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World Banking Report 2008

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Wrbr08 Web

  2. 2. Contents 5 Pricing Index 27 Organic Growth in Domestic Markets 53 Appendix: Methodology 58 About Us © 2008 Capgemini. All rights reserved. No part of this document may be reproduced or copied in any form or by any means without written permission from Capgemini.
  3. 3. Preface For the fifth consecutive year, Capgemini, ING, and the European Financial Management & Marketing Association (EFMA) have cooperated to develop this latest annual examination of the global retail banking market. As in previous years, it provides overviews and insights into the global retail banking industry’s dynamics. This year’s edition adds two new countries, Singapore and Denmark, raising the number of countries to 26 and increasing the banks studied from 180 to 194. We continue to investigate the worldwide pricing of day-to-day banking products and services, and this year’s edition continues to highlight the evolution of bank prices for these products and services around the world. Our website, www.wrbr08.com, provides dashboards that offer more detail on each country’s national banking industry. A sample dashboard is included later in this publication. As in earlier editions, our 2008 report adds a spotlight section that focuses on a current retail banking issue. This year’s spotlight highlights the problems banks face as they search for ways to maximise their retail banks’ growth in a changing market, and how some top performers are making strategic choices that ensure their retail operations will sustain the bank’s market performance in the years ahead. Based on case studies, in-depth interviews with banking executives in each market around the world, and quantitative analysis, the spotlight section concentrates on the operational levers and client value propositions that can help retail banks grow in the high-income domestic markets in which they operate today. All of us welcome the opportunity to offer this 2008 edition of the World Retail Banking Report to the financial services community. We hope it will stimulate debate and provide bankers with information they can use effectively as they negotiate the difficult strategic terrain of today’s retail banking landscape. Bertrand Lavayssière Patrick Desmarès Felix Potvliege Managing Director Secretary General Head Strategy & Business Global Financial Services European Financial Management Development of Retail Banking Capgemini & Marketing Association ING Group
  4. 4. 2008 World Retail Banking Report
  5. 5. PRICING INDEx 5 PRICING INDEx Key Findings ß This year the average annual price of core banking services across the 26 studied countries was €70 for the local active user, with price levels ranging from €52 in Asia-Pacific to €79 in North America. ß The average price fell slightly (1%) from last year. ß We have confirmed again that as a nation’s economy matures, the proportion of its GDP per capita allocated to banking services declines. ß From 2006 to 2008, in their struggle to compete, banks used price to influence customer behaviour: – Banks cut the price of sales influencers (e.g. current accounts, cards) by 0.8% a year to promote sales. – Behaviour influencers of two kinds—lower cost products (e.g. online banking or withdrawals at ATMs), whose prices banks cut by 0.2% a year to encourage their use; and higher cost products (e.g. cheques or withdrawals at desk), whose prices banks raised by 0.9% a year to discourage their use. – Unseen services (e.g. exceptions handling), for which prices remained unchanged. ß North America’s price rose the most—averaging 5.7%—resulting primarily from higher prices for payments and cash utilisation; its price had declined during the three previous years due to fierce competition on account management fees. ß Asia-Pacific’s price fell by 11.1% this year, essentially because of intensified competition in Australia and India, particularly in payments and account management. ß European prices remained stable, with only a 0.8% price increase across both the eurozone and non-eurozone countries studied. ß With the advent of SEPA, prices of pan-European payments have stabilised in the eurozone, and (excluding Ireland) even decreased faster in Europe eurozone than in the rest of the world. ß Price discrepancies between banks dropped significantly at both the country and region levels; this was particularly striking in North America, although pricing differences in the eurozone remained the smallest.
