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Report   Global Retail Banking 2010/2011The Road to Excellence
The Boston Consulting Group (BCG) is a global manage-ment consulting firm and the world’s leading advisor onbusiness strat...
The Road to Excellence   Global Retail Banking 2010/2011             Andy Maguire             Vincent Chin          Lauren...
© The Boston Consulting Group, Inc. 2010. All rights reserved.For information or permission to reprint, please contact BCG...
ContentsExecutive Summary                                                          4The State of the Nation in Global Reta...
Executive SummaryT             he retail banking industry has been bat-          ◊ In the best banks, a large majority of ...
ings, they must be more actively supportive of their       About the Authors  customers—for example, by warning them of po...
The State of the Nation           in Global Retail BankingT              here is no doubt that the retail banking in-    m...
varying across specific markets. Initially, the pressure on       terms better than highly diversified banks—with the no-c...
Exhibit 1. Retail’s Share of Global Banking Revenues Grew to 52 Percent in 2009                                           ...
Exhibit 2. The Outlook for Retail Profits Has Turned Positive                                                 BCG Retail B...
any limitations on the day-to-day operations of major fi-         the most attractive (least risky) customers whom thenanc...
damental business economics. As banks attempt to rec-         of deepening customer relationships and value—bothtify the l...
Operational Excellence                  Becoming a Process and Productivity LeaderT           he Boston Consulting Group r...
Exhibit 3. At Top Banks, the Majority of FTEs Are Customer Facing                                             1           ...
Exhibit 4. Industrialization Is Critical to Good Performance                                                              ...
pointments via shared calendars with branch employees                             limited number of hubs, and its single, ...
duced online functionality after an acquisition or a thin-     has yet become a full-fledged leader in this area, thener p...
Customer Excellence                                    Reaching the Highest LevelW                      e have already gon...
well-thought-out sales pitches that lead to high conver-         small number of layers—seven, at most—and wide spanssion ...
service processes, run efficient operations in engineered          Take another example. If a customer downloads a mort-pr...
This state of affairs is often made worse by setting expec-     ness and earn his or her trust. Obviously, the primarytati...
preferences and patterns of channel use and be able to          Use customer excellence as an antidote to regulation.propo...
Appendix                              From Global to Local—                     Trends in Specific Retail-Banking MarketsA...
China                                                        Within this context, top French retail banks have demon-     ...
Bcg Banking Report
Bcg Banking Report
Bcg Banking Report
Bcg Banking Report
Bcg Banking Report
Bcg Banking Report
Bcg Banking Report
Bcg Banking Report
Bcg Banking Report
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  1. 1. Report Global Retail Banking 2010/2011The Road to Excellence
  2. 2. The Boston Consulting Group (BCG) is a global manage-ment consulting firm and the world’s leading advisor onbusiness strategy. We partner with clients in all sectorsand regions to identify their highest-value opportunities,address their most critical challenges, and transform theirbusinesses. Our customized approach combines deepinsight into the dynamics of companies and markets withclose collaboration at all levels of the client organization.This ensures that our clients achieve sustainable compet-itive advantage, build more capable organizations, andsecure lasting results. Founded in 1963, BCG is a privatecompany with 71 offices in 41 countries. For more infor-mation, please visit
  3. 3. The Road to Excellence Global Retail Banking 2010/2011 Andy Maguire Vincent Chin Laurent Desmangles Huib Kurstjens Reinhold Leichtfuss Reinhard Messenböck Tim Monger Nicole Mönter Steven Thogmartin André Xavier December 2010
  4. 4. © The Boston Consulting Group, Inc. 2010. All rights reserved.For information or permission to reprint, please contact BCG at:E-mail: bcg-info@bcg.comFax: +1 617 850 3901, attention BCG/PermissionsMail: BCG/Permissions The Boston Consulting Group, Inc. One Beacon Street Boston, MA 02108 USA
  5. 5. ContentsExecutive Summary 4The State of the Nation in Global Retail Banking 6Financial Stress 6Stricter Government Regulation 7Changes in the Competitive Landscape 9Changes in Customer Behavior and Expectations 10The Shifting Roles of Products 10Operational Excellence: Becoming a Process and Productivity Leader 12The Profile of a Process and Productivity Leader 12Different Ways of Differentiating 14Customer Excellence: Reaching the Highest Level 17The First Step: Remaining a Near-Perfect Retail Bank 17Completing the Journey: Achieving Truly Perfect Customer Excellence 18Appendix: From Global to Local—Trends in Specific Retail-Banking Markets 22For Further Reading 29Note to the Reader 30The Road to Excellence 3
  6. 6. Executive SummaryT he retail banking industry has been bat- ◊ In the best banks, a large majority of employees are tered by the global financial crisis. But dedicated to customer-facing sales and service activi- in many markets its resilience has ties. Processing is centralized in a small number of helped enable a turning of the tide that centers across regions. Leading banks embrace a high began in 2009 and continued into 2010. level of industrialization, characterized by simplified,Overall, retail banking is on track to resume its sta- standardized processes that maximize the number oftus as a reliable and profitable backbone for univer- new accounts and loan decisions per operations full-sal banks. time equivalent. They focus on end-to-end sales and service effectiveness, applying a holistic approach to◊ Although the nature and impact of current industry streamlining processes and interfaces across the front- dynamics vary by market, banks have generally under- line and operations. gone significant financial stress, owing to margin pres- sure, sharp rises in loan loss provisions, and declines in ◊ Although no retail banks have been able to achieve asset volumes, revenues, and profits. Banks have also operational excellence in all areas, the scope of the op- had to cope with stricter government regulation aimed portunity is vast and has led many banks to embark at mitigating risk and beefing up consumer protection. on multiyear efforts to raise their game. Banks that ac- Such regulation has been implemented in many coun- celerate these initiatives and invest wisely to reach a tries and is on the horizon in others. high level of operational excellence will reap signifi- cant benefits.◊ The overall retail-banking landscape has undergone measurable change, altering the competitive position In the wake of the financial crisis, retail banks must of many institutions. Customer behavior and expecta- commit themselves to achieving a far higher degree tions have also changed, with a greater premium being of customer excellence in order to win a greater share placed on trust and reliability. The roles of traditional of their customers’ business. They must combine products are shifting. sales and service excellence with low costs, take mul- tichannel excellence to the next level, and create a◊ In order to respond to the new environment in retail truly differentiated customer experience. These ini- banking, institutions will need to push their perfor- tiatives are critical to showing customers that they mance to the next level along two broad dimensions: need only one bank to meet their financial-services operational excellence and customer excellence. needs. Many banks are aware of the need for a re- newed focus on such goals, but their execution andBanks must utilize three key levers in order to achieve attention to detail are frequently insufficient.operational excellence and become process and pro-ductivity leaders. They must streamline the organiza- ◊ Banks often hurt themselves by providing poor overalltion, develop efficient and effective processes, and customer service and setting expectations that theyimprove end-to-end performance. cannot consistently meet. To address these shortcom-4 The Boston Consulting Group
