Interview with Peter Philippaerts, Head of Retail and Commercial banking (RCB) at Belfius (2/2)
More than one year after Dexia bank's buyout by the Belgian State and its recent name change, Peter Philippaerts, Head of RCB at Belfius, took the time to share his insights with Sia Partners on the Belgian retail banking industry and allowed us to have a look behind the scenes at Belfius bank.
Presentation of Peter Philippaerts
Peter Philippaerts is currently Head of Retail and Commercial banking, i.e. he is in charge of the 800 Belfius branches, as well for the sales as for the support functions.
SIA: So client service will be at the heart of Belfius' strategy for the upcoming years?
P. Philippaerts: Yes, now more than ever. If we want to improve, our motto should be "Service quality". For many years, banks have mainly focused on the efficiency of their operations, be it at the back office level or the sales level. The pace has often served as the key indicator of performance, measured as the number of credits sold, the number of interviews concluded, etc. But unfortunately, the never ending trade-off between efficiency and perceived quality is also valid for financial services, and thus the progress we made in efficiency came with a certain loss in quality and attention for the end consumer.
For example at Belfius we currently have straight through processes. This can partly be ascribed to the fact that documents which have to be completed by customers often contain information that enables faster processing by our back office. However, it is precisely this data which are found to be problematic for the customers, as they don't know how and why to complete this information, and thus need help to fill in the form. This type of situation potentially reduces the perceived quality for the customer. A counterexample, is the one in which you stretch out 2 hours of time to receive a client or to visit him at home. This is clearly not cost-effective, but it certainly demonstrates an excellent service level.
SIA: How then to reconcile service quality and optimization of processes and procedures?
P. Philippaerts: I believe the trade-off can be optimized at the level of our IT system and applications: by better aligning our current applications with customer needs and especially by reducing errors. Today we conduct more than 3 000 000 transactions a day, and mistakes are still made. Furthermore, there is room for improvement at the sales level. We must seek the right balance when it comes to contacting the client: if the customer requests not to be contacted directly, we must respect that. I also consider this as quality. Moreover, one must never stop to try and understand consumers and the context that surrounds them, especially in the aftermath of the current financial crisis. Today Belfius' market research team conducts large scale market research in order to provide the bank with a 360° vision of what is happening in the retail banking industry and how its customers are behaving. To conclude, one should bear in mind that you cannot achieve the perfect level of efficiency and speak the language of the client at the same time. You will eventually have to make a choice and accept that improving quality will cost you money.
SIA: Who is currently in charge of defining the product mix at Belfius?
P. Philippaerts: Product design & development is typically carried out by our marketing division. Today we make a distinction between commercial marketing and strategic marketing and it is the first that will take the lead on this topic. The strategic marketing team's role is to monitor our performance within each client segment and to alert us whenever we are losing ground. They also perform profound marketing research upon which concrete long term action plans are drawn up.
SIA: Belfius' branch network consists of independent salesmen. How does this model work?
P. Philippaerts: Today Belfius' network is managed up to 80% by independent staff that operates under a "Belfius representative" agreement (cfr. franchise model). This agreement meticulously stipulates how our representatives are expected to behave towards the clients, when and which trainings they have to attend, which specific Belgian laws they are supposed to master, which rules they must adhere to, etc. However, the level of organizational autonomy will soon be revised upwards as too many rules kill the initiative which is inherent to an independent network. Support to the network is provided by the system and concerns all types of subjects ranging from contact lists, automatic alerts for business opportunities, the integration with other distribution channels, etc. They don't have to handle these aspects themselves.
SIA: How does this model differ from the traditional salaried branch network?
P. Philippaerts: Compared to traditional employees, Belfius' representatives maintain a certain degree of independence. This is for instance the case for their human resource management; Belfius does not interfere with who they decide to hire and how they manage their staff. Another difference lies in the remuneration policy as our agents are rewarded based on the amount of work they manage, and according to their performance, and not on a fixed monthly salary basis. Besides these differences, the operating mode of our network remains very similar to that of a salaried branch network. Also in terms of performance we noticed with pleasure that our network is among the best organized ones.
SIA: With the acquisition of the Artesia-Bacop group in 2002, Dexia added the DVV and Corona network to its own. How is the insurance business of Belfius managed today? And how do you manage competition within and between these independent networks?
P. Philippaerts: At present the back office entity "Belfius Insurance" develops insurance products for the DVV network, Corona and the Belfius network. There still exist differences in the products that are offered through these networks, but we've planned to harmonize product offerings soon.
Regarding competition between these networks, it is mainly managed through the unspoken "First come, first serve" rule. Furthermore, there exist certain additional rules between independent staff, be it between the Belfius representatives and the DVV network or within a single network, that have to be respected and which make the whole technically feasible. For example, when selling insurance products to clients for whom a certain level of expertise is required, Belfius agents are obliged to contact the DVV network and to closely collaborate on behalf of these clients. Moreover, from a legal point of view, all customers belong to Belfius. Hence it is the headquarters that holds the final decision of which network will eventually take care of the customer. For instance, about a month ago, we've decided that the Belfius network had to pass a number of clients to the DVV network in order to increase the processing rate. This clearly illustrates one of the advantages of having an independent network; it allows being more flexible.
SIA: Are the commissions granted to your agents depending on the sale of a certain type of product?
P. Philippaerts: We used to have network incentives that accelerated the sales of certain products. However, these practices have barely been adopted anymore at Belfius since the MIFID law entered into force. In fact, today Belfius is the only independent network who's also fully Mifid compliant. Concretely this means that we aren't allowed to push financial products towards our clients that aren't suitable for them. Rewarding our agents for selling a specific product would stimulate them to sell it at all costs even if it would entail the violation of our clients' profiles, and this is exactly what MIFID wants to counter. However, when it comes to the management of investment products and not the sale, differences in pay still exist. In fact, fees may vary accordingly to the workload an agent faces in managing a portfolio of investment products.
SIA: Is the sales division involved in the implementation of the Basel 3 reform? If yes, does the reform impact the way Belfius' current product offering is shaped?
P. Philippaerts: Yes, we are involved in the implementation of Basel 3. However, the liquidity risk, and the eventual "bank run" risk, banks face today should not influence which investment products are sold. Our salesmen should be free to sell whatever they want, and the final decision should deliberately be made by the client.
SIA: Do you rely on certain marketing techniques to promote specific products?
P. Philippaerts: Yes, certain products are highlighted through advertising. However, the current talks with Europe suggest that it's just a matter of time before the legislation on advertising for financial products will become stricter.