  6. 6. 2008 World Retail Banking Report METHODOLOGY We collected most of the data for this 2008 edition For this 2008 edition, we expanded the geographic of the World Retail Banking Report during the last scope of the pricing index and spotlight to 26 three months of 2007. We continued to focus on four countries, adding Denmark and Singapore, and the categories of banking products and services: account number of participating banks rose from 180 to 194 management, cash utilisation, exceptions handling, (see Figure 1.1). Once again, we compared retail and payments. Figure 1.2 shows the components of banking in four regions: Europe eurozone, Europe each category. non-eurozone, North America, and Asia-Pacific. Figure 1.1 New Countries Countries in Number Banks Surveyed Region in 2008 WRBR 2007 WRBR of Banks Austria 6 Belgium 4 France 10 Germany 7 Europe Eurozone Ireland 5 Italy 6 Netherlands 6 Portugal 6 Spain 18 Croatia 7 Czech Republic 5 Denmark 4 Norway 6 Romania 9 Europe Non-eurozone Poland 11 Slovakia 6 Sweden 6 Switzerland 6 UK 5 Canada 6 North America US 9 Australia 5 China 9 Asia-Pacific India 9 Japan 20 Singapore 3 TOTAL countries/banks 26/194
  7. 7. PRICING INDEx 7 To compare prices from the consumer’s point of To compare prices around the world, we also view, a local expert defined a basket of products and developed a global profile. It is not governed by local services reflecting the typical consumer’s banking product usage, which obviously varies by country, behaviour in each country. We call these local but by a standard basket of products for all countries. profiles, which we divided into three frequency-of- While it is not as precise as the local profile, it is the use categories: less active, active, and very active users only practical way we can effectively compare global (also shown in Figure 1.2). The price index built on banking prices. these local profiles measures what consumers in a particular country, at these frequency-of-use levels, When comparing prices over more than one year, we pay annually for their day-to-day banking services. consistently use prices based on profiles as updated for this latest edition. Figure 1.2 Scope of Products and Services in the Global and Local Pricing Indexes Core Day-to-Day Two Profiles Three Usage Patterns Nineteen Products Services Banking Needs Current account Account Products’ frequencies On-line banking Less Represent 20% of Management of use are estimated Call centre Active users with the lowest for each country Users frequencies of use to reflect local Local consumption patterns Profile Measures cost Deposit at desk of basic banking Deposit at ATM needs for domestic Withdrawal at desk customers Cash Utilisation Withdrawal at bank’s ATM Withdrawal at other banks’ ATM networks Active Account for 60% Users of the population Debit card stop payment Exceptions Cheque stop payment Handling Document search Banker’s draft Identical frequency of use for all countries Global Profile Allows the comparison Cheque of price levels based Represent 20% Very Debit card on a single profile of users with the Active Credit card highest frequencies Users Internal wire transfer of use Payments External wire transfer Standing order (fixed amount transfer) Direct debit Source: Capgemini analysis, 2008.
  8. 8. 8 2008 World Retail Banking Report NEW COUNTRIES IN OUR 2008 REPORT GENERAL PRICING ANALYSES Denmark Local Profile Danish banks have a long-standing tradition of Local active users pay an average of €70 a year for partnering, which facilitated a large consolidation their day-to-day banking needs. As Figure 1.3 move that started in the 1990s and continues. Four illustrates, price levels varied from one region to banks now dominate Danish retail banking, and two another, ranging from a low of €52 in Asia-Pacific to of them, Danske Bank and Nordea Bank Denmark, €79 in North America. The average price less active control over 50% of the market. users of bank products and services paid was €35, compared to the very active users’ much higher €122 Deploying new technologies, notably for credit (about 3.5 times more). transfers, is an established industry strength in Denmark. Danish banks recently successfully Again, these are averages, and the situation varies by developed packages with free standard products region. In Europe eurozone, for instance, the prices and services for Internet users, and as a result, most banks charge the three groups do not vary Danish Internet prices are among the lowest in widely—very active users pay only twice as much Europe eurozone. Its fee structure is similar to as less active users. In contrast, Asia-Pacific banks other Nordic countries—heavily dependent on charge very active users as much as five times the payments (79%) and, less so, on cash utilisation price they charge less active users. (19%), with almost free account management. Global Profile Pricing between Danish banks varies significantly, To develop a price benchmark of banks regardless of and cannot be explained by geographic their clients’ behaviours, we computed prices based on fragmentation. This signals a market in which a single global active user profile, as detailed in the customers view relationship quality as important, Methodology section above. Measured on this global and where packaged offerings make it difficult for profile price index, Europe non-eurozone (118% of customers to compare prices. the world average) and North America (141%) remain the most expensive regions (see Figure 1.4). Singapore The Singaporean retail banking market is very concentrated, with three banks—DBS Group, United Overseas Bank, and Overseas Chinese Banking Group—controlling 67% of the market. Transaction banking is still the prevailing business model, with fast-growing demand, but the large banks are trying to develop cross-selling into the burgeoning mass affluent market. Singaporean banks for many years have been leaders in using new technologies in retail banking, such as contactless payments and mobile banking. Singapore’s prices are comparable to Australia’s, but its fee structure is closer to those of China and Japan, with a very large share of fees derived from payments (83%) and very limited fees from account management (5%). The minor differences between bank prices in Singapore reflect a very competitive, transaction-oriented market.
  9. 9. PRICING INDEx Figure 1.3 Average Local Profile Price for 2008 (€) 250 200 197 Very active user price Active user price Less active user price 150 136 122 101 104 100 74 79 75 70 50 52 45 49 35 31 22 0 Europe Eurozone Europe Non-eurozone North America Asia-Paci c Average Source: Capgemini analysis, 2008. Figure 1. Global Profile Prices for 2008 Active Users (€) 150 140 117 100 99 83 57 50 0 Europe Europe North America Asia-Paci c Average Eurozone Non-eurozone Source: Capgemini analysis, 2008.
