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 

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 

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.  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). Singapore The Singaporean retail banking market is very concentrated, with three banks—DBS Group, United Overseas Bank, and Overseas Chinese Banking Group—controlling 67% of the market. Transaction banking is still the prevailing business model, with fast-growing demand, but the large banks are trying to develop cross-selling into the burgeoning mass affluent market. Singaporean banks for many years have been leaders in using new technologies in retail banking, such as contactless payments and mobile banking.

Singapore’s prices are comparable to Australia’s, but its fee structure is closer to those of China and Japan, with a very large share of fees derived from payments (83%) and very limited fees from account management (5%). The minor differences between bank prices in Singapore reflect a very competitive, transaction-oriented market. pricing index 

Figure 1.3 Average Local Profile Price for 2008 (€)

250

200 197 Very active user price Active user price Less active user price

150 136 122

101 104 100

79 75 74 70

50 52 45 49 35 31 22 0 Europe Eurozone Europe Non-eurozone North America Asia-Paci c Average

Source: Capgemini analysis, 2008.

Figure 1.4 Global Profile Prices for 2008 Active Users (€)

150 140

117

100 99

83

57 50

0 Europe Europe North America Asia-Paci c Average Eurozone Non-eurozone

Source: Capgemini analysis, 2008. 10 2008 World Retail Banking Report

Price Analysis Based on this product categorisation, we analysed The average price for active users decreased 1% this banks’ pricing policies from 2006 to 2008 to year. Prices followed a similar evolution this year for understand their actions and underlying objectives local less active users (-0.1%) and for local very active (see Figure 1.5). Banks built loyalty and won new users (-0.9%). clients by reducing prices on sales influencer products, which they cut by 0.8% a year. Banks also reached To assess why banks have changed their prices for this objective in several markets by creating for certain products, we have classified banking packaged offerings. products into three categories according to their impact on customers: Many banks reduced their cost of operations by ß Sales influencers: Products whose prices primarily influencing clients’ behaviour, using the prices of affect a consumer’s decision to buy banking services behaviour influencer products to move their customers or change banks. Current accounts and credit/debit towards less expensive channels or payment means cards fall into this category, because theirs are the and away from more expensive products and services. only prices consumers commit to pay up front Banks cut the average price of the less-costly when they open an account or buy a card. behaviour influencer products by 0.2% a year to encourage their adoption. At the same time, they ß Behaviour influencers: Products whose prices increased the price of the more costly influencers by influence a consumer’s behaviour, but fall outside 0.9% a year to discourage customers from using them. the direct buying situation. We have split them according to their production cost for banks: They might also have enhanced their earnings by – Less-costly products for banks: On-line banking, raising prices on unseen service products, yet most deposits and withdrawals at ATMs, direct debits, banks let these prices stand, at least partly held in transfers, and standing orders check by consumer associations or regulators. – More-costly products for banks: Call centres, deposits and withdrawals at desk, withdrawals at other banks’ ATM networks, cheques ß Unseen services: Services for which consumers have to pay without having had any choice or decision, such as exceptions handling. pricing index 11

Figure 1.5 Average yearly change Products/Category Product and Service Variations, from 2006 to 2008 2006–2008 (%) Sales influencers -0.8%

Current account 0%

Debit card -1.3%

Credit card -1.0%

Behaviour influencers, less costly -0.2%

Call centre -2.3%

On-line banking -0.6%

Cash deposit at ATM 0.0%

Withdrawal at bank’s ATM -0.5%

Direct debit 0.3%

External transfer 1.1%

Internal transfer 0.9%

Standing order -0.3%

Behaviour influencers, more costly 0.9%

Cash deposit at desk -0.4%

Withdrawal at desk 0.2%

Cheque 1.9%

Withdrawal at other banks’ ATM networks 2.0%

Unseen services (exceptions handling) 0.0%

Banker’s draft 0.4%

Cheque stop 1.2%

Debit card stop -1.6%

Document search 0.1%

All products -0.1%

Source: Capgemini analysis, 2008. 12 2008 World Retail Banking Report

Cost Based on GDP/Capita Charges for core banking services consumed an average of 0.55% of GDP per capita across the 26 countries we studied. As illustrated in Figure 1.6, bank pricing as a proportion of per capita GDP is higher in less-developed countries. The proportion of GDP per capita allocated to banking services declines as an economy matures, at least partly because consumers in a mature economy begin to regard these core banking services as a commodity.

Figure 1.6 Percentage Cost of Banking, by GDP per Capita

4.5%

4.0% L Country 3.5%

3.0%

2.5%

2.0%

1.5% paid for core banking services (%) paid for core 1.0% Percentage of a country’s GDP per capita of a country’s Percentage

0.5%

0.0% 0 10,000 20,000 30,000 40,000 50,000 60,000 GDP per capita (€)

Source: Capgemini analysis, 2008. pricing index 13

REGIONAL PRICING ANALYSES As illustrated in Figure 1.7, overall prices remained In contrast to other banking activities, such as asset essentially stable across Europe (up only 0.8%), but management or investment banking, retail banking they soared in North America (up 5.7%) and fell is essentially a local business. National retail banking precipitously in Asia-Pacific (down 11.1%). markets for the most part are not affected by other national markets, although economic integration at Each region or even country is shaped by its history. the regional level (European Community, NAFTA) is We have used the data collected for previous editions beginning to have an impact. Based on what we have to put this year’s changes in perspective, as the learned from past editions, we know that the regional regional analyses below indicate. approach will generate the most accurate results.

Figure 1.7 Evolution of Local Profile Prices, 2007–2008 (%)

8%

6% 5.7%

4%

2% 0.8% 0.8% 0%

-1.0% -2%

-4%

-6%

-8%

-10%

-12% -11.1% Europe Europe North America Asia-Paci c Average Eurozone Non-eurozone

Source: Capgemini analysis, 2008. 14 2008 World Retail Banking Report

North America North America registered the biggest price increase. The structure of North American pricing evolved North American prices went up by 5.7% (€4) for slowly over the years, characterised by free account local active users over last year. This price increase management since 2005, which was balanced by the was general across the whole continent, and reflects importance of two other fee categories: payments the growing market power large banks have gained (as much as 79% in the US, and still growing) and by growing, mostly through consolidation. North cash utilisation (48% in Canada, higher than in any American banks are currently trying to compensate other country) (see Figure 1.8). for their past low pricing strategies now that their earnings ratios are threatened by the sub-prime crisis.

Figure 1.8 Sources of Fees for Core Banking Services in North America (%)

100%

90%

80% 49% 70% 57% 60% 63% 64%

79% 60%

50% 3%

40% 6% 7% 7% 7% 30%

31% 48% 20% 33% 29% 29% 10% 10% 0% 0% 0% 10% 1% 0% 6% 0% 2005 2006 2007 2008 USA Canada

Edition of World Retail Banking Report Country (2008)

N Payments N Exceptions Handling N Cash Utilisation N Account Management

Source: Capgemini analysis, 2008. pricing index 15

The main price increases over the year were in policy to influence customer behaviour towards payments and cash utilisation (see Figure 1.9). In more cost-efficient means of payment. In the cash payments, raising external and internal transfer utilisation category, withdrawals at other banks’ prices rather than prices for cards or cheques reflects ATM networks accounted for most of the increase, the banks’ competitive intent to keep prices low because raising this price was unlikely to impair a on products that are most important in customers’ bank’s competitive edge, and consumers might even minds when choosing their banks, rather than a blame a bank’s competitors.

Figure 1.9 Product and Service Price Variations vs. Last Year for Local Active Users in North America (€)

3 2.7

1.4 1 0.0 0.1

-1

-3 Account Cash Exceptions Payments Management Utilisation Handling

2.5

2.0 2.0

1.5 1.1 1.0 1.0

0.5 0.2 0.2 0.1 0.0

-0.2 -0.3 -0.5

Withdrawals Withdrawals Withdrawals Cheque Direct External Internal Standing at bank's at desk at other (price per debit wire transfer wire transfer order ( xed ATM banks' ATM cheque) amount networks transfer)

Cash Utilisation Payments

Source: Capgemini analysis, 2008. 16 2008 World Retail Banking Report

Asia-Pacific The Asia-Pacific region has had a more consistent pricing structure across the four product and service categories (see Figure 1.10). Its overall structure results from the combination of two sets of countries: China, Japan, and Singapore, which follow the US pattern of free account management and heavy payments fees, in contrast to Australia and India, where fees derived from exceptions handling greatly overshadow those from payments, much like in the UK. Account management fees, which have fallen from 22% to 15% since our 2005 report, may be on a downward trend.

Figure 1.10 Sources of Fees for Core Banking Services in Asia-Pacific (%)

100% 10% 90%

80% 43% 44% 49% 47% 44%

70% 51%

60% 84% 92% 83%

50% 24% 24% 40% 23% 26% 11% 43% 30% 11% 16% 13% 13% 1% 20% 28% 0% 10% 2% 10% 22% 14% 13% 16% 16% 15% 1% 0% 0% 8% 5% 0% 2005 2006 2007 2008 Australia China India Japan Singapore

Edition of World Retail Banking Report Country (2008)

N Payments N Exceptions Handling N Cash Utilisation N Account Management

Source: Capgemini analysis, 2008. pricing index 17

Asia-Pacific’s price declined the most. The local active First, the decrease in account management prices can user price in Asia-Pacific fell by 11.1% (€5.5). This be traced to the Australian national market, where decrease resulted mainly from price cuts in payments two large banks launched flat-fee accounts in a fierce (reversing a previous trend) and account management competitive bid to acquire new clients, drawing (see Figure 1.11). Both these changes reflect specific down the average fee charged for the region’s current national market situations. account. Second, cuts in payments fees (external wire transfers and credit cards) occurred primarily in India, where state-owned banks were attempting to align their tariffs with those of private banks.

