As the man at the helm of Asia-focused banking group Standard
Chartered’s cards and personal loans division, Sherazam Mazari is
in an enviable position – all forms of consumer credit are
increasing in popularity in the Asia-Pacific region, and Standard
Chartered’s global expertise in credit provision and risk
management has placed it in prime position to take advantage of the
opportunities ahead.
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In an interview with CI, Mazari said: “Retail spend as a percentage
of private consumption for emerging countries like China,
Indonesia, India and Pakistan is a mere 1 percent and below.
However, in mature markets such as Australia, it is 16 percent. As
these markets grow, retail payments will grow significantly with
debit and credit.
“Emerging markets also offer a great opportunity for cards and
consumer loans. Unsecured consumer debt as a percentage of GDP in
these markets is under 10 percent (in some markets it is as low as
1 percent) as opposed to sophisticated markets where it can be 30
percent to 40 percent. We see these markets emerge rapidly at a
growth rate of 20 percent to 30 percent per annum.”
Mazari was previously the London-based chief executive officer for
the Africa region for Standard Chartered Bank and is known as an
emerging markets specialist. Three months into his new role, Mazari
commented: “I’ve been a banker for 26 years covering markets in the
Middle East, Asia and Africa for consumer and wholesale banking. It
is great to be back to look after a global business which is a
cornerstone of consumer banking – cards and personal loans.
“Standard Chartered is an emerging markets bank and our aim is to
be the most trusted partner for our customers and regulators in the
Middle East, Asia and Africa where we’ve been for 150 years – these
markets are at different stages of evolution, but we see them as
key in terms of growth opportunities.”
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By GlobalDataWhile he recognises that the emerging markets present greater
volatility, he says: “As a bank we are well positioned because we
have a history of operating in emerging markets. Our team is well
versed in managing in volatile times. Volatility, if proactively
managed, is not something that I would have sleepless nights about,
particularly if one works with a team that has the ability and
experience to manage in emerging markets.’’
A fragmented market
In Asia, Mazari acknowledges, there are distinctive markets with
distinctive needs. “One of the challenges financial institutions
have in Asia is economics of scale. Although the Asian market is
large, it is fragmented compared to the US. The resulting lack of
economies of scale poses a challenge on operating costs. It is
therefore important that players like us have local features but
under the umbrella of global standards. We have to differentiate
for local customers and regulators, yet manage as a global
business.”
He stresses that while local banks in many Asian markets have the
advantage of large, local loyal customer bases, Standard Chartered
is able to bring operational efficiencies across several markets.
Mazari declined to reveal more on plans to open more shared service
centres, such as the ones in India and Malaysia, but pointed out
several key challenges that need to be addressed in many emerging
markets in the region.
“The challenge in some of our markets, the emerging markets in
particular, is that revenue per product tends to be lower than in
the mature markets. The emerging market business model has to
account for lower revenue per account because average income per
customer is lower. It is thus fundamental that we keep operational
efficiency in mind as net interest margin are going to decline
further.”
Another issue is one of credit risk management, especially
pertinent in the Asia-Pacific region where countries such as Taiwan
and South Korea have borne the brunt of consumer lending default
crises. Regulatory intervention has a major role to play in
averting such problems, but Mazari also stresses the importance of
collaboration between regulators and financial institutions.
“Regulators can and are playing a key role in determining sustained
growth in consumer lending in emerging markets – their support is
absolutely key. You don’t want growth to come through irrational
lending that is followed by a spate of credit losses. Regulators
are pushing for credit bureaus, but there is also the cost of
accessing this credit bureau data – if the cost is excessive, banks
will not be accessing it as much as they should,” he said.
“The second issue is on the merchant acquiring side. The fees in
some of our markets in Asia – the interchange and merchant fee –
are lower even than in the US, and that impedes the growth of the
merchant network, and also impedes the shifting of consumer spend
from cash to cards.”
Mazari feels that local regulators can play a clear role in these
areas, ensuring that there is a good platform for growth. “I have a
lot of respect for regulators in Asia. They ensure rational
borrowing, protection of the consumer and establishment of adequate
financial infrastructure. Regulators aim to prevent consumers from
overextending themselves.
“However, the issue is that not all lending goes through the
banking industry. There is a lot of informal lending, and at
exorbitant rates. I believe that the consumer has the absolute
right of access to credit at rational terms, and banks have a key
role. They can reduces interest rates further but the cost of
credit losses and overall operational cost per account places
pressure on economic returns and thus on interest rates.
