FRANKFURT, GERMANY--(Marketwire - November 15, 2007) - Retail banks, facing intensifying
competition and continuously declining margins around the globe, must take
forceful steps both to protect and expand their customer bases at home and
to explore high-growth markets abroad. Otherwise, they will face serious
threats to their revenue shares and profitability, according to a report
released today by The Boston Consulting Group (BCG), a leading management
consulting firm.
The report, "Retail Banking: Facing the Future," states that deregulation
and the opening of international markets, ongoing regionalization and
globalization in the industry, the expansion of direct and online banking,
and rising customer expectations are putting banks under intense
competitive pressure -- which may lead to increasing merger-and-acquisition
activity, particularly in mature markets with low growth rates.
According to the report, retail banking will remain the dominant source of
revenue for banks worldwide through 2015. In 2006, the retail banking
business accounted for EUR 1.22 trillion in revenues, or about 57 percent
of the global banking revenue pool of EUR 2.15 trillion. Still, margin
pressure is here to stay. From 2001 to 2006, banks included in a recent BCG
benchmarking survey showed average margin declines in their retail segments
of about 21 percent. In some markets, attacking players have already taken
sizable share from incumbents that have been reluctant to fight proactively
on the price front -- a trend that will likely continue.
The report underlines that the trend towards more direct and online banking
is highly significant. The penetration of both general Internet usage and
of online banking channels has increased sharply in many markets and will
continue to do so -- a dynamic that will lead to a further decline in the
importance of bank branches for some sales activities, although branches
will remain critical for customer acquisition and advice-intensive
products. Overall, delivering a truly superior customer experience will be
a crucial source of competitive advantage, the report says.
Given intensifying competition in many markets and the evolution of new
business models, "it is clear that the industry is moving towards a new
structural equilibrium characterized by lower margins and lower cost
levels," says Reinhold Leichtfuss, a BCG senior partner based in Frankfurt
and lead author of the report. "Many banks will face a tall challenge to
resize and restructure their platforms over the next decade in order to
cope with these developments."
A key result of heavy price competition and its expansion into a wide range
of products is that revenue pools will grow at a lower rate in many major
markets over the next few years, the report says. By 2015, the share of
global retail-banking revenues generated collectively in the top five
European countries and in the United States will have shrunk by an
estimated 5 percent, with a corresponding collective share increase in
Asia-Pacific and the Middle East. Vast numbers of "unbanked" consumers in
emerging markets -- what BCG calls the next billion -- will develop banking
relationships over the next generation, providing opportunities for retail
players.
According to the report, the winning business models of the future are
exemplified by six categories of retail banks: global titans and regional
expansionists, domestic champions, retail-oriented attackers, direct banks,
specialists, and trading-up players. The first five categories have clearly
outperformed the competition in recent years. They have an average
advantage in their cost-to-income ratio of 10 percentage points, an average
ROE advantage of 10 percentage points, and a revenue growth rate more than
twice that of most other banks. They also dare to invest in organic growth
and in acquisitions -- their top-line growth allowing cost growth three
times as high as that of most other players. Leading players in the sixth
category, trading-up banks, are well positioned to catch up if they
maintain focus and expand more aggressively.
Over the next five to ten years, the report says, traditional incumbents
will face tough battles on several major fronts. Winners will be those that
succeed in
-- adopting a winning business model to defend and differentiate
themselves from an increasing number of attackers in their home markets
-- increasing their direct and online banking profiles and becoming
successful acquirers and integrators
-- achieving better cost efficiency by fully exploiting the power of
process; on average, cost savings of 15 to 30 percent can be achieved
through improving process efficiency, sharing services internally, and
outsourcing and offshoring
-- building meaningful presences in markets that offer the steepest
growth potential; just planting flags in numerous markets to attain meagre
market shares will not be a value-creating strategy
To receive a copy of "Retail Banking: Facing the Future," or to schedule an
interview with one of the authors, please contact Eric Gregoire at + 1
617-854-4570 or
gregoire.eric@bcg.com.
About The Boston Consulting Group
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and the world's leading advisor on business strategy. We partner with
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www.bcg.com.
Contact Information: Contact:
Eric Gregoire
+ 1 617-854-4570