Keynote: "The Future of Banking" @ European Banking Forum 2004 by Frank Schwab

1. European Banking Forum 20041
The Future of
European Retail Banking
Frank Schwab
Friday, 5th March 2004
European Banking Forum

2. European Banking Forum 20042
The future of European retail banking
Where we are ?2.
Where do we go to ?3.
Where do we come from ?1.

3. European Banking Forum 20043
1980 -2000: Europe’s universal bank system
è European private banks focussed on investment
banking. Retail banking was largely neglected
0
1,000
2,000
3,000
4,000
5,000
6,000
Dec91
Dec92
Dec93
Dec94
Dec95
Dec96
Dec97
Dec98
Dec99
Dec00
Dec01
Dec02
Dec03
DJ EuroStoxx50
0
500
1,000
1,500
2,000
Domestic
Cross border
Mergers & Acquisitions
Source: OECD
n Trading & Sales
n Mergers & Acquisitions
n IPO’s

4. European Banking Forum 20044
1995 - 2000: The hype of e-commerce & online
banking
Customer
Traditional Retail Banking
Attacker
è The bubble did burst, but additional competition for
traditional retail banks is left and margins decreased

5. European Banking Forum 20045
The future of European retail banking
Where we are ?2.
Where do we go to ?3.
Where do we come from ?1.

6. European Banking Forum 20046
Branch and bank density (2002)
è The UK banking market is the most consolidated,
followed by Spain.
Branch density per
1,000 inhabitants
Bank density per
100,000 inhabitants
UK Spain Italy Germany France Average
Source: DB Research
0.21
0.64
0.95
0.67 0.52
1.43
0.46
3.14
0.44
1.70
0.52
1.52
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
No of
inhabitants
No of
banks
UK Branch 4,762
UK Bank 156,250 445
ES Branch 1,053
ES Bank 149,254 349
I Branch 1,923
I Bank 69,930 808
D Branch 2,174
D Bank 31,847 2,232
F Branch 2,273
F Bank 58,824 952
AVG Branch 2,437
AVG Bank 93,221 957

7. European Banking Forum 20047
Cost/Income Ratios (Average 1992-2001)
è The UK banking market is the most profitable,
followed by Spain.
60.4 60.7
63.1
64.3
67.1
63.1
58
59
60
61
62
63
64
65
66
67
68
UK Spain Italy Germany France Average
CIR in %
Source: DB Research

8. European Banking Forum 20048
Average = 4.3
0
5
15
4550556065707580
BNP
ING
Barclays
Lloyds
Crédit Suisse
UBS
Citibank
UniCredito
Raiffeisenb.
Banca Fideuram
Average = 63.4
Citibank PC
MLP (42% growth)
Coba
(85) ABN
Amro
HSBC
SEB
Banco Popular
Dreba (-1)
HVB
10
DB PBC
Income growth and cost/income ratio of retail
banks across Europe, 1998 - 2001
Sources: Annual reports; McKinsey analysis
C/I ratio
98-01
in %
Income
growth
98-01
in %
è Financially successful retail banks can be characterised
by low cost/income ratios and high income growth

9. European Banking Forum 20049
Value creation of different industries
50 % 50 %
30 % 70 %
80 % 20 %
20 % 80 %
Banking
industry
Capital goods
industry
Automotive
industry
Electrical
industry
Internal labour External labour
Sources: DZ-Bank, CSFB, Roland Berger, 2002
è Compared to other industries, banks still have a
high internal labour rate

10. European Banking Forum 200410
The future of European retail banking
Where we are ?2.
Where do we go to ?3.
Where do we come from ?1.

11. European Banking Forum 200411
Disintegration of the traditional banking value
chain
è Specialisation and development of core competencies
can be a key for success in retail banking
Traditional Trend
Scoring
Business
Dev.
Product
Dev.
Processing
HR
Customer
segmentation
Marketing
Sales
Online

12. European Banking Forum 200412
German age structure: half of the population is
older than 50 years in 2050
è Germany is a front-runner of a dramatic structural
change of the European age structure
1950
WomenMen
2050
WomenMen
Source: German Federal Statistical Office

13. European Banking Forum 200413
Financial wealth per capita of European citizens
increases on a high level
è There is a continuous increasing demand of investment
and asset management products
Source: Organisation for Economic Co-operation and Development
48 47
31 30 33
16
34
77
66
47 47 44
29
52
0
10
20
30
40
50
60
70
80
90
1995
2000
‘000 Euro
9,0
9,9
7,0
9,1
9,6
6,0
12,6
CAGR

14. European Banking Forum 200414
Scenario 1: Set single focus on older people
n targets customers older than 55
years
n focus on Central Europe
n coverage of the full product
range, customised for this
special period of life
n building partnerships with
relevant organisations and
networks like
“http://www.age-platform.org”
è Older people as the only target group of a retail bank
with focus on Central Europe

15. European Banking Forum 200415
IT spend matters ...
è Some of the most successful European retail banks
have a high IT spend level
ITcost/operatingcosts
10%
15%
20%
25%
5%
Cost / income ratio
20% 40% 60% 80% 100%
DB PBC
2001
2002
Median
Median
Citibank PC
Unicredito
Barclays
Lloyds
CS
UBS
Dresdner
Bank
HVB
BNP ParibaHSBC
SCH
BBVA

16. European Banking Forum 200416
visibility/publicity
lowhigh
maturity
low high
è No single mega trend, but many parallel trends increase
the need for tight alignment of IT and business strategy
Mobile
Services
Web
Services
CRM
Electronic
signature
IT Infrastructure
Outsourcing
BPO
Outsourcing
LINUX
“Farms” &
“Blades”
replacement
of OS/2
network
bandwidth
Private & Business Clients – Rahmenbedingungen zur Strategieentwicklung... and information technology can be a source of
competitive advantage
Offshore
Application
Outsourcing
Business
intelligence

17. European Banking Forum 200417
European union: eastern enlargement
1 Estonia
2 Latvia
3 Lithuania
4 Poland
5 Czech Republic
6 Slovakia
7 Hungary
8 Slovenia
9 Romania (2007)
10 Bulgaria (2007)
11 Malta
12 Cyprus
13 Turkey (open)
è Increase of existing European market by 75 million
inhabitants to 375 million customer on 1st of May 2004

18. European Banking Forum 200418
Scenario 2: Serve the “not banked” customer
“Small loan terminal”
n targets “non bank” customer in
Eastern Europe
n small loans up to 500 Euro
n above average interest rate
n placed at supermarkets,
retailers, malls
n online authentication by phone
number, social security number,
address, date of birth, ...
n online scoring
n instant loan, paid cash and
cash pay back
“Small loan”
terminal
è “Small loan terminal” as the single business activity of
a specialised retail bank in the Eastern Europe market

19. European Banking Forum 200419
Whatever strategy you choose ...
... be excellent !
Excel your customers’ expectation
Excel in training and
motivating your employees
Excel the quality
of your processes
è Excellence in these three dimension leads to
sustainable financial success

20. European Banking Forum 200420
Thank you !
Let’ s discover our individual
Futures of the European Retail Banking
and discuss possible co-operations & solutions
in the sessions of the next two days.

21. European Banking Forum 200421
Frank@FrankSchwab.de
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