2008 WORLD RETAIL BANKING REPORT Contents 5 Pricing Index 27 Organic Growth in Domestic Markets 53 Appendix: Methodology 58 About Us ©2008 Capgemini. All rights reserved. No part of this document may be reproduced or copied in any form or by any means without written permission from Capgemini. Preface For the fifth consecutive year, Capgemini, ING, and the European Financial Management & Marketing Association (EFMA) have cooperated to develop this latest annual examination of the global retail banking market. As in previous years, it provides overviews and insights into the global retail banking industry’s dynamics. This year’s edition adds two new countries, Singapore and Denmark, raising the number of countries to 26 and increasing the banks studied from 180 to 194. We continue to investigate the worldwide pricing of day-to-day banking products and services, and this year’s edition continues to highlight the evolution of bank prices for these products and services around the world. Our website, www.wrbr08.com, provides dashboards that offer more detail on each country’s national banking industry. A sample dashboard is included later in this publication. As in earlier editions, our 2008 report adds a spotlight section that focuses on a current retail banking issue. This year’s spotlight highlights the problems banks face as they search for ways to maximise their retail banks’ growth in a changing market, and how some top performers are making strategic choices that ensure their retail operations will sustain the bank’s market performance in the years ahead. Based on case studies, in-depth interviews with banking executives in each market around the world, and quantitative analysis, the spotlight section concentrates on the operational levers and client value propositions that can help retail banks grow in the high-income domestic markets in which they operate today. All of us welcome the opportunity to offer this 2008 edition of the World Retail Banking Report to the financial services community. We hope it will stimulate debate and provide bankers with information they can use effectively as they negotiate the difficult strategic terrain of today’s retail banking landscape. Bertrand Lavayssière Patrick Desmarès Felix Potvliege Managing Director Secretary General Head Strategy & Business Global Financial Services European Financial Management Development of Retail Banking Capgemini & Marketing Association ING Group 2008 World Retail Banking Report pricing indeX 5 Pricing IndeX Key Findings ß This year the average annual price of core banking services across the 26 studied countries was €70 for the local active user, with price levels ranging from €52 in Asia-Pacific to €79 in North America. ß The average price fell slightly (1%) from last year. ß We have confirmed again that as a nation’s economy matures, the proportion of its GDP per capita allocated to banking services declines. ß From 2006 to 2008, in their struggle to compete, banks used price to influence customer behaviour: – Banks cut the price of sales influencers (e.g. current accounts, cards) by 0.8% a year to promote sales. – Behaviour influencers of two kinds—lower cost products (e.g. online banking or withdrawals at ATMs), whose prices banks cut by 0.2% a year to encourage their use; and higher cost products (e.g. cheques or withdrawals at desk), whose prices banks raised by 0.9% a year to discourage their use. – Unseen services (e.g. exceptions handling), for which prices remained unchanged. ß North America’s price rose the most—averaging 5.7%—resulting primarily from higher prices for payments and cash utilisation; its price had declined during the three previous years due to fierce competition on account management fees. ß Asia-Pacific’s price fell by 11.1% this year, essentially because of intensified competition in Australia and India, particularly in payments and account management. ß European prices remained stable, with only a 0.8% price increase across both the eurozone and non-eurozone countries studied. ß With the advent of SEPA, prices of pan-European payments have stabilised in the eurozone, and (excluding Ireland) even decreased faster in Europe eurozone than in the rest of the world. ß Price discrepancies between banks dropped significantly at both the country and region levels; this was particularly striking in North America, although pricing differences in the eurozone remained the smallest. 