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Retail Banks - Globalisation Case

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Today's performance woes, combined with the quest for sustainable growth, are pushing banks beyond geographic and product-centric boundaries. In our most recent survey, conducted in cooperation with the Economist Intelligence Unit, we examined the effects of globalization on the retail banking industry. Bankers agree: globalization is the single greatest opportunity - and yet also the greatest threat - facing the industry today. Globalization is affecting banks large and small - understanding what customers want is only half the battle, as banks must then reach customers in ways that meet their unique needs.

Bank executives recognize the need to measure the risk and reward trade-offs of globalization, and fear worldwide windows of opportunity may be closing. Understanding their own strengths against the changing nature of systemic risk as well as financial sector sophistication in different parts of the world will allow them to choose the right strategy. Without question, banking is becoming more global. However, banks have a choice in how they attain greater growth, efficiency and effectiveness - for some, this means becoming a globally integrated financial services provider. For others, it means expanding the bank's global reach in a more targeted fashion.

Retail banks compete on service levels, product range, convenience, customer relationships, reputation, and price (fees and interest rates). Also, consumers often choose a bank based on family history or habit. The importance placed on each of these variables does not appear to be consistent across the four countries examined. We can, however, infer that non-price variables are, in general, as important, if not more important, to consumers when choosing a banking product or service. Retail banking markets are found to be national in scope. Although concentration levels vary considerably across markets and across countries, retail-banking markets are in general characterised by moderate to high concentration levels.

The rate of new entry varies across member states. In the past 10 years, seven new banks have entered the Irish banking market, Sweden has seen 18 new entrants, the Netherlands has attracted only two, while 45 new entrants have appeared in the UK (mainly from building societies that have converted to full banking status). A large proportion of this 'entry' has involved the acquisition of an existing bank by another (multi-national) bank, and so a certain amount of exit and entry has represented changing ownership (or 'churn'), rather than organic growth.

There have been few common entry strategies noticeable across member states: some have seen organic growth from a zero base, some from mergers and acquisitions, some sideways moves into banking from organisations already involved in financial services, some through partnership and joint venture arrangements. Target markets have equally varied widely; New entry has generally not been successful with the market shares of new entrants remaining in single figures, except in niche markets where some greater success has been observed.

Physical presence and access to payment services appear to be the most significant types of infrastructure necessary to compete fully in retail banking. Whether that includes a physical branch network, and the extent of that network, varies across states.

The presence of foreign banks varies from nothing significant in the Netherlands and 7-8% in Ireland1 through around 14% of the market in Sweden to something over 50% in the UK.

The traditional function of commercial banks has been to act as financial intermediaries between deficit and surplus sectors. This assumes that

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