This paper is dedicated to banks and selling banking products and bank portfolio. In this research paper I will provide information regarding banks in general, what do they do, what functions do they perform and what are basic bank divisions. I will also describe what kinds of banks exist and what their distinctive features are. I will also explain what kind of consumers different banks are usually looking for and different ways and approaches in attracting them, as well as provide information about bank marketing operations, bank impact on the economy and local business, SWOT analysis, competitive advantage, etc.
The word “bank” comes from the Italian language, from the word “banco”, which means a desk or the bench. This term was generally used by Florentines bankers during the Renaissance period, when they were making different money transactions above the bench that was covered with the green tablecloth, but there are some sources that claim that banking activities appeared far earlier, in ancient times. Origins of the or trace back to the times of the Ancient Roman Empire, when lenders of money were setting their stalls in the center of the enclosed courtyards that were called “macella” on the long desk called “banku”.1 But at that time it was predominantly not investing and lending money, but exchanging currencies- from foreign currencies to the only legal in ancient Rome- Imperial Mint. The first banking institution, as we know it today, was founded in 1406 in Genoa, Italy and its name was “Banko di San Giorgio” (Bank of Saint George).
Speaking about the present day bank definition, I must say that it is the financial institution, which is the payment agent to its customers, as well as money lender and borrower. In some countries banks can be primary owners of industrial corporations, while in others banks are not allowed to own non-financial institutions. There can be named at least four basic bank functions: acting as the payment agent, borrowing money by accepting funds deposits on current accounts, providing almost all payment services, and borrowing funds borrowed form non-financial institutions, as well as lending lent. Bank roles and functions can be also distinguished a commercial and economic. Commercial role of banking includes issuing of banknotes (promissory notes), payments processing that were made by telegraph, EFTROS, internet banking, etc., bank drafts and cheques issue, lending money (overdraft, installment loan), accepting money on deposits, safekeeping of documents and other things, providing letter of credits, performance bonds, guarantees, securities underwriting commitments, currency exchange and also sale and brokerage of insurance and other financial products, acting as the “financial supermarket”. Speaking about bank economic functions, they are the following: credit intermediation (as banks borrow and lend money on their own account), money issue (banknotes and current account subject to cheque), payments settlement and netting (acting as collection agent and paying ones), credit quality improvement, which comes from diversification of the assets and capital of the bank that allows to set the buffer to absorb bank losses, and finally maturity transformation (borrowing money on the short term basis and lending on the long-term one).
Banking activities can be retail ones that deal directly with small businesses and individuals, business ones, which provide services to middle business segment, there is also corporate banking, activities of which are connected with large business, and investment banking, activities of which are related to the financial markets. There are also central or national banks in each country, which are usually owned by the state and they perform regulatory and controlling functions.
There are a lot of retail banks types. Commercial banks are normal banks, and they are called commercial just to separate them from investment banks by the term. Commercial banks are normally engaged with loans and deposits from large businesses or corporations. Community banks are locally operated financial institutions, which serve a local definite circle of customers or partners. Community development banks provide financial services to markets and populations that are under-served. Postal savings banks deal with national postal systems. Private banks are involved with the assets of high net worth individuals. Offshore banks are generally located in the countries with low taxation and regulation authorities established, are mainly private entities. Saving banks are very popular in Eastern Europe and their key goal is to provide saving products that can be easily accessible by the population, can be often created on the public initiative, differ from commercial banks with broadly decentralized distribution network. Building societies provide retail banking services. There are also ethical banks, which prioritize the operations transparency and conduct only those operations that they consider to be appropriate. And finally Islamic banks are separate and very important banking type as they make transaction according to Islamic principles. Speaking about the principles, I must say that Islamic banking has the same goal as conventional banking with the sole amendment that it acts in accordance with the rules of Shariah- Islamic rules of transactions. The key Islamic banking principle is that profit and loss should be shared and usury (“riba”) is prohibited. And since interest are forbidden in Islam world, but banks still have to make-up profit of something, Islamic banks are issuing floating rates interest loans, which are tied to individual rate of return of the company. Profit sharing arrangements are also widely practiced. Islamic banking activity concept include profit sharing, joint venture, safekeeping, cost plus and leasing. There is only one bank of such a type in Kuwait.
Investments banks types are actually investment ones, which underwrite bind and stock issues and trade on their own accounts, provide advisory services to corporations upon capital market activities ( mergers and acquisitions), and merchant banks. Merchant banks are traditionally involved in trade financing, and provide companies with capital not in the form of loans, but in the form of shares, try not to invest in new emerging companies. There are also Universal banks that are generally referred to as financial services companies and in their activities they combine several activities.
