Banks in the developed markets hit by the crisis in recent years have struggled to grow revenues consistently. In the new landscape – emerging in the wake of the turmoil –banks in Europe and America have recovered a degree of stability and are returning to moderate profitability. These changes have led to an increased volatility and a difficult trading environment in Europe and the US. Banking stakeholders, governments, regulators and the public are all demanding disruptive changes and require a sustainable recovery.
Over the past three years, Accenture has been conducting a study called Banking 2012. This study examines the basic levers increasing banking profitability and the operating models required to deliver sustainable profitability in the new environment.
Secrets of Revenue sustainability
Across different markets, we see a number of shared characteristics differentiating those banks that achieve high performance in revenue generation – Shared characteristics includes: superior earnings quality, lower earnings risk, access to superior growth markets, and in some instances a combination of these factors. Superior earnings quality is typically found in banks able to generate higher asset turnover or higher margin earnings due to underlying operational efficiency.
The key to success is to be able to generate sustainable profits, with a credible plan to grow revenues in the long term. However, for many banks today this objective is still a tough challenge. Those banks that are out-performing their peers tend to demonstrate a core set of five underlying performance factors that lift their performance:
- Employee Productivity: the ability of staff to generate sales, acquire deposits and earn revenues;
- Customer relationships: the quality of service and relationship between the bank and its customers;
- Cost-to-serve: encompassing the overall cost of providing services to customers;
- Risk management: the rate of nonperforming credits, and the ability to recover outstanding loans;
- Innovation: the use of technology and new business models to engage and extend relationships with customers.
Many of these underlying factors are interrelated. For example, many banks with the most efficient distribution systems increasingly use both direct and multi-channel distribution systems to maximize their customer reach.
Increasing customer value
In most developed markets the majority of potential customers are within the banking system, and are well provided for in terms of financial needs. Opportunities to grow through new customer acquisitions in these markets or segments are increasingly limited and expensive. This while the opportunities to grow existing relationships are often not fully tapped. For instance, it is common for customers to have a low level of savings with the bank that provides their main transactional account. One leading UK bank reported that its current account customers only keep 25% of their savings balances with it. Banks that focus on increasing customer value can do so both by increasing the number of customers’ needs they meet; and by growing the overall share of wallet and utilization of these products.
Not only do banks need to maintain high levels of service and access, quality products and services, but they face innovative competition. Banks that excel at building deep customer relationships today are trying to maintain that vital human connection between staff and customers. Yet are increasingly employing technology and advanced business processes to enable them to do so.
The challenges of revenue growth are being strengthened by ongoing changes in the behaviour of self-directed consumers. They are becoming more volatile in their relationships and more sophisticated in their buying behaviour. Meeting these demands will pose serious challenges for banks to attract much-needed capital and deliver a strong return on equity to investors. But ongoing shifts in customer behaviour and advances in technology are changing not only what customers expect of banks, but also how banks deliver financial services.
For more information, please read our recently published Banking 2012 report: