World Retail Banking Report

2008 WORLD RETAIL BANKING REPORT Contents 5 Pricing Index 27 Organic Growth in Domestic Markets 53 Appendix...

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2008

WORLD RETAIL BANKING REPORT

Contents

5

Pricing Index

27

Organic Growth in Domestic Markets

53

Appendix: Methodology

58

About Us

© 2008 Capgemini. All rights reserved. No part of this document may be reproduced or copied in any form or by any means without written permission from Capgemini.

Preface

For the fifth consecutive year, Capgemini, ING, and the European Financial Management & Marketing Association (EFMA) have cooperated to develop this latest annual examination of the global retail banking market. As in previous years, it provides overviews and insights into the global retail banking industry’s dynamics. This year’s edition adds two new countries, Singapore and Denmark, raising the number of countries to 26 and increasing the banks studied from 180 to 194. We continue to investigate the worldwide pricing of day-to-day banking products and services, and this year’s edition continues to highlight the evolution of bank prices for these products and services around the world. Our website, www.wrbr08.com, provides dashboards that offer more detail on each country’s national banking industry. A sample dashboard is included later in this publication. As in earlier editions, our 2008 report adds a spotlight section that focuses on a current retail banking issue. This year’s spotlight highlights the problems banks face as they search for ways to maximise their retail banks’ growth in a changing market, and how some top performers are making strategic choices that ensure their retail operations will sustain the bank’s market performance in the years ahead. Based on case studies, in-depth interviews with banking executives in each market around the world, and quantitative analysis, the spotlight section concentrates on the operational levers and client value propositions that can help retail banks grow in the high-income domestic markets in which they operate today. All of us welcome the opportunity to offer this 2008 edition of the World Retail Banking Report to the financial services community. We hope it will stimulate debate and provide bankers with information they can use effectively as they negotiate the difficult strategic terrain of today’s retail banking landscape.

Bertrand Lavayssière Managing Director Global Financial Services

Capgemini

Patrick Desmarès Secretary General

European Financial Management & Marketing Association

Felix Potvliege Head Strategy & Business Development of Retail Banking

ING Group

2008 World Retail Banking Report

pricing index

Pricing Index

Key Findings

ß This year the average annual price of core banking services across the 26 studied countries was €70 for the local active user, with price levels ranging from €52 in Asia-Pacific to €79 in North America.

ß The average price fell slightly (1%) from last year. ß We have confirmed again that as a nation’s economy matures, the proportion of its GDP per capita allocated to banking services declines.

ß From 2006 to 2008, in their struggle to compete, banks used price to influence customer behaviour:

– Banks cut the price of sales influencers (e.g. current accounts, cards) by 0.8% a year to promote sales. – Behaviour influencers of two kinds—lower cost products (e.g. online banking or withdrawals at ATMs), whose prices banks cut by 0.2% a year to encourage their use; and higher cost products (e.g. cheques or withdrawals at desk), whose prices banks raised by 0.9% a year to discourage their use. – Unseen services (e.g. exceptions handling), for which prices remained unchanged.

ß North America’s price rose the most—averaging 5.7%—resulting primarily from higher prices for payments and cash utilisation; its price had declined during the three previous years due to fierce competition on account management fees.

ß Asia-Pacific’s price fell by 11.1% this year, essentially because of intensified competition in Australia and India, particularly in payments and account management.

ß European prices remained stable, with only a 0.8% price increase across both the eurozone and non-eurozone countries studied.

ß With the advent of SEPA, prices of pan-European payments have stabilised in the eurozone, and (excluding Ireland) even decreased faster in Europe eurozone than in the rest of the world.

ß Price discrepancies between banks dropped significantly at both the country and region levels; this was particularly striking in North America, although pricing differences in the eurozone remained the smallest.


METHODOLOGY

For this 2008 edition, we expanded the geographic scope of the pricing index and spotlight to 26 countries, adding Denmark and Singapore, and the number of participating banks rose from 180 to 194 (see Figure 1.1). Once again, we compared retail banking in four regions: Europe eurozone, Europe non-eurozone, North America, and Asia-Pacific.

Figure 1.1 Banks Surveyed

Region

We collected most of the data for this 2008 edition of the World Retail Banking Report during the last three months of 2007. We continued to focus on four categories of banking products and services: account management, cash utilisation, exceptions handling, and payments. Figure 1.2 shows the components of each category.

New Countries in 2008 WRBR

Europe Eurozone

Countries in 2007 WRBR Austria

6

Belgium

4

France

10

Germany

7

Ireland

5

Italy

6

Netherlands

6

Portugal

6

Spain

18

Croatia

7

Czech Republic

5

Denmark

Europe Non-eurozone

North America

Asia-Pacific

Singapore TOTAL countries/banks

Number of Banks

4 Norway

6

Romania

9

Poland

11

Slovakia

6

Sweden

6

Switzerland

6

UK

5

Canada

6

US

9

Australia

5

China

9

India

9

Japan

20 3 26/194

pricing index

To compare prices from the consumer’s point of view, a local expert defined a basket of products and services reflecting the typical consumer’s banking behaviour in each country. We call these local profiles, which we divided into three frequency-ofuse categories: less active, active, and very active users (also shown in Figure 1.2). The price index built on these local profiles measures what consumers in a particular country, at these frequency-of-use levels, pay annually for their day-to-day banking services.

To compare prices around the world, we also developed a global profile. It is not governed by local product usage, which obviously varies by country, but by a standard basket of products for all countries. While it is not as precise as the local profile, it is the only practical way we can effectively compare global banking prices. When comparing prices over more than one year, we consistently use prices based on profiles as updated for this latest edition.

Figure 1.2 Scope of Products and Services in the Global and Local Pricing Indexes

Two Profiles

Local Profile

Products’ frequencies of use are estimated for each country to reflect local consumption patterns

Three Usage Patterns

Less Active Users

Represent 20% of users with the lowest frequencies of use

Measures cost of basic banking needs for domestic customers

Active Users

Core Day-to-Day Banking Needs

Nineteen Products & Services

Account Management

Current account On-line banking Call centre

Cash Utilisation

Deposit at desk Deposit at ATM Withdrawal at desk Withdrawal at bank’s ATM Withdrawal at other banks’ ATM networks

Exceptions Handling

Debit card stop payment Cheque stop payment Document search Banker’s draft

Payments

Cheque Debit card Credit card Internal wire transfer External wire transfer Standing order (fixed amount transfer) Direct debit

Account for 60% of the population

Identical frequency of use for all countries Global Profile

Allows the comparison of price levels based on a single profile

Source: Capgemini analysis, 2008.

Very Active Users

Represent 20% of users with the highest frequencies of use


NEW COUNTRIES IN OUR 2008 REPORT

GENERAL PRICING ANALYSES

Denmark Danish banks have a long-standing tradition of partnering, which facilitated a large consolidation move that started in the 1990s and continues. Four banks now dominate Danish retail banking, and two of them, Danske Bank and Nordea Bank Denmark, control over 50% of the market.

Local Profile Local active users pay an average of €70 a year for their day-to-day banking needs. As Figure 1.3 illustrates, price levels varied from one region to another, ranging from a low of €52 in Asia-Pacific to €79 in North America. The average price less active users of bank products and services paid was €35, compared to the very active users’ much higher €122 (about 3.5 times more).

Deploying new technologies, notably for credit transfers, is an established industry strength in Denmark. Danish banks recently successfully developed packages with free standard products and services for Internet users, and as a result, Danish Internet prices are among the lowest in Europe eurozone. Its fee structure is similar to other Nordic countries—heavily dependent on payments (79%) and, less so, on cash utilisation (19%), with almost free account management. Pricing between Danish banks varies significantly, and cannot be explained by geographic fragmentation. This signals a market in which customers view relationship quality as important, and where packaged offerings make it difficult for customers to compare prices. Singapore The Singaporean retail banking market is very concentrated, with three banks—DBS Group, United Overseas Bank, and Overseas Chinese Banking Group—controlling 67% of the market. Transaction banking is still the prevailing business model, with fast-growing demand, but the large banks are trying to develop cross-selling into the burgeoning mass affluent market. Singaporean banks for many years have been leaders in using new technologies in retail banking, such as contactless payments and mobile banking. Singapore’s prices are comparable to Australia’s, but its fee structure is closer to those of China and Japan, with a very large share of fees derived from payments (83%) and very limited fees from account management (5%). The minor differences between bank prices in Singapore reflect a very competitive, transaction-oriented market.

Again, these are averages, and the situation varies by region. In Europe eurozone, for instance, the prices most banks charge the three groups do not vary widely—very active users pay only twice as much as less active users. In contrast, Asia-Pacific banks charge very active users as much as five times the price they charge less active users. Global Profile To develop a price benchmark of banks regardless of their clients’ behaviours, we computed prices based on a single global active user profile, as detailed in the Methodology section above. Measured on this global profile price index, Europe non-eurozone (118% of the world average) and North America (141%) remain the most expensive regions (see Figure 1.4).

pricing index

Figure 1.3 Average Local Profile Price for 2008 (€)

250

197

200

150

Very active user price Active user price Less active user price

136 122 104

101

100

79

74

75

70 52

50

49

45

35

31

22

0 Europe Eurozone

Europe Non-eurozone

North America

Asia-Pacific

Average


Figure 1.4 Global Profile Prices for 2008 Active Users (€)

150

140

117 99

100 83

57 50

0

Europe Eurozone


Europe Non-eurozone

North America

Asia-Pacific

Average

10


Price Analysis The average price for active users decreased 1% this year. Prices followed a similar evolution this year for local less active users (-0.1%) and for local very active users (-0.9%). To assess why banks have changed their prices for certain products, we have classified banking products into three categories according to their impact on customers: ß Sales influencers: Products whose prices primarily affect a consumer’s decision to buy banking services or change banks. Current accounts and credit/debit cards fall into this category, because theirs are the only prices consumers commit to pay up front when they open an account or buy a card. ß Behaviour influencers: Products whose prices inf luence a consumer’s behaviour, but fall outside the direct buying situation. We have split them according to their production cost for banks: – Less-costly products for banks: On-line banking, deposits and withdrawals at ATMs, direct debits, transfers, and standing orders – More-costly products for banks: Call centres, deposits and withdrawals at desk, withdrawals at other banks’ ATM networks, cheques ß Unseen services: Services for which consumers have to pay without having had any choice or decision, such as exceptions handling.

