CHAPTER 1: BASIC THEORETICAL ISSUES OF DEVELOPING NON-
1.2. NON-CREDIT SERVICES OF COMMERCIAL BANKS
1.2.2. Non-credit service development of commercial banks
From the point of view of dialectical materialism, development is a progression from low to high. Development does not merely increase or decrease in quantity but also changes in the quality of things and phenomena. Development is the tendency
to move from low to high, from simple to complex, from poor to perfect through resolution of conflicts, quality improvement and compliance with the “Negative of Negative” trend. So, in the simplest way, development means an increase in quantity and quality.
Service development in width: means an increase in the quantity of non-credit service products.
Service development in with has the same meaning as the service diversification.
Beside traditional activities, it is also required to have access to and development of modern non-credit services; In addition to traditional non-credit services such as payment, funds, money transfers, etc., modern high-tech non-credit services such as e-banking must be combined. From the micro level, diversification of non-credit services helps banks diversify their income structure, reduce risk in business and strengthen brand and reputation in the market. At the macro level, diversification of non-credit services contributes to the provision of utilities to the national economy and the population and the development of the country’s economy.
In the current trend of banking development in the developed economies, the bank is considered as a service supermarket, a financial grocery store with hundreds or even thousands of different services depending on the classification and depending on the level of development of the bank. The banking sector in Vietnam has grown rapidly in the number of banks and network expansion for recent years. At the same time, each bank has its own strategies for diversifying non-credit services. For example, deposit service programs, financial advisory services, treasury services, high-tech banking services are increasingly being applied in life. These service have never developed by banks before.
Non-credit service development in depth: The non-credit service development in depth means that non-credit services are developted by creating new products based on the existing products through increased utility and improved quality of existing non-credit services to increase customer satisfaction.
Service quality is a very important concept in the process of branding and implementing the marketing strategy of the bank. It is a factor that has a great
impact on the competitiveness of banks. Many researchers around the world have made several definitions of the different aspects and levels of service quality. When banks are no longer discriminated from one another based on the diversity of services, quality of service is vital to all banks. Therefore, from the beginning, banks must have plans and strategies to continuously consolidate and perfect service activities on the basis of providing customers with fast, convenient and affordable utilities.
In terms of quality of non-credit services, we refer to their utility. In parallel with the development of non-credit services by scale, the quality of non-credit services is constantly increasing, helping customers become more satisfied with the benefits of non-credit services.
According to Kotler (2000), satisfaction is determined on the basis of a comparison between the results obtained from the service and customer expectations and is considered based on the following three levels. If the result is less than expected, the customer will feel dissatisfied.
If the results are as expected, the customer will be satisfied.
If the results are more than expected, the customer will be very satisfied and interested in that service. Although there are many different concepts, the definition of customer satisfaction is always associated with the following factors:
Sentiment/ attitudes towards service providers, customers’ expectations of the provider’s ability to meet the demand, Service performance results / values provided by the service, customers’ intention to continue using the service, the customers’ positive attitude towards the quality of banking services after using non- credit services. When customers feel satisfied about the quality of the bank’s non- credit services, the bank has met the demand equal to/ exceeding their expectations and customers intend to continue using the services of the bank in the next time.
The author’s view on non-credit service development is as follows:
Development in both width and depth: Every bank must make a plan to develop a non-credit service system at the outset. For existing non-credit services, it is imperative to improve them through the application of international standards and
practices and maximization of the efficiency of these services to strengthen customer trust and maximize investment efficiency. On the other hand, to develop the customer network and expand the market, it is also required to approach new technology. However, investment should not be spread out to avoid waste and low efficiency. Therefore, it is necessary to combine both development in width and the depth, ensuring the diversification of services associated with service quality.
Development in line with the ability to control and market demand: The bank itself controls the arising risks and meet the needs of customers. If the development is massive and out of control, it can lead to insecurity in one stage, on division or affect the whole operation of the bank.
Nowadays, to improve competitiveness, commercial banks need to pay special attention to the development of services in depth or in other words, improve the quality of non-credit services..
1.2.2.2. Necessity to develop non-credit services at commercial banks
For banks
- Non-credit services are likely to bring high profits to banks thanks to low cost.
Non-credit services provide relatively high profits to banks thanks to low cost. The bank is equipped with an initial physical infrastructure and human resources but can use a variety of cross-over and long-term non-credit products, so the cost of a service product is low. The service fee is higher than the cost. Unlike non-credit services, for credit services, the source of funds for providing loans are mobilized from customers, so the interest cost is quite high, not to mention the source of capital that have not been used to provide loans or are retained as the compulsory reserves for the purpose of maintaining its liquidity.
- Non-credit services do not require banks to use more capital
Non-credit services do not require commercial banks to use more capital, which is in line with the current status of capital resources of commercial banks in Vietnam and the stock market channel that is the leading channel of mobilization and distribution, redistributing most medium and long-term capital in the economy.
- Non-credit services help banks to minimize risks thanks of their relative safety and low risk.