2008 World Retail Banking Report METHODOLOGY We collected most of the data for this 2008 edition For this 2008 edition, we expanded the geographic of the World Retail Banking Report during the last scope of the pricing index and spotlight to 26 three months of 2007. We continued to focus on four countries, adding Denmark and Singapore, and the categories of banking products and services: account number of participating banks rose from 180 to 194 management, cash utilisation, exceptions handling, (see Figure 1.1). Once again, we compared retail and payments. Figure 1.2 shows the components of banking in four regions: Europe eurozone, Europe each category. non-eurozone, North America, and Asia-Pacific. Figure 1.1 New Countries Countries in Number Banks Surveyed Region in 2008 WRBR 2007 WRBR of Banks Austria 6 Belgium 4 France 10 Germany 7 Europe Eurozone Ireland 5 Italy 6 Netherlands 6 Portugal 6 Spain 18 Croatia 7 Czech Republic 5 Denmark 4 Norway 6 Romania 9 Europe Non-eurozone Poland 11 Slovakia 6 Sweden 6 Switzerland 6 UK 5 Canada 6 North America US 9 Australia 5 China 9 Asia-Pacific India 9 Japan 20 Singapore 3 TOTAL countries/banks 26/194 pricing indeX 7 To compare prices from the consumer’s point of To compare prices around the world, we also view, a local expert defined a basket of products and developed a global profile. It is not governed by local services reflecting the typical consumer’s banking product usage, which obviously varies by country, behaviour in each country. We call these local but by a standard basket of products for all countries. profiles, which we divided into three frequency-of- While it is not as precise as the local profile, it is the use categories: less active, active, and very active users only practical way we can effectively compare global (also shown in Figure 1.2). The price index built on banking prices. these local profiles measures what consumers in a particular country, at these frequency-of-use levels, When comparing prices over more than one year, we pay annually for their day-to-day banking services. consistently use prices based on profiles as updated for this latest edition. Figure 1.2 Scope of Products and Services in the Global and Local Pricing Indexes Core Day-to-Day Two Profiles Three Usage Patterns Nineteen Products & Services Banking Needs Current account Account Products’ frequencies On-line banking Less Represent 20% of Management of use are estimated Call centre Active users with the lowest for each country Users frequencies of use to reflect local Local consumption patterns Profile Measures cost Deposit at desk of basic banking Deposit at ATM needs for domestic Withdrawal at desk customers Cash Utilisation Withdrawal at bank’s ATM Withdrawal at other banks’ ATM networks Active Account for 60% Users of the population Debit card stop payment Exceptions Cheque stop payment Handling Document search Banker’s draft Identical frequency of use for all countries Global Profile Allows the comparison Cheque of price levels based Represent 20% Very Debit card on a single profile of users with the Active Credit card highest frequencies Users Internal wire transfer of use Payments External wire transfer Standing order (fixed amount transfer) Direct debit Source: Capgemini analysis, 2008. 8 2008 World Retail Banking Report NEW COUNTRIES IN OUR 2008 REPORT GENERAL PRICING ANALYSES Denmark Local Profile Danish banks have a long-standing tradition of Local active users pay an average of €70 a year for partnering, which facilitated a large consolidation their day-to-day banking needs. As Figure 1.3 move that started in the 1990s and continues. Four illustrates, price levels varied from one region to banks now dominate Danish retail banking, and two another, ranging from a low of €52 in Asia-Pacific to of them, Danske Bank and Nordea Bank Denmark, €79 in North America. The average price less active control over 50% of the market. users of bank products and services paid was €35, compared to the very active users’ much higher €122 Deploying new technologies, notably for credit (about 3.5 times more). transfers, is an established industry strength in Denmark. Danish banks recently successfully Again, these are averages, and the situation varies by developed packages with free standard products region. In Europe eurozone, for instance, the prices and services for Internet users, and as a result, most banks charge the three groups do not vary Danish Internet prices are among the lowest in widely—very active users pay only twice as much Europe eurozone. Its fee structure is similar to as less active users. In contrast, Asia-Pacific banks other Nordic countries—heavily dependent on charge very active users as much as five times the payments (79%) and, less so, on cash utilisation price they charge less active users. (19%), with almost free account management. Global Profile Pricing between Danish banks varies significantly, To develop a price benchmark of banks regardless of and cannot be explained by geographic their clients’ behaviours, we computed prices based on fragmentation. This signals a market in which a single global active user profile, as detailed in the customers view relationship quality as important, Methodology section above. Measured on this global and where packaged offerings make it difficult for profile price index, Europe non-eurozone (118% of customers to compare prices. the world average) and North America (141%) remain the most expensive regions (see Figure 1.4).