Based on this product categorisation, we analysed banks’ pricing policies from 2006 to 2008 to understand their actions and underlying objectives (see Figure 1.5). Banks built loyalty and won new clients by reducing prices on sales influencer products, which they cut by 0.8% a year. Banks also reached for this objective in several markets by creating packaged offerings. Many banks reduced their cost of operations by influencing clients’ behaviour, using the prices of behaviour influencer products to move their customers towards less expensive channels or payment means and away from more expensive products and services. Banks cut the average price of the less-costly behaviour influencer products by 0.2% a year to encourage their adoption. At the same time, they increased the price of the more costly influencers by 0.9% a year to discourage customers from using them. They might also have enhanced their earnings by raising prices on unseen service products, yet most banks let these prices stand, at least partly held in check by consumer associations or regulators.

pricing index

Products/Category

Average yearly change from 2006 to 2008

Sales influencers Current account

-0.8% 0%

Debit card

-1.3%

Credit card

-1.0%

Behaviour influencers, less costly

-0.2%

Call centre

-2.3%

On-line banking

-0.6%

Cash deposit at ATM Withdrawal at bank’s ATM

0.0% -0.5%

Direct debit

0.3%

External transfer

1.1%

Internal transfer

0.9%

Standing order

-0.3%

Behaviour influencers, more costly Cash deposit at desk

0.9% -0.4%

Withdrawal at desk

0.2%

Cheque

1.9%

Withdrawal at other banks’ ATM networks

2.0%

Unseen services (exceptions handling)

0.0%

Banker’s draft

0.4%

Cheque stop

1.2%

Debit card stop Document search All products Source: Capgemini analysis, 2008.

-1.6% 0.1% -0.1%

11

Figure 1.5 Product and Service Variations, 2006–2008 (%)

12


Cost Based on GDP/Capita Charges for core banking services consumed an average of 0.55% of GDP per capita across the 26 countries we studied. As illustrated in Figure 1.6, bank pricing as a proportion of per capita GDP is higher in less-developed countries. The proportion of GDP per capita allocated to banking services declines as an economy matures, at least partly because consumers in a mature economy begin to regard these core banking services as a commodity.

Figure 1.6 Percentage Cost of Banking, by GDP per Capita

4.5%

Percentage of a country’s GDP per capita paid for core banking services (%)

4.0% L Country 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 0

10,000

20,000

30,000 GDP per capita (€)


40,000

50,000

60,000

pricing index

REGIONAL PRICING ANALYSES

In contrast to other banking activities, such as asset management or investment banking, retail banking is essentially a local business. National retail banking markets for the most part are not affected by other national markets, although economic integration at the regional level (European Community, NAFTA) is beginning to have an impact. Based on what we have learned from past editions, we know that the regional approach will generate the most accurate results.

As illustrated in Figure 1.7, overall prices remained essentially stable across Europe (up only 0.8%), but they soared in North America (up 5.7%) and fell precipitously in Asia-Pacific (down 11.1%). Each region or even country is shaped by its history. We have used the data collected for previous editions to put this year’s changes in perspective, as the regional analyses below indicate.

Figure 1.7 Evolution of Local Profile Prices, 2007–2008 (%)

8% 5.7%

6% 4% 2% 0.8%

0.8%

0% -1.0%

-2% -4% -6% -8% -10% -11.1%

-12% Europe Eurozone Source: Capgemini analysis, 2008.

Europe Non-eurozone

13

North America

Asia-Pacific

Average

14


North America The structure of North American pricing evolved slowly over the years, characterised by free account management since 2005, which was balanced by the importance of two other fee categories: payments (as much as 79% in the US, and still growing) and cash utilisation (48% in Canada, higher than in any other country) (see Figure 1.8).

North America registered the biggest price increase. North American prices went up by 5.7% (€4) for local active users over last year. This price increase was general across the whole continent, and reflects the growing market power large banks have gained by growing, mostly through consolidation. North American banks are currently trying to compensate for their past low pricing strategies now that their earnings ratios are threatened by the sub-prime crisis.

Figure 1.8 Sources of Fees for Core Banking Services in North America (%)

100% 90% 80% 70%

49% 57%

60%

63%

64% 79%

60% 50% 40%

3% 6%

7%

7%

30% 20%

48%

31% 33%

10% 0%

7%

29% 0%

6% 2005

2006

29% 0%

2007

Edition of World Retail Banking Report

10% 0%

2008

10%

USA

Canada

Country (2008) N N N N


0%

1%

Payments Exceptions Handling Cash Utilisation Account Management

15

pricing index

The main price increases over the year were in payments and cash utilisation (see Figure 1.9). In payments, raising external and internal transfer prices rather than prices for cards or cheques reflects the banks’ competitive intent to keep prices low on products that are most important in customers’ minds when choosing their banks, rather than a

policy to influence customer behaviour towards more cost-efficient means of payment. In the cash utilisation category, withdrawals at other banks’ ATM networks accounted for most of the increase, because raising this price was unlikely to impair a bank’s competitive edge, and consumers might even blame a bank’s competitors.

Figure 1.9 Product and Service Price Variations vs. Last Year for Local Active Users in North America (€)

2.7

3 1.4 1 0.1

0.0 -1

-3

Account Management

Cash Utilisation

Exceptions Handling

Payments

2.5 2.0

2.0 1.5 1.1

1.0

1.0 0.5

0.2

0.2

0.1 0.0

-0.2

-0.3

-0.5 Withdrawals at bank's ATM

Withdrawals at desk

Cash Utilisation Source: Capgemini analysis, 2008.

Withdrawals at other banks' ATM networks

Cheque (price per cheque)

Direct debit

External wire transfer

Payments

Internal wire transfer

Standing order (fixed amount transfer)

16


Asia-Pacific The Asia-Pacific region has had a more consistent pricing structure across the four product and service categories (see Figure 1.10). Its overall structure results from the combination of two sets of countries: China, Japan, and Singapore, which follow the US pattern of free account management and heavy payments fees, in contrast to Australia and India, where fees derived from exceptions handling greatly overshadow those from payments, much like in the UK. Account management fees, which have fallen from 22% to 15% since our 2005 report, may be on a downward trend.

Figure 1.10 Sources of Fees for Core Banking Services in Asia-Pacific (%)

100% 10% 90% 80%

43%

44%

49%

47%

70%

44% 51%

60%

84%

92%

83%

50% 24%

24%

40% 30%

26% 43%

11% 11%

16%

20% 10%

23%

22%

13%

1%

13% 28%

16%

16%

15%

0% 14%

1%

13%

0%

0% 2005

2006

2007

2008


Australia

China

India

0%

Japan



8%


10%

2%

5%

Singapore

pricing index

Asia-Pacific’s price declined the most. The local active user price in Asia-Pacific fell by 11.1% (€5.5). This decrease resulted mainly from price cuts in payments (reversing a previous trend) and account management (see Figure 1.11). Both these changes reflect specific national market situations.

First, the decrease in account management prices can be traced to the Australian national market, where two large banks launched flat-fee accounts in a fierce competitive bid to acquire new clients, drawing down the average fee charged for the region’s current account. Second, cuts in payments fees (external wire transfers and credit cards) occurred primarily in India, where state-owned banks were attempting to align their tariffs with those of private banks.

Figure 1.11 Product and Service Price Variations vs. Last Year for Local Active Users in Asia-Pacific (€)

3

1 -1.6

-0.5

-0.4

-3.0

Account Management

Cash Utilisation

Exceptions Handling

Payments

-1

-3

1.5 0.9

1.0 0.5

0.4

0.5

0.7

0.5

0.0 -0.2

-0.5 -1.0

-0.3

-1.1

-1.1

-1.2

-1.6

-2.0

Account Management

Cash Utilisation


Exceptions Handling

Payments

Standing order (fixed amount transfer)


Direct debit

Credit card


Document search (desk)

Debit card stop payment

Cheque stop payment

Banker's draft (cashier's check)

Withdrawals at other banks' ATM networks

Withdrawals at bank's ATM

Current account

-2.5

-2.0 External wire transfer

-1.5

-0.9

17

18


Europe Eurozone The Europe eurozone fee structure is not homogeneous, although a slow price convergence trend is evident as Germany, Italy, and the Netherlands progressively reduce their emphasis on account management fees (see Figure 1.12). Cash utilisation fees have increased steadily over the past three years, a clear signal that euro unification has not significantly reduced the cost of using cash. It is not surprising that, given SEPA, the cost of using cash is a major item on the agendas of both the European Commission and the European Central Bank.

Figure 1.12 Sources of Fees for Core Banking in Europe Eurozone (%)

100% 90%

25%

80% 52%

58%

55%

54%

49%

78%

8%

9%

8%

37%

31%

31%

31%

34%

10%

8% 24% 1%

6% 4%

59%

1%

57% 42%

27%

22%

14% 0%

Portugal

Belgium

Austria

2008

2007

2006

2005




19% 2%

6%

4%

0%

29%

Ireland

6%

Italy

6%

30% 20%

13%

Spain

5% 5%

0%

9%

Netherlands

40%

71%

1%

5% 5% 6%

Germany

50%

11%

82%

60%

45%

5%

63%

France

70%

34% 43%


19

pricing index

Figure 1.13 Product and Service Price Variations vs. Last Year for the Local Active User in Europe Eurozone (€)

3

1

0.5

0.2

0.0 -0.1 -1

-3

Account Management

Cash Utilisation

Exceptions Handling

Payments

1.4 1.1

1.2 1.0 0.8 0.6 0.4

0.4

0.2 0.0 -0.1

-0.2 -0.4 -0.5

-0.6

-0.6

Account Management


Payments




On-line banking

-0.8 Current account

In Europe eurozone, prices remained relatively stable, with only a 0.8% (€0.6) rise. The changes in Europe eurozone were much smaller than those outside Europe. They were mainly related to payments (see Figure 1.13). Banks raised the price of internal wire transfers at desk to compensate for the development of Internet origination (generally free), while the price of external wire transfers decreased under the influence of SEPA. Account management prices remained essentially stable, because a price increase in current accounts was offset by a cut in the price of on-line banking.

20


The Single Euro Payment Area (SEPA) will lead to lower prices. We have continued last year’s effort to track SEPA’s impact on prices. The expected result is that a standardised payments structure across the eurozone will lead to tougher competition and lower prices. To check this hypothesis, we created the “pan-European payments means”, which we defined as the basket of products that will progressively be governed by SEPA’s pan-European standards and regulations. These include internal and external wire transfers, direct debits, credit and debit cards, and their underlying current accounts. This year these products accounted for 64% of the fees paid by local active users in Europe eurozone.

