2023欧洲零售银行监控.pdf

A tale of two lands in European retail bankingThe future belongs to the courageous 3Strategy&|A tale of two lands in European retail bankingAfter more than a decade of a challenging low-interest environment for retail banks in Europe,three forces are coming together:interest rate hikes(and margin expansion),the fruits of cost transformation programs,and the adoption of digital service models.2022 has been another good year overall for European retail banks,with topline increasing by an impressive 8%,while costs lagged behind and increased slightly,by 2%.The branch network transformation is progressing,with an average network reduction of 15%in Europe in the last two years,albeit with considerable differences in progress between individual countries.A tale of two lands emerges as we dive deeper into the success trajectory of recent years.Banks have embarked on a journey to transform their business and operating models.Fueled by the first fruits of this journey,around four in five of banking players in our sample have moved to the land of improving profits.Meanwhile the remaining fifth stayed in(or moved to)a smaller land with shrinking profits,looking at their performance over the last five years.Those who have been courageous in the past will need to remain bold to stay ahead in the future.Two priorities are emerging as key differentiators in the near term:1.Reinventing Sales:Become an omnichannel champion Transitioning towards a people-supported outbound sales model,building true digital sales across the full journey,rather than optimizing digital marketing alone2.Reinventing Products:Provide better,simpler,faster,and more accessible products Banks need to overhaul existing capabilities to provide simpler,more convenient,and faster products in order to reach,attract and retain(more)customersBeyond these immediate priorities,our scenarios for retail banking in 2025 remain relevant,with areas and players to watch out for embedded finance keeps eating into banks revenue pools,and big tech/fintech players continue to drive innovation,price competition,and the quest for customer interaction.EXECUTIVE SUMMARY4Strategy&|A tale of two lands in European retail bankingSECTION 12022 a good year for retail banks2022 financial results paint a positive picture in Europe,with positive development of underlying business both loans and deposits,with topline results and returns boosted as interest rates rose again.With operating costs remaining relatively flat,banks reaped the benefits of interest hikes and margin expansion,and a notable positive gap between revenue and cost has developed.Operating income+/-Operating costs97979810010420162017201820192020202120221 Operating income and cost per customer as weighted total average EUR;1)European countries included are AT,BE,DE,DK,ES,FI,FR,IT,NL,NO,SE and UK Source:Strategy&Retail Banking Monitor 2023EXHIBIT 1Europe1:Operating costs and income per customer (in percentage points,indexed:2016=100)Strategy&|A tale of two lands in European retail banking5It is worth noting that European retail banks have managed to fare better than counterparts from the US or Australia.The large retail banks in those geographies represent a defining retail banking market(US)and a relatively comparable one(Australia),and the two are displaying different trajectories.In the US,both topline and costs have increased by approximately 6%,whereas Australian retail banks have seen a revenue and cost decrease by 7%.2022 has been another good year for European retail banks across key performance indicators:Flight to depositsSurge in loansIncome increaseCost inertiaProfi t ascent+4%+4%+8%+2%+18%.deposit volume.loan volume.topline.operating costs.operating profi tNote:Based on European sample(weighted average YOY growth rate in EUR)Source:Strategy&Retail Banking Monitor 2023EXHIBIT 2European Retail Banking KPIs 2022 Growth in topline outpaces underlying business volumeFollowing a marked increase in deposits and loans last year,retail banks overall have registered more modest business volume growth in 2022(4%).Topline growth has been considerably higher(+8%)than underlying business volume growth an indicator that new business was more profitable in 2022.To little surprise,net interest income was a strong driver of this topline growth,showing stronger year-on-year growth than fee and commission income(+9%vs.