Hugh Fasken talks to Sanjeev Gupta, chief
operating officer of Shinsei Bank’s Individual Group, which
encompasses all of Shinsei’s retail businesses, and Sandeep
Deobhakta, chief operating officer of the retail banking subgroup.
Both remain bullish on Shinsei’s prospects in a changing Japanese
banking landscape.
In the middle of the ongoing gloom hampering Japan’s consumer
banking and consumer finance markets, Shinsei Bank has made a big
bet that the country’s retail financial services industry remains
full of opportunity.
Go deeper with GlobalData
It is mid-way through completing one of the biggest Japanese
banking acquisitions over the past few years, the $5.4 billion
purchase of GE Money’s Japanese consumer finance business. The bank
believes that the extra branches and distribution points (around
1,100), retail customers (2 million) and loan assets (over $7
billion in credit card, unsecured loans and mortgage assets) the
deal gives it will drive its business forward.
Sanjeev Gupta, chief operating officer of Shinsei’s Individual
Group, tells RBI: “[Shinsei] has 2.2 million retail
banking customers as well as about 8 million credit card and
consumer finance customers. And we are going to have a further 2
million GE consumer finance customers. So very soon we are going to
have a customer base of over 12 million customers.
“In terms of distribution, we currently have 36 retail
establishments, nearly 400 ATMs of our own and further access to a
total of approximately 65,000 affiliate cash machines in Japan.
Consumer lender Lake, which accounts for the bulk of GE Consumer
Finance’s loan portfolio, will add 42 manned branches and roughly
1,100 unmanned branches including ATMs and automated contract
machines [ACM].
“As a result, we will have 12 million customers, which represent
about 10 percent of the total population, and a huge distribution
network… So it is very exciting for us.”
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Thank you!
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below form
By GlobalDataThe Individual Group was the highlight of Shinsei’s relatively
weak first quarter figures, published at the end of July. While the
bank posted an overall 65.2 percent year-on-year decline in net
income to ¥10.8 billion ($101 million), its businesses serving
individual customers made ¥3.2 billion in profits, up substantially
from a ¥0.4 billion loss in the same period a year earlier.
Key goals
Retail banking and consumer finance loans continued to grow in
the first quarter due mainly, said the bank, to an 8.1 percent
increase in housing loans to ¥876.9 billion, supported by an
increase in housing loan customers by 43,000. Assets under
management, which include retail deposits and debentures as well as
mutual funds and variable annuities, were also up in the first
quarter and now exceed ¥5.2 trillion.
In simple terms, one of the key goals of the GE deal, said
Gupta, is to cross sell banking products to GE’s customers and GE
consumer finance products to banking customers.
“Now, the question is ‘how can we cross sell our retail banking
products or services to certain segments of the consumer finance
customer?’ To 
be frank, not
every consumer finance customer is going to be a retail banking
customer.
But speaking hypothetically, if we could cross sell to just 10
percent of the 10 million consumer finance customers of [Shinsei’s]
Aplus and GE Consumer Finance, then that is a very, very powerful
opportunity.
“We can offer these customers deposit products, asset management
products, mortgage products – all of the products that the retail
bank is successfully selling.”
He adds: “This should give you a flavour of the power of our new
organisational structure in which we have combined all our
individual businesses under a single management structure, and also
an idea of the customer base and the product offerings we are
talking about, and the distribution channels that we have. It is
really a very compelling story.”
The primary product that Shinsei plans to cross sell to consumer
finance customers will be the bank’s sophisticated, competitive
range of deposit accounts. When the bank first hit the Japanese
retail market in 2000, its high-interest savings accounts and
customer-friendly product initiatives like 24-hour ATMs quickly
helped it build market share.
“By far the most successful products we can offer are our
deposit products,” said Gupta.
“We have a series of these products, including foreign currency
deposits, time deposits and structured deposits. And we do offer,
largely speaking, attractive interest rates on virtually all of our
products. We are very competitive.”
Talk of high-interest savings accounts – and the rapid way they
can penetrate new markets – is apt given the delayed-but-imminent
launch in Japan of ING Direct. Indeed, the Japanese market is
seeing the slow rise of a number of key foreign banking groups in
the market (despite the high-profile departure of GE Consumer
Finance), including Citigroup and HSBC. Earlier this year, France’s
Credit Agricole extended its relationship with Resona
(see RBI
591).