The price of this basket of products has stopped decreasing in Europe eurozone, and stabilised at €48. The result would be much better except for turmoil in the Irish market, without which the price would have fallen by 6.3%—from €41 to €38 (see Figure 1.14). As a comparison, outside Europe eurozone the price of this same basket of products has dropped by only €1, from €34 to €33 (a 3% drop). SEPA, therefore, is probably still drawing prices down in Europe eurozone.

Figure 1.14 Price of Pan-European Payment Means for the Local Active Profile, 2008 (€)

140 130.0

120 100 Average Eurozone €48, similar to 2007

80

73.7 Average Rest of the World €33 vs. €34 in 2007

63.7

60

56.7

57.1 56.8

50.8 37.3

40

33.0

50.8 39.3 33.4 32.4 32.0 31.9

30.6 19.3

20

26.2 26.2 24.3 18.1 16.5

14.8

12.2

8.1

0 A

B

C

D

E

F

G

Europe Eurozone Source: Capgemini analysis, 2008.

H

I

J

K

L

M

N

O

P

Q

R

S

T

Rest of the World

U

V

W

X

Y

3.5

Z

21

pricing index

Europe Non-eurozone The fee structure in Europe non-eurozone falls between North American and Europe eurozone patterns (see Figure 1.15). This results mainly from the combination of Nordic countries, which feature US‑style fees heavily dependent on payments, along with Eastern Europe countries, where banks charge relatively high prices for account management and cash utilisation. The UK, however, does not fit in either of these categories, but instead features an original pattern that relies on exceptions handling.

Figure 1.15 Sources of Fees for Core Banking Services in Europe Non-eurozone (%)

100% 12% 1%

90% 33%

59%

56%

55%

55%

4%

60%

41% 79%

75%

2%

9% 14%

9%

9%

9%

12%

16%

16%

21% 15%

23%

19%

20%

2%

1%

20% 18%

99%

32%

1%

30%

10%

75%

27%

50% 40%

43% 1%

58%

26%

32%

40%

11% 4%

46% 1%

32%

19% 2%

10%

0%22% 0%

1%

0% 5%



Switzerland

Sweden

Slovakia

Romania

Poland

Norway

Denmark

Czech Republic

Croatia

2008

2007

2006

2005

0%


52%

UK

70%

32%

44%

80%


22


In Europe non-eurozone, prices increased by 0.8% (€0.6) for local active users. In payments, banks increased credit card fees, but this was offset by cuts in the prices of external and internal wire transfers (see Figure 1.16). While call centre fees decreased, prices of the two other account management products—credit account and on-line banking—were raised across Europe non-eurozone.

Figure 1.16 Product and Service Price Variations vs. Last Year for Local Active Users in Europe Non-eurozone (€)

3

1

0.5

0.4 -0.2

-0.1

Cash Utilisation

Exceptions Handling

-1

-3

Account Management

Payments

1.0 0.8

0.8 0.6 0.4

0.4

0.4

0.2 0.0 -0.2 -0.4 -0.6

-0.2

-0.2

-0.2



-0.3

Call centre

Current account Account Management


On-line banking

Withdrawals at desk Cash Utilisation

Credit card

Payments

23

pricing index

Retail banking is still mainly a national business, and we examined price discrepancy first at the country level (see Figure 1.17). Large discrepancies are usually associated with fast-changing markets, such as Spain and Ireland in Europe eurozone; Denmark, Romania, and Slovakia in Europe noneurozone; or China and India in Asia-Pacific. For the countries we studied both last year and this year, the average national price discrepancy decreased from 27% to 25%.

PRICE DISCREPANCY IS DECREASING

An important feature of banking markets lies in the differences between national banks’ prices. Prices are closer together in more mature markets, because consumers consider banking services to be commodities, and tough competition prevails on standardised products.

Figure 1.17 National Price Discrepancy for Local Active Users (%)

160%

154%

140% 120% 100% 80% 68%

60%

51%

50%

46% 47%

40%

37%

7%

20%

17%

23% 23%

23%

21%

16%

12%

12%

10%

Europe Eurozone


Europe Non-eurozone

North America

Japan

India

China

Australia

Canada

UK

USA

Switzerland

Sweden

Slovakia

Romania

Poland

Norway

Denmark

Czech Republic

Croatia

Spain

Portugal

Netherlands

4%

Ireland

France

Belgium

0% Austria

12%

27%

Asia-Pacific

Singapore

17% 18%

Italy

9%

12%

Germany

20%

27%

24


At the regional level, the general trend was also towards reducing discrepancies, although quicker than within national boundaries (see Figure 1.18). It was especially fast in North America, where price differentials were cut almost in half in two years. This result is consistent with our earlier interpretation of price increases led by fast-growing retail banks.

The evolution in Asia-Pacific has been very different. It reflects Australian prices (the highest of the region) moving downward, and Japanese prices (the lowest) going up. In the European regions, the trend towards reduced price discrepancy has slowed in Europe non-eurozone, and even stopped in Europe eurozone, despite SEPA’s intended harmonising effect. Nonetheless, price discrepancy in Europe eurozone remains the smallest today.

Figure 1.18 Regional Price Discrepancy for the Local Active User, 2005–2008 (%)

100% 90% 83.5%

80%

86.6%

84.2% 75.5%

70% 60%

57.1%

50% 40% 30%

46.2% 39.1% 34.1% 30.4%32.0%

44.7% 39.5% 37.6%

59.0%

41.7% 33.8%

World Retail Banking Report Edition:

20%

N 2005 N 2006 N 2007 N 2008

10% 0% Europe Eurozone Source: Capgemini analysis, 2008.

Europe Non-eurozone

North America

Asia-Pacific

pricing index

25

Conclusion

On a global scale, the price for core banking services, based on the local active user profile, declined by 1% from last year, averaging €70 in our 2008 study. Our results indicate that price evolution at the product level can effectively be categorised according to the way customers perceive them. Prices of sales influencers (current accounts, cards) decreased fastest (0.8% per year), reflecting the banks’ desire to remain as competitive as possible with the product prices customers can see clearly and rely on to make their “buy” and “leave-or-stay” decisions. The behaviour influencers (channels and payment means), which banks can use to attract customers towards or repel customers from certain products or services, were clearly being used for that purpose based on the pricing data. Banks cut the prices of those they found to be less costly by 0.2% per year, and raised prices on the more costly ones by 0.9% per year. Prices for unseen services (such as exceptions handling), which customers incur without choice or intent, remained flat. Although they have often been used in the past as an easy way to raise revenue without impairing sales, not using them now probably reflects a reluctance to further provoke concerned regulators and consumer associations. A geographic analysis revealed radical and persistent discrepancies in banking fee structures. Important price variations between countries and world regions are hidden behind a quasi-stability at the global level. This is particularly true for Asia-Pacific and North America, the first of which experienced an 11.1% price decrease, while the second saw a 5.7% price increase. European prices, meanwhile, remained stable. Although retail banking is still essentially a local business, there are a few signs of internationalisation and an increase in competition at the regional level. Under the influence of SEPA, prices of pan-European payment means decreased faster in Europe eurozone than in the rest of the world (excluding Ireland). Price discrepancies between banks decreased significantly this year, at both the country and regional levels. This trend was especially fast in North America, but the price discrepancy in Europe eurozone is still the smallest.

26




27

Key Findings

ß The world retail banking market, based on net income, was €1,280 billion in 2006, and forecasts indicate it will rise to €1,900 billion by 2017, with half of the new income coming from high-growth markets.

ß Although the high-income portion of the world retail banking market will drop from 75% in 2006 to 65% in 2017, it will remain very important to banks.

ß Over the past five years, most of the world’s leading banks have grown their domestic retail banking revenues faster than their costs, significantly improving their cost/income ratios.

ß Four pillars have supported leading banks’ efforts to achieve profitable organic growth in their domestic markets: combining fast time to market, innovation, and local client intimacy; full multi-channel integration and optimisation; increasing sales productivity through dynamic branch management; and leveraging a multi-brand portfolio to create attractive value propositions for each market segment.

ß A large proportion of the 52 top banks’ executives in 15 countries told us they have used these four pillars, and expressed their continuing confidence in them.

ß Most assumptions on which past retail banking growth strategies were based are challenged by today’s structural changes in the market, including tougher regulations, more flexible technology, more demanding clients, and new competitors.

ß Recognising that structural changes will increase competition and draw prices down, we simulated this effect in eight western European countries; the simulations indicated that banks would lose 36% of their projected net income (and lose more than 50% in certain markets).

ß Banks that have already built strong client relationships, and captured from their clients a good share of wallet, need to renew their distribution strategies and develop business organically in today’s saturated and slowly growing domestic markets.

ß Successful banks can use three distribution strategies to grow beyond the traditional retail banking business model in high-income markets: “Better sell”, to better fit diverse clients’ needs; “Larger offer”, extending the offering to non-financial products and services; and “Indirect business”, selling through other distributors.

ß The 52 interviewed bankers selected three models as the most likely to happen: Trust Operator, Discount Bank, and General Broker. Many banks even admit to having their own projects using the first two models.

ß Banker interviewees identified Discount Bank, General Broker, and Open Source Bank as potentially the most disruptive models in the retail banking business, because these models could cause their two worst fears to come true—a price war and competition for client relationships.

ß The best performers will combine several of these distribution models—and perhaps still others—to succeed in the future retail banking market.

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Retail banking is a major activity for most large banks, helping them grow profitably and maintaining their stock value. Succeeding in the past has never been easy, but severe challenges lie ahead. Our teams in the 15 countries we studied for this year’s spotlight have interviewed 52 banking executives to understand how they intend to succeed in the future. Using these observations, combined with the views of Capgemini experts in the field, this year’s spotlight outlines some of the best paths banks can take to remain major retail marketplace players in the years ahead.

THE IMPORTANCE OF DOMESTIC RETAIL OPERATIONS

The global retail banking market is huge, with 2006 net income of €1,280 billion, and it is expected to reach €1,900 billion by 2017 (see Figure 2.1). The potential increase of €620 billion will be generated in nearly equal amounts in high-income and other highgrowth markets. Despite a slower growth rate, we expect retail banking to remain a major force in highincome economies over the next ten years, falling only slightly from its current 75% of global net revenues to 65% in 2017.

