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Case 2:
Balancing Customer Satisfaction and Profitability
Banco Caja Social BCSC, Colombia
Source: : Elsa Patricia Manrique
Prepared by Gretel Figueroa Guzmán with inputs from CGAP staff
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- Using incentives and promotion to motivate clients to use low-cost delivery channels, and
- Designing a no-frills savings product that rewards consistent savers with a higher interest rate and access to lower-cost consumer loans.
Takeaway:
Financial institutions can create attractive low-cost savings products by promoting less costly delivery channels, by using fees as incentives for clients to use those channels, and by designing savings products that limit the number of transactions and reward consistent savers.
Results:
BCSC has seen a 9% increase in the use of low-cost delivery channels in the last two years. BCSC’s efforts included promoting low-cost delivery channels through radio ads, promotional flyers, and raffles; employing temporary staff in branches to help clients use ATMs and Debit Cards; and lowering fees for transactions performed at ATMs (versus using tellers which are a higher-cost delivery channel).
By limiting the number of transactions while still offering a high interest rate, rewarding clients who make consistent deposits, and offering access to low-interest consumer loans, BCSC has designed a savings product that is both attractive to low-income clients and profitable for the bank. In the 4 years since an innovative basic savings product Progrese was launched, 183,000 of these savings accounts have been opened and 102,400 are actively being served today.
Case:
Originally established as the savings unit of an NGO (Círculo de Obreros), what is today known as BCSC has supported low-income workers and micro-entrepreneurs with savings services at its core for over 90 years. In 2005 Banco Caja Social merged with Banco Colmena and became BCSC. Today, the BCSC network serves more than a million clients through its 122 offices in 42 cities in Colombia. The micro-enterprise sector continues to be one of BCSC’s primary focuses, and the bank prides itself on offering these clients products and services that have been tailored to their needs.
Colombian usury laws and taxes charged on all financial transactions have lead to widespread use of fees in the banking sector. These fees, coupled with the taxes, can act as disincentives for small depositors who make frequent, small deposits and withdrawals.
BCSC’s fees are lower than their competitors’, but they still generate an important income, which the bank then uses to offset the high cost of operating its network of traditional branches. Fees represented 16.5% of financial income in 2005 and 17.9% of financial income as of October 2006. This is not atypical in Colombia where fee income represents about 11.7% of total income for the financial sector and amounts to 90% of net profits.
Because of its strong social mission, BCSC has found a way to keep fees low and customer satisfaction high while profitably serving low-income clients.
Using incentives to motivate clients to use low-cost delivery channels
Having successfully applied a fee structure that reflects the delivery cost of making cash withdrawals, BCSC is now seeking to create similar incentives for other channels. This helps the bank to remain profitable while still keeping its fees lower than its competitors.
BCSC has learned that the price difference between delivery channels has to be significantly large in order to radically change client behavior. A small difference only increases the income earned by fees. For example, the bank now charges a fee of US$ 0.50 to debit card clients who withdrawals under US$ 500 using a branch teller while it charges low or no fees for using an ATM.
To further encourage ATM use, BCSC builds all its new branches with an ATM, and it places satellite ATMs in locations of interest to their clients. BCSC allows clients to use ATMs to check account balances, to make electronic payments, and to transfer funds from one account to another within Colombia. And BCSC has produced targeted communication and customer education efforts to encourage and train clients on ATM use. These efforts included hiring temporary staff to approach clients waiting in line for a teller to see if their transactions could be done at the ATM and then showing them how to use it. Another incentive entered clients in a raffle each time they completed three transactions at an ATM.
Designing attractive and viable savings products for low-income clients
While the widespread use of fees may have made them more acceptable to clients, it has also acted as disincentive for small depositors. To address this problem and remain true to its mission, BCSC created a unique savings product called Progrese.
Progrese savings accounts are easy to access, have a low opening minimum balance, have no minimum monthly contributions, and have an interest rate that increases as the client reaches specific deposit balances. Progrese offers an effective interest rate of 1% for deposits ranging from US$ 65 - 450 and 2.5% for accounts from US$ 450 - 9000. The market rate for similar non-fixed term savings accounts is only as much as 1%. Yet Progrese’s most unique feature is that clients who make six steady and consistent deposits are eligible to receive a consumer loan at a discounted rate that does not require a guarantor or real guarantees.
To date, the product has been well received by the market. In the four years since the product was launched, 183,000 of these savings accounts have been opened and 102,400 are actively being served today. While Progrese accounts for only 14% of BCSC’s total volume of savings, the annual growth rate (36% in July 2006) is higher than the rate of its other savings products (17% in July 2006), and its volume has grown to US$ 65.4 million.