Sanjeev Gupta, head of
Shinsei’s Individual (retail banking) division, tells Will Cain the
Japan-based bank’s tactical repositioning is going according to
plan. Its latest initiative is to integrate Lake, the consumer
finance unit, into its retail banking arm, to open consumer finance
to new consumer segments.
After a
torrid period during the financial crisis, Shinsei is in the
process of stabilising its earnings through a return to its roots
as a corporate lender and the continuation of the build out of its
11-year old retail banking business.The tactical repositioning of
Shinsei in Japan continues apace, with plans to integrate the Lake
consumer finance business it acquired from GE in 2008 well
advanced.
Go deeper with GlobalData
The integration of Lake is
its latest tactical shift in retail banking, following earlier
changes to its branch strategy and marketing tactics.
The decision to shift Lake,
an unsecured lending business, from its consumer lending arm
Shinsei Financial into Shinsei Bank has been questioned by some
analysts, who view the switch as purely cosmetic. Others argue the
ownership change has very real impacts on the way it can acquire
customers and lend to them.
Sanjeev Gupta, head of
Shinsei’s Individual Group, its retail banking division, tells
RBI the Lake initiative is all part of its retail drive to
open up consumer finance to new consumer segments.
Shinsei’s new strategy is to
retain its existing Lake customers and open up a new segment of
customers that may not previously have considered using its
services. Internal research shows borrowers would be interested in
a consumer lending service which has a bank brand clearly attached
to it.
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By GlobalDataThe new service will be
called Shinsei Bank Card Loan – Lake. Loans are distributed through
a network of 800 unmanned terminals which, while common among
consumer lenders like Takefuji, Promise and Aiful, is rare among
banks.
Customers apply for loans at
the terminals and, if successful, are issued with a single-use card
which can be used at an ATM to immediately withdraw the
funds.
Regulation of
consumer finance
Closer integration between Lake
and Shinsei Bank should make it easier to cross-sell Lake loan
products to around one million of its existing 2.6m retail banking
clients, according to a bank spokesperson.
Also important is that
unsecured lending conducted by banks is subject to lighter
regulation on the amount consumers are able to borrow and how they
are marketed to.
This regulatory distinction
stems from the way consumer finance industry has evolved in Japan.
Japanese banks traditionally concentrated on lending to small
businesses and corporate clients, resulting in a lack of supply of
financing options for individuals. This led to the development of a
separate and sometimes unorthodox consumer finance
industry.
One notorious example of this
comes from consumer lender Takefuji, which considered factors like
the cleanliness of customers’ lavatories and kitchens to establish
the creditworthiness of its applicants.
The company was also censured
by regulators because an employee had attempted to collect an
outstanding debt by playing loud music on the street outside a
customer’s house.
In order to rein in these
business practices, consumer finance companies have been subject to
heavier regulation under the Money Lending Control and Regulation
(MLCR) Law, which was implemented fully in 2010. A Japanese Supreme
Court ruling in 2006 also forced the repayment by consumer finance
companies ofbns of dollars of excess interest charged to consumers
in preceding years.
Takefuji, the consumer
finance industry’s largest player, went bankrupt in 2010 because of
these charges.
Shinsei’s Lake business has
been hit by similar penalties – called grey zone claims – but the
bank has avoided heavy write-downs because of an indemnity
agreement signed when it bought the business from US conglomerate
GE in 2008. Shinsei’s maximum liability for grey zone claims was
set at ¥203.9bn ($2.6bn). The Lake business already had provisions
of ¥221bn for such claims when the deal was made.
Industry-wide loans
outstanding among consumer finance companies have declined from
around ¥7trn in 2008 to ¥3trn today.
These regulations are not
applicable to banks and have opened the door for the country’s
mega-banks – the likes of Tokyo-Mitsubishi UFJ, Mizuho, Sumitomo
Mitusi and Aozora – to expand their consumer lending portfolios in
a declining market. Unsecured lending by banks has increased
slightly from ¥2.5trn to ¥2.8trn over the three years to 2011.
Shinsei plans to follow suit.
“On the one hand, [unsecured] consumer lending is shrinking,” said Gupta.
“On the other hand, the
megabanks – especially Sumitomo Mitsui and Mitsubishi – have
started to move into this market. The bank side is growing but the
money lenders are going down like a rock.”
Gupta believes repositioning
Lake as part of Shinsei Bank will help improve the number of
automated card loans it can issue.
It fits into Gupta’s wider
strategy to establish Shinsei as the go-to bank for a select set of
high margin retail banking products. Margins on the Lake card loans
are expected to average between 2 and 3% of total loans
issued.
Branches – consulting
spots
Shinsei
is working on expanding its market share in home loans, structured
deposits and mutual funds – products which it sells in its 44
branches across Japan.
Gupta says branches are an
important part of its efforts to achieve greater penetration across
these more sophisticated, high-margin product lines; and Shinsei’s
strategy in this area has evolved since the bank was launched in
2000.
The bank started by opening
fully-fledged bank branches in Japan’s major cities to attract new
customers, but now favours smaller branches it calls consulting
spots.
Gupta says it costs the bank
an average of $3m to set up each full-service branch compared to
just $60,000 for consulting spots.
Most administrative functions
are performed from a centralised location, meaning branch staff can
concentrate on providing advice and selling products.
Consulting spot branches
measure between 50-80 square metres and typically turn profitable
in around three months, according to Gupta.
“I think one thing where if
we were to do it all over again, we did open fully-fledged branches
from 2000 to 2006 or so,” he says.
“Because of our business
model, because we focus on niche products like retail funds and
structured deposits, perhaps we could have done with the smaller
branches or consulting spots back then.
“When customers visit our
branches, they only really come for complex products like mutual
funds, for which they need a prospectus – they need to fully
understand the risk associated with the product.”
“They don’t come for simple
deposits or address changes that much because they can do that over
the internet. Initially, of our total of 44 branches, we opened
around half to 60% of these as fully fledged rather than
mini-branches.
“If we could do it all over
again, we could have got by with smaller branches, I would
say.”
Shinsei’s shift to smaller
branches, which provide more sophisticated advisory services for
clients, is backed by others in the industry.
Kiosk-style
branches
Alex Twigg, a former branch
manager at NatWest in the UK and now head of the online-only
business UBank in Australia says the model for branch banking looks
a lot like the one Shinsei has adopted.
“I think there will probably
be more branches in the future, but they’ll be different,” Twigg
says.
“You will start to see far
more of the smaller, kiosk-type branch environments where you can
drop in, have quick conversations, do something you want to do face
to face. They are going to be more convenient to you.
“The branch footprint will be
much bigger but the branches themselves will be a lot
smaller.”
Marketing is another area
where Shinsei has shifted its strategy in the 11 years since the
bank was set up. Gupta says there is better value to be had in
online marketing than in many other channels.
“Previously, we relied a lot
on newspaper advertisements to introduce new services and
products,” he says.
“We have moved more and more
online. Our housing loan marketing, almost in its entirety now is
done through the web.
“What has happened is
customer behaviour has changed, they go onto the internet and
compare prices as to who is the cheapest and best. So, more and
more of our marketing activities have moved to the web.”
Despite these adjustments,
Gupta says Shinsei’s core retail banking strategy remains the same
since the business was launched.
“The original strategy is
intact – of us being different,” he says.
“Meaning, don’t become like a megabank, don’t become like
a regional bank and don’t become like an internet-only bank. ‘Be a
different bank’ is something that definitely remains
intact.”