Figure 1.11 Product and Service Price Variations vs. Last Year for Local Active Users in Asia-Pacific (€)

3

1 -1.6 -0.5 -0.4 -3.0

-1

-3 Account Cash Exceptions Payments Management Utilisation Handling

1.5 0.9 1.0 0.7 0.4 0.5 0.5 0.5

0.0 -0.2 -0.5 -0.3

-1.0 -0.9 -1.1 -1.2 -1.1 -1.5 -1.6 -2.0 -2.0 -2.5 Credit card Credit Direct debit Direct bank's ATM Banker's draft Withdrawals at amount transfer) Current account Current (cashier's check) Withdrawals at other Internal transfer wire Standing order ( xed Standing order External transfer wire banks' ATM networks banks' ATM Cheque stop payment Document search (desk) Document search Debit card stop payment Debit card Cheque (price per cheque) Account Cash Exceptions Manage- Payments ment Utilisation Handling

Source: Capgemini analysis, 2008. 18 2008 World Retail Banking Report

Europe Eurozone The Europe eurozone fee structure is not homogeneous, although a slow price convergence trend is evident as Germany, Italy, and the Netherlands progressively reduce their emphasis on account management fees (see Figure 1.12). Cash utilisation fees have increased steadily over the past three years, a clear signal that euro unification has not significantly reduced the cost of using cash. It is not surprising that, given SEPA, the cost of using cash is a major item on the agendas of both the European Commission and the European Central Bank.

Figure 1.12 Sources of Fees for Core Banking in Europe Eurozone (%)

100%

90% 25% 34% 80% 43% 45% 49% 52% 58% 55% 54% 5% 70% 63% 71% 11% 1% 78% 60% 82% 13% 5% 50% 0% 5% 9% 8% 6% 6% 6% 24% 40% 5% 8% 5% 8% 9% 6% 1% 30% 4% 59% 57% 1% 42% 20% 37% 34% 22% 31% 31% 31% 27% 14% 29% 10% 19% 2% 0% 6% 0% 4% Italy 2005 2006 2007 2008 Spain Ireland France Austria Belgium Portugal Germany Netherlands

Edition of World Retail Banking Report Country (2008)

N Payments N Exceptions Handling N Cash Utilisation N Account Management

Source: Capgemini analysis, 2008. pricing index 19

Figure 1.13 Product and Service Price Variations In Europe eurozone, prices remained relatively stable, vs. Last Year for the Local Active User with only a 0.8% (€0.6) rise. The changes in Europe in Europe Eurozone (€) eurozone were much smaller than those outside Europe. They were mainly related to payments (see Figure 1.13). Banks raised the price of internal wire 3 transfers at desk to compensate for the development of Internet origination (generally free), while the price of external wire transfers decreased under the 1 0.5 0.2 influence of SEPA. Account management prices 0.0 remained essentially stable, because a price increase -0.1 in current accounts was offset by a cut in the price of -1 on-line banking.

-3 Account Cash Exceptions Payments Management Utilisation Handling

1.4 1.2 1.1 1.0 0.8 0.6 0.4 0.4 0.2 0.0 -0.2 -0.1 -0.4 -0.6 -0.5 -0.6 -0.8 On-line Internal Current banking account External per cheque) wire transfer wire wire transfer wire Cheque (price

Account Payments Management

Source: Capgemini analysis, 2008. 20 2008 World Retail Banking Report

The Single Euro Payment Area (SEPA) will lead to The price of this basket of products has stopped lower prices. We have continued last year’s effort to decreasing in Europe eurozone, and stabilised at €48. track SEPA’s impact on prices. The expected result The result would be much better except for turmoil is that a standardised payments structure across the in the Irish market, without which the price would eurozone will lead to tougher competition and lower have fallen by 6.3%—from €41 to €38 (see Figure prices. To check this hypothesis, we created the 1.14). As a comparison, outside Europe eurozone the “pan-European payments means”, which we defined price of this same basket of products has dropped as the basket of products that will progressively be by only €1, from €34 to €33 (a 3% drop). SEPA, governed by SEPA’s pan-European standards and therefore, is probably still drawing prices down in regulations. These include internal and external wire Europe eurozone. transfers, direct debits, credit and debit cards, and their underlying current accounts. This year these products accounted for 64% of the fees paid by local active users in Europe eurozone.

Figure 1.14 Price of Pan-European Payment Means for the Local Active Profile, 2008 (€)

140 130.0

120

100

Average Eurozone 80 €48, similar to 2007 73.7 63.7 Average Rest of the World 60 56.7 57.1 56.8 €33 vs. €34 in 2007 50.8 50.8

39.3 40 37.3 33.0 33.4 30.6 32.4 32.0 31.9 26.2 26.2 24.3 19.3 18.1 20 14.8 16.5 12.2 8.1 3.5 0 A B C D E F G H I J K L M N O P Q R S T U V W X Y Z Europe Eurozone Rest of the World

Source: Capgemini analysis, 2008. pricing index 21

Europe Non-eurozone The fee structure in Europe non-eurozone falls between North American and Europe eurozone patterns (see Figure 1.15). This results mainly from the combination of Nordic countries, which feature US‑style fees heavily dependent on payments, along with Eastern Europe countries, where banks charge relatively high prices for account management and cash utilisation. The UK, however, does not fit in either of these categories, but instead features an original pattern that relies on exceptions handling.

Figure 1.15 Sources of Fees for Core Banking Services in Europe Non-eurozone (%)

100% 12% 1% 90% 33% 32% 80% 44% 43% 56% 55% 55% 58% 1% 70% 59% 4% 41% 75% 79% 75% 60% 2% 27% 50% 99% 1% 32% 21% 40% 9% 9% 9% 9% 15% 52% 30% 2% 12% 16% 16% 1% 14% 46% 20% 11% 40% 32% 32% 1% 26% 4% 19% 0% 10% 23% 20% 22% 18% 19% 2% 1% 0% 10% 0% 5% 0% UK 2005 2006 2007 2008 Croatia Poland Norway Sweden Slovakia Romania Denmark Switzerland

Edition of World Retail Banking Report Czech Republic Country (2008)

N Payments N Exceptions Handling N Cash Utilisation N Account Management

Source: Capgemini analysis, 2008. 22 2008 World Retail Banking Report

In Europe non-eurozone, prices increased by 0.8% (€0.6) for local active users. In payments, banks increased credit card fees, but this was offset by cuts in the prices of external and internal wire transfers (see Figure 1.16). While call centre fees decreased, prices of the two other account management products—credit account and on-line banking—were raised across Europe non-eurozone.

Figure 1.16 Product and Service Price Variations vs. Last Year for Local Active Users in Europe Non-eurozone (€)

3

1 0.5 0.4

-0.2 -0.1 -1

-3 Account Cash Exceptions Payments Management Utilisation Handling

1.0 0.8 0.8

0.6 0.4 0.4 0.4

0.2

0.0

-0.2 -0.2 -0.2 -0.2 -0.4 -0.3

-0.6 Call Current On-line Withdrawals Credit card External Internal centre account banking at desk wire transfer wire transfer

Cash Account Management Payments Utilisation

Source: Capgemini analysis, 2008. pricing index 23

PRICE DISCREPANCY IS DECREASING Retail banking is still mainly a national business, An important feature of banking markets lies in and we examined price discrepancy first at the the differences between national banks’ prices. country level (see Figure 1.17). Large discrepancies Prices are closer together in more mature markets, are usually associated with fast-changing markets, because consumers consider banking services to be such as Spain and Ireland in Europe eurozone; commodities, and tough competition prevails on Denmark, Romania, and Slovakia in Europe non- standardised products. eurozone; or China and India in Asia-Pacific. For the countries we studied both last year and this year, the average national price discrepancy decreased from 27% to 25%.

Figure 1.17 National Price Discrepancy for Local Active Users (%)

160% 154%

140%

120%

100%

80% 68% 60% 51% 50% 46% 47% 40% 37% 27% 27% 23% 23% 23% 20% 21% 20% 17% 18% 17% 16% 12% 12% 12% 12% 9% 7% 10% 4% 0% Italy UK USA India Spain China Ireland Japan France Austria Croatia Poland Norway Portugal Canada Germany Belgium Sweden Slovakia Australia Romania Denmark Singapore Netherlands Switzerland

Czech Republic North Europe Eurozone Europe Non-eurozone Asia-Pacific America

Source: Capgemini analysis, 2008. 24 2008 World Retail Banking Report

At the regional level, the general trend was also The evolution in Asia-Pacific has been very different. towards reducing discrepancies, although quicker It reflects Australian prices (the highest of the region) than within national boundaries (see Figure 1.18). moving downward, and Japanese prices (the lowest) It was especially fast in North America, where price going up. In the European regions, the trend towards differentials were cut almost in half in two years. reduced price discrepancy has slowed in Europe This result is consistent with our earlier interpretation non-eurozone, and even stopped in Europe eurozone, of price increases led by fast-growing retail banks. despite SEPA’s intended harmonising effect. Nonetheless, price discrepancy in Europe eurozone remains the smallest today.

Figure 1.18 Regional Price Discrepancy for the Local Active User, 2005–2008 (%)

100%

90% 86.6% 83.5% 84.2% 80% 75.5%

70%

59.0% 60% 57.1%

50% 46.2% 44.7% 41.7% 39.1% 39.5% 40% 37.6% 34.1% 33.8% 32.0% 30.4% World Retail 30% Banking Report Edition: 20% N 2005 N 2006 10% N 2007 N 2008 0% Europe Eurozone Europe Non-eurozone North America Asia-Paci c

Source: Capgemini analysis, 2008. pricing index 25

Conclusion

On a global scale, the price for core banking services, based on the local active user profile, declined by 1% from last year, averaging €70 in our 2008 study.

Our results indicate that price evolution at the product level can effectively be categorised according to the way customers perceive them. Prices of sales influencers (current accounts, cards) decreased fastest (0.8% per year), reflecting the banks’ desire to remain as competitive as possible with the product prices customers can see clearly and rely on to make their “buy” and “leave-or-stay” decisions.

The behaviour influencers (channels and payment means), which banks can use to attract customers towards or repel customers from certain products or services, were clearly being used for that purpose based on the pricing data. Banks cut the prices of those they found to be less costly by 0.2% per year, and raised prices on the more costly ones by 0.9% per year.

Prices for unseen services (such as exceptions handling), which customers incur without choice or intent, remained flat. Although they have often been used in the past as an easy way to raise revenue without impairing sales, not using them now probably reflects a reluctance to further provoke concerned regulators and consumer associations.

A geographic analysis revealed radical and persistent discrepancies in banking fee structures. Important price variations between countries and world regions are hidden behind a quasi-stability at the global level. This is particularly true for Asia-Pacific and North America, the first of which experienced an 11.1% price decrease, while the second saw a 5.7% price increase. European prices, meanwhile, remained stable.

Although retail banking is still essentially a local business, there are a few signs of internationalisation and an increase in competition at the regional level. Under the influence of SEPA, prices of pan-European payment means decreased faster in Europe eurozone than in the rest of the world (excluding Ireland). Price discrepancies between banks decreased significantly this year, at both the country and regional levels. This trend was especially fast in North America, but the price discrepancy in Europe eurozone is still the smallest. 26 2008 World Retail Banking Report Organic Growth in Domestic Markets 27

Organic Growth in Domestic Markets Key Findings

ß The world retail banking market, based on net income, was €1,280 billion in 2006, and forecasts indicate it will rise to €1,900 billion by 2017, with half of the new income coming from high-growth markets. ß Although the high-income portion of the world retail banking market will drop from 75% in 2006 to 65% in 2017, it will remain very important to banks. ß Over the past five years, most of the world’s leading banks have grown their domestic retail banking revenues faster than their costs, significantly improving their cost/income ratios. ß Four pillars have supported leading banks’ efforts to achieve profitable organic growth in their domestic markets: combining fast time to market, innovation, and local client intimacy; full multi-channel integration and optimisation; increasing sales productivity through dynamic branch management; and leveraging a multi-brand portfolio to create attractive value propositions for each market segment. ß A large proportion of the 52 top banks’ executives in 15 countries told us they have used these four pillars, and expressed their continuing confidence in them. ß Most assumptions on which past retail banking growth strategies were based are challenged by today’s structural changes in the market, including tougher regulations, more flexible technology, more demanding clients, and new competitors. ß Recognising that structural changes will increase competition and draw prices down, we simulated this effect in eight western European countries; the simulations indicated that banks would lose 36% of their projected net income (and lose more than 50% in certain markets). ß Banks that have already built strong client relationships, and captured from their clients a good share of wallet, need to renew their distribution strategies and develop business organically in today’s saturated and slowly growing domestic markets. ß Successful banks can use three distribution strategies to grow beyond the traditional retail banking business model in high-income markets: “Better sell”, to better fit diverse clients’ needs; “Larger offer”, extending the offering to non-financial products and services; and “Indirect business”, selling through other distributors. ß The 52 interviewed bankers selected three models as the most likely to happen: Trust Operator, Discount Bank, and General Broker. Many banks even admit to having their own projects using the first two models. ß Banker interviewees identified Discount Bank, General Broker, and Open Source Bank as potentially the most disruptive models in the retail banking business, because these models could cause their two worst fears to come true—a price war and competition for client relationships. ß The best performers will combine several of these distribution models—and perhaps still others—to succeed in the future retail banking market. 28 2008 World Retail Banking Report

THE IMPORTANCE OF Retail banking is a major activity for most large DOMESTIC RETAIL OPERATIONS banks, helping them grow profitably and maintaining their stock value. Succeeding in the past has never The global retail banking market is huge, with 2006 been easy, but severe challenges lie ahead. Our teams net income of €1,280 billion, and it is expected to in the 15 countries we studied for this year’s spotlight reach €1,900 billion by 2017 (see Figure 2.1). The have interviewed 52 banking executives to understand potential increase of €620 billion will be generated in how they intend to succeed in the future. Using these nearly equal amounts in high-income and other high- observations, combined with the views of Capgemini growth markets. Despite a slower growth rate, we experts in the field, this year’s spotlight outlines some expect retail banking to remain a major force in high- of the best paths banks can take to remain major income economies over the next ten years, falling only retail marketplace players in the years ahead. slightly from its current 75% of global net revenues to 65% in 2017.

Figure 2.1 Retail Banking Revenues in 2006 and 2017F (€bn)

Y2006: €1,280 billion Y2017F: €1,900 billion

580 33% 31% 2% 10% 460 28% 1% 8% 25% 433 High-income Markets High-income Markets €900bn = 75%a €1,200bn = 65%a 350

Revenue 2006 (€bn) N Forecast Revenue 2017 (€bn)

160 145 145 125 110 95 85 90 63 65 50 40 30 35 25 35

North Western Japan Australia Rest of Rest of China India Rest of ME and America Europe America Europe Asia-Paci c Africa

Source: Capgemini analysis, 2008; World Bank statistics; UNDP. Notes: Revenue = net interest income + net fees and commission income + other income; 2017 forecast calculated based on each country’s GDP growth forecast; fees and interest rates based on Capgemini price index research; ME is Middle East; Rest of America is all America excluding the US and Canada. a High-income markets definition by United Nations Human Development Research; here they are North America, Western Europe, Japan, and Australia. Organic Growth in Domestic Markets 29

The top worldwide banks’ retail banking operations Because a few large banks hold dominant positions in are primarily located in high-income markets, and high-income markets, regulators now tend to discourage these banks have but little potential for further further mergers and acquisitions. They want to ensure external expansion. Moreover, except for six banks— fair competition and avoid excessive concentrations of BNP Paribas, ABN AMRO, BBVA, Santander, risk. Domestic growth through acquisition, therefore, is HSBC, and Citigroup—the proportion of domestic no longer a viable option in most high-income markets. net revenues for most banks is greater than 50% (see Alternatives are also limited, and in any case promise Figure 2.2). Their market development has up to now only moderate returns. been achieved mainly in their domestic markets. A bank’s organic growth in its domestic market is, therefore, likely to hold the key to a bank’s success over the next ten years. This year’s spotlight is trained on that issue, and investigates the challenges banks face as they attempt to grow organically in saturated markets during a period of sluggish economic growth.

Figure 2.2 Domestic as a Percentage of Global Retail Banking Net Revenues, 2002–2006

100%

80%

60%

50%

40%

20%

0% ING ANZ RBS CBA NAB KBC SEB Dexia Fortis BBVA HSBC HBOS MUFG SMBC Mizuho Resona Nordea Nordea Barclays Westpac La Caixa Citigroup Sanpaolo Postbank Wachovia Rabobank Santander Swedbank Wells Fargo Wells ABN AMRO Caja Madrid BNP Paribas Banca Intesa Crédit Agricole Crédit Dresdner Bank Dresdner Deutsche Bank Handelsbanken UniCredit Banca UniCredit Bank of America Société Générale Caisse d'Epargne Crédit Mutuel–CIC Crédit Banques Populaires

Source: Capgemini analysis, 2008; World Bank statistics; UNDP. Notes: Revenues = net interest income + net fees and commission income + other income; 2017 forecast calculated based on each country’s GDP growth forecast; fees and interest rates based on Capgemini price index research. 30 2008 World Retail Banking Report

RETAIL BANKING’S BEST PERFORMERS’ By plotting the results (see Figure 2.3), we soon STRATEGIES IN DOMESTIC MARKETS, learned that most of the banks we chose appeared 2002–2006 in the white part of the chart, above the line where income growth is equal to cost growth. We bore in Benchmark and market analysis mind, however, that retail banking is still strongly 1 World-leading retail banks have performed well influenced by purely national market features, such globally in their domestic markets, increasing as local and national laws, banking regulations, revenues while controlling operating costs, and customers’ habits and behaviours, culture, and so on. in this way, reduced their cost/income ratios.2 To assess this performance, we isolated the domestic We focused our in-depth analysis on four banks (red- retail banking activity of 37 top worldwide banks circled in Figure 2.3)—Crédit Mutuel–CIC (France), using annual report data. ING (Netherlands), La Caixa (Spain), and HBOS (UK). All are top global domestic retail performers and have outperformed their national competitors.

Figure 2.3 Domestic Retail Banking: Growth of Revenue vs. Cost for Selected Banks, 2002–2006 (%)

0, 2

Bank of America 0, 15 La Caixa Wachovia a KBC Sumitomo Mitsui HBOS 0, 1 Banques Populaires CBA CM–CIC ANZ RBS Caja Madrid ING ABN Wells Fargo Banca BNPP AMRO BBVA Intesa Dexia Santander 0, 05 Citigroup HVB SocGen Crédit Mizuho Barclays Nordea Caisse d’Epargne Sanpaolo Agricole Fortis Rabobank Revenue Growth CAGR 02–06 UniCredit LCL 0 Deutsche Resona Dresdner Bank Westpac Bank

-0, 05 -0, 15 -0, 1 -0, 05 0 0, 05 0, 1 0, 15

Operating Cost Growth CAGR 02–06a

Source: Capgemini analysis, 2008, and bank annual reports. Note: CIR before impairment losses. Circle sizes are proportionate to revenue in 2006. a CAGR calculation using 2007 currencies.

