Retail Banking in Greece - New perspectives through customer orientation in a slowly saturated market

I. Table of contents

I. Management Summary

III. Solemn declaration

IV. Preface

V. Glossary

1 Introduction
1.1 Current Situation
1.2 Problem Formulation
1.3 Objectives
1.4 Scope of the Thesis
1.4.1 Limitation Criteria 1: Target market
1.4.2 Limitation Criteria 2: Specific Period
1.4.3 Limitation Criteria 3: Strategic Decision Management Level
1.5 Out of scope
1.6 Methodical Approach

2 Definition of Terminology and Conceptual Clarifications
2.1 Definition of retail banking business
2.1.1 Defining the business segment
2.2 The attributes of retail banking business
2.2.1 In terms of products and services offering
2.2.2 In terms of customer-bank relationship
2.3 What are the Retail Banking Business Drivers?
2.3.1 Management of customer revenue
2.3.2 Cost Management
2.3.3 Decreasing loyalty of the retail clients and higher expectations
2.3.4 Increased competition between traditional banks and new banks
2.3.5 Consolidation in Retail-banking
2.3.6 Introducing Internet as a new channel for e-banking services
2.3.7 Summary of Business Drivers of retail-banking segment
2.4 The analysis of the Retail Banking Market Trends
2.4.1 The EFMA Retail Banking Survey
2.4.2 Methodology and Assessment model
2.4.3 The five pillars of the assessment model
2.4.4 Findings of the report
2.4.4.1 Strategy
2.4.4.2 Business Intelligence and controlling
2.4.4.3 Multichannel Customer Management
2.4.4.4 People and Organization
2.4.4.5 IT and application systems
2.4.5 Conclusion of the report
2.4.6 Mapping EFMA report findings with Retail Banking Business Drivers
2.5 Fundamentals of customer orientation in retail banking
2.5.1 Customer orientation as a originator for successful relationships
2.5.2 Differentiation between market-orientation and customer-orientation
2.5.3 Success chain as an instrument for customer dialog
2.5.4 Problems in implementation of customer orientation process
2.5.5 Designing successful relationships
2.5.5.1 The Content Dimension
2.5.5.2 The Time Dimension – Customer Relation Life Cycle
2.5.6 The CRM Framework as a fundamental for customer orientation
2.6 The analysis of CRM market trends
2.6.1 The CRM 2006 Barometer study
2.6.2 Findings of the study
2.6.3 Conclusion of the study

3 Analysis of Retail Banking in Greece
3.1 Structure of the Greek Retail Banking System
3.1.1 The over-regulation period
3.1.2 Deregulation and Reforms
3.2 Overview of the current Banking landscape
3.3 Indications of a slowly saturated market
3.4 Future Challenges

4 SWOT-Analysis related to customer orientation strategy
4.1 Basic Principle
4.2 Determination of SWOT-Analysis assessment criteria
4.3 SWOT-Analysis of National Bank of Greece
4.3.1 Strength
4.3.2 Weaknesses
4.3.3 Opportunities
4.3.4 Threads
4.4 SWOT-Analysis of EFG Eurobank
4.4.1 Strength
4.4.2 Weaknesses
4.4.3 Opportunities
4.4.4 Threads
4.5 SWOT-Analysis of Alpha Bank
4.5.1 Strength
4.5.2 Weaknesses
4.5.3 Opportunities
4.5.4 Threads
4.6 Discussion of SWOT-Analysis results

5 Conclusion and final recommendation
5.1 Introducing the layer concept for customer orientation
5.1.1 Strategic Layer
5.1.2 Analytical Layer
5.1.3 Operational Layer
5.1.4 Communicative Layer
5.2 Mapping the layers the CRM Framework content
5.3 Final Recommendation and closing

6 Appendix
6.1 Sources
6.1.1 Literature
6.1.2 Reports
6.1.3 Internet
6.1.4 Telephone Interviews
6.2 Index
6.2.1 Index of Tables
6.2.2 Index of Figures

II. Management Summary

Every year millions of tourists from all over the world choose Greece and the Greek Islands for their summer destination and travel to Greece to enjoy the friendly climate, the blue and clear seas and the fantastic hospitality and natural environment. Beside of this known face of Greece the last year’s Greek economy is one of the boosting economies in the European community. Quite after the successful organization of the Olympic Games in 2004, the domestic economy improves and the demand from the private sector and households for banking products services expands dramatically. The Greek Retail Banks benefit from this macro economic development and generate extremely good revenues and market shares in the domestic market with the current customer base and new acquisitions. Nevertheless, slowly signs of a saturated market and competition within the traditional Greek banks forcing the banks to optimize their bank- customer relationships with their current customer base and to look for new channels to growth and to attain a competitive advantage against new Bank entrepreneurs in the market.

