Distribution 2020: The next big journey for retail banks 22 January 2013

In the lingering wake of the financial crisis, profitability pressures and changing consumer behaviors are prompting a fundamental review of retail banks’ distribution processes. Return on equity (RoE) has dropped sharply, from roughly 20 percent in the years leading up to the crisis to about 10 percent in developed markets currently. With distribution representing approximately 50 percent of total costs in developed markets, it is clear that retail banks must broadly rethink their distribution processes on all fronts in order to adapt to evolving market conditions and changing customer needs. And customer needs — as well as banking habits — are indeed changing. First, interactions with banks are increasingly reflecting the broad global trend toward more online and mobile communication. Customer contacts with branches are decreasing at a rate of about 3 percent per year in most developed markets. Second, customers continue to become more sophisticated and demanding, comparing service levels in banks with those in different retail sectors. Not only do people expect alignment between the price they pay and the value they receive (which raises customer-value and pricing issues for banks), they also want a voice in developing service features and new products. Third, customers are happy to talk about all aspects of their banking experiences — especially the negative ones — through social media such as Facebook and Twitter. It is against this backdrop that The Boston Consulting Group (BCG) and Efma conducted a joint study on the challenges and opportunities confronting retail banks in improving their distribution processes. The study, aimed at identifying what best-practice distribution methods will look like by 2020, was based on an online survey of more than 100 participants from 70 banks worldwide conducted during the summer of 2012. In addition, a group of approximately 120 Efma members participated in a series of four “Think Tank” webinars, discussions that were complemented by detailed interviews with a number of banking executives across Europe. The findings of these research streams, supplemented by BCG’s hands-on experience advising leading banks, provided an up-to-date view on retail banking distribution. These results, which showed that “Distribution 2020” is a top-three topic for European banks, particularly in response to changing client behavior — and with highest priority in developed markets — were most recently presented at an Efma conference in Barcelona in October 2012. We hope that our findings will provide readers with insightful and thought-provoking perspectives on what 2020 will look like in retail banking, and on how to navigate their way toward a better distribution model.
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