  10. 10. 10 2008 World Retail Banking Report Price Analysis Based on this product categorisation, we analysed The average price for active users decreased 1% this banks’ pricing policies from 2006 to 2008 to year. Prices followed a similar evolution this year for understand their actions and underlying objectives local less active users (-0.1%) and for local very active (see Figure 1.5). Banks built loyalty and won new users (-0.9%). clients by reducing prices on sales influencer products, which they cut by 0.8% a year. Banks also reached To assess why banks have changed their prices for this objective in several markets by creating for certain products, we have classified banking packaged offerings. products into three categories according to their impact on customers: Many banks reduced their cost of operations by ß Sales influencers: Products whose prices primarily influencing clients’ behaviour, using the prices of affect a consumer’s decision to buy banking services behaviour influencer products to move their customers or change banks. Current accounts and credit/debit towards less expensive channels or payment means cards fall into this category, because theirs are the and away from more expensive products and services. only prices consumers commit to pay up front Banks cut the average price of the less-costly when they open an account or buy a card. behaviour influencer products by 0.2% a year to encourage their adoption. At the same time, they ß Behaviour influencers: Products whose prices increased the price of the more costly influencers by inf luence a consumer’s behaviour, but fall outside 0.9% a year to discourage customers from using them. the direct buying situation. We have split them according to their production cost for banks: They might also have enhanced their earnings by – Less-costly products for banks: On-line banking, raising prices on unseen service products, yet most deposits and withdrawals at ATMs, direct debits, banks let these prices stand, at least partly held in transfers, and standing orders check by consumer associations or regulators. – More-costly products for banks: Call centres, deposits and withdrawals at desk, withdrawals at other banks’ ATM networks, cheques ß Unseen services: Services for which consumers have to pay without having had any choice or decision, such as exceptions handling.
  11. 11. PRICING INDEx 11 Figure 1.5 Average yearly change Product and Service Variations, Products/Category from 2006 to 2008 200–2008 (%) Sales influencers -0.8% Current account 0% Debit card -1.3% Credit card -1.0% Behaviour influencers, less costly -0.2% Call centre -2.3% On-line banking -0.6% Cash deposit at ATM 0.0% Withdrawal at bank’s ATM -0.5% Direct debit 0.3% External transfer 1.1% Internal transfer 0.9% Standing order -0.3% Behaviour influencers, more costly 0.9% Cash deposit at desk -0.4% Withdrawal at desk 0.2% Cheque 1.9% Withdrawal at other banks’ ATM networks 2.0% Unseen services (exceptions handling) 0.0% Banker’s draft 0.4% Cheque stop 1.2% Debit card stop -1.6% Document search 0.1% All products -0.1% Source: Capgemini analysis, 2008.
  12. 12. 12 2008 World Retail Banking Report Cost Based on GDP/Capita Charges for core banking services consumed an average of 0.55% of GDP per capita across the 26 countries we studied. As illustrated in Figure 1.6, bank pricing as a proportion of per capita GDP is higher in less-developed countries. The proportion of GDP per capita allocated to banking services declines as an economy matures, at least partly because consumers in a mature economy begin to regard these core banking services as a commodity. Figure 1. Percentage Cost of Banking, by GDP per Capita 4.5% 4.0% Country Percentage of a country’s GDP per capita 3.5% paid for core banking services (%) 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 0 10,000 20,000 30,000 40,000 50,000 60,000 GDP per capita (€) Source: Capgemini analysis, 2008.
  13. 13. PRICING INDEx 13 REGIONAL PRICING ANALYSES As illustrated in Figure 1.7, overall prices remained In contrast to other banking activities, such as asset essentially stable across Europe (up only 0.8%), but management or investment banking, retail banking they soared in North America (up 5.7%) and fell is essentially a local business. National retail banking precipitously in Asia-Pacific (down 11.1%). markets for the most part are not affected by other national markets, although economic integration at Each region or even country is shaped by its history. the regional level (European Community, NAFTA) is We have used the data collected for previous editions beginning to have an impact. Based on what we have to put this year’s changes in perspective, as the learned from past editions, we know that the regional regional analyses below indicate. approach will generate the most accurate results. Figure 1.7 Evolution of Local Profile Prices, 2007–2008 (%) 8% 6% 5.7% 4% 2% 0.8% 0.8% 0% -1.0% -2% -4% -6% -8% -10% -12% -11.1% Europe Europe North America Asia-Paci c Average Eurozone Non-eurozone Source: Capgemini analysis, 2008.
  14. 14. 1 2008 World Retail Banking Report North America North America registered the biggest price increase. The structure of North American pricing evolved North American prices went up by 5.7% (€4) for slowly over the years, characterised by free account local active users over last year. This price increase management since 2005, which was balanced by the was general across the whole continent, and reflects importance of two other fee categories: payments the growing market power large banks have gained (as much as 79% in the US, and still growing) and by growing, mostly through consolidation. North cash utilisation (48% in Canada, higher than in any American banks are currently trying to compensate other country) (see Figure 1.8). for their past low pricing strategies now that their earnings ratios are threatened by the sub-prime crisis. Figure 1.8 Sources of Fees for Core Banking Services in North America (%) 100% 90% 80% 49% 70% 57% 60% 63% 64% 79% 60% 50% 3% 40% 6% 7% 7% 7% 30% 31% 48% 20% 33% 29% 29% 10% 10% 0% 0% 0% 10% 1% 0% 6% 0% 2005 2006 2007 2008 USA Canada Edition of World Retail Banking Report Country (2008) Payments Exceptions Handling Cash Utilisation Account Management Source: Capgemini analysis, 2008.