This thesis describes on a scientific and methodical method the problem of the slowly market saturation in the retail banking sector and develops a problem solution based on the question of how new perspectives and chances will arise through implementation of customer-orientation to support long-term and profitable bank-customer relationships. In addition, the SWOT-Analysis of the three key players in the Greek retail banking market identifies their internal and external capabilities of their current customer oriented strategies. Finally, the thesis closes with a recommendation and conclusion on how the CRM framework gives new perspectives with concepts, methods and tools contributes for a successful implementation of customer-orientation.

IV. Preface

The idea for the subject of this thesis is a result of a discussion with Prof. Dr. Oec. Publ. Xevelonakis in October 2007 at the UASZ. As to the joint discussion about the current developments of the Greek retail-banking market and the slow signs of saturation, we were asked what new opportunities respectively chances might arise in the implementation of customer orientation for the bank-customer relationship to support the business strategies customer acquisition and retention of the Greek retail banks. In addition, the driver for the realization of this thesis was also my personal interest because I am active in the role as Business Development Manager Banking at SAP for the region Southeast Europe. Moreover, I hope that dealing with this subject synergy effects will occur for my professional life. Finally, the idea of the thesis is also to give on a transparent and structured way valuable knowledge about the relation between customer- orientation process and a CRM framework to interested CRM decision makers within retail banks.

Therefore, I thank Prof. Dr. Xevelonakis who gave me the required guidance and coaching to create this thesis. I want to thank my parents who supported me during my studies and my employer SAP, who accepted and gave me the possibility and free space to study and work in parallel in a very dynamic and challenging banking environment. Finally, I want to thank my partner Nuran Caliskan who supported me the last two and a half years during this challenging period with her calm and strong personality and for her “logistical support” during countless nights and weekends from December 2007 to February 2008.

Dedicated to my sons Matthias and Stefan

Niko Mikopoulos

V. Glossary

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1 Introduction

1.1 Current Situation

The Greek retail-banking sector has generated over the last couple of years excellent revenues with their branches network and expansion strategy to the neighbouring Balkan markets^[1]. After the liberalisation of the Greek banking system in the 90s, the private sector and households started on demanding credits and loans. Furthermore, the adoption of the Euro^[2] in 2001 as new currency causes the private sector and households to continue their demand on for credits and other banking products and services.

In 2004, the successful organization of the Olympic Games^[3] helped to reposition Greece in the world and to open foreign investor’s opportunities in the Greek market for the post-Olympics period since 2005^[4].

Since then the domestic macro economy is improving and boosts the credits and loans expansion within the retail-banking sector. The private sector and households mainly demanded banking products as deposits, consumer credits, mortgages- and building loans, credit cards and services as customer advisory, phone banking and Internet banking. The last years Greek banks generated their excellent revenues from lending activities mainly in their home country.

Especially a strong competition between the traditional Greek retail banks (e.g. National Bank of Greece, Alpha Bank, Piraeus Bank etc.) the new retail bank entrants (e.g. Proton Bank, Millennium, Marfin Popular Bank etc.) and the indications for a slowly saturated market will force the Greek retail banks to focus more and more on new perspectives through customer orientation.

Because they want to benefit of the market momentum and to assure their relation ship banking^[5] with high customer profitability, customer satisfaction and long- term relations.

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Figure 1 - Michael Hadjipavlou, CEO Deloitte Greece, Evolution of total Lending in Greece of loans from 2001 – 2005 (2006,p.19)

1.2 Problem Formulation

As mentioned above the current retail banking market indicators of competition between the traditional Greek retail banks and the new bank entrants as well as the continuous lending boom and their expansion strategies follows to the question: “What are the new perspectives for customer orientation which will have an effect on customer satisfaction and customer profitability?”

Because the problem formulation at the beginning was rather inexact and not described in detail, the Ishikawa-Diagram was used as an instrument for the more exact problem capture and formulation of the question.

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Figure 2 – Source: Possible Causes and Effects on slowly saturated market - Author’s own graph

The diagram describes the possible main causes for a slowly saturated retail banking market and their effect on customer orientation and their results on customer satisfaction and customer profitability. Every bank in the end is interested on economic success^[6] of the customer relation and what measures must be carried out to keep and to identify profitable customers.