Figure 2.1 Retail Banking Revenues in 2006 and 2017F (€bn)

Y2006: €1,280 billion

Y2017F: €1,900 billion

580

31%

33% 2% 10% 1%

28%

460

8%

25%

433 High-income Markets €900bn = 75%a

350

High-income Markets €1,200bn = 65%a

Revenue 2006 (€bn) N Forecast Revenue 2017 (€bn)

160

145

125 95 30

North America

Western Europe

Japan

145 110

40

Australia

63 35

Rest of America

90

85

Rest of Europe

China

25

India

35

50

65

Rest of ME and Asia-Pacific Africa

Source: Capgemini analysis, 2008; World Bank statistics; UNDP. Notes: Revenue = net interest income + net fees and commission income + other income; 2017 forecast calculated based on each country’s GDP growth forecast; fees and interest rates based on Capgemini price index research; ME is Middle East; Rest of America is all America excluding the US and Canada. a High-income markets definition by United Nations Human Development Research; here they are North America, Western Europe, Japan, and Australia.


The top worldwide banks’ retail banking operations are primarily located in high-income markets, and these banks have but little potential for further external expansion. Moreover, except for six banks— BNP Paribas, ABN AMRO, BBVA, Santander, HSBC, and Citigroup—the proportion of domestic net revenues for most banks is greater than 50% (see Figure 2.2). Their market development has up to now been achieved mainly in their domestic markets.

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Because a few large banks hold dominant positions in high-income markets, regulators now tend to discourage further mergers and acquisitions. They want to ensure fair competition and avoid excessive concentrations of risk. Domestic growth through acquisition, therefore, is no longer a viable option in most high-income markets. Alternatives are also limited, and in any case promise only moderate returns. A bank’s organic growth in its domestic market is, therefore, likely to hold the key to a bank’s success over the next ten years. This year’s spotlight is trained on that issue, and investigates the challenges banks face as they attempt to grow organically in saturated markets during a period of sluggish economic growth.

Figure 2.2 Domestic as a Percentage of Global Retail Banking Net Revenues, 2002–2006

100%

80%

60% 50% 40%

20%

Santander HSBC ABN AMRO BBVA BNP Paribas Citigroup Deutsche Bank SEB Société Générale KBC Fortis UniCredit Banca Barclays RBS ANZ Rabobank ING HBOS Swedbank Crédit Agricole NAB Westpac CBA Banca Intesa Sanpaolo Dexia La Caixa Handelsbanken Nordea Banques Populaires Caisse d'Epargne Crédit Mutuel–CIC Dresdner Bank Postbank Caja Madrid Bank of America Wachovia Wells Fargo MUFG Mizuho SMBC Resona

0%

Source: Capgemini analysis, 2008; World Bank statistics; UNDP. Notes: Revenues = net interest income + net fees and commission income + other income; 2017 forecast calculated based on each country’s GDP growth forecast; fees and interest rates based on Capgemini price index research.

30


By plotting the results (see Figure 2.3), we soon learned that most of the banks we chose appeared in the white part of the chart, above the line where income growth is equal to cost growth. We bore in mind, however, that retail banking is still strongly influenced by purely national market features, such as local and national laws, banking regulations, customers’ habits and behaviours, culture, and so on.

RETAIL BANKING’S BEST PERFORMERS’ STRATEGIES IN DOMESTIC MARKETS, 2002–2006

Benchmark and market analysis World-leading retail banks1 have performed well globally in their domestic markets, increasing revenues while controlling operating costs, and in this way, reduced their cost/income ratios. 2 To assess this performance, we isolated the domestic retail banking activity of 37 top worldwide banks using annual report data.

We focused our in-depth analysis on four banks (redcircled in Figure 2.3)—Crédit Mutuel–CIC (France), ING (Netherlands), La Caixa (Spain), and HBOS (UK). All are top global domestic retail performers and have outperformed their national competitors.

Figure 2.3 Domestic Retail Banking: Growth of Revenue vs. Cost for Selected Banks, 2002–2006 (%)

0, 2

Bank of America

Revenue Growth CAGR 02–06 a

0, 15

Wachovia

La Caixa KBC Sumitomo Mitsui

0, 1

HBOS

Banques Populaires ANZ RBS Caja Madrid ING Wells Fargo ABN BNPP AMRO BBVA Dexia Santander HVB SocGen Crédit Nordea Caisse d’Epargne Barclays Agricole Sanpaolo CBA

0, 05

Citigroup

Banca Intesa Mizuho Fortis

UniCredit

CM–CIC

Rabobank LCL

0 Deutsche Bank

Resona

Dresdner Bank

Westpac

-0, 05 -0, 15

-0, 1

-0, 05

0

0, 05

0, 1

0, 15

Operating Cost Growth CAGR 02–06 a Source: Capgemini analysis, 2008, and bank annual reports. Note: CIR before impairment losses. Circle sizes are proportionate to revenue in 2006. a CAGR calculation using 2007 currencies.

1

Retail business is defined as financial products and services (both core and non-core banking) distributed through physical and non-physical networks to private customers and SMEs.

Cost/income ratio before impairment losses.

2

Four pillars enable profitable growth While analysing the best performers we selected from the local market leaders, we identified the four pillars on which they based their profitable and sustainable growth: (1) combining fast time to market, innovation, and local client intimacy; (2) ensuring full multi-channel integration and optimisation; (3) increasing sales productivity through dynamic branch management; and (4) leveraging a multi-brand portfolio to create attractive value propositions for each market segment (see Figure 2.4). Closely examining the approaches our four top performers took, each focusing specifically on one of these pillars to greatest advantage, helped us understand the importance these strategies hold for banks seeking to improve their performance in domestic markets.


Each of the major banks we selected for study has strong business basics, including a reliable capacity to deliver a variety of products and services, combined with relationship management know-how. This includes trust development and risk assessment, which have always been essential to successful banking. Pillar 1: Combining fast time to market, innovation, and local client intimacy Crédit Mutuel–CIC has succeeded in France in being a first mover and market leader, even when customers perceived financial services as commodities. The bank became a market leader by offering innovative products ahead of the competition, combined with a strategy focused on maintaining a close working relationship with local clients. This strategy requires strong centralised systems and a back office that can

Figure 2.4 The Four Pillars of Sustainable Development

Profitable Growth Crédit Mutuel

Combining fast time to market, innovation, and local client intimacy

ING

Ensuring full multi-channel integration and optimisation


31

La Caixa

HBOS plc

Increasing sales productivity through dynamic branch management

Leveraging a multi-brand portfolio to create attractive value propositions for each market segment

32


accommodate accelerated time to market. It also calls for a concerted marketing effort that ensures the new products meet customer expectations and needs, and relays that message effectively to the marketplace.

Through its product innovation strategy, Crédit Mutuel–CIC has substantially increased the number of products its clients buy. While it was achieving 4.3% annual growth in net banking income (NBI) per client from 2002 to 2006, it decreased its annual cost per active customer by 5.5%. This outstanding economic success was combined with excellent client relationship management, highlighted by the top award in its sector, given by TNS-Sofres, for the “Best Client Experience”.

Crédit Mutuel–CIC has consistently shown its ability to be a prime mover in the French market, moving faster than others to introduce new banking products and services. Using the regional power of its two brands, it has maximised the effectiveness of a flexible, common platform, shared back offices, and aggressive marketing operations, supported by wellmanaged local branches.

Crédit Mutuel–CIC offers a wide range of products designed to meet customers’ needs throughout their lives, including those in savings, automotive, health, real estate, and pensions, among others, many of which feature new technologies (see Figure 2.5). The bank has effectively used the motto, “Proximity, listening, and innovation” (“Proximité, écoute et innovation”), to sustain its momentum.

“Payez Mobile” (Mobile Payment)

Carte Mastercard Plan 4 (Credit Card)

Acti-Trésorerie (Wealth Management)

Carte Collector Exclusive TGV (Credit Card)

Carte 3F (Credit Card)

Facil’ AccèS (Multichannel)

Duo’s Cartes (Credit Cards)

Epargne Force 3 (Savings)

Lancement Marque VIP (Young Customer Services)

Domi-Confidens (Real Estate Services)

Pilotage Professions Libérales (Services for Professionals)

Partenariat NRJ Mobile (Phone)

Immosouple 10 (Real Estate Services)

Offre Clic-Clac (Credits)

Créd’ Opportunité (Credits)

Extension fonctionnalités internet (Multichannel)

Assurance Tout Protection Accidents (Insurance P&C)

Carte Avance (Credit Card)

Mandat Excelsius (Wealth Management)

Carte Cadeau CIC (Credit Card)

CréaCIC (Financing)

Livret Fidelité Livret Sup (Savings)

Crédit Vie à Deux (Credits)

Epargne Evolutive (Savings)

Epargne Quattro (Savings)

Figure 2.5 New Product Introductions at Crédit Mutuel–CIC, 2006–2007

JAN-06 FEB-06 APR-06 JUL-06 JUL-06 JUL-06 OCT-06 DEC-06 JAN-07 MAR-07 APR-07 SEP-07 DEC-07 JAN-06 MAR-06 MAY-06 JUL-06 JUL-06 SEP-06 NOV-06 JAN-07 FEB-07 MAR-07 JUN-07 NOV-07


Since 2000, ING Netherlands has used a multi‑channel strategy with a strong Internet emphasis. It improved results, increasing its NBI by 25% from 2002 to 2006. The bank managed to cut costs over the same period, reducing its cost/income ratio, excluding risk costs, from 83% to 68%. ING’s Internet banking grew at an annual rate of 62% from 2004 to 2006, much faster than the Dutch banking market as a whole, which posted a 22% CAGR (see Figure 2.6). In three years, ING raised its Internet account rate from 8% to 42%. As it boosted Internet use, ING also had to create the infrastructure required to deal with the explosion of its utilisation. It made all products and services available through the Internet via information platforms and a portfolio of capabilities, using fine segmentation and central processes. ING cut the number of branches severely, reducing customer usage in the last fifteen years. The remaining branches are used for recruiting, selling complex products, and promoting the brand. ING has developed an integrated sales force with trained specialists, who move freely between the remaining branches to meet specific customer needs when face‑to-face advice is necessary. As a last step in its multi-channel strategy, ING has announced in 2007 the merger of Postbank with its branch operations in the Netherlands, in order to combine their data bases and branch networks.

Figure 2.6 ING’s Internet Banking Strategy

300

250 Indexed number of Internet payment accounts (base = 2004)

Pillar 2: Ensuring full multi-channel integration and optimisation ING Netherlands has used the Internet and its seamless integration with other channels to transform its subsidiary Postbank into a multi-channel bank. It has taken its place as a major player in the Netherlands retail banking market without damage to the business or its profitability.


