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The changing face of banking in Saudi Arabia

Saudi Arabia: Monday, June 20 - 2005 @ 11:02

There has also been talk of the Saudi government opening the banking and insurance sector to foreign investors as a prerequisite to Saudi Arabia joining the World Trade Organisation (WTO) – and indeed the Saudi banking sector has now opened to national banks from the other GCC member states.

What does this mean for banks and financial institutions operating in Saudi Arabia?

Customers will see an increasing choice of products/services and they will become more demanding as they see banks competing to offer a higher level of service.

If banks do not have good mechanisms for understanding customer needs, targeting customers with a segmented approach ( the “one size fits all” principle will not work any longer ), and offering superior service, then they are likely to face decreasing customer loyalty resulting in cost of customer acquisition and retention going up.

It means that banks have to entrench themselves firmly in the minds of customers by laying down a clear philosophy and positioning – and it is all the more imperative with the entry of foreign banks who often have a distinct advantage in terms of product offerings and service levels.

TNS Middle East & Africa, the largest ad hoc custom marketing research company in the region, has completed a number of path-breaking studies to understand banking consumers better.

To name a few – Arab As Consumer (ARAC) has given clients an in-depth understanding of the developing Saudi consumer psyche – and helped clients develop marketing and communication platforms that connect with consumers at a more emotional, and therefore effective, level.

And TargetMoney, a large-scale syndicated banking study in Saudi Arabia, first done in 2000 and again in 2003/2004, provides a detailed understanding of the banking scenario.

One thing that is obvious is that the penetration of different products/services is lower in Saudi Arabia than in other neighbouring markets. Credit card usage is only 22% – and only 17% have personal financing with banks.

Penetration of value added services such as Investment and Saving / Insurance Products is very low, though that is expected to change with banks introducing new products. Other factors like high investment requirements, lack of knowledge of available products, etc., also play a part in the low usage of such products.

But things are changing. There has been an increased focus on Islamic Banking services – e.g. Bank al Jazira has re-positioned itself as a purely Islamic bank ; and other international and local banks are now offering Islamic banking services and products to those who e.g. want the benefit of conventional insurance products, but in a Shariah compliant manner.

Given this scenario, banks need to start thinking of the future – will Islamic banking itself be sufficient as a differentiating factor, or will it fast become a hygiene factor? What might the banks need to do to attract and retain customers beyond the Islamic banking platform?

Banks in Saudi can now segment the market and identify what proportion of their customer base is made up of various segments, and adapt their marketing initiatives accordingly. For example, in 2000 the TargetMoney study identified 4 distinct customer segments (each was significantly sized with at least 20% of all customers) based on attitudes to banking services. These were :

Traditionals / Conservatives ; not so ready to actively look around for financial products, more face-to-face interaction oriented, less likely to deal with foreign banks

Islamists ; keen to deal with local and not international banks offering Islamically acceptable products/services

Activists ; attracted by value added services and a width of products and services

Islamic Assurance Seekers ; open to foreign/joint venture banks offering Islamic products, unlike the Islamists.

That survey back in 2000 showed that there were a significant number of Saudi customers who were open to Islamic banking services from foreign / joint venture banks.

Over time, however, many more banks entering the Islamic banking space may have resulted in a blurring of images of banks on this issue of Islamic banking unlike in the past where only Local / Islamic Banks were strong enough in terms of being culturally close to the customer.

And as the Local / Islamic Banks start to catch up with foreign banks on service standards customers will start to select banks on higher order emotional and intangible benefits – which is where understanding the psychographic profile of the customer becomes all the more important.

TargetMoney 2003/2004 offers the best of two segmentation approaches – one based on psychographics ( as first revealed by the Arab As Consumer – ARAC study ) ; and the other based on attitudes to banking products and services (as first developed in TargetMoney 2000).

Clients are able to link up the two approaches and develop marketing plans on which segments they are best resourced to target – based on income profile, banking and product usage etc. And write brand and communication strategies based on these psychographic profiles and the segments’ media habits.

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Monday, June 20- 2005 @ 11:02 UAE local time (GMT+4) Replication or redistribution in whole or in part is expressly prohibited without the prior written consent of Mediaquest FZ LLC.

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