Wrbr08 Web

WORLD RETAIL BANKING REPORT

2008

5 PricingIndex

27 OrganicGrowthinDomesticMarkets

53 Appendix:Methodology

58 AboutUs

Contents

©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.

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.

BertrandLavayssièreManagingDirectorGlobalFinancialServices

Capgemini

PatrickDesmarèsSecretaryGeneral

European Financial Management & Marketing Association

FelixPotvliegeHeadStrategy&BusinessDevelopmentofRetailBanking

ING Group

Preface

� 2008 World Retail Banking Report

5

Thisyeartheaverageannualpriceofcorebankingservicesacrossthe26studiedcountrieswas€70forthelocalactiveuser,withpricelevelsrangingfrom€52inAsia-Pacificto€79inNorthAmerica.

Theaveragepricefellslightly(1%)fromlastyear.

Wehaveconfirmedagainthatasanation’seconomymatures,theproportionofitsGDPpercapitaallocatedtobankingservicesdeclines.

From2006to2008,intheirstruggletocompete,banksusedpricetoinfluencecustomerbehaviour:

Bankscutthepriceofsalesinfluencers(e.g.currentaccounts,cards)by0.8%ayeartopromotesales.Behaviourinfluencersoftwokinds—lowercostproducts(e.g.onlinebankingorwithdrawalsatATMs),whosepricesbankscutby0.2%ayeartoencouragetheiruse;andhighercostproducts(e.g.chequesorwithdrawalsatdesk),whosepricesbanksraisedby0.9%ayeartodiscouragetheiruse.Unseenservices(e.g.exceptionshandling),forwhichpricesremainedunchanged.

NorthAmerica’spricerosethemost—averaging5.7%—resultingprimarilyfromhigherpricesforpaymentsandcashutilisation;itspricehaddeclinedduringthethreepreviousyearsduetofiercecompetitiononaccountmanagementfees.

Asia-Pacific’spricefellby11.1%thisyear,essentiallybecauseofintensifiedcompetitioninAustraliaandIndia,particularlyinpaymentsandaccountmanagement.

Europeanpricesremainedstable,withonlya0.8%priceincreaseacrossboththeeurozoneandnon-eurozonecountriesstudied.

WiththeadventofSEPA,pricesofpan-Europeanpaymentshavestabilisedintheeurozone,and(excludingIreland)evendecreasedfasterinEuropeeurozonethanintherestoftheworld.

Pricediscrepanciesbetweenbanksdroppedsignificantlyatboththecountryandregionlevels;thiswasparticularlystrikinginNorthAmerica,althoughpricingdifferencesintheeurozoneremainedthesmallest.

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PRICING INDExKey Findings

PRICINGINDEx

� 2008 World Retail Banking Report

METHODOLOGYFor this 2008 edition, we expanded the geographic scope of the pricing index and spotlight to 26 countries, adding Denmark and Singapore, and the number of participating banks rose from 180 to 194 (see Figure 1.1). Once again, we compared retail banking in four regions: Europe eurozone, Europe non-eurozone, North America, and Asia-Pacific.

We collected most of the data for this 2008 edition of the World Retail Banking Report during the last three months of 2007. We continued to focus on four categories of banking products and services: account management, cash utilisation, exceptions handling, and payments. Figure 1.2 shows the components of each category.

RegionNew Countries in 2008 WRBR

Countries in 2007 WRBR

Number of Banks

EuropeEurozone

Austria 6

Belgium 4

France 10

Germany 7

Ireland 5

Italy 6

Netherlands 6

Portugal 6

Spain 18

EuropeNon-eurozone

Croatia 7

CzechRepublic 5

Denmark 4

Norway 6

Romania 9

Poland 11

Slovakia 6

Sweden 6

Switzerland 6

UK 5

NorthAmericaCanada 6

US 9

Asia-Pacific

Australia 5

China 9

India 9

Japan 20

Singapore 3

TOTAL countries/banks 26/194

Figure 1.1Banks Surveyed

7

To compare prices from the consumer’s point of view, a local expert defined a basket of products and services reflecting the typical consumer’s banking behaviour in each country. We call these local profiles, which we divided into three frequency-of-use categories: less active, active, and very active users (also shown in Figure 1.2). The price index built on these local profiles measures what consumers in a particular country, at these frequency-of-use levels, pay annually for their day-to-day banking services.

To compare prices around the world, we also developed a global profile. It is not governed by local product usage, which obviously varies by country, but by a standard basket of products for all countries. While it is not as precise as the local profile, it is the only practical way we can effectively compare global banking prices.

When comparing prices over more than one year, we consistently use prices based on profiles as updated for this latest edition.

Core Day-to-Day Banking Needs

Nineteen Products & Services

Account Management

CurrentaccountOn-linebankingCallcentre

Cash Utilisation

DepositatdeskDepositatATMWithdrawalatdeskWithdrawalatbank’sATMWithdrawalatotherbanks’ATMnetworks

Exceptions Handling

DebitcardstoppaymentChequestoppaymentDocumentsearchBanker’sdraft

Payments

ChequeDebitcardCreditcardInternalwiretransferExternalwiretransferStandingorder(fixedamounttransfer)Directdebit

Figure 1.2 Scope of Products and Services in the Global and Local Pricing Indexes

PRICINGINDEx

Two Profiles

Local Profile

Products’frequenciesofuseareestimatedforeachcountrytoreflectlocalconsumptionpatterns

Measurescostofbasicbankingneedsfordomesticcustomers

Global Profile

Identicalfrequencyofuseforallcountries

Allowsthecomparisonofpricelevelsbasedonasingleprofile

Source: Capgemini analysis, 2008.

Three Usage Patterns

Less Active Users

Represent20%ofuserswiththelowestfrequenciesofuse

Active Users

Accountfor60%ofthepopulation

Very Active Users

Represent20%ofuserswiththehighestfrequenciesofuse

8 2008 World Retail Banking Report

NEW COUNTRIES IN OUR 2008 REPORT

DenmarkDanish banks have a long-standing tradition of partnering, which facilitated a large consolidation move that started in the 1990s and continues. Four banks now dominate Danish retail banking, and two of them, Danske Bank and Nordea Bank Denmark, control over 50% of the market.

Deploying new technologies, notably for credit transfers, is an established industry strength in Denmark. Danish banks recently successfully developed packages with free standard products and services for Internet users, and as a result, Danish Internet prices are among the lowest in Europe eurozone. Its fee structure is similar to other Nordic countries—heavily dependent on payments (79%) and, less so, on cash utilisation (19%), with almost free account management.

Pricing between Danish banks varies significantly, and cannot be explained by geographic fragmentation. This signals a market in which customers view relationship quality as important, and where packaged offerings make it difficult for customers to compare prices.

SingaporeThe 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 aff luent 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.

GENERAL PRICING ANALYSES

Local ProfileLocal active users pay an average of €70 a year for their day-to-day banking needs. As Figure 1.3 illustrates, price levels varied from one region to another, ranging from a low of €52 in Asia-Pacific to €79 in North America. The average price less active users of bank products and services paid was €35, compared to the very active users’ much higher €122 (about 3.5 times more).

Again, these are averages, and the situation varies by region. In Europe eurozone, for instance, the prices most banks charge the three groups do not vary widely—very active users pay only twice as much as less active users. In contrast, Asia-Pacific banks charge very active users as much as five times the price they charge less active users.

Global ProfileTo develop a price benchmark of banks regardless of their clients’ behaviours, we computed prices based on a single global active user profile, as detailed in the Methodology section above. Measured on this global profile price index, Europe non-eurozone (118% of the world average) and North America (141%) remain the most expensive regions (see Figure 1.4).

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Figure 1.3 Average Local Profile Price for 2008 (€)

0

50

100

150

200

250

AverageAsia-Paci�cNorth AmericaEurope Non-eurozoneEurope Eurozone

Very active user priceActive user price

Less active user price

101

136

197

104

122

45

31

49

22

35

75 74 79

52

70


Figure 1.� Global Profile Prices for 2008 Active Users (€)

0

50

100

150

AverageAsia-Paci�cNorth AmericaEuropeNon-eurozone

EuropeEurozone

83

117

140

57

99


PRICINGINDEx


Price AnalysisThe average price for active users decreased 1% this year. Prices followed a similar evolution this year for local less active users (-0.1%) and for local very active users (-0.9%).

To assess why banks have changed their prices for certain products, we have classified banking products into three categories according to their impact on customers:

Sales influencers: Products whose prices primarily affect a consumer’s decision to buy banking services or change banks. Current accounts and credit/debit cards fall into this category, because theirs are the only prices consumers commit to pay up front when they open an account or buy a card.Behaviour influencers: Products whose prices inf luence a consumer’s behaviour, but fall outside the direct buying situation. We have split them according to their production cost for banks:

Less-costly products for banks: On-line banking, deposits and withdrawals at ATMs, direct debits, transfers, and standing ordersMore-costly products for banks: Call centres, deposits and withdrawals at desk, withdrawals at other banks’ ATM networks, cheques

Unseen services: Services for which consumers have to pay without having had any choice or decision, such as exceptions handling.

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Based on this product categorisation, we analysed banks’ pricing policies from 2006 to 2008 to understand their actions and underlying objectives (see Figure 1.5). Banks built loyalty and won new clients by reducing prices on sales influencer products, which they cut by 0.8% a year. Banks also reached for this objective in several markets by creating packaged offerings.

Many banks reduced their cost of operations by influencing clients’ behaviour, using the prices of behaviour influencer products to move their customers towards less expensive channels or payment means and away from more expensive products and services. Banks cut the average price of the less-costly behaviour influencer products by 0.2% a year to encourage their adoption. At the same time, they increased the price of the more costly influencers by 0.9% a year to discourage customers from using them.

