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Page 1: Retail Banking: Facing the Future - BCG

Retail Banking: Facing the Future

Report

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The Boston Consulting Group (BCG) is a global manage-ment consulting fi rm and the world’s leading advisor on business strategy. We partner with clients in all sectors and regions to identify their highest-value opportunities, address their most critical challenges, and transform their businesses. Our customized approach combines deep in-sight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable compet-itive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 66 offi ces in 38 countries. For more infor-mation, please visit www.bcg.com.

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Retail Banking: Facing the Future

bcg.com

Reinhold Leichtfuss

David Rhodes

Carlos Trascasa

Steven Chai

Monish Kumar

Raphael Schmidt-Richter

November 2007

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© The Boston Consulting Group, Inc. 2007. All rights reserved.

For information or permission to reprint, please contact BCG at:E-mail: [email protected]: +1 617 850 3901, attention BCG/PermissionsMail: BCG/Permissions The Boston Consulting Group, Inc. Exchange Place Boston, MA 02109 USA

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Contents

Note to the Reader 5

Preface 6

Executive Summary 7

Revenue Pools in Motion 10

An Ever-Toughening Competitive Landscape 15Declining Regulatory Barriers, Increasing Rivalries 15Deeper Regional and Global Footprints 15More Direct, More Online Banking 16Customers with Higher Expectations 19

The Tightening Grip of Margin Pressure 20A Powerful Force 20A New Structural Equilibrium 20More Competition, More M&A Deals 24

Winning Business Models of the Future 26Global Titans and Regional Expansionists 26Domestic Champions 28Retail-Oriented Attackers 28Direct Banks 29Specialists 30Trading-Up Players 30

A Fight on Many Fronts 31Defending and Growing at Home 31Exploiting the Power of Process 33Building Meaningful Positions in High-Growth Markets 36

For Further Reading 38

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Note to the Reader

About the AuthorsReinhold Leichtfuss is a senior partner and managing director in the Frankfurt offi ce of The Boston Consulting Group. David Rhodes is a senior partner and managing director in the fi rm’s London offi ce. Carlos Trascasa is a senior partner and managing director in BCG’s Madrid offi ce. Steven Chai is a senior partner and managing director in the fi rm’s Seoul offi ce. Monish Kumar is a partner and managing director in BCG’s New York offi ce. Raphael Schmidt-Richter is a project leader in the fi rm’s Frankfurt offi ce.

For Further ContactIf you would like to discuss the themes and content of this report, please contact one of the following leaders of our global retail-banking practice:

EuropeReinhold LeichtfussBCG Frankfurt+49 69 9 15 02 [email protected]

The Americas Monish KumarBCG New York+1 212 446 [email protected]

Asia-Paci cSteven ChaiBCG Seoul+822 399 [email protected]

GlobalCarlos TrascasaBCG Madrid+ 34 91 520 61 [email protected]

AcknowledgmentsWe would like to thank the execu-tives and institutions that partici-pated in our Global Retail Banking 2007 research eff ort and helped enrich this report. We would also like to thank our project team consisting of Jarod Avila, Thorsten Brackert, Kirsten Duda, Viktor Lee, Jens Muendler, Toby Owens, Miguel Pita, Øyvind Torpp, and Ute Wellnitz.

Many senior leaders of BCG’s Financial Services practice provided us with valuable insights and helped us conduct our research. They include Lionel Aré, Satyendra Chelvendra, Michael Grebe, Rune Jacobsen, Huib Kurstjens, Andy Maguire, Janmejaya Sinha, Knut Storholm, Tjun Tang, and Andrew Westergren.

Finally, we would like to thank Philip Crawford for his editorial guidance, as well as other members of the editorial and production staff , including Katherine Andrews, Gary Callahan, Kim Friedman, and Sara Strassenreiter.

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With myriad trends shaping the global retail-banking landscape, it is some-times diffi cult to see the big picture through the clutter of news and infor-mation that so o en blocks a clear

view of highly complex industries. Yet the fact remains that the retail segment brings in nearly 60 percent of total banking revenues worldwide. It is therefore critical that banking executives gain a clear perspective on the forces that are driving the industry’s future.

There are many forces in play. Traditional barriers to open markets—both regulatory and political—are falling around the world and should continue to crumble, piece by piece. At the same time, maturing markets and sig-nifi cant consolidation in highly developed Western econ-omies are forcing major players to sharpen their value propositions at home and broaden their horizons inter-nationally in search of new revenue pools. As domestic battles for diff erentiation become fi ercer and as numer-ous players attempt to plant fl ags in the same emerging markets, overall competition in the industry is becoming more and more intense. Margins, already under pressure in recent years, are being whittled down by this competi-tion and should continue to erode gradually.

Also, the continuing development of emerging markets—most notably China, India, Latin America, and Eastern Europe—will off er opportunities. In Asia-Pacifi c alone, hundreds of millions of consumers that are not yet part of the banking system will seek banking services.

In addition to the demographics of fi nancial exclusion, the demographics of age will be important. Aging baby-

boom populations, particularly in the West and Japan, and more youthful populations in other regions will pres-ent fresh challenges for retail bankers. BCG’s recent re-search on affl uent middle-aged customers in the Ameri-cas reveals a surprisingly underserved preretirement market. Moreover, youthful customer bases, as comfort-able with the Internet as their parents were with the fi xed-line telephone, will speed up the already rapid rate at which direct and online banking are fl owing into the mainstream.

The well of information that the Internet provides is also playing a role in the increasing fi nancial astuteness of many retail-banking customers. This astuteness makes clients more willing to shop around for the best products and services, and will make them that much more diffi -cult for retail bankers to please and retain in the future.

It was with thoughts such as these in mind that The Bos-ton Consulting Group undertook a signifi cant research project. This eff ort was aimed at helping retail banks identify the key trends that are aff ecting the industry, rec-ognize the challenges they are likely to face both at home and abroad, and acquire the new skills and capabilities needed to be a market leader going forward. Retail Bank-ing: Facing the Future is a direct result of this work.

We hope this report will be thought provoking and serve as a source of useful information for senior retail-banking executives seeking both to develop a diff erentiating and successful strategy and to take the performance of their institutions to the next level of excellence. For it is these banks that will determine the true nature of the future of retail banking.

Preface

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Executive Summary

Retail banking will remain the dominant source of revenue for banks worldwide through 2015. In 2006, the retail banking business accounted for €1.22 trillion in revenues, or about 57 percent of the

global banking revenue pool of €2.15 trillion.

Fourteen banking groups earned retail revenues in ex-cess of €10 billion in 2006, with fi ve groups bringing in more than €25 billion each. Even for most of the top ten banking titans, retail business is still a critical rev-enue source—representing an average of 37 percent of total revenues.

Through 2015, retail revenues will expand at an esti-mated compound annual growth rate (CAGR) of 3.2 percent in real terms. Factoring in an infl ation rate of roughly 3 percent, overall growth should add up to about 6 to 7 percent. The retail banking business also continues to deliver a higher return on equity (ROE) than other banking segments. Most major banks cur-rently achieve ROE above 25 percent (before taxes) from their retail banking activities.

By 2015, the share of global retail-banking revenues generated collectively in the top fi ve European coun-tries and in the United States—which are all mature markets—will have shrunk by an estimated 5 percent, with matching collective gains in strongly growing markets in Asia-Pacifi c and the Middle East.

Vast numbers of “unbanked” consumers in emerging markets—what we call the next billion—will take up banking relationships over the next generation. If such

consumers in China, India, and Brazil were to generate 50 percent of the revenues currently provided by “banked,” low-income customers in these countries, the amount of total new revenues produced by 2015 in these markets could be above €20 billion—the bulk likely coming from China.

Competition in the global retail-banking industry will become increasingly intense, driven by the continu-ing deregulation and opening of international mar-kets, the ongoing regionalization and globalization of the industry, the expansion of direct and online bank-ing, and rising customer expectations.

The number of new entrants with attacking mindsets in regional markets will increase. Aggressive players—be they direct banks, product specialists, or traditional banks seeking to expand their scope—will continue to battle incumbents with fresh price and value proposi-tions all over the globe.

The well-known trend towards direct and online bank-ing will change the nature of the industry signifi cantly in terms of channel usage. This trend will gain momen-tum as adoption rates across all age groups increase and as more young people—who have been raised us-ing the Internet—reach bankable age. This dynamic will inevitably lead to a further decline in the impor-tance of bank branches for some sales activities, al-though branches will remain critical for customer ac-quisition and advice-intensive products.

The transparency of the online world and the ability of sophisticated consumers to compare off ers and

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price positions will push the pendulum of power in the retail banking industry increasingly towards the customer, thus further pressurizing the competitive landscape.

The grip of margin pressure will continue to tighten. From 2001 to 2006, the banks in our benchmarking survey showed average margin declines in their retail segments of about 21 percent.

Many attackers possess highly cost effi cient and scal-able business models that allow them to off er cheaper prices on a sustained basis. This fact, along with the ongoing shi towards online and direct banking, will lead the industry toward a new structural equilibrium at lower margin and cost levels.

In some markets, attacking players have already taken sizable share from incumbents that have been reluc-tant to fi ght proactively on the price front. This trend will gain momentum as more new competitors enter the fray. Incumbents will either have to off er commod-ity products for certain segments at competitive prices or accept loss of market share.

A key result of heavy price competition and its expan-sion into a wide range of products is that revenue pools will grow at a lower rate in many major markets over the next few years. This will make it necessary for banks to drive down their cost growth in order to keep cost-to-income ratios and profi tability levels stable—let alone achieve more ambitious targets. Resizing and restructuring platforms to help achieve this will be a tall challenge for many banks over the next decade.