ING CAGR = 62%

200

150

Dutch Market CAGR = 22%

100

50

0

2004

2005

Source: CBS (Dutch market) and company data (Postbank).

2006

33

34


Pillar 3: Increasing sales productivity through dynamic branch management La Caixa has successfully answered the productivity challenge in Spain. Its high-quality commercial management in the branches is a key differentiator, driving up sales productivity and enabling the bank to develop its branch network effectiveness without increasing headcount. La Caixa has offered customers a wide range of fine-tuned, customised products and service offerings for the past five years, making the products readily available to its customers by transforming its branches into a denser network of small points of sale, without increasing headcount. In addition, it developed a rich on-line banking service. Between 2004 and 2006, La Caixa increased its branch productivity ratio (NBI per branch) by 32.7%, and raised its employee productivity ratio (NBI per employee) by 39.9% (see Figure 2.7), reaching this goal while holding the employee/ branch ratio at 4.5. During this period, the bank added 477,000 new clients, reaching a total of 10.1 million by the end of 2006. Its NBI growth rate of 12.3% greatly exceeded its operating costs, which rose by only 3.3% over the previous five years.

By increasing its number of branches by 212 in 2006, to 5,186 at the beginning of 2007, La Caixa has implemented a physical network hyper-segmentation strategy. It has launched very innovative products aimed directly at new residents, customers abroad, students, and others. Along with its branches, it has initiated an aggressive multi-channel strategy, offering a wide range of products and services—not only financial ones—through its branches, the Internet, ATMs, land lines, and mobile phone access points. In a startling example for the banking world, La Caixa sells half of the entertainment tickets sold in Barcelona (theatre, film, music, etc.) through its distribution network.


Figure 2.7 La Caixa Productivity Increases, 2004–2006 (€000)

Productivity Ratios per Branch 80,000

600 65,033

60,000

56,071 48,997

40,000

429 400

352

286

Recurring net financial operating income per branch N Business volume per branch

200 20,000

0

2004

2005

2006

0

Productivity Ratios per Employee 14,804

15,000 12,393 10,620 10,000

100

97.7

77.8

61.9

50

5,000

0

2004


2005

2006

0

Recurring net financial operating income per employee N Business volume per employee

35

36


Pillar 4: Leveraging a multi-brand portfolio to create attractive value propositions for each market segment HBOS is a prime example of how a bank can use a well-targeted, multi-brand portfolio to meet the challenge of developing and diversifying a customer base without alienating current clients. HBOS has succeeded in bringing to market a portfolio of differentiated value propositions that attract new customers in several market segments. The HBOS brand portfolio strategy has captured all kinds of consumers while limiting the side-effects on the customers it has already attracted into its fold. It offers low-cost products/services under the Halifax brand, without putting at risk the goodwill of the existing Bank of Scotland or BM clients, who are accustomed to a higher standard of products. This

strategy, in the five years 2002-2006, helped HBOS increase its customer base by 20%; raise NBI per customer by 24.5%; add 180% to its on-line customer base (increasing it to a fifth of its overall customers); and achieve a C/I ratio of 55%, the best among retail banking market leaders. A shared IT architecture has helped HBOS develop and manage its portfolio of retail banking brands, reflecting different client value propositions, to grow balances and support margins (see Figure 2.8). Halifax, as noted earlier, is the low-cost brand, offering modestly priced products on the high street; Bank of Scotland guarantees good rates from a reliable direct provider; BM is a best-buy, direct price fighter; and Intelligent Finance appeals to more financially sophisticated clients.

Figure 2.8 HBOS Brand Portfolio Strategy

Strategy Margin

Balances

Channel Relationship

Branch

Phone/Post

Affinity

Consistently well-priced on the high street

Halifax

Bank of Scotland

Internet

Marketing Positioning

Hx

Guaranteed good rates from a reliable direct provider

BM

Best-buy direct price fighter

Intelligent Finance

Offsetting for the financially sophisticated

Source: Presentation at HBOS Retail Investors' Seminar, 2003.

From cases to consensus The four pillars of profitable growth highlighted in the cases also reflect our core findings from our interviews with the 52 world retail banking market leaders. Their answers to our question, “What were the past levers you used to grow?” were: offering development, distribution optimisation, quality of management, and shared systems/back offices (see Figure 2.9), matching our four pillars. They also mentioned technology and staff resources, but they made clear in the interviews that these are really enablers of our four pillars.


We also asked, “What are the levers you intend to use to grow in the future?” The unanimous response asserted their trust in continuing to rely mostly on the same four pillars to grow in the future. Traditional levers will certainly remain essential, especially for banks that have not yet generated the most benefit available from using them. The question remains, however: Will they be efficient enough in the future to secure sustainable growth?

Figure 2.9 Interviewed Retail Banking Executives’ Past and Future Growth Levers

30%

25% N Past N Future

20%

15%

10%

5%

0% Distribution Optimisation

Offering Innovation

Management System

37

Shared Production

Source: Capgemini World Retail Banking Report 2008 survey on growth levers. Note: The four highlighted levers correspond to the four pillars.

Customer Segmentation

Resources (IT & HR)

Pricing

38


CHANGING MARKETS

The 2007 crisis The banking market changes fast. Over the last ten years, many banks, such as KBC, Unicredit, RBS, and Société Générale, have focused on internationalisation, and some new entrants, such as PayPal, exploded on the financial market scene and quickly became intermediation giants. PayPal is revolutionising the payments systems industry, attracting significant, fast-growing financial flows. Other IT providers have become payments leaders in Europe. Non-banks, including retailers and insurance companies, meanwhile, are also distributing more and more banking products, and they constitute real competitive threats as they win market share.

The sub-prime turmoil of 2007, which led to a cash shortage in Europe and the US and froze inter-bank credit, has ushered in a new era in which banks will no longer be able to rely on real estate or capital market bubbles to fuel their growth. The low interest rate period seems to be finished, and with it the easy lending market. Banks will need to develop a growing and sustainable retail business to avoid being an acquisition target open to attack from larger banks or even non-banks. Middle East funds entering Citigroup’s or UBS’s equities, or Chinese banks entering the top 100 assets ranking, have taught banks a hard lesson. From now on, banks will be living by the mottoes, “There is no easy money” and “Get back to basics”.

Figure 2.10 Relative Evolution of Bank Index/Market Index, 2002–2007 (Points base 100)

180

160

140

120

100

80 EuroStoxx 50/bank Nasdaq 100/bank Nikkei 225/bank ASX 200/bank 60 Jun-02

Dec-02

Jun-03

Source: Capgemini analysis, 2008. Note: Base point, June 2002 ratings.

Dec-03

Jun-04

Dec-04

Jun-05

Dec-05

Jun-06

Dec-06

Jun-07

Dec-07

Successful banks will rely on stable and loyal private customers and do a better job of managing credit risk, while finding and adopting renewed ways to support continued growth in their domestic markets. Banking’s golden past, therefore, may be over. The US led the way, with the Nasdaq 100/bank index falling off precipitously in June 2006 (see Figure 2.10). The three other major indexes—EuroStoxx 50/bank (Europe), Nikkei 225/bank (Japan), and ASX 200/bank (Australia)—soon began to follow suit. The continuing US tailspin over the past six months clearly indicates the need for retail banks to sit up and take notice. The rise of risk and a shrinkage in liquidity are now limiting growth opportunities for banks in highincome markets. Some forward-looking banks will focus on retail banking as a stabiliser. To succeed, however, they will need to understand and respond effectively to structural changes resulting from legal and regulatory constraints, radical advances in technology, changing customer behaviour, and new competitive threats. Structural Changes More costs, more constraints from regulators Regulators will encourage competition by trying to level the playing field across geographies and opening the market to new entrants. Current examples include the Payment Services Directive (SEPA), consumer credit regulation, and the McGreevy Green Book. Others, such as MIFID, Basel II, Solvency II, and Sarbanes-Oxley, will aim directly at preventing risk. The sub-prime crisis, which has wreaked havoc in the marketplace, is very likely to spark new regulations in the near future. All these regulations will have direct impacts on retail banks that want to succeed in highincome domestic markets. Fewer advantages from legacy investments in technology Technology today enables customers to manage their own banking operations from a distance, which decreases the frequency of contact. It also makes it possible for new entrants to build new systems from scratch very quickly, often leap-frogging the technologies of existing players.


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New technologies derived from Internet standards, solutions, and practices have dramatically transformed banking information systems from necessary and clumsy infrastructures to enablers of new services and processes. For instance, new technologies that make it possible to separate distribution and production systems have fathered new business models that unbundle retail banking’s value chain and facilitate shared back offices and factories. New software packages built in an open architecture are getting easier to roll out, with a powerful effect on standardisation and industrialised processing. A changing customer: Less loyal, more demanding, in an increasingly disintermediated context In a rapidly changing and risky market, consumers have become more risk-averse. Due to the Internet’s readily available information, better-informed clients expect more clear information fast, and they want results quickly, even when seeking credit. And the increasing demand for sophisticated investment products requires more senior and skilled financial advisors. Consumers also expect to have several potential points of contact with their banks, available where and when they choose. Today’s retail bank must be ready to provide several non-branch access points, deal with fewer contacts with clients, and use customer relationship management and other tools to help them meet their customers’ varying needs across several channels. As they become better informed, some consumers are developing new buying behaviour patterns. In the past, bank clients could be expected to be “delegators”, eager to get advice before buying banking products they perceived as complex and risky. Many customers now bring a self-directed attitude to the bank, taking advantage of the Internet (plenty of information, easy comparisons, click-and-buy) to make their own purchase decisions, often with a strong focus on finding the best price. Many clients are bifocal: delegators in certain situations, self-directed in others. Such dual-focused customers create new problems for banks, because their needs from one case to another can be diametrically opposed.

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A new generation of competitors on the retail banking playing field In high-income markets, retail banking has developed a diversified offering portfolio that combines both asset and liability products, along with advisory and logistics services (see Figure 2.11). Each of these offerings will have to face challenges from specific competitors.

between products. Competitors like these can price in a way that undercuts a bank’s most profitable products, depriving banks of needed earnings. Distribution specialists (e.g. retailers, post offices) also pose a competitive danger. These competitors already have access to consumers through their existing point-of-sale networks, a website (emerchants or on-line brokers), or even a brand. The main differentiator they are likely to claim is independent advisor, as they will not be producing the products they sell or recommend. They will also challenge traditional bank branches with alternative channels, such as visiting advisors or fully automated comparison websites. The major threat retail banks must cope with is losing client relationships and opportunities to cross-sell additional products.