They might also have enhanced their earnings by raising prices on unseen service products, yet most banks let these prices stand, at least partly held in check by consumer associations or regulators.

11

Products/CategoryAverageyearlychange

from2006to2008

Sales influencers -0.8%

Currentaccount 0%

Debitcard -1.3%

Creditcard -1.0%

Behaviour influencers, less costly -0.2%

Callcentre -2.3%

On-linebanking -0.6%

CashdepositatATM 0.0%

Withdrawalatbank’sATM -0.5%

Directdebit 0.3%

Externaltransfer 1.1%

Internaltransfer 0.9%

Standingorder -0.3%

Behaviour influencers, more costly 0.9%

Cashdepositatdesk -0.4%

Withdrawalatdesk 0.2%

Cheque 1.9%

Withdrawalatotherbanks’ATMnetworks 2.0%

Unseen services (exceptions handling) 0.0%

Banker’sdraft 0.4%

Chequestop 1.2%

Debitcardstop -1.6%

Documentsearch 0.1%

All products -0.1%


Figure 1.5 Product and Service Variations, 200�–2008 (%)

PRICINGINDEx


Figure 1.� Percentage Cost of Banking, by GDP per Capita

0 10,000 20,000 30,000 40,000 50,000 60,000

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

Per

cent

age

of

a co

untr

y’s

GD

P p

er c

apita

pai

d f

or

core

ban

king

ser

vice

s (%

)

GDP per capita (€)

Country


Cost Based on GDP/CapitaCharges 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.

13

REGIONAL PRICING ANALYSESIn contrast to other banking activities, such as asset management or investment banking, retail banking is essentially a local business. National retail banking markets for the most part are not affected by other national markets, although economic integration at the regional level (European Community, NAFTA) is beginning to have an impact. Based on what we have learned from past editions, we know that the regional approach will generate the most accurate results.

Figure 1.7 Evolution of Local Profile Prices, 2007–2008 (%)

-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

AverageAsia-Paci�cNorth AmericaEuropeNon-eurozone

EuropeEurozone

0.8% 0.8%

5.7%

-11.1%

-1.0%


PRICINGINDEx

As illustrated in Figure 1.7, overall prices remained essentially stable across Europe (up only 0.8%), but they soared in North America (up 5.7%) and fell precipitously in Asia-Pacific (down 11.1%).

Each region or even country is shaped by its history. We have used the data collected for previous editions to put this year’s changes in perspective, as the regional analyses below indicate.

1� 2008 World Retail Banking Report

North America registered the biggest price increase. North American prices went up by 5.7% (€4) for local active users over last year. This price increase was general across the whole continent, and reflects the growing market power large banks have gained by growing, mostly through consolidation. North American banks are currently trying to compensate for their past low pricing strategies now that their earnings ratios are threatened by the sub-prime crisis.

North AmericaThe structure of North American pricing evolved slowly over the years, characterised by free account management since 2005, which was balanced by the importance of two other fee categories: payments (as much as 79% in the US, and still growing) and cash utilisation (48% in Canada, higher than in any other country) (see Figure 1.8).

Figure 1.8 Sources of Fees for Core Banking Services in North America (%)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

CanadaUSA2008200720062005

Edition of World Retail Banking Report Country (2008)

57% 60% 63% 64%

6%7%

7% 7%

31%33% 29% 29%

6%0% 0% 0%

79%

49%

10%

3%

10%

48%

1% 0%

PaymentsExceptions HandlingCash UtilisationAccount Management


15

policy to inf luence customer behaviour towards more cost-efficient means of payment. In the cash utilisation category, withdrawals at other banks’ ATM networks accounted for most of the increase, because raising this price was unlikely to impair a bank’s competitive edge, and consumers might even blame a bank’s competitors.

Figure 1.� Product and Service Price Variations vs. Last Year for Local Active Users in North America (€)

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

Standingorder (�xed

amounttransfer)

Internalwire transfer

Externalwire transfer

Directdebit

Cheque(price percheque)

Withdrawalsat other

banks' ATMnetworks

Withdrawalsat desk

Withdrawalsat bank's

ATM

-3

-1

1

3

PaymentsExceptionsHandling

CashUtilisation

AccountManagement

1.1

0.10.2

-0.2

2.0

0.2

1.0

-0.3

0.10.0

1.4

2.7

Cash Utilisation Payments


PRICINGINDEx

The main price increases over the year were in payments and cash utilisation (see Figure 1.9). In payments, raising external and internal transfer prices rather than prices for cards or cheques ref lects the banks’ competitive intent to keep prices low on products that are most important in customers’ minds when choosing their banks, rather than a


Asia-PacificThe 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 (%)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

SingaporeJapanIndiaChinaAustralia2008200720062005


43% 44% 47%

10%

24% 24%26%

51%

11%16%

13%

11%

22%16% 15%

28%

44%

83%

43%

10%13%2%

0%

5%


49%

23%

13%

16%

84%

1%

14%1%

92%

0%

8% 0%


17

Asia-Pacific’s price declined the most. The local active user price in Asia-Pacific fell by 11.1% (€5.5). This decrease resulted mainly from price cuts in payments (reversing a previous trend) and account management (see Figure 1.11). Both these changes reflect specific national market situations.

First, the decrease in account management prices can be traced to the Australian national market, where two large banks launched flat-fee accounts in a fierce competitive bid to acquire new clients, drawing down the average fee charged for the region’s current 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 (€)

-2.5

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

-3

-1

1

3


CashUtilisation

AccountManagement

-1.1

-1.6

-0.9

0.5

0.9

-2.0

0.7

-0.4-1.6 -0.5 -3.0

Sta

ndin

g or

der

(�xe

dam

ount

tra

nsfe

r)

Inte

rnal

wire

tra

nsfe

r

Ext

erna

l wire

tra

nsfe

r

Dire

ct d

ebit

Cre

dit

card

Che

que

(pric

e p

er c

heq

ue)

Doc

umen

t se

arch

(des

k)

Deb

it ca

rd s

top

pay

men

t

Che

que

sto

p p

aym

ent

Ban

ker'

s d

raft

(cas

hier

's c

heck

)

With

dra

wal

s at

oth

erb

anks

' ATM

net

wor

ks

With

dra

wal

s at

ban

k's

ATM

Cur

rent

acc

ount

-0.2

0.4 0.5

-1.2 -1.1

-0.3

AccountManage-

mentPayments

CashUtilisation

ExceptionsHandling


PRICINGINDEx


Europe EurozoneThe 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 (%)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

52% 58% 54% 49%

5%

5%6%

9%

6%

31% 31%

8%

37%

5% 9%

34%

25%

45%

5%

5%

11%

8%

59%42%


55%

6%

8%

31%

82%

14%

0%4%

43%

1%

57%

0%

63%

6%4%

27%

71%

1%

22%

6%

34%

13%

24%

29%

78%

1%

2%19%

Irela

nd

Italy

Sp

ain

Por

tuga

l

Net

herla

nds

Ger

man

y

Fran

ce

Bel

gium

Aus

tria

2008

2007

2006

2005



1�

In Europe eurozone, prices remained relatively stable, with only a 0.8% (€0.6) rise. The changes in Europe 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 transfers at desk to compensate for the development of Internet origination (generally free), while the price of external wire transfers decreased under the influence of SEPA. Account management prices remained essentially stable, because a price increase in current accounts was offset by a cut in the price of on-line banking.

Figure 1.13 Product and Service Price Variations vs. Last Year for the Local Active User in Europe Eurozone (€)

-0.8

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

Inte

rnal

wire

tra

nsfe

r

Ext

erna

lw

ire t

rans

fer

Che

que

(pric

ep

er c

heq

ue)

On-

line

ban

king

Cur

rent

acco

unt

-3

-1

1

3


CashUtilisation

AccountManagement

-0.1

0.4

-0.5-0.6

1.1

0.00.5

-0.1

0.2

PaymentsAccountManagement


PRICINGINDEx


Figure 1.1� Price of Pan-European Payment Means for the Local Active Profile, 2008 (€)

0

20

40

60

80

100

120

140

ZYXWVUTSRQPONMLKJIHGFEDCBA

130.0

14.8

39.3

56.7

19.3

73.7

63.757.1

50.8

30.626.2

31.933.433.037.332.032.4

56.850.8

26.2 24.318.1 16.5

12.28.1

3.5

Europe Eurozone Rest of the World

Average Eurozone€48, similar to 2007

Average Rest of the World€33 vs. €34 in 2007


The Single Euro Payment Area (SEPA) will lead to lower prices. We have continued last year’s effort to track SEPA’s impact on prices. The expected result is that a standardised payments structure across the eurozone will lead to tougher competition and lower prices. To check this hypothesis, we created the “pan-European payments means”, which we defined as the basket of products that will progressively be governed by SEPA’s pan-European standards and regulations. These include internal and external wire 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.

The price of this basket of products has stopped decreasing in Europe eurozone, and stabilised at €48. The result would be much better except for turmoil in the Irish market, without which the price would have fallen by 6.3%—from €41 to €38 (see Figure 1.14). As a comparison, outside Europe eurozone the price of this same basket of products has dropped by only €1, from €34 to €33 (a 3% drop). SEPA, therefore, is probably still drawing prices down in Europe eurozone.