  15. 15. PRICING INDEx 15 The main price increases over the year were in policy to influence customer behaviour towards payments and cash utilisation (see Figure 1.9). In more cost-efficient means of payment. In the cash payments, raising external and internal transfer utilisation category, withdrawals at other banks’ prices rather than prices for cards or cheques reflects ATM networks accounted for most of the increase, the banks’ competitive intent to keep prices low because raising this price was unlikely to impair a on products that are most important in customers’ bank’s competitive edge, and consumers might even minds when choosing their banks, rather than a blame a bank’s competitors. Figure 1. Product and Service Price Variations vs. Last Year for Local Active Users in North America (€) 3 2.7 1.4 1 0.0 0.1 -1 -3 Account Cash Exceptions Payments Management Utilisation Handling 2.5 2.0 2.0 1.5 1.1 1.0 1.0 0.5 0.2 0.2 0.1 0.0 -0.2 -0.3 -0.5 Withdrawals Withdrawals Withdrawals Cheque Direct External Internal Standing at bank's at desk at other (price per debit wire transfer wire transfer order ( xed ATM banks' ATM cheque) amount networks transfer) Cash Utilisation Payments Source: Capgemini analysis, 2008.
  16. 16. 1 2008 World Retail Banking Report Asia-Pacific The Asia-Pacific region has had a more consistent pricing structure across the four product and service categories (see Figure 1.10). Its overall structure results from the combination of two sets of countries: China, Japan, and Singapore, which follow the US pattern of free account management and heavy payments fees, in contrast to Australia and India, where fees derived from exceptions handling greatly overshadow those from payments, much like in the UK. Account management fees, which have fallen from 22% to 15% since our 2005 report, may be on a downward trend. Figure 1.10 Sources of Fees for Core Banking Services in Asia-Pacific (%) 100% 10% 90% 80% 43% 44% 49% 47% 44% 70% 51% 60% 84% 92% 83% 50% 24% 24% 40% 23% 26% 11% 43% 30% 11% 16% 13% 13% 1% 20% 28% 0% 10% 2% 10% 22% 14% 13% 16% 16% 15% 1% 0% 8% 0% 5% 0% 2005 2006 2007 2008 Australia China India Japan Singapore Edition of World Retail Banking Report Country (2008) Payments Exceptions Handling Cash Utilisation Account Management Source: Capgemini analysis, 2008.
  17. 17. PRICING INDEx 17 Asia-Pacific’s price declined the most. The local active First, the decrease in account management prices can user price in Asia-Pacific fell by 11.1% (€5.5). This be traced to the Australian national market, where decrease resulted mainly from price cuts in payments two large banks launched flat-fee accounts in a fierce (reversing a previous trend) and account management competitive bid to acquire new clients, drawing (see Figure 1.11). Both these changes reflect specific down the average fee charged for the region’s current national market situations. account. Second, cuts in payments fees (external wire transfers and credit cards) occurred primarily in India, where state-owned banks were attempting to align their tariffs with those of private banks. Figure 1.11 Product and Service Price Variations vs. Last Year for Local Active Users in Asia-Pacific (€) 3 1 -1.6 -0.5 -0.4 -3.0 -1 -3 Account Cash Exceptions Payments Management Utilisation Handling 1.5 0.9 1.0 0.7 0.4 0.5 0.5 0.5 0.0 -0.2 -0.3 -0.5 -1.0 -0.9 -1.1 -1.2 -1.1 -1.5 -1.6 -2.0 -2.0 -2.5 Withdrawals at other banks' ATM networks Cheque (price per cheque) Standing order ( xed amount transfer) Cheque stop payment Current account Withdrawals at bank's ATM Banker's draft (cashier's check) Debit card stop payment Document search (desk) Credit card Direct debit External wire transfer Internal wire transfer Account Manage- Cash Exceptions Payments ment Utilisation Handling Source: Capgemini analysis, 2008.
  18. 18. 18 2008 World Retail Banking Report Europe Eurozone The Europe eurozone fee structure is not homogeneous, although a slow price convergence trend is evident as Germany, Italy, and the Netherlands progressively reduce their emphasis on account management fees (see Figure 1.12). Cash utilisation fees have increased steadily over the past three years, a clear signal that euro unification has not significantly reduced the cost of using cash. It is not surprising that, given SEPA, the cost of using cash is a major item on the agendas of both the European Commission and the European Central Bank. Figure 1.12 Sources of Fees for Core Banking in Europe Eurozone (%) 100% 90% 25% 34% 80% 43% 45% 52% 49% 58% 55% 54% 5% 70% 63% 71% 11% 1% 78% 60% 82% 13% 5% 50% 0% 5% 9% 8% 6% 6% 24% 40% 6% 5% 8% 5% 8% 9% 6% 1% 30% 4% 1% 59% 57% 42% 20% 37% 34% 22% 31% 31% 31% 27% 14% 29% 10% 19% 2% 0% 4% 6% 0% 2005 2006 2007 2008 Austria Belgium France Germany Netherlands Portugal Spain Italy Ireland Edition of World Retail Banking Report Country (2008) Payments Exceptions Handling Cash Utilisation Account Management Source: Capgemini analysis, 2008.
