Banks offer more products to retain customers

Banks offer more products to retain customers

Rudijanto, Contributor, Jakarta

With the continued drop in interest rates, local banks are
having a tough time retaining customers as other investment
alternatives such as mutual funds and corporate bonds provide
higher returns.

Because of this situation, banks cannot continue to rely on
conventional banking products, particularly deposit or savings
accounts, to raise funds from the public.

Though almost all major domestic banks use various incentives
to attract customers, such as promising prizes, including luxury
cars like BMW, Mercedes Benz and Jaguar, most of them realize
that without alternative products to captivate customers, they
could lose their hard-won and once loyal customers.

With a 6 percent interest rate and an inflation rate of
between 6 percent and 7 percent this year, banks' products such
as savings and deposits give almost nothing to their holders. It
is not surprising therefore that many banks have started to look
for other solutions to help their clients invest their money.

Citibank vice president for wealth management, K.S.
Jagannadhan, said that banks that rely on traditional products
such as deposits will have a tougher time attracting the flow of
money into banks.

Jagannadhan emphasizes that customers are now looking beyond
deposits for alternative solutions. Banks that fail to provide
their customers with a complete solution will have problems.

Citibank itself offers non-deposit products such as mutual
funds, foreign exchange and insurance products in order to
provide more alternatives to its customers. Jagannadhan said that
eventually all banks would have to offer complete solutions to
customers.

The same approach is also taken by state Bank Mandiri, which
has also started to pay more attention to non-deposit products.

Bank Mandiri senior vice president for consumer liabilities,
Kostaman Thayib, said that the bank would soon launch its "Fund
Supermarket".

Bank Mandiri's Fund Supermarket will present various
investment alternatives such as insurance and mutual funds from
different investment companies. As of now, Bank Mandiri is only
selling products from its subsidiary AXA Mandiri Financial
Services.

"It is true that we will launch the Fund Supermarket because
of the decline in interest rates, but we are also responding to
customer demand. Due to their increased exposure to the media,
they have become more educated and well-informed about various
ways to invest their money," says Kostaman.

Such investment alternatives are certainly aimed at middle and
high-segment bank customers. This market segment normally
controls 80 percent of banks' third-party funds.

Citibank's Jagannadhan said that there were approximately
150,000 households in Indonesia that belonged to the affluent
segment category in the banking sector.

With more players aiming at this segment, he said the
competition would be tight.

But Jagannadhan said that there was still enough room for
every player to grow in this affluent sector. What banks need is
to present good proposals to the clients and to provide advisory
services.

"The focus here is not first on products but on understanding
customers' needs, such as what percentage of cash and bonds they
should have. We look at customers' balance sheet or their point
of view. The bank's advisory role becomes important," he said

He also said that more banks were focusing on this affluent
segment because the profit from this segment is high. But he
welcomes other players to the segment, because more players will
help educate the market. But the challenge is to set yourself
apart from the other players.

Like other banks, American Express has also diversified its
banking products to further tap the upper market segment. In
addition to its credit card and travel checks, the bank also
offers a corporate card.

The new card, which is offered to corporate clients, has been
designed to help companies better manage their travel and
entertainment costs.

"The American Express Corporate Card is a more cost-effective
way to pay for business expenses as compared to using cash,
direct invoicing from vendors or personal credit cards," said
American Express Indonesia's head of global corporate services,
Vira Sukardiman.

Vira said the bank also provided advice and guidance, and had
the expertise to assist companies in managing and controlling
their corporate travel and entertainment expenditures.

Although banks have to cooperate with other companies in
offering mutual funds or insurance products to their clients, the
income from this service is quite helpful in increasing their
profit margin.

Those banks that rely solely on savings and deposits as their
main products could be in trouble, because their clients could
move to more attractive investment alternatives such as mutual
funds, which are becoming more popular amid the dwindling
interest rates.

Aside from the challenge posed by other players within the
banking industry and from mutual fund issuers, observer and
banking practitioner Ugie Nugroho said that corporate bonds could
also pose a real threat.

In an article published in Kompas daily, Ugie wrote that
corporate bonds had become an easier and cheaper way for
Indonesian companies to draw public funds, since the interest
rate on bank loans is still above 15 percent.

With a return of 10 percent to 13.75 percent, corporate bonds
will be much more attractive than deposits, particularly to
banks' corporate clients.

However, Jagannadhan said that Indonesian individual investors
would not have an appetite for corporate bonds. Rather than
competing with Citibank's products, he said that corporate bonds
had their own niche market.

In spite of the low interest rates and the tight competition,
Citibank recorded a 10 percent growth in deposits last year. The
bank's mutual fund and foreign exchange businesses grew by more
than 60 percent and 100 percent, respectively, while its total
business grew by more than 40 percent.

"Corporate bonds are not for individual customers because such
bonds are expensive. That is why I think I should not worry about
it, because it does not compete with my products," said Bank
Mandiri's Kostaman.

While the fight to grab more market share in the upper segment
continues, Kostaman also said Bank Mandiri would further
intensify efforts to maintain growth in other market segments.

"We will launch new gift programs after the completion of the
Mandiri Fiesta in February or March 2004," he said.

Mandiri Fiesta is giving away four luxury Jaguar cars, 50
Honda Civic cars and 325 Honda Legenda motorcycles. Bank Mandiri
also will give 100 C-Class Mercedes Benz to lucky customers.

As interest rates continue to decline, banks' customers can
expect more offers of luxurious gifts. Though they have only a
small chance to win, at least they have something to hope for
other than the promises of the politicians in the coming
elections.

Bank Central Asia (BCA) corporate secretary Lena Setiawati
also said that both banking products as well as other investment
products had their own strengths and weaknesses.

"Corporate bonds are mostly for long-term investment, while
the level of return and the length of investment vary," Lena
said.

It is up to customers to choose what kinds of investment
alternatives are best for them, but they must remember that their
first priority is to make sure that their money is safe.