Poland’s strong economic performance and stable financial and political environment¹ have prompted a wave of new entrants into the country’s retail-banking sector during the past few years (Exhibit 1). The newcomers have pursued strategies ranging from acquiring incumbent regional and national Polish banks to launching greenfield operations independently or with partner banks. Early evidence indicates that retail operations started from scratch have attracted the greatest number of new customers (Exhibit 2).

Bank Handlowy, for example, opened the first of its branches in September 1998. By June 2000, Handlobank, its retail subsidiary, had 59 branches across Poland and more than 115,000 customers. BIG Bank Gdanski (BBG) and Banco Comercial Português (BCP), through their Millennium Bank joint venture, have opened more than 130 branches, with an estimated 150,000 customers, in less than two years.²

Since 1997, the stock market performance of Bank Handlowy and BBG has far surpassed that of other banks with large retail operations. Both banks have recently been targets of takeover attempts: Citibank managed to acquire 66 percent of Bank Handlowy for $725 million; Deutsche Bank eventually relinquished its stake in BBG to BCP.

From the outset, the acquirers of incumbent banks faced a number of challenges: rampant overstaffing, employees unschooled in customer service, union and political obstacles to radical restructuring, inadequate information technology systems, and less than optimal branch networks. Yet the incumbents, which already had a large customer base, provided a way of entering the market.

Entrants choosing to originate their retail banking operations faced problems as well: unfamiliarity with customers and products, balky IT and operations configurations, a lack of branch-network acquisition and development capabilities, a scarcity of knowledgeable banking talent, and difficulty obtaining banking licenses. These new entrants were not, however, burdened with legacy IT systems, entrenched employee practices, or existing dysfunctional branch networks. They thus could begin with a clean slate.

New retail banks quickly differentiated themselves from incumbent players by using innovative customer service strategies. Lukas Bank, for instance, has offered radical innovations in the largely state-controlled Polish banking sector: free coffee and snacks, a play area for children, and a teller to help with the required application and transactions forms. Handlobank has lured customers by opening accounts and providing an automatic-teller-machine card (and, for creditworthy customers, a credit card) within 12 minutes. The branches of all the new entrants also differ from those of the incumbents in being free of lines, modern, well lit, and clean.

The simple and transparent initial product offerings of all three of the new entrants—Handlobank, Lukas Bank, and Millennium—addressed the basic banking needs of their customers: an integrated core account with credit line (available through an overdraft or short-term credit account) as well as foreign-currency and floating-rate accounts. To improve distribution and customer access, the new retail banks set out to integrate their branches, ATMs, call centers, and, in the case of Handlobank, Internet and direct sales. They seem to view branches as the most effective of these channels at getting consumers to open accounts (the ATMs serve as a lure), while they heavily promote call centers as a transaction point for payments. Handlobank has favored high-traffic central-city locations; Millennium, those locations and residential suburbs. Both banks are spreading to every corner of Poland. Lukas Bank, by contrast, is still focusing on the country’s handful of large cities.

On a per-branch basis, Handlobank has fared significantly better than Millennium at adding customers. Handlobank has pioneered the use of direct-sales techniques—such as presentations to employees of other companies, conducted on their premises—to win business. The bank even has branch staffers attempt to snare passersby.

Finally, the new entrants are adopting an IT architecture and procedures that pare operating costs. Handlobank, for example, has set up almost paperless operations, which speed customer transactions and keep back-office staff to a minimum. As a result, 80 percent of the branch premises of the new entrants can be devoted to the front office, and their branches are smaller, measuring 80 to 100 square meters as opposed to the more than 450 square meters of the incumbents’ branches.