Can Local Banks In Emerging Markets Compete With Global Banks?

The Philippines is preparing for ASEAN integration. Integration will mean (eventually) ASEAN member banks can set up shop here and vice versa. It makes me wonder what best practices they will bring? Will they be a threat to local banks?

Large foreign banks have been setting up shop in emerging markets for a number of years – in the Philippines the most popular are HSBC, Citibank, and Standard Chartered. Of them all, Citibank has posed the most threat to local banks because it has been aggressive in promoting products and services seen only in far developed countries. For example, it was the first in the Philippines to introduce contactless card payments. It has just recently introduced payments via a sticker placed on mobiles. As a user, I won’t even have to bring my credit card since I can use my phone which is almost glued to my palm, tap it to a payment terminal, get the receipt and be on my way – convenient and secure without exposing my card details.  I won’t be surprised if in a few months Citibank offers Apple Pay to the market.

Should local banks compete like for like? Should they take on these international banks – with their large R&D budgets - and go head to head with them?

Actually, banks in emerging markets can take a different approach to differentiate themselves. Citibank may be a trailblazer, but they aren’t the only provider of products and services in this market, nor are they always the most localised. With some creativity and a focus on innovation, local banks can compete. Bank of the Philippine Islands (BPI) introduced an effective queue management system called BPI Express Assist and managed to differentiate itself by giving their customers a better banking experience in the branch.

So far, Citibank has introduced products geared around payments; for local banks, why not introduce products that promote savings and setting up of goals? Saving is a big need for customers in emerging markets. Surely, empowering consumers to make decisions about their everyday spending and achieving goals would be more relevant compared to racking up consumer debt. Products such as personal finance management and gamification are out there and there are software vendors who have them and more. If banks in the emerging markets team up with software partners, they can stand out and prove to be more relevant than their foreign counterparts.   

Banks, either foreign or local, partner with retailers for discounts, promos, and rewards. However, I’ve noticed that foreign banks are focused on retailers that can be found in the big cities. Here’s where local banks can have the advantage by partnering with retailers that have a wider reach. For example, BPI used to have a promo with Jollibee, the largest fast food chain in the Philippines beating even McDonald’s. Knowing the Filipino’s penchant for buying gifts to bring home to family and friends when out of the country, Banco de Oro, the country’s largest bank, partners with 80 global airport duty free shops for discounts.

What do you think about the threat to local banks posed by global banks entering emerging markets?