While 2009 was a difficult year for much of the retail banking industry, prospects for 2010 are, if anything, even more uncertain. RBI spoke to a selection of leading retail bankers from across the globe to discuss their strategies and forecasts for the year ahead. Dan Jones reports.
In a year in which much of the banking discussion centred on looking back at the near cataclysmic events of 2008, or often on maintaining rather than growing income levels, there were limited opportunities for retail banks to dazzle.
Nonetheless, over the course of the year some top-line performers emerged – those who successfully gained market share, carved out new retail banking identities, reinforced their status as customer service champions or forged ahead with new product innovations.
Speaking to RBI, leading retail bankers from around the globe voiced their opinions on the months ahead and outlined the business propositions they will present to customers over the course of the next 12 months.
There remains a huge degree of variance in terms of retail banking aims and objectives for the new decade. Yet one overriding objective continues to be the acquisition of customer deposits – the rebalancing of the books is not over yet.
“A priority will be to fully leverage our 800-branch network and other channels like mobile and online banking to grow deposits,” confirmed Vinit Chandra, CEO of Barclays global retail bank, emerging markets, speaking to RBI.
Intelligent branch banking
Such goals have been priorities for most retail banks over the course of 2009; the difference in 2010 may be the more refined manner the industry’s leading players go about fulfilling this ambition.
Despite many regions witnessing a return to profit growth and a potential peak in non-performing loans, a combination of lower budgets and channel innovation means 2010 is unlikely to bring with it a return to a key retail banking theme of old: the aggressive expansion of branch networks.
Rather, banks will seek to do something akin to NAB, which is currently prioritising the provision of “better branches and kiosks in better places, investing in our local market approach and having the right staff in the right locations for our customers”, according to Howard Silby, NAB personal banking’s executive general manager strategy, business development and marketing.
A more intelligent approach to branch banking is also on the agenda at TD Canada Trust, which is in the process of rolling out its ‘branch of the future’ concept across Canada (see RBI 622). President and CEO of Canada Trust, Tim Hockey, told RBI that the bank would continue to expand its footprint via “15 to 20 new retail branches, 15 relocations and two new commercial centres”, and, just as crucially, “invest in the integrated customer experience across and within channels”.
For TD, this integration will likely have two key facets – a “significant year on year increase” in technology spending and a further push to improve customer service, a metric for which the bank is already something of a flag bearer. To this end, TD will launch and enhance back office customer engagement programmes over the next twelve months.
Indeed, of all developed markets it is perhaps Canada alone that is bucking the trend of limited branch openings. TD’s rival Royal Bank of Canada (RBC), the country’s largest bank, also intends to expand not just next year but well into the next decade.
“We will expand our physical footprint by almost 10 percent over the next five years,” David McKay, group head of Canadian banking at RBC, told RBI (see Loyalty result thrills RBC).
Focusing on customer service
Clearly, fine-tuning the cross-channel experience is not just driven by a desire to improve customer service – it also provides an opportunity to improve margins and efficiency, both of which will remain under pressure in 2010.
“New internet banking, expanding RHB Easy channels and self-service banking will be platforms for higher transactional banking leading to higher deposit floats at lower deposit acquisition cost,” said Renzo Viegas, head of retail at Malaysia’s RHB.
The past 12 months have been successful ones for RHB, Malaysia’s fourth-largest bank by assets, and in particular for its retail banking strategy.
In May the bank launched a co-branded credit card with Tesco; in October it agreed to purchase Indonesia’s PT Bank Mestika for $340 million; and this month the bank has announced that it will extend its ‘RHB Easy’ concept, first trialed in July of this year.
The low-cost outlets offer banking services outside regular working hours, with a total of 28 set to be installed across Malaysia by the end of the year and a further 50 planned for 2010.
“Increasing off-branch self-service banking at high retail traffic flow areas for customers’ convenience is a priority for us for 2010,” Viegas said.
