Can it help commercial banks mobilize more deposits?
Commercial banks in Ethiopia are currently engaged in ever-more stiff competition to mobilize deposits. Most notably, almost all of the banks have begun to use face to face marketing to gain the attention of new customers. It is now not unusual to see tellers from various commercial banks pleading with people in streets, cafes and other public places to open bank accounts at their respective branches. Experts argue that such methods of deposit mobilization are not effective or sustainable, and criticize banks for not coming up with products and services for the unbanked population, as EBR’s Samson Berhane writes.
It seems the days when bankers sat and waited for customers to arrive and open new accounts at their branches are long gone. Abraham Terecha, who is a teller at Bunna Bank’s Lideta branch, has had a front-row seat to the new developments that have started to shake up the banking sector. “We are given monthly targets to attract saving account holders to our branch. To do so, two or three tellers must go into the street and approach new customers to open accounts,” explains Abraham, who managed to bring in five new customers a week after face-to-face sessions on the street. He goes out for two hours every week, and approaches people on the street, or goes directly to households.
While he talks to people in cafes or walking in the streets, his colleagues assist him by holding the documents and stamps necessary to open new accounts. Abraham is not alone. Employees at many banks have started using similar tactics. While some bank employees prefer to wait in terminals and transport facilities like train stations to catch the attention of commuters, others choose cafés and restaurants, and still others knock on the doors of private homes. However, one thing they all have in common is that they cannot go back to their branches without meeting their daily targets.
“As most banks allow customers to open saving accounts for free, and make a minimum deposit of ETB 25 later, the chance of being successful is very high,” Abraham says.
The strategy is thought to have been started five or six years ago by the Commercial Bank of Ethiopia (CBE), whose market share has drastically dwindled over the past two decades. Almost all private banks have followed CBE’s footsteps, holding true to trends observed in the banking sector: everybody follows suit when one bank comes up with a unique approach.
Face-to-face marketing is one of the strategies adopted by commercial banks operating in Ethiopia to boost their deposits. It is part of a marketing mix, which is the set of controllable variables that the company, or in this context banks, can use to persuade customers to give them their business. Place, product, price and promotion are the four marketing tools used by firms to create the highest level of consumer satisfaction and at the same time achieve organisational objectives.
While product refers to the bundle of benefits a given company offers to the consumer, price is the amount charged for a product or service. Promotion involves the process of informing, persuading and influencing a consumer to make choice of the product. Lastly, place describes where and how the product that is offered can be bought. In the case of banks, is an important factor for both banks and their customers.
However, the question of whether or not personal selling it is an effective tool to mobilize deposits is still unanswered. But the importance of personal or door-to-door selling in any business activity cannot be underestimated. As a marketing scheme, it is a vital method to contact prospective buyers and persuade them to purchase a company’s product. Many banks across the world use personal selling to convince customers of the quality and benefits of their services.
Experiences in other countries show that personal selling can occur in two ways. The first is the face to face interaction of customers and bankers in branch offices where everyone, including bank employees, chiefs and office managers, take part in selling. The second is where employees attempt to gain customers’ attention and present the products by explaining their attributes and benefits where the customer already is. The latter has been gaining momentum in the Ethiopian banking industry. However, there are industry practitioners who are against the strategy.
Girma Yihenew [name changed to protect his identity], a branch manager at one of CBE’s branches is one of them. “Experience shows that more than three quarters of the customers we manage to get via face-to-face marketing never come back after opening an account,” he stresses. “It makes no sense that other commercial banks have adopted the strategy.”
However, others support the use of face-to-face marketing. “There is no reason for a banker to sit and wait for new customers, especially when competition is through the roof,” explains Zafu Eyesuswork, board chairperson of United Bank, which adopted face-to-face marketing and managed to increase its deposit mobilization from six billion birr to ETB23 billion last fiscal year.
The experiences of other banks haven’t rattled Zafu. “The number of bank accounts matters, whether the new customers keep using the account or not. The larger the number, the bigger the benefits.”
Abdulmenan Mohammed, a financial expert with almost 17 years of experience, disagrees, explaining that asking individuals on the street to open a bank account is an expensive way of attracting customers, may not be effective and is irritating to people, as the method may be applied to random people who already have bank accounts, can’t afford to save enough, or are unwilling. “The banks should conduct market surveys and come up with techniques to mobilize deposits from each market segment. High net worth individuals should be contacted through different means. Banks need to be innovative and efficient in addressing small savers who are targeted randomly on the street,” he argues.