+3%).The performance on fees and commissions could be an indicator that the pricing measures introduced by banks in recent years have started to plateau.Strategy&|A tale of two lands in European retail banking6The stark change in the interest rate environment,and the speed of its transition period,comes with risks that we observe in selected players,particularly in Depot A and Asset/Liability Management.The 2023 Q1 results continue to show strong margin effects.However,we expect to see a considerable shift in the deposit mix,with outflows not unlikely,since the long period of low interest rates has led to excess levels of non-interest-bearing sight deposits(40-50%at some banks).Deposits have returned as a tactical and marketing instrument in the market,with some players already offering 3+%interest on sight deposits(e.g.,in Germany),currently affecting only a small part of the full deposit base.The big unknown is a possible margin compression if interest rates stay high for longer,with a wider deposit base being affected by interest rate hikes.YoY growth in%Growth driverfrom fees and comissions.to interest incomeNet fees and comissionsNet interest incomeBusiness volume1036912202120224%10%3%8%9%3%1 Business volume=Loans and Deposits Source:Source:Strategy&Retail Banking Monitor 2023EXHIBIT 3Operating income development7Strategy&|A tale of two lands in European retail bankingUphill journey on cost transformation,given currently high inflation Amidst significant inflationary dynamics in many parts of Europe,cost efforts are continuing to stagnate for a second year in a row and are expected to come under further pressure due to inflation effects on salary and other related costs.In our 2021 edition of the Retail Banking Monitor,we set out our market expectation of 40%branch rationalization by 2023.Midway,based on 2022 data,we note an average branch network reduction of 15%in our sample,albeit with considerable variance across countries:11 Estimated based on available data at publication branches not reported for full German sample yet.Netherlands40%Belgium,Nordics,Spain,and UK20%-25%Germany15%1Italy and France Inertia,with single-digit rationa liza tion rateStrategy&|A tale of two lands in European retail banking8Some retail banks have remained successful in their cost efforts,against the backdrop of high inflation rates.Considering the past two years,around 4 in 10 retail banks in our sample have managed to cut costs per customer.Counterintuitively to the overall progress on network rationalization,6 out of 10 banks show a cost uplift in the past two years.European average:4%cost increase2020-2022Cost increase largelydriven by wage drift and IT overhaulCost decrease asa function of early program start,network and staff rationalizationsIndividual banking playersEuropean average1 in 10 banks with more than 10%cost uplift5 in 10 banks with up to 10%cost increaseCost increaseCost decrease4 in 10 banks with cost decrease-10%2021+20%+10%2022FlatCompound growth in%Source:Source:Strategy&Retail Banking Monitor 2023EXHIBIT 4Cost development (per customer,constant 2022 FX rates)One thing is evident:the pressure on costs is mounting rather than decreasing in times of interest hikes and inflation.Banks,including those that have been successful in addressing their cost base over the past years,will need to seek ways to keep up with inflationary pressures whilst making good use of the time window afforded by interest hikes to invest in business and operating model evolution.9Strategy&|A tale of two lands in European retail bankingSECTION 2A tale of two landsWithin an overall good macroeconomic environment,a tale of two lands emerges as we dive deeper into the success trajectory of retail banks in recent years.+50452006040030035405565707580856008001,0001,2001,4001,600Cost income ratio4 in 5of sampleOperating income per customerCost optimiserTopline and cost optimiserTopline optimiser2016 to 20221 Outliers(e.g.,due to segment breaks)excluded Note:Bubble size equals operating profit per customer.Based on constant 2022 FX rates Source:Strategy&Retail Banking Monitor 2023EXHIBIT 5Retail bank positioning 2016 to 20221 Banks with positive trajectoryStrategy&|A tale of two lands in European retail banking10Conversely,a smaller share of banks just over one in five of the retail banks in our sample ended up in a worse position than six years ago.They have not been able to contain their cost development yet or have lost competitive edge in their markets in recent years.-50452006040030035405565707580856008001,0001,2001,4001,600Operating income per customer1 in 5of sampleToplineTopline and cost2016 to 2022Cost income ratioAround 4 out of 5 retail banks in our sample have to varying degrees managed to successfully push their agendas towards higher profitability and more competitive positioning.Pricing courage on fees and commissions,along with interest rate hikes,fueled their topline development,and the initial successes of cost transformation programs have become visible.EXHIBIT 6Retail bank positioning 2016 to 20221 Banks with negative trajectory1 Outliers(e.g.,due to segment breaks)excluded Note:Bubble size equals operating profit per customer.Based on constant 2022 FX rates Source:Strategy&Retail Banking Monitor 2023Strategy&|A tale of two lands in European retail banking11Case studyA European retail and commercial bank serves as a good example of a successful transfor-mation trajectory over recent years,not limited to the cost agenda.The bank was faced with a low-growth environment and a persistently high cost-to-income ratio for