Tougher competition and tighter pressure on mar-gins and costs will encourage increasing merger and acquisition (M&A) activity, especially in mature mar-kets with low growth rates.

In the future, we will see bigger, diff erently structured, and increasingly international deals. Given the cur-rent speed of both M&A activity and the forging of alliances, especially in the Asia-Pacifi c region, it is very likely that by 2015 there will be fi ve to ten truly global banks.

Cross-border mergers should be seen as having two, three, or more phases to allow suffi cient time for fac-tors such as platform, scale, and market dominance to come into play—and for all potential synergies to ma-terialize.

The winning business models of the future have been taking shape in recent years and will continue to evolve. These models are exempli ed by six general types of retail banks: global titans and regional expansionists, domestic champions, retail-oriented attackers, direct banks, specialists, and trading-up players.

The fi rst fi ve categories of players have clearly outper-formed the pack or showed the strongest improve-ments in recent years. They have an average advantage in their cost-to-income ratio of 10 percentage points, an average ROE advantage of 10 percentage points, and a revenue growth rate more than twice that of most other banks. They also dare to invest in organic growth and in acquisitions—their top-line growth al-lowing cost growth three times as high as that of most other players. The sixth category, trading-up banks, is well positioned to catch up in the future, especially if the leading players maintain focus and expand more aggressively.

Between 2001 and 2006, direct banks and retail-ori-ented attackers showed the sharpest revenue growth of the six groups, with a CAGR above 20 percent, and at the same time achieved signifi cant improvements in cost-to-income ratios. Nonetheless, despite direct banks’ strong infl uence on overall industry margins and channel strategies, the largest share of direct and online banking will remain with multichannel banks. All models will show a stronger online profi le going forward, and some interesting new combinations may evolve as new players arrive on the scene.

Over the next ten years, traditional incumbents will nd themselves more engaged than ever on several

fronts.

Incumbents will need to develop sharper positioning and coherent new business models in order to defend their home markets and fi ght for share against an in-

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creasing number of attackers. Because they have ma-ture footprints, many incumbents seeking competitive advantage will turn to product innovation and better-ing customer service. Products and pricing should re-main easy to copy, the latter providing sustainable advantage only to low-cost players. Yet a small number of retail banks will realize long-term advantage by delivering a diffi cult-to-copy superior customer ex-perience.

Incumbents will also need to make direct and online banking a stronger part of their multichannel strate-gies and upgrade their skills in online customer acqui-sition and loyalty management. Winners will learn quickly from other industries and will transfer recipes for success to retail banking.

Most future winners will have to be strong acquirers and integrators. Those that want to lead in emerging regional markets should be prepared to initiate at least one or two major mergers or acquisitions over the next fi ve to ten years. Such moves can serve as powerful levers for defending market positions, widening scope, and increasing effi ciency.

To deliver a superior customer experience and achieve better cost effi ciency, incumbents will need to fully ex-ploit the power of process. On average, cost savings of 15 to 30 percent can be achieved through improved process effi ciency, internally shared services, and out-sourcing and off shoring. Strong consolidators can go even beyond that level. The continuing deconstruction of the value chain will help banks improve effi ciency and fi ght margin pressure. A number of incumbent banks, however, may not be able to close process effi -ciency gaps.

Incumbents will also need to build meaningful pres-ences in chosen emerging markets that off er the steep-est growth potential. Simply planting fl ags in numer-ous markets and achieving meager shares will not be a successful and value-creating strategy.

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The dynamics of the global banking industry may be changing rapidly, but one aspect of the business remains constant: the retail segment will remain the dominant source of revenue for banks worldwide through 2015.

In 2006, the retail banking business accounted for rough-ly €1.22 trillion in revenues, or about 57 percent of the global banking revenue pool of €2.15 trillion. (See Ex-hibit 1.)

The majority of retail revenues stemmed from lending products. Mortgages were the leading off ering, followed by various categories of consumer loans. Deposits and investments, which 15 to 20 years ago dominated the banking revenue pools in some major countries, typically account for less than 50 percent today—the exceptions being China and some Asia-Pacifi c nations.

In geographic terms, the United States was the largest retail-banking market in 2006, contributing about €430 billion in revenues, or about 35 percent of the global total. The top fi ve European markets—the United King-dom, Germany, Italy, France, and Spain—accounted for about €260 billion (around 21 percent), with Japan con-tributing roughly €130 billion (around 11 percent). The world’s most developed fi nancial markets thus accounted for nearly 70 percent of all retail-banking revenues.

As size and scale have become increasingly important across the global banking landscape, so have the contri-butions of leading banks’ retail divisions. Despite intensi-fying competition in the industry, 14 banking groups earned retail revenues in excess of €10 billion in 2006, with 5 groups bringing in more than €25 billion each. For

most of the top ten banking titans, the retail business is still a critical revenue source—representing an average of 37 percent of total revenues. (See Exhibit 2, page 12.)

Moreover, the retail banking business continues to be a highly effi cient user of capital within the fi nancial indus-try—delivering higher ROE than the other banking seg-ments. Indeed, the overall profi tability of retail banking has improved signifi cantly in recent years amid stabiliz-ing revenue streams that have resulted in lower income volatility. Many major banks currently achieve ROE above 25 percent (before taxes) from their retail-banking activities. Capital markets recognize this dynamic and typically attribute higher multiples to retail banking than to other segments such as wholesale and investment banking.

Through 2015, we expect retail banking revenues to ex-pand at a CAGR of an estimated 3.2 percent in real terms. Factoring in an infl ation rate of roughly 3 percent, overall growth should add up to about 6 to 7 percent. The retail segment will therefore continue to be the primary fuel that propels the banking industry forward, contributing by far the largest share of revenue growth in absolute terms through 2015.

Emerging markets will play a pivotal role in the retail segment’s evolution. In fact, as emerging colossi such as China and India continue to gather momentum as cen-ters of upwardly mobile consumer spending, the retail-banking revenue pool will shi slightly away from the most highly developed markets towards Asia-Pacifi c in the coming years. By 2015, the share of global retail-bank-ing revenues generated collectively in the top fi ve Euro-

Revenue Pools in Motion

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pean countries and in the United States will have shrunk by an estimated 5 percent, with a corresponding collec-tive share increase in Asia-Pacifi c and the Middle East. (See Exhibit 3, page 13.) China’s CAGR in retail banking revenue, an estimated 11 percent, will dwarf those of highly developed markets. Other regions whose retail banking sectors are poised to grow sharply include other parts of Asia-Pacifi c as well as Latin America.

Vast numbers of unbanked consumer segments in all these regions represent what we call the next billion—low-income populations that will gradually develop banking relationships over the next generation. (See Exhibit 4, page 13.)

The potential revenues from these consumers will gener-ate sizable profi ts for the retail players that formulate the

most effi cient strategies. For example, if previously un-banked consumers in China, India, and Brazil were to generate 50 percent of the revenues currently provided by banked, low-income customers in these countries, the amount of total new revenues produced by 2015 in these markets could be above €20 billion—the bulk likely com-ing from China. (See the sidebar “Will Major Retail Banks Embrace the Next Billion Consumers?” page 14.)

Also, the most developed markets are likely to undergo some structural changes concerning the evolution of cer-tain customer groups and products. For instance, the af-fl uent subsegment (customers with fi nancial assets from €75,000 to €750,000) is expected to grow twice as fast as the mass market subsegment (customers with fi nancial assets under €75,000) through 2015, owing partly to up-ward migrations. And while household debt levels have

By region (%) By customer segment (%)By product (%)

Wealth management9

Corporate banking21

Asset management3

Investment banking10

Europe32

UnitedStates

35Japan11

Rest of world13

Small-business customers2

6

Lending56Investments

24

Deposits18

Bancassurance2

Retail banking1

57

Total revenue = €1.22 trillion Total revenue = €1.22 trillion Total revenue = €1.22 trillion

Affluentcustomers4

48

Massmarket

customers3

46

Asia-Pacific(excluding Japan)

9

Total revenue = €2.15 trillion

By banking segment (%)

Global Retail-Banking Revenue Pools, 2006

Exhibit 1. Retail Is the Largest Banking Revenue Pool

Source: BCG analysis.1Includes commissions from retail asset management and insurance.2Small-business customers are those with revenues up to €5 million.3Mass market customers are those with financial assets up to €75,000.4Affluent customers are those with financial assets between €75,000 and €750,000.

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Market capitalization, end of 2006(€billions)

Retail’s share of banking revenues, 2005

(%)

Pretax ROE, 2005(%)1

Top 10

Top 20

Top 30

207

160

127

125

108

101

97

93

189

182

91

88

77

70

69

68

65

65

64

64

64

63

62

60

59

55

53

50

48

48

Citigroup

Industrial and Commercial Bank of China

Bank of America

HSBC

JPMorgan Chase

Bank of China

China Construction Bank

The Bank of Tokyo-Mitsubishi UFJ

Union Bank of Scotland

The Royal Bank of Scotland

Wells Fargo

Banco Santander

BNP Paribas

Barclays Bank

UCI

Wachovia Bank

BBVA

Morgan Stanley

Goldman Sachs

Credit Suisse

Mizuho Bank

HBOS

Merrill Lynch

Sumitomo Mitsui Banking Corp.

Société Générale

American Express

Deutsche Bank

Sberbank

U.S. Bancorp

Lloyds TSB

22

61

37

13

68

85

44

11

34

0

21

24

31

Retail Group

Retail Group

Retail Group

32

29

Exhibit 2. Retail Banking Is Critical for Most of the Biggest Banks

Sources: T.F. Datastream; annual reports; BCG analysis.1Values are published for only 50 percent of the banks in this sample; equity was partially estimated.

