Retail Banking Strategies: the Critical Dimensions for Excellence

Thursday, 26 April 2012 14:55

The aftermath of the financial crisis has produced a tectonic shift across all core retail banking strategies.  Retail Banking Strategies: the Critical Dimensions for Excellence examines the key strategically important questions for bankers and others interested in the drivers of success in today’s post-crisis banking world.

Based on in-depth interviews with senior executives of leading retail banks as well as independent management consultants, rating agencies, and bank regulators with deep knowledge of the sector, the report digs deep into the collective experience and instincts of these leading practitioners to produce a strategic blueprint for banking excellence in these most “interesting”  of times.

Unique case studies selected to reflect varying aspects of excellence include:

  • Wells Fargo
  • Banco Santander
  • Itau Unibanco
  • Standard Chartered
  • Svenska Handelsbanken
  • The Toronto-Dominion Bank
  • HSBC
  • Bankinter
  • Lloyds Banking Group

“Steve Davis has always been innovative in looking at the banking industry, and in writing about its challenges and opportunities”
Sir Win Bischoff, Chairman, Lloyds Banking Group plc

“Drawing on insight from senior industry managers, this report offers a compelling and comprehensive view of the post-crisis retail environment” Roberto Nicastro, global retail head, UniCredit

Download the FREE Executive Summary here

Published: January 2011
ISBN 978-1-907720-13-0
120 pages
Print: £1,000/US$1,605/€1,153 inc p&p
PDF: UK: £800 + VAT/EU €922.40 + VAT/ RoW $1,284
Electronic licence: up to 5 users: £1,500/US$2,408/€1,723

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Retail Banking Strategies: the Critical Dimensions for Excellence identifies and analyses management excellence in key dimensions such as:

Business models: Is there one best business model?  Which ones have outperformed others? And why?  Is a pure retail bank a viable model?  If not, why not? How does the retail function interact with other units in the successful banks? How do the successful banks – especially those in diversified models – ensure that customer relationships are effectively managed? What is the culture of a successful retail model? How have once-successful retail models lost their effectiveness?

Product range. Priorities, range, evolution, breadth, profitability, pricing and other central elements.

Client base: With the enhanced importance of the customer post the financial crisis, four key dimensions of the customer base are examined: how the bank prioritises the segments of this base; views on their clients’ needs and behaviour; how performance in serving the client is measured; and the impact of new bank regulation, introduced since the crisis, largely to protect the customer.

Geographic scope: How the ‘back to basics’ theme from the banking crisis is echoed in the geographic scope of bank retail strategies.  

Retail distribution channels: How the four dimensions of channel management are reflected in bank strategies: the theoretical role of the branch and other channels; the challenge of integrating the channels; trends in channel management; and unresolved issues for the future.

Retail leadership and culture:  Is there a unique culture or leadership style in successful retail banks? How might it differ from other businesses?  What can we learn from the management style and culture of the case studies of excellence?  

Cost base and bank operating systems: What factors drive the wide difference in perceived bank cost/income ratios?  What is the relative importance of a bank’s core system in contrast to other factors, such as discipline in cost management?  How are banks attempting to reduce their cost base, and what might be the likely outcome?  What are the systems issues facing a bank’s management, and how might they be resolved?

Risk management and regulation: How bank decision-making structures have been impacted; and the future outlook; and how effectively bank management might deal with risk in the future.

The impact of the banking crisis on retail bank profitability: The drivers of future profitability; and the likely outcomes in terms of bottom line returns on equity.

Key findings

Key findings summary
•    A pure retail bank is unlikely to be viable because of lack of synergies with other businesses such as SMEs and wealth management.

•    A clear articulation of a retail bank’s culture and strategy as well as an understanding of the customer’s needs is vital. The product dimension is not as critical. The product focus is on cross-selling more products to the existing client base.