1 Retail business is defined as financial products and services (both core and non-core banking) distributed through physical and non-physical networks to private customers and SMEs. 2 Cost/income ratio before impairment losses. Organic Growth in Domestic Markets 31

Four pillars enable profitable growth Each of the major banks we selected for study has While analysing the best performers we selected strong business basics, including a reliable capacity to from the local market leaders, we identified the deliver a variety of products and services, combined four pillars on which they based their profitable with relationship management know-how. This and sustainable growth: (1) combining fast time includes trust development and risk assessment, which to market, innovation, and local client intimacy; have always been essential to successful banking. (2) ensuring full multi-channel integration and optimisation; (3) increasing sales productivity Pillar 1: Combining fast time to market, innovation, through dynamic branch management; and (4) and local client intimacy leveraging a multi-brand portfolio to create Crédit Mutuel–CIC has succeeded in France in being attractive value propositions for each market a first mover and market leader, even when customers segment (see Figure 2.4). Closely examining the perceived financial services as commodities. The approaches our four top performers took, each bank became a market leader by offering innovative focusing specifically on one of these pillars to products ahead of the competition, combined with greatest advantage, helped us understand the a strategy focused on maintaining a close working importance these strategies hold for banks seeking relationship with local clients. This strategy requires to improve their performance in domestic markets. strong centralised systems and a back office that can

Figure 2.4 The Four Pillars of Sustainable Development

Pro table Growth

Crédit Mutuel ING La Caixa HBOS plc

Combining fast Ensuring full Increasing sales Leveraging a time to market, multi-channel productivity multi-brand innovation, and integration and through dynamic portfolio to local client optimisation branch create attractive intimacy management value propositions for each market segment

Source: Capgemini analysis, 2008. 32 2008 World Retail Banking Report

accommodate accelerated time to market. It also calls Through its product innovation strategy, Crédit for a concerted marketing effort that ensures the new Mutuel–CIC has substantially increased the number products meet customer expectations and needs, and of products its clients buy. While it was achieving relays that message effectively to the marketplace. 4.3% annual growth in net banking income (NBI) per client from 2002 to 2006, it decreased its annual Crédit Mutuel–CIC has consistently shown its cost per active customer by 5.5%. This outstanding ability to be a prime mover in the French market, economic success was combined with excellent client moving faster than others to introduce new banking relationship management, highlighted by the top products and services. Using the regional power of its award in its sector, given by TNS-Sofres, for the two brands, it has maximised the effectiveness of a “Best Client Experience”. flexible, common platform, shared back offices, and aggressive marketing operations, supported by well- Crédit Mutuel–CIC offers a wide range of products managed local branches. designed to meet customers’ needs throughout their lives, including those in savings, automotive, health, real estate, and pensions, among others, many of which feature new technologies (see Figure 2.5). The bank has effectively used the motto, “Proximity, listening, and innovation” (“Proximité, écoute et innovation”), to sustain its momentum.

Figure 2.5 New Product Introductions at Crédit Mutuel–CIC, 2006–2007 Crédit Vie à Deux (Credits) CréaCIC (Financing) Créd’ Opportunité (Credits) Assurance Protection Tout Accidents (Insurance P&C) Acti-Trésorerie (Wealth Management) Epargne Quattro (Savings) Epargne Evolutive (Savings) Livret Fidelité Livret Sup (Savings) Carte Cadeau CIC (Credit Card) Mandat Excelsius (Wealth Management) Carte Avance (Credit Card) Extension fonctionnalités internet (Multichannel) Offre Clic-Clac (Credits) Immosouple (Real 10 Estate Services) Partenariat NRJ Mobile (Phone) Pilotage Professions Libérales (Services for Professionals) Domi-Con dens (Real Estate Services) Lancement Marque VIP (Young Customer Services) Epargne Force 3 (Savings) Duo’s Cartes (Credit Cards) Facil’ AccèS (Multichannel) Carte 3F (Credit Card) Carte Collector Exclusive (Credit TGV Card) Carte Mastercard Plan 4 (Credit Card) “Payez Mobile” (Mobile Payment)

JAN-06 FEB-06 APR-06 JUL-06 JUL-06 JUL-06 OCT-06 DEC-06 JAN-07 MAR-07 APR-07 SEP-07 DEC-07 JAN-06 MAR-06 MAY-06 JUL-06 JUL-06 SEP-06 NOV-06 JAN-07 FEB-07 MAR-07 JUN-07 NOV-07

Source: Capgemini analysis, 2008. Organic Growth in Domestic Markets 33

Figure 2.6 ING’s Internet Banking Strategy Pillar 2: Ensuring full multi-channel integration and optimisation ING Netherlands has used the Internet and its seamless integration with other channels to transform 300 its subsidiary Postbank into a multi-channel bank. It has taken its place as a major player in the Netherlands retail banking market without damage to the business 250 or its profitability. ING CAGR = 62%

Since 2000, ING Netherlands has used a 200 multi‑channel strategy with a strong Internet emphasis. It improved results, increasing its NBI by 25% from 2002 to 2006. The bank managed to cut 150 costs over the same period, reducing its cost/income ratio, excluding risk costs, from 83% to 68%. ING’s Dutch Market 100 Internet banking grew at an annual rate of 62% from accounts (base = 2004) CAGR = 22% 2004 to 2006, much faster than the Dutch banking market as a whole, which posted a 22% CAGR (see Indexed number of Internet payment 50 Figure 2.6). In three years, ING raised its Internet account rate from 8% to 42%.

0 As it boosted Internet use, ING also had to create 2004 2005 2006 the infrastructure required to deal with the explosion of its utilisation. It made all products and services available through the Internet via information Source: CBS (Dutch market) and company data (Postbank). platforms and a portfolio of capabilities, using fine segmentation and central processes.

ING cut the number of branches severely, reducing customer usage in the last fifteen years. The remaining branches are used for recruiting, selling complex products, and promoting the brand. ING has developed an integrated sales force with trained specialists, who move freely between the remaining branches to meet specific customer needs when face‑to-face advice is necessary.

As a last step in its multi-channel strategy, ING has announced in 2007 the merger of Postbank with its branch operations in the Netherlands, in order to combine their data bases and branch networks. 34 2008 World Retail Banking Report

Pillar 3: Increasing sales productivity through dynamic By increasing its number of branches by 212 in 2006, branch management to 5,186 at the beginning of 2007, La Caixa has La Caixa has successfully answered the productivity implemented a physical network hyper-segmentation challenge in Spain. Its high-quality commercial strategy. It has launched very innovative products management in the branches is a key differentiator, aimed directly at new residents, customers abroad, driving up sales productivity and enabling the bank students, and others. Along with its branches, it to develop its branch network effectiveness without has initiated an aggressive multi-channel strategy, increasing headcount. offering a wide range of products and services—not only financial ones—through its branches, the La Caixa has offered customers a wide range Internet, ATMs, land lines, and mobile phone access of fine-tuned, customised products and service points. In a startling example for the banking world, offerings for the past five years, making the products La Caixa sells half of the entertainment tickets sold readily available to its customers by transforming its in Barcelona (theatre, film, music, etc.) through its branches into a denser network of small points of distribution network. sale, without increasing headcount. In addition, it developed a rich on-line banking service.

Between 2004 and 2006, La Caixa increased its branch productivity ratio (NBI per branch) by 32.7%, and raised its employee productivity ratio (NBI per employee) by 39.9% (see Figure 2.7), reaching this goal while holding the employee/ branch ratio at 4.5. During this period, the bank added 477,000 new clients, reaching a total of 10.1 million by the end of 2006. Its NBI growth rate of 12.3% greatly exceeded its operating costs, which rose by only 3.3% over the previous five years. Organic Growth in Domestic Markets 35

Figure 2.7 La Caixa Productivity Increases, 2004–2006 (€000)

Productivity Ratios per Branch

80,000 600

65,033 60,000 56,071 429 48,997 352 400 Recurring net nancial operating income per branch 286 40,000 N Business volume per branch

200 20,000

0 0 2004 2005 2006

Productivity Ratios per Employee

14,804 15,000 100 97.7 12,393

10,620 77.8 10,000 Recurring net nancial operating income per employee 61.9 50 N Business volume per employee

5,000

0 0 2004 2005 2006

Source: Capgemini analysis, 2008. 36 2008 World Retail Banking Report

Pillar 4: Leveraging a multi-brand portfolio to create strategy, in the five years 2002-2006, helped HBOS attractive value propositions for each market segment increase its customer base by 20%; raise NBI per HBOS is a prime example of how a bank can use customer by 24.5%; add 180% to its on-line customer a well-targeted, multi-brand portfolio to meet the base (increasing it to a fifth of its overall customers); challenge of developing and diversifying a customer and achieve a C/I ratio of 55%, the best among retail base without alienating current clients. HBOS banking market leaders. has succeeded in bringing to market a portfolio of differentiated value propositions that attract new A shared IT architecture has helped HBOS develop customers in several market segments. and manage its portfolio of retail banking brands, reflecting different client value propositions, to The HBOS brand portfolio strategy has captured all grow balances and support margins (see Figure kinds of consumers while limiting the side-effects on 2.8). Halifax, as noted earlier, is the low-cost brand, the customers it has already attracted into its fold. It offering modestly priced products on the high offers low-cost products/services under the Halifax street; Bank of Scotland guarantees good rates from brand, without putting at risk the goodwill of the a reliable direct provider; BM is a best-buy, direct existing Bank of Scotland or BM clients, who are price fighter; and Intelligent Finance appeals to more accustomed to a higher standard of products. This financially sophisticated clients.