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2006

UnitedStates

EuropeTop Five

Rest ofEurope

Rest of theAmericas

The Middle Eastand Africa

Japan

China

Rest ofAsia-Pacific

CAGR (of total revenue pools)

2.3

x

1.9

–5% +5%

2.9 2.9 5.6 3.5 11.0 6.5 3.2

€1.22 trillion

Percentage of global retail-banking revenue pools1

€1.62 trillion

Total

2015

35

32

21 11 8 4 11 3 7

19 11 8 5 11 5 9

Exhibit 3. By 2015, 5 Percent of the Retail-Banking Revenue Pool Will Shift Towards Asia-Pacific and the Middle East

Source: BCG analysis.1Includes retail asset management.

The low-income opportunity

Western Europe (424)North America (330)

CEE, CIS, and Russia (451)

South and Central America (560)

Rest of Asia-Pacific (1,255)

India (1,103)

Africa (1,161)

Developed countries Developing countries

China (1,316)

Japan (128)

Banking penetration (%)

Population (millions)95

908580

75

43

35

33

30

Exhibit 4. The Next Billion Banking Consumers Will Come from Developing Countries

Source: BCG analysis.

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The problem of fi nancial exclusion—individuals’ limited access to, or use of, formal fi nancial services—looms large around the world. Among the excluded are a distinct and enormous group of consumers—the next billion—whose potential to become viable retail-banking customers has been greatly underestimated. Categorized by income, this group sits just above the poorest of the poor and just be-low those who are currently targeted by most retail banks. By embracing innovative business models, banks can up-end the economics of reaching consumers long consid-ered impossible to serve, opening up opportunities for profi table expansion in some of the world’s most rapidly growing economies.

The next billion consumers can be found largely in China, India, and Brazil, but the group also spreads across Africa and other parts of Asia. If the next billion constituted a nation by itself, it would be the tenth-largest economy in terms of GDP, ranking a er Spain but ahead of Brazil, Russia, India, South Korea, and Mexico. In its develop-ment, the next-billion “nation” is on the cusp of high growth and voracious consumption.

The next billion consumers have mainstream fi nancial aspirations—they want to save and invest for the future—and their needs span the same fi ve categories that ac-count for most of the demand in the formal sector: trans-actions, borrowing, savings, insurance, and, to a limited extent, investments.

Yet despite these parallels with mainstream demand, the next billion consumers clearly have distinct needs that are not met by conventional off erings. Chief among these are the following:

Flexibility. Many next-billion consumers, lacking steady incomes, are wary of committing to fi xed savings or rigid repayment schedules. They need their fi nancial-services providers to be fl exible.

Simplicity. The next billion consumers worry more about having manageable monthly installments than they do about a product’s actual interest rate. Simplicity, to them, also means faster processing, with less cumber-some paperwork.

Size. The next billion’s primary banking needs involve small personal loans—mainly for medical and other emergencies or for social events like marriages—as well as savings accounts that allow for low balances.

Instruction. A weak grasp of basic fi nancial concepts makes it daunting for the next billion consumers to leave the informal sector. Some form of education or instruction will be required to make them comfortable enough to transition to the formal sector.

Will Major Retail Banks Embrace the Next Billion Consumers?

peaked in some regions—notably in the United States, which has undergone a well-publicized fl urry of housing-loan defaults—mortgages and consumer credit will re-main among the highest-growth products elsewhere. Their growth rate will be lower than that of the past fi ve to ten years, however, because many retail banks will have to demonstrate more cautious lending policies in the wake of sizable credit losses.

Going forward, the industry will continue to witness the erosion of surplus profi ts in high-margin products be-cause of heightened competition. This dynamic has al-ready occurred in deposits and, over the past fi ve to ten years, has increasingly taken hold in mortgages and con-sumer loans. More subsidies between products are wear-ing away as other subsidized “hook” products emerge or regain prominence.

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An Ever-Toughening Competitive Landscape

Bankers and observers of the fi nancial ser-vices industry have diverse opinions about the trends that are shaping the future of re-tail banking. Amid all the question marks, however, there is one thing that pundits

agree on: competition will become increasingly intense. Why is this so?

Out of the multiple factors in play, we have identifi ed four principal drivers of intensifying competition: the continuing deregulation and opening of international markets, the ongoing regionalization and globalization of the industry (as players based in mature markets seek new revenue pools), the expansion of direct and online banking (on the back of lower-cost technology), and rising customer expectations. By raising the competitive bar, these drivers will have a signifi cant impact on retail-bank-ing revenues and profi ts, as well as on the industry’s fu-ture structure. Another key consequence of tightening competition will be increased levels of M&A activity, which will present its own set of opportunities and chal-lenges for major players.

Declining Regulatory Barriers, Increasing Rivalries

Deregulation and the opening of fi nancial markets in emerging economies, signs of political barriers dropping in Europe, and changes to the legal landscape in the Americas will continue to enable major banking players to plant fl ags in new arenas. These factors have already contributed to some of the major cross-border mergers and acquisitions in Europe in recent years. Moreover, as many institutions stake out new positions in the same

places, new rivalries will be created, adding further fuel to the competitive fi re. Overall, there appears to be a more open mindset among major players towards expan-sion into new markets.

In the Asia-Pacifi c region, China off ers a key example of so ening regulatory pressures. Although foreign banks have been able to off er foreign-currency products to Chi-nese companies and individuals since 2001, RMB-based loans and deposits were severely restricted until the end of 2006. Today, provided they incorporate in China, for-eign banks are permitted to deal in RMB products with all Chinese retail and corporate customers in all areas of the country. This easing of barriers has stoked rivalries among foreign players seeking to position themselves for the signifi cant banking growth that is expected in China. Similar dynamics exist in other developing markets, some of which are being infl uenced by the World Trade Organ-ization’s entry requirements.

Deeper Regional and Global Footprints

Falling regulatory barriers may be opening the door for major players based in developed markets to expand abroad—indeed, many believe they have transportable capabilities and platforms. But a central reason why many of these players are walking through that door is that their own home markets are too mature to off er sig-nifi cant growth potential. As more players make forays abroad, they will create deeper regional and global foot-prints. This process is already well under way.

Aggressive players—be they direct banks, product spe-cialists, or traditional banks seeking to expand their

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scope—are battling incumbents with fresh price and value propositions all over the globe. In Ireland, for ex-ample, the number of competitors in the credit card, per-sonal loan, and mortgage arena increased by roughly 50 percent between 2004 and 2006.

Elsewhere, the largest U.S. banks continue to move into new regions both domestically and abroad, mainly through acquisitions. A number of Western European players are focusing on Central and Eastern Europe (CEE)—some with spectacular expansion strategies that have enabled them to enter more than half a dozen new markets over a fi ve-year period. Moreover, leading play-ers are starting to build regional and global platforms in operations and information technology. These trends are all harbingers of the future.

Ultimately, the global retail-banking landscape is becom-ing not only more competitive but also more diverse in the types of players that are pursuing the same custom-ers. Still, only one or two banks are truly global at this

point, earning a similar revenue share across the Ameri-cas, Europe, and Asia-Pacifi c.

More Direct, More Online Banking

The well-known trend towards direct and online banking is signifi cant. The penetration of both general Internet usage and of online banking channels has increased sharply in developed markets. Penetration will deepen as adoption rates across all age groups increase and as more young people—who have been raised using the Inter-net—reach bankable age. According to estimates, about 50 percent of all households in the United States, Japan, and the EU 15 will be using online banking by 2015—up from 37 percent in the United States, 25 percent in Japan, and 22 percent in the EU 15 in 2005. As online banking progresses, branch visits will continue to decline. Never-theless, many customers who prefer the online channel still desire a degree of human contact in their banking activities and will continue to frequent branches to a cer-tain extent. (See Exhibit 5.) Overall, most customers will

Evolution of channel usage “Name the important factorsaffecting banking service”

Growth in online channel usage istypically accompanied by fewer branch visits …

… although many onlinecustomers still want human contact

–15 0

27.0 87

69

69

57

54

54

47

40

25.5

18.5

17.06.5

–2.3

–0.5

–8.5

13.03.5

10.3–8.5

9.1–1.8

8.5–3.8

0 30 60 9015 30

Spain

United Kingdom

Italy

France

Sweden

Germany

Branch visits Online banking

Canada

High quality of financial services

Guarantee of security

Cheaper fees than offline

Possibility of asking questions

Price details

Cheap prices

Personal advice

Contact person

CAGR, 2001–2005 (%) Percentage of positive responses

Netherlands

Exhibit 5. As Use of the Online Channel Grows, Branch Visits Decline

Sources: Deutsche Bank Research; Forrester Research.

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use multiple channels—with increasing shares of direct and online channels.

Even more important, although the online channel is still used predominantly for informational and transactional purposes, a growing percentage of consumers is open to buying a wider range of banking products online, as re-search in the German market has illustrated. This dynam-ic will inevitably lead to a further decline in the impor-tance of bank branches for sales activities, although branches will remain critical for customer acquisition and advice-intensive products. (See Exhibit 6.) Pressure will therefore increase on retail banks to innovate with branch formats, using more low-cost, automat, or sales-only branches—or other nonstandard branch types such as fl agships.

To be sure, many banks are building on the direct and online banking trend—most within their multichannel systems, others with independent propositions. The most infl uential direct-banking player, ING Direct, has gained

a presence in most large markets along with substantial reach given its relatively short tenures. (See Exhibit 7, page 18.) Initially attacking incumbents with high-inter-est savings accounts, ING Direct has expanded its product range to include mortgages and investment products, which has prompted a number of players to make high-interest-rate online off ers in order to protect their cus-tomer bases. Other players have been off ering direct and online brokerage, some with considerable success. Yet al-though many incumbents are counterattacking, others have not wanted to compete as aggressively on prices and have thus risked losing share to lower-priced players.

