Contact: Eleanor Hughes
Deloitte
Public Relations
+44 20 7303 0514
London, October 16, 2003 — The European Banks research team of Dresdner Kleinwort Wasserstein (DrKW), the investment bank of Dresdner Bank AG and professional services firm, Deloitte have released a joint study, "Retail is in the Detail: How financial institutions can grow revenue in the 21st century," into the retail banking markets of Europe, which draws on an extensive survey of senior management at European retail financial institutions.
The report forecasts that the next five years will be particularly demanding for financial institutions seeking to reignite the growth agenda as few have the necessary grasp of detailed business economics, operations and sufficiently flexible business model. Retail will be crucial for financial services institutions seeking to achieve growth. For example, in the UK in 2002, retail financial services accounted for 63.3% of profit before tax for the Big 5 banks (excluding HSBC) and 56% of total revenue, amounting to £29.3 billion.
According to the report the UK is predicted to hold the fastest growth potential for savings products in the next 5 years, as households adjust their balance sheet following a decade of heavy borrowing. At 5.2% of disposable household income in 2002, the UK currently has the lowest savings rate in Europe, in comparison to Italy, which is 16%.
In the report, retail banks in Italy and France have the greatest potential for personal lending over the next 5 years. A climb in lending growth rates is expected in Italy, rising from 4.5% (1995-2002) to 10.5% (2002-2008), fuelled by an anticipated increase in women joining the workforce which will drive employment, GDP growth, consumption and borrowing. In France, lending growth rates will rise from 1.8% (1995-2002) to 5.4% (2002-2008). Growth in France is reliant on falling unemployment so the sharpest growth is expected to come after 2006.
The research also suggests that European retail banks are poor at developing customer relationships. Customers in France have an average of 2.8 products per bank, whilst those in the UK have an average of just 2.1 products. It costs almost five times more to acquire a customer than to sell to an existing customer so the challenge for Europe's major retail financial groups is to develop customer relationships.
"Currently, Europe's major retail banks have more than 10 million customers each but few use these relationships to increase revenue. There are a number of benefits of selling to existing customers. These include increased product volume, decreased sales and marketing costs and decreased cost of servicing customers," comments Chris Gentle, European research director at Deloitte.
The report advises retail banks to focus on their people as a means of achieving growth aspirations. Financial institutions are not currently maximising their return on investment in people and it is anticipated that there is scope for banks to increase revenue per employee.
"Employees are critical in helping retail banks build a machine that successfully sells to customers, particularly in the branch. Banks should focus on increasing investment in people areas such as training, sales incentives and empowerment," concludes Chris Gentle.
Key findings include:
New patterns of product demand: Italy, Spain and France offer strong loan growth opportunities over the next five years, driven by low levels of consumer debt and rising female participation in the workforce. Conversely, in the UK and the Netherlands savings is the key growth opportunity, in the aftermath of a long consumer boom.
Process not product: bancassurer, distributor, monocline are all product based business models which mean little in determining the ability to sustainably generate revenues and suggest that a business has failed to appreciate the significance of process over product. Revamped finance and risk systems are essential to understand profitability at a customer, product and channel level.
The Balanced Agenda: While revenue growth correlates well with share price performance, cutting excess and prioritising spending are equally important for share price out performance. The ability to grow sustainable revenue streams by taking market share from rivals will be key.
Responsible Selling Machine: The ability to create a sales engine based on new management processes, re-aligned sales incentives and a distinct business ethos will separate the winners from the losers. Near obsessive micro management of human capital and business performance is essential. The difference will be in the detail.
About Dresdner Kleinwort Wasserstein (DrKW)
Dresdner Kleinwort Wasserstein (DrKW) is the marketing name for the investment bank within the Corporates and Markets Division of Dresdner Bank AG, a member of the Allianz Group since July 2001. With headquarters in London, Frankfurt and New York and an international network of offices, DrKW provides a wide range of investment bank products and services to European and international clients through its Capital Markets and Corporate Finance & Advisory business lines.
About Deloitte
In this press release references to Deloitte are references to Deloitte & Touche LLP. Deloitte & Touche LLP is the UK's fastest growing major professional services firm based in 21 UK locations, with over 10,000 staff nationwide and fee income of £1,228 million in 2002/2003. It is a member firm of Deloitte Touche Tohmatsu, a leading professional services organisation, delivering world class audit, tax, consulting and corporate finance services, with around 120,000 people in over 140 countries. Deloitte Touche Tohmatsu is a Swiss Verein, and each of its national practices is a separate and independent legal entity.
Deloitte & Touche LLP is authorised and regulated by the Financial Services Authority. The information contained in this press release is correct at the time of going to press. For further information about Deloitte in the UK, please visit www.deloitte.co.uk.