Product specialists in assets, liabilities, and logistics services are poised to strike. This latest generation of specialists leverages new technology to deliver fully automated services at low cost compared to existing banking systems and processes. They enjoy less expensive distribution channels than traditional bank branches, and can price aggressively. Retail banks are vulnerable to this kind of competition because their pricing policy often conceals cross-subsidising

Figure 2.11 New Generation of Competitors in Retail Banking

Advisory Services

MLP

Private Bankers

Independent Financial Advisors

Comparison Websites Bankrate.com

Asset Managers

Real Estate Specialists

Fidelity

AXA

Mutual Pension Funds Life Insurance

P2P (investor)

Saving Accounts

Zopa

Portfolio Management Insurance Companies

Credit Consolidation Mortgage Loans P&C Insurance Consumer Credit

Retail Banks

Current Accounts

AAA Financial Services

P2P (borrower) Zopa

Payments Investment Services

Low Cost & Direct Banks

Liability Products

Asset Products

Insurance Companies

Retailers Carrefour

Virgin Money

On-line Brokers

Payment Specialists PayPal

Cards Operators VISA

Logistics Ser vices Source: Capgemini analysis, 2008.

Core to non-core banking products and services

Consequences of structural changes All of these structural changes add up to a real sea change in the market, full of new competitors, more demanding customers, and regulators protecting consumers while lowering barriers to competition. To help understand the implications of these structural changes, we developed an economic simulation. It measures what could happen to retail banking’s net banking income over the next ten years if prices and interest margins fell due to competitive pressure. The simulation focuses on the European market, which—due to SEPA and other European Community regulations—is the most likely to face such an eventuality. Using eight of the main European

41


retail markets—Belgium, France, Germany, Italy, the Netherlands, the Nordics, Spain, and the UK—we based the simulation scenarios on a key assumption: prices and interest rate margins will equal the average of their two lowest prices in the eight studied markets. The results are startling. As shown in Figure 2.12, the simulation indicates that the aggregated net banking income across the eight countries would fall drastically, by 12% (due to the alignment of fees with the low average noted above) plus another 24% (due to interest margin alignment with the low average). The impacts would, of course, be different in each country due to discrepancies between their starting situations, but the overall picture is not bright.

Figure 2.12 Impacts of Severe Competition in Europe, 2006–2017F (€Million)—Price Harmonisation

90,000 -15% 80,000 -8% 70,000 60,000

-22%

-16%

-9%

50,000 -12% 40,000 +11% 30,000 20,000

-8%

10,000 0 Belgium

France

Germany

Italy

Netherlands

Nordic

Spain

UK N 2006 N Forecast 2017 N Impacted forecast

Source: Capgemini analysis, 2008. Note: All volumes of transactions producing fees and of stocks of loans, and deposits producing interest, are forecast to evolve proportionally to GDP growth.

42


Countries in the most risky position are Belgium, Germany, Italy, and Spain, where net banking income could drop more than 50%. In this simulation, the UK appears to be the sole winner, although the simulation assumes that banking services are equal across the eight markets. Major banks have the most to lose in these scenarios. They depend heavily on their high-income domestic markets, which generate the bulk of their retail banking revenues. Add in the shrinking number of new clients a new branch can acquire using the old value propositions, and the rising cost of selling an additional product to an existing client, and there is no doubt that banks wanting to prosper in the future will be seeking better approaches to growth.

FINDING A GROWTH PATH BEYOND THE UNIVERSAL RETAIL BANK

An effective future growth strategy for a bank depends on the characteristics of that bank’s market. The retail banking development paths in various markets have been determined to a great degree by the level of regulatory restrictions placed on universal banking. When unregulated, retail banks were free to grow by developing a trust relationship with the clients they acquired in their branches, selling them more and more products on top of their current account (path a in Figure 2.14).

Figure 2.13 Impacts of Severe Competition in Europe, 2006–2017F (€Million)—Interest Rates Harmonisation

90,000 -16% 80,000

+47%

-42% 70,000 -35% 60,000

-45%

50,000 -43% 40,000 -28% 30,000 20,000

-46%

10,000 0 Belgium

France

Germany

Italy

Netherlands

Nordic

Spain

UK N 2006 N Forecast 2017 N Impacted forecast

Source: Capgemini analysis, 2008. Note: Interest margins are estimated as average credit interest minus average deposit interest, with no provision for gaps between loan and deposit balances. All volumes of transactions producing fees and of stocks of loans, and deposits producing interest, are forecast to evolve proportionally to GDP growth.

At the other extreme, in more regulated markets, retail banks became financial product specialists who had to share the market with outside brokers, insurance companies, or investment specialists. Their growth path was consequently more driven by product innovation and economies of scale (path b in Figure 2.14).


43

As a result of their history along one of these paths, most retail banks are today running in their domestic market one of the two opposite business models listed below (some large groups are even consolidating entities of the two kinds): ß Branch-supported, relationship-oriented distribution of diversified financial services. ß Specialised supplier of one category of financial services combining direct and indirect sales.

Path a is structurally more rewarding in the long run for retail banks. Although banks taking path b have achieved high profit levels, gains have only been temporary, and have occurred in less-competitive situations. There is, however, no barrier between paths a and b. If banks are not able to meet and defeat broker competition, a market with universal banks typical of path a might evolve towards a disintermediated market typical of path b. Conversely, a market previously held on path b by regulatory constraints might evolve towards a universal banking market as legal constraints are loosened, provided the banks in such markets succeed in regaining a strong relationship with their clients.

Although some banks might still take the obvious and appealing growth path based on cross-selling the full scope of traditional financial products to their clients—provided regulators would allow it—we have no doubt that the future ultimately will require the invention and adoption of new distribution models.

Figure 2.14 Retail Banking Markets’ Development Paths

Revenue per client

Non-core banking products Credit and savings products

Customer acquisition, current accounts & basic financial transaction services

a

Pa

b

th

U of

e n iv

h of Pat

r sa

lB

a nk

in g

Scope of actual markets

Banking cialised Spe

Economies of scale Retail banking market maturity


44


Distribution Models to Grow beyond the Traditional Retail Banking Business Model By examining the newest and most original initiatives launched worldwide today, and by identifying their inherent features that have the potential for a large roll-out, we identified three distribution strategies to enable a bank to grow beyond the traditional retail banking business model in high-income markets (see Figure 2.15): ß “Better sell”: Better fit diverse clients’ needs (hyper‑segmentation) ß “Larger offer”: Expanding the offering to include non-financial products and services ß “Indirect business”: Sell through other distributors (B to B to C through e-merchants or retailers)

Each of these is discussed in more detail below. “Better sell” to better fit diverse clients’ needs Three distribution models, all of which aim at increasing a bank’s share of wallet by adapting to client diversity, have come to light as a result of our research.

Figure 2.15 New Distribution Strategies

Advisory Services COM

Discount Bank

Payments Investment Services

Open Source Bank

PE

SS NE SI BU

S

M

RS

CO

MP

ET I

TO

R


CO

Logistics Ser vices

TO

CO INDIRE M CT PE BU SIN ES S

Current Accounts

Mortgage Loans P&C Insurance Consumer Credit

IND IR EC

ELL RS TE T BE

Retail Banks

TI

Saving Accounts

Credit Consolidation

PE TITO R S

Life Insurance

Trust Operator

Liability Products

General Broker

Portfolio Management

COM

C O M PE TITO R S

Community Bank

Financial Advisor for Mass Affluent

Mutual Pension Funds

RS

FER OF ER RG LA

Asset Products

ITO

BETTER SELL

T

T

O IT

RS

PE T

Core to non-core banking products and services

Financial Advisor for Mass Affluent Customers A common sore point for retail banks is having a group of high-potential clients who have bought only a limited share of the bank’s product portfolio. The model shown in Figure 2.16 provides a direct answer to this issue, using for the mass affluent segment some of the techniques private bankers use with their high-net-worth customers. We focused on this topic in the World Retail Banking Report 2005 edition, and identified best practices for growing share of wallet in what we called the “untapped gold” segment. We concluded that a customer-needs-driven approach should avoid the existing hard-sell practices. This remains true today. HSBC Premier is a good illustration of this model. It offers tailored advisory services to its most profitable clients, thanks to the creation of an offering aimed specifically at high-value customers in its mass affluent segment. These clients benefit from dedicated specialist advisors and financial specialists providing preferential offers. Community Bank Communities are increasingly recognised by marketing specialists as essential in assessing buying behaviour. Concept stores and websites (such as Second Life on the Internet) all try to leverage community affiliations, and this model aims to achieve this objective in retail banking (see Figure 2.17). La Caixa for migrants and HSBC for travellers are good illustrations of this model. Another is USAA for the US military. USAA is a community-centred business model launched in Texas in 1922 by military officers to mutually insure their automobiles. It grew within the US, eventually extended its services to banking and investment products, and built its client base among military families. By the end of 2006, the association had 5.9 million members and 21,800 employees. Members held an average of five banking, investment, or insurance products. USAA is the only fully integrated financial services company at the national level in the United States. It has grown revenues by 12% a year since 2000, and its CAGR figures for 2000-2006 are impressive: membership up 45%, products up 63%, productivity up 69%, assets up 93%, and net worth up 90%. This is clearly a success story.