21

Europe Non-eurozoneThe 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 (%)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

9%9% 9%

1%

14%

23% 20%

15%

18%

12% 16%

26%

1%

1%

19%

27%

2%

40%


9%

16%

19%

75%

11%

4%

10%

2%

32%

21%

4%

32%

32%

1% 0%0%

2%

1%

22%

52%

0%

5%

UK

Sw

itzer

land

Sw

eden

Slo

vaki

a

Rom

ania

Pol

and

Nor

way

Den

mar

k

Cze

ch R

epub

lic

Cro

atia

2008

2007

2006

2005

1%

41%

46%

59% 56% 55% 58%

79%

32%

55%

44%33%

99%

75%

43%

12%

Country (2008)Edition of World Retail Banking Report


PRICINGINDEx


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 (€)

-0.6

-0.4

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

Internalwire transfer

Externalwire transfer

Credit cardWithdrawalsat desk

On-linebanking

Currentaccount

Callcentre

-3

-1

1

3


CashUtilisation

AccountManagement

0.4

-0.3

0.4

-0.2

0.8

-0.2 -0.2

-0.1

0.5

-0.2

0.4

CashUtilisation PaymentsAccount Management


23

PRICE DISCREPANCY IS DECREASINGAn important feature of banking markets lies in the differences between national banks’ prices. Prices are closer together in more mature markets, because consumers consider banking services to be commodities, and tough competition prevails on standardised products.

Retail banking is still mainly a national business, and we examined price discrepancy first at the country level (see Figure 1.17). Large discrepancies are usually associated with fast-changing markets, such as Spain and Ireland in Europe eurozone; Denmark, Romania, and Slovakia in Europe non-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 (%)

0%

20%

40%

60%

80%

100%

120%

140%

160%

9%

50%

23%

7%

17%12%12%

20%17%12% 16%

23%

46%51%

18%23%

47%

154%

27% 27%

4%12%

37%

68%

21%

10%

Europe EurozoneNorth

America

Sin

gap

ore

Jap

an

Ind

ia

Chi

na

Aus

tral

ia

Can

ada

US

A

UK

Sw

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Sw

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Slo

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a

Rom

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Pol

and

Nor

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ch R

epub

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herla

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ndItaly

Ger

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y

Fran

ce

Bel

gium

Aus

tria

Europe Non-eurozone Asia-Pacific


PRICINGINDEx


At the regional level, the general trend was also towards reducing discrepancies, although quicker than within national boundaries (see Figure 1.18). It was especially fast in North America, where price differentials were cut almost in half in two years. This result is consistent with our earlier interpretation of price increases led by fast-growing retail banks.

The evolution in Asia-Pacific has been very different. It reflects Australian prices (the highest of the region) moving downward, and Japanese prices (the lowest) going up. In the European regions, the trend towards reduced price discrepancy has slowed in Europe non-eurozone, and even stopped in Europe eurozone, 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 (%)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Asia-Paci�cNorth AmericaEurope Non-eurozoneEurope Eurozone

39.1%

34.1%30.4%32.0%

46.2%44.7%

39.5%37.6%

57.1%59.0%

41.7%

33.8%

83.5%86.6%

84.2%

75.5%

World RetailBanking Report Edition:

2005200620072008


25

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.

PRICINGINDEx

Conclusion


27

ORGANIC GROWTh IN DOMESTIC MARKETS Key

Findings

Theworldretailbankingmarket,basedonnetincome,was€1,280billionin2006,andforecastsindicateitwillriseto€1,900billionby2017,withhalfofthenewincomecomingfromhigh-growthmarkets.

Althoughthehigh-incomeportionoftheworldretailbankingmarketwilldropfrom75%in2006to65%in2017,itwillremainveryimportanttobanks.

Overthepastfiveyears,mostoftheworld’sleadingbankshavegrowntheirdomesticretailbankingrevenuesfasterthantheircosts,significantlyimprovingtheircost/incomeratios.

Fourpillarshavesupportedleadingbanks’effortstoachieveprofitableorganicgrowthintheirdomesticmarkets:combiningfasttimetomarket,innovation,andlocalclientintimacy;fullmulti-channelintegrationandoptimisation;increasingsalesproductivitythroughdynamicbranchmanagement;andleveragingamulti-brandportfoliotocreateattractivevaluepropositionsforeachmarketsegment.

Alargeproportionofthe52topbanks’executivesin15countriestoldustheyhaveusedthesefourpillars,andexpressedtheircontinuingconfidenceinthem.

Mostassumptionsonwhichpastretailbankinggrowthstrategieswerebasedarechallengedbytoday’sstructuralchangesinthemarket,includingtougherregulations,moreflexibletechnology,moredemandingclients,andnewcompetitors.

Recognisingthatstructuralchangeswillincreasecompetitionanddrawpricesdown,wesimulatedthiseffectineightwesternEuropeancountries;thesimulationsindicatedthatbankswouldlose36%oftheirprojectednetincome(andlosemorethan50%incertainmarkets).

Banksthathavealreadybuiltstrongclientrelationships,andcapturedfromtheirclientsagoodshareofwallet,needtorenewtheirdistributionstrategiesanddevelopbusinessorganicallyintoday’ssaturatedandslowlygrowingdomesticmarkets.

Successfulbankscanusethreedistributionstrategiestogrowbeyondthetraditionalretailbankingbusinessmodelinhigh-incomemarkets:“Bettersell”,tobetterfitdiverseclients’needs;“Largeroffer”,extendingtheofferingtonon-financialproductsandservices;and“Indirectbusiness”,sellingthroughotherdistributors.

The52interviewedbankersselectedthreemodelsasthemostlikelytohappen:TrustOperator,DiscountBank,andGeneralBroker.Manybanksevenadmittohavingtheirownprojectsusingthefirsttwomodels.

BankerintervieweesidentifiedDiscountBank,GeneralBroker,andOpenSourceBankaspotentiallythemostdisruptivemodelsintheretailbankingbusiness,becausethesemodelscouldcausetheirtwoworstfearstocometrue—apricewarandcompetitionforclientrelationships.

Thebestperformerswillcombineseveralofthesedistributionmodels—andperhapsstillothers—tosucceedinthefutureretailbankingmarket.

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ORGANICGROWTHINDOMESTICMARKETS


Retail banking is a major activity for most large banks, helping them grow profitably and maintaining their stock value. Succeeding in the past has never been easy, but severe challenges lie ahead. Our teams in the 15 countries we studied for this year’s spotlight have interviewed 52 banking executives to understand how they intend to succeed in the future. Using these observations, combined with the views of Capgemini experts in the field, this year’s spotlight outlines some of the best paths banks can take to remain major retail marketplace players in the years ahead.

THE IMPORTANCE OF DOMESTIC RETAIL OPERATIONSThe global retail banking market is huge, with 2006 net income of €1,280 billion, and it is expected to reach €1,900 billion by 2017 (see Figure 2.1). The potential increase of €620 billion will be generated in nearly equal amounts in high-income and other high-growth markets. Despite a slower growth rate, we expect retail banking to remain a major force in high-income economies over the next ten years, falling only slightly from its current 75% of global net revenues to 65% in 2017.

Figure 2.1 Retail Banking Revenues in 200� and 2017F (€bn)

ME andAfrica

Rest ofAsia-Paci�c

IndiaChinaRest ofEurope

Rest ofAmerica

AustraliaJapanWesternEurope

NorthAmerica

433

580

350

460

125

160

30 40

95

145

85

145

35

110

25

6335

90

5065

Revenue 2006 (€bn)Forecast Revenue2017 (€bn)

Y2006: €1,280 billion

33%

28%10%

2%

Y2017F: €1,900 billion

31%

25%8%1%

High-income Markets€900bn = 75%a

High-income Markets€1,200bn = 65%a

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.

2�

The top worldwide banks’ retail banking operations are primarily located in high-income markets, and these banks have but little potential for further external expansion. Moreover, except for six banks—BNP Paribas, ABN AMRO, BBVA, Santander, HSBC, and Citigroup—the proportion of domestic net revenues for most banks is greater than 50% (see Figure 2.2). Their market development has up to now been achieved mainly in their domestic markets.

Because a few large banks hold dominant positions in high-income markets, regulators now tend to discourage further mergers and acquisitions. They want to ensure fair competition and avoid excessive concentrations of risk. Domestic growth through acquisition, therefore, is no longer a viable option in most high-income markets. Alternatives are also limited, and in any case promise only moderate returns.

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�

0%

20%

40%

60%

80%

100%

Res

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BC

Miz

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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.



RETAIL BANKING’S BEST PERFORMERS’ STRATEGIES IN DOMESTIC MARKETS, 2002–200�

Benchmark and market analysisWorld-leading retail banks1 have performed well globally in their domestic markets, increasing revenues while controlling operating costs, and in this way, reduced their cost/income ratios.2 To assess this performance, we isolated the domestic retail banking activity of 37 top worldwide banks using annual report data.

By plotting the results (see Figure 2.3), we soon learned that most of the banks we chose appeared in the white part of the chart, above the line where income growth is equal to cost growth. We bore in mind, however, that retail banking is still strongly influenced by purely national market features, such as local and national laws, banking regulations, customers’ habits and behaviours, culture, and so on.

