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стандартизация
УДК 336.7
стандартизация банковских продуктов, услуг и каналов их распространения
ЗБИГНЕВ КОРЗЕБ,
доктор наук, кафедра «Финансы и учет» Белостокского технологического университета, г. Белосток, Польша E-mail: z.korzeb@pb.edu.pl
аннотация
В статье обсуждается воздействие мирового финансового кризиса на банковский сектор. Автор описывает новые тенденции в банковской отрасли, связанные со стандартизацией банковских продуктов, услуг и современных каналов их распространения. Необходимость оптимального размещения привлеченного капитала означает, что банкам необходимо решить, какие продукты и услуги развивать, и целесообразно ли сотрудничество с имеющимися и новыми клиентами с точки зрения RARORAC (Risk-Adjusted Return on Risk-Adjusted Capital - скорректированная на риск доходность скорректированного на риск капитала) и с учетом риска, который берут на себя банки. По этой причине в последнее время банки подчеркивают необходимость принятия абсолютно новых решений, которые позволили бы им предлагать продукты, отвечающие потребностям их клиентов. Ключевые слова: банки; банковский менеджмент; банковские продукты и услуги; каналы распространения банковских продуктов и услуг; сегментирование клиентов банка; бизнес-модели в банковском секторе.
standardization of Banking Products, services and Banking Distribution Channels
ZBIGNIEW KORZEB,
dr hab., Department of Finance and Accounting, Bialystok University of Technology, Bialystok, Poland E-mail: z.korzeb@pb.edu.pl
abstract
The article discusses the implications of the global financial crisis upon the banking sector. This article presents the new trends in the banking industry related to the standardization of banking products, services and modern banking distribution channels. The necessity to optimise allocated capital means that commercial banks need to decide which products and services ought to be developed and whether cooperation with current and new clients is feasible from the point of view of RARORAC and the risk taken by the bank. That is why in recent years banks have very strongly emphasised the need to create whole new solutions making it possible to prepare offers matching the needs and requirements of their customers.
Keywords: banks; banking management; banking products and services; banking distribution channels; segmentation of bank customers; banking business models.
1. Introduction
The unprecedented scale of the crisis in the financial sector clearly demonstrated the inadequacies of the concept of economic operation subordinated to indiscriminate maximisation of shareholder value. The system of help of unprecedented scale, implemented by central banks and governments of individual countries means, that the costs of risky and wrong investment decisions of banks will be borne by average
taxpayers — individuals and companies. The economic and financial problems of banks in developed countries revealed the fiasco of the existing methods of complementarity and substitutability of the three main pillars of banking operation security: regulatory discipline, market discipline and corporate governance. Neither the grandiloquent Sarbanes-Oxley act (SOX) and the second Basel Accords (SBA) nor the evaluations and recommendations of rating agencies proved effective in
dealing with actions of managers focussed on their personal gain. No supervision systems, legal regulations, tools of monitoring and control are capable of including and foreseeing all possible situations taking place in the dynamically changing environment of banking sectors in individual countries.
The occurrence of two serious global financial crises : one caused by subprime credits and another connected with indebtedness of countries within the Eurozone has verified some of the earlier hypotheses — such as idealisation of shareholder value generation, obtaining foreign shareholders as a condition for achieving competitive advantage in the banking sector and apotheosis of commercial banks looking for sources of income outside the traditional operation. It transpired that the directions, which according to theory ought to have contributed to banks' successes, became a source of uncertainty caused by concerns about the shareholders' actual economic and financial situation and their level of investment in high-risk financial instruments. The latest crisis brought to light the fact that economies form a system of communicating vessels, and a crisis in one country can soon spread to others — the contagion effect [1, p. 46-49].
The necessity to save banks by governments of the countries where their headquarters were located made it apparent that banking operation cannot be driven solely by maximizing shareholder value. Banks are no longer merely their shareholders' private business since they were included in the deposit guarantee system, and the largest of them were deemed too big to fail. The idea of creating a European Banking Union in itself is not enough, unless it is accompanied by changes in the philosophy of operation of international corporations dominating European financial markets.