45

Figure 2.16 Financial Advisor for Mass Affluent Customer Model

ß Taking care of the customer’s financial life as a financial advisor Value proposition to customers

Value creation to banks

Issues to cover

ß Bringing to mass affluent clients some services usually restricted to private banking, e.g.: pension advice, fiscal optimisation, risk management, asset review ß Intensifying client’s relationship by upgrading the value of service ß Eventually collecting a greater volume of financial flows and assets ß Differentiation with private banking customers as well as with “non‑gold” mass affluent clients ß Hiring or reskilling advisors, keeping costs in line with expected added revenue


Figure 2.17 Community Bank Model

Value proposition to customers


ß Specialised service provider to a specific community (travellers, military, migrants) ß Closest to your personal affinity, recognised by “buzz” network

ß Niche positioning leveraged by delegated marketing promotion ß Main strength is the confidence relationship with the brand, and with a strong belonging feeling

ß Compatibility with the brand, e.g.: image, ethics, politics Issues to cover

ß Control of the customeracquisition process versus the inability to reject a community member


46


Figure 2.18 Discount Bank Model



Issues to cover

ß The most economic without minimising security or quality ß The lowest prices on the market ß Marginal revenues without additional fixed costs (provided existing systems and back offices may be shared) ß Acquisition or retention of selfdirected new customers who have little interest in advisory or proximity services ß Differentiate the market positioning under a new brand (not to deteriorate the relationship with current customers) ß Sharing production means to have a sustainable cost structure


Figure 2.19 Trust Operator Model


ß One-stop shopping for customers, including all kinds of personal or family services: domestic chores, bills management, employment research, real estate, mobile phones, journeys, sports and other tickets . . . ß Capturing additional business flow


ß Increasing cross-selling opportunities ß Optimising the return on assets (physical network)

Issues to cover

ß Securing multi-service competences, avoiding blurring the image of the bank ß Choosing quality partners or acquisition targets, fine-tuning the pricing policy


Discount Bank Many customers today are self-directed and view banking services as ordinary commodities, many of which they purchase on their own. If they do not buy the product themselves on the Internet, they at least compare prices there before buying the product. The discount bank model shown in Figure 2.18 aims at capturing these self-directed buyers with a profitable low-price offering. The HBOS multi-brand strategy, with its low-end brand Halifax, is a good example. So is Boursorama Banque, a subsidiary of Société Générale. Boursorama has developed a leading on-line broker position in Europe, comprising 232,000 accounts under management and nearly 4.2 million orders executed in 2006. Having bought a small network of branches in large French cities from La Caixa’s French subsidiary, Boursorama launched a single full-banking package for Internet users with the lowest price on the market. Boursorama’s Service Plus package includes a current account with accruals (1.5%, versus 0% for traditional banks), as well as free standard services for which traditional banks charge. These include, among others, payments means, insurance, Internet access, entry fee to mutual funds, credit cards, and premium cards. The only customer requirement is to spend a minimum amount each month. In 2006, Boursorama boasted an operating efficiency four times higher than traditional banks: 260 employees for 188,500 clients. “Larger offer”: Expanding the offering to include non-financial products and services The Trust Operator The larger offer model depends on a bank having a very high degree of client trust and satisfaction, which many typical universal banks enjoy today. The model shown in Figure 2.19 assumes the earned trust can be leveraged to extend the bank’s offering into other, non-financial services products offered to its clients. Many banks have run experimental trials of this model, including the sale of entertainment tickets on La Caixa’s ATMs. But Deutsche Bank’s Q110 concept is probably the most ambitious. It relies on trendy shops with all the sophistication of a concept

store, offering financial services alongside premium food products. It gives very detailed care to the client experience, even including fancy boxes for financial services packages. Deutsche Bank Q110 branches have generated 50% more account openings than the bank’s other branches. “Indirect business” (B to B to C) This model did not evolve from any traditional retail banking distribution model, but a growing number of retailers and websites have started extending their offering to include financial services products provided to them by retail banks. Retail banks could use this business line as a way to build economies of scale in their systems and back offices. Banks would have to agree up front to position themselves as pure producers who would not participate in the end-client relationships commanded by the distributors. Open Source Bank Business on the Internet has given rise to pure players who have developed unique know-how in making money in the virtual world. By providing them with products, retail banks could form a mutually beneficial partnership (see Figure 2.20). Zopa (UK), an Internet marketplace linking private lenders and borrowers, is an example. Another is PayPal (US), the famous payments services leader on the Internet. PayPal was created in 1998 and bought by eBay in 2002. It is the leader of on-line payment solutions, and offers services in seven currencies in 55 countries. To on-line buyers, it offers security and confidentiality inexpensively, plus free personto-person money transfer. To on-line sellers (emerchants), it offers a simple solution with a good service level, no debt-collection risks, and a positive effect on website image, which has been successfully competing with banks’ “distant selling contract”, at least for small or starting sites. PayPal’s efficient cost model features an automated system that guarantees a very low cost/income ratio (30%) compared to banks. Thanks to eBay and the “buzz” effect, it has limited client acquisition costs. A special team works full-time to minimise the fraud rate, which in 2006 stood at 0.29% (vs. 1.5% for cards on the Internet).


47

With 164 million users and 450,000 e-sellers in 2007, PayPal has not only achieved substantial success to date, but also has substantial development potential in banking license authorisation and diversification.

Figure 2.20 Open Source Bank Model


ß Easy access and time saving of highly automated operations through the Internet, complementing other on-line services

Value proposition to distributor

ß Best price and turn-key access to fully operational, professionally supported, legally and prudentially secure financial products


ß Additional business volume bringing economies of scale and potential opportunities for crossselling in partnership with the distributor

ß Risk management ß Avoiding the transfer of knowhow to the distributor Issues to cover

ß Choice between branded and white-labelled offering ß Low customer intimacy threatening loyalty and retention


48


Figure 2.21 General Broker Model


ß The best products on the market, and independent advisory services to help determine which best fits with client’s needs

Value proposition to distributor

ß Best price/quality ratio and turnkey access to fully operational, professionally supported, legally and prudentially secure financial products


ß Additional business volume bringing economies of scale and potential opportunities for crossselling in partnership with the distributor

ß Risk management, avoiding the transfer of know-how to the distributor Issues to cover

ß Choice between branded and white-labelled offerings ß Threatens customer loyalty and retention


General Broker Retailers have always been dangerous challengers to specialised product or service distributors to individuals, and they have developed unique retail marketing expertise (see Figure 2.21). Many of them have already extended their operations to some financial services, such as cards or consumer credit. They can, moreover, claim the advantage of independence, whether in the selected best-of-breed products they propose, in the advisory part of the sales process, or even in the comparison engines they post on the Internet. Once again, retail banks could profit from this business as financial product suppliers. Examples include the Independent Financial Advisers (US and UK), on-line comparison engines such as Meilleurtaux.com (France) and Bankrate.com (US), MLP (Germany), Seven Bank (Japan), and Virgin Money (UK). Virgin Money is a brand-centred group launched in 1995 (first known as Virgin Direct). It takes advantage of the Virgin brand strength and values: quality, innovation, “fun”, competitiveness, and customer rights. The bank uses a very nonconventional message to differentiate itself from competitors, create buzz, and appeal to young people. Through government lobbying, Virgin Money positions itself as a protector of consumers’ rights, and offers very innovative products, including special insurance for cancer and pets. Virgin Money has achieved recognised international success, with 2 million clients, 2,445 employees, and offices in Australia, South Africa, the UK, and the US. Virgin Money uses a retailer’s business model and offers a large product range, including credit cards, personal lending, insurance products, and pensions. It focuses on marketing, selling, and distribution more than on financial conception or processes, contracting through partnerships with MBNA Europe for credit cards and personal loans, and with Scottish Widows for cancer coverage. In the UK, Virgin Money has recently offered to buy Northern Rock (a savings and mortgage bank), which should remind retail banks that partners can always transform into competitors.

49


Bankers’ views on new distribution models

The bankers’ answers reflected the widespread opinion that three of these models are most likely to be taken up in the marketplace: Trust Operator, Discount Bank, and General Broker (see Figure 2.22). Many banks even admit to having their own projects based on the first two models, Trust Operator and Discount Bank, which many felt are natural paths banks are inclined to follow and are perceived as not too difficult to implement. Conversely, the General Broker model is the one banks are the least comfortable with, perceiving its claim at independence from production as more typical of a non-bank’s positioning. When we asked bank executives about the change each model would bring to the retail banking business, they selected the Discount Bank model as number one, combined with the General Broker and the Open Source Bank models, indicating that their worst concerns about future competition were focused on a price war and a struggle for clients’ trust and relationship.

Figure 2.22 Executive Views on the New Models

Most frequently selected distribution models that are most likely to appear before 2010

Most frequently selected distribution models that would change the retail banking industry

Trust Operator

Discount Bank Discount Bank

General Broker

3

Open Source General Broker

1 2

Source: Capgemini World Retail Banking Report 2008 survey on growth levers.

3

1 2

50


Conclusion

In a very risky and changing market, banks need stabilisers to be sure they can continue to meet their performance targets. Retail banking will remain a major stabiliser, although banks need to find a profitable organic growth path that leads beyond the one they are following now. Within ten years, most retail banks operating in high-income markets (and some operating in high-growth markets) will have reached a common standard of excellence corresponding to the results achieved by the best performers of today: combining fast time to market with innovative products and local client intimacy, full multi-channel integration and optimisation, increasing sales productivity through dynamic branch management, and leveraging a multi-brand portfolio to fine-tune high-growth value propositions for each market segment. Trapped between demanding shareholders and tough competition in slow-growing markets, banks will have to invent their own future model to differentiate themselves from traditional solutions. Each of the models discussed above has the potential to bring some added value to traditional retail banks in their search for growth in high-income markets. The best performers will combine several of them—and perhaps add still others—to compete effectively in tomorrow’s retail banking market (see Figure 2.23). This combination of several models is necessary to track all micro-segments of customers and adapt diversified value propositions to their specific needs or expectations. It will prove very complex to implement. The challenge will be to allocate resources in a way that supports the specific features of each model while avoiding a duplication of systems and organisations. All traditional enablers of operational performance will have to be fine-tuned and re-combined to fit this new context of diversified business models, without sacrificing operational and economic performance. This new perspective does not mean that operational issues will be completely different in the future. But they will certainly have to take into account the new strategic environment, answering some exceptionally difficult questions: How can a bank use a portfolio of brands to organise the diverse value propositions it brings to market? How should channels be integrated to support each value proposition? To what extent will it be possible to share channels between different brands? What of the branding of the branches? Which parts of the IT platform can be shared between brands, and which is essential to differentiate value propositions? How can a shared back office deliver differentiated service levels to different segments? Banks seeking to operate successfully in high-income markets, as they surely must, will need to find good answers to all of these questions—and more—to survive and prosper in the years ahead.