the retail segment.In addition,the bank had a declining return on equity for their personal banking business.To combat this,the bank initiated a cost reduction program looking at in-year cost reduction(e.g.,FTE and bonus reduction,exit from peripheral technology spend,streamlin-ing of footprint and associated property costs,and reduction in marketing spend)and longer-term efficiency levers(e.g.,reduction in number of branches,rationalization of prod-ucts and services,increased focus on a small number of high frequency,high cost journeys,and reduction in central team footprint).The program succeeded in driving significant in-year cost reduction.At this point,a new Chief Transformation Officer joined the bank,recognizing that an exclusive focus on reducing cost from the status quo would not drive the scale of improvement and holistic transformation that the business required.To remedy this,the bank kicked off a rapid exercise to develop an inspirational,unconstrained north star design for the future bank and restructured the cost program to also address the growth and capital efficiency imperatives of the business.The banks comprehensive Group Transformation Program was based on seven enterprise-wide pillars,each sponsored by an Exco member:Enduring customer relationships Modular customer journeys Digital-led distribution Value through partnerships People and organization Technology and data Capital allocationWith sustained momentum over several years now,the program has been at the heart of improving the banks performance,and repositioning it as a leaner,more agile group with the capability to pursue sustainable growth.In the years following the program,the cost-to-income ratio in the banks retail segment decreased by 20-30%,with return on equity increasing to above 25%.In retrospect the programs success was underpinned by four core principles:Setting aspirational objectives,by setting ambitious right-to-left goals,and focusing on strategic cost,capital,and revenue objectives in an integrated manner.Driving impact and speed,by pulling a few powerful levers consistently across the organization and driving rigorous prioritization of initiatives.Sustaining the momentum,by building a capable and empowered transformation office run by an Exco-level CTO to drive the program and ensuring L1/L2/L3 leaders had skin in the game with compensation tied to its success.Making the change stick,by designing and configuring a culture-led transformation focused on“critical few behaviors”,leader-led role modeling,and employee-oriented change planning.Those who have been courageous in the past will equally need to remain aspirational to stay ahead in the future.Amidst growing competition from strengthened big tech/fintech players,they need to focus on two immediate strategic priorities to equip themselves for success.Strategy&|A tale of two lands in European retail banking12SECTION 3Strategic priorities2 https:/www.bitkom.org/sites/main/files/2022-05/Bitkom-Charts_Digital_Finance_31052022.pdf Retail banks have embarked on their journey to transform key elements of their business and operating models.Beyond ongoing efforts to further transform costs and drive digitization,retail banks need to focus on two immediate strategic priorities.Reinventing salesCustomer behavior has undergone stark changes in recent years.Amplified by the pandemic,we have seen a fundamental shift a considerable increase in mobile-first customers versus cash/branch-based usage(e.g.,the share of online-only customers in Germany increased from 31%in 2019 to 41%in 20222,with customers increasingly expecting to navigate seamlessly through an increasingly complex channel and contact point universe).Banks have so far failed to respond easily to this more scattered pattern,with multichannel silos built around traditional branch channels.This has not only been a challenge for traditional bricks-and-mortar banks,but equally for direct banks,faced with a need to incorporate partner channels,e.g.,comparison platforms,(mortgage)brokers,IFAs,product/service partners(e.g.,for cash-out/-in).A new model is emerging in the market moving from a branch-centric,multichannel,inbound model to a digital sales,omnichannel,outbound model.The first banks have embarked on this journey already,mainly by building remote advisory capabilities and shifting the bulk of their retail(and SME)customers into this new coverage model.Motivated largely by a simple need to cut costs and bring a loss-making part of the customer base into a more digestible cost-to-serve league,these models have been successfully introduced by a large Austrian bank,one Swiss bank,and a few regional and one nationwide German banks,for example.Strategy&|A tale of two lands in European retail banking13Customer experienceUnderstanding customer preferences is key to creating relevant experiences in the moment.Active outreach across channels in a targeted and contextual manner becomes a prerequisite for success.For instance,a