Migrant Banking in Europe - Beyond Capturing Remittances (2/2)
In the context of increased client turnover and a mature retail banking market, ethnic banking presents an attractive growth opportunity for European banks. Event though immigrants' needs for financial product can not be huge profit drivers at first, they evolve with time and banks willing to capitalize on this opportunity can adopt several business models.
Part 3: Towards a complete migrant banking offer?
As mentioned in the first part, competition on the remittance market is becoming fierce on a relatively small consumer base, and as a result margins are diminishing. Nevertheless, banks should not analyse the profitability of remittances in an isolated way but instead, they should assess the long term potential of this new customer pool and regard the transfer product as a gateway to these customers.
In fact first generation immigrants' needs for financial services vary with the amount of time they've spent in the host country . During the first years of stay, they often look for entry-level products like money transfers and other basic operations (e.g. deposit account), but as times passes, their need for more complex financial services, i.e. higher margin products, increases (e.g. consumer credit, credit cards, and eventually savings accounts). It is thus interesting for banks to target these customers from early on, by for example offering remittances, in order to have the opportunity to accompany them during their life projects and financial growth, and hence build a relationship of trust.
Nevertheless, in order to tap successfully into this segment, we believe banks should adapt their service models to the immigrants' needs (product needs, consumer preferences, cultural habits, etc.) and most importantly, take into account the various barriers these newcomers face (e.g.: language barriers, financial illiteracy, difficulties in meeting legal and administrative requirements credit history, etc.). In recent years, several types of banking institutions have followed this strategy and launched initiatives to court Europe's immigrant clientele.
Various Origin-country banks have capitalized on their expertise and knowledge of their native clients and followed them into Europe. Today these banks offer a sophisticated range of money transfer solutions, as well as a complete migrant banking offer through their European branches.
On the contrary, several European banks with foreign affiliate branches, have used a more indirect way to approach these clients, by leveraging their foreign network as an intermediary to cater to the immigrant needs. For example BMCI, the foreign affiliate of BNPP Paribas, promotes its dedicated offers through the foreign affiliate's website under the section "Living abroad", through which it makes it easier to get in touch with a home-country staff, and offers beneficial tariffs for intra-group money transfers.
Finally, Italy is the forerunner when it comes to deploying the new concept of "multi-etchnic banking". Unicredit for example has created a dedicated agency network, called "Agenzia tu", consisting of 12 agencies in the main cities. These agencies provide training activities in order to facilitate financial inclusion, they explain products and services in various languages and a created dedicated retail banking offer. In similar vein, a new bank "Extrabanca" has been launched, which is completely dedicated to Italy's immigrant population. It tries to address pain points most European banks have failed to provide for (e.g. a dedicated branch network with multi-ethnic staff and extended opening hours/day; a focus on counselling and tailored advice, flexible approach to credit scoring, etc.).
Besides these initiatives, many European banks have failed to set up specific programs to target the immigrant population, and left this market untapped. This is also the case in Belgium where no major Belgian bank has tried to challenge the incumbent players on the market, who are currently benefitting from oligopoly like profits. Nevertheless, the search for future growth might spur them to develop a migrant strategy in the future. In this case it remains to be seen whether they will they go to market by themselves or team up with the traditional players and/or if their offering will go beyond attractively priced money transfers.