  7. 7. ings, they must be more actively supportive of their About the Authors customers—for example, by warning them of poten- Andy Maguire is a senior partner and managing director tial overdraft scenarios and helping them figure out in the London office of The Boston Consulting Group and whether they can afford the car or house that they cov- the leader of the global retail-banking practice. You may et without overextending themselves. Such support contact him by e-mail at Vin- can be offered only if the bank captures comprehen- cent Chin is a partner and managing director in the sive customer information, updates it continually, and firm’s Kuala Lumpur office. You may contact him by e- understands it in a holistic way that builds in under- mail at Laurent Desmangles is a writing risk and appropriate pricing. By developing partner and managing director in BCG’s New York office. such integrated insights, banks can make every service You may contact him by e-mail at desmangles.laurent@ opportunity a sales opportunity and vice versa. Huib Kurstjens is a senior partner and manag- ing director in the firm’s Amsterdam office. You may con-◊ The primary checking or current account is clearly the tact him by e-mail at Reinhold anchor of the customer relationship. Because of the Leichtfuss is a senior partner and managing director in cross-selling opportunities these accounts present, cus- BCG’s Dubai office. You many contact him by e-mail at tomers who hold them are up to 10 times more profit- Reinhard Messenböck is able than those who do not—and are up to 25 percent a partner and managing director in the firm’s Berlin of- less likely to have overdraft or default difficulties. fice. You may contact him by e-mail at messenboeck.rein- Tim Monger is a partner and managing◊ Multichannel excellence goes beyond making sure that director in BCG’s London office. You may contact him by channels are not competing with each other and that e-mail at Nicole Mönter is a proj- access to customer information is open and unified. It ect leader in the firm’s Brussels office and the manager also means monitoring channel usage and using that of the global retail-banking segment. You may contact her information to drive more high-quality interactions by e-mail at Steven Thogmar- with the customer. It means shifting from a passive ap- tin is a partner and managing director in BCG’s New York proach—merely displaying products “on the shelf”— office. You may contact him by e-mail at thogmartin.ste- to proactive, sales- and service-oriented, multichannel André Xavier is a partner and managing lead management. director in the firm’s São Paulo office. You may contact him by e-mail at◊ Many, if not all, retail banks are genuinely afraid of regulatory intervention. Yet customer excellence may be the ultimate defense. Banks that take the time to capture and maintain their customers’ profiles—such as their demographic characteristics, attitude toward risk, product history and preferences, channel behav- ior, and financial boundaries and limitations—may find themselves less troubled by regulation because they really do know their customers and act in their interests, which is what regulators care about most.The Road to Excellence 5
  8. 8. The State of the Nation in Global Retail BankingT here is no doubt that the retail banking in- maries of the trends specific to individual markets.) In- dustry has been battered by the global fi- deed, the crisis generally hit mature markets harder than nancial crisis. Yet even in the darkest days developing ones, and it hit the United States—which con- of the recession, there was a silver lining: tinues to face serious difficulties—perhaps the hardest of the fundamental strength and resilience of all. These forces form the backdrop to the overall state ofthe industry. This resilience has helped enable a turning the global retail-banking industry today.of the tide in many markets that began in 2009 and con-tinued into 2010. Overall, retail banking is on track toresume its status as a reliable and profitable backbone Financial Stressfor universal banks. The margin pressure that has long plagued retail banks isBut a full recovery will be neither easy nor without pit- gradually becoming less severe. Asset margins have wid-falls. Over the past few years, the retail banking industry ened from unsustainable lows, and pressure on liabilityhas witnessed upheaval in five principal areas: margins, while still intense, has on average eased up from the depths of the crisis. New mortgages are being sold at◊ The industry has endured significant financial stress, higher spreads than were possible for many years, as a owing to margin pressure, sharp rises in loan loss pro- significant percentage of existing mortgages come up for visions, and declines in asset volumes, revenues, and repricing—and are rolled over at better margins. Retail profits. banking customers in most markets are less able to refi- nance regularly, extending the lives of loans. Many back-◊ Stricter government regulation aimed at mitigating risk book mortgages that were not repriced are now earning and beefing up consumer protection has been imple- better margins owing to slightly better, blended funding mented in many countries and is on the horizon in costs than were possible in 2008 and 2009. others. On the liability side, the expensive fixed deposits and◊ The overall retail-banking landscape has undergone high-interest-rate savings accounts—combined with the measurable change, altering the competitive position flat interest-rate curve—that weighed banks down during of many institutions. the crisis have begun to run their course and represent less of an undue burden. However, the vicious fight for◊ Customer behavior and expectations have changed, with savings is continuing in most markets. The still relatively a higher premium being placed on trust and reliability. high interest rates offered on deposits are resulting in continued downward pressure on liability margins and◊ The roles of products are shifting. upward pressure on asset margins.The exact nature and impact of these dynamics vary When it comes to asset volumes, the crisis obviously hadfrom market to market. (See the Appendix for brief sum- a marked effect. Overall sales declined, with the extent6 The Boston Consulting Group
  9. 9. varying across specific markets. Initially, the pressure on terms better than highly diversified banks—with the no-credit supply was driven by banks trying to reduce risk in table exception of the U.S. market, where retail earningstheir portfolios and shore up their balance sheets. Later, have turned positive only relatively recently. The retailrestricted funding possibilities became a factor. Today, de- share of all global banking revenues rose to 52 percent byspite the fact that funding constraints are less severe, a the end of 2009, compared with 49 percent in 2006, withrecovery in asset volumes has not yet occurred because ample variation by region. (See Exhibit 1.)of the overall economic climate—which is keeping de-mand low in most countries of the Organ- When it comes to overall profitability, theisation for Economic Co-operation and industry is still recovering from the depthsDevelopment. In several countries, al- When it comes to of the recession. On the cost side, the long-though balance sheets are generally in bet- overall profitability, the term downward trend in cost-to-incometer shape and funding is available, new- ratio has resumed, following a blip duringasset volumes remain sluggish because retail banking industry the crisis driven by thinning margins. Theconsumer and small-business demand has is still recovering. impact of efficiency programs begun twonot yet recovered. On existing mortgages, or three years ago, when many banks werevolume is naturally declining in markets under severe duress, is being felt. In addi-where relatively short-term loans are the norm, remain- tion, while controls on operational costs are here to stay,ing stable in markets where long-term mortgages are some investments that were put on hold during the crisismore typical. are moving forward as many banks start to refocus on growth. Impairments are also improving, having soaredDeposit volumes remain positive as many consumers, in during the downturn, when they helped drive profits toa shift from precrisis behavior (especially in countries their lowest levels in the fourth quarter of 2008.where savings ratios have been low or negative), are tend-ing to save more. This change is being driven by a gener- The combination of a revenue rebound—albeit at a shal-al sense of uncertainty about the future and, especially lower growth trajectory than in precrisis days—goodamong older people, by uneasiness over the sustainabil- news on costs, and a brighter outlook on impairmentsity of various national pension programs. helped profits recover to 50 percent of their 2006 levels by the end of the second quarter of 2010. (See Exhibit 2.)The trend toward deposit rather than investment prod- Yet higher levels of capital, as well as more expensiveucts is resulting in a decrease in fee and commission in- capital (as required by Basel III, addressed below), willcome for banks in developed countries. Indeed, up-and- increasingly pressure return on equity. In sum, the out-down capital markets during the crisis prompted many look on profitability is positive, although we are a longpeople to reallocate their money away from complex, way from the blue skies that characterized the precrisishigh-margin investment products into savings vehicles. years.Banks contributed to this trend, focusing on attracting de-posits in an effort to bolster their balance sheets. At thesame time, many consumers have drastically curtailed Stricter Government Regulationshifting money among investment products, resulting infurther losses of fee and commission revenues. In the wake of the financial crisis, regulatory complexity will add costs to retail banks in most markets. In additionNonetheless, despite the combination of margin pressure, to amendments to the existing Basel II regulations—sluggish growth in new assets, and the decline in fee in- known as Basel III—new regulations on customer protec-come, retail banking revenues overall have been relative- tion will be introduced in many stable throughout the crisis. The fact is that people al-ways need basic banking services, and the retail segment While the principal aim of Basel II was to ensure that cap-is traditionally less volatile than either the corporate ital allocation was efficient and that banks were well cap-banking or the investment banking segment. Conse- italized, Basel III goes further. Not only are capital require-quently, universal retail banks, having been exposed to ments measurably strengthened, but mandatory short- andless dramatic attrition, weathered the crisis in revenue long-term liquidity standards will be introduced, as well asThe Road to Excellence 7