Ermias Teshome, Director of Marketing and Business development at Debub Global Bank, an institution that uses face to face marketing, takes a similar stance, but with a different angle. “The area covered by the tellers is Addis Ababa, and maybe other urban towns, where almost everyone has bank accounts. The target, for most banks, is just opening a new account, no matter the potential of the customer and the cost they incur,” Ermias remarks. “Had they targeted the unbanked population, largely in rural areas, it would have been very successful in making the banks liquid and raising financial inclusion.”
Of course, as of the end of last fiscal year, around half of the branches of commercial banks were operating in urban towns and Addis Ababa, leaving rural areas behind. Ever since the partial liberalization of Ethiopia’s banking sector, 16 private banks have become operational, and another one is under establishment. There are also 36 microfinance institutions (MFIs), both stated-funded and private. There are now almost 20 million bank and 11.5 MFI transaction accounts, raising financial inclusion from less than five percent 23 years ago, to a little more than 20Pct currently. The government plans to increase financial inclusion 60Pct by the end of 2020.
Studies conducted on the issue suggest that new branches in rural areas could better mobilize deposits and drive a higher deposit growth rate than branches in semi-urban and urban areas. “Unbanked areas have the greatest potential for deposit mobilization. To expand their branches, commercial banks should consider the level of competition, deposit potential, regional income and existence of infrastructure and transport facilities,” stated a study conducted by Seyte Zewde entitled ‘Determinants of Deposit Mobilization in Ethiopian Commercial Banks’, continuing, “Personal selling fits the rural need, although there are barriers. It is important to create awareness.”
Zafu differs. “There is no common consensus on how and where to use such tools. It depends on its costs and benefits. The existence of many branches in urban towns and cities does not necessarily mean that all of the city’s population has a bank account. Although personal selling is still useful to meet the demand temporarily, it cannot be a sustainable way of mobilizing resources.”
Eyob Mamo, Senior Planning and Research Officer at Addis Bank agrees with those who believe that personal selling is an expensive way of deposit mobilization. “It is costly for small banks, considering the number of employees and financial capacity, to adopt such a tool, although it is very useful in bringing new customers.” Addis Bank deposits reached almost three billion birr last fiscal year.
Yet one of the big banks, Wegagen, has also refrained from personal selling, but not because of financial constraints. “From the experiences of other banks, we have reached the conclusion that its cost is higher than the benefit. According to our assessment it is repelling to customers,” says Fikru Woldetinsae, the Bank’s communications director.
Since it is a fundamental part of banking industry, deposit mobilization is more critical than other services. But several studies have shown that understanding the nature of deposit mobilization behavior of potential bank customers is critical while designing savings and investment promotion policies, which in turn enhance economic growth through capital formation. Besides personal selling, lotteries, corporate-customer targeted marketing tools, youth and vulnerable saving products, letters of credit, and payment platforms are the major tools used by banks to mobilize deposits. “Instead of following what others do, devising customer-centric products is important for deposit mobilization. Banks must stop sticking with traditional methods,” Ermias argues.
Abdulmenan concurs. “It is true that banks employ traditional means such as branch expansion, agent banking, promotion, prizes and personal acquaintances to mobilize deposits. Technological utilization is still in its infancy. So, banks still use costly methods of deposit mobilization. But they don’t do rigorous cost and benefit analyses on these strategies. As all banks use the same approach, none of them outperform the others for a long time.”
The National Bank of Ethiopia is well aware of the fact that saving products offered by banks and other financial institutions do not fit the preference of the larger portion of the population. In its financial inclusion strategy, it recommends that product designs need to be customer-based and must take financial habits and culture preferences of potential customers into consideration.
Nonetheless, this doesn’t sit well with Ermias. “The regulatory body takes between six to nine months to review new products. So bankers are discouraged from coming up with new products. There is also a skill gap at the central bank. There is a tendency to look at products from only a regulation perspective, while overlooking the marketing aspects.”
Abraham, on the other hand, suggests that retaining existing customers must be the priority. “Attracting new customer costs more than keeping old ones.”
7th Year • Nov.16 – Dec.15 2018 • No. 68