Of course, assuming that they achieve suffi cient scale, di-rect and online channels in principle have superior cost structures that enable aggressive pricing. This advantage is biggest in fragmented markets with high cost levels. As a consequence, retail banking customers are seeing an increasing number of attractively priced products, lead-ing them to shop around more and weakening their loy-alty to any one institution. One potential outcome of the

Customer usage (%)

79

69

61

814

20

0

4o

8o

0

4o

8o

0

4o

8o

20152005 2010

Branchsales

Customer usage (%)

20152005 2010

Customer usage (%)

Loans andmortgages

20152005 2010

61

51

17

28

38

45

76

66

58

48

15

Current andsavings accounts

Investments(mutual funds)

Online andtelephone

sales

Exhibit 6. Online Sales Will Increase, Branch Sales Will Decline

Sources: Market research; BCG analysis.

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Exhibit 7. ING Direct Has Gained a Strong Presence in Many Markets

Source: Investor relations. Note: The year of market entry is in parentheses after the country name.1Among the population 14 to 65 years old.

The success of online payments providers has been based on several factors: risk mitigation through scoring the creditworthiness of buyers and sellers in online transac-tions, lower transaction costs compared with credit-card payments, and security through the ability to keep bank-account and credit-card details private. In markets with effi cient payments infrastructures such as Germany, risk mitigation of consumer-to-consumer and consumer-to-business online payments has been critical, whereas in the United States cost effi ciency has played a major role.

But one provider, Paypal, has evolved and obtained a banking license in Europe. With its large online customer base and the weight of its parent company, eBay, behind it, PayPal could consider entering the direct banking mar-

ket. Similarly, if powerful Internet players such as Google and Amazon.com—which have become household names known by tens of millions of consumers—were to use their brands, platforms, and technical capabilities to distribute fi nancial services widely, they could create a new kind of user community and eventually become a global force.

Indeed, Google has already entered the payments arena. Its Google Checkout service enables online shoppers to bundle purchases from participating online retailers into one shopping cart, then use a credit card to pay for every-thing through a Google account.

Will Online Payments Providers and Other Internet Players Become a True Threat to Incumbent Retail Banks?

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online trend—yet to be seen in any dramatic way—is a scenario in which both online payments providers and other powerful Internet players make signifi cant inroads into a broad range of retail banking activities, further pressuring incumbents. (See the sidebar “Will Online Payments Providers and Other Internet Players Become a True Threat to Incumbent Retail Banks?)

Customers with Higher Expectations

Retail banks will continue to witness a sharp rise in cus-tomer knowledge about products, expected service levels, and customer willingness to switch banks. The Internet will contribute to this trend by providing instant access to a world of fi nancial information and advice. For example, sites that aggregate products and prices can provide po-tential buyers with full transparency and quick bases for comparison. Although this type of site is most prevalent in the insurance industry, sites with retail-oriented com-parison information—particularly on lending rates—ex-ist as well. As switching barriers gradually crumble, the number of banking relationships per customer will rise in many markets. Most of the rise will be attributable to new attackers.

Another factor in rising customer astuteness is global dem-ographics. As the baby boom generation moves towards retirement age, banks in many regions will be confronted

with a growing base of customers that is highly experi-enced with fi nancial products. This will dramatically in-crease the need for more at-retirement and post-retire-ment products, which our research suggests are being underdelivered by providers today. Also, the increasing proportion of affl uent and wealthy customers is raising demand for more customized off erings.

Overall, banks in many markets are having to deal with a more heterogeneous customer base in terms of age, de-gree of wealth, and cultural background. An additional infl uence has been new and heavy demand for banking services by low-income consumers, in both emerging and developed markets. In fact, millions of consumers in de-veloping economies are increasingly demanding fi nancial services—even if they do not have proper bank accounts. This demand is opening a door for telephone companies to encroach on retail banking incumbents through mo-bile-phone-based off erings—either in cooperation with banks or independently. (See the sidebar “Will Telephone Companies Become Bigger Financial Players Through Mobile Banking?”)

The ability of consumers to compare price positions—aided by the ubiquity of fi nancial information—will push the pendulum of power in the retail banking industry increasingly toward the customer, further pressurizing the competitive landscape.

Although mobile banking is still struggling for a break-through in most developed markets, there is a large op-portunity for it in emerging economies. In countries such as India and China, the penetration of mobile phones is signifi cantly higher than that of personal computers or the Internet. In addition, unbanked customers have no in-stitutional loyalty—meaning they are open to using non-bank players for simple products such as transactions, deposits, and small loans.

A move towards mobile-phone-based banking already ex-ists in some countries. For example, many Filipinos work-ing in Singapore send money back home by transferring minutes from their cell phones to those of family mem-bers, who then redeem the minutes from the local mobile

provider. Unless regulation gets in the way, this type of of-fering could substantially reduce the market potential and market share of mass retail banks in developing economies. More important, since telephone companies are experts in diff erentiating themselves in a commodity business and also carry out bill collection—meaning they typically have the credit and payment histories of their customers readily on hand—they already have one foot in the door of fi nancial services. A strong base in emerging markets could turn out to be a source of global advantage for mobile-phone-based banking players, allowing them to roll out new business models rapidly.

Will Telephone Companies Become Bigger Financial Players Through Mobile Banking?

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The factors we have discussed have contrib-uted to a steady decline in interest margins in many retail-banking markets in recent years. Other factors include the overall de-cline in interest rates and increasing cost ef-

fi ciency—which has facilitated lower prices and lower margins. Between 1995 and 2005, for example, the bank-ing systems of some major countries—all customer seg-ments included—witnessed average interest-margin de-clines of between roughly 16 percent and 44 percent on total assets (including structural eff ects). (See Exhibit 8.) From 2001 to 2006, our benchmarking participants showed average margin declines of about 21 percent.

A Powerful Force

The truth is that margin pressure will continue to tighten. In some markets, attacking players have already taken share from incumbents that have been reluctant to fi ght proactively on the price front. (For examples of this phe-nomenon in Germany and Australia, see Exhibit 9.) This trend will gain momentum as more new competitors en-ter the fray, some with low-cost business models. The most effi cient direct and online competitors, for example, will be able to off er not only cheaper prices (based on standardized products and processes) but also, in some cases, greater fl exibility. In some developing markets, in-cursion from foreign banks will target upmarket consum-ers seeking sophisticated products and advice, leaving local banks to contest the mass market. On all fronts, the fi ght for customers will become increasingly fi erce.

The cost advantages of successful direct players—and on-line banking in general—are structural, resulting from

the superior scalability of the direct banking model in which IT and marketing are the major cost elements. A large portion of these costs, especially in IT, are fi xed and scalable. Marketing costs also become increasingly fi xed (and hence more scalable) once the customer base has reached a certain level. Dynamics such as these are much less prevalent in the traditional banking model, where 30 to 40 percent of total costs are typically in the branches and in operations. Finally, indirect costs are usually high-er in traditional retail banks.

Looking ahead, it appears that well-managed direct banks will be able to sustain their inherent cost advantages. One reason is that, in addition to a more effi cient cost struc-ture, they possess far simpler processes than the majority of incumbent banks. Over a period of six years, for ex-ample, ING Direct has managed to halve its unit costs, cutting them down to about 50 basis points of total busi-ness volume. Traditional retail banks today require around 150 basis points on average, owing mainly to their expensive branch-based networks but also, in many cas-es, to high indirect costs allocated by their corporate headquarters. (See Exhibit 10, page 22.) Of course, direct banks in most cases still have much lower gross margins than traditional players relative to their business volume.

A New Structural Equilibrium

It is clear that the industry is moving towards a new struc-tural equilibrium characterized by lower margins and lower cost levels. Many banks will face a tall challenge to resize and restructure their platforms over the next dec-ade in order to cope with this dynamic.

The Tightening Grip of Margin Pressure

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Spain

Germany

Italy2

–16%4.53.8

2.71.5

2.71.7

1.81.2

1.71.4

–44%

–37%

–33%

–24%

200620011995 2005

(%)Net interest incomeTotal assets

(%)Total revenuesTotal business volume1

UnitedStates

UnitedKingdom

–21%

Retail bank sample

Average, 2001: 3.9%

Average, 2006: 3.1%

In many banking systems, average marginsdeclined by 16 to 44 percent between 1995 and 2005

For the retail banks surveyed, average marginsdeclined by 21 percent between 2001 and 2006

Exhibit 8. Interest Margins Are Steadily Declining

Sources: Central bank data; annual reports; broker reports; BCG analysis.1Includes loans, deposits, and off-balance customer funds (where available).2Values were available only from 1997.

Independent financial advisorsConsumer finance specialistsDeutsche Postbank Direct banksIncumbents

176 million

75

89

2005

3

2.7

150 million

19952.3

85

7

26 5

2.0

1.5

5.6Deposits

2.4

Mortgages

Personal loans

Bank relationshipsper customer

Credit cards

% %

Financial services relationships: market reachdevelopment in Germany, 1995–2005

Products: market share gains of attackers in Australia, 2004 versus 2006

Number ofrelationships

Exhibit 9. In Some Countries, Attackers Have Gained Considerable Market Share at the Expense of Incumbents

Sources: Annual reports; Deutsche Bundesbank; APRA monthly banking statistics.

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A key result of heavy price competition and its expansion into a wide range of products—including current ac-counts, mortgages, and consumer loans—is that revenue pools may grow at lower rates in many major markets over the next few years. (See Exhibit 11.) This will make it necessary for banks to drive down their cost growth or at least avoid heavy cost increases in order to keep cost-to-income ratios and profi tability levels stable—let alone achieve ambitious improvement targets. This revenue squeeze is being further tightened by the fact that incum-bents are aggressively jumping into the price war that the new competitors originally launched.