  19. 19. PRICING INDEx 1 In Europe eurozone, prices remained relatively stable, Figure 1.13 Product and Service Price Variations with only a 0.8% (€0.6) rise. The changes in Europe vs. Last Year for the Local Active User in Europe Eurozone (€) eurozone were much smaller than those outside Europe. They were mainly related to payments (see Figure 1.13). Banks raised the price of internal wire 3 transfers at desk to compensate for the development of Internet origination (generally free), while the price of external wire transfers decreased under the 1 0.5 influence of SEPA. Account management prices 0.0 0.2 remained essentially stable, because a price increase -0.1 in current accounts was offset by a cut in the price of -1 on-line banking. -3 Account Cash Exceptions Payments Management Utilisation Handling 1.4 1.2 1.1 1.0 0.8 0.6 0.4 0.4 0.2 0.0 -0.2 -0.1 -0.4 -0.6 -0.5 -0.6 -0.8 Current account On-line banking Cheque (price per cheque) External wire transfer Internal wire transfer Account Payments Management Source: Capgemini analysis, 2008.
  20. 20. 20 2008 World Retail Banking Report The Single Euro Payment Area (SEPA) will lead to The price of this basket of products has stopped lower prices. We have continued last year’s effort to decreasing in Europe eurozone, and stabilised at €48. track SEPA’s impact on prices. The expected result The result would be much better except for turmoil is that a standardised payments structure across the in the Irish market, without which the price would eurozone will lead to tougher competition and lower have fallen by 6.3%—from €41 to €38 (see Figure prices. To check this hypothesis, we created the 1.14). As a comparison, outside Europe eurozone the “pan-European payments means”, which we defined price of this same basket of products has dropped as the basket of products that will progressively be by only €1, from €34 to €33 (a 3% drop). SEPA, governed by SEPA’s pan-European standards and therefore, is probably still drawing prices down in regulations. These include internal and external wire Europe eurozone. transfers, direct debits, credit and debit cards, and their underlying current accounts. This year these products accounted for 64% of the fees paid by local active users in Europe eurozone. Figure 1.1 Price of Pan-European Payment Means for the Local Active Profile, 2008 (€) 140 130.0 120 100 Average Eurozone 80 €48, similar to 2007 73.7 63.7 Average Rest of the World 60 56.7 57.1 56.8 €33 vs. €34 in 2007 50.8 50.8 39.3 40 37.3 33.0 33.4 32.4 32.0 31.9 30.6 26.2 26.2 24.3 19.3 18.1 16.5 20 14.8 12.2 8.1 3.5 0 A B C D E F G H I J K L M N O P Q R S T U V W X Y Z Europe Eurozone Rest of the World Source: Capgemini analysis, 2008.
  21. 21. PRICING INDEx 21 Europe Non-eurozone The fee structure in Europe non-eurozone falls between North American and Europe eurozone patterns (see Figure 1.15). This results mainly from the combination of Nordic countries, which feature US-style fees heavily dependent on payments, along with Eastern Europe countries, where banks charge relatively high prices for account management and cash utilisation. The UK, however, does not fit in either of these categories, but instead features an original pattern that relies on exceptions handling. Figure 1.15 Sources of Fees for Core Banking Services in Europe Non-eurozone (%) 100% 12% 1% 90% 33% 32% 80% 44% 43% 56% 55% 55% 58% 1% 70% 59% 4% 41% 75% 79% 75% 60% 2% 27% 50% 99% 1% 32% 21% 40% 9% 9% 9% 9% 15% 52% 30% 12% 2% 16% 16% 1% 14% 46% 20% 11% 40% 32% 32% 1% 26% 4% 19% 0% 10% 23% 18% 19% 20% 2% 1% 0%22% 10% 0% 5% 0% Czech Republic 2005 2006 2007 2008 Croatia Switzerland Denmark Romania Slovakia Sweden Norway Poland UK Edition of World Retail Banking Report Country (2008) Payments Exceptions Handling Cash Utilisation Account Management Source: Capgemini analysis, 2008.
