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The Warsaw Voice » Business » June 25, 2008
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Are the Back Offices of Polish Commercial Banks Expensive Enough?
June 25, 2008   
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Poland's commercial banking sector is undergoing dynamic restructuring. This process stems from changes on both the banking market itself-including the appearance of new players and shifts in the leading pack-and major changes on the country's labor market as a whole.

For a few years the press has published different estimates of excessive employment in the banking sector. But the writers of these reports have overlooked one important segment of the financial market-credit advisors, or, more broadly speaking, financial product advisors. This is a sector that employs many thousands of people, and this is not the only alternative. That is why changes in the size of staff that mainly affect customer service departments-the biggest group of employees-do not cause such employment problems as was predicted just two years ago.

On the other hand, new investment in the sector and the continuous increase in the number of bank branches (Poles are not fond of online banking-they prefer to use traditional bank offices) result in growing demand for bank staff of all kinds.

Demand always leads to higher prices and higher labor costs. The more specialized a given field is, the greater the growth.

Competition on the market also leads to a situation in which it is increasingly difficult to sweep the costs under the carpet, and so increasingly higher figures appear in the reports. Add to that the continuous pressure on the development of bank products, bank insurance and other services-which means increasingly complex transactions-and it becomes clear why the picture of the back-office operations of most commercial banks in Poland is far from optimistic.

The strategic question is if the back office is already so expensive that it would be worthwhile to invest in new IT tools in this field? Or, using the good old Wild West models, is it still better to invest in a "Chinese railroad brigade" that will solve this problem by working overtime-hopefully for extra payment.

Or maybe it is like in the old Polish proverb that the shoemaker goes barefoot? Maybe the organizations that verify company business plans, analyze cost and revenue structures, and examine credit worthiness, do not keep their own operating costs in check, or do so selectively?

Such an analysis leads to two strategic conclusions. First, a back office is not a black box with unlimited capacity for the introduction of new products and procedures. Second, an increase in employment in the short and medium term increases costs because the availability of good, inexpensive professionals and ambitious, talented students is close to nil.

Why are these conclusions so little known? The answer is tricky. Generally speaking, the Polish market has few banks that dynamically fight for increasing their market share. The pond is shallow, there are few pikes and the carp are lazy, but they have not yet gone senile and can quite effectively defend their domains. On the other hand, there are a few banks that have started to streamline their structures and have achieved good cost levels, but that has not pushed their revenues up. Many banks are watching these developments with limited interest and focus on increasing their profits through marketing, for example, with slogans like "8% from every zloty."

Meanwhile, the banking market in Poland is quite a new development yet, since 2004, it has become even more open to competition from EU and other countries. Poland's chief task is to grow economically and make up for the 50 years wasted due to war and communist rule. This process results in higher client expectations, particularly in the case of people who have lived abroad and used better banking services in more developed countries. That is why competition in the banking sector will grow in every respect and only those banks that are able to effectively manage their back-office processes will be able to generate new products and services without increasing the costs. That is why effective tools for calculating costs with the ABC method, accounting reconciliations, workflow systems for invoice approval and business trip servicing, and accountancy procedure verification systems, can be the only way to achieve a lasting competitive advantage on a market where everyone sells the same products-or if they do not do that, this is only because they cannot generate them yet. So in the longer term, creativity in terms of product range is as important as effectiveness in the back office.

Today we live in a different country than 10 years ago but it is worth remembering a credit card lesson that a U.S. bank once taught skeptics. Instead of joining the debate on whether it is worth issuing credit cards in Poland, the bank simply sold half a million or so cards over its first two years in Poland, and still leads the way in this market segment. It is also worth remembering what participants of this debate did in the winter of 1997/1998.

That is why today only one thing is certain: the bank service market will develop dynamically and in rather unpredictable directions. In order to succeed, banks will not only follow Western patterns, but will also modify them, as demonstrated by mBank. Retail banking will be much closer to clients, not only thanks to technology, but also thanks to a range of services and sales policies involving a system of discounts, premium points and rewards for using or not using certain services. The image of corporate banking will change too, and profit margins will certainly fall. That means it will be necessary to clarify and streamline all the hard production processes in the bank-accountancy and settlements above all.

Michał Leśniewski
Business Development Manager, CUBE. Corporate Release S.A.
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