Indeed, some incumbent banks are fi ghting back gamely. In the United Kingdom and the United States, some es-tablished players have been fast to off er high-interest on-line saving accounts with rates that are sometimes higher than those off ered by the attackers. Several big banks have already attracted sizable new deposits in this way. For example, in the fi rst quarter of 2005, ING Direct col-lected 70 percent of all online savings in the United States. In the fourth quarter of 2006, it collected only 20 percent, as 80 percent went to the online channels of

the leading incumbent banks. Although the jury is still out regarding how much share the attackers will ulti-mately gain, it is certain that the new price war is driving volume to cheaper and more effi cient direct and online platforms.

All of these developments will make achieving three-year revenue and profi t plans even tougher for major tradi-tional players. Although the past three to fi ve years have been characterized by positive business volume and stock market developments—as well as by quite low loan-loss provisions—the picture darkened somewhat in 2006 ow-ing to increased credit losses that a number of banks ex-perienced. In 2007, more banks have reported decreased earnings and lower-than-expected revenue growth. Many incumbents, if they cannot raise their sales power and effi ciency levels, will see their positions weaken.

Meanwhile, low-cost direct banks, possessing a strong “pull” value proposition, will continue to enter markets through direct and online channels without major diffi -culty. (See Exhibit 12.) Credit-card and point-of-sale com-petitors will concentrate mainly on the consumer loan

102

2001 2002 2003 2004 2005 2006

78 67 64 55 50

Cost advantageof ING Direct versus

traditional retail banks

Approximately 100 basis points

Average = 153 basis pointsCAGR–13%

Operating expenses (basis points of total business volume)2

Operating expenses (basis pointsof total business volume)2

ING Direct1 Global retail bank sample, 2006

Exhibit 10. The Direct Banking Model Can Lead to Distinct Cost Advantages

Sources: Annual reports; BCG analysis.12001, 2002, and 2006 values are only for ING-DiBa. 2Includes loans, deposits, and off-balance customer funds (where available).

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400

343 3.7–5%

CAGR(%)

326

101

84

2.4

5.453 81

75

24

19

6847

25

17

19

43

15

–11%

CAGR(%)

2.2

4.5–7%

CAGR(%)

2.5

10.4–17%

5.4

13.6–24%

6.1 9.0–21%

2.8

297

Forecast without margin decline Forecast with margin decline

68

2006 2010e 2006 2010e 2006 2010e

60 90

60

30

0

30

0

300

200

100

0

€billions

United States United Kingdom Germany

Revenuepool

Profitpool

€billions €billions

Exhibit 11. Fierce Competition May Drain Revenue and Profit Pools

Source: BCG analysis.Note: Calculations were based on various market scenarios. For the United States, we have assumed stagnation or reduction of mortgage volumes, which would affect overall nominal revenue growth rates significantly.

Tradingdown

Branches Salespeople and POS playersDirect and online banking

Above-average growth of customer base, revenues, and profits

Primarydistribution channel

Pushdistribution

Incumbents

Tradingup

Financialadvisors

andbrokers

Retail-orientedattackers

Pulldistribution

POS playersDirect banks

Private banks

Exhibit 12. Low-Price “Pull” Competitors Have Been Among the Very Successful

Source: BCG analysis.

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business and try to cross-sell to their newly gained cus-tomers. Moreover, in some markets, independent fi nan-cial advisors will take a more aggressive distribution ap-proach in order to gain share through strong “push” propositions. Other types of players will leverage their specialized knowledge in the private-banking arena.

To sustain market share, incumbent retail banks will need to off er some competitively priced basic products as part of their portfolios. Doing this economically will re-quire them to simplify products and standardize process-es. Indeed, there is a risk that traditional players will get squeezed between new low-cost and high-end players that are trading down in search of scale. Acquiring other banks (where feasible) may prove to be the only way for some incumbents to avoid insidious losses of market share and associated scale.

More Competition, More M&A Deals

Particularly in mature markets with low growth rates, tougher competition and tighter pressure on margins and costs will lead to increasing cross-border M&A activity.

Indeed, this is already starting to happen. As many ambi-tious banks fi ght for both external and organic growth, many have increased their footprints in mature home markets and fast-growing emerging markets.

Since 2002, more than 3,000 acquisitions (including par-tial stakes) with a total value of more than $1 trillion have taken place globally in the fi nancial services industry. These deals have typically involved a large or midsize bank buying up a smaller bank, brokerage, or asset man-ager. In the future, we will see bigger, diff erently struc-tured, and increasingly international deals. (See Exhibit 13.) As consolidation progresses, both the revenue and the market share of the largest players will increase, as-suming they grow at overall rates similar to those wit-nessed over the past fi ve years.

For some time, banking strategists have been calculating the extent to which cross-border mergers really pay off . Indeed, synergies in such mergers are typically less sig-nifi cant than those achieved in domestic deals. Yet some of the most dynamic players have already shown just how much the performance of acquisition targets can be

Volume and number of deals Retail market share (%)More deals ... ... are leading to increased concentration

0 0’95 ’96 ’97 ’98 ’99 ’00 ’01 ’02 ’03 ’04 ’05 ’06

Number of dealsVolume

8

3

4

6

2

3

5

2005 2015

Number of deals Volume (billions) 400

300

200

100

1,500

1,200

900

600

300

UnitedStates

Top three

Top five

Top ten

Top three

Top five

Top ten

EU 15

15 18

22 26

29 35

10

1512

2520

Examples: United States and the EU 15

Exhibit 13. Banking M&A Activity Is Steadily Increasing

Sources: Thomson Financial; BCG analysis.

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improved so that first-level benefits are not limited to cost synergies of 2 to 5 per-cent. More important, cross-border mergers should be seen as having two, three, or more phases to allow suffi-cient time for factors such as platform, scale, and market dominance to come into play—and for all potential synergies to materialize.

Given the current speed of both M&A activity and the forging of alliances, especially in the Asia-Pacifi c region, it is very likely that by 2015 there will be fi ve to ten truly global banks. Nonetheless, takeovers will not always be a case of a Western power snapping up an Asian or Eastern European player—at least not in the long run. For example, al-though the big Chinese banks still have huge tasks to tackle at home, they may attempt to expand substantially throughout the Asia-Pacifi c region. China already hosts three of the top ten banks in terms of market capitaliza-tion. Other players based in emerging markets, such as India’s ICICI Bank, may seek to plant meaningful fl ags in other countries as well. (See the sidebar “Will Players from Emerging Markets Seek to Expand Abroad?”)

A new and signifi cant infl uence on M&A activity is that hedge-fund and private-equity players have discovered their interest in the banking industry. Banking is among the last industries to be targeted by these players, because the classical approach to leveraging equity does not work in banking for obvious regulatory reasons.

Yet as hedge funds and pri-vate-equity funds strive for better performance, they are becoming more proactive in targeting banks and infl uenc-ing those in which they have an interest. One of their big opportunities lies in betting on accelerated consolidation and on breakup scenarios in which the sum of a bank’s parts is of higher value than the complete entity. Such sce-narios can have a potentially huge impact on industry structures because a group of players—for example, a hedge fund in conjunction with several other banks—will always be able to off er more for a major bank than any one player can alone. When “wolf-pack hunting”

accelerates, even global titans will intensify dialogue with investors to reduce the risk of being taken over and bro-ken up.

As a consequence, assets will increasingly shi into the hands of the best owners—those that can get the best performance out of each banking division—and portfolio strategy will regain premier importance. Banks will have to prove that owning multiple businesses in multiple regions is economically superior to divesting, and the titans will have to prove that they are premium conglom-erates.

Leading banks based in emerging markets could en-large their playing fi eld by buying major positions in developed markets. For example, China’s largest banks, which have jumped into the ranks of the world’s biggest players in terms of market capitalization, could fi nance acquisitions in developed markets—enabling them to acquire new capabilities and participate in the growth of more mature economies. Other banks, such as India’s ICICI Bank, could use ultra-low-cost business models and information technology to gain share by undercutting direct banks based in mature markets.

Nonetheless, the impact of such scenarios would like-ly be limited. For players based in emerging markets, the bulk of future growth potential resides at home or in the Asia-Pacifi c region. Hence, they are likely to re-main focused primarily on deepening footprints in the home market and on regional consolidation across other emerging markets.

Will Players from Emerging Markets Seek to Expand Abroad?

Retail Bankingp25only.indd 25 11/14/07 6:23:53 PM

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Winning Business Models of the Future

The search for the winning business models of the future can be guided by both a deep understanding of current trends and an awareness of the winning strategies of the past. In recent years, a number of leading

institutions have skillfully navigated the retail banking landscape, performing exceptionally on several core di-mensions. Some of these banks have consistently been among the winners for more than a decade, whereas oth-ers have more recently gained prominence. Overall, the fi eld of leading players has become both more heteroge-neous in type and more global in presence. Most impor-tant, a close examination of best practices, as demon-strated by these players, gives strong clues as to precisely which business models will likely be the most successful in the future.

The two most critical measures of banking performance are, of course, profi tability and growth. The cost-to-in-come ratio serves as a proxy for operating profi tability, and revenue growth represents overall growth. Historical analyses have shown these two criteria to be accurate indicators of general banking excellence. A review of leading banks’ performance on these key indicators in recent years reveals wide dispersion. (See Exhibit 14.)

The majority of banks have remained below 10 percent on revenue growth and above 50 percent on cost-to-in-come ratio, but a number of retail banks have performed better. Looking back fi ve to ten years, the top ranks of players included such institutions as Banco Popular, Citi-group, Fi h Third Bank, The Royal Bank of Scotland, Svenska Handelsbanken, and UniCredit—all of which were building on strong performance cultures and leader-

ship. Most of these banks are still in the top league, espe-cially in terms of effi ciency.