We focused our in-depth analysis on four banks (red-circled in Figure 2.3)—Crédit Mutuel–CIC (France), 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, 15 -0, 1 -0, 05 0 0, 05 0, 1 0, 15

0, 2

0, 15

0, 1

0, 05

0

-0, 05

Rev

enu

e G

row

th C

AG

R 0

2–0

6a

Operating Cost Growth CAGR 02–06a

DeutscheBank

Citigroup

Mizuho

BancaIntesa

La Caixa

SumitomoMitsui

ABNAMRO

Barclays

UniCredit

Westpac

Sanpaolo

Fortis

Dresdner Bank

Rabobank

Nordea

HVB

BBVA

Resona

ING

Dexia

SocGen

BNPP

CréditAgricole Caisse d’Epargne

Santander

Wells FargoCaja Madrid

RBSANZ

Banques PopulairesCBA CM–CIC

Wachovia

Bank of America

HBOS

KBC

LCL

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

Four pillars enable profitable growthWhile analysing the best performers we selected from the local market leaders, we identified the four pillars on which they based their profitable and sustainable growth: (1) combining fast time to market, innovation, and local client intimacy; (2) ensuring full multi-channel integration and optimisation; (3) increasing sales productivity through dynamic branch management; and (4) leveraging a multi-brand portfolio to create attractive value propositions for each market segment (see Figure 2.4). Closely examining the approaches our four top performers took, each focusing specifically on one of these pillars to greatest advantage, helped us understand the importance these strategies hold for banks seeking to improve their performance in domestic markets.

Each of the major banks we selected for study has strong business basics, including a reliable capacity to deliver a variety of products and services, combined with relationship management know-how. This includes trust development and risk assessment, which have always been essential to successful banking.

Pillar 1: Combining fast time to market, innovation, and local client intimacyCrédit Mutuel–CIC has succeeded in France in being a first mover and market leader, even when customers perceived financial services as commodities. The bank became a market leader by offering innovative products ahead of the competition, combined with a strategy focused on maintaining a close working relationship with local clients. This strategy requires strong centralised systems and a back office that can

Figure 2.� The Four Pillars of Sustainable Development

Combining fast time to market, innovation, and local client intimacy

Ensuring full multi-channel integration and optimisation

Leveraging a multi-brand portfolio to create attractive value propositions for each market segment

Pro�table Growth

Crédit Mutuel ING La Caixa HBOS plc

Increasing sales productivity through dynamic branch management




accommodate accelerated time to market. It also calls for a concerted marketing effort that ensures the new products meet customer expectations and needs, and relays that message effectively to the marketplace.

Crédit Mutuel–CIC has consistently shown its ability to be a prime mover in the French market, moving faster than others to introduce new banking products and services. Using the regional power of its two brands, it has maximised the effectiveness of a f lexible, common platform, shared back offices, and aggressive marketing operations, supported by well-managed local branches.

Through its product innovation strategy, Crédit Mutuel–CIC has substantially increased the number of products its clients buy. While it was achieving 4.3% annual growth in net banking income (NBI) per client from 2002 to 2006, it decreased its annual cost per active customer by 5.5%. This outstanding economic success was combined with excellent client relationship management, highlighted by the top award in its sector, given by TNS-Sofres, for the “Best Client Experience”.

Crédit Mutuel–CIC offers a wide range of products designed to meet customers’ needs throughout their lives, including those in savings, automotive, health, real estate, and pensions, among others, many of which feature new technologies (see Figure 2.5). The bank has effectively used the motto, “Proximity, listening, and innovation” (“Proximité, écoute et innovation”), to sustain its momentum.

Figure 2.5 New Product Introductions at Crédit Mutuel–CIC, 200�–2007

OCT-06JAN-06JAN-06

FEB-06MAR-06

APR-06MAY-06

JUL-06JUL-06

JUL-06JUL-06

JUL-06SEP-06 NOV-06

DEC-06JAN-07

JAN-07FEB-07

MAR-07MAR-07

APR-07JUN-07

SEP-07NOV-07

DEC-07

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33

Pillar 2: Ensuring full multi-channel integration and optimisationING Netherlands has used the Internet and its seamless integration with other channels to transform its subsidiary Postbank into a multi-channel bank. It has taken its place as a major player in the Netherlands retail banking market without damage to the business or its profitability.

Since 2000, ING Netherlands has used a multi-channel strategy with a strong Internet emphasis. It improved results, increasing its NBI by 25% from 2002 to 2006. The bank managed to cut costs over the same period, reducing its cost/income ratio, excluding risk costs, from 83% to 68%. ING’s Internet banking grew at an annual rate of 62% from 2004 to 2006, much faster than the Dutch banking market as a whole, which posted a 22% CAGR (see Figure 2.6). In three years, ING raised its Internet account rate from 8% to 42%.

As it boosted Internet use, ING also had to create the infrastructure required to deal with the explosion of its utilisation. It made all products and services available through the Internet via information platforms and a portfolio of capabilities, using fine segmentation and central processes.

ING cut the number of branches severely, reducing customer usage in the last fifteen years. The remaining branches are used for recruiting, selling complex products, and promoting the brand. ING has developed an integrated sales force with trained specialists, who move freely between the remaining branches to meet specific customer needs when face-to-face advice is necessary.

As a last step in its multi-channel strategy, ING has announced in 2007 the merger of Postbank with its branch operations in the Netherlands, in order to combine their data bases and branch networks.

Figure 2.� ING’s Internet Banking Strategy

0

50

100

150

200

250

300

200620052004

Ind

exed

num

ber

of

Inte

rnet

pay

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tac

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ts (b

ase

= 2

004)

INGCAGR = 62%

Dutch MarketCAGR = 22%

Source: CBS (Dutch market) and company data (Postbank).



Pillar 3: Increasing sales productivity through dynamic branch managementLa Caixa has successfully answered the productivity challenge in Spain. Its high-quality commercial management in the branches is a key differentiator, driving up sales productivity and enabling the bank to develop its branch network effectiveness without increasing headcount.

La Caixa has offered customers a wide range of fine-tuned, customised products and service offerings for the past five years, making the products readily available to its customers by transforming its branches into a denser network of small points of sale, without increasing headcount. In addition, it developed a rich on-line banking service.

Between 2004 and 2006, La Caixa increased its branch productivity ratio (NBI per branch) by 32.7%, and raised its employee productivity ratio (NBI per employee) by 39.9% (see Figure 2.7), reaching this goal while holding the employee/branch ratio at 4.5. During this period, the bank added 477,000 new clients, reaching a total of 10.1 million by the end of 2006. Its NBI growth rate of 12.3% greatly exceeded its operating costs, which rose by only 3.3% over the previous five years.

By increasing its number of branches by 212 in 2006, to 5,186 at the beginning of 2007, La Caixa has implemented a physical network hyper-segmentation strategy. It has launched very innovative products aimed directly at new residents, customers abroad, students, and others. Along with its branches, it has initiated an aggressive multi-channel strategy, offering a wide range of products and services—not only financial ones—through its branches, the Internet, ATMs, land lines, and mobile phone access points. In a startling example for the banking world, La Caixa sells half of the entertainment tickets sold in Barcelona (theatre, film, music, etc.) through its distribution network.

35

Figure 2.7 La Caixa Productivity Increases, 200�–200� (€000)

0

20,000

40,000

60,000

80,000

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200620052004

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48,99756,071

65,033

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429

Productivity Ratios per Branch

10,620

12,393

14,804

61.9

77.8

97.7

Productivity Ratios per Employee

Recurring net �nancial operating income per branch

Business volume per branch

Recurring net �nancial operating income per employee

Business volume per employee




Pillar 4: Leveraging a multi-brand portfolio to create attractive value propositions for each market segment HBOS is a prime example of how a bank can use a well-targeted, multi-brand portfolio to meet the challenge of developing and diversifying a customer base without alienating current clients. HBOS has succeeded in bringing to market a portfolio of differentiated value propositions that attract new customers in several market segments.

The HBOS brand portfolio strategy has captured all kinds of consumers while limiting the side-effects on the customers it has already attracted into its fold. It offers low-cost products/services under the Halifax brand, without putting at risk the goodwill of the existing Bank of Scotland or BM clients, who are accustomed to a higher standard of products. This

strategy, in the five years 2002-2006, helped HBOS increase its customer base by 20%; raise NBI per customer by 24.5%; add 180% to its on-line customer base (increasing it to a fifth of its overall customers); and achieve a C/I ratio of 55%, the best among retail banking market leaders.

A shared IT architecture has helped HBOS develop and manage its portfolio of retail banking brands, reflecting different client value propositions, to grow balances and support margins (see Figure 2.8). Halifax, as noted earlier, is the low-cost brand, offering modestly priced products on the high street; Bank of Scotland guarantees good rates from a reliable direct provider; BM is a best-buy, direct price fighter; and Intelligent Finance appeals to more financially sophisticated clients.

Figure 2.8 HBOS Brand Portfolio Strategy

Strategy Channel Marketing Positioning

Margin Balances Relationship Branch Internet Phone/Post Affinity

HalifaxConsistentlywell-pricedonthehighstreet

BankofScotland Hx

Guaranteedgoodratesfromareliabledirectprovider

BMBest-buydirectpricefighter

IntelligentFinance

Offsettingforthefinanciallysophisticated

Source: Presentation at hBOS Retail Investors' Seminar, 2003.

37

Figure 2.� Interviewed Retail Banking Executives’ Past and Future Growth Levers

0%

5%

10%

15%

20%

25%

30%

PricingResources(IT & HR)

CustomerSegmentation

SharedProduction

ManagementSystem

OfferingInnovation

DistributionOptimisation

PastFuture

Source: Capgemini World Retail Banking Report 2008 survey on growth levers.Note: The four highlighted levers correspond to the four pillars.

From cases to consensusThe four pillars of profitable growth highlighted in the cases also reflect our core findings from our interviews with the 52 world retail banking market leaders. Their answers to our question, “What were the past levers you used to grow?” were: offering development, distribution optimisation, quality of management, and shared systems/back offices (see Figure 2.9), matching our four pillars. They also mentioned technology and staff resources, but they made clear in the interviews that these are really enablers of our four pillars.

