Offering premium services to lure privileged clients

Rudijanto, Contributor, Jakarta

In the current tough market, Indonesian banks must improve the quality of their services and products if they want to remain competitive.

For many banks, their future relies on their existing big customers. This explains why the competition in alluring premium clients is getting stronger.

Although this market segment accounts for only about 20 percent of bank customers, the value of their savings and deposits is far higher than the remaining 80 percent of clients.

For many banks, such as Citibank, ABN-AMRO and American Express, Bank Danamon and Bank Internasional Indonesia (BII), providing premium banking services to their privileged clients is not only aimed at retaining their important customers but also at raising their fee-based income.

Banks are having to be more creative in diversifying their sources of income because dropping interest rates are likely to result in the decline of their traditional revenues such as earnings on interest.

"Certainly, the competition to win (big) clients is tougher but the market also grows bigger. Competition makes the market better," ABN-AMRO's head of consumer banking, Suhail Chander, said.

Banks estimate their premium clients contribute 80 percent of their total funds. They have different approaches in meeting the demand for more personalized services from their important customers. Indonesian banks generally offer valued clients extra asset management services.

With dropping interest rates, fixed-income investment options such as savings and deposits are no longer attractive as people seek other investment alternatives to get higher returns.

"Customers look beyond deposits to alternative solutions. Eventually, all banks will have to offer complete solutions," Citibank head of wealth management K.S. Jagannadhan said.

American Express (Amex) is attracting these clients with Centurion World, which offers its members a number of financial benefits.

It also offers exclusive lifestyle benefits to its premium clients. Such benefits include invitations to exhibitions and investment seminars, luncheon and dinner events and golf tournaments.

"Since premium clients are an exclusive group with high incomes at their disposal, their requirements are towards specially formulated benefits in wealth management, especially in investment-related products," Amex head of customer loyalty Brian Powell said.

Each member of Amex's Centurion World had a financial assistant to handle their American Express accounts, Powell said. "Relationship managers" offered a range of services such as providing information on investment products, returns and interest rates, he said.

Almost all banks targeting the premium sector provide dedicated managers. These managers' task is to maintain long-term relationship with the clients and provide advice on various options for investment.

Investment advice and alternatives offered to privileged clients vary from one bank to another. Some banks offer the stock market as a high-yield, high-risk investment option while others prefer to provide safer advice.

"We do not suggest the stock market due to its high fluctuations now. But we offer them safer options such as mutual funds," BII director of consumer banking Rudi N. Hamdani said.

Other banks such as ABN-AMRO offer privileged clients a mixture of investment alternatives, including life insurance, mutual funds and property. The bank leaves the decision on what types of investments to make to the clients.

"Basically, we do not ask them to put their money in certain products. We just advise them, for instance, to put a certain amount in life insurance, some in property and some in other products. But they are the ones who make the decision," Chander said.

Bank Danamon provides a fund manager to guide clients to select appropriate investments. The bank has a unique "investment gallery" with online access to the Jakarta Stock Exchange, Bank Danamon executive vice president for customer wealth management Carolina Dina R.S says.

With various investment alternatives, affluent clients can find many different ways to invest their money.

Some bankers say the current situation where many investments are weighted towards bank deposits rather than other options is far from ideal.

"The current conditions (in which we operate) where the yield is already fixed and the money deposited in banks is guaranteed by the government is not healthy at all," ABN-AMRO vice president/head of marketing and product development Elwin Karyadi said.

Compared to other countries such as Taiwan and Singapore, Indonesians were still far more saving-minded than investment- minded, Karyadi said. But he believed becoming an investment- focussed society was a gradual process.

The government's plan to issue bonds every month is also expected to provide more incentives for people to shift from deposits to other products.

"We are moving in that direction. It is a matter of time before that happens. I think in the next two-to-three years it will become easier to advise clients to invest in non-deposit products," Chander said.

But not all people are entitled to enjoy this banks' premium services. Only those with deep pockets are approached. How deep their pockets are depends on each bank's definition of premium clients.

Amex only admits those with a minimum deposits of US$50,000 to its Centurion World membership. Bank Danamon requires those who want to enjoy its premium service PrimaGold to deposit a minimum of Rp 1 billion (about $116,000).

ABN-AMRO does not approach clients based on their deposits but on their cash potential. While certain clients have only small accounts at ABN-AMRO if they have large amounts of cash in other banks they are treated as preferred clients.

"Setting the minimum amount for this service is not the right approach. We have to consider the total availability of funds, not the funds already deposited with our bank," Chander said.

Certainly, banks' success attracting premium clients does not depend on the reward programs that they offer but more on the service, advice and, most importantly, the returns they provide their clients.

In the end, the bottom line counts. In this climate, clients are more than ready to move their funds to competitors or to better investment options. This attitude has nothing to do with loyalty or disloyalty, it is about a return on capital.