In the meantime, additional players have crossed the hurdles of growth above 10 percent (achieved organically as well as through M&A) and cost-to-income ratios below 50 percent. In this group are some of the global titans that have expanded continuously—not only in the Amer-icas and Europe but also in Asia-Pacifi c, especially China, where they were among the fi rst movers.

There is also an elevated stratum of players that is achiev-ing even higher growth and lower cost-to-income ratios. Here we see some traditionally powerful banks but also a number of newer players such as Commerce Bank, HBOS, ICICI Bank, ING Direct, and Tesco Personal Finance.

Yet how have the world’s leading retail banks been pursu-ing their growth and profi tability goals? What is it about their strategies and capabilities that has helped them be successful in the past and that will likely serve them well going forward? In our view, the banks with the best per-formance, as well as the most promising models for the future, can be grouped into six broad categories: global titans and regional expansionists, domestic champions, retail-oriented attackers, direct banks, specialists, and trading-up players. Let’s take a closer look at these diff er-ent types of players and the traits they o en possess.

Global Titans and Regional Expansionists

These banks, typically the largest institutions, are charac-terized by their focused acquisition strategies, either

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global in scope or centered on specifi c regions such as CEE, Latin America, and Asia-Pacifi c. They have best-in-class integration skills and good track records in realizing synergies and economies of scale from their acquisitions. Other characteristics include the following:

Highly signifi cant size, with annual retail-banking rev-enues in excess of €7 billion

A powerful global or regionally focused footprint ac-quired over many years

Appreciable investments in emerging markets and a history of being decisive first movers into high-growth areas

Success in maximizing advantages from outsourcing and off shoring, leading to signifi cant cost advantages

As a group, the banks that we place in this category achieved a revenue CAGR of 12.9 percent between 2001 and 2006, a higher CAGR than that of their costs.

The double-digit revenue expansion of these players is usually achieved equally through organic growth and M&A. On average, they manage roughly two signifi cant acquisitions per year. The best of them are following fo-cused expansion strategies in one or two major regions—except for the two most global players, Citigroup and HSBC, whose outlook is broader. The two leading Spanish banks, Banco Santander and BBVA, have expanded force-fully into Latin America. UniCredit and some smaller ex-pansionists such as Erste Bank, KBC, and Raiff eisen Bank have established strong positions in Eastern Europe.

The pace and appetite of the expansionists appears to be staying at a high level. In 2007, several of them have an-

080 70 60 50 40

Average revenue growth, 2001–2006 (%)1

Average cost-to-income ratio,2001–2006 (%)1, 2

30

25

20

15

10

5

La Caixa

10 billion in operating income

Commerce BankHSBC Asia

EurobankHSBC North America

Bank of America

SberbankWachovia Bank

Deutsche Postbank

UniCredit StandardChartered Bank

E*TradeFinancial

HSBC total

HSBCEurope Allied Irish

Banks

The Royal Bankof Scotland

WellsFargo

NationalBank ofGreece

Banco Santander

HBOSCitigroup

Fih ThirdBank

U.S.Bancorp

BBVA SvenskaHandelsbanken

Allied & Leicester

Citi Privatkunden

ING Direct ICICI Bank

BancoPopular

Exhibit 14. The Winners Are Becoming More Heterogeneous as New Business Models Evolve

Source: Annual reports.12002 data were used when 2001 data were not available or applicable. 2Averages were calculated through geometric weighting, with 2006 weighted the highest (a0 = 0.3).

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nounced signifi cant and strategically interesting new ac-quisitions. This group currently earns the largest share of total retail-banking revenues of all the groups and should continue to do so in the future.

Domestic Champions

These players still exist and prosper, particularly in large, highly fragmented markets. Most of them earn more than 95 percent of their revenues in the home market and fo-cus growth initiatives accordingly. Some, such as several U.S. banks, have focused on M & A, while others, such as Banco Popular and Svenska Handelsbanken, have relied almost exclusively on organic growth.

Domestic champions manage to be among the winners year a er year without conquering the world or expand-ing into fast-growing developing markets. They do this by truly mastering core retail-banking skills. Virtually all demonstrate the following:

An outstanding performance culture characterized not only by clear and ambitious goal setting and eff ective incentives but also by top executives’ ability to “walk the talk,” or consistently deliver what they promise

A superior sales and service culture borne out by high customer-satisfaction ratings

Good cross-selling success compared with competitors, strong segmentation skills, and keen insights into local markets

A strong cost-control culture resulting in high cost ef-fi ciency and relatively low cost growth

Of our six categories of players, domestic champions showed the best cost effi ciency in 2006, posting a cost-to-income ratio of 47.7 percent. Banks in this group have continued to improve along many dimensions, notably by putting service improvement and customer satisfaction very high on their agendas. (See Exhibit 15.)

For example, following mergers that contributed to cus-tomer attrition, Wachovia Bank launched a very success-ful service-improvement program. Some of the other players in this category such as Banco Popular, Fi h

Third Bank, and Svenska Handelsbanken have consis-tently led their home markets in customer service. An-other domestic champion, Wells Fargo, has shown out-standing improvement in sales productivity and cross-selling.

Retail-Oriented Attackers

The most notable trait of these banks is their “attacking” mindset. They also emphasize the “retail” in retail bank-ing. Their branches are their “stores,” geared to provide a uniform look and experience much in the same vein as retail clothing chains and fast-food restaurants. They fea-ture standardized products and tend to be oriented to-wards high-volume, mass-market business.

This category, in fact, consists of two subgroups. The fi rst is made up of aggressive distribution-network expansion-ists that, going against all trends, have expanded their number of “stores” signifi cantly. These heavy invest-ments have usually paid off in new revenues. Examples include Commerce Bank and Washington Mutual in the United States, La Caixa in Spain, and ICICI Bank in India. To achieve success on this route, these players have fol-lowed clear guidelines regarding location, design, open-ing hours, and community events for their branches. They aim for fast breakeven times for new branches. ICICI Bank has also attacked with its rollout of ATMs, which currently number roughly 2,000. In addition to us-ing ATMs as an eff ective acquisition tool, ICICI Bank has also cut prices.

The second subgroup attacks more heavily on prices—and includes HBOS and Deutsche Postbank. These two players have embarked on a retailer-style approach, ap-plying well-priced product hooks as a key tool to win new customers. Both have been innovative in product devel-opment and have launched a steady stream of market-leading, good-value off erings through which they gener-ate high-volume sales. Both have also achieved considerable improvement in cost effi ciency as a result of eff ective cost control, fostered by appreciable investments in new technology and by insourcing functions such as payments from other banks.

Of the six groups, these banks showed the second highest revenue growth between 2001 and 2006, a CAGR of 20

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percent, although their cost-to-income ratio in 2006 was relatively high among the groups of winners because of their investments in branches and marketing.

Direct Banks

Leading direct banks count on marketing, cutting-edge IT capability, simplicity, and flawless execution to pursue their growth and profi tability goals. They empha-size slim product ranges and simple front-end processes with user-friendly designs. Other aspects include the following:

Heavy investments to attract customers, with the mar-keting budget constituting a large proportion of total expenses

Superior cost structures that feature a single IT plat-form that is, in principle, usable worldwide

Standardized processes and scale eff ects that can en-able a strong cost advantage compared with tradition-al branch-based models

A focus on organic growth through direct distribution channels and aggressive pricing

Between 2001 and 2006, these players showed the strongest revenue growth of the six groups (with a CAGR of nearly 23 percent) and at the same time achieved significant improvements in their cost-to-income ratios.

Despite the strong infl uence of direct banks on overall industry margins and channel strategies, however, we do expect the largest share of direct and online banking, by far, to remain with multichannel banks—a trend that cus-tomer research in the United States, Europe, and the Asia-Pacifi c region is bearing out.

50.4 35.8 12.9 10.5

7.1

16.8

6.3

5.9

0.5

3.4 655

811

659

307

382

730

491

9.9

20.0

22.8

7.8

3.7

6.7

25.6

22.8

24.2

46.5

38.8

23.3

47.7

58.4

54.8

55.3

66.3

61.5

0 50 100 0 50 100 0 15 30 0 15 30 0 500 1,000

Trading-upplayers

All others

Directbanks

Domesticchampions

Group

Specialists

Category Cost-to-incomeratio,

2006 (%)ROE,

2006 (%)

RevenueCAGR,

2001–2006(%)

CostCAGR,

2001–2006(%)

Revenuesper customer,

2006 (€)

Global titansand regional

expansionists

Retail-oriented

attackers

Exhibit 15. Domestic Champions Have the Best Cost-to-Income Ratios, Direct Banks the Highest Revenue Growth

Source: BCG analysis.Note: All data are unweighted.

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Specialists

Leading specialists gain competitive advantage through highly advanced product and segment knowledge. They seek niches that are not extensively pursued by major players and try to excel on one or very few specifi c prod-ucts or services. Additional characteristics include the fol-lowing:

Strong capabilities in assessing and pricing risk

Close proximity to the customer and “ownership” of the less price-sensitive POS channel

An ability to extract value from centralizing shared services, leveraging best practices across countries, and forging creative distribution agreements

In 2006, these players achieved the highest ROE of any group, at nearly 47 percent—a performance at least part-ly owing to product mix—and showed higher revenues per customer than either retail-oriented attackers or di-rect players. The group includes consumer fi nance banks such as GE Money and investment-oriented fi nancial-ad-visor companies such as Banca Fideuram.