We also asked, “What are the levers you intend to use to grow in the future?” The unanimous response asserted their trust in continuing to rely mostly on the same four pillars to grow in the future.

Traditional levers will certainly remain essential, especially for banks that have not yet generated the most benefit available from using them. The question remains, however: Will they be efficient enough in the future to secure sustainable growth?



Figure 2.10 Relative Evolution of Bank Index/Market Index, 2002–2007 (Points base 100)

EuroStoxx 50/bankNasdaq 100/bankNikkei 225/bankASX 200/bank

60

80

100

120

140

160

180

Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07

Source: Capgemini analysis, 2008.Note: Base point, June 2002 ratings.

CHANGING MARKETS

The 2007 crisisThe banking market changes fast. Over the last ten years, many banks, such as KBC, Unicredit, RBS, and Société Générale, have focused on internationalisation, and some new entrants, such as PayPal, exploded on the financial market scene and quickly became intermediation giants. PayPal is revolutionising the payments systems industry, attracting significant, fast-growing financial f lows. Other IT providers have become payments leaders in Europe. Non-banks, including retailers and insurance companies, meanwhile, are also distributing more and more banking products, and they constitute real competitive threats as they win market share.

The sub-prime turmoil of 2007, which led to a cash shortage in Europe and the US and froze inter-bank credit, has ushered in a new era in which banks will no longer be able to rely on real estate or capital market bubbles to fuel their growth. The low interest rate period seems to be finished, and with it the easy lending market. Banks will need to develop a growing and sustainable retail business to avoid being an acquisition target open to attack from larger banks or even non-banks.

Middle East funds entering Citigroup’s or UBS’s equities, or Chinese banks entering the top 100 assets ranking, have taught banks a hard lesson. From now on, banks will be living by the mottoes, “There is no easy money” and “Get back to basics”.

3�

Successful banks will rely on stable and loyal private customers and do a better job of managing credit risk, while finding and adopting renewed ways to support continued growth in their domestic markets.

Banking’s golden past, therefore, may be over. The US led the way, with the Nasdaq 100/bank index falling off precipitously in June 2006 (see Figure 2.10). The three other major indexes—EuroStoxx 50/bank (Europe), Nikkei 225/bank (Japan), and ASX 200/bank (Australia)—soon began to follow suit. The continuing US tailspin over the past six months clearly indicates the need for retail banks to sit up and take notice.

The rise of risk and a shrinkage in liquidity are now limiting growth opportunities for banks in high-income markets. Some forward-looking banks will focus on retail banking as a stabiliser. To succeed, however, they will need to understand and respond effectively to structural changes resulting from legal and regulatory constraints, radical advances in technology, changing customer behaviour, and new competitive threats.

Structural Changes

More costs, more constraints from regulatorsRegulators will encourage competition by trying to level the playing field across geographies and opening the market to new entrants. Current examples include the Payment Services Directive (SEPA), consumer credit regulation, and the McGreevy Green Book. Others, such as MIFID, Basel II, Solvency II, and Sarbanes-Oxley, will aim directly at preventing risk. The sub-prime crisis, which has wreaked havoc in the marketplace, is very likely to spark new regulations in the near future. All these regulations will have direct impacts on retail banks that want to succeed in high-income domestic markets.

Fewer advantages from legacy investments in technologyTechnology today enables customers to manage their own banking operations from a distance, which decreases the frequency of contact. It also makes it possible for new entrants to build new systems from scratch very quickly, often leap-frogging the technologies of existing players.

New technologies derived from Internet standards, solutions, and practices have dramatically transformed banking information systems from necessary and clumsy infrastructures to enablers of new services and processes. For instance, new technologies that make it possible to separate distribution and production systems have fathered new business models that unbundle retail banking’s value chain and facilitate shared back offices and factories. New software packages built in an open architecture are getting easier to roll out, with a powerful effect on standardisation and industrialised processing.

A changing customer: Less loyal, more demanding, in an increasingly disintermediated contextIn a rapidly changing and risky market, consumers have become more risk-averse. Due to the Internet’s readily available information, better-informed clients expect more clear information fast, and they want results quickly, even when seeking credit. And the increasing demand for sophisticated investment products requires more senior and skilled financial advisors.

Consumers also expect to have several potential points of contact with their banks, available where and when they choose. Today’s retail bank must be ready to provide several non-branch access points, deal with fewer contacts with clients, and use customer relationship management and other tools to help them meet their customers’ varying needs across several channels.

As they become better informed, some consumers are developing new buying behaviour patterns. In the past, bank clients could be expected to be “delegators”, eager to get advice before buying banking products they perceived as complex and risky. Many customers now bring a self-directed attitude to the bank, taking advantage of the Internet (plenty of information, easy comparisons, click-and-buy) to make their own purchase decisions, often with a strong focus on finding the best price. Many clients are bifocal: delegators in certain situations, self-directed in others. Such dual-focused customers create new problems for banks, because their needs from one case to another can be diametrically opposed.


�0 2008 World Retail Banking Report

A new generation of competitors on the retail banking playing fieldIn high-income markets, retail banking has developed a diversified offering portfolio that combines both asset and liability products, along with advisory and logistics services (see Figure 2.11). Each of these offerings will have to face challenges from specific competitors.

Product specialists in assets, liabilities, and logistics services are poised to strike. This latest generation of specialists leverages new technology to deliver fully automated services at low cost compared to existing banking systems and processes. They enjoy less expensive distribution channels than traditional bank branches, and can price aggressively. Retail banks are vulnerable to this kind of competition because their pricing policy often conceals cross-subsidising

between products. Competitors like these can price in a way that undercuts a bank’s most profitable products, depriving banks of needed earnings.

Distribution specialists (e.g. retailers, post offices) also pose a competitive danger. These competitors already have access to consumers through their existing point-of-sale networks, a website (e-merchants or on-line brokers), or even a brand. The main differentiator they are likely to claim is independent advisor, as they will not be producing the products they sell or recommend. They will also challenge traditional bank branches with alternative channels, such as visiting advisors or fully automated comparison websites. The major threat retail banks must cope with is losing client relationships and opportunities to cross-sell additional products.

Figure 2.11 New Generation of Competitors in Retail Banking

Retail Banks

Core to non-core banking products and services

Logistics Services

Ass

etP

rodu

cts

LiabilityP

roducts

Advisory Services

Portfolio Management

Credit Consolidation

Mortgage Loans

P&C Insurance

Consumer Credit

Mutual Pension Funds

Life Insurance

Saving Accounts

Current Accounts

Payments

Investment Services

AAA Financial Services

Zopa

Zopa

Carrefour

AXA

VirginMoney

Fidelity

MLP

Bankrate.com

PayPal

VISA

Private Bankers

Comparison Websites

Independent Financial Advisors

Real Estate Specialists

Asset Managers

Insurance Companies

Insurance Companies

P2P (borrower)

P2P (investor)

RetailersLow Cost &

Direct Banks

Payment Specialists

On-line Brokers Cards

Operators


�1

Consequences of structural changesAll of these structural changes add up to a real sea change in the market, full of new competitors, more demanding customers, and regulators protecting consumers while lowering barriers to competition. To help understand the implications of these structural changes, we developed an economic simulation. It measures what could happen to retail banking’s net banking income over the next ten years if prices and interest margins fell due to competitive pressure.

The simulation focuses on the European market, which—due to SEPA and other European Community regulations—is the most likely to face such an eventuality. Using eight of the main European

retail markets—Belgium, France, Germany, Italy, the Netherlands, the Nordics, Spain, and the UK—we based the simulation scenarios on a key assumption: prices and interest rate margins will equal the average of their two lowest prices in the eight studied markets.

The results are startling. As shown in Figure 2.12, the simulation indicates that the aggregated net banking income across the eight countries would fall drastically, by 12% (due to the alignment of fees with the low average noted above) plus another 24% (due to interest margin alignment with the low average). The impacts would, of course, be different in each country due to discrepancies between their starting situations, but the overall picture is not bright.

Figure 2.12 Impacts of Severe Competition in Europe, 200�–2017F (€Million)—Price Harmonisation

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

UKSpainNordicNetherlandsItalyGermanyFranceBelgium

2006Forecast 2017Impacted forecast

-15%

-22%

-12%

-8%

-9%-16%

+11%

-8%

Source: Capgemini analysis, 2008.Note: All volumes of transactions producing fees and of stocks of loans, and deposits producing interest, are forecast to evolve proportionally to GDP growth.



Countries in the most risky position are Belgium, Germany, Italy, and Spain, where net banking income could drop more than 50%. In this simulation, the UK appears to be the sole winner, although the simulation assumes that banking services are equal across the eight markets.

Major banks have the most to lose in these scenarios. They depend heavily on their high-income domestic markets, which generate the bulk of their retail banking revenues. Add in the shrinking number of new clients a new branch can acquire using the old value propositions, and the rising cost of selling an additional product to an existing client, and there is no doubt that banks wanting to prosper in the future will be seeking better approaches to growth.

FINDING A GROWTH PATH BEYOND THE UNIVERSAL RETAIL BANKAn effective future growth strategy for a bank depends on the characteristics of that bank’s market. The retail banking development paths in various markets have been determined to a great degree by the level of regulatory restrictions placed on universal banking.

When unregulated, retail banks were free to grow by developing a trust relationship with the clients they acquired in their branches, selling them more and more products on top of their current account (path a in Figure 2.14).

