BANK and BANKING the Art of Better Retail Banking Supportable
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P1: FCG/SPH P2: FCG/SPH QC: FCG/SPH T1: SPH JWBK008-FM JWBK008-Croxford February 8, 2005 20:56 THE ART OF BETTER RETAIL BANKING Supportable Predictions on the Future of Retail Banking Hugh Croxford Frank Abramson Alex Jablonowski JOHN WILEY & SONS, LTD v P1: FCG/SPH P2: FCG/SPH QC: FCG/SPH T1: SPH JWBK008-01 JWBK008-Croxford January 14, 2005 18:54 16 P1: FCG/SPH P2: FCG/SPH QC: FCG/SPH T1: SPH JWBK008-FM JWBK008-Croxford February 8, 2005 20:56 “A whistle-stop tour of all aspects of retail banking. This is a very readable and insightful real world mix of theory, strategy, tactics and practice. They have even managed to make banking sound exciting. But mostly they have been able to cut through the complexity to remind us all that success in retail banking is not just about finance and efficiency – it is about customers and staff, who are all too often forgotten about.” Craig Shannon, Executive Director – Marketing, Co-operative Financial Services “The authors live up to their promise of providing managers and students with a clear exposition of the retail banking sector and how banks can confront the challenging future they face. This book is a practical manual with lots of useful advice. I was looking for new insights in this book – and I found them!” Professor Adrian Payne, Professor of Services Marketing, Director, Centre for Services Management, Cranfield School of Management “A key determinant of any organisation’s success will be an enhanced understanding of ‘value’ as defined by customers, employees, shareholders and other stakeholders. Value can mean different things to these different groups, and this book has set itself the objective of identifying the approaches that will improve the value proposition for all of these interested parties. It achieves this objective.” Professor Steve Worthington, Faculty of Business and Economics, Monash University “An enjoyable and useful read. It provides a good perspective on the role of IT and how IT suppliers and professionals need to contribute to future developments in retail banking strategy and implementation. It helps provide guidance for the significant challenges ahead for both suppliers and the Banks.” Nick Caplan, Managing Director, Global Financial Services, LogicaCMG i P1: FCG/SPH P2: FCG/SPH QC: FCG/SPH T1: SPH JWBK008-FM JWBK008-Croxford February 8, 2005 20:56 “Full of interesting insights into the real levers of successful retail banking, and how these might change in future. The authors’ practical experience and enthusiasm for banking shines through.” Angus Hislop, Banking Advisor, Cisco Systems “The mix of marketing strategies and accessible economics gives an invaluable insight into how retail banking actually works and where banking may be going in the future. Anybody connected with retail banking should find this though provoking and inspirational. Some of the models predicted make great sense and should worry established institutions.” Andy Annett, Managing Partner, Liquid Communications Ltd “A timely contribution to the debate on the future of Retail Banking; comprehensive, yet also lively and provocative.” Charles Pink, Chief Executive Officer, First Caribbean International Bank Ltd ii P1: FCG/SPH P2: FCG/SPH QC: FCG/SPH T1: SPH JWBK008-FM JWBK008-Croxford February 8, 2005 20:56 The Art of Better Retail Banking iii P1: FCG/SPH P2: FCG/SPH QC: FCG/SPH T1: SPH JWBK008-FM JWBK008-Croxford February 8, 2005 20:56 iv P1: FCG/SPH P2: FCG/SPH QC: FCG/SPH T1: SPH JWBK008-FM JWBK008-Croxford February 8, 2005 20:56 THE ART OF BETTER RETAIL BANKING Supportable Predictions on the Future of Retail Banking Hugh Croxford Frank Abramson Alex Jablonowski JOHN WILEY & SONS, LTD v P1: FCG/SPH P2: FCG/SPH QC: FCG/SPH T1: SPH JWBK008-FM JWBK008-Croxford February 8, 2005 20:56 Copyright c 2005 John Wiley & Sons Ltd, The Atrium, Southern Gate, Chichester, West Sussex PO19 8SQ, England Telephone (+44) 1243 779777 Email (for orders and customer service enquiries): [email protected] Visit our Home Page on www.wileyeurope.com or www.wiley.com All Rights Reserved. 