A BRITISH software development company’s officials believe that the Pakistani banks stand a ‘big chance’ of reaping huge profits should they decide to venture in the UK market and tap a growing market of customers who are not satisfied with the (poor) quality of service provided by the English banks.

The assumption is based on the finds of the research conducted in August this year by Group 1 Software, a wholly owned subsidiary of Pitney Bowes — which develops software that helps organizations worldwide to maximize the value of their customer data and improve the effectiveness of their communication.

The research, which, inter alia, covered annual customer defection rates, provided to Dawn by a spokesman for the company earlier this month doesn’t evaluate chances a Pakistani, or for that matter any non-English, bank may have in the UK market. It mainly focuses on the number of customers in the UK switching banks every year.

The research, conducted among the UK top 1,000 company marketers, assesses the rate of customers defecting across various industries, including the banking sector and shows that the UK ‘consumer is becoming more willing to change supplier (what marketers call more mobile) and the companies’ retention strategies to hold on to their customers, need to improve to deal with this phenomenon’.

The findings of the research illustrate the fact that the number of customers ‘defecting’ banks in the UK has more than doubled in around two years to 8.9 million in 2005 from 4.3 million in 2003. It means that the UK banks are ‘leaking’ customers at an unprecedented rate of 17.5 per cent.

Essentially this indicates that the consumers are becoming more mobile and less loyal, says the spokesman. ‘However, this still compares well against the UK all-industries average of 19.1 per cent (up by 2.5 per cent from 16.6 per cent in 2003), placing the banking sector in the fifth place against all other industries with the telecom (mobile) companies topping the list with highest rate of 33 per cent of customers leaving per year.’

The researcher refers to these customers as ‘floating customers’, who are available to all British and foreign banks (functioning in the UK) to be tapped by improving their service delivery.

Director of Marketing EMEA, Group 1 Software, Mr Andrew Greenyer comments that banking industry, it seems, can no longer rely on customers reluctant to change their bank.

‘Traditionally, annual customer losses have been in the sub-10 per cent range, but have now rocketed to virtually the same level as the general insurance industry. As the branch network comes back into favour as a worthwhile element of customer service, we can expect to see high value customer privileges and rewards being delivered through this channel.

The banks’ direct marketing departments have generally been a playground for the experimentalist up to now – possibly because the threat of customer defection was so low. Now we can expect a sharper focus on better personalised marketing and customer care. Recent figures from the Direct Mail Information Service have shown a reduction in financial services mailing volumes and an increase in their sophistication and targeting. The sector is cottoning on to the idea that each customer is different and needs to be treated in an individual and in relevant manner. This will become more important as further scrutiny by special committees and by the regulator is only likely to increase consumer banking mobility still further’.

“This story alone illustrates a significant trend, which the business community in Pakistan needs to be aware of”, the spokesman says. “Poor customer service standards are held to be one of the main reasons for customers switching banks.

Increasingly prominent financial services institutions in the UK are outsourcing the Contact Centres and Document (Billing) Management services to the Pakistani/Indian banks and companies. It is believed that poor delivery of customer services in Pakistan/India is creating an uneasy feeling among the UK bank customers,” he says.

The customers defecting banks in the UK, according to the research findings, are worth around £700 million or $1000 million. This large pool of what the researcher describes as ‘floating customers’, according to the spokesman for the company, should be a target for the Pakistani banks to explore the UK market for expanding their business.

While Pakistani bankers agree with the assertion that the presence of such large pool of floating bank customers offers a great business opportunity for Pakistani banks, they insist that it is not possible for them to extend their branch network to the UK market at this point in time.

‘It has now become near impossible for Pakistani banks to enter into the UK – or for that matter in Europe, the United States and even the Far East – market because of extremely high capital requirements and licensing fee. Take the example of Singapore where you need to pay $100 million as license fee to obtain permission for opening a single branch. I don’t think it is feasible for the Pakistani banks to venture into any European, American or Far Eastern market at this point in time,’ says Bank of Punjab (Bop) President Hamish Khan.

He agrees that the large pool of floating bank customers in the UK should be a very attractive proposition for any bank from Pakistan. But, he says, the high capital requirements and license fees prevent them from undertaking any step to tap this market. ‘Some of our banks do have a branch network in the UK and other countries and are making impressive profits. But they went there in the 1960s and 1970s when it was easier and economical to obtain a banking license,’ he says.

Mr Khan believes that the Pakistani banks should rather focus on the domestic market, which still offers immense potential for growth to them. ‘Our credit penetration (net credit as percentage of the GDP) in the domestic market is only 30-35 per cent whereas it is more than 100 per cent in many countries. And if our banks still want to branch out of Pakistan, they should tap the regional markets – India (and other Saarc countries), Afghanistan, Central Asia, etc., which also offer pretty nice opportunities’, he contends.