Business Portfolio Review
Retail Banking serves over 10 million customers and processes over 10 million financial transactions each day, facilitating the socio-economic progress of all communities in the Kingdom. Core activities include providing customers with access to banking services and supporting wealth creation through an evolving portfolio of products offered over a mix of channels giving omnichannel experience.
The environmental context
Kingdom-wide pandemic-related curfews in April and May 2020 curtailed operations in Retail Banking to a limited number of branches. With the brick and mortar branches being the Bank’s primary source of customer interaction during Q2. Retail Banking witnessed a slight decrease compared to the pre-COVID monthly average.
In the interest of customers, the Saudi Central Bank (SAMA) passed a mandate requiring all processing, early settlement and brokerage fees to be waived for a period of six months beginning in April 2020. This had a significant adverse impact on the performance of the Bank given its predominantly retail heavy concentration. The Bank’s Retail Banking business also adjusted to the multiple changes introduced to Value Added Tax regulations during the year under review.
The impact of COVID-19 has led to a 4% reduction year-on-year in consumer spend by the end of 2020. In spite of the unprecedented challenges of the year under review, the Bank’s total share of mortgages in the Kingdom for the year 2020 stood at 37.1%. For Auto Finance, the Bank has a market share of 47.6% in the Kingdom and 60% of the total of new sales.
Major developments in credit cards
The Bank launched a number of planned new products in this segment during the year under review. They include Travel Plus a best-in-class and first-of-its-kind multi-currency card. This integrated travel card proposition for the Bank’s customers has a low credit limit of 10 USD. Travel Plus comes in five key currency wallets including US Dollar, Euros, GB Pounds, UAE Dirhams, and Saudi Riyals. Travel Plus cardholders can avail unmatched benefits including complimentary global airports lounge access, concierge services, competitive exchange rates, ATM cash withdrawals and contactless POS purchases made securely through Near Field Communication (NFC) technology within the limit specified by the Bank.
In the second quarter of 2020, the Bank launched Digital Pre-paid Card which resulted in more than 200,000 new card sales to customers by December 2020. The Bank also launched an innovative digital low limit card that can be issued instantly through Al Rajhi Mobile App and loaded to a digital wallet so that customers can start spending right away online or at any point of sale. Popular demand for this new product resulted in strong sales to customers by December 2020. This new virtual card provides customers with convenience of application and a secure and safe method of shopping.
During the year under review, Retail Banking launched multiple personalised and targeted spend-and-usage campaigns for its credit and mada cards customers. Retail Banking also launched multiple cards acquisition campaigns and promotions that accelerated new customer acquisition during the year. The new product launches and multiple customer acquisition campaigns resulted in over 90% growth year-on-year in total new credit cards sold. The introduction of a number of pricing strategies, including the introduction of free cards across the products spectrum, also contributed to business volumes and spend growth.
Mortgages for increased Saudi homeownership
During the year under review, the Bank continued to contribute towards Vision 2030 by working closely with The Real Estate Development Fund and the Ministry of Housing in its efforts to increase home ownership for Saudi nationals. The Government aims to increase home ownership to 70% by 2030, from a figure which official statistics put at 62% at the end of 2019. The Public Investment Fund (PIF) also launched Roshn, a new real estate subsidiary, in 2019 to help meet increasing local demand for housing. The Kingdom’s mortgage growth in the first half of 2020 was strong with more than 50% of 2019 disbursements achieved within the first four months, including during the curfew months of April and May. Total mortgage growth for 2020 reached 90% year-on-year.
Retail Banking launched a number of new mortgage products and features in addition to enhancing its policies and procedures to provide greater access and convenience for customers in the face of pandemic-induced restrictions. The Bank also continued to ensure that the Kingdom’s low-income citizens benefited from its mortgage guarantee scheme as part of its drive to promote financial inclusion. As more affordable housing comes into the market, the Bank’s efforts to boost mortgage lending has promoted a positive brand sentiment, especially amongst first time home buyers, leading to the Al Rajhi Bank being one of Saudi Arabia’s strongest brands with Brand Finance giving it a Brand Strength Index score of 84.7 out of 100 in a report published in April 2020.