  22. 22. 22 2008 World Retail Banking Report In Europe non-eurozone, prices increased by 0.8% (€0.6) for local active users. In payments, banks increased credit card fees, but this was offset by cuts in the prices of external and internal wire transfers (see Figure 1.16). While call centre fees decreased, prices of the two other account management products—credit account and on-line banking—were raised across Europe non-eurozone. Figure 1.1 Product and Service Price Variations vs. Last Year for Local Active Users in Europe Non-eurozone (€) 3 1 0.5 0.4 -0.2 -0.1 -1 -3 Account Cash Exceptions Payments Management Utilisation Handling 1.0 0.8 0.8 0.6 0.4 0.4 0.4 0.2 0.0 -0.2 -0.2 -0.2 -0.2 -0.4 -0.3 -0.6 Call Current On-line Withdrawals Credit card External Internal centre account banking at desk wire transfer wire transfer Cash Account Management Payments Utilisation Source: Capgemini analysis, 2008.
  23. 23. PRICING INDEx 23 PRICE DISCREPANCY IS DECREASING Retail banking is still mainly a national business, An important feature of banking markets lies in and we examined price discrepancy first at the the differences between national banks’ prices. country level (see Figure 1.17). Large discrepancies Prices are closer together in more mature markets, are usually associated with fast-changing markets, because consumers consider banking services to be such as Spain and Ireland in Europe eurozone; commodities, and tough competition prevails on Denmark, Romania, and Slovakia in Europe non- standardised products. eurozone; or China and India in Asia-Pacific. For the countries we studied both last year and this year, the average national price discrepancy decreased from 27% to 25%. Figure 1.17 National Price Discrepancy for Local Active Users (%) 160% 154% 140% 120% 100% 80% 68% 60% 51% 50% 46% 47% 40% 37% 27% 27% 23% 23% 23% 21% 20% 17% 18% 17% 20% 16% 12% 12% 12% 12% 10% 9% 7% 4% 0% Germany Italy Netherlands Portugal Croatia Czech Republic Ireland Spain Austria Belgium France Switzerland Singapore Denmark Romania Australia Slovakia Sweden Canada Norway Poland Japan China India USA UK North Europe Eurozone Europe Non-eurozone Asia-Pacific America Source: Capgemini analysis, 2008.
  24. 24. 2 2008 World Retail Banking Report At the regional level, the general trend was also The evolution in Asia-Pacific has been very different. towards reducing discrepancies, although quicker It reflects Australian prices (the highest of the region) than within national boundaries (see Figure 1.18). moving downward, and Japanese prices (the lowest) It was especially fast in North America, where price going up. In the European regions, the trend towards differentials were cut almost in half in two years. reduced price discrepancy has slowed in Europe This result is consistent with our earlier interpretation non-eurozone, and even stopped in Europe eurozone, of price increases led by fast-growing retail banks. despite SEPA’s intended harmonising effect. Nonetheless, price discrepancy in Europe eurozone remains the smallest today. Figure 1.18 Regional Price Discrepancy for the Local Active User, 2005–2008 (%) 100% 90% 86.6% 83.5% 84.2% 80% 75.5% 70% 60% 59.0% 57.1% 50% 46.2% 44.7% 41.7% 39.1% 39.5% 40% 37.6% 34.1% 33.8% 30.4%32.0% World Retail 30% Banking Report Edition: 20% 2005 2006 10% 2007 2008 0% Europe Eurozone Europe Non-eurozone North America Asia-Paci c Source: Capgemini analysis, 2008.
  25. 25. PRICING INDEx 25 Conclusion On a global scale, the price for core banking services, based on the local active user profile, declined by 1% from last year, averaging €70 in our 2008 study. Our results indicate that price evolution at the product level can effectively be categorised according to the way customers perceive them. Prices of sales influencers (current accounts, cards) decreased fastest (0.8% per year), reflecting the banks’ desire to remain as competitive as possible with the product prices customers can see clearly and rely on to make their “buy” and “leave-or-stay” decisions. The behaviour influencers (channels and payment means), which banks can use to attract customers towards or repel customers from certain products or services, were clearly being used for that purpose based on the pricing data. Banks cut the prices of those they found to be less costly by 0.2% per year, and raised prices on the more costly ones by 0.9% per year. Prices for unseen services (such as exceptions handling), which customers incur without choice or intent, remained flat. Although they have often been used in the past as an easy way to raise revenue without impairing sales, not using them now probably reflects a reluctance to further provoke concerned regulators and consumer associations. A geographic analysis revealed radical and persistent discrepancies in banking fee structures. Important price variations between countries and world regions are hidden behind a quasi-stability at the global level. This is particularly true for Asia-Pacific and North America, the first of which experienced an 11.1% price decrease, while the second saw a 5.7% price increase. European prices, meanwhile, remained stable. Although retail banking is still essentially a local business, there are a few signs of internationalisation and an increase in competition at the regional level. Under the influence of SEPA, prices of pan-European payment means decreased faster in Europe eurozone than in the rest of the world (excluding Ireland). Price discrepancies between banks decreased significantly this year, at both the country and regional levels. This trend was especially fast in North America, but the price discrepancy in Europe eurozone is still the smallest.
