A new report has found that rapidly growing markets in foreign countries present opportunities for U.S. banks and financial services companies. However, this optimism is tempered by concerns about whether local banks can maintain their profitability and continue to gain more business as more banks enter the markets, increasing competition.
The report, "Banking in Emerging Markets: Seizing Opportunities, Overcoming Challenges," by Ernst & Young, a global corporate tax, risk management and consulting firm, found that international banks can achieve profitable growth in these markets if they balance their desire to expand with caution. Areas of concern include sources of capital to finance such expansion, the need to train local workers, and the countries' potentially volatile political and social environments.
The report recommended a number of core initiatives for banks operating in rapidly growing markets.
Develop simpler and lower-cost banking products. "Many institutions have been reluctant to serve this (poorer) customer base as it is costly to manage a high volume of low-value transactions ... Banks targeting this segment must develop innovative products that can better match customer needs at a lower cost to both customers and the bank," the report states.
Develop more sophisticated investment products. "While the wealthiest investors are likely to favor established global wealth management brands, we believe local banks that offer a broad range of products and services will be better positioned to capture and nurture mass-affluent customers," the report says.
Team up with other financial corporations. "By collaborating with local banks, global institutions can gain local knowledge and access to new markets without large investments in distribution networks," the report suggests.
Partner with telecommunications companies. "Developing the mobile channel and using technology to improve customer service can give customers more flexibility in the way they engage with their bank and provide a source of fee income to offset declining interest margins," the report says.
Developing new ways to assess credit risk to serve people who are new to banking and have a limited credit history.
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