The future of retail banking
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Flexibility in branch organization is key to success in retail banking, a new study shows. While regional differences must be taken into account, banks respond quickly to client needs are garnering the critical edge.
"Regardless of whether you're talking about the mature markets of Western and Northern Europe, or the emerging states in Eastern Europe: wide range of branch size with flexible opening hours, demand-based work hours for employees and performance based compensation are the keys to success in retail banking," says Christophe Angoulvant, Financial Services Partner at Roland Berger's Paris office. In particular, the trend toward online banking and the clear victory of alternative sales strategies are forcing European banks to act, especially those in Western and Northern Europe. Angoulvant explains: "In the past few years, a very efficient sales network in Central and Eastern Europe was built up across smaller outlets that offer a broad product portfolio. The typical branch is located in a shopping center, is open on Saturdays and also sells mortgage loans. Here the West could learn a lot from the East."
Eastern Europe often more flexible
That also goes for performance-based employee compensation. In Central Europe, 27.2% of a salary on average is given as a bonus; in the CIS countries it's 17%. In Western Europe, this figure is approximately 12.7%; in Scandinavia, only 1.5%. In terms of allocating employees in several branches and supplementing them with part-time workers at peak times, the CIS and Western Europe are ahead. 25% of Eastern European and 21% of Western European banks schedule the majority of their employees based on demand (62% in the CIS and 50% in WE). 60% of central European banks, plus 29% of Western European institutions, have no flexibility in this area.
"Regardless of whether you're talking about the mature markets of Western and Northern Europe, or the emerging states in Eastern Europe: wide range of branch size with flexible opening hours, demand-based work hours for employees and performance based compensation are the keys to success in retail banking," says Christophe Angoulvant, Financial Services Partner at Roland Berger's Paris office. In particular, the trend toward online banking and the clear victory of alternative sales strategies are forcing European banks to act, especially those in Western and Northern Europe. Angoulvant explains: "In the past few years, a very efficient sales network in Central and Eastern Europe was built up across smaller outlets that offer a broad product portfolio. The typical branch is located in a shopping center, is open on Saturdays and also sells mortgage loans. Here the West could learn a lot from the East."
Eastern Europe often more flexible
That also goes for performance-based employee compensation. In Central Europe, 27.2% of a salary on average is given as a bonus; in the CIS countries it's 17%. In Western Europe, this figure is approximately 12.7%; in Scandinavia, only 1.5%. In terms of allocating employees in several branches and supplementing them with part-time workers at peak times, the CIS and Western Europe are ahead. 25% of Eastern European and 21% of Western European banks schedule the majority of their employees based on demand (62% in the CIS and 50% in WE). 60% of central European banks, plus 29% of Western European institutions, have no flexibility in this area.
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Northern Europe: Technology leads the way
In general, it appears that different regions face very different challenges: banks in Northern Europe are very technology-driven. Modern IT systems give them a clear cost advantage. According to Angoulvant, "Customers in Scandinavia are also very tech-savvy. That's why only 14% of transactions are still made at local branches, the rest via online banking, telebanking or other means." However, as individual branches slowly become a thing of the past, banks are threatened with losing direct contact to their customers.
Direct customer contact important in Western Europe
Western European institutions score with close personal contact to their customers, which pays off in very high sales per customer. Angoulvant provides concrete numbers: "In Western Europe, a banking customer has, on average, 5.4 products from his or her bank. In Northern Europe, it's 3.2 products; in Central Europe, 2.1, and further East it's just 1.7." But the high density of branch locations also incurs high costs, and there's the danger of neglecting alternative channels, such as the Internet. Web banking is not yet fully exploited as an orientation tool to bring clients into branches and as a transaction tool for clients.
CEE: preparing for the post-growth period
As growth in Central Europe slows down, the issue of cost optimization is moving up the agenda. In the CIS, however, several years of high growth rates are still expected. "Banks in the East must take care to grow faster than the market while not losing sight of costs and risks. The CIS countries are clearly lagging behind, especially in terms of productivity, while the CEE countries have almost reached the Western European level," says Angoulvant.
In general, it appears that different regions face very different challenges: banks in Northern Europe are very technology-driven. Modern IT systems give them a clear cost advantage. According to Angoulvant, "Customers in Scandinavia are also very tech-savvy. That's why only 14% of transactions are still made at local branches, the rest via online banking, telebanking or other means." However, as individual branches slowly become a thing of the past, banks are threatened with losing direct contact to their customers.
Direct customer contact important in Western Europe
Western European institutions score with close personal contact to their customers, which pays off in very high sales per customer. Angoulvant provides concrete numbers: "In Western Europe, a banking customer has, on average, 5.4 products from his or her bank. In Northern Europe, it's 3.2 products; in Central Europe, 2.1, and further East it's just 1.7." But the high density of branch locations also incurs high costs, and there's the danger of neglecting alternative channels, such as the Internet. Web banking is not yet fully exploited as an orientation tool to bring clients into branches and as a transaction tool for clients.
CEE: preparing for the post-growth period
As growth in Central Europe slows down, the issue of cost optimization is moving up the agenda. In the CIS, however, several years of high growth rates are still expected. "Banks in the East must take care to grow faster than the market while not losing sight of costs and risks. The CIS countries are clearly lagging behind, especially in terms of productivity, while the CEE countries have almost reached the Western European level," says Angoulvant.
Converging markets
With increasing market maturity, banks' problems also converge. Summing up the situation, Angoulvant says: "Many European retail banks are faced with the challenge of needing to maximize sales per customer while simultaneously minimizing costs." The goal is to reach what the study called the "Garden of Eden" – a paradise for retail banks. This means lean structures, a network of branches sufficient for direct customer contact and a modern IT infrastructure.
If you have questions or comments, please don't hesitate to contact us:
With increasing market maturity, banks' problems also converge. Summing up the situation, Angoulvant says: "Many European retail banks are faced with the challenge of needing to maximize sales per customer while simultaneously minimizing costs." The goal is to reach what the study called the "Garden of Eden" – a paradise for retail banks. This means lean structures, a network of branches sufficient for direct customer contact and a modern IT infrastructure.
If you have questions or comments, please don't hesitate to contact us:
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