In the second part of RBI‘s series of interviews with senior Turkish bankers, Soner Canko, assistant general manager of the country’s biggest lender, Ziraat Bank, outlines the bank’s investment strategies and discusses with Duygu Tavan how the bank will differentiate itself in Turkey’s cut-throat banking sector.
Following last month’s article on Akbank, RBI’s series on Turkish banks’ targets and investments in light of narrowing margins continues with the assistant general manager at Turkey’s largest state-owned lender Ziraat Bank.
As a public sector bank, Ziraat tends to get criticised from privately-run lenders accusing the bank of government favouritism that they do not have. But Ziraat Bank is just as much affected by the Turkish central bank’s unorthodox decision to raise reserve capital ratios while keeping interest rates at a record low as its privately-owned peers.
And just like his peers, Soner Canko remained fairly unfazed by the macro-prudential tightening.
“I consider the macro-economic precautions by the central banks as quite natural and don’t think that the central bank’s actions will abnormally curb the growth of the sector – but rather, it will result in slowed-down growth,” Canko explained.
A creative sector
Although he acknowledged that banks’ profits would decrease this year when compared with the past years, Canko maintained his confidence.
“We are a strong and creative enough sector to find new revenue sources for those we may lose as a result of the central bank’s actions.”
According to Canko, the most important segment to target and gain revenues from is the unbanked market, followed by the semi-banked or those who do not bank regularly.
Additionally, the bank will, in the near future, begin analysing more closely its broad customer base to identify clients offering the highest return potential.
But although the bank already rolled out a credit card for the youth segment, those aged under 36 and in education earlier in the year, Canko emphasised that Ziraat works “like a supermarket”. Thus, the target is to make banking convenient for all segments.
As a state-owned bank, one of Ziraat’s ‘duties’ is the issuance of student loans to about one million students, as well as the pensions of five million people every month.
“If you take into account that about 40 out of 75m of the Turkish population are banked, then 30m of them bank with us in one way or another anyway,” he said.
As margins are narrowing, Ziraat Bank is tweaking its customer strategy in accordance with investments in its distribution channels and new products.
At the forefront of those investments are the implementation of staffless micro-branches and an upgrade and expansion of the bank’s ATM network.
Ziraat’s upgrade and expansion of its 2,919-unit strong ATM network is a key strategy to curb operating costs while enhancing consumer experience. The bank has invested around $35m for 1,500 recycling-enabled ATM units from Chinese manufacturer GRG Banking.
“The biggest challenge we face [in terms of ATMs] is the cost to run them. We found the solution to this problem in recycling machines from GRG,” Canko explains.
Biometric ATMs, staffless micro-branches
The GRG ATMs will also be enabled with biometric capabilities to identify customers by the individual vascular pattern on their palms.
The bank has already begun to implement the devices.
Ziraat’s investment in GRG ATMs will take the bank’s total ATM distribution close to 4,500 units – and make Ziraat the biggest bank by ATM network.
Ziraat’s implementation of biometric ATMs follows that of Turkey’s largest privately-run bank by assets, Isbank, who introduced biometric ATM services in July 2010.
In addition, the bank has rolled out 50 staffless micro-branches, called Goruntulu Islem Merkez (GIM) units – which translates loosely as ‘visual processing centre’ – across Turkey.
Although there is no staff in the GIM micro-branches, all banking services are offered with assistance via a live video-link to an Istanbul-based advisor who talks customers through each step of their banking requirements.
The bank is planning to open another 50 such units by the end of the year. And it is targeting a GIM distribution network of 1,000 units by 2015, Canko revealed.
The GIM branches are part of Ziraat Bank’s multi-channel strategy, in which branches in all forms will continue to play a key position for the bank.
“We want to be closer to the customer with our branch network and are considering opening 100 branches this year,” Canko says.
He added that branches will operate in a more sales-orientated manner and be key in Ziraat’s expansion in Turkey’s East, where many people are still unbanked.
A branch expansion further into Turkey’s East would also mean less marketing spend.
Of the unbanked in Eastern Turkey, Canko explained: “It is enough if you are close to them.”
But of course, some promotions will be necessary and, although he would not go into detail, Canko acknowledged that, besides the physical presence of branches, mobile phone operators with an existing and wider distribution network would be suitable partners to reach the unbanked.
“Distribution is the most important factor for us,” Canko says.
He was quick to point out some impressive statistics: Ziraat Bank has identified 420 locations where it is the only bank with a branch and 366 locations where there only is a Ziraat ATM.
“We want to maintain this position, want to be where no other bank has a presence and we will do so using all [physical] channels, whether that is the GIMs, ATMs or branches.”
Still, there are areas where Ziraat’s presence is not as dominant as that of other banks, and Canko said that the bank would analyse and target those areas as well.
Yet, the emphasis on branches does not mean that the bank is neglecting the direct channels. Ziraat, in effect, is upgrading its online portal and expects the online channel to become the most dominant one in the years to come.
In terms of products, Canko forecast that debit cards would gain in popularity and contactless card distribution will also increase. But while his belief in debit cards was strong, Canko’s stance on the innovation of near-field communication (NFC) technology-supported mobile payments – already introduced by private lenders Garanti, Yapi Kredi and, most recently, by Akbank – was somewhat lukewarm.
Canko remained rather doubtful of the potential of NFC m-payments market, at least for now.
“We do not target growth in this segment at the moment. I believe contactless payments via cards will be more popular [and] I prefer contactless cards to contactless mobile payments – storing your financial details on top of all your personal details adds another level of risk,” Canko argued.
However, he acknowledged that it was too early to determine how successful NFC mobile payments would be.
The rise of contactless cards
“We are involved in experiments with NFC mobile payments – but these are just that – trials to gain knowledge and understanding.”
For now, Ziraat is concentrating on increasing its contactless cards in circulation from around 341,630 to 600,000 this year.
In particular, Ziraat is pushing its contactless Maximum Card, which it issues in cooperation with Isbank and which works on Visa’s payWave technology.
“When we issue new cards, we issue them with contactless capabilities as often as possible. In the short term, we believe that contactless cards will be more widely distributed than NFC [m-payments].
“We do believe that in the medium to long term, NFC m-payments will increase and when they take off, we will have the experience and knowledge to participate and compete.”
Another cards and payments related area the bank is tapping into is prepaid. Canko revealed that the bank was running a pilot with prepaid cards internally.
But a public launch is, as of yet, not in sight.
With all the push into innovative product segments and services, the credit card, which is a very popular product among Turkish consumers, partly due to relatively easy obtainment processes, is one ‘traditional’ product the bank needs to push.
Ziraat’s market share in credit card numbers lies at 6%, while its market share in credit card receivables is a mere 2.3%.
But although Canko recognised that the bank needs to gain more market share in the credit card segment, he stressed that “unlike the other banks, we are not trying to double our market share”.
Ziraat’s ambition instead is to grow parallel to the growing Turkish sector.
In the next issue, RBI will feature an interview with Garanti Payment System’s CEO Mehmet Sezgin.