Retail Banking in MENAThe New OrderSanjoy SenConsumer Bank Head - Middle East, Pakistan & North Africa6th Annual Middle Ea...
AgendaEmerging Trends : Regulatory and ConsumerState of Banking IndustryNew Retail Banking Order2
State of Global Banking IndustryGlobal banking sector recovering … but mixed signalsTotal market capitalization2004-2010 (...
Banking in Middle EastProfitable banking industry in MENA …..can this be sustained?Total shareholder return by region2009 ...
AgendaEmerging Trends : Regulatory and ConsumerState of Banking IndustryNew Retail Banking Order5
Regulatory TrendsRegulatory actions … can impact nascent recoveryUAE: New Central Bank directivesPossibility of populist...
Basel III Committee ProposalsSignificant pressure on banking profitabilityStrike a better balancebetween financial innovat...
Emerging Consumer TrendsWhat are the implications for the Middle East banking industry?MatureMarketsEvolved infrastructur...
Retail Banking Challenges in the Middle EastHow will Retail Banks continue to survive and grow?YourBankEconomy, PoliticalE...
AgendaEmerging trends : Regulatory and ConsumerState of banking industryNew Retail Banking Order10
New Retail Banking Order – Winning Formula11Challenges 2011 and Beyond
New Retail Banking Order – Winning FormulaStreamline Organisation:6. Diversify across Geographies7. Restructure Operating ...
1. DigitizeMigrate banking services … to customers fingertipsReach the MassesNeed Scale For CostEffectivenessFlexibility T...
2a. Innovate to Reach Gen-YReach out to the Gen-Y … through new means of communicationNew Segment New Habits New Channels...
2b. Innovate PaymentsThe battlefield for payments is expanding … watch the spaceInnovate or EvaporateNon-BankingCompetitio...
2c. Innovate – Own Full Ecosystem of your CityProvide 360 degree service to your customersDigital CitiesCitizens, Business...
3. Create Scale & Build BrandLeverage your brand and marketing $ ……to own the customer’s mindExpense PressureTightMarketin...
4. Build An Off-shore PropositionYour WM has to be complemented by an offshore propositionWealth Management On-shore Off-s...
Customer survey* results: 35% of GCC customers are likely toswitch banks 50+% have a relationship with morethan one bank...
New Retail Banking Order – Winning FormulaFocus On Your Customer:1. Digitize2. Innovate3. Create Scale & Build Brand4. Bui...
6. Diversify Across GeographiesDiversify across geographies …to mitigate the risk of uncertaintyEconomical CyclesPolitical...
7. Restructure Operating ModelFind the right balance of standardization and consolidationBusiness Models Operating Models ...
8. Reengineer ExpensesCost cutting is critical……to offset reducing marginsHealthyMargins in the PastDeleveraging Customers...
9. Prepare For UncertaintyYour strategy formulation process has to adopt for uncertaintyIncreased Volatility Scenario Plan...
New Retail Banking Order – Winning FormulaThank you 25SuccessFocus On Your Customer:1. Digitize2. Innovate3. Create Scale ...