Figure 2.8 HBOS Brand Portfolio Strategy

Strategy Channel Marketing Positioning Margin Balances Relationship Branch Internet Phone/Post Affinity

Consistently Halifax well-priced on the high street

Guaranteed Bank of good rates Scotland Hx from a reliable direct provider

Best-buy direct BM price fighter

Offsetting for Intelligent the financially Finance sophisticated

Source: Presentation at HBOS Retail Investors' Seminar, 2003. Organic Growth in Domestic Markets 37

From cases to consensus We also asked, “What are the levers you intend to The four pillars of profitable growth highlighted use to grow in the future?” The unanimous response in the cases also reflect our core findings from our asserted their trust in continuing to rely mostly on the interviews with the 52 world retail banking market same four pillars to grow in the future. leaders. Their answers to our question, “What were the past levers you used to grow?” were: offering Traditional levers will certainly remain essential, development, distribution optimisation, quality of especially for banks that have not yet generated the management, and shared systems/back offices (see most benefit available from using them. The question Figure 2.9), matching our four pillars. They also remains, however: Will they be efficient enough in mentioned technology and staff resources, but they the future to secure sustainable growth? made clear in the interviews that these are really enablers of our four pillars.

Figure 2.9 Interviewed Retail Banking Executives’ Past and Future Growth Levers

30%

25%

N Past N Future 20%

15%

10%

5%

0% Distribution Offering Management Shared Customer Resources Pricing Optimisation Innovation System Production Segmentation (IT & HR)

Source: Capgemini World Retail Banking Report 2008 survey on growth levers. Note: The four highlighted levers correspond to the four pillars. 38 2008 World Retail Banking Report

CHANGING MARKETS The sub-prime turmoil of 2007, which led to a cash shortage in Europe and the US and froze inter-bank The 2007 crisis credit, has ushered in a new era in which banks will The banking market changes fast. Over the last no longer be able to rely on real estate or capital ten years, many banks, such as KBC, Unicredit, market bubbles to fuel their growth. The low interest RBS, and Société Générale, have focused on rate period seems to be finished, and with it the easy internationalisation, and some new entrants, such lending market. Banks will need to develop a growing as PayPal, exploded on the financial market scene and sustainable retail business to avoid being an and quickly became intermediation giants. PayPal acquisition target open to attack from larger banks is revolutionising the payments systems industry, or even non-banks. attracting significant, fast-growing financial flows. Other IT providers have become payments leaders in Middle East funds entering Citigroup’s or UBS’s Europe. Non-banks, including retailers and insurance equities, or Chinese banks entering the top 100 companies, meanwhile, are also distributing more assets ranking, have taught banks a hard lesson. and more banking products, and they constitute real From now on, banks will be living by the mottoes, competitive threats as they win market share. “There is no easy money” and “Get back to basics”.

Figure 2.10 Relative Evolution of Bank Index/Market Index, 2002–2007 (Points base 100)

180

160

140

120

100

80 EuroStoxx 50/bank Nasdaq 100/bank Nikkei 225/bank ASX 200/bank 60 Jun-02 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07

Source: Capgemini analysis, 2008. Note: Base point, June 2002 ratings. Organic Growth in Domestic Markets 39

Successful banks will rely on stable and loyal private New technologies derived from Internet standards, customers and do a better job of managing credit risk, solutions, and practices have dramatically transformed while finding and adopting renewed ways to support banking information systems from necessary and continued growth in their domestic markets. clumsy infrastructures to enablers of new services and processes. For instance, new technologies Banking’s golden past, therefore, may be over. The that make it possible to separate distribution and US led the way, with the Nasdaq 100/bank index production systems have fathered new business falling off precipitously in June 2006 (see Figure models that unbundle retail banking’s value chain 2.10). The three other major indexes—EuroStoxx and facilitate shared back offices and factories. New 50/bank (Europe), Nikkei 225/bank (Japan), and software packages built in an open architecture are ASX 200/bank (Australia)—soon began to follow getting easier to roll out, with a powerful effect on suit. The continuing US tailspin over the past six standardisation and industrialised processing. months clearly indicates the need for retail banks to sit up and take notice. A changing customer: Less loyal, more demanding, in an increasingly disintermediated context The rise of risk and a shrinkage in liquidity are now In a rapidly changing and risky market, consumers have limiting growth opportunities for banks in high- become more risk-averse. Due to the Internet’s readily income markets. Some forward-looking banks will available information, better-informed clients expect focus on retail banking as a stabiliser. To succeed, more clear information fast, and they want results however, they will need to understand and respond quickly, even when seeking credit. And the increasing effectively to structural changes resulting from demand for sophisticated investment products requires legal and regulatory constraints, radical advances in more senior and skilled financial advisors. technology, changing customer behaviour, and new competitive threats. Consumers also expect to have several potential points of contact with their banks, available where Structural Changes and when they choose. Today’s retail bank must be ready to provide several non-branch access points, More costs, more constraints from regulators deal with fewer contacts with clients, and use Regulators will encourage competition by trying to customer relationship management and other tools level the playing field across geographies and opening to help them meet their customers’ varying needs the market to new entrants. Current examples include across several channels. the Payment Services Directive (SEPA), consumer credit regulation, and the McGreevy Green Book. As they become better informed, some consumers Others, such as MIFID, Basel II, Solvency II, and are developing new buying behaviour patterns. In the Sarbanes-Oxley, will aim directly at preventing risk. past, bank clients could be expected to be “delegators”, The sub-prime crisis, which has wreaked havoc in the eager to get advice before buying banking products marketplace, is very likely to spark new regulations in they perceived as complex and risky. Many customers the near future. All these regulations will have direct now bring a self-directed attitude to the bank, taking impacts on retail banks that want to succeed in high- advantage of the Internet (plenty of information, income domestic markets. easy comparisons, click-and-buy) to make their own purchase decisions, often with a strong focus Fewer advantages from legacy investments in technology on finding the best price. Many clients are bifocal: Technology today enables customers to manage their delegators in certain situations, self-directed in others. own banking operations from a distance, which Such dual-focused customers create new problems for decreases the frequency of contact. It also makes banks, because their needs from one case to another it possible for new entrants to build new systems can be diametrically opposed. from scratch very quickly, often leap-frogging the technologies of existing players. 40 2008 World Retail Banking Report

A new generation of competitors on the retail banking between products. Competitors like these can price playing field in a way that undercuts a bank’s most profitable In high-income markets, retail banking has developed products, depriving banks of needed earnings. a diversified offering portfolio that combines both asset and liability products, along with advisory and logistics Distribution specialists (e.g. retailers, post offices) services (see Figure 2.11). Each of these offerings will also pose a competitive danger. These competitors have to face challenges from specific competitors. already have access to consumers through their existing point-of-sale networks, a website (e- Product specialists in assets, liabilities, and logistics merchants or on-line brokers), or even a brand. services are poised to strike. This latest generation of The main differentiator they are likely to claim is specialists leverages new technology to deliver fully independent advisor, as they will not be producing automated services at low cost compared to existing the products they sell or recommend. They will also banking systems and processes. They enjoy less challenge traditional bank branches with alternative expensive distribution channels than traditional bank channels, such as visiting advisors or fully automated branches, and can price aggressively. Retail banks comparison websites. The major threat retail banks are vulnerable to this kind of competition because must cope with is losing client relationships and their pricing policy often conceals cross-subsidising opportunities to cross-sell additional products.

Figure 2.11 New Generation of Competitors in Retail Banking

Advisory Services

Private MLP Bankers Independent Comparison Financial Advisors Websites Bankrate.com Asset Managers Real Estate Fidelity Specialists

Insurance Portfolio Companies Management Mutual Pension Funds Insurance L AXA Credit i a s t Consolidation Companies b

c i

l

u i Life Mortgage AAA Financial t d Insurance Services y o

Retail Loans P

r

r P

P2P Saving Banks P&C o

t d

e Insurance

(investor) Accounts P2P u s

c s Consumer

Zopa (borrower) t s

A Current Credit Accounts Payments Zopa Low Cost & Investment Direct Banks Services Retailers

Virgin Carrefour Money Payment Specialists Core to non-core banking On-line PayPal products and services Brokers Cards Operators VISA

Logistics Services

Source: Capgemini analysis, 2008. Organic Growth in Domestic Markets 41

Consequences of structural changes retail markets—Belgium, France, Germany, Italy, the All of these structural changes add up to a real sea Netherlands, the Nordics, Spain, and the UK—we change in the market, full of new competitors, more based the simulation scenarios on a key assumption: demanding customers, and regulators protecting prices and interest rate margins will equal the average consumers while lowering barriers to competition. To of their two lowest prices in the eight studied markets. help understand the implications of these structural changes, we developed an economic simulation. It The results are startling. As shown in Figure 2.12, measures what could happen to retail banking’s net the simulation indicates that the aggregated net banking income over the next ten years if prices and banking income across the eight countries would fall interest margins fell due to competitive pressure. drastically, by 12% (due to the alignment of fees with the low average noted above) plus another 24% (due The simulation focuses on the European market, to interest margin alignment with the low average). which—due to SEPA and other European The impacts would, of course, be different in each Community regulations—is the most likely to face country due to discrepancies between their starting such an eventuality. Using eight of the main European situations, but the overall picture is not bright.

Figure 2.12 Impacts of Severe Competition in Europe, 2006–2017F (€Million)—Price Harmonisation

90,000 -15% 80,000 -8% 70,000

60,000 -22% -16% -9% 50,000 -12%

40,000 +11% 30,000

20,000 -8%

10,000

0

Belgium France Germany Italy Netherlands Nordic Spain UK

N 2006 N Forecast 2017 N Impacted forecast

Source: Capgemini analysis, 2008. Note: All volumes of transactions producing fees and of stocks of loans, and deposits producing interest, are forecast to evolve proportionally to GDP growth. 42 2008 World Retail Banking Report

FINDING A GROWTH PATH BEYOND THE Countries in the most risky position are Belgium, UNIVERSAL RETAIL BANK Germany, Italy, and Spain, where net banking income could drop more than 50%. In this simulation, the An effective future growth strategy for a bank UK appears to be the sole winner, although the depends on the characteristics of that bank’s simulation assumes that banking services are equal market. The retail banking development paths in across the eight markets. various markets have been determined to a great degree by the level of regulatory restrictions placed Major banks have the most to lose in these scenarios. on universal banking. They depend heavily on their high-income domestic markets, which generate the bulk of their retail When unregulated, retail banks were free to grow by banking revenues. Add in the shrinking number of developing a trust relationship with the clients they new clients a new branch can acquire using the old acquired in their branches, selling them more and value propositions, and the rising cost of selling an more products on top of their current account additional product to an existing client, and there is (path a in Figure 2.14). no doubt that banks wanting to prosper in the future will be seeking better approaches to growth.

