Citi’s head of consumer banking for Asia-Pacific,
Jonathan Larsen, is relatively sanguine about the myriad of risks
facing the retail banking industry in Asia-Pacific. He tells Ronan
McCaughey why Citi believes its share of the total revenue
available in Asia-Pacific is merely a ‘starting
point’.
Go deeper with GlobalData
Listening to Jonathan Larsen, Citi’s head of consumer
banking for Asia-Pacific, it is easy to forget that stock markets
around the world have been in panic mode for much of August, with
banking stocks badly-hit.
Commenting on the recent global
stock market volatility, Larsen says: “Our view of what is going on
now in markets is all sentiment-based and is a significant
over-reaction.
“We think the markets are very
jittery and pretty much over-sold in the short-term.”
Asia is not immune from events
happening elsewhere in the world, as the financial crisis of
2008-2009 proved, says Larsen. But he says the region is in a
post-crisis demand cycle now.
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By GlobalDataIn his view, economic growth in
Asia may moderate in future, but from a macro-economic perspective,
he says the fundamentals in Asia are strong.
These factors are the growth in
consumption in the region coupled with continued growth in savings
and investments by consumers and particularly among the emerging
affluent and affluent segments.
He notes that the banking sector in
Asia is in good shape from a credit and capitalisation
standpoint.
“Profits are strong and we are at a
good point in the credit cycle.”
The rise of banks, such as ANZ, DBS and MayBank in
Asia-Pacific to become regional players has been a marked trend in
Asia-Pacific’s retail banking industry in recent times.
However, Larsen argues that to
build any kind of “meaningful presence” in Asia requires a
significant level of commitment.
“When Citibank built its presence
in Asia we were the first foreign bank in all these markets and the
local banks were at a very different stage. Now, you have a number
of very able foreign competitors, you have a number of regional
players emerging on the scene and most importantly the local banks
have upped their game tremendously.
“Therefore, it is a very different
and competitive landscape [to what it was before]. I am not saying
the players cannot enter the markets in Asia. They probably can.
What I am saying is that the amount of commitment and investment
that is required is of a very significant magnitude. And even if
you make an investment, there is no guarantee of success.”
Fears of a property bubble are one
of the major question marks facing China’s banking sector.
Asked about the possibility of a
property bubble in China and the risks facing Chinese banks, Larsen
explains that the Chinese banking system as a totality has
performed an important role in providing investment capital in
China.
This has been important in
sustaining growth during and after the crisis period.
Citi is “relatively sanguine” about
China at this point, and the bank feels that, on balance, the
Chinese situation is manageable, comments Larsen. Nevertheless, he
later concedes that China’s real estate sector is a risk factor
that the industry needs to be aware of and monitor.
“There have been a lot of measures
that have been taken to curb overheating in the real estate
process, for example, the restrictions on the loan-to-value ratios
for first, second and third properties,” says Larsen.
With 40 branches currently in China, Larsen says Citi will
have approximately 50 by the end of this year.
Turning to cards and payments in
Asia-Pacific, Larsen says debit cards are still an emerging
category in the region, but have significant potential. He explains
that unlike the US market, where debit cards have experienced
spectacular growth over the last 15 years, this type of growth has
yet to happen in Asia, but he believes the potential for strong
growth exists.
The credit card business in Asia is
growing very satisfactorily, and Larsen says Citi added
approximately 500,000 [credit card] accounts in the first half of
2011.
The topic of mobile payments sparks
a more opinionated answer from Larsen, where he explains that
although Citi believes the mobile payments space will develop very
rapidly, the bank’s team is “somewhat perplexed” at the relatively
slow pace of innovation and the lack of leadership from other banks
and the communications and technology industry.
Citi would like to change this
situation, says Larsen, hints that Citi is working on an initiative
in the mobile payments space, but declines to reveal any more
details at this point. However, his next statement reveals plenty.
Given that Citi has been involved in pilot near field communication
(NFC) mobile payments projects with MasterCard and Vodafone in
India, as well as M1 and Nokia in Singapore, logically, the next
step would be to launch a commercial offering.
“It is something we are working on
as a high priority.”
In Larsen’s view, the mobile
payments sector is being held back by the lack of NFC capabilities
on standard handsets and he called for a new paradigm for mobile
payments.
Whether this new paradigm might see
banks being disintermediated by telcos or social media payments, is
an issue often raised in the industry.
For example, Dickson Chu, head of
global new product development and alliances at Citi, warned at the
recent GSMA Mobile Money Summit in Singapore, that rapid
developments in the mobile money industry mean that banks must not
be relegated to the role of a “dumb pipe”.
Larsen says: “There are more to
payments than meets the eye. I do not think our world is under
immediate threat, although that could of course be famous last
words. So, we never want to take it for granted.”
Acknowledging the ever-present risk
of another player controlling a disproportionate share of the value
chain, he says banks have probably spentbns of dollars in building
up the industry’s infrastructure.
“I think it is unlikely that
someone will be able to immediately replicate that with extremely
low cost technology, because it is just not that easy,” Larsen
adds.
To remain ahead of the competition,
Larsen says the bank makes the first step to innovate and does not
for innovation to come from another player. He points to the
roll-out of the bank’s two ‘Smart Banking’ branches, which were
first launched in Tokyo in April 2010.
Of the 700 branches Citi has in
Asia, Larsen says, over the next three years, about 60% of its
network will include these ‘smart’ branches.
Larsen warms to the theme of
explaining the rationale behind the Smart Banking concept and why
Citi felt traditional retail branch had become a little tired and
we were looking for a breakthrough to change the customer
experience.
Citi’s competitors in the
Asia-Pacific region have also been active in revamping the
customer’s experience of branch
banking.
For example, Singapore’s OCBC Bank
has launched a banking programme in May 2011 for the youth and
young working adults segment called FRANK by OCBC.
A key feature of this initiative is
that customers will be served in FRANK retail stores instead of
OCBC Bank branches.
According to Larsen, the challenge
for banks in implementing branch innovation in scaling this up and
incorporating it into the experience of the majority of the bank’s
customers.
However, given the positive
economic fundamentals in the region, he argues that this 3.5%
figure is merely a “starting point” for what is possible as the
retail banking sector in Asia-Pacific continues to consolidate and
competitiveness is based on global payment capabilities and meeting
the international needs of clients.
“We feel pretty good about the portfolio of businesses and
markets that we have because we are arguably the only pan-regional
presence with meaningful scale in Asia.”