Non-credit services help banks to reduce risk because credit fees are usually collected immediately or before providing services. Meanwhie, for credit services, the bank has to spend money and then collects interest and principal later, so the bank bears interest rate risk, the risk of customers’ insolvency, the risk of currency devaluation due to inflation, etc. So, the non-credit services are generally safe and have low risk.
- Non-credit services help banks pay attention to the recruitment and retraining of staff Non-credit services require banks to recruit staff who have command of theoretical knowledge and actual operational processes. Non-credit services are increasingly interested in developing modern banking services that help banks pay attention to the recruitment of new staff with good professional qualifications and retraining of existing staff to meet the customers’ higher needs of modern non-credit services.
These staff must show professionalism in communication skills, marketing skills and customer persuasion. Therefore, in order to develop new non-credit services and gain market share in the increasingly competitive market, the banks must increasingly raise their recruitment standards and always pay attention to re-training of their staff with professionalism, good operational affairs, good communication and the best customer service.
- Non-credit services help banks be interested in promoting their brand and surveying market demand
Non-credit products are relatively new to many customers, especially modern non- credit products and services; therefore, banks need to create brand and prestige to create the impression in customers’ hearts and make them feel secure and reliable.
Brand must go with the quality of service, so the banks need to survey to catch up market demand, bring their brand to customers and ensure the proximity between the brand and customers.
- Non-credit service development is in line with the development trend of the banking sector
The future development trend of commercial banks is to limit medium and long- term loans because the medium and long-term loans shall be provided by non-bank financial institutions. Commercial banks should only provide commercial credit services (short-term credit) and mainly promote non-credit services.
Risks in credit activity bring about huge losses to banks and the economy, leading to the development trend of the banking sector towards more interest in developing non-credit services. Non-credit service development helps banks reduce risks thanks to its low risk.
More developed the economy is, the higher the demand for modern banking services is. Therefore, banks’s interest in developing non-credit services in line with the development trend of the banking sector.
- Non-credit services help banks cooperate with each other for development
Non-credit services must ensure convenience for customers in transactions such as depositing money at one place and cash withdrawal at many places, even outside the banking system. Therefore, the banks need to cooperate with each other for the mutual development such as establishment of card alliance, etc.
For the economy:
- Meeting the increasing demand for banking services of the economy
In the context of an open economy and increased financial liberalization and trade liberalization, the demand for financial services (where banking services are dominant) is increasing and may exceeds the supply capacities of the financial institutions of Vietnam, which becomes a valuable opportunity for international financial institutions to penetrate and dominate the domestic market when barriers are increasingly dismantled under the integration commitments. In fact, the demand for banking services has increased rapidly, especially in urban areas.
- Requiring to modernize banking activities to meet the requirements of building and developing the modern economy
The non-credit service development is necessary as it helps banks increase business efficiency, reduce risks on the basis of diversifying their business lines and their portfolio. Thus, access to the modern banking market is an effective way to
restructure banking operations, reduce business risk and bad debt, contributing to clean the balance sheet of Vietnamese banks.
Current business activities of banks are facing not only fierce competition among domestic banks or between domestic banks and foreign banks but also competition from other business organizations such as insurance companies, investment funds, financial companies, etc. Therefore, banks that are interested in developing services to satisfy the needs of customers will have many advantages in competing and gaining market share.
For customers
- Help customers save time and minimize cost
- Provide timely and effective information through the non-credit services provided by the bank
1.2.2.3. Factors affecting the non-credit service development
Factors affecting the non-credit service development of commercial banks are divided into two groups:
Subjective factors (Internal factors) First, financial capacity
Financial capacity plays an important role in the operation of a bank. Only when the financial capacity is strong enough, the bank has enough capital to equip the assets necessary to their business, including the modern information technology. In addition, the capital is also used in other practical activities such as market research, new product research, advertising campaigns, promotions, etc. More importantly, a bank with a large capital resource is easy to create trust in customers and partners at home and abroad.
Small capital will not be sufficient to diversify services and improve the efficiency of existing services. In order to do so, each bank must take the initiative in developing long- term capital growth strategies according to the appropriate roadmap in line with the development needs and control capacity of each bank from time to time.
Second, information technology infrastructure
Nowadays, when the science and technology grows fast, the demand for services and quality of banking services is growing rapidly, demand for services and quality
of banking services is increasing, requiring banks to develop and apply technology in their operations. Technology becomes the “foundation” for commercial banks to develop banking services. Only the development and application of new technology allows banks to meet and provide the best products and services to meet the increasing needs of customers.
Modern technology allows the commercial banks be able to develop new products of unique characteristics, associated with creativeness and create the brand and very high reputation of the product.
Modern technology improves service quality. Service quality is associated with factors that bring about convenience to customers as well as utilities to the bank and customers. Modern technology application has allowed commercial banks to develop reasonable and scientific business processes, typically the one-stop transaction model that help to save a lot of time for customers in transactions with banks.