  10. 10. Exhibit 1. Retail’s Share of Global Banking Revenues Grew to 52 Percent in 2009 Retail share of global revenues, 2009 [2006] (%) 52 [49] 48 [51] Americas, Europe, Australia, Middle East, Asia, 2009 [2006] (%) 2009 [2006] (%) 2009 [2006] (%) 2009 [2006] (%) 2009 [2006] (%) 46 41 52 [70] 28 [42] 59 48 54 47 [45] [38] [58] [55] [30] [39] 53 72 [61] [62] Retail revenues Other banking businesses Retail revenues covered by database Source: BCG Retail Banking Database. Note: Retail shares based on segment reporting of banks in BCG’s Retail Banking Database of roughly 140 banks worldwide with retail banking involvement.a leverage-ratio requirement. Basel III will be adoptedworldwide, creating a level playing field internationally. In the United States, a Raft of RegulationHowever, national regulators will have discretion tostrengthen Basel III’s minimum requirements as they seefit in their local jurisdictions. For example, this is expected In the United States, the Credit Card Accountability, Responsibility, and Disclosure Act of 2009 aims to curbto happen in Switzerland, where the relative size of the excessive interest-rate hikes and hidden fees. It is ex-major Swiss banks is seen to pose substantial risk to the pected to reduce card profits by $3 billion to $5 billioncountry’s economy. per year. The Durbin amendment aims to limit the in- terchange fees that banks earn from their customers’When it comes to new consumer-protection legislation, debit-card transactions. Its impact on profitability willalthough emerging regulatory patterns are similar across amount to about $10 billion per year. Regulation Esome countries, there is considerable variation in the top- was recently modified to require customers to “opt in”ics covered and in the strictness of the proposed controls. for debit point-of-sale and ATM overdraft protection on their demand-deposit accounts (also known as(See the sidebar, “In the United States, a Raft of Regula- DDAs or checking accounts). This measure will likelytion.”) It is safe to say, however, that the main themes are reduce profits by between $12 billion and $15 billionthe following: per year. Finally, with the establishment of the new Consumer Financial Protection Board, the industry is◊ Increased transparency on product design in terms of facing the prospect of additional compliance costs the description of product details and pricing (for ex- and potential further curtailment of overdraft and oth- ample, to avoid fine-print surprises such as up-front er fee sources. Overall, the combined effect of the new legislation will be a sharp reduction in banks’ return commissions, hidden fees, and penalties for actions on equity. like early redemptions)8 The Boston Consulting Group
  11. 11. Exhibit 2. The Outlook for Retail Profits Has Turned Positive BCG Retail Banking Performance Index Revenue performance Pretax profit index (2006 = 100) performance index 120 117 120 100 116 115 92 91 114 114 114 100 90 112 112 111 112 111 110 110 80 110 78 106 70 70 60 104 57 581 100 50 40 100 39 32 26 20 17 21 90 0 –1 –20 80 –40 2006 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2007 2007 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 2010 2010 2010 Revenue performance index Pretax profit performance index Sources: Company reports; press searches; BCG analysis. Note: Banking performance was calculated on the basis of the aggregate total operating income of 26 leading banks in the retail banking segment. Distortions due to merger and acquisition activities and changes in segmentation were accounted for to ensure consistent measurement. Performance of banks for which Q3 results were not available was estimated on the basis of past performance and company press releases. 1 Excluding exceptional goodwill impairments booked in Q3 2010 to adjust for regulatory changes in the United States.◊ Fairer representation of products in advertising (for ex- within domestic markets, some regional or global banks ample, by forbidding ads that quote an interest rate of- have taken the opportunity to strengthen their profile on fered to only a small percentage of the customer base) the broader stage. Examples include Santander, with its acquisitions of Banco Real in Brazil and Alliance & Leic-◊ Closer supervision of banks’ delivery models in order ester in the United Kingdom, and BNP Paribas, with its to avoid saddling clients with inappropriate products acquisition of Fortis in Belgium. (for example, through regulations on sales force incen- tives, relationships with third parties, and advisory qual- The loss of market position by monolines, such as direct ity and advisor documentation in the sales process) banks, deposit-only banks, and pure credit-card players, is another important trend in most regions. Most mono-It is worth noting that consumer protection legislation, by lines have exited the market, been acquired in a dis-making the selling process somewhat more onerous, will tressed state, or are aiming to diversify their businessraise distribution costs. models. It seems clear that in times of financial duress, a mistrust of niche players—or perhaps of foreign institu- tions in any given market—arises. The result is that manyChanges in the Competitive Landscape consumers tend to flock back to names they know and feel they can put their faith in.In most major developed markets, the level of bank-versus-bank competition has actually lessened as merg- It is also true across markets that during the crisis, banksers and acquisitions, along with the exit of standalone with a strong trust link with their customers—such as co-monoline players, has winnowed out the overall number operative banks and a number of smaller banks in someof competitors. Although most mergers have taken place countries—often fared better than the rest. What is more,The Road to Excellence 9
  12. 12. any limitations on the day-to-day operations of major fi- the most attractive (least risky) customers whom thenancial institutions brought about by government guar- bank knows well. Moreover, and needless to say, there areantees and shareholdings have not proved very onerous. market-by-market nuances in the ways in which productMany governments seem to have adopted a relatively roles are changing.hands-off attitude, hoping that banks will work their wayback to better financial health. The future divestiture of Deposit Accounts. For many years, savings accounts pro-government shareholdings in some banks, particularly in vided wide margins from long-standing customers andEurope, may offer further acquisition op- opportunities to manage margins withportunities for retail banks with regional Financial institutions new customers. Funding was mainly an af-or international ambitions. terthought. Now, with profit margins gen- realize that they have erally being squeezed—although they to raise their game have improved since the worst days of theChanges in Customer in terms of overall crisis—savings accounts have become pri-Behavior and Expectations marily a funding vehicle for the asset side reliability. of the balance sheet. Duration is rewardedThe recent focus on transparency in bank- much more than it was in the past (for cus-ing, which has benefited institutions that have managed tomers, but also internally, in the transfer prices paid onto develop deeper goodwill with their customers, is just the stickiest balances).one facet of a more general shift in customer attitudes,behavior, and expectations. By and large, customers are Checking Accounts. In the past, checking accounts en-more guarded, more circumspect, and more in need of joyed standalone profitability in most countries, providedclear communication and reassurance. They expect clar- a source of new customers, and represented an anchority and full disclosure. And although switching retail product for cross-selling. The key metric was volume andbanks is often a burdensome process for customers—a price realization. Today, checking accounts have becomefact