Over the past few years, when both investment and consumer banking revenues have fluctuated, the corporate banking franchise has been a steady contributor to banks’ revenues. Yet in the coming period the franchise faces challenges – including over-capacity, encroachment from the capital markets and insurance sectors, regulatory intervention, and blurring boundaries between products, segments and channels.
The dilemma for most banks is that, as they aggressively move to new segments and geographies, they also have incumbent market positions that need to be defended. There is no question that the franchise will need to respond to these challenges.
On the cost side, banks are exhausted by large technology investments and appear to have little appetite for more. Banks have invested in technology to reduce costs and improve service; however, while service improved, costs often have not declined. Indeed, costs frequently increased, as key customers demanded increased service levels in return for their business. To cut costs and achieve anticipated efficiencies, some banks will need to invest more to transition away from legacy systems and traditional ways of serving customers.
On the revenue side, the battle for proprietary electronic banking is essentially over – the customer won. Technology investments resulted in improved products and services for customers, but no additional revenue for banks. Banks now see in the corporate customer a sophisticated and demanding buyer used to getting more for less. Banks are responding by looking to new markets for revenue replacement. Large international banks are moving down-market from their core multinational customer segment. Banks with cheap SME platforms are using these to deliver ever more sophisticated services to mid-market clients.
In the US, regulation and blurring boundaries between sectors have created opportunities for mergers and cross-selling. In Europe, banks increasingly target and serve niche segments across national boundaries.
Every bank must protect its franchise through distinctive strategies consistent with its positioning and capabilities. Strategic options for banks are increasingly clear, but success will depend on vigorous staking and working of claims to pre-empt competition.
PA serves corporate banks in a number of ways:
- product and customer profitability analysis – including ‘wallet sizing’ and customer preference modeling. We help banks move beyond basic profitability analysis to a more sophisticated understanding of profit drivers and help them to formulate segment-specific responses
- leading collaborative initiatives – we help groups of banks to share back-office and technology platform costs, through joint ventures and other sourcing initiatives
- technology projects – these range from requirements definition and package selection in specific product areas, through to Web site development
- management of multi-country change programs – we work from concept and business case through to international roll-out and benefit delivery.