2. Marketing banking products
2.1 Selling banking products, banking marketing
It is well-known that marketing in banking sphere is used as the efficiency increase technique. It became widely used in the second half of the 20th century, in Islam countries- in around 1980s. Banking sector marketing scope should be viewed under the frame work of service marketing. The performance of the marketing strategy is predominantly the adequate determination and positioning of the financial institution in the minds of the customers. Marketing in banking sphere entails not only selling banking products and bank portfolio, but also shaping bank’s image and personality in customers’ minds. Marketing scope in the banking sphere is very important for several reasons, which include change in demographic structure (as population or target audience should be differentiated in number and composition to define the best quality standards for customers who are willing to benefit from using banking services; intensive competition in the sector of financial services ( competition is rough for growing international banking perceptiveness, and even though in Kuwait for the Islamic banking principles and political situation the competition is not so rough, there is always place for improving quality of the offered services); and finally bank’s desire to increase profit (profit can be increased by means of establishing higher interest rates, and as in Kuwait the concept of interest is prohibited, banks should seek to increase their profits in developing and creating of new markets, searching for ways to protect their present market shares, etc.)
When selling banking products and presenting bank portfolio to the target audience, advance evaluation of the marketing mix elements is essential. Let me start with the service. Banks in Kuwait are at such stage of development that they should earn money by providing services beyond selling money. Banking services are intangible, and thus they should be well structured as they affect the long–term success of the financial institution. The service should not only be fast, secure and easy, but the bank should also provide enough consultancy services for the highest customer satisfaction.
Then comes price, as it is an essential part of evaluating and effective selling of banking products. The price should be set on such level that current customers were satisfies and new ones were attracted. Banks should be very careful while setting prices and determining price policies, as mistakes or underestimated price policies can cause customers to shift to other rival banks, which offer the same services, but with lower prices.
Speaking about distribution, I must say that banking services and products are very complex by their structure and variety, and what is the most important thing in selling banking products- is persuasion of the customer that s/he will definitely benefit and gain profit while using the proposed product. Interesting point is that the value of benefits that can be derived from using service depend mostly on the knowledge, capability and the level of customer participation, as production and consumption of the particular service or product are very much connected. Personal interaction between the bank and the customer is obviously not the only means of reaching clients, but still it remains obligatory and the most relevant alternative.
Promotion is the most important thing in selling banking products and it consists of personal selling, public relations, advertising, and selling promotional tools. Personal selling, as I have already mentioned, is the most reliable and most preferable type of promotion. There can be two ways in which personal selling be practiced. The first one takes place when the banker and the customer are interacting in the bank office face to face. In such case the other personnel, employees and managers are participating in selling the product. And the second takes place when bank or customer representatives are going to the customers’ place. As far as customer representatives are specialists in the banking area, they are able to shape relationships between the bank and the customer in the needed way.
Advertising is able to address to many goals that bank is willing to achieve when selling its products. The goals are the following: conceive customers to examine the wide range of services the bank products, increase that use of services by customers, create a positive and appropriate image about the bank in general and banking products, in particular, change attitudes of the customers, introduce banking products, provide support to personal selling, emphasizing on the bets quality of provided services. Banks are developing advertising campaigns and use media extensively. Channels that are preferable to be used include newspapers, magazines, radio, outdoor advertisements, TV commercials and direct posting. While selecting the media, target market should be identified, so that it could be reached in the easiest and the cheapest way. The following criteria are helpful when choosing the media channel: what kind of media is more preferable by the target audience, service characteristics, message content, and cost and rivalry situation. Advertisement should be educative, image making and provide the following information: bank’s activities, programs, results with the emphasis on new services; market situation, future developments and government regulatory decisions; the list of opportunities that is offered to the industry and individual clients. It is very important to remember religious and cultural nuances.
Public relations in banking sphere do not directly assist in selling banking products, but it essential for overall bank operations and positioning in the market. So, public relations in banking sphere should: establish the most efficient communication system with the public, create positive view and sympathy between the band and the customer, as well as provide the more information the possible about bank activities, so that current and potential clients see that bank operations and activities are transparent.
Internal marketing is also very important in selling banking products and bank portfolio, as it entails effective HR department that would find, keep and motivate successful personnel for the mutual benefit and profit. As bank’s personnel is in many ways is the means of delivering information and establishing relationships between bank and the customers, it is essential that they understand, support and correspond core values of the organization.
2.2 Management hierarchy, divisions and functions
When discussing managerial hierarchy, divisions and functions, there is always the Board of Directors in the bank, which consists of the Chairman, who can also perform functions of the Managing Director, Deputy Chairman and several Board Members, which are taking all important decision in the bank concerning mergers and acquisitions, large loans and others. Speaking of the other divisions and their function, following business lines, as corporate, SME, retail and treasury divisions should be mentioned, along with such supporting verticals, as operations support, information technologies, controlling, accounts, security and others, which can vary from bank to bank.