It is not just RHB which is looking to expand its service hours. Though 2009 will not go down as a year to remember for Citigroup in the US, the group says an initiative pioneered in New York in September will now be rolled out nationwide. As of that month, Citibank branches in New York extended their opening hours by up to 40 percent; the bank also stepped up its community and environmental initiatives as part of the effort.
“[Extending the initiative across the US] is a key focus and priority for us in 2010”, a Citi spokeswoman told RBI (see News Digest).
Given the ongoing economic downturn, the amount of state aid provided to the financial services industry since last year, and the very visible frustration at the sector from consumers, it is no surprise that restoring reputations remains a key concern for 2010. Silby was most explicit in committing to this point, and pointed to NAB’s aggressive pricing policies as “providing fair value products and services – leading the restoration of the banking industry’s reputation in Australia”.
A restricted Europe
In Central and Eastern Europe, however, the thinking is very different, given the more restrictive economic environment and what some perceive to be a dangerously distorted playing field.
“Price war is dangerous for every business. It is important for the EU and its members to correct as soon as possible the moral hazard of 100 percent unlimited guarantee for deposits in banks, for instance,” said Jan Rollo, CEO of Slovakia’s Slovenska Sporitelna, a subsidiary of Austria’s Erste Bank. “This creates a new bubble. If something you do doesn’t involve any risk at all, you will only think about the price. And this will result in imbalances on the market which will explode one day.”
His colleague Imre Sztanó, retail head of Erste Bank Hungary, voiced similar sentiments: “Every banking service has a price. I don’t think the right direction would be to market services that have a price for free in a wide scope… It’s important that the price/value rate of any service be right and that customers should feel they’ve been given value.”
Others, such as France’s Crédit Agricole, are still wary of the changing regulatory landscape: a key priority for the bank, said a spokeswoman, was to “closely monitor the impact of G20 decisions on the banking industry, after assessing the impact that these may have on [our] areas of business”.
Acquisitions remain off the agenda for most of the industry, despite a year in which the number of deals kept pace with the total witnessed in 2008 (see Dealing with a new reality).
While Crédit Agricole said the bank would look to “expand” its international retail banking activities, Société Générale would rather “reinvest selectively to strengthen the universal banking model”, for example, and no other retail bank spoken to by RBI pointed to inorganic expansion as a key priority for 2010.
From a customer perspective, the likelihood is that relative personal financial austerity will continue to hold sway into 2010, even as wider economic circumstances improve.
“We believe customers in 2010 will continue the process of paying down debt and rebuilding their level of savings despite the likelihood of the UK’s economy turning the corner out of recession,” said Brendan Cook, general manager of customer propositions at HSBC.
Unsurprisingly, therefore, the prioritising of the affluent customer is set to become ever more crucial to the sustainability of the retail banking business model in 2010. Barclays, for example, intends to “expand our premier banking offering in most of our 14 emerging markets [country units]”, according to Chandra.
The bank to beat in the segment remains HSBC, however. HSBC said in its interim report that the total number of customers in its own ‘Premier’ segment had grown by 23 percent in the 12 months to 30 June; in November the bank said that numbers had surpassed three million for the first time. The offering, now available in 43 countries, is also a valuable acquisition tool. Of the 541,000 customers who joined Premier in the first half of the year, some 68 percent were new to bank.
Cook confirmed that Premier would continue to be a “major focus” for the bank in 2010, but was also quick to point out that the bank had room to grow in other areas: “I also see a great opportunity for HSBC to capture further growth in the UK mortgage market,” he said.
Mortgages are also on the agenda at TD Canada Trust, which plans to add over 175 business bankers and mortgage specialists in 2009, according to Hockey.
But it is Jiri Skorvaga, deputy CEO of Ceska Sporitelna, the Czech subsidiary of Erste Bank, who perhaps provides the most telling comment: “We are mainly directing our loan offers at our own clients, because we already know a lot about them.
“We are refusing applications from people who are not our clients more often than before”.
In an age of newfound caution, the spectre of the financial crisis continues to haunt the retail banking industry.