  26. 26. 2 2008 World Retail Banking Report
  27. 27. ORGANIC GROWTH IN DOMESTIC MARKETS 27 ORGANIC GROWTh IN DOMESTIC MARKETS Key Findings ß The world retail banking market, based on net income, was €1,280 billion in 2006, and forecasts indicate it will rise to €1,900 billion by 2017, with half of the new income coming from high-growth markets. ß Although the high-income portion of the world retail banking market will drop from 75% in 2006 to 65% in 2017, it will remain very important to banks. ß Over the past five years, most of the world’s leading banks have grown their domestic retail banking revenues faster than their costs, significantly improving their cost/income ratios. ß Four pillars have supported leading banks’ efforts to achieve profitable organic growth in their domestic markets: combining fast time to market, innovation, and local client intimacy; full multi-channel integration and optimisation; increasing sales productivity through dynamic branch management; and leveraging a multi-brand portfolio to create attractive value propositions for each market segment. ß A large proportion of the 52 top banks’ executives in 15 countries told us they have used these four pillars, and expressed their continuing confidence in them. ß Most assumptions on which past retail banking growth strategies were based are challenged by today’s structural changes in the market, including tougher regulations, more flexible technology, more demanding clients, and new competitors. ß Recognising that structural changes will increase competition and draw prices down, we simulated this effect in eight western European countries; the simulations indicated that banks would lose 36% of their projected net income (and lose more than 50% in certain markets). ß Banks that have already built strong client relationships, and captured from their clients a good share of wallet, need to renew their distribution strategies and develop business organically in today’s saturated and slowly growing domestic markets. ß Successful banks can use three distribution strategies to grow beyond the traditional retail banking business model in high-income markets: “Better sell”, to better fit diverse clients’ needs; “Larger offer”, extending the offering to non-financial products and services; and “Indirect business”, selling through other distributors. ß The 52 interviewed bankers selected three models as the most likely to happen: Trust Operator, Discount Bank, and General Broker. Many banks even admit to having their own projects using the first two models. ß Banker interviewees identified Discount Bank, General Broker, and Open Source Bank as potentially the most disruptive models in the retail banking business, because these models could cause their two worst fears to come true—a price war and competition for client relationships. ß The best performers will combine several of these distribution models—and perhaps still others—to succeed in the future retail banking market.
  28. 28. 28 2008 World Retail Banking Report Retail banking is a major activity for most large THE IMPORTANCE OF banks, helping them grow profitably and maintaining DOMESTIC RETAIL OPERATIONS their stock value. Succeeding in the past has never The global retail banking market is huge, with 2006 been easy, but severe challenges lie ahead. Our teams net income of €1,280 billion, and it is expected to in the 15 countries we studied for this year’s spotlight reach €1,900 billion by 2017 (see Figure 2.1). The have interviewed 52 banking executives to understand potential increase of €620 billion will be generated in how they intend to succeed in the future. Using these nearly equal amounts in high-income and other high- observations, combined with the views of Capgemini growth markets. Despite a slower growth rate, we experts in the field, this year’s spotlight outlines some expect retail banking to remain a major force in high- of the best paths banks can take to remain major income economies over the next ten years, falling only retail marketplace players in the years ahead. slightly from its current 75% of global net revenues to 65% in 2017. Figure 2.1 Retail Banking Revenues in 200 and 2017F (€bn) Y2006: €1,280 billion Y2017F: €1,900 billion 580 33% 31% 2% 10% 460 28% 1% 25% 8% 433 High-income Markets High-income Markets €900bn = 75%a €1,200bn = 65%a 350 Revenue 2006 (€bn) Forecast Revenue 2017 (€bn) 160 145 145 125 110 95 85 90 63 65 50 40 35 35 30 25 North Western Japan Australia Rest of Rest of China India Rest of ME and America Europe America Europe Asia-Paci c Africa Source: Capgemini analysis, 2008; World Bank statistics; UNDP. Notes: Revenue = net interest income + net fees and commission income + other income; 2017 forecast calculated based on each country’s GDP growth forecast; fees and interest rates based on Capgemini price index research; ME is Middle East; Rest of America is all America excluding the US and Canada. a high-income markets definition by United Nations human Development Research; here they are North America, Western Europe, Japan, and Australia.