2. The concept of RAPM - Risk Adjusted Performance Measure
The significant role of commercial banks in modern market economy, and the specific character of their operation as institutions of public trust, forces those institutions to ensure that banking operation is a rational compromise combining the bank's developmental goals and its natural drive to maximize profits with the necessary level of security. On the one hand, the bank, as an institution of public trust, is obligated to guarantee safety of the depositors' money and to provide comprehensive service for private and corporate clients, so it ought to aim at limiting the risk of its operation. On the other hand, the constant pressure from investors, the necessity to obtain competitive advantage in the
long term and managerial motivations create favourable conditions for initiating new, innovative and unique actions, which are connected with higher operational, financial and investment risk.
In this context, managing a bank's assets and liabilities boils down to evaluating its performance in the context of the risk it incurs. This is usually done using the concept of RAPM (Risk Adjusted Performance Measurement), which is an integrated risk and performance management model for a commercial bank. Application of this method allows for identifying responsibility centres generating most return on equity, products and services which ought to be developed, and for establishing whether cooperation with the existing and new clients is profitable for the bank, as far as return on equity and risk are concerned. The RAPM concept uses risk-adjusted profitability indexes in order to analyse the proportion between income and risk, and to optimise the use of capital for operational, financial and investment activity of the bank. The above indexes include:
• RORAC — Return on Risk-Adjusted Capital;
• RAROC — Risk-Adjusted Return on Capital;
• RARORAC — Risk-Adjusted Return on Risk-Adjusted Capital [2, p. 242-286; 3, p. 258-260; 4, p. 146148].
In the process of capital allocation for individual business departments, products and services, the so-called dualistic approach is used most frequently. Both the allocated capital (the capital covering the risk which will be taken in the future) and the absorbed capital (the capital covering the risk which has already been taken) are calculated as the higher of the values: the capital subjected to risk calculated on the basis of the regulatory capital requirements (RC) and the capital subjected to risk calculated on the basis of the internal capital (IC). Thus the capital equals:
K = max (RC, IC),
where:
RC — risk capital calculated on the basis of the regulatory capital requirements;
IC — risk capital calculated on the basis of internal capital.
A possibility to decompose RAPM into its main components with weights assigned to individual elements allows for creation of a platform of communication between the business perspective, risk and finance (Fig. 1).
External factors : Macro-economic factors
Sales revenue
Internal factors: organisational culture, human capital, client capital, structural capital, efficiency of operation
Operating margin
Bank's cost of operation
,evel of purpose reserves
Other
Factors determining profit
RAPM
Factors determining risk
Credit risk
Market risk
External factors:
Regulatory environment, supervisory institutions, market discipline
Operational risk
Other
Internal factors: corporate governance, methods
of risk management, internal procedures, inclination/aversion towards risk, growth strategy (internal, external), structure of financing, liquidity
Source: Original research.
Fig. 1. decomposition of RAPM
nk a B
n ik n
Capital allocation according to the RAMP concept ought to be conducted in a way facilitating maximum return on capital. It is therefore determined by the return on capital ratio, by the risk variables and by the assumed benchmark (the adequate reference point for the investment) [5, p. 3-6]. Hence: max: E (U (rp)) = f (u, v),
when
U = P(w0
)
V = ф(w0, wn ) ,
n
Z w = 1
where:
E (r) — return on the invested capital;
f — utility function;
u, v — variables of return on capital and risk for individual responsibility centres, defined by weights wi for i = 1, 2, ..., n.
An extremum of a multivariable function is determined with the use of the Lagrange function, which takes the following form:
L = f<(p(w0,w1,...,wn), ^(w0,w1,...,w„))-
5X-1
¡>0
: max.
An objective function is transformed into a Lagrange function, where X is the indeterminate Lagrange multiplier. Thus calculating the conditional extremum of the f (x) function is substituted with calculating the unconditional extremum of the Lagrange function. Partial derivatives of the L function are calculated, in relation to individual decision variables x. and in relation to
i
the Lagrange multipliers X,, and then those derivatives are equated to zero. The solution of the resulting set of simultaneous equations is the optimal solution.