Figure 2.13 Impacts of Severe Competition in Europe, 200�–2017F (€Million)—Interest Rates Harmonisation

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

UKSpainNordicNetherlandsItalyGermanyFranceBelgium

2006Forecast 2017Impacted forecast

-46%

-16%

-35%

-43%

+47%-42%

-45%

-28%

Source: Capgemini analysis, 2008.Note: Interest margins are estimated as average credit interest minus average deposit interest, with no provision for gaps between loan and deposit

balances. All volumes of transactions producing fees and of stocks of loans, and deposits producing interest, are forecast to evolve proportionally to GDP growth.

�3

At the other extreme, in more regulated markets, retail banks became financial product specialists who had to share the market with outside brokers, insurance companies, or investment specialists. Their growth path was consequently more driven by product innovation and economies of scale (path b in Figure 2.14).

Path a is structurally more rewarding in the long run for retail banks. Although banks taking path b have achieved high profit levels, gains have only been temporary, and have occurred in less-competitive situations. There is, however, no barrier between paths a and b. If banks are not able to meet and defeat broker competition, a market with universal banks typical of path a might evolve towards a disintermediated market typical of path b. Conversely, a market previously held on path b by regulatory constraints might evolve towards a universal banking market as legal constraints are loosened, provided the banks in such markets succeed in regaining a strong relationship with their clients.

As a result of their history along one of these paths, most retail banks are today running in their domestic market one of the two opposite business models listed below (some large groups are even consolidating entities of the two kinds):

Branch-supported, relationship-oriented distribution of diversified financial services.Specialised supplier of one category of financial services combining direct and indirect sales.

Although some banks might still take the obvious and appealing growth path based on cross-selling the full scope of traditional financial products to their clients—provided regulators would allow it—we have no doubt that the future ultimately will require the invention and adoption of new distribution models.

ß

ß

Figure 2.1� Retail Banking Markets’ Development Paths

a

bPath of Specialised BankingPathof U

niversal Banking

Retail banking market maturity

Customer acquisition, current accounts & basic �nancial transaction services

Credit and savings products

Non-core banking products

Scope of actual markets

Revenue per client

Economies of scale



�� 2008 World Retail Banking Report

Distribution Models to Grow beyond the Traditional Retail Banking Business ModelBy examining the newest and most original initiatives launched worldwide today, and by identifying their inherent features that have the potential for a large roll-out, we identified three distribution strategies to enable a bank to grow beyond the traditional retail banking business model in high-income markets (see Figure 2.15):

“Better sell”: Better fit diverse clients’ needs (hyper-segmentation) “Larger offer”: Expanding the offering to include non-financial products and services “Indirect business”: Sell through other distributors (B to B to C through e-merchants or retailers)

ß

ß

ß

Each of these is discussed in more detail below.

“Better sell” to better fit diverse clients’ needs Three distribution models, all of which aim at increasing a bank’s share of wallet by adapting to client diversity, have come to light as a result of our research.

Figure 2.15 New Distribution Strategies

Retail Banks

Core to non-core banking products and services

Logistics Services

Ass

etP

rodu

cts

LiabilityP

roducts

Advisory Services

COMPETITORS

CO

MP

ET

ITO

RS

CO

MPETITORS

COMPETITORS

CO

MP

ET

ITO

RS

CO

MPETIT

ORS

Portfolio Management

Credit Consolidation

Mortgage Loans

P&C Insurance

Consumer Credit

Mutual Pension Funds

Life Insurance

Saving Accounts

Current Accounts

Payments

Investment Services

BETTE

RSE

LLIN

DIR

ECT

BU

SINES

S

IND

IRECTBUSINESS

LARGER

OFFE

R

BETTER SELL

Financial Advisor for Mass Af�uent

Trust Operator

Discount Bank

General Broker

Open Source Bank

Community Bank


�5

Financial Advisor for Mass Affluent Customers A common sore point for retail banks is having a group of high-potential clients who have bought only a limited share of the bank’s product portfolio. The model shown in Figure 2.16 provides a direct answer to this issue, using for the mass aff luent segment some of the techniques private bankers use with their high-net-worth customers.

We focused on this topic in the World Retail Banking Report 2005 edition, and identified best practices for growing share of wallet in what we called the “untapped gold” segment. We concluded that a customer-needs-driven approach should avoid the existing hard-sell practices. This remains true today.

HSBC Premier is a good illustration of this model. It offers tailored advisory services to its most profitable clients, thanks to the creation of an offering aimed specifically at high-value customers in its mass aff luent segment. These clients benefit from dedicated specialist advisors and financial specialists providing preferential offers.

Community Bank Communities are increasingly recognised by marketing specialists as essential in assessing buying behaviour. Concept stores and websites (such as Second Life on the Internet) all try to leverage community affiliations, and this model aims to achieve this objective in retail banking (see Figure 2.17).

La Caixa for migrants and HSBC for travellers are good illustrations of this model. Another is USAA for the US military. USAA is a community-centred business model launched in Texas in 1922 by military officers to mutually insure their automobiles. It grew within the US, eventually extended its services to banking and investment products, and built its client base among military families. By the end of 2006, the association had 5.9 million members and 21,800 employees. Members held an average of five banking, investment, or insurance products.

USAA is the only fully integrated financial services company at the national level in the United States. It has grown revenues by 12% a year since 2000, and its CAGR figures for 2000-2006 are impressive: membership up 45%, products up 63%, productivity up 69%, assets up 93%, and net worth up 90%. This is clearly a success story.

Figure 2.1� Financial Advisor for Mass Affluent Customer Model

Valuepropositiontocustomers

Takingcareofthecustomer’sfinanciallifeasafinancialadvisor

Bringingtomassaffluentclientssomeservicesusuallyrestrictedtoprivatebanking,e.g.:pensionadvice,fiscaloptimisation,riskmanagement,assetreview

ß

ß

Valuecreationtobanks

Intensifyingclient’srelationshipbyupgradingthevalueofservice

Eventuallycollectingagreatervolumeoffinancialflowsandassets

ß

ß

Issuestocover

Differentiationwithprivatebankingcustomersaswellaswith“non-gold”massaffluentclients

Hiringorreskillingadvisors,keepingcostsinlinewithexpectedaddedrevenue

ß

ß



Figure 2.17 Community Bank Model


Specialisedserviceprovidertoaspecificcommunity(travellers,military,migrants)

Closesttoyourpersonalaffinity,recognisedby“buzz”network

ß

ß


Nichepositioningleveragedbydelegatedmarketingpromotion

Mainstrengthistheconfidencerelationshipwiththebrand,andwithastrongbelongingfeeling

ß

ß

Issuestocover

Compatibilitywiththebrand,e.g.:image,ethics,politics

Controlofthecustomer-acquisitionprocessversustheinabilitytorejectacommunitymember

ß

ß


�� 2008 World Retail Banking Report

Discount BankMany customers today are self-directed and view banking services as ordinary commodities, many of which they purchase on their own. If they do not buy the product themselves on the Internet, they at least compare prices there before buying the product. The discount bank model shown in Figure 2.18 aims at capturing these self-directed buyers with a profitable low-price offering.

The HBOS multi-brand strategy, with its low-end brand Halifax, is a good example. So is Boursorama Banque, a subsidiary of Société Générale. Boursorama has developed a leading on-line broker position in Europe, comprising 232,000 accounts under management and nearly 4.2 million orders executed in 2006.

Having bought a small network of branches in large French cities from La Caixa’s French subsidiary, Boursorama launched a single full-banking package for Internet users with the lowest price on the market. Boursorama’s Service Plus package includes a current account with accruals (1.5%, versus 0% for traditional banks), as well as free standard services for which traditional banks charge. These include, among others, payments means, insurance, Internet access, entry fee to mutual funds, credit cards, and premium cards. The only customer requirement is to spend a minimum amount each month. In 2006, Boursorama boasted an operating efficiency four times higher than traditional banks: 260 employees for 188,500 clients.

“Larger offer”: Expanding the offering to include non-financial products and services

The Trust OperatorThe larger offer model depends on a bank having a very high degree of client trust and satisfaction, which many typical universal banks enjoy today. The model shown in Figure 2.19 assumes the earned trust can be leveraged to extend the bank’s offering into other, non-financial services products offered to its clients.

Many banks have run experimental trials of this model, including the sale of entertainment tickets on La Caixa’s ATMs. But Deutsche Bank’s Q110 concept is probably the most ambitious. It relies on trendy shops with all the sophistication of a concept

Figure 2.18 Discount Bank Model


Themosteconomicwithoutminimisingsecurityorquality

Thelowestpricesonthemarket

ß

ß


Marginalrevenueswithoutadditionalfixedcosts(providedexistingsystemsandbackofficesmaybeshared)

Acquisitionorretentionofself-directednewcustomerswhohavelittleinterestinadvisoryorproximityservices

ß

ß

Issuestocover

Differentiatethemarketpositioningunderanewbrand(nottodeterioratetherelationshipwithcurrentcustomers)

Sharingproductionmeanstohaveasustainablecoststructure

ß

ß


Figure 2.1� Trust Operator Model


One-stopshoppingforcustomers,includingallkindsofpersonalorfamilyservices:domesticchores,billsmanagement,employmentresearch,realestate,mobilephones,journeys,sportsandothertickets...

ß


Capturingadditionalbusinessflow

Increasingcross-sellingopportunities

Optimisingthereturnonassets(physicalnetwork)

ß

ß

ß

Issuestocover

Securingmulti-servicecompetences,avoidingblurringtheimageofthebank

Choosingqualitypartnersoracquisitiontargets,fine-tuningthepricingpolicy

ß

ß


�7

store, offering financial services alongside premium food products. It gives very detailed care to the client experience, even including fancy boxes for financial services packages. Deutsche Bank Q110 branches have generated 50% more account openings than the bank’s other branches.