In addition, modern technology creates favorable conditions for commercial banks to improve their operation efficiency and business efficiency thanks to the growth of service revenue, cost savings and above all, risk reduction by diversifying their business operations.
Third, management capacity and effective human resource management strategy
The development of the service system must be associated with the management capacity of each bank to ensure stable, safe, sustainable and self-regulated banking activities.
To gain this goal, the bank managers and administrators must not only comply with laws but also have professional knowledge of banking operations and know how to analyze and evaluate the possible risks of each type of banking service as well as development trend of each type of operation, etc. to take appropriate preventive measures and steps.
At the same time, the bank must have a team of staff with broad professional knowledge. Human resources are always considered as the most important factor of
all success. In order to access new technologies, banks must have knowledgeable staffs to meet their work requirements, which requires banks to have a training plan for staff for the purpose of preparation of a team of qualified staff before development of new services.
Fourth, distribution channels
The wide distribution network, distributed in the appropriate locations facilitates the transaction process and reduces the cost of providing services for customers. On the other hand, the operation network is not only a distribution channel but also serves as a channel for feedback on the products and services provided and a channel for receiving market information. This feedback helps the bank make the appropriate strategic plans for developing non-credit services.
Fifth, customer policy
Facing more fierce competition, significantly and increasingly changed banking technology in the world, the penetration of foreign banks and financial institutions that has made competition more and more fierce, the changes in traditional capital markets and the diversified demand of customers, it is time for banks to pay more attention to their customer policy. Customer policy is the policy that banks apply to express marketing strategies at the customer level or customer segment based on decisions made to allocate their existing resources. The ultimate goal is to provide services that maximize customer satisfaction, thereby achieving the Bank’s goal of maximizing profitability.
Satisfying customer needs, enhancing customer perception and creating customer loyalty are always what banks need to do. Therefore, it is necessary to have a reasonable and competitive customer policy in order to maintain and develop relationships with customers. Customer policy helps the bank select the right customers to serve and create a traditional customer system, thereby improving the competitive position of the bank in the market. With customer policy, the bank can take operational measures to guide its development. For customers, customer policy gives them peace of mind, convenience, accuracy, time saving, thereby bringing them the highest satisfaction.
Every bank has to identify the target customer group that its bank is aiming at in order to be able to come up with an appropriate marketing strategy to attract that customer segment. For example, when the bank identifies the customers using credit services or non-credit services as its target customer, it is necessary to develop customer policies of these two group of customers. When the bank has a clear understanding of their customers, it is easy to offer the services that best suits their needs.
Moreover, as a service sector, customer service plays a very important role in the success of every bank. Perfect product alone is not enough. Good service quality is also a factor to retain customers for the bank, which is extremely beneficial for banks because retaining an old customer takes less time and money than finding out a new customer. The more loyal the customers are, the more profitable the bank is. Once customers love the bank, they will introduce banking services to friends, relatives and do public relations work (PR) for the bank. They even introduce friends to use the services of the bank. Moreover, customers who have dealt with the bank will be familiar with all procedures and banking services, so bank officers do not have to spend much time on introducing and consulting services. As a result, the bank saves operating expenses.
Sixth: risks in banking operations
The development of none credit banking service in particular and banking service in general always has potential risks. The operation of banks in a market economy is a sensitive activity. All fluctuations in the social economy quickly impact on activities of services and risks may occur unintentionally, affecting on business operations of the banks. All banking services contain risks. Therefore, each commercial bank needs to have effective preventive measures to minimize risks.
When considering risks, people often pay attention to cost factors, demages, losses.
Causes of risks in the banking services have many types, but in general, the types of risks are classified into the following main categories:
Force majeure risks: Due to the fluctuation of the economy, due to natural disasters and war.
Due to the asymmetry of information: NH is not provided with the necessary information about customers leads to risks for banks.
Ethical risks: Customers or bank officials have committed violations banking agreement.
Due to changes in State policies, policies on foreign currencies, exports, import.
Due to political change.
The legal environment is not synchronous, incomplete, the law enforcement is not yet high.
Loopholes in management and other operations ...
Seventh: marketing activities:
The basic elements of marketing marketing are market research, construction and made on the basis of market strategy. Today, the marketing concept in the field of banking area includes:
Unravel the current market and its trends to supply service, choose the more profitable areas and identify the needs of customers at those sites. That field to provide services, build short-term and long-term goals for development and offer new services. Marketing is not just about performing services but also fighting each strategy and philosophy of each bank, it requires elaborate preparation, thorough analysis and positive of all departments from leadership to staff. Marketing strategy has an important position in banking operations. The goal of marketing services is to develop and offer new types of banking services; public application modern banking technology to serve customers through the sale of services; improve competitiveness and expand customer base by attracting new customers. those who have not used banking services; and finally increase the profit for the bank. The mission of baking marketing is to identify potential service markets, select specific markets and clarify customer needs and most importantly. A comprehensive program and work plan must be developed to ensure its main goals. Thus, Banking marketing can be considered as a market search process (currently and the future)