“Building a retail bank with a retailer approach”

April 2012

(Part 2 of 3) Conversation with Teresita Sy-Coson, Chairman of SM Group and Banco De Oro, on – the difficult years of acrymonious banking mergers.

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Here is the transcript of the video.

1. Productisation for retailers

Emmanuel Daniel (ED): As a retailer, what do you think about productisation? For instance, in retail banking, talk is about wealth management being the next big thing. Banks are going into bundling products, trying to look at it from a customer’s point of view. What is productisation to a retailer?

Teresita Sy-Coson (TS): We need to look at our target markets before putting out the products and provide quality services to increase the size of customers’ wallets.  In short, we need to be customer-focused.

ED: As a retail banker, when do you get to the point where you are over-servicing customers?

TS: There is never a case of over-servicing unless the cost becomes exorbitant. We are always looking into the next business so over-servicing can be considered an investment for the next business.

ED: But in retail banking, a customer does not really pay you for the services because he is price conscious.

TS: No, but there is such a thing as a comfort level, and also the propensity to come back for the next trip.  Our services are investments for the next trip.

ED: As a traditional retailer, you build malls, which are physical infrastructures. In traditional retail businesses, we are seeing a lot of institutions being obliterated by the internet as customers rapidly get information and access to products.  In this process, Lego has transformed itself well. The toy manufacturer has been active in transforming its brand and physical products while children increasingly show a preference for electronic entertainment.  How are you dealing with that same transition and with internet banking?

TS: Internet banking is about increasing business and serving as a means to ensure that our customers need not go to a brick and mortar area. Customers are still human beings and they need that social interaction.  While a lot of them will gradually move on to the internet for purchases and services, there are still a lot of people who want the retail-experience. Of course, one of the best stress-therapies is shopping.

There is still the element of human interaction that we all need. In retail banking, the cost of customer service is high, but that is what customers have come to expect of us, especially in the Philippines. The Philippines is a socially interactive society.

ED: The Philippines is also a country with 19 million people.

TS: And increasing.

2. Dealing with customer data and information

ED: How do you deal with customer data and information and what are you learning through your transactions?  Do you follow trends or go by instinct?

TS: We handle customer data in different areas.  It is not homogeneous, but we do have the data.

ED: Are you talking about your retail or banking business?

TS: Both. We give out reward cards in both our retail and bank businesses.

ED: As the chairman of your respective businesses, what are the top line numbers that you look at on the balance sheet of the retail business?

TS: It is always the top and the bottom lines that we look at. We focus on the top line to determine the number of customer we have and also because we are always looking at the future of the business.

ED: I would like to open the conversation to our audience.  Are there questions any questions that you would like to ask?

Interviewer 1: There are many failed acquisitions in the banking industry, where banks cannot be successfully integrated and people have problems getting together.  How do you put organisations together and what are the key drivers of your success in doing so? In many fruitful acquisitions, there is usually a stronger bank taking hold of a weaker one, but you did not have that advantage.

TS: We decided that we would not resort to attritions. But as mentioned earlier, the top line is crucial, and we preserved the top line for all three banks.  We did not reduce staff immediately but absorbed everyone instead, so as not to dampen morale. In doing so, our branches underwent physical renovations to show that we are now a collective bank, the BDO Bank.  Our group was able to complete that process at breakneck speed, within a year, with a network of 600 branches.

On top of that, we renovated our working areas, which had been neglected. We could not train all of our staff – which amounted to around 15,000 people then – at the same time.  We renovated their working places instead, hoping that the new look would mark a new beginning and stronger morale. It is a psychological thing.  Although we spent a lot on renovations, it is the same as spending on training, with the objective being to raise morale and usher in a new era.

ED: Your approach of focusing on the business top line did cost you, as shown in our assessment of BDO’s cost structure.

TS: Yes. We wanted to stay friendly with our organisations and also the union. In preserving the top line, we assured our customers that we were not going to reduce their credit line.  That was a risk we took.

We knew that ewe would eventually have to face another review. But at that time, we assured our clients that their credit line would not be cut. This way, our customer were assured. Our organisation stabilised when people realised they were not going to lose their jobs.  These factors smoothened things for us.

3. Managing the evolution of retail business

Interviewer 2: The fact that you have a diverse portfolio of business operations is admirable. Do you have a common segmentation approach, in terms of common customer segments that you actually target? Do you share insights and information between the retail and banking operations concerning customers? When you look at the US, there have been a lot of changes with the advent of the internet and mobile phones.  I was in the Philippines last November and Foursquare was not yet up in the Philippines.  Foursquare in the US has actually transformed the shopping and the eating experience. Even in Asia, when everyone is taking pictures and telling their friends about the food they’re having.

These have changed the way retailers actually mange their businesses.  How do you approach and manage customers in your shopping malls?

TS: That is still an ongoing process.  We do have a common platform, which comes in the form of rewards points.  Customers may obtain banking rewards from the shopping area. Shoppers do not get rewards from banks unless they have an account.

ED: The sophistication in the US is with major retailers like Wal-Mart and Target that are in an altogether different industry from one another. On the other hand, the SM malls offer a one-stop experience for all consumers.  Is segmentation taking place?

TS: We avoid being overly associated with our own franchise, as we want to be open to all banks.  For instance, all credit cards can be used in our malls. We have decided not to corner the market at the risk of excluding other markets and customers.  While we are very aggressive with our banking operations, we make sure that the businesses do not hog the retail franchises and the malls of our group.

Interviewer 3: What is the advantage of banking with Banco De Oro, without factoring in the retail elements?

TS: At Banco De Oro, our customers are well taken care of as is underlined by our front-end mantra – we find ways.

Interviewer 3: What is the experience like in terms of customer-friendlines compared to your competitors?

TS: Our customer service cost takes up a huge chunk of our cost ratio. We offer internet banking services, and will eventually have an improved mobile banking platform.  At the same time, we also take good care of the older generations’ businesses.

ED: How did the mantra of “we find ways” come about?

TS: It originated from our bank president, Nester Tan. While we were in the process of integration, the thought came about. We need to find ways to make everything happen.

ED: Is banking inferior to retailing?

TS: No. It is more cerebral than retailing.

ED: Then what is retailing?

TS: It is having a passion for the business and more emotional.

Interviewer 4: Now that major retailers such as Wal-Mart and Sears are providing banking services, how would you advise competing retail bankers?

TS: The key is to act like retailers. In retail, there is only so much that you can do, and to expand services and business lines you have to increase your wallet size.  It is about responding to the need to acquire and retain customers.

ED: What has made SM grow so quickly with its shopping malls? Are you growing at the back of a growing population or affluence?

TS: Growing affluence and populations both come into play. Many business people in the Philippines are only recently willing to take on risks.


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