New Watani products and services
The Bank’s fully Sharia-compliant finance solution, which helps customers to meet unexpected expenses, was further enhanced by a range of new products and services.
In February 2020, the Bank launched a new product – the Watani 3 – Payment Holiday Programme. This Programme was negatively impacted by the COVID-19 pandemic and related restrictions. By end 2020, a total of 19,000 customers had capitalised on this finance solution. The Retail Banking Group also introduced Personal Finance NST in April 2020.
In terms of new services, using Swiss banking software company Temenos’ Islamic Banking Suite and its Saudi Model Bank application which adheres to global best practices and preconfigured local functions, Al Rajhi Bank was able to meet Saudi regulatory requirements within a very short time. During the year under review, the Bank introduced the integrated telesales platform with digital execution contracts and ePromissory notes. Omnichannel execution was introduced in July 2020 while all personal finance products were made available to customers on the Bank’s digital banking app by the end of the year.
As part of its drive to offer improved services to personal finance customers, the Bank revised its categorisation of vehicles for this product, including the revision of balloon and down payments. In addition to new products launched for this customer segment, the Bank also developed its systems and processes to efficiently identify irregularities such as the unauthorised increase of balloon payment, the decrease in down payments and the increase in credit limit by users. The upgraded system also helps the Bank to quickly identify any customers who may have been blacklisted. During the year, the Bank continued with diversified sales campaigns targeting key dealers in the Kingdom’s auto market. Insurance prices were also revised during the year under review.
Expanding physical customer touchpoints
Two new branches and one showroom were opened during the year under review, along with seven new ladies sections.
The Bank continued to add more state-of-the-art ATMs at its new and renovated branches throughout the year, with total ATMs of 5,211. In 2020, the Bank owned the largest ATM network for dispensing small denominations of SAR 5 and SAR 10 and the new polymer SAR 5 was deployed for the first time at the Bank’s ATMs.
Also in 2020, the Bank launched a first-of-its-kind ATM in the region serving a range of differently-abled customers including those who are visually impaired, hearing impaired, and mobility-challenged. This ATM is open for the customers of the Bank as well as those of other banks. The service demonstrates the Bank’s commitment towards the community and its goal to allow customers greater access to banking. This service also contributes towards Vision 2030 by providing the differently abled with all the facilities and tools to help them become more independent and be integrated in society.
Tahweel, the remittances arm of Al Rajhi Bank, which provides international and local money remittance services, also expanded its reach during the year under review. In August 2020, five Tahweel mobile centres were launched for the first time and 35 Tahweel kiosks added during the year. With four Tahweel centres closed and one centre merged with an Al Rajhi Bank branch during the year, the current Tahweel centre count stands at 226.
Retail Banking will continue introducing a complete suite of products, services, features and innovations to sustain the Bank’s leadership position in areas such as mortgages and personal finance as well as to grow market share amid intense competition in the industry. Unless the pandemic is brought under control and travel improved during 2021, credit card financing is unlikely to improve in the immediate future. However, mitigating initiatives have already been identified and put in place to try to boost credit card financing in 2021. These initiatives include: Personalised customer spend campaigns, credit card cross-sell campaigns, customer balance build-up campaigns, (Loan on Phone, balance transfer, instalment plans), and customer engagement and activation campaigns. Retail Banking has already adopted a targeted and differentiated customer value proposition for credit cards with a particular focus on youth, SMEs, corporate entities, and the non-salaried segment.
With the impact of COVID-19 likely to remain well into 2021, the Bank will continue to focus on creating a digital culture across the Bank’s diverse businesses to increase digital engagement in banking. The Bank’s drive to migrate more customers towards digital channels will also benefit the business by enhancing the Bank’s reach and facilitating product acquisition in a manner that gives primacy to customer experience. While enhancing digital acquisition channels the Bank will also introduce a direct sales channel in the near future. Capitalising on technology the Bank will also use analytics-based customer targeting software to improve cross-selling. Enhanced loyalty and rewards schemes for customers and merchant partnerships will also be a focus.
In line with its BOTF Strategy (refer page 41), the Bank will continue to invest in its existing capabilities in Retail Banking while building on its already strong brand and customer engagement.