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Sanjoy Sen - Fleming Gulf 6th Annual Retail Banking Conference - Key Note Presentation on New Retail Banking Order - April 2011

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Sanjoy Sen - Fleming Gulf 6th Annual Retail Banking Conference - Key Note Presentation on New Retail Banking Order - April 2011

  1. 1. Retail Banking in MENAThe New OrderSanjoy SenConsumer Bank Head - Middle East, Pakistan & North Africa6th Annual Middle East Retail Banking ForumDubai, Apr-11, 2011
  2. 2. AgendaEmerging Trends : Regulatory and ConsumerState of Banking IndustryNew Retail Banking Order2
  3. 3. State of Global Banking IndustryGlobal banking sector recovering … but mixed signalsTotal market capitalization2004-2010 ($trillions)19% 27% 3% -52% 55% 10%5.66.78.4 8.74.26.47.12004 2005 2006 2007 2008 2009 2010End-of-year valuesSource: Thomson Reuters Datastream, BCG Low point of financial crisis:Lehman Brothers bankruptcyEmergency sale of Merrill LynchBailout of Fannie Mae, Freddie Mac, AIGCollapse of Washington Mutual Impressive recovery of market cap: Market cap bottomed early 2009 at$3.1 trillion Increase by 55% to $6.4 trillion in 2009 Despite a dip in H1-2010, FY 2010increase of 10% Banks recapitalized at great speed; mostbanks paid back bailout funds Mixed signals about future economic outlook Constraints on future growth due toregulatory reforms3
  4. 4. Banking in Middle EastProfitable banking industry in MENA …..can this be sustained?Total shareholder return by region2009 & H1 2010 (%)2010 2009Bubble size representing % of global banking market capitalizationResilient banking industry: Region’s TSR neither fell back steeply norbounced back as much during the crisis Middle East did not follow the gains of otherregions in 2009 but caught up in 2010outperforming APAC, North America andWestern EuropePerformance perspective: Revenues continued to grow and lowcost-to-income ratios After tax ROE of major banks at 17.5% in2009 vs global average of 4.1% High capital ratios Kuwait and Qatar led the Middle Eastrecovery in 20103.610010529295015.21823-998MiddleEast6CEE5LATAM4WesternEurope3NorthAmerica2APAC14.3%4.8%8.5%22%25%34%Source: Thomson Reuters Datastream, BCGNote: 1.. Australia, China, Hong Kong, India, Indonesia, Malaysia, Japan, Pakistan,Philippines, Singapore, South Korea, Sri Lanka, Taiwan, Thailand 2.. US & Canada3 .. EU-15 plus Norway and Switzerland. 4.. Argentina, Brazil, Chile, Mexico, Colombia,Peru and Venezuela. 5 .. Bulgaria, Cyprus, Czech, Hungary, Malta, Poland, Russia,Slovenia, Turkey 6 .. Bahrain, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, UAE4
  5. 5. AgendaEmerging Trends : Regulatory and ConsumerState of Banking IndustryNew Retail Banking Order5
  6. 6. Regulatory TrendsRegulatory actions … can impact nascent recoveryUAE: New Central Bank directivesPossibility of populist governmentmeasures as a result of crisisSEPA in progressPoland: Rec T limiting DBRTurkey: Cap on CC pricing &min due increase to 40%Hungary: Bank taxCARD act 2009: Curb creditcard’s interest rates & feesDurbin Amnd 2010: Limits ondebit-card interchange,eliminates network exclusivityModification to Reg E: “Opt in”for overdraft protectionImpact of $25 Bn, 30% of retailtransaction revenues6
  7. 7. Basel III Committee ProposalsSignificant pressure on banking profitabilityStrike a better balancebetween financial innovationand sustainable growthTier 1 ratio could decline by 50%Stricter definition of eligibleTier 1 capitalIncrease in risk-weightedassets from more stringentcalculation rulesCould mean a need toincrease core capital by15 - 40%Impact on businessRaise more capital = Share value dilutionLimit business activities = Lower profitsStock prices could fall by15 to 25% if extra capitalneeds to be raisedBaselCommitteeproposal7
  8. 8. Emerging Consumer TrendsWhat are the implications for the Middle East banking industry?MatureMarketsEvolved infrastructure, productmix, well established biz modelRefine operating modelsEmergingMarketsThreat ResponseHigh entry barriers, advantageof scale, deep productpenetration and thin marginsCost efficienciesIncrease share of wallet &relationship bankingPartners can be a threat Balanced approach, foster ownproductsLess sophisticated infrastructure Forge winning business modelProducts & target segments stillevolvingSharp Targeting & Productinnovation neededSynergies with Partners E-payment & mobile paymentopportunitiesPopulous and under-bankedsegmentsExpand foot printPenetrate unbanked segments8
