Financial Services Research in Asia

By Piers Lee, Managing Director of Kadence International (Singapore)

 

The Market:

Nearly all markets in Asia have fully functional banking systems with transactional, credit, and investment services provided through state, private, and foreign banks.  In most markets these can be delivered not just through the branches but also through extensive ATM networks and Internet banking.

Aside from domestic banking, there are several internationally recognized financial hubs in Asia: Singapore, Hong Kong, and Tokyo.  Tokyo tends not to be in the same league as Singapore and Hong Kong since it does not promote itself so actively as the other two centres, for example as hubs for international cash and asset management, and centres for investment banking excellence.  The wealth management industry in particular has grown significantly in Asia in recent years – in Singapore the total banking assets under management rose from about $92 billion in 1998 to about $350 billion in 2004.

However, Hong Kong and Singapore are not necessarily the leaders for financial service market research.  In Singapore the retail banking industry is surprisingly consolidated and protected.  It is dominated by DBS, UOB, and OCBC who, in the last 10 years, have each acquired second tier local players resulting in just three local banks in the market.  Foreign banks in Singapore are restricted in their network which means many consumers and smaller businesses would not consider them for their lack of branches or ATM network.  Hence the core business of these international banks tends to be concentrated towards corporate, priority, and private banking where network issues are less important to customers.

This has also been the case, to a degree, in other Asia Pacific markets, where regulation and forms of protectionism has stifled competition in the financial services sector.  However, several factors are now spurring change.  These can be summarized as follows:

1)     Privatization: former monolithic Government banks are being privatized into more dynamic organisations and many markets are seeing the rise of more aggressive private banks.  Good examples of these include ICICI and HDFC in India.

2)     Financial Shocks: events such as The Asian / Financial Crisis (1997) caused some banks to fail or to be forced to consolidate.   It has been noted that many of the Thai Banks significantly improved their business operations and product offerings as a result of a major shake out of the industry during the Financial Crisis.

3)     Foreign Entrants: the booming economies of Asia have attracted many financial institutions from Europe and the US to enter markets or expand their operations from their existing foot holdings, all of which has generated demand for market research.  The main foreign players include HSBC, Standard Chartered, and Citibank, but several European banks have looked to develop their business in Asia including ABN AMRO, BNP, and Barclays.

4)     Education: banks in less developed markets are sharpening up their brand management by hiring experienced marketeers from the main stream FMCG companies.  An example would be Hong Leong Bank in Malaysia appointing a former marketing manager from Johnson & Johnson.

Despite this, many banks have yet to even start undertaking market research.  The barriers to research are lack of in-house knowledge of marketing, yet alone market research, and also a strong culture of traditional banking practices, e.g. personal relationship, and internal cost cutting.  There has also been little attention given to packaging their products but instead ‘just lending money’.

Market Segmentation:

The financial market research industry is split primarily between consumer and corporate banking, although there is an often forgotten about niche sector of institutional banking that includes inter-bank business.

Corporate banking is segmented mainly by size of the business customer, for example Small & Medium Sized Enterprises (SMEs), Mid-Market buy cheap viagra india Enterprises, and Corporations / Multi-National Corporations (MNCs).  The boundary between SMEs and Mid Market Enterprises (MMEs) varies a lot by market and by different banks’ internal definitions.  In markets like Hong Kong and Singapore, this can be USD 50 million annual sales but as low as USD 10 million in other markets.   Large Corporations and MNCs are often listed companies with very different financing practices to SME and MMEs and might include companies of USD 250 million or USD 500 million+ annual revenue.

However this segmentation can get blurred since subsidiaries of MNCs are as small as SMEs and have similar cash management practices.  Mid Market Enterprises, although many are private can also have the same trade, cash, and liquidity management practices of larger corporations.  And finally very small SMEs, sometimes referred to as Small Office Home Office (SOHO) companies are actually often closer to consumer banking than corporate banking.

By far the largest market overall is consumer banking.  Not unlike corporate banking, the main segmentations are based on size of investible assets (note, not by salary), with the main demarcations being USD 100,000 between retail banking and priority banking, and USD 1 million between Priority and Private Banking or banking for High Net Worth Individuals (HNWIs).  The complexity of Private Banking means that despite the very small population of HNWIs (c. <0.5% of the market), banks sometimes impose further segmentation within this group for example Ultra High Net Worth Individuals (UHNWIs) with USD 10 million+ of investable assets, and Family Offices for individuals with USD 100 million+ in assets!

Types of Research Undertaken:

The bed rock of financial services research is retail / mass market banking.  Customer satisfaction and service quality dontevaluation, e.g. through mystery shopping, tends to be the first forms of research the banks embark on.

Secondly would be brand tracking, although the lack of sophistication of many banks’ marketing departments means that it is quite hard for market research firms to ‘sell’ the differences of brand tracking research over customer satisfaction tracking.

Due to relatively infrequent product innovation, there is very little product development research undertaken.  The exception to this is the credit card market, although for this product line many banks actually rely on the brands, such as Visa and MasterCard, to undertake this research on their behalf.  However among fund managers, there is sometimes a role reversal.  Even though branding and product development for unit trusts are almost as active as for credit cards, the fund managers sometimes rely on their distributor banks to give them the required feedback from the market.

Buyers of Financial Market Research

The principle buyers of financial market research are the main state or part state-owned banks within market, e.g. DBS in Singapore, Maybank in Malaysia, State Bank of India, etc.  Their research is often considered obligatory for corporate governance reasons, e.g. for service quality monitoring.  Attitudes to research among secondary players and privately owned banks varies enormously – some are quite maverick preferring to drive the market rather than learn from it, others simply preferring to spend money in other areas, e.g. advertising, sponsorship, or just more sales people!

The three major international banks in the region HSBC, Standard Chartered, and Citibank are consistent spenders on research across the region, and also the card companies including Visa, MasterCard, and AMEX.

Suppliers of Financial Market Research:

Most of the large Multi-National research firms have some financial services business.  Since many of the banks are just starting out in research, they have often gravitated to the best known name in the market, AC Nielsen.  TNS and Synovate are other lead players but their market share can be as much driven by their name, presence in market, and regional network rather than particular specialism in this field.

Some of the independent firms have seized on the opportunities in the financial services area by training up specialist researchers or having dedicated account teams.  Also strong in the market is Acorn but there are also newer entrants such as Kadence and East & Partners, bringing with them best practice from more developed financial services markets such as the US, UK and Australia.

The Future for the Financial Services Industry in Asia:

From the Research Buyer survey, about 40% of clients in the financial services sector stated that they would spend more on research compared to about 10% stating less (the remainder stating no change or not commenting).   However this figure does not include those organizations that do not currently undertake research but are likely to enter the market for the first time.  Unlike other less regulated service industries, e.g. IT and business services, deregulation and opening of financial services markets through the WTO will encourage fragmentation of markets.  There are also considerable opportunities for more product innovation (e.g. flexible mortgages), cross-selling (e.g. banks selling insurance and vice versa), and channel development (e.g. Internet and mobile banking) all of which will drive further demand for research.