The latest survey from Boston Consulting Group says that while
retail banking accounted for €1.22 trillion (57 percent) of the
global banking revenue pool of €2.15 trillion in 2006, it is
expected to grow to €1.62 trillion by 2015, driven by emerging
markets, deregulation and channel extension. William
Cain reports.
Retail banking will remain the dominant source of revenue for
the world’s banks to 2015, according to the latest industry annual
report by US consultancy Boston Consulting Group – though banks
will need to expand their consumer bases both domestically and in
emerging markets to overcome intensifying competition and declining
margins around the globe.
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The report’s lead author, Reinhold Leicht-fuss, said the changing
business environment would mean there would be a more varied set of
successful business models in the future. But some banks were
particularly well placed to take advantage of the changing retail
banking industry.
Leichtfuss told RBI: “If you are talking truly globally,
we can look at HSBC, which is the one truly global, global bank,
and the next is Citibank. But if you look five years ahead,
something could happen to those that are successful now. If you
look at a group we call regional expansionists, we have banks like
UniCredit and the Spanish banks, Santander and BBVA – so there is a
more heterogeneous set of business models now.”
The report addresses the unfolding subprime drama in the US,
arguing that while mortgages and consumer spending would remain
among the highest growth products globally they would be slow in
the US and UK as banks exercised more cautious lending strategies.
But Leichtfuss admitted he was surprised by the extent of the
write-downs registered over the past few weeks.
The report, Retail Banking: Facing the Future, estimates
retail banking revenues will grow at a CAGR of 3.2 percent in real
terms up to 2015. The industry will continue to deliver a higher
ROE than other banking segments; most banks currently deliver
around 25 percent ROE in their retail operations.
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By GlobalDataThe report said that, as of 2006, retail banking business accounted
for €1.22 trillion ($1.79 trillion) in revenues, 57 percent of the
global banking revenue pool of €2.15 trillion. It is expected to
grow to €1.62 trillion by 2015, driven by demand from emerging
markets, deregulation and channel extension primarily through
online banking.
Under-banked and underserved
Much of the opportunity for growth will come from
the vast number of currently under-banked and underserved people in
China, India and Brazil. Boston Consulting Group termed them “the
next billion”. The report estimates that if these consumers
generate just one-half the revenue currently provided by banked
low-income consumers in those countries, they will have created
revenue of more than €20 billion by 2015.
But the report also predicts some major challenges for the retail
banking sector. Most of the increase in revenues will come from
emerging markets, and the share of global retail revenues in the
top five European countries and the US will shrink by an estimated
5 percent. The report also says competition will be driven by
deregulation of international markets, the entry of new “attacking
players” and increased consumer awareness.
Leichtfuss said: “The transparency of the online world and the
ability of sophisticated consumers to compare offers will push the
pendulum of power in the retail banking industry increasingly
towards the consumer, further pressurising the competitive
landscape.” Incumbent banks will be able to stave off the
aggressive strategies of new players – particularly online and
direct banks – only by upgrading online customer acquisition
themselves. They will also need to be strong acquirers and
integrators.
On average, margins declined 21 percent between 2001 and 2006, and
Boston Consulting Group expects that trend to continue. Margin
compression will slow revenue growth in coming years, and banks
will need to trim costs to keep profitability levels stable –
encouraging increasing merger and acquisition activity. Declining
margins may be offset by cost savings of between 15 and 30 percent
in the next seven years, achieved through improved process
efficiency, internally shared services and outsourcing and
offshoring.
There are likely to be five to ten “truly” global banks by 2015,
the consultancy predicts – though it does not name names – and
banks in emerging markets will make only limited inroads into
developed markets. With the vast market capitalisation of China’s
ICBC and China Construction Bank and the low-cost business models
from banks such as India’s ICICI Bank, overseas deals would be
possible. But the report says it is more likely these banks will
concentrate on deepening their footprint in their home markets, or
more broadly in the Asia-Pacific region where the bulk of growth
looks likely.
