U-Bank zeroes in on niche market of affluent clients
'Even those who didn't lose money have suffered from a lack of financial confidence.'
By RON FRIEDMAN
If you earn NIS 20,000 per month, have between NIS 500,00 to NIS 1.5 million in free assets and are interested in investing your money, U-Bank wants your business.
Actually, if you fit the description, you belong to a coveted sector called affluent clients. All the banks should be clamoring after you, but U-Bank is the only one that has centered its operations on this niche market.
"In a strategic examination that the bank conducted in 2006 and 2007 we looked for possible growth areas," U-Bank CEO Ilan Raviv told The Jerusalem Post in a recent interview. "The sector we identified as both in need of attention and suitable to our abilities was the affluent sector.
"This is a sector that doesn't necessarily meet the criteria for private banking in other banks, so they don't receive any special notice or attention by them. Even though they may have NIS 1 million, they go to the same branches that are open at the same hours, have the same investment consultants and the same products as everybody else, and they don't receive any differentiation."
U-Bank, a 75-year-old establishment that was once owned by Baron Rothschild and called the Israel General Bank, used to focus its business on the capital market and the financial sector, working with institutional clients such as insurance, pension and provident groups, mutual funds and portfolio managers. The bank was purchased by the First International Bank of Israel in 2004 and changed its name in 2005.
Along with the change of name and ownership, came a decision to re-brand the bank and add emphasis to personal banking. The path chosen was to open a chain of branches catering to the needs of a specific segment of the population.
"We determined that it would be difficult to recruit these clients virtually," Raviv said, "and that we needed to go to them and open small, attractive, comfortable branches in the places where they live."
In mid-2007 U-Bank opened its first branch in Ra'anana and has since opened a new branch every six months. The bank currently has six branches, one each in Tel Aviv, Ra'anana, Rehovot, Rishon Lezion and two in Jerusalem. According to Raviv, the plan is to continue expanding until there are 10-12 branches. According to the bank's business plan, each branch should recruit 1,000 customers over five years, to reach a total market penetration of 10 percent.
U-Bank estimates that the affluent market in Israel consists of roughly 200,000 family units. These families are characterized as those who have monthly incomes of NIS 20,000 or more; who hold gold or platinum credit cards, with which they spend NIS 10,000 to NIS 12,000 monthly; who have some investments; and whose earners work as senior managers of companies or in other lucrative professions such as doctors, lawyers and accountants.
"It is very important to us that our bank will be identified with this sector," Raviv said. "Every product or service that we offer is catered to this segment of the population."
Aside from opening special branches with extended hours of operation - they are open on Friday and employ an army of investment consultants - U-Bank's main initiative to court the affluent sector is to create a special consumers index that focuses on this particular market. Every month, following the release of the consumer price index by the Central Bureau of Statistics, U-Bank releases its Affluent Index, which tracks the consumer spending of this specific segment of the population.
According to Raviv, the difference between the two indices is often surprisingly large. In the recently published June index, for example, while the general consumer index rose by 0.9 %, the affluent index rose by 1.25%.
"Together with the Geocartographia research institute, we did an exhaustive statistical survey about the consumer practices of this group," he said. "Based on the survey findings, we drew out the relevant components from the general consumers index to form our affluent index."
Raviv said the global economic crisis has affected this potential client base. While many people in the sector lost money in investments and capital funds, even those who didn't lose money have suffered from a lack of financial confidence, he said.
"This is a segment that before the crisis was the fastest growing segment in the market," Raviv said. "I sincerely hope, and I have no reason to think otherwise, that it will continue its rapid rise once the crisis abates."
The bank-fee reform that went into effect a year ago, which ordered banks to make public their service-fees structure, has had an affect on all banks, including U-Bank.
"Following the reform, we canceled some service fees and redefined others as the bank of Israel demanded, but perhaps this is the place to say that we don't really compete on prices," Raviv said. "We think we have more to offer our clients than lowering service charges by NIS 12 a month. As a strategy, and I'm not embarrassed to say it, we don't see ourselves as competitors for the lowest prices. We won't compete with the other banks on better prices, but on better value."
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