Sandeep Deobhakta, chief operating officer of the retail banking
sub-group at Shinsei, believes, however, that while Japan is seeing
the likes of HSBC, Standard Chartered and ING Direct setting up
shop and expanding in the country, Shinsei and other local players
will continue to offer a strong proposition for the customer.
“Clearly, our advantage is that we have a local presence, a
local capability that is far, far stronger and allows us to compete
at a different level,” Deobhakta says.
The biggest foreign threat comes in the shape of Citigroup. In
March this year, the US group restructured its Japanese business
into a single unit following its $4.8 billion acquisition of
third-largest Japanese brokerage outfit Nikko Cordial, and
announced plans to open 60 branches in the country by the end of
2009 offering customers a full range of banking, consumer finance
and investment products. Its bold aim, it said at the time
(see RBI 588), was
to “create Japan’s leading banking and securities group”.
Competition is good
Deobhakta says: “Our focus has always been on trying to
understand our customers better and offering an attractive and
unique set of deposit/investment products to meet their needs.
Competition is good. It provides the customer with more choice, and
it brings in new products and new product ideas. But it also allows
us to focus on our local presence, local understanding and
capabilities as a differentiator.
“We have excellent international investment options for our
customers, but we can do even more in terms of local products. So
it is the best of both worlds.”
Gupta says: “To sum up: we are more local than the global
institutions and more global than the local players in this market.
So we are indeed in a unique position.”
A heavyweight focus on innovative marketing – part of the bank’s
local capability – has formed a central tenet of Shinsei’s business
strategy since its inception, helping the bank attract a young,
urban and affluent customer base. The bank has used agenda-setting
initiatives such as 24-hour ATMs and high-interest accounts, among
others, to punch above its weight in the Japanese market. It
recently revealed that offering 32 different colours for its
PowerFlex cards had helped drive customer numbers up by 200,000
over the past year (see RBI 596).
Its latest marketing drive has seen the bank establish a
business alliance with So-net M3, a leading Japanese provider of
medical and lifestyle-related information over the internet, one of
the biggest portal sites exclusively for people working in the
medical profession in Japan with 165,000 doctors among its
registered users.
Through this partnership, Shinsei will promote its banking and
asset management services to the m3.com user base, with So-net M3
able to offer in return value-added banking products to its
customer base.
From 1 August, Shinsei has begun providing information on its
range of financial products and services; in the future, Shinsei
plans to award m3 points exchangeable for various benefits and
offer other incentives to m3.com members who use the bank’s
services.
“The deal fits in very well with a drive to attract customers
who are professionals and largely urban and affluent, but who are
also used to using the internet for medical and other lifestyle
services,” says Deobhakta. “It is an example of how our strengths
and the alliances we are looking at work very well to attract
certain segments for us.”
Asked whether he could see the bank expanding this to other
segments, such as accountants, lawyers and other professionals, he
says: “Absolutely, that is a key area of focus. This [So-net M3] is
a new tie up that we’ve just announced, and we are learning from
it. The initial reaction has been exciting and we are hoping to do
more.”
Overall, despite the depressed consumer finance market (which
led to GE exiting the market) and a weak-ish banking environment,
both Gupta and Deobhakta remain largely bullish about the prospects
for Shinsei over the next two years.
The economic conditions have, moreover, presented certain
opportunities, of which the GE consumer finance acquisition was one
– Gupta points out that, by buying the GE business, the bank was
able to acquire over ¥800 billion in interest-generating assets for
only ¥580 billion in equity and debt, with little goodwill, “so we
are basically acquiring a debt free company and that was an
excellent opportunity for us going forward”.
He adds: “Speaking for the Shinsei group as a whole, I know
there is an overall slowdown in the global retail market, but in
retail banking [in Japan] we are seeing our deposits growing, our
housing loan volume growing. As you observe from our first quarter
results our net operating loss has narrowed. Now we are really
focusing on the customer and we have a strategy for diversifying
and deepening the relationship with our existing customers that
seems to be working well for us.
“Our products are attractive to our existing customer base and
to new customers. I do not think the new [foreign] market entrants
are really affecting our profitability.”
He concludes: “The challenge now is how to cross sell on both
sides. Selling banking products to certain segments of the consumer
finance customers and selling consumer finance products to our bank
account holders is a challenge, but we believe that is where the
growth in the retail business is going to come from.”