  29. 29. ORGANIC GROWTH IN DOMESTIC MARKETS 2 The top worldwide banks’ retail banking operations Because a few large banks hold dominant positions in are primarily located in high-income markets, and high-income markets, regulators now tend to discourage these banks have but little potential for further further mergers and acquisitions. They want to ensure external expansion. Moreover, except for six banks— fair competition and avoid excessive concentrations of BNP Paribas, ABN AMRO, BBVA, Santander, risk. Domestic growth through acquisition, therefore, is HSBC, and Citigroup—the proportion of domestic no longer a viable option in most high-income markets. net revenues for most banks is greater than 50% (see Alternatives are also limited, and in any case promise Figure 2.2). Their market development has up to now only moderate returns. been achieved mainly in their domestic markets. A bank’s organic growth in its domestic market is, therefore, likely to hold the key to a bank’s success over the next ten years. This year’s spotlight is trained on that issue, and investigates the challenges banks face as they attempt to grow organically in saturated markets during a period of sluggish economic growth. Figure 2.2 Domestic as a Percentage of Global Retail Banking Net Revenues, 2002–200 100% 80% 60% 50% 40% 20% 0% Santander HSBC ABN AMRO BBVA BNP Paribas Citigroup Deutsche Bank Société Générale KBC Fortis UniCredit Banca Barclays RBS ANZ Rabobank ING HBOS Swedbank Crédit Agricole NAB Westpac CBA Banca Intesa Sanpaolo Dexia La Caixa Handelsbanken Banques Populaires Caisse d'Epargne Crédit Mutuel–CIC Dresdner Bank Postbank Caja Madrid Bank of America Wachovia Wells Fargo MUFG Mizuho SMBC Resona SEB Nordea Source: Capgemini analysis, 2008; World Bank statistics; UNDP. Notes: Revenues = net interest income + net fees and commission income + other income; 2017 forecast calculated based on each country’s GDP growth forecast; fees and interest rates based on Capgemini price index research.
  30. 30. 30 2008 World Retail Banking Report RETAIL BANKING’S BEST PERFORMERS’ By plotting the results (see Figure 2.3), we soon STRATEGIES IN DOMESTIC MARKETS, learned that most of the banks we chose appeared 2002–200 in the white part of the chart, above the line where income growth is equal to cost growth. We bore in Benchmark and market analysis mind, however, that retail banking is still strongly World-leading retail banks1 have performed well influenced by purely national market features, such globally in their domestic markets, increasing as local and national laws, banking regulations, revenues while controlling operating costs, and customers’ habits and behaviours, culture, and so on. in this way, reduced their cost/income ratios. 2 To assess this performance, we isolated the domestic We focused our in-depth analysis on four banks (red- retail banking activity of 37 top worldwide banks circled in Figure 2.3)—Crédit Mutuel–CIC (France), using annual report data. ING (Netherlands), La Caixa (Spain), and HBOS (UK). All are top global domestic retail performers and have outperformed their national competitors. Figure 2.3 Domestic Retail Banking: Growth of Revenue vs. Cost for Selected Banks, 2002–200 (%) 0, 2 Bank of America 0, 15 La Caixa Wachovia Revenue Growth CAGR 02–06 a KBC Sumitomo Mitsui HBOS 0, 1 Banques Populaires CBA ANZ RBS CM–CIC Caja Madrid ING ABN Wells Fargo Banca BNPP AMRO BBVA Intesa Dexia Santander 0, 05 Citigroup HVB SocGen Crédit Mizuho Barclays Nordea Caisse d’Epargne Sanpaolo Agricole Fortis Rabobank UniCredit LCL 0 Deutsche Resona Dresdner Bank Westpac Bank -0, 05 -0, 15 -0, 1 -0, 05 0 0, 05 0, 1 0, 15 Operating Cost Growth CAGR 02–06 a Source: Capgemini analysis, 2008, and bank annual reports. Note: CIR before impairment losses. Circle sizes are proportionate to revenue in 2006. a CAGR calculation using 2007 currencies. 1 Retail business is defined as financial products and services (both core and non-core banking) distributed through physical and non-physical networks to private customers and SMEs. 2 Cost/income ratio before impairment losses.
  31. 31. ORGANIC GROWTH IN DOMESTIC MARKETS 31 Four pillars enable profitable growth Each of the major banks we selected for study has While analysing the best performers we selected strong business basics, including a reliable capacity to from the local market leaders, we identified the deliver a variety of products and services, combined four pillars on which they based their profitable with relationship management know-how. This and sustainable growth: (1) combining fast time includes trust development and risk assessment, which to market, innovation, and local client intimacy; have always been essential to successful banking. (2) ensuring full multi-channel integration and optimisation; (3) increasing sales productivity Pillar 1: Combining fast time to market, innovation, through dynamic branch management; and (4) and local client intimacy leveraging a multi-brand portfolio to create Crédit Mutuel–CIC has succeeded in France in being attractive value propositions for each market a first mover and market leader, even when customers segment (see Figure 2.4). Closely examining the perceived financial services as commodities. The approaches our four top performers took, each bank became a market leader by offering innovative focusing specifically on one of these pillars to products ahead of the competition, combined with greatest advantage, helped us understand the a strategy focused on maintaining a close working importance these strategies hold for banks seeking relationship with local clients. This strategy requires to improve their performance in domestic markets. strong centralised systems and a back office that can Figure 2. The Four Pillars of Sustainable Development Pro table Growth Crédit Mutuel ING La Caixa HBOS plc Combining fast Ensuring full Increasing sales Leveraging a time to market, multi-channel productivity multi-brand innovation, and integration and through dynamic portfolio to local client optimisation branch create attractive intimacy management value propositions for each market segment Source: Capgemini analysis, 2008.