Figure 2.13 Impacts of Severe Competition in Europe, 2006–2017F (€Million)—Interest Rates Harmonisation

90,000 -16% 80,000 +47% -42% 70,000

-35% 60,000

-45% 50,000

-43% 40,000 -28% 30,000

20,000 -46%

10,000

0

Belgium France Germany Italy Netherlands Nordic Spain UK

N 2006 N Forecast 2017 N Impacted forecast

Source: Capgemini analysis, 2008. Note: Interest margins are estimated as average credit interest minus average deposit interest, with no provision for gaps between loan and deposit balances. All volumes of transactions producing fees and of stocks of loans, and deposits producing interest, are forecast to evolve proportionally to GDP growth. Organic Growth in Domestic Markets 43

At the other extreme, in more regulated markets, As a result of their history along one of these paths, retail banks became financial product specialists most retail banks are today running in their domestic who had to share the market with outside brokers, market one of the two opposite business models listed insurance companies, or investment specialists. below (some large groups are even consolidating Their growth path was consequently more driven entities of the two kinds): by product innovation and economies of scale ß Branch-supported, relationship-oriented (path b in Figure 2.14). distribution of diversified financial services. ß Specialised supplier of one category of financial Path a is structurally more rewarding in the long services combining direct and indirect sales. run for retail banks. Although banks taking path b have achieved high profit levels, gains have only been Although some banks might still take the obvious temporary, and have occurred in less-competitive and appealing growth path based on cross-selling the situations. There is, however, no barrier between full scope of traditional financial products to their paths a and b. If banks are not able to meet and clients—provided regulators would allow it—we have defeat broker competition, a market with universal no doubt that the future ultimately will require the banks typical of path a might evolve towards a invention and adoption of new distribution models. disintermediated market typical of path b. Conversely, a market previously held on path b by regulatory constraints might evolve towards a universal banking market as legal constraints are loosened, provided the banks in such markets succeed in regaining a strong relationship with their clients.

Figure 2.14 Retail Banking Markets’ Development Paths

Revenue per client

Non-core banking products

Credit and savings products

ing ank Scope l B rsa of actual ve ni U markets Customer acquisition, of h at current accounts & P sed Banking a eciali basic nancial f Sp th o transaction services Pa b Economies of scale

Retail banking market maturity

Source: Capgemini analysis, 2008. 44 2008 World Retail Banking Report

Distribution Models to Grow beyond the Each of these is discussed in more detail below. Traditional Retail Banking Business Model By examining the newest and most original initiatives “Better sell” to better fit diverse clients’ needs launched worldwide today, and by identifying their Three distribution models, all of which aim at inherent features that have the potential for a large increasing a bank’s share of wallet by adapting to client roll-out, we identified three distribution strategies to diversity, have come to light as a result of our research. enable a bank to grow beyond the traditional retail banking business model in high-income markets (see Figure 2.15): ß “Better sell”: Better fit diverse clients’ needs (hyper‑segmentation) ß “Larger offer”: Expanding the offering to include non-financial products and services ß “Indirect business”: Sell through other distributors (B to B to C through e-merchants or retailers)

Figure 2.15 New Distribution Strategies

Advisory Services

COM PE TIT OR S S R ETTER SEL O B L IT T E P M O L C S A S R E G IN Financial Advisor Community Bank E S for Mass Af uent R U O B Portfolio Trust Operator F C T Management F O Mutual E C M R L S E Pension Funds Credit i P a s R R t I E Consolidation b

O c T D General i l

u T i I

Life t I N Broker Mortgage T d I y

T Insurance O o

Retail Loans P E

r

R

r

P

P o

Saving Banks P&C S

t

d M

e Insurance

Accounts u

O

s

c

s Consumer C

t s

A Current Credit

L L Accounts

Payments E S Discount Bank

Investment Open Source Bank

I

R N

E Services D

T

I

R T

E E

C

B

C

T

O

B

M U

S

P

I

N Core to non-core banking E

S E

T S

R

S I

T

O products and services

O

T

I

R

T

S E

P

M

O C

Logistics Services

Source: Capgemini analysis, 2008. Organic Growth in Domestic Markets 45

Figure 2.16 Financial Advisor for Mass Affluent Financial Advisor for Mass Affluent Customers Customer Model A common sore point for retail banks is having a group of high-potential clients who have bought only a limited share of the bank’s product portfolio. The model shown in Figure 2.16 provides a direct answer ß Taking care of the customer’s to this issue, using for the mass affluent segment financial life as a financial advisor some of the techniques private bankers use with their Value proposition ß Bringing to mass affluent clients high-net-worth customers. to customers some services usually restricted to private banking, e.g.: pension advice, fiscal optimisation, risk We focused on this topic in the World Retail Banking management, asset review Report 2005 edition, and identified best practices for growing share of wallet in what we called the ß Intensifying client’s relationship by upgrading the value of service “untapped gold” segment. We concluded that a Value creation customer-needs-driven approach should avoid the to banks ß Eventually collecting a greater volume of financial flows and existing hard-sell practices. This remains true today. assets

HSBC Premier is a good illustration of this model. It ß Differentiation with private offers tailored advisory services to its most profitable banking customers as well as with “non‑gold” mass affluent clients, thanks to the creation of an offering Issues to cover clients aimed specifically at high-value customers in its ß Hiring or reskilling advisors, mass affluent segment. These clients benefit from keeping costs in line with dedicated specialist advisors and financial specialists expected added revenue providing preferential offers. Source: Capgemini analysis, 2008. Community Bank Communities are increasingly recognised by marketing specialists as essential in assessing buying behaviour. Concept stores and websites (such as Second Life on Figure 2.17 Community Bank Model the Internet) all try to leverage community affiliations, and this model aims to achieve this objective in retail banking (see Figure 2.17). ß Specialised service provider to a specific community (travellers, La Caixa for migrants and HSBC for travellers are Value proposition military, migrants) to customers good illustrations of this model. Another is USAA ß Closest to your personal affinity, for the US military. USAA is a community-centred recognised by “buzz” network business model launched in Texas in 1922 by military officers to mutually insure their automobiles. It grew ß Niche positioning leveraged by within the US, eventually extended its services to delegated marketing promotion Value creation banking and investment products, and built its client to banks ß Main strength is the confidence base among military families. By the end of 2006, relationship with the brand, and the association had 5.9 million members and 21,800 with a strong belonging feeling employees. Members held an average of five banking, investment, or insurance products. ß Compatibility with the brand, e.g.: image, ethics, politics

USAA is the only fully integrated financial services Issues to cover ß Control of the customer- company at the national level in the United States. acquisition process versus the inability to reject a community It has grown revenues by 12% a year since 2000, and member its CAGR figures for 2000-2006 are impressive: membership up 45%, products up 63%, productivity up 69%, assets up 93%, and net worth up 90%. This Source: Capgemini analysis, 2008. is clearly a success story. 46 2008 World Retail Banking Report

Figure 2.18 Discount Bank Model Discount Bank Many customers today are self-directed and view banking services as ordinary commodities, many of ß The most economic without which they purchase on their own. If they do not buy Value proposition minimising security or quality to customers the product themselves on the Internet, they at least ß The lowest prices on the market compare prices there before buying the product. The discount bank model shown in Figure 2.18 aims at ß Marginal revenues without capturing these self-directed buyers with a profitable additional fixed costs (provided existing systems and back low-price offering. Value creation offices may be shared) to banks ß Acquisition or retention of self- The HBOS multi-brand strategy, with its low-end directed new customers who brand Halifax, is a good example. So is Boursorama have little interest in advisory or proximity services Banque, a subsidiary of Société Générale. Boursorama has developed a leading on-line broker position

ß Differentiate the market in Europe, comprising 232,000 accounts under positioning under a new brand management and nearly 4.2 million orders executed (not to deteriorate the relationship in 2006. Issues to cover with current customers) ß Sharing production means to Having bought a small network of branches in large have a sustainable cost structure French cities from La Caixa’s French subsidiary, Boursorama launched a single full-banking package Source: Capgemini analysis, 2008. for Internet users with the lowest price on the market. Boursorama’s Service Plus package includes a current account with accruals (1.5%, versus 0% for traditional banks), as well as free standard services for which Figure 2.19 Trust Operator Model traditional banks charge. These include, among others, payments means, insurance, Internet access, entry fee to mutual funds, credit cards, and premium

ß One-stop shopping for cards. The only customer requirement is to spend a customers, including all kinds minimum amount each month. In 2006, Boursorama of personal or family services: boasted an operating efficiency four times higher than Value proposition domestic chores, bills traditional banks: 260 employees for 188,500 clients. to customers management, employment research, real estate, mobile phones, journeys, sports and “Larger offer”: Expanding the offering to include other tickets . . . non-financial products and services