that in the past has made some dissatisfied clients an important funding source for assets and a vehicle forthink twice about “voting with their feet” and changing maintaining long-term relationships with high-value cus-banks—financial institutions realize that they have to tomers. The key metric is customer quality and the depthraise their game in terms of overall reliability. of the relationship. These accounts are increasingly criti- cal for data gathering, credit underwriting, and providingIndeed, in the post-recession era, deepening customer re- frequent customer touchpoints. The strongest banks arelationships will principally be about the fundamental is- investing heavily in good customer on-boarding and up-sue of trust. The financial crisis was a crisis not just of selling processes, and they are increasingly pricing for re-markets but also of confidence in the banking industry as lationship value. Indeed, the growth of high-quality cur-a whole. Many consumers felt disappointed, disillusioned, rent accounts is more critical than ever to buildingeven exploited by their financial institutions. primary, multiproduct banking relationships. Unsecured Credit. Traditionally, cards and loans wereThe Shifting Roles of Products cross-sold to checking account, deposit, and mortgage customers—at increasingly thin (and sometimes nega-Changing business models, largely prompted by the crisis, tive) margins—to solidify the banking relationship.1 Theyhave had important implications for retail banking prod- were vehicles for lucrative fee-income and payment-pro-ucts. Many institutions have shifted away from a simplis- tection premiums. Today, they are a source of wider mar-tic, volume-driven focus on new-customer acquisition, in- gins in the core product itself, funded by the liability sidestead placing more emphasis on the quality of the of the balance sheet. Payment protection income has dis-customers acquired and the lifetime value they create. appeared in many markets, seriously challenging the fun-This shift has been reflected in the roles that individualproducts play and how they are positioned and priced. 1. This has not generally been the case in the U.S. market, whereOn the asset side, in particular, there has been a notable unsecured credit has traditionally been managed in product silos orreturn to “in franchise” lending, with loans reserved for monolines.10 The Boston Consulting Group
  13. 13. damental business economics. As banks attempt to rec- of deepening customer relationships and value—bothtify the loose credit standards of the recent past—and the now and in the medium term. In the United States, how-havoc those standards wrought—they are placing greater ever, there are reasons to fear a rapid return of the creditemphasis on managing underwriting risk. Banks are in- cycle as banks look for scarce opportunities to gather as-vesting heavily not only in better front-end scorecards sets and the most creditworthy businesses remain reluc-but also in more differentiated treatment of customers tant to borrow.going through the bad-debt process. Obviously, Basel III will have an impact on the futureMortgages. In many markets, mortgages used to be a characteristics and dynamics of certain retail-bankingsource of margin from long-standing customers and a products.means of acquiring new customers. Losses were minimalas housing prices escalated. Today, mortgages are a game Iof microsegments for new customers—constrained byfunding and compromised by risk, but with wider mar- n order to respond to the new environment in retailgins across the book. There are some early signs of in- banking, the best players will need to push their per-creasing competitive pressure from the stronger players, formance to the next level along two broad dimen-but it will take several years for sufficient balance-sheet sions: operational excellence and customer excellence. In-capacity to wear away today’s high spreads. Regulatory deed, it will become increasingly critical for retail banksintervention and more-stringent risk processes have re- to have highly efficient yet flexible operating modelsmoved many of the market’s excesses. We expect this to amid continuing margin pressure. At the same time,remain the case in the medium term but are equally con- banks will need to achieve a far higher level of customer-vinced that the cycle will return as memories fade. centricity, trustworthiness, and overall service excellence if they hope to thrive in the post-crisis environment. InSME Banking. In the recent past, small- and medium- the next two chapters, we explore these dimensions inenterprise (SME) banking was a transactional and lend- business with very low loan losses, low fundingcosts, and many options for highly profitable growth inspecialized lending. The key metric was book size. Today,SME banking remains attractive as a relationship-based,full-service business. Deposit gathering is highly compet-itive, but specialist lending offers high returns in ex-change for high risk. In a balance-sheet-constrainedworld, skillful SME lending can be a very powerful sourceThe Road to Excellence 11
  14. 14. Operational Excellence Becoming a Process and Productivity LeaderT he Boston Consulting Group recently con- The Profile of a Process and Productivity ducted an operational-performance bench- Leader marking of 12 of the top 30 retail banks across North America, Europe, and Asia-Pa- Our benchmarking indicates that no bank has achieved cific. Altogether, these 12 banks account for excellence across all three levers and underlying capabil-roughly 450 million customers, 51,000 branches, and ities. But top retail banks are striving for this goal.more than $14.5 trillion in assets. A Streamlined Organization. In the best banks, a largeEach bank is unique—a product of its own history and majority of employees are dedicated to customer-facingthe nature of its principal markets. But a number of im- sales and service activities. (See Exhibit 3.) Processing isportant insights can be drawn from the ways in which centralized in a small number of centers across regions.these institutions approach processes and productivity Sales, product, and operations management functionsand how these approaches influence their overall retail- are lean, keeping overhead expenses extremely low.banking strategies. These banks carefully investigate subscale, repetitive, and nondifferentiating activities for sustainable outsourcingWhile typical operational-benchmarking exercises focus possibilities. They explore in-sourcing for activities whereon back-office processes and metrics, our effort took a scale provides a competitive advantage. And when reli-comprehensive, end-to-end perspective. This exercise, able, mature vendors are available, they near- or offshorealong with our client work for financial institutions glob- some activities to low-cost, has enabled us to identify three key levers that banksmust utilize in order to achieve operational excellence. Efficient and Effective Processes. Process and produc-They must streamline the organization, develop efficient tivity leaders embrace a high level of industrialization,and effective processes, and improve overall end-to-end characterized by simplified, standardized processes thatperformance. We have also found that these levers must maximize the number of new accounts and loan deci-be supported by some core, underlying capabilities that sions per operations full-time equivalent (FTE). (See Ex-create winning conditions. hibit 4.) Activities are shared across products and chan- nels, typically starting within product families. ProcessesOverall, our benchmarking revealed a wide range in per- and data flows are designed for quality assurance of in-formance among banks, reflecting the vast potential for puts, as opposed to repetitive quality-control checks. Proc-improvement. Below, we first examine the profile of a essing is channel and location agnostic.process and productivity leader. How would such a banklook in terms of these three levers and the necessary un- The best banks also possess a high level of process auto-derlying capabilities? We then look at two players that mation that features straight-through processing (STP).have used a narrow set of sublevers to push the boundar- Up to 90 percent of new-account openings and 70 percenties of excellence, allowing them to create and export stra- of consumer unsecured-credit originations are processedtegic differentiation. with STP. Such banks are capable of automated decision12 The Boston Consulting Group