The necessary condition for the existence of an ex-tremum of a multivariable function is:
дL дf дф дf дт -= ——— + ——— - Л = 0,
ôwi ди ôwi öv âwi
Öl
дЛ
i = 0,1,..., n
= Ë Wi -1 = 0,
i=0
which implicates that:
дф дф
dw, dw,
о У
■ÊL.
ди
д(р дф
/ = 0,1,...,«.
And, after transformation:
I
дф дф \ ôf
W
v 1=о dwi ôwo J
(
ди
- +
I
W
дф дф\дf
V i=o dw, ôwo J
ôv
= 0.
i=0
Therefore, if the function z = z (u, v) is accepted as representing the RAPM concept, then the value of the utility function is going to grow when the value of the function z = z (u, v) grows as well. Therefore, the optimal capital allocation takes place when marginal rates of return on capital invested in individual responsibility centres are equal, i.e. the first partial derivatives of the function of return on capital must be equal to one another when the task is to maximise return in conditions of limited capital resources [6, p. 148-161].
The concept of RAPM is an integrated model of managing risk and optimising capital across an entire banking organisation, its business sections, individual responsibility centres, clients and particular products and services. Skilful use of the concept enables to invest and efficiently allocate the available capital into the best banking products and services, as far as the risk-return profile is concerned.
3. Standardization of products, services and banking channels
The necessity to optimise capital allocation drives commercial banks to introducing segmentation of customers and developing modern solutions in the area of standardising banking products and services.
Naturally, a portfolio of private and business customers is a collection of individuals highly diversified as far as their needs and expectations from the bank are concerned. It is impossible to tailor-design services for each individual. It is up to segmentation to divide a diverse client population into groups in such a way, that most customers get an impression they are receiving special treatment. Diversification of customers conducted according to the simplest methods, such as analysing the basic data on the customer and their potential (e.g. the amount of their assets, level of income, social status, address, life stage, level of company income etc.), as well as according to complicated undirected data mining: with the use of cluster analysis or Kohonen neural networks (SOM), allow for segmenting clients according to the banking products and services they prefer and the service standards they expect. Segmentation of clients constitutes the basis of Customer Relationship Management (CRM) and Relationship Marketing systems, used for analysing the future shape of relationships with customers and fitting marketing strategies to their present and future preferences.
The process of segmentation ought to be a thoughtful strategic operation based on a few basic principles:
• homogeneity — the bank should aim to group clients with similar purchase behaviours, to which the
bank can respond with a particular strategy involving all the elements of the marketing mix, i.e. the product, the price, distribution, promotion and service;
• comprehensiveness — taking into account a broad range of criteria in the process of segmentation;
• distinctiveness — clear distinction and separating clients according to their key buying criteria: their preferences and purchase behaviours;
• concentration — careful selection of a relatively small number of segments in order to concentrate efforts on deepening the relationship with the priority client groups;
• profitability — choosing sufficiently large customer target groups to ensure that the benefits compensate the cost of especially designed marketing strategies;
• availability — making sure the bank possesses sufficient material, financial and intellectual resources, as well as operating skills to comprehensively satisfy the expectations of the customers within the particular segment [7, p. 103-126; 8, p. 90-100].
The most common type of segmentation divides customers into the following groups:
• institutional clients:
— strategic clients — services provided by highly qualified staff, usually from the bank's head office;
— large corporations — services provided by corporate centres;
— small and medium businesses — services usually provided by branch offices of banks;
• private clients:
— private banking and wealth management segment — clients with high financial status;
— VIP — services provided by specialised advisers;
— standard customers — over the counter services provided by staff at branch offices.
Segmentation processes are aimed at optimising the bank's actions addressed to individual groups of customers, i.e. they serve to ensure effective use of financial, material and human resources. However, it is important to remember that segmentation is not a short-term investment. It is a continuous process, which is constantly improved upon and monitored. Using segmentation and in-depth knowledge about customers in the process of long-term cooperation not only allows for selecting the right offer of products and services, as well as distribution channels, but also helps develop the pricing policy and effectively manage risk (in particular credit risk). In this way, it is reflected in actual operating earnings.