1.3 Objectives

To understand what the new perspectives are, the aim of the thesis is to develop a problem solution for giving the answer and recommendations about new chances and opportunities for customer orientation process in Greek retail banking sector. Furthermore, the results of the thesis could be used for other CRM related problems.

1.4 Scope of the Thesis

Following criteria’s, limit the scope of the thesis:

1.4.1 Limitation Criteria 1: Target market

The thesis reflects the current Greek retail-banking sector with his dynamics and challenges.

1.4.2 Limitation Criteria 2: Specific Period

Greek Retail-banking market data and sources are valid from the so-called post-Olympic^[7] year 2005 until now. For the solution development also survey results of two studies from EFMA Association from 2007 and Cap Gemini Consulting from 2006 where considered. One study reflects the status of retail banking market in Europe and gives an outlook until 2010. The second study reflects the importance of CRM-topics in companies from Germany, Austria and Switzerland.^[8]

1.4.3 Limitation Criteria 3: Strategic Decision Management Level

The reader receives information which strategies are required for decision making to increase customer profitability and shows the ways to achieve from customer orientation to profitability.

1.5 Out of scope

The thesis focuses only on the retail banking business not for private or corporate banking business. It’s not an IT user manual for CRM systems implementation and doesn't describe any CRM IT-architecture in detail

1.6 Methodical Approach

The research methodology of this thesis is based on a combination of different analysis and research instruments to derive the problem solution from the problem formulation. As mentioned before as a first instrument, an Ishikawa-Diagram^[9] is used to explain the possible main causes of the slowly saturated market and the main effects and results on the customer orientation. The presentation helps to grasp better the problem and introduce the hypothesis.

In the scope of the definition of terms of retail banking business and customer orientation, theoretical literature reviews is a further instrument for the analysis of the business attributes, the business drivers and the market trends of retail- banking. The same procedure applies for the theoretical analysis of the definition of the term customer orientation within the scope of Customer Relationship Management (CRM) framework.

The findings of the retail banking business driver’s literature review determine the assessment criteria for the SWOT-Analysis in relation to bank’s customer orientation strategy. The SWOT-Analysis identifies the internal and external environment factors of the three key players^[10] in the Greek retail-banking sector classified by specific typical assessment criteria’s for retail banks.

The research method refers further on my current work experience as responsible for Business Development in Banking for Eastern Europe, South Eastern Europe, Turkey and Middle East.

Finally, I will introduce in the thesis the new perspectives respectively dimensions for the customer orientation process followed with a conclusion and recommendation how a CRM Framework can support. Below, the methodical approach shown graphically:

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Figure 3 - Source: Methodical Approach - Author’s own graph

Determination of Assessment criteria’s for SWOT-Analysis

2 Definition of Terminology and Conceptual Clarifications

Before the problem solution development can be worked out, the focus in these chapters is to clarify the terms retail banking business and customer orientation because both terms are of crucial importance.

In the market presence of the banks, in the Medias and literature often you will find the term retail banking. However, in our every day speech, the term is very common but we do not know exactly the precise meaning.

Therefore following questions results:

1. According to which criteria’s the bank defines the retail banking business segment?
2. What are the characteristics of this business segment?
3. What are the Business Drivers for the business segment?
4. What is the trend of retail banking business – Where do we go from here?

The following chapters try to answer the above questions based on the described models below.

Later, the results and answers are taken into consideration in the overall development of problem solution for the new perspectives.

2.1 Definition of retail banking business

2.1.1 Defining the business segment

Question 1: According to which criteria’s the bank defines the retail banking business segment?

According to the retail banking definition of Investopedia the target of retail banks are to offer one-stop shop financial services to their retail clients^[11]. It is a typical mass market where the bank offers products and services to their domestic customers through their branches network and Internet channel. They offer a different types of banking services that may require more consultation for the specific clients instead of standardized services as for example current account or payments. Therefore, the banks segment their customers.

Usually banks use the income and assets situation, which are socio-economic segmentation criteria’s to segment their customers between wealthy private customers and non-wealthy private customers^[12].

Of course, each bank on his own sets the limits when a customer is wealthy or not based on internal regulations and calculations. Other non-controllable^[13] segmentation criteria’s are usually used like marital status, age, sex, residence country, and price sensitivity.