  15. 15. Exhibit 3. At Top Banks, the Majority of FTEs Are Customer Facing 1 FTE activites (%) 100 82 80 69 60 40 24 20 10 7 3 0 Sales and service Operations Management Best-to-worst 1.5x 3x 4.5x spread Median Best2 Source: BCG Retail Banking Process Performance Benchmarking 2010. Note: Totals do not add up to 100 because no one bank had the best performance in all of the three activities. 1 Full-time equivalents do not include corporate functions, such as risk, finance, HR, and IT. 2 “Best” is defined as the highest level of performance in each standalone activity.making at the point of interaction with the customer. right” interactions across channels. These interactions areWorkflow-enabled processes with prepopulation of re- codified in explicit service-level agreements, differentiatedquired documentation, intelligent validation, skill-based by client segment where appropriate. (See the next chap-routing, and minimized data entry are the norm. ter for a discussion of overall customer excellence.)End-to-End Performance Focus. Process and productiv- Underlying Capabilities That Create Winning Condi-ity leaders focus on end-to-end sales and service effec- tions. Process and productivity leaders create winningtiveness, including excellence in new-account openings conditions inside their organizations that enable opera-and loan approvals, applying a holistic approach to tional excellence. They manage down business complex-streamlining processes and interfaces across the frontline ity in order to reduce fragmented demands on resourcesand operations. (See Exhibit 5.) This approach includes and systems, shorten time to market, and facilitate salesusing the tools and processes necessary to enable front- force training. They routinely examine and prune theirline staff to focus on customers (instead of on low-value product portfolios. They achieve a high degree of opera-administrative tasks). It also fosters efficient multichan- tional harmonization across channels, business units, andnel lead generation and routing, as well as scripted and regions.systematic approaches to sales—with an emphasis onproducts that generate “stickiness.” Another way that these banks foster winning conditions is through rigorous and systematic performance manage-Such banks leverage common sales and servicing plat- ment across sales and operations. The result is a produc-forms, including customer relationship management tivity culture within the bank that supports efficient(CRM) systems, to deliver relevant information succinctly growth. This involves setting expectations clearly andand with minimal complexity. Customer service is effi- succinctly, adopting highly transparent and continuouscient and effective, with consistent, high-quality, “first time performance monitoring, and developing incentiveThe Road to Excellence 13
  16. 16. Exhibit 4. Industrialization Is Critical to Good Performance Best-to-worst Metric Best Median spread New accounts per operations FTE in account opening (and decision making on loans) per year Current/transaction accounts (thousands) 31 8 5x Real estate secured loans (thousands) 0.4 0.2 4x Consumer unsecured loans (thousands) 3 2 3x Existing accounts per operations FTE in post-sale administration per year Current/transaction accounts (thousands) 29 19 6x Real estate secured loans (thousands) 3 2 4x Consumer unsecured loans (thousands) 11 7 5x Source: BCG Retail Banking Process Performance Benchmarking 2010.schemes that are both simple to understand and based have put enough emphasis on reducing business com-on aggressive yet realistic targets. Robust training and plexity and pruning the product portfolio.coaching are part of the culture and are tailored to spe-cific resource needs. At the same time, a very small number of retail banks— in addition to making progress at becoming process and productivity leaders—have chosen to concentrate on aDifferent Ways of Differentiating highly focused subset of these levers, using IT and opera- tions to create strategic differentiation. They have comeAchieving operational excellence using the three levers up with a winning formula—typically developed in theirand underlying capabilities described above is a journey home market—and applied it to their cross-border, inter-that all the banks in our benchmarking survey have em- national activities, reinforcing their competitive advan-barked on. They have taken varying paths and have pro- tage and creating global scale. Two examples are the “in-gressed at different speeds. And for all of these institu- tegrated multichannel-sales champion” and the “CIRtions, the journey is far from complete. champion” described below.For example, most banks have made significant progress The Integrated Multichannel-Sales Champion. This in-in streamlining their organizations. The same goes for im- stitution opted to differentiate itself through superiorproving process efficiency and effectiveness, although no sales productivity with strong integration across chan-banks have been able to improve consistently across nels—even though it was still catching up in terms ofproduct portfolios and product life cycles. In addition, process and productivity performance. The bank haswhile many banks have increased their focus on end-to- achieved a high level of sales channel integration, includ-end performance, achieving a truly holistic balance re- ing common IT and customer-information databases, andmains a challenge. has enabled a shared-contacts infrastructure. It places a heavy emphasis on multichannel cohesion and navi-One reason for this is that most banks are unable to gation.measure end-to-end performance using current metrics,which often focus on the frontline and back office as silos. What is more, this bank optimizes the division of sales-Similarly, a number of institutions have begun to estab- oriented value-chain steps across channels. For example,lish the underlying capabilities critical to success, but few branches focus on product sales. Call centers arrange ap-14 The Boston Consulting Group
  17. 17. pointments via shared calendars with branch employees limited number of hubs, and its single, core IT platformand can handle sales of simple products. The online chan- supports standardized, industrialized processes acrossnel provides product information and, increasingly, sales markets.and servicing of core banking needs. The bank has astrong multichannel CRM infrastructure that provides In addition, the bank’s organization structure supportscomprehensive and consistent client knowledge for effi- this strategic differentiator. Management of IT and opera-cient contacts across all channels. tions is integrated under a fully empowered CIO. Global shared services across IT and operations capture syner-The CIR Champion. This bank has zeroed in on cost-to- gies and share knowledge. The bank’s globally integratedincome ratio (CIR), driven by IT and operations. It has model is rigorously replicated for every acquisition.become a leader in organizational streamlining and im-proving process efficiency. The bank focuses on central- It is worth noting that this bank does accept a certainized processing. All new-account openings, for example, number of tradeoffs in implementing its centralized, in-are processed at the Europewide (not the individual dustrialized model. Laserlike focus on CIR can createcountry) level. The bank concentrates its workforce in a wrinkles in the overall customer experience, such as re- Exhibit 5. Leaders Focus on End-to-End Performance Sales effectiveness and retention Best-to-worst Metric Best Median spread New accounts per sales FTE per year1 800 400 7x Sales conversion per inbound call (%) 10 4 5x Customer attrition rate (%) 4.5 6.0 2x Service activities Best-to-worst Metric Best Median spread Teller, wait time (minutes) 2 4 4x Call center, call wait time (minutes) 0.5 1.0 5x Call center, call-handling time (minutes) 2.5 4.0 2x Call center, first-call resolution (%) 95 85 1.3x New-account openings and loan approvals Transaction/ current Consumer accounts Real estate secured loans unsecured loans Time from first Time from Time from Loans Loans Time from customer touch- application to approval booked booked application to point to account conditional to funds (% of total (% of total funds available readiness approval available applications) applications) Best < 20 minutes < 1 hour < 1 hour 80 < 1 hour 80 Median < 40 minutes Same day > 3 days 70 > 3 days 50 Source: BCG Retail Banking Process Performance Benchmarking 2010. 1 Sales FTEs include branch customer-facing advisors and nonbranch-based sales FTEs (such as agents, hunters, and third-party and mobile sales forces).The Road to Excellence 15
  18. 18. duced online functionality after an acquisition or a thin- has yet become a full-fledged leader in this area, thener product range following standardization of the port- scope of the opportunity is leading many banks to em-folio. Also, a centralized, global model combined with bark on multiyear efforts to raise their operational game.tight cost controls can delay important strategic invest- Cutting-edge banks have made such initiatives a high pri-ments across the enterprise. ority, pushing them to the top of their leadership agendas.T We strongly believe that banks should continue this en- he banking industry’s recent focus on managing deavor. Better still, they should accelerate their efforts out of the crisis proves that cost reduction alone is and investments in order to reach a high level of opera- not enough. Succeeding in the new environment tional excellence as quickly as possible. Those that do willclearly requires excellence in process and productivity. not only reap vast benefits but also create the ability toAlthough our experience with clients and our bench- sustain them.marking survey show that none of the top retail banks16 The Boston Consulting Group
