Future Of Banking E B F 2004 Final

European Banking Forum 20041

The Future of

European Retail Banking

Frank Schwab

Friday, 5th March 2004

European Banking Forum


The future of European retail banking

Where we are ?2.

Where do we go to ?3.

Where do we come from ?1.


1980 -2000: Europe’s universal bank system

European private banks focussed on investment banking. Retail banking was largely neglected

0

1,000

2,000

3,000

4,000

5,000

6,000

Dec

91

Dec

92

Dec

93

Dec

94

Dec

95

Dec

96

Dec

97

Dec

98

Dec

99

Dec

00

Dec

01

Dec

02

Dec

03

DJ EuroStoxx50

0

500

1,000

1,500

2,000

1990

1992

1994

1996

1998

2000

Domestic

Cross border

Mergers & Acquisitions

Source: OECD

Trading & Sales Mergers & Acquisitions IPO’s


1995 - 2000: The hype of e-commerce & online banking

Customer

Traditional Retail Banking

Attacker

The bubble did burst, but additional competition for traditional retail banks is left and margins decreased



Where we are ?2.




Branch and bank density (2002)

The UK banking market is the most consolidated, followed by Spain.

Branch density per 1,000 inhabitants

Bank density per 100,000 inhabitants

UK Spain Italy Germany France AverageSource: DB Research

0.21

0.640.95

0.67 0.52

1.43

0.46

3.14

0.44

1.70

0.52

1.52

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

No of inhabitants

No of banks

UK Branch 4,762UK Bank 156,250 445

ES Branch 1,053ES Bank 149,254 349

I Branch 1,923I Bank 69,930 808

D Branch 2,174D Bank 31,847 2,232

F Branch 2,273F Bank 58,824 952

AVG Branch 2,437AVG Bank 93,221 957


Cost/Income Ratios (Average 1992-2001)

The UK banking market is the most profitable, followed by Spain.

60.4 60.7

63.1

64.3

67.1

63.1

5859606162636465666768

UK Spain Italy Germany France Average

CIR in %

Source: DB Research


Average = 4.3

0

5

15

4550556065707580

BNP

ING

Barclays

LloydsCrédit Suisse

UBS

Citibank

UniCredito

Raiffeisenb.

Banca Fideuram

Average = 63.4

Citibank PC

MLP (42% growth)

Coba (85) ABN

Amro

HSBCSEB

Banco Popular

Dreba (-1)

HVB

10

DB PBC

Income growth and cost/income ratio of retail banks across Europe, 1998 - 2001

Sources: Annual reports; McKinsey analysis

C/I ratio98-01 in %

Income growth 98-01 in %

Financially successful retail banks can be characterised by low cost/income ratios and high income growth


Value creation of different industries

50 % 50 %

30 % 70 %

80 % 20 %

20 % 80 %

Bankingindustry

Capital goodsindustry

Automotiveindustry

Electrical industry

Internal labour External labour

Sources: DZ-Bank, CSFB, Roland Berger, 2002

Compared to other industries, banks still have a high internal labour rate



Where we are ?2.




Disintegration of the traditional banking value chain

Specialisation and development of core competencies can be a key for success in retail banking

Traditional Trend

Scoring Business Dev.

Product Dev.

Processing

HR

Customersegmentation

Marketing

Sales

Online


German age structure: half of the population is older than 50 years in 2050

Germany is a front-runner of a dramatic structural change of the European age structure

1950

WomenMen

2050

WomenMen

Source: German Federal Statistical Office


Financial wealth per capita of European citizens increases on a high level

There is a continuous increasing demand of investment and asset management products

Source: Organisation for Economic Co-operation and Development

48 47

31 30 33

16

34

77

66

47 47 44

29

52

0

10

20

30

40

50

60

70

80

90

Nethe

rland

sUK

Franc

eIta

ly

Germ

any

Spain

Avera

ge

1995

2000

‘000 Euro

9,0

9,9

7,09,1

9,6

6,0

12,6

CAGR


Scenario 1: Set single focus on older people

targets customers older than 55

years focus on Central Europe coverage of the full product

range, customised for this

special period of life building partnerships with

relevant organisations and

networks like

“http://www.age-platform.org”

Older people as the only target group of a retail bank with focus on Central Europe


IT spend matters ...

Some of the most successful European retail banks have a high IT spend level

IT c

ost

/ op

erat

ing

cost

s

10%

15%

20%

25%

5%

Cost / income ratio20% 40% 60% 80% 100%

DB PBC

20012002

Median

Median

Citibank PC

Unicredito

Barclays

Lloyds

CS

UBS

DresdnerBank

HVBBNP ParibaHSBC

SCH

BBVA


visi

bilit

y /

publ

icity

low

hi

gh

maturitylow high

No single mega trend, but many parallel trends increase the need for tight alignment of IT and business strategy

MobileServices

Web Services

CRM

Electronicsignature

IT InfrastructureOutsourcing

BPOOutsourcing

LINUX

“Farms” &“Blades”

replacementof OS/2

networkbandwidth

Private & Business Clients – Rahmenbedingungen zur Strategieentwicklung... and information technology can be a source of competitive advantage

Offshore

ApplicationOutsourcing

Businessintelligence


European union: eastern enlargement

1 Estonia 2 Latvia 3 Lithuania 4 Poland 5 Czech Republic 6 Slovakia 7 Hungary 8 Slovenia 9 Romania (2007)10 Bulgaria (2007)11 Malta12 Cyprus13 Turkey (open)

Increase of existing European market by 75 million inhabitants to 375 million customer on 1st of May 2004


Scenario 2: Serve the “not banked” customer

“Small loan terminal”

targets “non bank” customer in Eastern Europe small loans up to 500 Euro above average interest rate placed at supermarkets, retailers, malls online authentication by phone number, social security number, address, date of birth, ... online scoring instant loan, paid cash and cash pay back

“Small loan” terminal

“Small loan terminal” as the single business activity of a specialised retail bank in the Eastern Europe market


Whatever strategy you choose ...... be excellent !

Excel your customers’ expectation

Excel in training and motivating your employees

Excel the quality of your processes

Excellence in these three dimension leads to sustainable financial success


Thank you !

Let’ s discover our individual

Futures of the European Retail Banking

and discuss possible co-operations & solutions

in the sessions of the next two days.


[email protected]

http://www.FrankSchwabSpeaks.com http://www.FrankSchwabSpeaks.com

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