The above fi ve categories of retail banks clearly outper-formed the rest in recent years. They have an average advantage in their cost-to-income ratio of 10 percentage points, an average ROE advantage of 10 percentage points, and a revenue growth rate more than twice that of most other banks. They also dare to invest in organic growth and in acquisitions—their top-line growth allow-ing cost growth three times as high as that of most other players.

Trading-Up Players

Of course, there can and will be additional successful strategies. Some will be forged by players that intelligent-ly choose specifi c combinations of the above models in line with their own starting positions and capabilities. In-terestingly, the group of leading trading-up banks—play-ers that either have high market shares in the affl uent segment, possess up-market brands, or position their overall business as a premium off ering—showed only a 3.7 percent revenue CAGR from 2001 to 2006, despite achieving more than €800 in average revenue per cus-tomer in 2006 and optimizing ROE at 38.8 percent. This showing underscores the diffi culties of the trading-up path in terms of growth, although appreciable expansion can indeed be achieved through clever positioning and strong execution—complemented by targeted acquisi-tions. If the top trading-up players maintain focus, strive for excellence, and start to expand aggressively, they too can make it into the club of future winners.

All of the above models will show a stronger online pro-fi le going forward. Additional models could involve new mixes of direct and online banking with leaner branch networks.

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Over the next ten years, traditional incum-bents will fi nd themselves more engaged than ever on several major fronts. First, they will have to defend their home markets and fi ght for share against an in-

creasing number of attackers. Sharper positionings and the most appropriate business models will be required to be successful, as will improving the customer experience. Second, they will have to achieve better cost effi ciency by exploiting the power of process. Third, those that have the determination to meet the highest expectations of their shareholders, as well as suffi cient resources, will have to build a meaningful presence in the emerging markets that off er the steepest growth potential. On all fronts, the power to grow through M&A will be critical.

Defending and Growing at Home

Traditional incumbents can use a number of weapons and strategies to defend their home markets from attack-ers wielding discount prices and strong capabilities in both direct and online channels. These options include the following:

Counterattack on the online front, upgrade platforms and product off erings, then follow up with highly fo-cused marketing initiatives

Counterattack on the price front, both online and offl ine

Raise general service levels, and improve the customer experience at all price positions

Establish sophisticated customer-relationship-manage-ment tools and act on a discretionary customer-seg-ment basis

Pursue innovation in products

In observing diff erent defense strategies at work in many markets, it is clear that a fast response is necessary and that new competitors cannot be taken lightly. But even more important than a rapid response is the need to forge a truly strategic defense.

First of all, incumbents will be required to close gaps in the classical core capabilities of retail banking—strong leadership, a high performance and sales culture, cost discipline, and eff ective credit-risk management. Many banks have made major progress in these areas over the past fi ve years, yet there is ample room for improvement. Many leading banks also know that they are not manag-ing their sales power—the product of sales capacity and sales eff ectiveness—as systematically as they could. Yet it is possible for average players to achieve improvements in sales power of 50 to 100 percent within one to two years, strengthening frontline execution through people development and front-end technology, and improving sales force management.

In regard to cost culture, overall discipline will become even more important. Since the easy cost cutting has been done by most banks, additional savings will be more diffi cult to achieve because they will require rigorous pro-cess reengineering, which is o en cross-functional and cross-divisional. Many players have yet to embrace such techniques fully, while others have been learning lean

A Fight on Many Fronts

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manufacturing and process reengineering skills from other industries for some time.

On the risk management front, banks must cope with the new requirements of Basel II, which will help them in terms of ROE in their retail business. We are also seeing more and more banks establishing credit portfolio units and factories to buy credits from sales units.

Moreover, in the new climate of hypercompetition and commoditization, it will be increasingly important for in-cumbent banks to sharpen their value propositions and market positions. One of the crucial questions that they must ask themselves is, To what extent can we trade up or trade down? It seems clear from the experiences of many industries in recent years that there is less room for large-scale trading-up strategies than for trading-down strategies (or positioning your business as a low-cost play-er). In the U.S. retail consumer-goods industry, for exam-ple, the trading-down market has been shown to be about ten times larger than the trading-up market. This trend will increasingly be mirrored in fi nancial services. It is evident, when gauging the winners in retail banking, that direct banks and retail-oriented attackers have shown the highest revenue growth and the strongest improvements in cost-to-income ratio.

In fact, many banks today are positioned somewhere in the middle, stuck with average service and product per-formance and relatively complex processes. These institu-tions will either have to de-average their customer off ers or choose explicitly between pursuing a high-end market position or a mass retail approach. Otherwise, they may end up off ering average quality and effi ciency at both ends of the market.

Clearly, a successful down-market position requires a large customer base. Simple and standardized (yet fl exi-ble) products are necessary, as are mass-retail marketing skills. A straightforward product portfolio is also required for simple and highly effi cient processes— usually accom-panied by a superior technology platform.

The high-end player must build on brand identity and achieve truly world-class skills in customer knowledge, segmentation, and building (sub)segment propositions. Service levels must be outstanding. Best practices from

service industries and retailers can provide valuable in-sights, even for the most advanced banks.

In the past, banks in many countries have tried to achieve excellence at both ends—yet few have succeeded. The most successful have managed to escape the tradi-tional value-price tradeoff . Indeed, some leading compa-nies in diff erent industries have already provided exam-ples. Look back to the 1980s, when Japanese car manufacturers took the United States by storm with high-quality, fuel-effi cient vehicles at relatively low prices—stealing considerable share from U.S. automakers. Since then, Toyota has been demonstrating how top quality can be combined with reasonable costs. In the airline industry, Southwest Airlines, despite being a low-cost carrier, provides a diff erentiated service. The European retailer Aldi, despite being a discount store, attracts affl u-ent customers for a number of high-quality, low-price products.

Although many banks have learned lessons from the mass retail sector, they still face a continuing threat from retailers that have entered the fi nancial services industry and that could potentially expand their presence. (See the sidebar “Will Global Retailers Gain More Power as Banking Players?”)

To be sure, the very pertinent question remains of wheth-er the traditional tradeoff between price and quality still holds true in fi nancial services. Does the old expression “you get what you pay for” still really mean anything? Of course, players of any size and shape can ask premium prices for truly premium service levels on a given prod-uct. Yet as commoditization and new business models progress, retail banking customers will be able to receive high-quality products and high service levels at relatively low prices—at least to a far greater extent than they could ten years ago.

In addition, the coming years will see a rise in the im-portance of other core capabilities for retail banks. First, the ability to establish and manage multiple brands will be critical for players that seek to compete at both ends of the customer spectrum by potentially trading up in selected product categories and trading down in others. Succeeding in both segments will be a huge challenge.

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Second, multichannel man-agement skills will play a more prominent role. The po-tential of the newest channels regarding customer acquisi-tion and service needs to be captured proactively. An ad-vanced multichannel setup will be key to reaching a lower platform cost.

Third, reaching new levels of customer service and loyalty will be even more vital in to-day’s world of rapidly evolv-ing offers, commoditized products, and reduced switch-ing barriers. Although many banks talk about customer service as a source of advan-tage, very few achieve mean-ingful distinctiveness in this area. In our view, delivering the service that customers want at a price the bank can aff ord is truly a source of com-petitive advantage. But before such an experience can be designed, the bank must develop a deep understanding of what frustrates customers and staff , have a proper handle on costs, and analyze its process eff ectiveness rigorously.

Banking customers are increasingly time constrained, seeking convenient, uncomplicated solutions. They want to deal with engaged, knowledgeable frontline staff —the presence of which goes a long way towards fostering loy-alty—but relatively few banks make the necessary invest-ment to build and maintain such a staff . Some banks will be playing the decentralization card to empower their re-gions more strongly. And the increase of transparency, ownership, and accountability have proved to be strong levers for boosting staff satisfaction. Ultimately, the fact that signifi cant enhancements to the customer experience are based on profound improvements in processes and staff behaviors is what makes them so hard to emulate.

The continuing deconstruction of the value chain will help retail banks achieve their targets. (See Exhibit 16,

page 34.) In some markets, a number of banks have al-ready gotten rid of their non-core functions in processing, be it in payments or securi-ties. Over time, more banks will have to do so, because they will not be able to cope with the necessary invest-ments and management skills required to stay com-petitive. Outsourcing will also become a theme in man-agement support functions. We will see more retail banks focusing intently on their core capabilities in customer management, using third-party channels and purchas-ing best-in-class products for an increasingly open plat-form. A product-manage-ment function will be needed to buy the right products for each specifi c bank, and seg-mented value propositions

will be needed to bundle them eff ectively.

Exploiting the Power of Process

All banks will be forced to improve their process effi cien-cy in the coming years, not only to reduce costs but also to help enhance the customer experience. But many will fi nd that the simplifi cation of products and processes is a highly complex task. Banks will increasingly need to de-sign and implement banking processes like true engi-neers. Some direct banks and retail-oriented attackers have already taken the lead in this area because they chose to work with a simplifi ed and standardized product range—and to develop processes accordingly. Although many incumbents have indeed slashed costs over the past fi ve years, only a few have managed to create effi -cient processes that could lead to far more signifi cant cost reductions and scalability.

Building the superior process disciplines necessary to close the signifi cant gap between advanced banks and

Many leading retailers have established fi nancial ser-vices brands in cooperation with banks—off ering cards, consumer loans, deposits, investment products, insurance, and even mortgages. The off erings range from simple marketing and lead generation in retail stores, as demonstrated by Tesco, to full-scale sales, service, and transaction capabilities, as shown by Car-refour. Almost all ventures between banks and retail-ers position themselves as low-priced, convenient al-ternatives to traditional banking channels. Many use loyalty programs to enhance the shopping experience and to attract and retain customers.