  19. 19. Customer Excellence Reaching the Highest LevelW e have already gone on the record efits may relate to cost, service, convenience, transparen- regarding a number of steps that re- cy, high rates on savings accounts, or other features. Top- tail banks need to take in order to tier banks emphasize simple, targeted relationship win in the postcrisis era. (See The propositions—the more targeted, the better. They devel- Near-Perfect Retail Bank, BCG White op creative marketing initiatives that focus on specificPaper, November 2009.) But as the industry has evolved, customer segments. For instance, affluent women andthe need for further actions has become clear. In fact, it ethnic minorities sometimes require a specialized ap-is not sufficient for leading institutions to be merely proach to their financial needs. Relatively few institutions“near perfect” in terms of customer excellence. They have developed products and services specifically de-must become “truly perfect”—or as close to that ideal signed for such segments, but many that have done so—as possible. Initiatives undertaken to achieve this goal and marketed their offerings intelligently—have beenare highly relevant not only for top-tier banks seeking to glad that they did. (See Leveling the Playing Field: Upgrad-take their game to the next level, but also for second- ing the Wealth Management Experience for Women, BCGand third-tier banks, which should analyze their White Paper, July 2010.)strengths and weaknesses relative to leading players inorder to identify best practices and key priorities for Optimize branch networks. There are some basics thatgradually raising their performance level. For leading too many banks seem to ignore. For instance, banks needbanks, however, the first step is to ensure that they main- to redesign and develop branch networks in order totain their top-tier status. achieve just the right density in both urban and subur- ban locales, with carefully chosen formats aimed at max- imizing visibility and attracting both established custom-The First Step: Remaining a Near-Perfect ers and passersby. Interiors should be light and brightRetail Bank with clear, user-friendly signage. A greeter should always be on duty to welcome and direct customers, to help max-Much of what is required to remain a near-perfect bank imize utilization of sales and service personnel, and towill be familiar. What distinguishes such banks from their drive usage of ATMs, IDMs, telephones, and Internetless effective peers in achieving customer excellence is at- points. Flexible formats with extended hours of opera-tention to detail and quality of execution. tion, sometimes staffed but otherwise consisting of digital self-service kiosks, can offer 30 to 50 percent more conve-Make marketing meaningful. Effective marketing cam- nience to customers.paigns drive traffic to all channels and do not waste timeboasting about how large, wise, international, or steeped Drive sales force effectiveness. Sales force diariesin tradition the bank is. Best-practice banks carry out should be 80 percent prebooked, with appointments con-marketing that means something—sending crystal-clear firmed by phone the previous day. A daily process andmessages about the benefits they can provide that will rhythm at each branch should motivate employees to fillmake a tangible difference in people’s lives. These ben- those diaries, to manage the “show rate,” and to developThe Road to Excellence 17
  20. 20. well-thought-out sales pitches that lead to high conver- small number of layers—seven, at most—and wide spanssion rates and multiple product sales at each interaction of control of eight or more. Such banks have relativelywith potential customers. Highly automated pricing dis- low overhead. This type of structure can thrive if thereciplines linked to specific products, with clearly targeted are energetic and motivational leaders who promote areturns, should be adopted—as should preapproved, high degree of single-point accountability and clear deci-easy-to-acquire offers to existing customers. sion rights. Local empowerment, more-direct lines of communication, and faster decision making are all criti-Enable seamless multichannel naviga- cal and help reduce complaints as well astion. This is a must, not a choice. And it is improve customer outcomes.not exactly a new idea: many retailers Customer navigationhave been multichannel since the nine- across channelsteenth century. But the bar is rising, and Completing the Journey:the gap between the best and the rest is should, above all, be Achieving Truly Perfectwidening. Customer navigation across simple and easy. Customer Excellencechannels—principally, branches, the Inter-net, and call centers—should, above all, be We have observed that most leading bankssimple and easy. There should be no more than one log- pursue some of the above goals and that a handful of thein process for safe and reliable identification and verifica- very best institutions pursue them all. But in virtually ev-tion, and one telephone number for customer assistance. ery case, execution is less sharp than it could be. Indeed,Digital devices should involve a simple user interface that the CEO of one top retail bank once commented that he’dlends itself to intuitive navigation. Extra bells and whis- rather have decent execution than a brilliant strategytles that can add complexity should be avoided. The key any for channels to support, not compete with, one anotherand for customer pathways to be obvious. Also, not every So what must top-tier banks do to move from being nearfunction for every product in every channel must be perfect to truly perfect? Acknowledging that no bank canavailable 24-7. do everything flawlessly and that some choices invariably have to be made, we believe that even the best retailSet clear expectations and deliver on them. Service banks can take steps toward significant improvement instandards that drive true satisfaction, retention, and ad- customer excellence. Sharper execution, which we see asvocacy are built on deep insight regarding the touch- the great differentiator, is the key.points for each product and process that matter most tothe customer. Banks should strive for high levels of first- Combine sales and service excellence with low resolution (above 80 percent), while acknowledg- Many banks that forged their identities by emphasizinging that a single handoff can be more effective for certain just one dimension of the overall operational model haveproducts. Most customers, for example, expect quick re- come and gone. For example, there was a time not sosponses about recent transactions or balances from their long ago when a lot of banks tried to be “sales machines”first call-center contact. They also expect to be able to that embraced an aggressive sales culture. Others concen-shift funds between accounts in order to pay a credit card trated on service and convenience. Still others flew thebill. But they do not necessarily expect to be able to pay low-cost banner. Indeed, cost has always been somethingdown their mortgage or open an investment account of a sine qua non for retail banks. Those that were notwithout being passed on to a specialist. A defining fea- highly efficient could not sustainably compete. The prob-ture of top retail banks is that they set expectations with lem was that low-cost players often had high levels ofrespect to service levels and turnaround times—and churn or attrition owing to poor customer them 99.999 percent of the time (the Six Sigmagoal). Today, however, it is no longer an option to concentrate on just one piece of the puzzle. Truly perfect retail banksStreamline the organization. Banks need to be stream- know that they will have to fit all the pieces together iflined not only on the operations side but across the over- they hope to achieve real competitive advantage. Theyall organization. The best banks are characterized by a will need to excel at sales force effectiveness, have smooth18 The Boston Consulting Group
