Retail banks, even those
in markets that have weathered the global financial crisis
relatively well, must raise their game to overcome an altered
industry landscape, changing customer behaviour and expectations,
and stricter government regulation, according to a report by Boston
Consulting Group.
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Although
the nature and impact of current industry trends vary by country
and region, the majority of retail banks are still recovering from
significant financial stress endured over the past three
years.
Margin pressure, sharp rises
in loan loss provisions, declines in asset volumes, revenues, and
profits have taken a toll.
A report by consultants
Boston Consulting Group (BCG), called Global Retail Banking
2010/2011: The Road to Excellence, argues that retail banks
must take bold and forceful steps to achieve higher levels of both
operational and customer excellence in order to reverse these
trends.
BCG benchmarked 12 of the top
30 retail banks across North America, Europe and Asia-Pacific.
These 12 banks account for roughly 450m customers, 51,000 branches
and over $14.5trn in assets.
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By GlobalDataThe benchmarking enabled BCG
to identify three key levers that banks must utilise in order to
achieve operational excellence: streamline the organisation,
develop efficient and effective processes and improve overall
end-to-end performance.
The report said that although
none of the top global retail banks has demonstrated the ability to
excel in all of these areas and become a true “process and
productivity leader,” the scope of the opportunity is leading many
banks to embark on multiyear efforts to improve.
“We strongly believe that
banks should continue this endeavour,” said Andy Maguire, a BCG
senior partner and co-author of the report.
He continued: “Better still,
they should accelerate their efforts and investments in order to
reach a high level of operational excellence as quickly as
possible. Those that do will not only reap vast benefits but also
create the ability to sustain them.”
According to the survey, the
most successful banks have a high number of customer-facing sales
and service employees (see graph, below). These banks also
have a high level of industrialisation, characterised by
simplified, standardised processes that maximise the number of new
accounts and loan decisions per operations full-time equivalent
(see table, above).
Further,
they possess a high level of process automation that features
straight-through processing (STP), with up to 90% of new account
openings and 70% of unsecured credit originations processed with
STP.
Banks often hurt themselves,
the report said, with poor customer service and expectations they
cannot consistently meet. Thus they must be more actively
supportive of their customers – for example, by warning them of
potential overdraft scenarios and helping them figure out whether
they can afford the car or house.
The report noted that the
primary checking or current account is the anchor of the customer
relationship. Because of the cross-selling opportunities these
accounts present, customers who hold them are up to 10 times more
profitable than those who do not – and are up to 25% less likely to
have overdraft or default difficulties.
Multichannel excellence goes
beyond avoiding competition between channels and. It also means
monitoring channel action and using that information to drive
quality interactions with customers; it means shifting from a
passive approach – to proactive, sales and service-oriented,
multichannel management.
“Many, if not all, retail
banks are afraid of regulatory intervention. Yet, customer
excellence may be the ultimate defence. Banks that capture and
maintain their customers’ profiles – their demographic
characteristics, risk attitude, product history, transaction and
channel behaviour, etc – will be less troubled by regulation. They
really do know their customers and act in their interests, which is
what regulators care about most,” concluded Maguire.
Such banks aim to educate
their customers first. They advertise honestly. Their products do
what they say ‘on the tin’ and have a transparent and fair pricing
structure without cross-subsidies, all leading to a high level of
cross-buying as opposed to cross-selling.
They enable simple account
opening and servicing that, ideally, is fully automated.
Banks that embrace these initiatives will have fewer
complaints and regulatory concerns. The by-words, said BCG, are
simplicity, clarity and efficiency.
