says Cabat.
And this is valid both for individual and corporate customers. Moreover, companies are more closely attached to their bank, because of the track record that may help them in the future. As Cabat says, the first signs of recovery for lending will be in the loans for traditional, existing corporate customers with whom banks have had a long-term relationship.

How profitable are niches?
Generally, in the segmentation process, banks consider the categories that afford them the biggest opportunities to make a profit. “In some cases there is a combination of short-term objectives – such as attracting deposits with convenient interest rates – with long-term ones, future customers that will use the bank's services being one of them,” adds Cabat. Segmentation is a real sign of strong competition and continuous growth on the local banking market. To remain competitive, some lenders need to work on their positioning. Despite this, the Romanian banking marketplace is still not very sophisticated. “It is probably about three to five years behind more developed countries in Central and Eastern Europe and about seven to ten years behind the developed ones in the EU zone,” says Cabat.
But future economic growth and greater competition will increase its level of sophistication. Besides, segmentation will be an ongoing process, based on the principle of coming up with different products and finding a customized one for each client.
As for the launch of products for new categories of individual customers, representatives of Piraeus say that the lender will act according to the market evolution and the existing needs of its customers. “The results posted by OTP for pensioners are above our expectations, which allows us to continue in the same direction in the future,” says Chichita. He adds that from the very beginning OTP's strategy has been to reach specific types of customers through customized products and services. The programs “co-brand” and “Affinity,” launched in the last few years, illustrate OTP's strategy. “In the current context, this approach is becoming a key factor in amassing and serving new customers in the future,” concludes Chichita.