  21. 21. service processes, run efficient operations in engineered Take another example. If a customer downloads a mort-process factories, manage wide spans of control, and gage application to complete offline, the bank shouldmaintain low overhead, all at the same time—and they make sure to capture the contact details. Then, if the formwill have to do it all smartly. is not submitted within a certain period, the bank can contact the customer to offer help—which can also serveTake multichannel excellence to the next level. Tak- to deepen the multichannel excellence to the next level goes beyondmaking sure that channels are not compet- Prepare for the digital-banking with each other and that access to cus- Over the next five to ten years, there willtomer information is open and unified. It Over the next five to likely be an explosion in digital bankingalso means monitoring channel usage and ten years, there will built on the growing popularity and func-using the data gathered to push leads and tionality of the latest generation of hand-close the loop on them. It means shifting likely be an explosion sets such as the iPhone. In our view, thefrom a passive approach—merely display- in digital banking. increasing use of these devices will noting products “on the shelf”—to proactive, dramatically reduce traffic in branches. Insales-oriented, multichannel lead manage- fact, as in other retail industries, digitalment. Among today’s leading banks, Lloyds Banking handsets can be leveraged to attract desirable customersGroup does this particularly well. who need advice—especially about complex products or overall financial planning. At the very least, there couldIn the future, banks will need to direct leads and informa- well be a big prize in terms of “prequalifying” custom-tion flow regarding sales and service transactions to their ers—making sure that they are ready to have the conver-customers’ preferred points of interaction. And that sations about their financial needs that banks think theymeans every channel—branches, call centers, mobile should be having—and thereby increasing the effective-banking, and the Internet. It is also important to send co- ness and reducing the unit cost of each interaction.herent and consistent messages via direct mail, mobilesales forces, and authorized agents, as well as through That said, the growth of digital banking could significant-print and TV advertising. ly reduce volume and change the nature of interactions at call centers, and perhaps over the Internet as well. ButMultichannel excellence is also about providing choice, digital banking is likely to increase the overall number ofconvenience, and value for the customer—including eas- interactions between customers and their banks, so itier access, reduced purchase risk, and better price trans- may not lead to significant cost reduction in other chan-parency. Banks can gain a higher share of wallet, in terms nels. Banks must develop a careful and far-reaching strat-of both frequency of purchase and ticket value, improv- egy for capturing the long-term opportunity that digitaling cost efficiency through higher capacity utilization banking represents. Among current institutions, Bank ofacross channels. A sharper brand image and better cus- America appears to be ahead of the pack in this arena.tomer acquisition are part of the overall picture. As for social networking, those banks that have beenWhat is more, boundaries are blurring because consumers brave enough to embrace this trend are already reapingdon’t typically “belong” to any one channel. They tend ei- the benefits of rapid, candid feedback from customers.ther to find what they are looking for online and then buy Some banks are discovering that their customers trust theoffline—or the reverse. They want to “learn, buy, and use” recommendations of their friends more than they trustacross several channels. Thus, a sophisticated bank will the bank—but to good effect. A few leading players arepresent a personalized offer of a preapproved credit card starting to experiment with location-based services, ex-in the right channel at the right time. If the customer ex- ploiting the capability to pinpoint the geographic positionpresses interest, the bank will then offer a selection of ful- of mobile devices.fillment channels on the basis of the customer’s historicalpreferences and behavior. But this approach only works if Create a truly differentiated customer experience.the navigation pathways are built in such a way that the The truth is that banks are generally quite similar incustomer can easily complete the process. terms of customer service—in most cases, not very good.The Road to Excellence 19
  22. 22. This state of affairs is often made worse by setting expec- ness and earn his or her trust. Obviously, the primarytations that cannot consistently be met. Obviously, as dis- checking or current account is the anchor of the relation-cussed above, knowing which touchpoints matter most to ship. Because of the cross-selling opportunities these ac-customers, keeping prices as low as practicable, and mak- counts present, customers who hold them are up to 10ing identification and verification processes simple and times more profitable than those who do not—and up toeasy are critically important. So are maintaining one “go 25 percent less likely to have overdraft or default difficul-to” phone number, resolving problems fast and with min- ties. By knowing when salaries and bonuses are typicallyimal handoffs, and identifying and making paid in and when significant payments forthe most of those all-important “moments mortgages, car loans, and other expensesof truth” that shape customer opinion. are usually paid out, and by factoring in The truly perfect retail the pattern of everyday expenditures,But the truly perfect retail bank of the fu- bank of the future will banks can help customers manage their fi-ture will be more proactive. It will warn be more proactive. nances more effectively.customers of potential overdraft scenarios.It will help them figure out whether they Truly perfect banks will develop highly re-can afford to buy the car or house that fined access to behavioral information viathey covet and suggest an appropriate level of savings customers’ use of direct-debit standing orders and debitbased on their income. It will recommend moving to bet- cards. They will be able to observe turnover, average min-ter tariffs or rates on its products—perhaps turning a imum and maximum balances, and patterns of channelvery minor pricing issue into greater customer loyalty. It use, all of which they can leverage to make useful and rel-will encourage customers to plan all of their financial af- evant offers in a convenient and nonintrusive manner. Infairs in a one-stop shop. the past, some banks used behavioral information to their customers’ detriment, but the future will be allIn addition, the truly perfect retail bank will not repeat- about improving the customer relationship.edly ask customers for (extra) identification, proof ofearnings or address, or the ages of their children, because Capture and truly leverage customer data. This initia-it will have captured, calculated, and validated all the in- tive may be the most important of all. Without it, differ-formation it needs to serve the customer—unobtrusively entiating the customer experience and deepening custom-and respectfully—at the outset of the relationship. It will er relationships are much more difficult. Of course, it’s nomake decisions on the basis of the complete relation- revelation that banks possess copious amounts of data.ship—not just one product. For example, modifying an What is less well known is that most banks struggle might-existing account or opening a new one will be as simple ily to glean truly valuable intelligence or insight into theiras a click on a handset or a yes or no at a branch or on customers. Banks need to capture comprehensive custom-the phone. No paperwork, no signature, no hassle. er information, update it continually, and understand it in a holistic way that builds in underwriting risk and appro-What is more, advice—traditionally provided face-to-face priate pricing. Over the past decade, a handful of banks—or on the phone—presents another real opportunity for among them, BNP Paribas—have painfully (but fruitfully)differentiation. In the future, we expect to see a lot more taken the necessary steps to set themselves apart in termsself-help. Some leading banks have successfully intro- of capturing and leveraging customer data. They knowduced opportunities for their customers to learn and even which type of information they need, harvest it carefully,to be entertained. Such offerings can range from simple store it safely, keep it current—and, above all, use it pro-how-to guides to sophisticated comparisons with people actively to cross-sell, improve the customer experience,in other demographics or professions—how they tend to and deepen, invest, or finance their purchases most effectively. By developing such built-in intelligence, top-tier banksTurn a better customer experience into a deeper re- will not only know which of the bank’s own products alationship. It is only by being fair, transparent, and truly customer holds, but also, by analyzing payment traffic,committed to helping customers that retail banks can have a fair idea of what that customer holds in other in-earn the right to handle all or most of a customer’s busi- stitutions. Such banks will understand the customer’s20 The Boston Consulting Group