Figure 2.23 Creating an Integrated Model for a High-Income Market

Today

Tomorrow New Banking Model

Trust r Operato

Con t Ba n ine nt a l k

G e ne ra Brok l er Open Ba nk Source

lt Mu

i-b

ra

Disco u Ba nk nt

mm Co k n Ba Fi n Ad a n c i a vi s or l


uni

ty

nd e nn ha i- c ion t l Mu g r at e int

l

Specialised branches

Sa ma le s na ge m

e t ti m Fas rket a to m

en

t

51

52


appendix

Appendix

Methodology

53

54


METHODOLOGY

For this fifth annual edition of the World Retail Banking Report, we have continued to refine the methodology used in previous reports and expanded its coverage to two new countries: Denmark and Singapore. We have discontinued the South Africa analysis, because we found it does not effectively represent the African zone. Each of 26 country teams contributed to its national dashboard (www.wrbr2008.com) and the pricing analysis, and conducted spotlight interviews. The dashboards on the website provide overviews of the national banking industry for each country surveyed. In every country studied, a national team identified the major macroeconomic indicators and described the retail banking environment, the type and size of players, the products sold, and the main trends in that country’s retail banking industry. The dashboards map these insights in a detailed and consistent format (see Figure A.1). This work also helped us determine which banks to include in the pricing index. Figure A.2 provides a complete list of the banks surveyed. The main principles of our pricing index methodology remain the same as for last year. The pricing analysis provides both local and global views based on prices and frequency of use. We calculated prices on the basis of usage patterns for three kinds of user: less active, active, and very active. To determine those three groups, we split the total customer community into three. The 20% with the lowest consumption are less active users, the 20% consuming the most are very active users, and the remaining 60% are the active users. Figure A.3 shows how local profiles vary by usage pattern. In countries where consumer behaviour is tracked, bankers were able to provide this data or refine previous patterns; in other countries, local frequencies were estimated by our local retail banking experts.

All comparisons between our 2005, 2006, 2007, and 2008 editions were made on the basis of three factors: ß A flat exchange rate: To compare price evolution from 2007 to 2008 in euros, without those figures being skewed by exchange rate effects, we recalculated last year’s prices for surveyed countries that use a currency other than euros based on 13 September 2007 exchange rates. ß A same-country scope: To maintain continuity, countries we added over the years (Denmark, Singapore, Croatia, India, Japan, Romania, Ireland), as well as Italy and South Africa, have been excluded from the parts of this year’s analysis comparing 2005, 2006, 2007, and 2008 data. ß One frequency pattern: The price focus of the comparisons was ensured by recalculating last year’s price indexes based on this year’s frequencies of use (eliminating effects from change of patterns). As a result, the recalculated price indexes are not equal to the ones published in previous years’ reports. For instance, the 2007 local profile price index is €71, compared to €77 published in the 2007 analysis. We have also refined some definitions to maintain our product list in spite of changes in the underlying actual products sold by each bank. Some of these changes are only marketing window-dressing, but others are more substantial. For instance, in Portugal, France, Australia, and Poland, prices for external and internal wire transfers differ if ordered at a branch or through the Internet. The proportion of transfers done through both channels was estimated to get a weighted average for the unit price. To remain consistent, we recalculated last year’s prices based on these refinements and assumptions on last year’s proportion of on-line transfers.

appendix

Figure A.1 Sample Dashboard - Croatia

Source: Croatian National Bank (HNB), Croatian Banking Association (HUB), Croatian Chamber of Economy (HGK), 2007.

55

56


Figure A.2 Pricing Index Survey Sample: 194 Retail Banks in 26 Countries

Europe Eurozone Austria

Belgium

Europe Non-eurozone France

Czech Republic

Croatia

Denmark

Share of deposits 83%






BA-CA Erste Bank BAWAG P.S.K. Sparkassen sector Raiffeisenbanken sector Volksbanken sector

Fortis Bank Dexia ING Bank KBC

Banques Populaires BNP Paribas Caisse d’Épargne CCF HSBC CIC Crédit Agricole LCL Crédit Mutuel Société Générale La Banque Postale

CSOB CS KB GE Money Bank HVB

Zagrebačka Banka Privredna Banka Zagreb Raiffeisenbank Erste Bank SG-Splitska Banka OTP Banka Hypo Alpe Adria Bank

Danske Bank Jyske Bank Nordea Bank Sydbank

Norway Germany

Ireland

Italy




Deutsche Bank Commerzbank HVB Saving Banks Mutual Banks Postbank Dresdner Bank

AIB Bank of Ireland Permanent TSB National Irish Bank Ulster Bank

UniCredit Intesa Sanpaolo MPS BNL Capitalia UBI

The Netherlands

Portugal Share of deposits 91%


ABN AMRO ING Bank Postbank Rabobank SNS Bank Fortis Bank

CGD BCP BES Totta BPI MG

BBVA Caixa Galida La Caixa Cajamadrid Banesto Grupo Banco Popular Grupo Cajas Rurales Caixa Cataluña Banco Sabadell Bancaja CAM ING Direct Bankinter IberCaja Unicaja Open Bank Santander Uno-e

Asia-Pacific China

India




CBA WBC NAB St George ANZ

ABC BC BOC CCB ICBC CMB Minsheg Shanghai Pudorg Development Bank

Standard Chartered Bank Punjab National Bank Bank of Baroda HDFC Bank Ltd. ICICI Bank Ltd. State Bank of India Citibank N.A. Canara Bank Bank of India

Japan

Singapore



Bank of Tokyo- Mitsubishi UFJ, Ltd Mizuho Bank, Ltd. Sumitomo Mitsui Banking Corp. Resona Bank, Ltd. Bank of Yokohama, Ltd. The Sumitomo Trust and Banking Co.,

DBS Bank United Overseas Bank Overseas Chinese Banking Corporation KBC

Romania



DnB Fokus Nordea Sparebank 1 Midt-Norge Sparebank 1 Nord-Norge Sparebank 1 SR-banka

PKO BP PEKAO BPH CitiBank BRE ING Kredyt Bank BZ WBK BGZ Millenium Raiffeisen

Bancpost CEC Alpha Bank Banca Transilvania ING Bank Romania Raiffeisen Bank BRD Groupe SG Banca Comerciala Romana Erste Bank Unicredit Tiriac Bank

Spain


Australia

Poland


Slovakia

Sweden

Switzerland




Unicredit Bank Slovenska Sporitelna Tatra Banka Vseobecna Uverova Banka Ceskoslovenska Obchodni Banka Dexia

Svenska Handelsbanken Swedbank Nordea SEB Danske Bank SkandiaBanken

UBS CS Cantonal Banks Cooperative Banks Other Banks Regional Banks

United Kingdom Share of deposits 83%

HSBC RBS Barclays HBOS Lloyds TSB

North America Canada

USA



BMO CIBC Desjardins RBC Scotia TD

ABN AMRO Bank of America-Fleet Boston Citigroup J.P. Morgan Chase Sun Trust U.S. Bancorp Wachovia Wells Fargo HSBC


57

appendix

Figure A.3 Pricing Index Survey Sample: 194 Retail Banks in 26 Countries

Canada

Norway

Less Active

Active

Very Active

Less Active

Active

Very Active

Account Management

For one year

On-line Banking

# of connections

0

12

24

0

23

59

Internal Wire Transfer

# of transfers

6

12

48

2

8

20

External Wire Transfer

# of transfers

0

0.5

2

10

50

90

Payments


58


About Us ING

ING is a global financial services company of Dutch origin with 150 years of experience, providing a wide array of banking, insurance and asset management services in over 50 countries. Our 120,000 employees work daily to satisfy a broad customer base of individuals, families, small businesses, large corporations, institutions and governments. Based on market capitalisation, ING is one of the 15 largest financial institutions worldwide and in the top 10 in Europe. ING is a major financial services company in the Benelux home market. ING services its retail clients in theses markets with a wide range of retail banking, insurance and asset management products. In our wholesale banking activities we operate worldwide, but with a primary focus on the Benelux countries. In the United States, ING is a top 10 provider of retirement services based on sales assets under management. In Canada, we are the top property and casualty insurer based on direct written premium. ING is a leading direct bank with 15 millions customers in nine countries. In the growth markets of Asia, Central Europe and Latin America, we provide life insurance. We are also a large asset manager with assets under management of more than €650 billion. ING Real Estate is the largest property company in the world based on its business portfolio. Visit www.ing.com

THE EUROPEAN FINANCIAL MANAGEMENT & MARKETING ASSOCIATION

Efma is the leading association of banks, insurance companies and financial institutions throughout Europe. Efma promotes innovation in retail finance by fostering debate and discussion among peers supported by a robust array of information services and numerous opportunities for direct encounters. Efma was formed 35 years ago and gathers today more than 2,200 different brands in financial services worldwide, including 80% of the largest European banking groups. Visit www.efma.com CAPGEMINI

Capgemini, one of the world’s foremost providers of consulting, technology and outsourcing services, enables its clients to transform and perform through technologies. Capgemini provides its clients with insights and capabilities that boost their freedom to achieve superior results through a unique way of working—the Collaborative Business Experience— and through a global delivery model called Rightshore®, which aims to offer the right resources in the right location at competitive cost. Present in 35 countries, Capgemini reported 2006 global revenues of €7.7 billion and employs over 83,000 people worldwide. With a network of 15,000 professionals serving over 900 clients worldwide, Capgemini Financial Services moves businesses forward with leading solutions for banking, insurance and capital markets. We provide deep industry experience, enhanced service offerings and advanced next generation global delivery to help clients achieve tangible results that impact performance and capture competitive advantage. Visit www.capgemini.com/banking

Capgemini would like to particularly thank the following banks interviewed for this report: ABN AMRO

National Irish Bank

Banca Popolare di Milano

Nordea

Banca Popolare di Sondrio

Popular

Bank of America

Rabobank

BBVA

Raiffeisenbank Austria D.D

BNP Paribas

Raiffeisenlandesbank Oberösterreich

Bundesverband der

Resona Bank Ltd

Deutschen Volksbanken und

Sabadell

Raiffeisenbanken

Santander

Crédit Agricole

SEB

Canara Bank

Societe Generale Splitska Banka

Dexia

State Bank of Hyderabad

Erste

Sumitomo Mitsui Banking Corporation

Fortis

Sumitomo Trust and Bank

Getin Bank

Swedbank

HSBC

TD Bank

ING

The Bank of Tokyo - Mitsubishi UFJ, Ltd

ING Vysya

Ubi Banca

Karnataka Bank

Unicredit

KBC

Unicredit Tiriac

Komerční Banka

Yokahoma Bank

Lloyds TSB

Zagrebačka Banka D.D.

Mizuho Bank We also thank the following people for collaborating to produce this report: The Development Team for analysing, writing, and compiling the findings of the report: Olivier Ducass, Jacques Richer, Hiroko Portal-Nakamura, Clémence Bechu and Laura Sellam. World Retail Banking Report Executive Steering Committee for providing their insights, industry expertise, and overall guidance: Patrick Desmarès, Bertrand Lavayssière, Marion Lecorbeiller, and Felix Potvliege. Sid Seamans for editing the report. All our Local Survey Contributors.

Visit www.wrbr08.com www.capgemini.com/wrbr08

For more information, please contact: Capgemini – [email protected] ING – [email protected] EFMA – [email protected] For press inquiries, please contact: [email protected] [email protected]

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