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Library of Congress Cataloging-in-Publication Data Croxford, Hugh. The art of better retail banking : supportable predictions on the future of retail banking / Hugh Croxford, Frank Abramson, Alex Jablonowski. p. cm. Includes index. ISBN 0-470-01320-6 1. Banks and banking–Great Britain. 2. Consumer credit–Great Britain. I. Abramson, Frank. II. Jablonowski, Alex. III. Title. HG2988.C68 2005 332.120941—dc22 2004027085 British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library ISBN 0-470-01320-6 Typeset in 10/12 Times by TechBooks, New Delhi, India Printed and bound in Great Britain by TJ International Ltd, Padstow, Cornwall, UK This book is printed on acid-free paper responsibly manufactured from sustainable forestry in which at least two trees are planted for each one used for paper production. vi P1: FCG/SPH P2: FCG/SPH QC: FCG/SPH T1: SPH JWBK008-FM JWBK008-Croxford February 8, 2005 20:56 Contents Preface xiii Background and Acknowledgements xxiii About the Authors xxv Part I SETTING THE SCENE 1 1 Introduction 3 1.1 Objective 3 1.2 Science and engineering 5 1.3 Science, art and engineering 6 1.4 A brief look back, and the culture of retail banking 8 1.5 The view from the bridge 10 1.6 We have to start from where we are 11 1.7 Are banks ‘unpopular’? 12 1.8 The path to popular popularity 13 1.9 And get this too . 14 1.10 Change is in the air – confidence, simplicity, speed 15 2 The Basic Model 17 2.1 Profit and return on equity 18 2.2 Capital requirements 19 2.3 Interest spread and interest margin 21 2.4 Non-interest income (fees and commissions) 24 2.5 Costs and the cost/income ratio 25 2.6 Loan losses 26 2.7 Taxation 26 2.8 Our loan of £1000 26 2.9 Performance measurements 28 2.10 The different businesses within banking 30 P1: FCG/SPH P2: FCG/SPH QC: FCG/SPH T1: SPH JWBK008-FM JWBK008-Croxford February 8, 2005 20:56 viii The Art of Better Retail Banking 2.11 Assets, liabilities, treasury, capital markets 31 2.12 Caveat – definitions 32 2.13 To really understand it without it hurting 33 2.14 Some further points 33 3 Accounts, Services and Channels 37 3.1 Accounts 37 3.1.1 Current accounts 37 3.1.2 Savings accounts 38 3.1.3 Loan accounts 39 3.2 Payments 39 3.3 Services – fee-based and commissions 40 3.4 Delivery channels 42 3.4.1 Branches 43 3.4.2 ATMs 44 3.4.3 Digital 45 3.4.4 Postal banking 45 3.5 Bank cooperative channels 45 3.6 And some other points 46 3.6.1 Account variations 46 3.6.2 Bank cost allocation methodologies 48 3.6.3 And on product performances 49 4 Real Banks and Challenges 57 4.1 Some lists of banks – international banks 57 4.2 Globalisation 62 4.3 UK banks 63 4.3.1 HSBC 66 4.3.2 Royal Bank of Scotland 66 4.3.3 HBOS 67 4.3.4 Barclays Bank 67 4.3.5 Lloyds TSB 67 4.3.6 Abbey National 67 4.3.7 Standard Chartered 68 4.3.8 Alliance & Leicester 68 4.3.9 Northern Rock 68 4.3.10 Bradford & Bingley 68 4.3.11 Yorkshire Bank 68 4.3.12 The Co-operative Bank 69 4.3.13 Clydesdale Bank 69 4.3.14 Egg 69 4.3.15 Northern Bank 69 4.4 A little more detail on some UK banks 69 P1: FCG/SPH P2: FCG/SPH QC: FCG/SPH T1: SPH JWBK008-FM JWBK008-Croxford February 8, 2005 20:56 Contents ix 4.5 Building societies 73 4.6 The challenges for banks 74 4.7 Costs and the cost/income ratio 76 4.8 Risks 77 4.8.1 Credit risk 79 4.8.2 Treasury risks 80 4.8.3 Operational risk 81 4.8.4 Other risks 81 4.8.5 The risk about risks 82 4.9 Differentiators 83 4.10 Acquaintanceships 84 4.11 Trends 85 4.12 Competition 88 4.12.1 The Y2K experience 90 4.12.2 Competitive business