“Indirect business” (B to B to C)This model did not evolve from any traditional retail banking distribution model, but a growing number of retailers and websites have started extending their offering to include financial services products provided to them by retail banks. Retail banks could use this business line as a way to build economies of scale in their systems and back offices. Banks would have to agree up front to position themselves as pure producers who would not participate in the end-client relationships commanded by the distributors.

Open Source Bank Business on the Internet has given rise to pure players who have developed unique know-how in making money in the virtual world. By providing them with products, retail banks could form a mutually beneficial partnership (see Figure 2.20). Zopa (UK), an Internet marketplace linking private lenders and borrowers, is an example. Another is PayPal (US), the famous payments services leader on the Internet.

PayPal was created in 1998 and bought by eBay in 2002. It is the leader of on-line payment solutions, and offers services in seven currencies in 55 countries. To on-line buyers, it offers security and confidentiality inexpensively, plus free person-to-person money transfer. To on-line sellers (e-merchants), it offers a simple solution with a good service level, no debt-collection risks, and a positive effect on website image, which has been successfully competing with banks’ “distant selling contract”, at least for small or starting sites.

PayPal’s efficient cost model features an automated system that guarantees a very low cost/income ratio (30%) compared to banks. Thanks to eBay and the “buzz” effect, it has limited client acquisition costs. A special team works full-time to minimise the fraud rate, which in 2006 stood at 0.29% (vs. 1.5% for cards on the Internet).

With 164 million users and 450,000 e-sellers in 2007, PayPal has not only achieved substantial success to date, but also has substantial development potential in banking license authorisation and diversification.

Figure 2.20 Open Source Bank Model


EasyaccessandtimesavingofhighlyautomatedoperationsthroughtheInternet,complementingotheron-lineservices

ß

Valuepropositiontodistributor

Bestpriceandturn-keyaccesstofullyoperational,professionallysupported,legallyandprudentiallysecurefinancialproducts

ß


Additionalbusinessvolumebringingeconomiesofscaleandpotentialopportunitiesforcross-sellinginpartnershipwiththedistributor

ß

Issuestocover

Riskmanagement

Avoidingthetransferofknow-howtothedistributor

Choicebetweenbrandedandwhite-labelledoffering

Lowcustomerintimacythreateningloyaltyandretention

ß

ß

ß

ß




General Broker Retailers have always been dangerous challengers to specialised product or service distributors to individuals, and they have developed unique retail marketing expertise (see Figure 2.21). Many of them have already extended their operations to some financial services, such as cards or consumer credit. They can, moreover, claim the advantage of independence, whether in the selected best-of-breed products they propose, in the advisory part of the sales process, or even in the comparison engines they post on the Internet. Once again, retail banks could profit from this business as financial product suppliers.

Examples include the Independent Financial Advisers (US and UK), on-line comparison engines such as Meilleurtaux.com (France) and Bankrate.com (US), MLP (Germany), Seven Bank (Japan), and Virgin Money (UK).

Virgin Money is a brand-centred group launched in 1995 (first known as Virgin Direct). It takes advantage of the Virgin brand strength and values: quality, innovation, “fun”, competitiveness, and customer rights. The bank uses a very non-conventional message to differentiate itself from competitors, create buzz, and appeal to young people. Through government lobbying, Virgin Money positions itself as a protector of consumers’ rights, and offers very innovative products, including special insurance for cancer and pets. Virgin Money has achieved recognised international success, with 2 million clients, 2,445 employees, and offices in Australia, South Africa, the UK, and the US.

Virgin Money uses a retailer’s business model and offers a large product range, including credit cards, personal lending, insurance products, and pensions. It focuses on marketing, selling, and distribution more than on financial conception or processes, contracting through partnerships with MBNA Europe for credit cards and personal loans, and with Scottish Widows for cancer coverage. In the UK, Virgin Money has recently offered to buy Northern Rock (a savings and mortgage bank), which should remind retail banks that partners can always transform into competitors.

Figure 2.21 General Broker Model


Thebestproductsonthemarket,andindependentadvisoryservicestohelpdeterminewhichbestfitswithclient’sneeds

ß

Valuepropositiontodistributor

Bestprice/qualityratioandturn-keyaccesstofullyoperational,professionallysupported,legallyandprudentiallysecurefinancialproducts

ß


Additionalbusinessvolumebringingeconomiesofscaleandpotentialopportunitiesforcross-sellinginpartnershipwiththedistributor

ß

Issuestocover

Riskmanagement,avoidingthetransferofknow-howtothedistributor

Choicebetweenbrandedandwhite-labelledofferings

Threatenscustomerloyaltyandretention

ß

ß

ß


��

BANKERS’ VIEWS ON NEW DISTRIBUTION MODELSThe bankers’ answers ref lected the widespread opinion that three of these models are most likely to be taken up in the marketplace: Trust Operator, Discount Bank, and General Broker (see Figure 2.22). Many banks even admit to having their own projects based on the first two models, Trust Operator and Discount Bank, which many felt are natural paths banks are inclined to follow and are perceived as not too difficult to implement. Conversely, the General Broker model is the one banks are the least comfortable with, perceiving its claim at independence from production as more typical of a non-bank’s positioning.

When we asked bank executives about the change each model would bring to the retail banking business, they selected the Discount Bank model as number one, combined with the General Broker and the Open Source Bank models, indicating that their worst concerns about future competition were focused on a price war and a struggle for clients’ trust and relationship.

Figure 2.22 Executive Views on the New Models

1

23

1

23

Most frequently selected distribution models that are most likely to appear before 2010

Most frequently selected distribution models that would change the retail banking industry

Trust Operator

Discount BankGeneral Broker

Discount Bank

Open SourceGeneral Broker

Source: Capgemini World Retail Banking Report 2008 survey on growth levers.



In a very risky and changing market, banks need stabilisers to be sure they can continue to meet their performance targets. Retail banking will remain a major stabiliser, although banks need to find a profitable organic growth path that leads beyond the one they are following now.

Within ten years, most retail banks operating in high-income markets (and some operating in high-growth markets) will have reached a common standard of excellence corresponding to the results achieved by the best performers of today: combining fast time to market with innovative products and local client intimacy, full multi-channel integration and optimisation, increasing sales productivity through dynamic branch management, and leveraging a multi-brand portfolio to fine-tune high-growth value propositions for each market segment.

Trapped between demanding shareholders and tough competition in slow-growing markets, banks will have to invent their own future model to differentiate themselves from traditional solutions. Each of the models discussed above has the potential to bring some added value to traditional retail banks in their search for growth in high-income markets. The best performers will combine several of them—and perhaps add still others—to compete effectively in tomorrow’s retail banking market (see Figure 2.23).

This combination of several models is necessary to track all micro-segments of customers and adapt diversified value propositions to their specific needs or expectations. It will prove very complex to implement. The challenge will be to allocate resources in a way that supports the specific features of each model while avoiding a duplication of systems and organisations. All traditional enablers of operational performance will have to be fine-tuned and re-combined to fit this new context of diversified business models, without sacrificing operational and economic performance.

This new perspective does not mean that operational issues will be completely different in the future. But they will certainly have to take into account the new strategic environment, answering some exceptionally difficult questions: How can a bank use a portfolio of brands to organise the diverse value propositions it brings to market? How should channels be integrated to support each value proposition? To what extent will it be possible to share channels between different brands? What of the branding of the branches? Which parts of the IT platform can be shared between brands, and which is essential to differentiate value propositions? How can a shared back office deliver differentiated service levels to different segments?

Banks seeking to operate successfully in high-income markets, as they surely must, will need to find good answers to all of these questions—and more—to survive and prosper in the years ahead.

Conclusion

51

Figure 2.23 Creating an Integrated Model for a High-Income Market

Trust

Operator

Multi-brand

Multi-channel

integration

Specialised branches

Discount Bank

Continental Bank

General Broker Community

Bank Fast tim

e

to market

Open

Source Bank Financial Advisor

Sales management

Today Tomorrow

New Banking Model




53

APPENDIxMethodology

APPENDIx


METHODOLOGYFor this fifth annual edition of the World Retail Banking Report, we have continued to refine the methodology used in previous reports and expanded its coverage to two new countries: Denmark and Singapore. We have discontinued the South Africa analysis, because we found it does not effectively represent the African zone.

Each of 26 country teams contributed to its national dashboard (www.wrbr2008.com) and the pricing analysis, and conducted spotlight interviews. The dashboards on the website provide overviews of the national banking industry for each country surveyed. In every country studied, a national team identified the major macroeconomic indicators and described the retail banking environment, the type and size of players, the products sold, and the main trends in that country’s retail banking industry.

The dashboards map these insights in a detailed and consistent format (see Figure A.1). This work also helped us determine which banks to include in the pricing index. Figure A.2 provides a complete list of the banks surveyed.

The main principles of our pricing index methodology remain the same as for last year. The pricing analysis provides both local and global views based on prices and frequency of use. We calculated prices on the basis of usage patterns for three kinds of user: less active, active, and very active.

To determine those three groups, we split the total customer community into three. The 20% with the lowest consumption are less active users, the 20% consuming the most are very active users, and the remaining 60% are the active users. Figure A.3 shows how local profiles vary by usage pattern. In countries where consumer behaviour is tracked, bankers were able to provide this data or refine previous patterns; in other countries, local frequencies were estimated by our local retail banking experts.