The most prestigious clients of a bank can count on special treatment and products and services
Source: ING International Survey. Mobile Banking, Social Media and Financial Behavior, May 2014.
Fig. 2. Users of mobile banking in European countries
Turkey Netherlands Poland Spain Austria Luxembourg United Kingdom Italy
Czech Republic Germany Belgium France Romania
European consumer
12014 2013
60%
individually tailored to their needs. However, cooperation with most clients is based on a standardised offer. Considering the current comparable service quality and similarity of offers by commercial banks, as well as the systematically growing number of customers using online and mobile channels of communication with a bank, the price of products and services becomes the key factor influencing customers' choices. The bank is forced to systematically evaluate profitability of its products and services, separately for each customer segment, which becomes the basis for decisions about keeping those products and services in the bank's range, and about the direction of marketing actions.
Although the main factors determining the bank's pricing policy are market relations and cost-based methods, both clients and individual products and services need to be seen in the context of the entirety of the bank's operation. Very often, in case of tenders connected with granting credits to units of local government or priority clients, banks make offers on the verge of profitability (or even at a loss, after the total cost of raising capital and processing the credit is included), because they count on starting broader cooperation with the client, which may bring high profits. The bank's cost strategies may involve keeping some
unprofitable products and services, if having them on offer proves necessary for retaining the market position. However, each decision of this kind ought to be a result of careful evaluation of feasibility of the policy in question (e.g. keeping current accounts with low turnover and modest balance). Banks focus on providing services to the most profitable customer segments, while at the same time trying to adjust the service provided to the remaining segments to their internal capability. This is what stands behind e.g. banks significantly increasing charges and commissions for operations carried out in bank outlets, while the charges and commissions for the same operations carried out by customers themselves via online and mobile banking remain low.
The inevitable expansion of those forms of communicating with the bank is connected with a possibility to manage your money from anywhere and at any time, but also with decisively lower transaction costs and saving the bank's time and effort. That is why recently banks have put a lot of emphasis on creating whole new solutions to replace traditional bank outlets. The most important of those solutions include:
• mobile payments (especially with the use of the Host Card Emulation technology);
• biometric banking — regarding identification of customer data (especially with the use of the finger vein technology);
• opening innovative outlets, such as banking hubs or self-service outlets equipped with kinect technology;
• developing online banking by adding new tools of communication, such as video conversations with an adviser;
• geolocation, combined with personalised discounts in shops in the vicinity of the client and fast payments for their shopping.
According to the report ING International Survey. Mobile Banking, Social Media and Financial Behavior, the number of people using mobile banking in Europe has been rising systematically (Fig. 2) [9].
In the future, the mobile channel will become the main medium of contact between customers and the bank, as well as the dominating method of payment for purchases made traditionally, as well as online. It is of no surprise that, according to the report by the Swedish Federation of Trade (Svensk Handel) of October 2014, four out of five purchases in Sweden are made electronically or by debit card. With the development of cheaper technology, the country is moving towards a cash free society.
4. Conclusions
There is no doubt that segmentation of customers, standardization of products and services and development of modern banking channels contribute to proliferation of certain standard models of banking operation, which emphasize universalism and mass service. For certain groups of bank stakeholders, such as customers and employees, this means objectification. Every client of a bank wants to be treated individually, not merely as a number in a dehumanized population of bank customers. Operating within the banking sector is closely linked with permanent risk. As U. Beck puts it, «In advanced modernity the social production of wealth is systematically accompanied by the social production of risks» [10, p. 27]. The vast progress in science, technology, computing, telecommunication and the internet is accompanied by ever new threats resulting from the chosen models of banking operation. In a sense, we have become slaves to electronic and mobile devices, computer systems and banking «big data», which contain detailed information not only about our names and addresses, but also about our spending, places where we shop and punctuality with which we pay for services. The standardization of banking products and services, as well as the dynamic growth
of mobile banking in the 21st century mean that clients are placed under increasing threat whenever they happen to lose their smartphone, electricity is cut off or the mobile phone network collapses.
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