ß Capturing additional business flow The Trust Operator Value creation ß Increasing cross-selling The larger offer model depends on a bank having a to banks opportunities very high degree of client trust and satisfaction, which ß Optimising the return on many typical universal banks enjoy today. The model assets (physical network) shown in Figure 2.19 assumes the earned trust can be leveraged to extend the bank’s offering into other, ß Securing multi-service non-financial services products offered to its clients. competences, avoiding blurring the image of the bank Issues to cover ß Choosing quality partners or Many banks have run experimental trials of this acquisition targets, fine-tuning model, including the sale of entertainment tickets the pricing policy on La Caixa’s ATMs. But Deutsche Bank’s Q110 concept is probably the most ambitious. It relies on Source: Capgemini analysis, 2008. trendy shops with all the sophistication of a concept Organic Growth in Domestic Markets 47

store, offering financial services alongside premium With 164 million users and 450,000 e-sellers in 2007, food products. It gives very detailed care to the client PayPal has not only achieved substantial success to experience, even including fancy boxes for financial date, but also has substantial development potential in services packages. Deutsche Bank Q110 branches banking license authorisation and diversification. have generated 50% more account openings than the bank’s other branches. Figure 2.20 Open Source Bank Model “Indirect business” (B to B to C) This model did not evolve from any traditional retail banking distribution model, but a growing number of retailers and websites have started extending ß Easy access and time saving of highly automated operations their offering to include financial services products Value proposition through the Internet, to customers provided to them by retail banks. Retail banks could complementing other on-line use this business line as a way to build economies of services scale in their systems and back offices. Banks would have to agree up front to position themselves as pure producers who would not participate in the end-client ß Best price and turn-key access to fully operational, professionally relationships commanded by the distributors. Value proposition supported, legally and to distributor prudentially secure financial Open Source Bank products Business on the Internet has given rise to pure players who have developed unique know-how in making money in the virtual world. By providing them ß Additional business volume bringing economies of scale and with products, retail banks could form a mutually Value creation potential opportunities for cross- beneficial partnership (see Figure 2.20). Zopa (UK), to banks selling in partnership with the an Internet marketplace linking private lenders and distributor borrowers, is an example. Another is PayPal (US), the famous payments services leader on the Internet.

ß Risk management PayPal was created in 1998 and bought by eBay in ß Avoiding the transfer of know- 2002. It is the leader of on-line payment solutions, how to the distributor and offers services in seven currencies in 55 Issues to cover ß Choice between branded and countries. To on-line buyers, it offers security and white-labelled offering confidentiality inexpensively, plus free person- ß Low customer intimacy to-person money transfer. To on-line sellers (e- threatening loyalty and retention merchants), it offers a simple solution with a good service level, no debt-collection risks, and a positive Source: Capgemini analysis, 2008. effect on website image, which has been successfully competing with banks’ “distant selling contract”, at least for small or starting sites.

PayPal’s efficient cost model features an automated system that guarantees a very low cost/income ratio (30%) compared to banks. Thanks to eBay and the “buzz” effect, it has limited client acquisition costs. A special team works full-time to minimise the fraud rate, which in 2006 stood at 0.29% (vs. 1.5% for cards on the Internet). 48 2008 World Retail Banking Report

Figure 2.21 General Broker Model General Broker Retailers have always been dangerous challengers to specialised product or service distributors to individuals, and they have developed unique retail ß The best products on the market, marketing expertise (see Figure 2.21). Many of Value proposition and independent advisory them have already extended their operations to to customers services to help determine which best fits with client’s needs some financial services, such as cards or consumer credit. They can, moreover, claim the advantage of independence, whether in the selected best-of-breed products they propose, in the advisory part of the sales ß Best price/quality ratio and turn- process, or even in the comparison engines they post key access to fully operational, Value proposition professionally supported, legally on the Internet. Once again, retail banks could profit to distributor and prudentially secure financial from this business as financial product suppliers. products Examples include the Independent Financial Advisers (US and UK), on-line comparison engines such as ß Additional business volume Meilleurtaux.com (France) and Bankrate.com (US), bringing economies of scale and Value creation potential opportunities for cross- MLP (Germany), Seven Bank (Japan), and Virgin to banks selling in partnership with the Money (UK). distributor Virgin Money is a brand-centred group launched in 1995 (first known as Virgin Direct). It takes ß Risk management, avoiding the advantage of the Virgin brand strength and transfer of know-how to the values: quality, innovation, “fun”, competitiveness, distributor and customer rights. The bank uses a very non- Issues to cover ß Choice between branded and white-labelled offerings conventional message to differentiate itself from ß Threatens customer loyalty and competitors, create buzz, and appeal to young retention people. Through government lobbying, Virgin Money positions itself as a protector of consumers’ rights, and offers very innovative products, including Source: Capgemini analysis, 2008. special insurance for cancer and pets. Virgin Money has achieved recognised international success, with 2 million clients, 2,445 employees, and offices in Australia, South Africa, the UK, and the US.

Virgin Money uses a retailer’s business model and offers a large product range, including credit cards, personal lending, insurance products, and pensions. It focuses on marketing, selling, and distribution more than on financial conception or processes, contracting through partnerships with MBNA Europe for credit cards and personal loans, and with Scottish Widows for cancer coverage. In the UK, Virgin Money has recently offered to buy Northern Rock (a savings and mortgage bank), which should remind retail banks that partners can always transform into competitors.

Organic Growth in Domestic Markets 49

Bankers’ views on new distribution models The bankers’ answers reflected the widespread opinion that three of these models are most likely to be taken up in the marketplace: Trust Operator, Discount Bank, and General Broker (see Figure 2.22). Many banks even admit to having their own projects based on the first two models, Trust Operator and Discount Bank, which many felt are natural paths banks are inclined to follow and are perceived as not too difficult to implement. Conversely, the General Broker model is the one banks are the least comfortable with, perceiving its claim at independence from production as more typical of a non-bank’s positioning.

When we asked bank executives about the change each model would bring to the retail banking business, they selected the Discount Bank model as number one, combined with the General Broker and the Open Source Bank models, indicating that their worst concerns about future competition were focused on a price war and a struggle for clients’ trust and relationship.

Figure 2.22 Executive Views on the New Models

Most frequently selected distribution models Most frequently selected distribution models that are most likely to appear before 2010 that would change the retail banking industry

Trust Operator Discount Bank Discount Bank Open Source General Broker General Broker 1 1 2 2 3 3

Source: Capgemini World Retail Banking Report 2008 survey on growth levers. 50 2008 World Retail Banking Report

Conclusion

In a very risky and changing market, banks need stabilisers to be sure they can continue to meet their performance targets. Retail banking will remain a major stabiliser, although banks need to find a profitable organic growth path that leads beyond the one they are following now.

Within ten years, most retail banks operating in high-income markets (and some operating in high-growth markets) will have reached a common standard of excellence corresponding to the results achieved by the best performers of today: combining fast time to market with innovative products and local client intimacy, full multi-channel integration and optimisation, increasing sales productivity through dynamic branch management, and leveraging a multi-brand portfolio to fine-tune high-growth value propositions for each market segment.

Trapped between demanding shareholders and tough competition in slow-growing markets, banks will have to invent their own future model to differentiate themselves from traditional solutions. Each of the models discussed above has the potential to bring some added value to traditional retail banks in their search for growth in high-income markets. The best performers will combine several of them—and perhaps add still others—to compete effectively in tomorrow’s retail banking market (see Figure 2.23).

This combination of several models is necessary to track all micro-segments of customers and adapt diversified value propositions to their specific needs or expectations. It will prove very complex to implement. The challenge will be to allocate resources in a way that supports the specific features of each model while avoiding a duplication of systems and organisations. All traditional enablers of operational performance will have to be fine-tuned and re-combined to fit this new context of diversified business models, without sacrificing operational and economic performance.

This new perspective does not mean that operational issues will be completely different in the future. But they will certainly have to take into account the new strategic environment, answering some exceptionally difficult questions: How can a bank use a portfolio of brands to organise the diverse value propositions it brings to market? How should channels be integrated to support each value proposition? To what extent will it be possible to share channels between different brands? What of the branding of the branches? Which parts of the IT platform can be shared between brands, and which is essential to differentiate value propositions? How can a shared back office deliver differentiated service levels to different segments?

Banks seeking to operate successfully in high-income markets, as they surely must, will need to find good answers to all of these questions—and more—to survive and prosper in the years ahead. Organic Growth in Domestic Markets 51

Figure 2.23 Creating an Integrated Model for a High-Income Market

Today Tomorrow

New Banking Model Trust Operator Multi-brand Continental Bank Multi-channel Discount integration Bank Specialised General branches Broker Community Bank Fast time Open to market Financial Sales Source Bank Advisor management

Source: Capgemini analysis, 2008. 52 2008 World Retail Banking Report appendix 53

Appendix Methodology 54 2008 World Retail Banking Report

METHODOLOGY All comparisons between our 2005, 2006, 2007, and For this fifth annual edition of the World Retail 2008 editions were made on the basis of three factors: Banking Report, we have continued to refine the ß A flat exchange rate: To compare price evolution methodology used in previous reports and expanded from 2007 to 2008 in euros, without those its coverage to two new countries: Denmark and figures being skewed by exchange rate effects, we Singapore. We have discontinued the South Africa recalculated last year’s prices for surveyed countries analysis, because we found it does not effectively that use a currency other than euros based on 13 represent the African zone. September 2007 exchange rates. ß A same-country scope: To maintain continuity, Each of 26 country teams contributed to its national countries we added over the years (Denmark, dashboard (www.wrbr2008.com) and the pricing Singapore, Croatia, India, Japan, Romania, analysis, and conducted spotlight interviews. The Ireland), as well as Italy and South Africa, have dashboards on the website provide overviews of the been excluded from the parts of this year’s analysis national banking industry for each country surveyed. comparing 2005, 2006, 2007, and 2008 data. In every country studied, a national team identified ß the major macroeconomic indicators and described One frequency pattern: The price focus of the the retail banking environment, the type and size of comparisons was ensured by recalculating last year’s players, the products sold, and the main trends in that price indexes based on this year’s frequencies of use country’s retail banking industry. (eliminating effects from change of patterns).