Among the key elements of success for these compa-nies have been their retailer’s mindset, distribution networks, brand names, and ability to leverage in-sights from customer behavior. Indeed, banks could learn much more from the segmentation skills of su-perior retailers. As happened in the United Kingdom in the late 1990s, major retailers could steal a bigger chunk of traditional banks’ revenues by serving the basic fi nancial needs of the mass retail segment and of consumers in developing countries.

Will Global Retailers Gain More Power as Banking Players?

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less strong performers takes at least three to fi ve years. Some of the leading cost-effi cient banks break down pro-cesses into dozens of substeps and are able to allocate direct costs to each. This enables them to apply a manu-facturing-style continuous-improvement approach to pro-cess steps and to calculate detailed cost eff ects. By con-trast, many other players still have diffi culty calculating the cost of entire products, let alone of process steps. This, in turn, reduces their bargaining position in any negotia-tions with potential outsourcing partners.

The next level of cost savings can be achieved through off shoring or nearshoring, which are increasingly being leveraged by players based in Anglo-Saxon markets, lend-ing them an advantage over other players. Off shoring is rarely an easy ride, however, requiring sophisticated over-sight and monitoring mechanisms from the home offi ce. A further dimension for cost savings will be the exploita-tion of scale advantages, which some of the global titans should increasingly be able to achieve.

For an average player, the cost savings that can be gained through improved process effi ciency range between 7 percent and 10 percent of the overall cost base. An addi-tional 3 to 5 percent can be gained through internal con-solidation and merger synergies, and a further 5 to 15 percent through external consolidation—making for a potential total cost reduction of 15 to 30 percent. (See Exhibit 17.)

The second lever can be multiplied by expansionists with superior integration skills. They can achieve repeated sav-ings through realizing synergies. This capability is thus groundbreaking in terms of not only market share and growth but also effi ciency and scale. We are already ob-serving signs of stronger scale advantages among some of the largest players. It remains to be seen whether branch-based banks will be able to signifi cantly alter their cost structures in a way similar to what low-cost airlines have done. (See the sidebar “Can Branch-Based Banks Dra-matically Change Their Cost Structures?” )

Contactmanagement

Campaignmanagement

Multichannelmanagement

Customer serviceand experience

Branches

Segment centers

Call centers

Online

Mobile

Supermarkets

Cooperations

Core competencies of future retail bank

AccountingControlling

Risk management

Securities

Investment funds

Deposits

Current accounts and payments

Cards

Consumer loans

Home financing

Insurance policies

Direct sales forces

Customerrelationship

management

Customer knowledgeand segmentation

Sales channels Customer interfacemanagement

Productmanagement

Processingfactories and IT

Management andsupport systems

Cards

Exhibit 16. The Deconstruction of the Value Chain Will Continue

Source: BCG analysis.

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Levers Range of potential cost savings (%)

7 3

3 2

5 10

10

5

15

Volume

Volume

Volume

Unitcost

Unitcost

Unitcost

MergerSynergies

Processefficiency

Internalconsolidation andmerger synergies

Externalconsolidation

◊ Standardization◊ Automation◊ Streamlining

◊ Shared-services center◊ Center of competence◊ Scale through mergers

◊ Outsourcing◊ Offshoring

Total:15–30%

Exhibit 17. Three Levers Drive Process Excellence in Banking

Source: BCG analysis.

If fi nancial institutions could fi nd a viable way to provide low-cost banking through a branch network, they would be able to break the diff erentiation principle between tradi-tional banks and direct and online providers—hence de-fending market share against both.

Following the example of low-cost airlines, a low-cost banking format could operate at almost half the tradi-tional cost base by using key levers: cheaper branch loca-tions and smaller buildings, maximal online transactions and reporting, standard products on standard systems, fewer and more fl exible staff , reduced overhead, and sim-pler processes. Also, cost allocation from any parent bank’s cost structure would have to be minimized.

Those players that are successful on the cost front in all areas—including distribution, operations, and indirect

costs—will be much better positioned to hold the line against additional attacks on the margin front. They will, however, have to use all of their weapons successfully in order to maintain profi tability levels. The assump-tion that there will be a number of banks that are unsuc-cessful at cost cutting will be a further driver of con-solidation.

Can Branch-Based Banks Dramatically Change Their Cost Structures?

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Building Meaningful Positions in High-Growth Markets

Banks must continue to look for the most relevant growth arenas in Europe, the Americas, the Middle East, and the Asia-Pacifi c region in order to achieve high-growth tar-gets. The most attractive markets and client segments will diff er depending on each bank’s particular strategy. To fully exploit the value creation potential, banks must be focused in their expansion approach—be it in terms of geographical proximity, cultural affi nity, or compatibil-ity of product and customer specialization. For example, the success of the large Spanish banks in the Americas is a result not only of their core banking skills but also of their Spanish-rooted culture. Similarly, banks that have been betting on the fl ourishing of Eastern Europe right from the start—committing substantial management at-tention and sizable resources towards the goal of achiev-ing meaningful market share—are today the most suc-cessful players in the region.

Success stories such as these can be replicated in other regions but will require a focused and dedicated expan-sion strategy. Overall, it is generally acknowledged that China and India off er the steepest growth potential in the long run, although there are many other markets that off er signifi cant opportunities for diff erent types of ex-pansionists. (See Exhibit 18.)

Success in emerging markets can sometimes be less a matter of insight into a specifi c region than of simply hav-ing suffi cient resources in terms of capital—as well as the capacity to manage acquisitions and foster greenfi eld growth. Cultural and operational integration problems must be overcome. Those banks that have gathered rel-evant experience over the past fi ve to ten years will clear-ly have a distinct advantage going forward.

In the fi nal analysis, there are fi ve basic dimensions that virtually all banks must develop if they hope to attain or sustain market leadership over the next ten years.

16

12

8

4

01 10 100

Vietnam

PakistanIndia

China

Japan

Indonesia

Russia

Poland Rest of AfricaAustralia

FranceGermany

UnitedKingdom

UnitedStates

TaiwanColombia

5 billion in revenues, 2006

MalaysiaThailand

United ArabEmirates

Rest ofAsia-Pacific

Retail banking revenueCAGR, 2006–2015 (%)

Absolute retail-banking revenuegrowth, 2006-2015 (€billions)

Exhibit 18. China and India Will Outperform Most Other Countries in Terms of Absolute and Relative Growth Rates

Source: BCG analysis.

Retail Banking Nov 07_Text-ACME.36 36 11/14/07 2:12:34 PM

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Review and sharpen market positioning, and shape busi-ness models accordingly. Pursue a winning trading-up position or, more likely, become a viable cost leader through process effi ciencies and outsourcing. Prioritize and professionalize the related capabilities.

Establish a strong position in direct and online banking. Make direct and online banking stronger elements of your expansion and defense plans because these ap-proaches are gaining considerable momentum in the global marketplace. But do not lose sight of the fact that most customers still favor a multichannel experience and that many of the most profi table products still tend to require a face-to-face sale in most markets.

Become a strong acquirer and integrator. Strong acquirers and integrators can relax a bit on the online front be-cause they primarily expand their customer bases and revenues in a diff erent way. But players that want to lead in emerging regional markets should be prepared to initi-ate at least one or two major mergers or acquisitions over the next fi ve to ten years.

Work to fully exploit the power of process. The cost game is far from over, and it is poised to become even more challenging. Top engineering skills—as well as discipline and perseverance—will be required to develop superior processes and platforms.

Expand regionally and, where appropriate, globally. Achieving ambitious growth targets requires participation in high-growth markets—when local growth has been ex-hausted or is fl attening out. Think aggressively about the regions and countries in which your institution wishes to have a meaningful position. In most cases, just planting fl ags anywhere and gaining market shares of 1 to 2 per-cent will not be a successful and value-creating strategy.

And, above all, be prepared to expect the unexpected.

Retail Banking Nov 07.indd 37 11/7/07 11:20:46 PM

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�� The Boston Consulting Group

For Further Reading

The Boston Consulting Group publishes other reports and articles that may be of interest to senior financial executives. Recent exam-ples include:

The Next Billion Consumers: A Road Map for Expanding Financial Inclusion in IndiaA report by The Boston Consulting Group, November 2007

Tapping Human Assets to Sustain Growth: Global Wealth 2007A report by The Boston Consulting Group, October 2007

“The Next Billion Banking Consumers”Opportunities for Action in Financial Services, June 2007

“The Demographic Time Bomb: Human Resources Challenges in Banking”Opportunities for Action in Financial Services, May 2007

“Marrying Risk and Strategy to Create Value”Opportunities for Action in Financial Services, April 2007 Bigger, Better Banking: Emerging Titans, Soaring Profitability, and Continued Growth: Creating Value in Banking 2007A report by The Boston Consulting Group, March 2007

“Creating Lasting Advantage in Claims Management”Opportunities for Action in Financial Services, February 2007

“Capturing the Personal Side of Small-Business Banking”Opportunities for Action in Financial Services, January 2007

Playing the Long Game: Global Asset Management 2006A report by The Boston Consulting Group, December 2006

Taking the Client’s Perspective: Global Wealth 2006A report by The Boston Consulting Group, September 2006

Banking on China: Successful Strategies for Foreign EntrantsA report by The Boston Consulting Group, May 2006

Navigating to Win: Global Payments 2006A report by The Boston Consulting Group, May 2006

Organizing for Global Advantage in China, India, and Other Rapidly Developing EconomiesA report by The Boston Consulting Group, March 2006

“Banking on Russia: Risks and Opportunities for Foreign Players”Opportunities for Action in Financial Services, January 2006

Page 41: Retail Banking: Facing the Future - BCG

For a complete list of BCG publications and information about how to obtain copies, please visit our Web site at www.bcg.com/publications.

To receive future publications in electronic form about this topic or others, please visit our subscription Web site at www.bcg.com/subscribe.

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