The graph shows an example of customer segmentation at EFG Eurobank^[14] by income situation as segmentation criteria:

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Figure 4 - Source: Customer segmentation criteria by income – Author’s own graph

After this first customer segmentation the banks distinguishes between Retail Banking and Individual Banking (including Private Banking). Individual customers like corporates, institutions and wealty persons have different demands on services, consultancy and banking products (e.g. systematic wealth management) as “normal” customers which have the demand on basic and low- cost banking services and standardized products as for example current accounts, payment cards, and consumer loans.

This means that services should be developed and offered depending on the target customer segment.

Considering these facts that socio-economic, demographic or geographic segmentation criteria’s are usually used by the banks and result to separate customers between individual business and mass business the following model describes the relation graphically:

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Figure 5 - Source: Customer segmentation categorized by individual or mass business – Author’s own graph

For the further consideration I will focus only on the retail banking segment.

2.2 The attributes of retail banking business

After answering the question how banks distinguish between Individual Business and Mass Business I want to analyse in the following paragraph the characteristics of the retail banking business in detail.

Question 2: What are the characteristics of this business segment?

2.2.1 In terms of products and services offering

As shown in the example of EFG Eurobank, the bank retail clients are private customers, professionals and companies with up to 2,5 Mio. EUR revenues so called Small Medium Businesses. Typically the biggest customer segment (approx. >70%^[15]) are retail clients. These are employees, workers, officials, pensioners, pupils and students, professionals and Small Medium Businesses. In the literature^[16], you will find also the terms “standard customers”, “basic customer base” or “service customers”.

Today, the retail banks offer for this segment standardized banking products, which are uniformed products with defined characteristics and linked to a specific banking services and price.

All retail banks worldwide have included standard banking products in their offering as for example current accounts, savings account, payment cards (debit and credit), consumer loans, mortgage loans and investment funds.

For cross-selling purposes some retail banks like Alpha Bank, offer in addition insurance products from their insurance subsidiary (e.g. Alpha-Insurance) together with their retail banking product portfolio. Currently this trend can be observed at the most financial services banks in Europe that offer banking and insurance products together like NBG in Greece, Fortis in Belgium or Allianz with Dresdner Bank in Germany.

In most cases following banking services are linked to the banking product portfolio: payment services, E-Banking, Phone Banking, M-Banking and access to ATM’s network.

The products and services are offered through the branches network and channels like Internet to all private customers^[17]. This means that private banking customers also have access to the full range of retail banking products and banking services.

All standard products of the retail banking have a low need of explanation and have low services costs. On the one hand, retail banks are in a dilemma because they want to cover the mass business with standardized banking products and cheap banking services to retain their retail customers and utilize the market potential.

On the other hand, each retail client wants to feel individually threaded and not to belong to one of the thousands other retail customers. To face this dilemma, banks have designed specialized “banking packages” including bundled banking products and services for a specific sub-retail segment like students, families, pensioners and Small Medium Businesses.

For example, NBG is offering for students the Banking package “Students^[18]” which includes a current account, a credit line, a credit card VISA Electron and a personal loan. As a further example, Piraeus Bank is offering their banking product “US Pensioner Savings Account^[19]” to Greek pensioners who receive their retirement pension from the United States. Summarized the table shows below which banking products and services typically retail clients demand:

illustration not visible in this excerpt^[20]

Table 1 – Source: Demand of Banking products and services from retail clients – Author’s own table

2.2.2 In terms of customer-bank relationship

In the following chapter, I will analyze which typical attributes exist within a customer-bank-relationship for this segment. As stated above mostly of the retail- banking products and services were offered for a broad^[21] private customer segment. In contrary to the private banking segment which is based on individual products and services for systematic asset creation and management of individual wealthy customers. The primary demand of the retail-banking segment is to cover the basic financials needs of the private customer with banking products and banking services.

For this reason, the banks use a network of branches, which offer their banking products and services portfolio to the domestic private customers. Each private customer has a direct single point of contact (SPOC) to his client advisor. He knows the customers banking products profile and banking transactions behaviour. Most banks have grouped the retail clients based on specific criteria’s to clusters for example alphabetic order of name, income classes or channels (e.g. Internet).

Therefore, the direct contact between customer and client advisor is a clear characteristic of this segment without any intermediate. The strategy of the bank is to have long-term relationships with the retail clients. Sometimes one client advisor manages more than one cluster. If this is the case, the relationship between client advisor and customer is anonymous because he cannot know every of his retail client personally.