The dashboards map these insights in a detailed and As a result, the recalculated price indexes are not consistent format (see Figure A.1). This work also equal to the ones published in previous years’ reports. helped us determine which banks to include in the For instance, the 2007 local profile price index is €71, pricing index. Figure A.2 provides a complete list of compared to €77 published in the 2007 analysis. the banks surveyed. We have also refined some definitions to maintain The main principles of our pricing index our product list in spite of changes in the underlying methodology remain the same as for last year. The actual products sold by each bank. Some of these pricing analysis provides both local and global views changes are only marketing window-dressing, but based on prices and frequency of use. We calculated others are more substantial. For instance, in Portugal, prices on the basis of usage patterns for three kinds of France, Australia, and Poland, prices for external and user: less active, active, and very active. internal wire transfers differ if ordered at a branch or through the Internet. The proportion of transfers done through both channels was estimated to get To determine those three groups, we split the total a weighted average for the unit price. To remain customer community into three. The 20% with the consistent, we recalculated last year’s prices based lowest consumption are less active users, the 20% on these refinements and assumptions on last year’s consuming the most are very active users, and the proportion of on-line transfers. remaining 60% are the active users. Figure A.3 shows how local profiles vary by usage pattern. In countries where consumer behaviour is tracked, bankers were able to provide this data or refine previous patterns; in other countries, local frequencies were estimated by our local retail banking experts. appendix 55

Figure A.1 Sample Dashboard - Croatia

Source: Croatian National Bank (HNB), Croatian Banking Association (HUB), Croatian Chamber of Economy (HGK), 2007. 56 2008 World Retail Banking Report

Figure A.2 Pricing Index Survey Sample: 194 Retail Banks in 26 Countries

Europe Eurozone Europe Non-eurozone

Czech Austria Belgium France Republic Croatia Denmark

Share of deposits 83% Share of deposits 67% Share of deposits 88% Share of deposits 79% Share of deposits 82% Share of deposits 75%

BA-CA Fortis Bank Banques Populaires CSOB Zagrebačka Banka Danske Bank Erste Bank Dexia BNP Paribas CS Privredna Banka Jyske Bank BAWAG P.S.K. ING Bank Caisse d’Épargne KB Zagreb Nordea Bank Sparkassen sector KBC CCF HSBC GE Money Bank Raiffeisenbank Sydbank Raiffeisenbanken CIC HVB Erste Bank sector Crédit Agricole SG-Splitska Banka Volksbanken sector LCL OTP Banka Crédit Mutuel Hypo Alpe Adria Bank Société Générale La Banque Postale Norway Poland Romania

Germany Ireland Italy Share of deposits 61% Share of deposits 90% Share of deposits 79%

Share of deposits 67% Share of deposits 100% Share of deposits 64% DnB PKO BP Bancpost Fokus PEKAO CEC Deutsche Bank AIB UniCredit Nordea BPH Alpha Bank Commerzbank Bank of Ireland Intesa Sanpaolo Sparebank 1 CitiBank Banca Transilvania HVB Permanent TSB MPS Midt-Norge BRE ING Bank Romania Saving Banks National Irish Bank BNL Sparebank 1 ING Raiffeisen Bank Mutual Banks Ulster Bank Capitalia Nord-Norge Kredyt Bank BRD Groupe SG Postbank UBI Sparebank 1 BZ WBK Banca Comerciala Dresdner Bank SR-banka BGZ Romana Millenium Erste Bank The Unicredit Tiriac Bank Netherlands Portugal Spain Raiffeisen

Share of deposits 85% Share of deposits 91% Share of deposits 92%

ABN AMRO CGD BBVA Slovakia Sweden Switzerland ING Bank BCP Caixa Galida Postbank BES La Caixa Share of deposits 86% Share of deposits 78% Share of deposits 88% Rabobank Totta Cajamadrid SNS Bank BPI Banesto Unicredit Bank Svenska UBS Fortis Bank MG Grupo Banco Popular Slovenska Sporitelna Handelsbanken CS Grupo Cajas Rurales Tatra Banka Swedbank Cantonal Banks Caixa Cataluña Vseobecna Uverova Nordea Cooperative Banks Banco Sabadell Banka SEB Other Banks Bancaja Ceskoslovenska Danske Bank Regional Banks Obchodni Banka CAM SkandiaBanken Dexia ING Direct Bankinter IberCaja Unicaja United Kingdom Open Bank Santander Share of deposits 83% Uno-e HSBC RBS Asia-Pacific Barclays HBOS Lloyds TSB Australia China India

Share of deposits 70% Share of deposits 72% Share of deposits 44%

CBA ABC Standard Chartered WBC BC Bank North America NAB BOC Punjab National Bank St George CCB Bank of Baroda ANZ ICBC HDFC Bank Ltd. Canada USA CMB ICICI Bank Ltd. Share of deposits 85% Share of deposits 33% Minsheg State Bank of India Shanghai Pudorg Citibank N.A. BMO ABN AMRO Development Bank Canara Bank CIBC Bank of America-Fleet Bank of India Desjardins Boston RBC Citigroup J.P. Morgan Chase Japan Singapore Scotia TD Sun Trust Share of deposits 62% Share of deposits 63% U.S. Bancorp Wachovia Bank of Tokyo- DBS Bank Wells Fargo Mitsubishi UFJ, Ltd United Overseas Bank HSBC Mizuho Bank, Ltd. Overseas Chinese Sumitomo Mitsui Banking Corporation Banking Corp. KBC Source: Capgemini analysis, 2008. Resona Bank, Ltd. Bank of Yokohama, Ltd. The Sumitomo Trust and Banking Co., Ltd. appendix 57

Figure A.3 Pricing Index Survey Sample: 194 Retail Banks in 26 Countries

Canada Norway

Less Active Active Very Active Less Active Active Very Active

Account Management For one year

On-line Banking # of connections 0 12 24 0 23 59

Payments

Internal Wire Transfer # of transfers 6 12 48 2 8 20

External Wire Transfer # of transfers 0 0.5 2 10 50 90

Source: Capgemini analysis, 2008. 58 2008 World Retail Banking Report

About Us

ING THE EUROPEAN FINANCIAL MANAGEMENT & MARKETING ASSOCIATION ING is a global financial services company of Dutch origin with 150 years of experience, Efma is the leading association of banks, insurance providing a wide array of banking, insurance and companies and financial institutions throughout asset management services in over 50 countries. Europe. Efma promotes innovation in retail finance Our 120,000 employees work daily to satisfy a by fostering debate and discussion among peers broad customer base of individuals, families, small supported by a robust array of information services businesses, large corporations, institutions and and numerous opportunities for direct encounters. governments. Based on market capitalisation, Efma was formed 35 years ago and gathers today ING is one of the 15 largest financial institutions more than 2,200 different brands in financial services worldwide and in the top 10 in Europe. worldwide, including 80% of the largest European banking groups. ING is a major financial services company in the Benelux home market. ING services its retail clients Visit www.efma.com in theses markets with a wide range of retail banking, CAPGEMINI insurance and asset management products. In our wholesale banking activities we operate worldwide, Capgemini, one of the world’s foremost providers but with a primary focus on the Benelux countries. of consulting, technology and outsourcing services, In the United States, ING is a top 10 provider enables its clients to transform and perform through of retirement services based on sales assets under technologies. Capgemini provides its clients with management. In Canada, we are the top property and insights and capabilities that boost their freedom casualty insurer based on direct written premium. to achieve superior results through a unique way of ING is a leading direct bank with 15 millions working—the Collaborative Business Experience— customers in nine countries. In the growth markets of and through a global delivery model called Asia, Central Europe and Latin America, we provide Rightshore®, which aims to offer the right resources life insurance. We are also a large asset manager with in the right location at competitive cost. Present assets under management of more than €650 billion. in 35 countries, Capgemini reported 2006 global ING Real Estate is the largest property company in revenues of €7.7 billion and employs over 83,000 the world based on its business portfolio. people worldwide.

Visit www.ing.com With a network of 15,000 professionals serving over 900 clients worldwide, Capgemini Financial Services moves businesses forward with leading solutions for banking, insurance and capital markets. We provide deep industry experience, enhanced service offerings and advanced next generation global delivery to help clients achieve tangible results that impact performance and capture competitive advantage.

Visit www.capgemini.com/banking Capgemini would like to particularly thank the following banks interviewed for this report:

ABN AMRO National Irish Bank Banca Popolare di Milano Nordea Banca Popolare di Sondrio Popular Bank of America Rabobank BBVA Raiffeisenbank Austria D.D BNP Paribas Raiffeisenlandesbank Oberösterreich Bundesverband der Resona Bank Ltd Deutschen Volksbanken und Sabadell Raiffeisenbanken Santander Crédit Agricole SEB Canara Bank Societe Generale Splitska Banka Dexia State Bank of Hyderabad Erste Sumitomo Mitsui Banking Corporation Fortis Sumitomo Trust and Bank Getin Bank Swedbank HSBC TD Bank ING The Bank of Tokyo - Mitsubishi UFJ, Ltd ING Vysya Ubi Banca Karnataka Bank Unicredit KBC Unicredit Tiriac Komerční Banka Yokahoma Bank Lloyds TSB Zagrebačka Banka D.D. Mizuho Bank

We also thank the following people for collaborating to produce this report: The Development Team for analysing, writing, and compiling the findings of the report: Olivier Ducass, Jacques Richer, Hiroko Portal-Nakamura, Clémence Bechu and Laura Sellam. World Retail Banking Report Executive Steering Committee for providing their insights, industry expertise, and overall guidance: Patrick Desmarès, Bertrand Lavayssière, Marion Lecorbeiller, and Felix Potvliege. Sid Seamans for editing the report. All our Local Survey Contributors. For more information, please contact: Visit Capgemini – [email protected] ING – [email protected] www.wrbr08.com EFMA – [email protected] www.capgemini.com/wrbr08 For press inquiries, please contact: [email protected] [email protected]