By most measures many would consider that Malta is over-banked. We probably have more ATMs per thousand of population and more bank branches per square kilometre of land than most European cities. Yet there seems to be no lack of interest from new players to enter the fray of local banking competition that is now hotting up.

The traditional strong presence of just two major banks is being constantly challenged by new banks that believe that they can cherry-pick business successfully with a new business model based on the right mix of “click and brick” facilities – traditional physical branches and online internet banking.

The myriad of small banks offering banking services is steadily gaining market share from the traditional big banks that are finding that their big size has both advantages and disadvantages. These smaller banks know that price wars will not lead to success in gaining market share. Margins on banking services are being constantly eroded, and success in gaining new customers has to be based on differentiation built on the quality of service offered.

The transformation in the branch network of HSBC, which has registered impressive first half results, shows a clear shift by this bank to promote cost-efficient services to clients, more through electronic banking than the face-to-face services provided from traditional branches. The larger banks’ Achilles heel is the heavy costs associated with manning branches in practically every sizeable town or village in Malta.

A quick research of the websites of most of the local banks shows a common theme of promoting relationship banking as a means of satisfying customers’ needs. But the smaller banks are probably better placed to deliver what they promise, simply because their size helps them to follow their customers’ interests more closely.

The recent award of the Best Banking Group in Malta for 2010 to Banif Bank (that has been operating locally for just over two years) by the World Finance Award Selection Panel is evidence that new competitors in Malta can achieve quick success through innovative approaches in our market. The bank’s dynamic CEO attributes Banif’s success to his team’s “belief in themselves, their ambitions, and their conviction and abilities”. This is a strength that will help this young bank’s customers “to fulfil their dreams and exceed their expectations”.

It is easy to promise a unique banking service, but much more difficult to deliver one, especially in an overcrowded market with some players that have been in this game for many decades and are not prepared to give up any ground. Ultimately, it is the customer who decides whether a bank’s service matches its promises.

We sometimes hear about complaints of people being sold investment products that were not suitable for their particular circumstances. Others complain that their bank overcharges them for small value transactions in an attempt to discourage unprofitable business that is, however, essential for clients. Some businesses also argue that banks encourage them to borrow when they least need to, but refrain from providing this service when the business climate gets tough.

Smaller banks can only provide a unique service to their clients if they have employees who are not only professionally trained to understand their customers’ needs, but also enthusiastic to meet and even exceed their customers’ expectations. To achieve this, employees must feel respected and appreciated by their bosses.

The sales culture has now permeated in all local banks. But the hard selling tactics of some banks is upsetting many customers who feel that they are entitled to impartial objective advice on the services they need, rather than be pressured to buy products that give banks the best return.

So far, customer inertia has meant that few customers have moved their businesses around.

This attitude is partially reinforced by the very competitive pricing of banking services that means that there is not much difference in the interest paid or charged by banks, or the commissions tied to different services.

So, the smaller banks will increasingly hone their skills to treat customers as valued individuals that need to be listened to carefully in order to offer them the added value that they crave for. This can best be done with inspired leadership and a team of bank staff that feel that they are really contributing to the success of their clients.

As competition between local banks hots up, customers will hopefully get a better deal for the financial services that they need.

jcassarwhite@yahoo.com