All comparisons between our 2005, 2006, 2007, and 2008 editions were made on the basis of three factors:

A flat exchange rate: To compare price evolution from 2007 to 2008 in euros, without those figures being skewed by exchange rate effects, we recalculated last year’s prices for surveyed countries that use a currency other than euros based on 13 September 2007 exchange rates. A same-country scope: To maintain continuity, countries we added over the years (Denmark, Singapore, Croatia, India, Japan, Romania, Ireland), as well as Italy and South Africa, have been excluded from the parts of this year’s analysis comparing 2005, 2006, 2007, and 2008 data. One frequency pattern: The price focus of the comparisons was ensured by recalculating last year’s price indexes based on this year’s frequencies of use (eliminating effects from change of patterns).

As a result, the recalculated price indexes are not equal to the ones published in previous years’ reports. For instance, the 2007 local profile price index is €71, compared to €77 published in the 2007 analysis.

We have also refined some definitions to maintain our product list in spite of changes in the underlying actual products sold by each bank. Some of these changes are only marketing window-dressing, but others are more substantial. For instance, in Portugal, France, Australia, and Poland, prices for external and internal wire transfers differ if ordered at a branch or through the Internet. The proportion of transfers done through both channels was estimated to get a weighted average for the unit price. To remain consistent, we recalculated last year’s prices based on these refinements and assumptions on last year’s proportion of on-line transfers.

ß

ß

ß

55

Figure A.1 Sample Dashboard - Croatia

Source: Croatian National Bank (hNB), Croatian Banking Association (hUB), Croatian Chamber of Economy (hGK), 2007.

APPENDIx


Figure A.2 Pricing Index Survey Sample: 1�� Retail Banks in 2� Countries

Source:Capgeminianalysis,2008.

Europe Eurozone

Austria Belgium France

Shareofdeposits83% Shareofdeposits67% Shareofdeposits88%

BA-CAErsteBankBAWAGP.S.K.SparkassensectorRaiffeisenbanken

sectorVolksbankensector

FortisBankDexiaINGBankKBC

BanquesPopulairesBNPParibasCaissed’ÉpargneCCFHSBCCICCréditAgricoleLCLCréditMutuelSociétéGénéraleLaBanquePostale

Germany Ireland Italy


DeutscheBankCommerzbankHVBSavingBanksMutualBanksPostbankDresdnerBank

AIBBankofIrelandPermanentTSBNationalIrishBankUlsterBank

UniCreditIntesaSanpaoloMPSBNLCapitaliaUBI

The Netherlands Portugal Spain


ABNAMROINGBankPostbankRabobankSNSBankFortisBank

CGDBCPBESTottaBPIMG

BBVACaixaGalidaLaCaixaCajamadridBanestoGrupoBancoPopularGrupoCajasRuralesCaixaCataluñaBancoSabadellBancajaCAMINGDirectBankinterIberCajaUnicajaOpenBankSantanderUno-e

Europe Non-eurozone

Czech Republic Croatia Denmark


CSOBCSKBGEMoneyBankHVB

ZagrebačkaBankaPrivrednaBanka

ZagrebRaiffeisenbankErsteBankSG-SplitskaBankaOTPBankaHypoAlpeAdriaBank

DanskeBankJyskeBankNordeaBankSydbank

Norway Poland Romania


DnBFokusNordeaSparebank1

Midt-NorgeSparebank1

Nord-NorgeSparebank1

SR-banka

PKOBPPEKAOBPHCitiBankBREINGKredytBankBZWBKBGZMilleniumRaiffeisen

BancpostCECAlphaBankBancaTransilvaniaINGBankRomaniaRaiffeisenBankBRDGroupeSGBancaComerciala

RomanaErsteBankUnicreditTiriacBank

Slovakia Sweden Switzerland


UnicreditBankSlovenskaSporitelnaTatraBankaVseobecnaUverova

BankaCeskoslovenska

ObchodniBankaDexia

SvenskaHandelsbanken

SwedbankNordeaSEBDanskeBankSkandiaBanken

UBSCSCantonalBanksCooperativeBanksOtherBanksRegionalBanks

UnitedKingdom

Shareofdeposits83%

HSBCRBSBarclaysHBOSLloydsTSB

Asia-Pacific

Australia China India


CBAWBCNABStGeorgeANZ

ABCBCBOCCCBICBCCMBMinshegShanghaiPudorg

DevelopmentBank

StandardCharteredBank

PunjabNationalBankBankofBarodaHDFCBankLtd.ICICIBankLtd.StateBankofIndiaCitibankN.A.CanaraBankBankofIndia

Japan Singapore

Shareofdeposits62% Shareofdeposits63%

BankofTokyo-MitsubishiUFJ,Ltd

MizuhoBank,Ltd.SumitomoMitsui

BankingCorp.ResonaBank,Ltd.Bankof

Yokohama,Ltd.TheSumitomoTrust

andBankingCo.,Ltd.

DBSBankUnitedOverseasBankOverseasChinese

BankingCorporationKBC

North America

Canada USA

Shareofdeposits85% Shareofdeposits33%

BMOCIBCDesjardinsRBCScotiaTD

ABNAMROBankofAmerica-Fleet

BostonCitigroupJ.P.MorganChaseSunTrustU.S.BancorpWachoviaWellsFargoHSBC

57

Canada Norway

LessActive Active VeryActive LessActive Active VeryActive

Account Management Foroneyear

On-lineBanking #ofconnections 0 12 24 0 23 59

Payments

InternalWireTransfer #oftransfers 6 12 48 2 8 20

ExternalWireTransfer #oftransfers 0 0.5 2 10 50 90


APPENDIx

Figure A.3 Pricing Index Survey Sample: 1�� Retail Banks in 2� Countries


About Us

INGING is a global financial services company of Dutch origin with 150 years of experience, providing a wide array of banking, insurance and asset management services in over 50 countries. Our 120,000 employees work daily to satisfy a broad customer base of individuals, families, small businesses, large corporations, institutions and governments. Based on market capitalisation, ING is one of the 15 largest financial institutions worldwide and in the top 10 in Europe.

ING is a major financial services company in the Benelux home market. ING services its retail clients in theses markets with a wide range of retail banking, insurance and asset management products. In our wholesale banking activities we operate worldwide, but with a primary focus on the Benelux countries. In the United States, ING is a top 10 provider of retirement services based on sales assets under management. In Canada, we are the top property and casualty insurer based on direct written premium. ING is a leading direct bank with 15 millions customers in nine countries. In the growth markets of Asia, Central Europe and Latin America, we provide life insurance. We are also a large asset manager with assets under management of more than €650 billion. ING Real Estate is the largest property company in the world based on its business portfolio.

Visit www.ing.com

THE EUROPEAN FINANCIAL MANAGEMENT & MARKETING ASSOCIATIONEfma is the leading association of banks, insurance companies and financial institutions throughout Europe. Efma promotes innovation in retail finance by fostering debate and discussion among peers supported by a robust array of information services and numerous opportunities for direct encounters. Efma was formed 35 years ago and gathers today more than 2,200 different brands in financial services worldwide, including 80% of the largest European banking groups.

Visit www.efma.com

CAPGEMINICapgemini, one of the world’s foremost providers of consulting, technology and outsourcing services, enables its clients to transform and perform through technologies. Capgemini provides its clients with insights and capabilities that boost their freedom to achieve superior results through a unique way of working—the Collaborative Business Experience—and through a global delivery model called Rightshore®, which aims to offer the right resources in the right location at competitive cost. Present in 35 countries, Capgemini reported 2006 global revenues of €7.7 billion and employs over 83,000 people worldwide.

With a network of 15,000 professionals serving over 900 clients worldwide, Capgemini Financial Services moves businesses forward with leading solutions for banking, insurance and capital markets. We provide deep industry experience, enhanced service offerings and advanced next generation global delivery to help clients achieve tangible results that impact performance and capture competitive advantage.

Visit www.capgemini.com/banking

ABNAMRO

BancaPopolarediMilano

BancaPopolarediSondrio

BankofAmerica

BBVA

BNPParibas

Bundesverbandder

DeutschenVolksbankenund

Raiffeisenbanken

CréditAgricole

CanaraBank

Dexia

Erste

Fortis

GetinBank

HSBC

ING

INGVysya

KarnatakaBank

KBC

KomerčníBanka

LloydsTSB

MizuhoBank

NationalIrishBank

Nordea

Popular

Rabobank

RaiffeisenbankAustriaD.D

RaiffeisenlandesbankOberösterreich

ResonaBankLtd

Sabadell

Santander

SEB

SocieteGeneraleSplitskaBanka

StateBankofHyderabad

SumitomoMitsuiBankingCorporation

SumitomoTrustandBank

Swedbank

TDBank

TheBankofTokyo-MitsubishiUFJ,Ltd

UbiBanca

Unicredit

UnicreditTiriac

YokahomaBank

ZagrebačkaBankaD.D.

Capgeminiwouldliketoparticularlythankthefollowingbanksinterviewed

forthisreport:

Wealsothankthefollowingpeopleforcollaboratingtoproducethisreport:

TheDevelopmentTeamforanalysing,writing,andcompilingthefindings

ofthereport:OlivierDucass,JacquesRicher,HirokoPortal-Nakamura,

ClémenceBechuandLauraSellam.WorldRetailBankingReportExecutive

SteeringCommitteeforprovidingtheirinsights,industryexpertise,

andoverallguidance:PatrickDesmarès,BertrandLavayssière,Marion

Lecorbeiller,andFelixPotvliege.SidSeamansforeditingthereport.All

ourLocalSurveyContributors.

For more information, please contact:Capgemini – [email protected] – [email protected] – [email protected]

For press inquiries, please contact:[email protected]@ing.com

Visit www.wrbr08.com

www.capgemini.com/wrbr08