International basics: how a Spanish savings bank shook up its market.

• Position: Marketing News - Caixa Catalunya redesigns mortgage product - Brief Article

Sometimes simply redesigning a financial product is the most effective way to satisfy customer needs.

An international example of this involves a savings bank in Barcelona, Spain, Caixa Catalunya. Five years ago, the bank decided to take the risk of redesigning its core-business mortgage product in an effort to better serve customer needs, according to Dr. Miguel Perdiguer, director of marketing.

The move enabled Caixa Catalunya to gain market share. The new mortgage product was such a hit that 80 percent of new customers select it.

Caixa Catalunya has 900 branches and 5,000 employees and a 15 percent market share of its service area.

The new product, called "Total Credit," was launched after rigorous customer research.

The bank discovered that mortgage applicants had two main worries: 1. How can we afford the minimum deposit of 20 percent of the house value? (In Spain, most lenders limit mortgages to 80 percent of the house value.) 2. How can we make monthly payments in the event that we become unemployed? (In Spain a third of new employees have temporary contracts; and, there is a comparatively high rate of unemployment that has only gradually decreased in the last few years.)

"We decided to redesign the product and meet these needs," says Dr. Perdiguer. The solution to the first question was to let customers obtain the 100 percent of the house price. To control the risk, the bank asked for another person to guarantee the loan. However, when the principal loan reaches 80 percent of the original loan, the guarantor is waived.

In response to the threat of unemployment, the bank decided to establish a policy of giving a written "pending guarantee" that lets the customer suspend repayments up to five times (both capital and interest), for a maximum of 12 consecutive months and a total of 36 months. What's more, they don't have to pay interest for arrears, charges for defaulted debits or additional expenses, and they don't need an insurance policy either.

The bank discovered that there was a gap between customer fears and the reality. Although many customers were worried about the possibility of unemployment and default on their mortgages, the default rate was actually low. On the other hand, the bank's financial and legal departments were worried about the threats of...