As an example, End of the 90s as Internet usage grows Deutsche Bank in Germany launches as a first retail-bank their “Bank24” Internet Banking offering (www.bank24.de). This was a fully equipped virtual bank with traditional banking products and banking services.

Many private customers registered for this new innovative service and start using the Internet Bank. After a while, Deutsche Bank recognized that under the new retail clients there were many "one-time" customers that opened only a current account and had few transactions. So overall, many of these retail clients were unprofitable for the bank. The conclusion was also that many customers were only cherry pickers^[22].

In addition, the new retail clients were anonymous to the client advisors because of no personal contact although fully registered with all requested documents at the bank. There was no or less personal contact and relationship between customers and the client-advisor. It was impossible to build any long-term relationship within a customer life cycle. They recognize the importance of direct contact between retail-clients and client-advisors was essential if they want to establish long-term relationships for cross-selling^[23] potential and understand customers needs better. The internet channel was suitable only for a part of the banking services as for example payments or account information but useless for any banking consultancy services.

From these experiences, Deutsche Bank decided to discontinue “Bank^[24]” and assigned the retail clients directly to client-advisors within their branches network.

Summarized the graph shows the attributes of a bank-customer relation.

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Figure 6 - Source: Attributes of Customer Relationship – Author’s own graph according to Hippner Hajo et al. (2005, p.423)

2.3 What are the Retail Banking Business Drivers?

The first analysis has given a complete overview about the characteristic of the retail-banking segment, the banking products and services and in terms of bank- customer relationship. After reading and analyze the literature and related studies on retail banking, I take the assumption that the listed criteria’s in the following paragraph are the typical business drivers of banks that drives the retail-banking segment.

[...]

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^[1] http://www.welt.de/print-welt/article176805/Griechenland_profit (December 2007), Griechenland profitiert vom Balkan-Boom, in: Welt Online of 10 November 2005

^[2] http://www.bankofgreece.gr/en/euro/Changeover.asp (January 2008), Bank of Greece

^[3] Hellenic Republic - Ministry of Economic and Finance, Fact Sheet of the Greek Economy January 2007

^[4] Hellenic Republic – Ministry of Economic and Finance, Presentation of Greek Economy from March 2004 to December 2007

^[5] Cf Petersen/Rajan (1995, pp. 407-443)

^[6] Cf Bruhn Manfred (2003, p.9)

^[7] Definition of time period after the Olympic Summer Games in Greece 2004

^[8] Cf Xevelonakis, Prof.Dr.Evangelos, CRM-Praxis in: UASZ Script 8th semester (2007, p.9)

^[9] http://en.wikipedia.org/wiki/Ishikawa_diagram (January 2008), Wikipedia explanation

^[10] Hadjipavlou Michael, CEO Deloitte Greece, Balance Sheet Highlights of the traditional Greek Retail Banks and new Banks sorted by Assets criteria (2006, p.28) - ranked by amount of assets

^[11] http://www.investopedia.com/terms/r/retailbanking.asp (January 2008)

^[12] Cf Nkoa Clement Mengue 2006, p.23 (quoted from Jacob 1993; Swoboda 1998, p. 155)

^[13] Cf Xevelonakis Evangelos, Prof.Dr., UASZ Script CRM-Praxis, Zürich(2007, p.34)

^[14] http://www.eurobank.gr/online/home/index.aspx?lang=en, EFG Eurobank, Greece (January 2008)

^[15] Derived from Annual Report 2006, p. 38, of National Bank of Greece http://www.nbg.gr/en/investor.asp?P_ID=547 (January 2008)

^[16] Cf Nkoa Clement Mengue (2006, p.23)

^[17] Cf Dorl Alina (2003, p.4)

^[18] http://www.nbg.gr/spoudazo.html, NBG Homepage Banking Products Offering (January 2008)

^[19] http://www.piraeusbank.gr/ecportal.asp?id=234401&lang=2&nt=96%20&sid=&txtSearch=, Piraeus Bank Homepage (January 2008)

^[20] The listed banking products packages are examples as a result from the analysis of the product offering from major Greek retail banks

^[21] Cf Nkoa Clement Mengue (2006, p.23)

^[22] Cf Fox, Edward J. et al. (2003 p.4 quoted from Mogelonsky Marcia 1994), Customers which have additional bank accounts at other housebanks and high willingness to change.

^[23] Selling additional banking products and services to the customer