  9. 9. Retail Banking Challenges in the Middle EastHow will Retail Banks continue to survive and grow?YourBankEconomy, PoliticalEnvironment CompetitionCautiousCustomers Flight to SafetyRegulatoryChangesPopulist GovernmentMeasures from Crisis9
  10. 10. AgendaEmerging trends : Regulatory and ConsumerState of banking industryNew Retail Banking Order10
  11. 11. New Retail Banking Order – Winning Formula11Challenges 2011 and Beyond
  12. 12. New Retail Banking Order – Winning FormulaStreamline Organisation:6. Diversify across Geographies7. Restructure Operating Model8. Reengineer Expenses9. Prepare For UncertaintyFocus On Your Customer:1. Digitize2. Innovate3. Create Scale & Build Brand4. Build An Offshore Proposition5. Be Customer CentricSuccess12
  13. 13. 1. DigitizeMigrate banking services … to customers fingertipsReach the MassesNeed Scale For CostEffectivenessFlexibility To Change Bank anywhere / anytime with any smartdevice Funds transfers / Remittances Real-time location based triggers Real-time reminders on due bills Snap a picture of check & deposit Mobile to mobile funds transfer Scan and payInvestmentsJapan,hailand,onlionay13Customer
  14. 14. 2a. Innovate to Reach Gen-YReach out to the Gen-Y … through new means of communicationNew Segment New Habits New Channels Media is getting socialand we have to bepresent where theconversation ishappening New partnerships arerequired Trust has to beestablished over timebut can be destroyedovernight14Customer
  15. 15. 2b. Innovate PaymentsThe battlefield for payments is expanding … watch the spaceInnovate or EvaporateNon-BankingCompetitionTelco –Partners or CompetitorsMC Flex & VISA Simply One: 2 payment applications in 1card with option to chooseamong debit, credit, chargeand prepaid 1 card, 1 PIN, 1 expir. dateDebit & Credit Combo via Decoupling DebitPayPass sticker, mimickingNFC technology: Max txn amount AED 90 Same functionality ascontactless card, but attachedto mobile phone Balance can be checked bySMSDisruptive /Paradigm-shifting to Replace Cards/CashProduct / Experimental Focused on OfflineTransaction Convenience Mobile phone number asthe online paymentinstrument Billing through mobile phone bill, can be linkedto debit/credit card Available in 30 countries via top mobile carriersSquare: Application to replace POSterminals Allows acceptance of creditcard anywhere withinternet/wi-fi connection anddevice with audio input(mobile phones)1 215Customer
  16. 16. 2c. Innovate – Own Full Ecosystem of your CityProvide 360 degree service to your customersDigital CitiesCitizens, Businesses,GovernmentsHolistic ApproachSuccess16Customer
  17. 17. 3. Create Scale & Build BrandLeverage your brand and marketing $ ……to own the customer’s mindExpense PressureTightMarketing BudgetsPerceptual ScaleIt isNOTIt ISProviding the right product at the righttime, in the right place with the rightmessaging through the relevantchannelsMoving from a monologue to a dialogueBuilding an impression that Citi iseverywhere in “mine and my family’s life”Only a campaignSimply maximizing brand awareness witha media investmentBuild Presence, own space and passion pointsTailor programs and productsCustomize messagesChange communications engagementapproach17Customer
  18. 18. 4. Build An Off-shore PropositionYour WM has to be complemented by an offshore propositionWealth Management On-shore Off-shore The world’s population of HNWIs* grew17.1% to 10 million in 2009 and HNWIwealth in the Middle East reachedUS$ 1.5 trillion Considering recent developments, yourcustomers need to have the choice tomove some of their funds off-shore:Note: Chart number may not add up due to roundingHNWIs are defined as those having invest. assets of US$1 m+ , excluding prim. residence, collectibles, consumables, consumerdurablesSource: Capgemini Merrill Lynch World Wealth Report 2010Off-shoreIn houseOff-shoreVia Partner1 2NorthAmericaEuropeAPACLATAMMEAfricaHNWI Wealth Distribution, 2006 – 2009 (by Region)18Customer
