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The Secret Sauce to Success in International Banking

In the aftermath of the global financial crisis while many banks in developed countries were focused on rebuilding domestic operations for profitability, large financial institutions in emerging markets weathered the storm with fewer issues.  Over the last few years emerging markets have achieved financial stability and economic resilience. The accelerated growth in these developing economies has propelled an even faster growth of their financial institutions. 
While financial institutions in developed countries are looking to capitalize on the potential of emerging economies, banks within emerging markets have gained enough financial stability and are looking to expand their operations beyond domestic boundaries. 
As these banks plan to expand their operations across borders; how well their international strategy takes into consideration the bank’s capabilities and constraints will determine whether their international operations will create waves or just be another drop in the ocean.

A bank’s capabilities defines market attractiveness 

Banks undertake an organic expansion in certain markets for the revenue and profit potential that market offers or to support their increasingly international customer base and provide financing, transactional banking and wealth management services capturing both ends of the transactions.
In many cases banks may also undertake an inorganic expansion into certain markets since constraints such as regulations, political environment and so on make it difficult to setup branches in those markets. 
Whatever the expansion approach, whether a bank sees an opportunity or a challenge lies in the strength of the bank’s capabilities. So what is the recipe for success in foreign markets? 

Strong product offerings and service excellence

A bank’s product excellence and service expertise will open up opportunities for successful entry into a market. Differentiated product and service offerings can really set a bank apart from its competitors. For instance many firms in developed nations find trading with emerging-market buyers or suppliers risky and hard work.  The complexity of processing payments in these developing nations is rather challenging and a bank offering mobile business to business payments can help flourish trade between organizations in developed nations and emerging economies.

Another example is catering to the needs of global customers and providing a complete picture of their assets capital, cash flows, and credit utilization and transaction information.  In fact Citibank is in the process of developing a common global banking platform spanning across 40 countries to target affluent, high-flying consumers that account for 80 percent of financial services revenue.

A bank’s ability to quickly provide standard products and processes across markets and a global approach to customers will help the bank sustain growth and reduce costs. However regional demands cannot be ignored. Banks may also need to offer product variations from country to country in order to satisfy customers and stay competitive in a market.

Global banking platform

Apart from standardized process across the globe and reduced costs a global banking platform offers significant benefits:

  • Access to accurate customer information across various markets for the bank to make better informed decisions
  • Ability to offer standardized products and develop new product variations quickly based on regional demands
  • Quickly integrate foreign banks acquired through M&A and incorporate standard processes and policies within those banks  
  • Ability to provide global banking solutions and cater to the needs of the global banking customers as in the case of Citibank

Technology excellence

Technology prowess gives banks a strong edge in foreign markets. For instance harnessing current customer facing technology, especially advances in mobile technology  and providing superior experience across all customer touch points will definitely set a bank apart from its competitors. It also comes with the added benefit of reduced branch network costs. This solution may also prove extremely beneficial to customers in emerging markets especially in countries like Africa where there is a large population with limited access to branch banking. 

Efficient global shared services to support international strategies 

While there is no doubt that having an efficient global shared services helps a bank  reduce costs it can add a great deal of value in other ways too. Having global shared services can help the bank  achieve economies of scale, access scarcely available expertise, particularly, in areas of regulatory compliance, risk mitigation and fraud detection, offer global products to customers and maintain service quality and effectiveness across businesses, and times zones.  

Citi initially began its shared service center with only 25 employees in San Jose, Costa Rica providing financial reporting operations, having tasted success, this center has now expanded to 1100 employees supporting accounts payable, procurement and HR services and 7 financial products.

Operational excellence

Banks need to look at end-to-end processes across organizational, functional, and geographical boundaries to achieve full excellence in operations. This spans across front and back office and includes all channels used to interact with the customer.  As banks grow across geographies organically or inorganically their ability to consolidate systems and incorporate standard processes across the globe will help them create cost synergies and remain competitive.  

Transferable human capital

Another important capability a bank can leverage is transferable human capital. Culture plays a huge role in aiding the transfer of this human capital. When markets have a similar culture then processes and human capital is easily transferable, creating an advantage for the bank, for example, cultural links between Spain and Latin American countries have made the latter an attractive expansion market for major Spanish banks.

Capabilities tilt the market in a bank’s favor while constraints do the opposite

While capabilities provide opportunities for bank to expand in a foreign market, constraints pose challenges. Now constraints could be the bank’s internal issues such as availability of capital or they could be cultural or external constraints such as customer buying patterns, entry barriers, regulatory environment and competitive structure of the market. Sometimes capabilities can help mitigate constraints for instance a global bank can acquire a bank in a market where setting up a branch may not be viable because of complex regulations and provide global products to customers in that market.

In conclusion the success of the international strategy of any bank depends on whether the bank is able to leverage its capabilities and seize the opportunity a foreign market offers while  mitigating internal and external constraints.

Tushar Chitra is the Senior Director for Product Marketing at Oracle Financial Services. He can be reached at Tushar.chitra AT oracle.com. 

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Comments ( 2 )
  • Manju Tuesday, October 13, 2015

    Agree Tushar... but the local regulation spoil the path of establishing the global banking platform and banks find it difficult to give the complete view of products and services to its customers across geographies.

  • Tushar Chitra Wednesday, October 14, 2015

    Thank you Manju, yes the role of the regulator in this space is critical and does drive some critical decisions. In our experience banks facing some of these issues have taken a global standard product and created a local variant of it. In the GTB space this is relatively easier due to the fact that a number of things have evolved into global standards like ISO, SWIFT, as well as trade finance in itself has driven for standardization of documents. The complexity multiplies when you are thinking of operating a retail bank across geographies and that’s where this idea of global standard product goes though a real tough test. Having said that, we have seen some banks have achieved a fairly good balance in this endeavor.

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