  23. 23. preferences and patterns of channel use and be able to Use customer excellence as an antidote to regulation.propose financial solutions that are reliable and trustwor- Many, if not all, retail banks are genuinely afraid of regu-thy in the eyes of both frontline colleagues and custom- latory intervention. In our view, customer excellence iners. One caveat is that in some markets, the extent of per- retail banking could be the ultimate defense.missible data collection may be restricted by regulation. Due-diligence steps such as “know your customer” justBreak the tradeoff between procedures and people. scratch the surface. Banks that take the time to thorough-In the past, some banks developed models based explic- ly document their customers’ profiles—such as their de-itly on people and the roles and authority that they mographic characteristics, attitude toward risk, producthave—basically, a bottom-up approach. Other banks de- history and preferences, channel behavior, and financialveloped models that were much more procedural and boundaries and limitations—and that continually updatetop-down. But as customer-centricity comes increasingly such information may find themselves less troubled byto the fore, the best banks are trying to combine the best regulation because they really do know their customersof both models. and act in their interests, which is what regulators care about most.On the sales side, this implies highly disciplined proce-dures that guide the actions of advisors. Such procedures Such banks aim to educate their customers first. They ad-do not allow them much freedom to decide, for example, vertise honestly and don’t gouge. Their products do whatwhen or how to conduct a client meeting. Yet, at the same they say “on the label” and have a transparent and fairtime, banks are granting advisors wider latitude in con- pricing structure, without cross-subsidies—all leading toducting client conversations, depending on their own ex- a high level of “cross buying,” as opposed to cross-selling.pertise, the client’s profile, and other factors. The same is They enable simple account opening and servicing that,true in call centers, where some banks have stopped fo- ideally, is fully automated.cusing on call duration and are placing more emphasis oncustomer satisfaction. Broadly speaking, the number of Banks that embrace these initiatives will have feweryears that banking staff spend in client-facing positions complaints and regulatory concerns, including hindsightmay be on the rise—which would greatly promote cus- risk. Their bywords are simplicity, clarity, and efficiencytomer excellence. for all.The Road to Excellence 21
  24. 24. Appendix From Global to Local— Trends in Specific Retail-Banking MarketsAlthough this report is focused on broad-based global ket, pressure on deposit margins, and continued reliancetrends, we recognize that the dynamics of local and re- on wholesale funding.gional retail-banking markets have varied significantlyduring the crisis and continue to show a wide range ofspecific characteristics. In this Appendix, we briefly ad- Canadadress some of these dynamics on a market-by-marketbasis. Canada’s leading retail banks demonstrated a high de- gree of performance stability during the financial and economic crisis. While growth rates in many product cat-Australia egories have been dampened somewhat and loan loss provisions have increased, the relative impact of theseAustralian banks have come through the financial crisis changes has been small compared with that in many oth-in better shape than most of their global peers, supported er countries. Moreover, thanks to continuing cost-manage-by a strong domestic economy and housing market, a ment discipline and focused resource management, Ca-sound regulatory framework, prudent risk management, nadian banks are poised to deliver robust results goingand government guarantees of customers’ deposits and forward.banks’ wholesale funding. The primary domestic focus of Canadian retail banks isMortgage specialists, which have relied heavily on securi- improving the customer experience and continuing totization, have largely exited the market, and many for- create deeper, multiproduct relationships. Better execu-eign banks have scaled back their activities, particularly tion and successful, targeted strategies in high-growth seg-in commercial property. As a result, the major Australian ments and local markets by some banks have resulted inbanks have consolidated their leading positions. The rela- market share shifts. Several niche, subprime players havetive strength of the Big Four banks has enabled them to withdrawn from the market or reduced their presence,pursue organic and inorganic growth opportunities in with some of the volume migrating to the balance sheetssupport of increasingly differentiated strategies, specifi- of established banks.cally, a focus on Asia (Australia and New Zealand Bank-ing Group), wealth management (National Australia Broadly speaking, Canadian banks have gained signifi-Bank), and consolidating domestic customer franchises cant confidence and enhanced their international reputa-(Commonwealth Bank Group and Westpac Bank). tions. Relatively solid balance sheets coupled with a strong currency is helping these banks position them-However, some significant headwinds exist for the Aus- selves for more aggressive strategies in global markets,tralian banking sector. These include potential household including the United States. Given their improved globaland business deleveraging, historically high property pric- status and focus on growth, several Canadian banks arees—among the world’s highest in real terms—renewing adding to their capabilities by attracting experienced tal-interest from some foreign banks in the Australian mar- ent from other markets.22 The Boston Consulting Group
  25. 25. China Within this context, top French retail banks have demon- strated strong resistance to the financial crisis, managingThe financial health of Chinese banks remained relative- to increase both revenues and profits. Revenues, on aver-ly stable throughout the global financial crisis. Retail age, grew by 3 percent per year between 2006 and 2009banking revenues have showed moderate growth, but (although they decreased by 2 percent in 2008). In addi-their relative share of overall revenues has decreased tion, cost containment initiatives contributed to an over-owing to a massive surge in corporate and state-led busi- all increase in profitability for most banks during theness driven by the government’s economic stimulus crisis.program. Nonetheless, French retail banks will face regulatory chal-In 2009, retail banking profit in China declined. This was lenges that could affect overall profitability. For example,due both to constraints on top-line growth and to an in- despite good results from stress tests, new requirementscreased cost base. In addition, income growth and profit- from Basel III could affect returns and increase competi-ability were affected by a series of regulatory measures tion for deposits. In addition, the evolution of local regu-aimed at cooling off an overheating economy. These lation might influence margin levels and the current busi-measures included increased deposit-reserve ratios and ness mix of French banks.restrictions on loan growth. Impairments dropped backto precrisis levels, and nonperforming loans remained rel-atively low in 2009. GermanyAs Chinese household wealth and the number of million- German retail banks enjoyed relatively stable revenuesaires continue to rise, leading local banks have been ac- throughout the financial crisis. Manageable private-tively developing their wealth-management and private- household debt and limited risk in real estate financingbanking offerings. There has also been rapid growth in contributed to this cards and consumer finance, as well as the launch-ing of a few bancassurance joint ventures. Still, average 2009 operating profit for German retail banks was lower than 2002 levels. Moreover, revenues have nowGoing forward, the Big Five Chinese banks, along with dropped to precrisis levels and are sinking slightly. ButChina Merchants Bank, should continue to hold domi- costs are declining, too—a sign that German banks havenant positions, while some smaller retail-banking players leveraged the crisis to improve their efficiency.will try to differentiate themselves through innovation inproducts and alternative channels. Large, established for- Specialized institutions and direct banks with sparseeign banks will continue to actively expand their branch branch networks have not only profited from the crisisfootprints, and more foreign entrants will likely arrive and increased their revenues; they have also become starand try to ride the wave of growth in the Chinese con- performers, achieving the highest average return on as-sumer-banking market. sets with low average cost-to-income ratios (CIRs) for the years 2001 through 2009. Some of these players have used their efficient processes and lean cost structures toFrance prevail in the market.Retail business represents roughly two-thirds of global Many traditional branch-based banks have undergone re-revenues for French banks, with strong variations among structuring initiatives, and several mergers aimed at in-players (from around 50 percent up to 100 percent). With- creasing back- and head-office efficiencies are in retail banking, French domestic customers account for At the same time, savings banks and mutuals—perceivedmore than 60 percent of all activity, again with a wide as safe havens—enjoyed rising deposit volumes through-range among banks (from about 30 percent for the most out the banks to 100 percent for the local postbank). A small number of institutions dominate the The key challenge over the next few years will be to con-market. tinue generating revenues with deposit products—asThe Road to Excellence 23