| Dr Shayo |
EMERGING businesses, particularly small and medium enterprises
(SMEs) are facing a number of challenges, especially in securing
capital. 'Business Standard' Staff Writer interviewed Dr Hildebrand Shayo, a
Senior Lecturer with the Open University of Tanzania (OUT) on the future
of retail banking industry in Tanzania, where the CRDB Bank, Dar es
Salaam Community Bank (DCB), National Microfinance Bank (NMB) and
several others are the key players in supporting SMEs. Excerpts ....
ANSWER: This depends on the bankers themselves and how strategically
they are positioned to provide the enabling environment to businesses to
access their facilities. Most banks, just like businesses, are
currently undergoing reforms to be more competitive and serve their
customers who are demanding better transactions. The market for the
banks is widening even more day after day.
These days and in Tanzania, like anywhere in the world, there are
already signs that customers are questioning the ability of banks to
look out after their financial well-being. Hardly a third half of
consumers I spoke to in Dar es Salaam recently believe what bankers are
telling them.
Another survey carried out between January 2012 and October 2012,
also indicated that over two thirds of Tanzanian businesses looking for
small scale loans conduct their own research before buying financial
services products outside the traditional banking system.
This trend has made bankers begin to re-think what and how they are
supposed to do to satisfy the increasingly informed and demanding
customer base. At the same time, a confluence of industry developments,
including consolidation, regulation, industry specialisation, changing
workforce needs and new technologies such as mobile-based transactions
are putting additional pressure on banks' operating models and raising
questions about traditional strategies for growth and value creation vis
a vis contemporary money transfer structure.
Q: As pioneers on SME's accessibility to capital and markets
or their produce, what does the future look like? Or what will it take
to create and maintain advantage in this highly competitive industry?
A: An assessment of the forces shaping the industry suggests that the
future will require superior efficiency and operational excellence from
all banks, while industry leadership will be attained by institutions
most adept at harnessing products, services and process innovations to
anticipate and meet customer desires.
In due course, to deliver on these imperatives, banks will have to
focus on their core strengths and niche -- those activities in which
they excel and partner with best-in-class specialists for everything
else -- achieving more by doing less.
Q: What are your views on the economic landscape of the
banking business in Tanzania? Will it look much different than it does
today in supporting SMEs in future?
A: On the outside, the competitive landscape of the retail banking
industry will not look much different than it does today. Mergers and
acquisitions are likely to kick in especially mid-tier banks, industry
specialists and non-bank financial institutions will play a more
prominent function.
But most of today's players, including widespread banks, community
banks, industry specialist banks and non-bank financial institutions
will still be vying to differentiate themselves in a crowded
marketplace.
However, it is important to note that traditional approaches to
creating value through growth and efficiency will no longer be enough.
Advantages gained through acquisition, if it will happen, are to lead to
new market entry and reconfigured product offerings, will be fleeting
at best, while partnering and outsourcing will make efficiency a basic
requirement for all.
Q: In terms of priority, what will be the likely impact to
the retail banking and their efforts to enable business enterprises to
grow?
A: Of these drift, the first two -- increasingly powerful customers
and intensifying competition -- stand out as the most significant forces
that will drive industry change over the next decade. The other three
trends -- changes in managing human capital, regulations and
technologies -- will strongly contribute to and reinforce the effects of
intensifying competition and customer empowerment on banks' strategic
choices.
It is vital to remember in this emerging setting, where SMEs and mid
sized companies that are said to be the engine of growth innovation will
take many forms, including advances in products and services, markets,
operational processes, customer intimacy, and new channel and
diversification strategies.
However, innovation will not be possible, nor will it bring about the
desired impact, unless banks create the requisite conditions for
innovation development. There are four strategic options that banks must
follow to cultivate innovation and position themselves for sustainable
growth.
Q: In the course of the future, who will determine the rule of the game, banks or borrowers?
A: Over the next ten years, I am certain that the retail banking
industry will be required to adapt to rapidly changing customer
expectations. Customer diversity and individualism will pervade buying
behaviour, and how customers perceive value will change as a result of
pronounced shifts in demographics and value systems.
'Norms' will become increasingly rare. It is also imperative to
recognize that population growth will increase the relative numbers of
both the oldest and youngest customer segments, posing significant new
challenges and opportunities for banks.
While older customers tend to require more high-touch service but are
generally more loyal, because youthful customers are unpredictable,
technology savvy and highly inclined to research and negotiate the best
deals. Across all age groups, long-standing life stage patterns are
becoming more unpredictable.
People are now marrying later, divorcing rate is getting more
problematic and starting second and third careers is now a fashion.
Haven't you recognised that employees who are already working are
searching for career development that is working and studying at the
same time?
These changes are leading to unprecedented diversity in the financial
needs of households. I can guarantee you customers' decision patterns
will become more complex. Value-oriented buying based on the
price-quality dynamics will become increasingly influenced by personal
views and the desire to express those views outwardly.
Customers will demand low prices for basic goods but pay premiums for
products and services that matter more to them personally. Overall,
banking customers will be becoming more hands-on and more mistrustful
trends that are even stronger in younger generations.
Q: What about defection?
A: Once more, rough estimates based on my own assessment is that
banks are experiencing defection rates that as high as 30 per cent as
customers are less inclined to think that banks act in their best
interest. Sources suggest that less than one-third of the customers of
top 10 banks, for example, consider their banks to be advocates.
More importantly, about as many as 31 per cent believe that their
bank does what is best for its bottom line at the expense of customers.
And as time progresses, technology and competition will continue to make
it easier to research, compare, form and break relationships -- driving
switching costs toward zero.
Q: What will be the position of the universal banks and ultra-focused niche players by let say 2015?
A: By 2015, the results of two prominent competitive forces will be
clearly visible: A 'middle squeeze' of traditional banks and the
emergence of far greater numbers of industry specialists and non-bank
financial institutions -- each with distinct competitive growth
strategies.
For instance, towards 2015, I can envisage universal banks increase
profitability with more targeted offerings while expanding through
selected acquisitions and new market entry. Community banks will boost
their market share by building on local knowledge and deep customer
relationships with a wide range of products and services.
For industry specialists I can envisage them expanding customer base
by providing targeted products and services for high growth niches while
leveraging superior process capabilities and for the non-bank building
on existing customer base and distribution network with an emphasis on
open sourcing of targeted products and services.
In a nutshell, the industry will witness consolidation at its middle
as it continues to be affected by large banks spreading their reach, and
the emergence of specialised banking players that will set new cost and
service level standards. Acquisitions led by large banks, however, will
continue to be less attractive until the acquirer and potential target
valuation gap narrows.
Source: The Daily News,http://www.dailynews.co.tz, *** Dr Hildebrand E Shayo, BA (Hons), MA, PhD (Economics) UK, is a Senior Lecturer at the Open university of Tanzania (OUT).
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