  19. 19. Customer survey* results: 35% of GCC customers are likely toswitch banks 50+% have a relationship with morethan one bank5. Be Customer CentricRealign business and organization from Product Focus to Customer FocusCustomer Experience Cautious Customers Wallet ShareNote: * ..According to an Ernst & Young study surveying 4,000 bank customers across six GCC countries: Bahrain, Saudi Arabia, Kuwait, Qatar, Oman, UAEFrom a pure focus on numbers... ... to a focus on clients / employee satisfactionFulfill the employee promiseInspire customer loyaltyImprove customer satisfactionMaintain premiumExperience demand growthFinancial successSpecificservice failingTransactionspeedServicequalityNeed forIslamic product21%23%24%45%Key reasons to switch banksMultiple nominations possible:19Customer
  20. 20. New Retail Banking Order – Winning FormulaFocus On Your Customer:1. Digitize2. Innovate3. Create Scale & Build Brand4. Build An Offshore Proposition5. Be Customer CentricSuccessStreamline Organisation:6. Diversify Geographies7. Restructure Operating Model8. Reengineer Expenses9. Prepare For UncertaintySuccess20
  21. 21. 6. Diversify Across GeographiesDiversify across geographies …to mitigate the risk of uncertaintyEconomical CyclesPolitical Challenges /CrisisBalance Your Portfolioof MarketsExpand RegionallyProfits balance out given diversechallenges / opportunity dynamicsacross marketsBuild “Center of excellence” in HostcountryEconomies of scale, reduced costsand replicable business model21Organization
  22. 22. 7. Restructure Operating ModelFind the right balance of standardization and consolidationBusiness Models Operating Models Intelligent ConsolidationCost reductionHomogeneityofmarketsOne biz model butseparate opsmodelsFully integrated bizand ops modelCompletelyseparate biz andops modelOne ops modelacross markets butseparate biz modelsMultipleoperatingmodelsFullyintegratedIdenticalMarketsandbusinessmodelsDiverging /complimentaryOperatingmodelsArchetype models are the basis... ... for an intelligent consolidationSelectivelocaloutsourcingIntelligent consolidation with the aim ofcombining the advantages of “both worlds”: Achieving scale effects where possible Remain flexible where necessaryStandardization of localprocessesCross-countryconsolidation22Organization
  23. 23. 8. Reengineer ExpensesCost cutting is critical……to offset reducing marginsHealthyMargins in the PastDeleveraging CustomersIncr. Regulatory ActionsExpense PressureP&L item Trend Trend / comment+ interest+ fee revenuePressure on pricing due tofierce competition andregulation- cost offundIncreased volatility of COFadds uncertainty= totalrevenueRevenues under pressure as aconsequence- cost ofcreditCOC stable/improving post crisis- expenseCustomers are getting moredemanding pressuringexpenses= EBITEBIT under pressure as aconsequenceMiddle Eastern Bankshave been enjoyinghealthy marginsTrends like de-leveraging customers,increased competition,increased regulatoryactivities will putpressure on revenuesAchieve positiveoperating leverage, cutback on expenses andre-engineer yourprocesses23Organization
  24. 24. 9. Prepare For UncertaintyYour strategy formulation process has to adopt for uncertaintyIncreased Volatility Scenario Planning Plan for UncertaintyScenario planning helps anticipating potential outcomesAs recent developments showed, you need to have a Continuity-Of-Business (COB) strategyYou need to have trip wires and controls in place that trigger alarms to allow you to reactOption1 Option2 Option3- --- -Scenario 1Scenario 2Scenario 3Scenario 41. Start with scenarioassumptions2. Overlay this with yourstrategic options3. Brainstorm the resultsof each strategic optionin each possiblescenarios4. Select the strategicoption that works in alllikely scenarios, not theone that in most24Organization
  25. 25. New Retail Banking Order – Winning FormulaThank you 25SuccessFocus On Your Customer:1. Digitize2. Innovate3. Create Scale & Build Brand4. Build An Offshore Proposition5. Be Customer CentricStreamline Organisation:6. Diversify Geographies7. Restructure Operating Model8. Reengineer Expenses9. Prepare For UncertaintySuccess

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