2.3 Competitive advantage
Competitive advantage in relation to selling banking products can be anything that distinguishes our particular bank from other financial institutions. It can be: exclusive product, exclusive patent technologies involved, best financial results along with high revenues, exclusive promotion channel, including prime time for TV ads, good reputation, well-thought and structured bank portfolio, accessible and convenient web-site, etc. So, in general, it doesn’t matter what is the competitive advantage of the bank as finally the clients should just think that they have made the right choice and will stay with the bank for a long time.
Speaking about the competitive advantage in relation to the National bank of Kuwait, it is essential to mention that is continues to investing to the modernization of the core banking applications signing very serious contracts (for instance, for $27 million dollars in 2006) with IT companies. It cares for the modernization of its infrastructure and introduces the service orientated architecture, which are important constituents of gaining the competitive advantage, react to global changing regulatory requirements, and the mean to achieve strategic expansion plans.
2.4 Impact on the economy and local business
Banks in general have a great influence both on economy and local business. It is mainly the Central bank of the country (Central bank of Kuwait) that has two kinds of influence: macroeconomic (regulating inflation and price stability) and microeconomic (lender of last resort). Central bank should regulate the level of inflation in the country by means of money supply control (introduction of monetary policies). It provides open market transactions, which can inject market with liquidity or absorb extra funds, influencing inflation level. Central bank also is the last channel when the commercial bank is not able to meet client’s needs and does not have enough liquidity to meet client’s demands. In such a case commercial banks can address the Central bank for additional funds.
Local businesses are also very dependant upon the interest rates and overall conditions banks are offering for loans. The speed of work and transactions of the bank for local business can be crucial in some cases.
The Central Bank of Kuwait is the banker and the financial advisor for the local business, as well as it directs it monetary and credit policies, issues and controls the Dinar, as well as provides the overall supervision of the banking system. It has the direct influence on the economy, because the economy of Kuwait is based upon the oil revenues and all companies that produce oil, natural gas and petrochemical production are owned by the state. The economy of Kuwait can be described as export oriented.
2.5 SWOT analysis
It is always important for a bank how it interacts and fits the market and the surrounding environment (both internal and external). Analysis of the bank’s operation are essential for identifying strengths, which allow insight on the bank’s opportunities, and weaknesses, which can become threats for successful operations. Strengths of each bank can be as follows: good current financial situation (reserves, not many debts, etc.), skilled personnel (trained, experienced, etc.), bank’s name is recognized on the national, regional or local level (depending on the target market), latest equipment installed, good reputation, well-known satisfied customers, transparent operations, excellent location, well-structured bank portfolio, little competition, etc. Recognizing bank weaknesses are always far harder, but is absolutely necessary for future successful functioning. So, weaknesses can be on the contrary following: poor financial situation (large liabilities), un-skilled and not motivated employees, bank’s name is not recognized, machinery used is not to date and therefore inefficient, poor location, unsatisfied customers, ineffective use of marketing techniques, too much wastes, etc.
Bank opportunities can go in the following direction: good financial situation can bring good reputation and new clients, skilled workforce can be trained in other areas and advanced, competitor can go bankrupt, broadband technologies installed by local companies in the area (good for e-banking), offering banking products on new market segments and conquering new markets. Threats for bank operation and selling banking products can be: large and increasing competition, rising cost of salary (raised amount of basic wage), increased taxes, problems with local authorities, legislation changes and restrictions, increased interest rates (for borrowing repayments, for instance), etc. After the SWOT analysis is made, the strategy should be formulated for the most effective selling of the banking products and portfolio. 5
In the conclusion I would like to summarize key points of my research regarding effective selling of banking in Kuwait.
So, banks are financial institutions, which are the payment agents to their customers, as well as money lenders and borrowers. Bank economic functions are: credit intermediation, money issue, payments settlement and netting, credit quality improvement, which comes from diversification of the assets and capital of the bank that allows setting the buffer to absorb bank losses, and maturity transformation. There are such divisions in most banks, as corporate, SME, retail and treasury, and there are also such supporting verticals, as operations support, information technologies, controlling, accounts, security and others.
Even though there is only one bank in Kuwait that operates under Islamic law, and others are conventional banks, it is still important to be aware of what does Islamic principle of business include. Before starting to sell banking services it is important to make the SWOT analysis and carefully evaluate all strengths, weaknesses, opportunities and threats to be ready to everything and be inspired with good discovered features. Extensive use of competitive advantage is greatly appreciated as it will add value to the service that is provided and to the financial institution in general. It can be anything that will attract new customers and remind current that they have made the right choice. Bank marketing is not that simple, as it can seem at the first glance and all constituents of the marketing mix should be taken into consideration in order to obtain best results.
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