The New Architecture of Retail Banking

1
The New Architecture of Retail Banking

• Paulo Soares de Pinho
• Faculdade de Economia -Universidade Nova de
  Lisboa
• and
• Ministério da Economia

2
The traditional business model
Savers
Investors
Loans
Deposits
(Ra)
(Rd)
Capital Markets
3
Drivers of change
Derivatives Structured products Asset
mamagement Securitisation
Financial Innovation
Reduction of barriers To entry
Deregulation
Lower margins Higher risk
Technological Innovation
Capital markets Non-banks EU Passaport Virtual
banking Insurance
Interest rates Charter Branching
Distribution channels Customer information
4
Industry reaction
Competition Lower margins
Excess capacity Lower ROE Higher risk
Customer franchise
New Capital Adequacy Rules
CONCEN- TRATION
UNIVERSA- LIZATION
Customer Focus Cost Optimisation Capital
management Develop risk management
5
The new business model
Large Corporates
Loans
Deposits Capital
Individuals SMEs
S E C U R I T
Funds Insurance Brokerage
Investment Banking
Capital Markets
6
Relational banking

• Customer is the focus (not the products)
• Increase product range
• Thus, the move towards conglomeration
• Bank as one-stop shop for financial products
• Taking advantage of excess capacity
• Customer information becomes key factor
• Ojectives retain and develop customer
  relationships

7
From Transaccional to Relational
Proactive Relationship Bank has deep knowledge
about its customers, Antecipates their needs and
is regarded as an adviser. Clustomer captures
value and feels especial treatment.
Reactive Relationship Bank and customer mutual
knowledge Bank has specific offer per customer
group
Multiple transactions Customer is familiarized
with the service Bank ignores the customer
Unique transaction Bank and customer ignorants
about each other
8
Production Distribution Relationsmulti-customer
, multi-channel banking
Production

Investment Bank
Asset Management
Traditional Banking
Leasing
Factoring
Mortgage Ldg
Consumer Ldg
Customer units
Large Corporates
SME's
Individuals
Private
Distribution
Corporate Banking
Universal Banking
Internet Bank
Private Banking
Call- Centre
9
Conclusions

• Retail banks are no longer regarded as financial
  intermediaries but rather as retailers of
  financial products
• Access to and handling of customer information
  become key success factors
• Customer segmentation and identification of
  financial needs of each segment at each phase of
  the customer life-cycle become crytical to
  determine the specific offer for each customer at
  each moment
• There is complementarity between old and new
  channels, rather than susbtitutability