“This is why the credit bureau is important. It allows the loss
rate to come down over a period of time because banks collectively
know who the good customers are. This allows the banks to do
risk-based pricing and people who have access to credit can get
better rates and terms. The cost of credit eventually comes down so
consumers can have access to relatively lower-cost funds. These are
logical steps which enable less irrational lending. The
infrastructure is important and the credit bureau is a fundamental
part.”
Non-bank competition
Competition from non-banks in the payments space, however, is
something that Mazari may not be able resolve through a partnership
approach. At the recent 3GSM World Congress, the GSM (Global System
for Mobile Communications) Association and MasterCard announced a
six-month pilot programme to transfer remittances via mobile
phones. This development could have mixed results for banks, as
mobile operators partner with banks in some markets and compete
with local banks in others.
MasterCard’s remittance programme will involve 19 mobile operators
with networks in over 100 countries, representing 600 million
customers. This will enable 200 million migrants worldwide to reach
their dependants, many of whom do not have bank accounts. In
markets where central bank regulations dictate that money transfers
can be conducted only through the banking network, operators are
partnering with banks. However, operators and banks do not make
cosy bedfellows.
India’s Bharti Airtel and State Bank of India launched a pilot
project in the Himalayan village of Phitoragarh and both parties
have been pleased with the results of the project so far. However,
India’s operators are said to be appealing to the Reserve Bank of
India, the country’s central bank, to allow person-to-person
transfers without acquiring an expensive banking licence. India is
both the world’s fastest-growing mobile services market and the
biggest recipient of overseas remittances in the world, making up
around 10 percent of these global money transfers.
In the Philippines, Smart Communications is already a contender in
the local payments space and remittance market, competing with
local banks such as Bank of Philippine Islands and Philippines
National Bank with its Smart Padala programme that allows customers
to remit fund through their mobile phones.
At the same time, Smart Communications is partnering with banks in
foreign markets hosting large Filipino migrant populations. It is
collaborating with MTC Vodafone Bahrain and a leading bank in the
Middle East to allow Filipino migrants and contract workers to
remit funds to the Philippines through their mobile phones. In its
pilot project, MasterCard will be the authorisation, clearing and
settlement partner.
It is estimated that Smart’s customers are remitting $50 million a
month via their mobile phones to Smart’s 9,440 encashment centres,
allowing the recipient to exchange electronic money for cash. Some
80 percent of the local population is estimated to be unbanked. In
contrast, 98 percent of the Philippines is covered by GSM, which
makes a strong case for a remittance player such as Smart to
succeed.
In its customer newsletter, Smart highlighted the limitations of
the country’s banking system: “It makes better business sense for
large commercial banks to cluster their branches in highly
populated areas and in areas where there is a perceived
proliferation of high net worth individuals. However, this makes
the banks less accessible to overseas Filipino workers’
beneficiaries.”
Mazari says: “Payment is an area where you have competition coming
from non-banks. The key aspect of payments is to know your
customer. This is something that a bank is best able to do as we
can bring strength in terms of anti-money laundering systems and
processes. This is a key part of payments and new entrants would
have to be mindful of these requirements.
“In any industry, we expect competition coming in from
white-labelling, supermarkets, department stores and telcos, and we
should be cognisant of that. On payments devices, we will have to
figure out how consumers will behave in the next 12 to 15 years –
will they use mobile phones to make payments? How quickly will that
evolve? Will biometrics pick up more rapidly?”
Importance of customer service
Mazari believes that the key for banks in capturing customer share
in the face of emerging competition is customer service and
retention. “Customer retention is key as customers are becoming
more discerning with banks, particularly on service,” he says. “A
loyal customer gives incremental return as he/she does not create
service repair costs. To give you an example, the view is that a
typical customer will provide a negative margin of 5 percent to 10
percent in the first year. By the seventh year, a customer can
provide a positive margin of 35 percent. In every year there is
progressive growth in customer profitability. The fight will be
around customer loyalty and retaining customers, and banks will be
best able to do so.
“The most fundamental thing is to ensure that we have customer
loyalty. Everything has to start from the customer. Any approach we
take has to ensure that customer service and customer loyalty is
not injured. We build everything around that. We are at the stage
of working it through, for example by building economies of scale
so that we can achieve standardisation, but with enough
differentiation to meet customer needs. That’s the key; we need to
make sure we differentiate enough to be relevant to local
needs.”