•    Management’s central focus must therefore be on the existing customer relationship. However, many banks lack an understanding of the needs and behaviour of individual clients. Best practice in the sector involves having a single customer view incorporating all services used by the client, but only a handful of leading banks have the systems capable of providing this view. It is widely assumed that a large proportion – if not the majority – of individual client relationships are unprofitable. Major efforts are being made to match customer needs with the preferred distribution channel.

•    In the geographic dimension, as a result of the crisis many retail banks are retreating to their core markets where they have a significant market share. On the other hand, leading banks in dynamic emerging markets such as India and Brazil are positioned to expand in their region.

•    The branch system is widely viewed as the key element of attracting and serving clients who demand advice, while direct channels are increasingly used to execute transactions. Achieving a seamless interface among channels is a challenge for many large and complex banks. Upgrading branch staff to provide advice and ‘customer experience’ is also a priority.

•    Leadership in retail banking is similar to that of other businesses, but successful retail leadership must identify with staff and clients as a ‘banker in retail’ and be totally focused on the business. The most successful retail banks are those with decades of management continuity.

•    While the critical metric of the cost/income ratio varies widely across the sector, it is extraordinarily difficult to evaluate the relative importance of such drivers as differential product profitability, efficiency of IT systems, successful people management, and credit problems in the loan portfolio, Yet it is clear that retail leaders in developed markets tend to have a cost/income ratio in the low 40s against one in the low 60s for less profitable entities.

•    A major impact of the banking crisis has been the increased cost of consumer protection mandated by the regulatory authorities. As this cost may have a disproportionate impact on the smaller, less profitable clients, such re-regulation may have the unintended consequence of banks giving priority to larger, more profitable relationships.

•    In terms of profitability, the immediate impact of the crisis has been to reduce typical retail ROE metrics from perhaps 20% or more toward the banks’ estimated cost of equity of perhaps 9–10%. There is an assumption, however, that a combination of re-pricing, improved asset quality, the disappearance of many non-bank competitors, and expanding the product line can raise ROE to perhaps 14–15% for the most successful institutions.

•    Future retail strategies will focus on deposit-gathering, cross-selling to existing clients rather than new client acquisition, and developing systems which enable management to track customer needs and relative profitability.

Research participants

Autonomous Research LLP
Barclays Capital
BlackRock Investment Management
Boston Consulting Group
Corporate Executive Board
Financial Institutions Consulting
Financial Services Authority
Fitch Ratings
Keefe, Bruyette and Woods
Lloyds Banking Group
McKinsey & Co.
PricewaterhouseCoopers  LLP
Sandler O’Neill & Partners LP
The Toronto-Dominion Bank
UniCredit Group
Wells Fargo Bank


Executive summary

Chapter 1:  Introduction
The boundaries of retail banking
The banking crisis of 2007–09
Report structure
Research participants

Chapter 2: The generic impact of the crisis on retail banking
The shift in retail strategy from lending to deposit gathering
The benefits of a strategic shift away from investment banking and trading
The massive hole in retail income from the loss of revenues from lending
Recourse to non-lending products such as asset management and insurance
The uncertain ultimate impact of the banking crisis on retail banking

Chapter 3: Business models in retail banking
General comments
The choice of model  
Achieving synergies in a diversified business model

Chapter 4: The product range
Non-traditional products
Range of products
Evolution of the product range
Product pricing and profitability

Chapter 5:  The retail customer
Client segmentation and prioritisation
Insight into customer preferences and needs
Performance management
The impact of regulatory measures to protect consumers

Chapter 6: Geographic scope

Chapter 7: Retail distribution channels
The theoretical role of the different distribution channel
The challenge of channel integration
Trends in channel usage
Unresolved challenges
Viewpoint: Conflicting positions over customer service

Chapter 8: Retail leadership and culture

Chapter 9:  Costs and bank systems

The key drivers of cost/income differentials
Current issues in cost and systems management
The outlook for cost reduction

Chapter 10: Risk management and regulation
The impact on decision-making structures
Outlook for the future

Chapter 11: The outlook for retail bank profitability
Drivers of future profitability
The likely outcome for retail bank returns

Chapter 12: Case studies of retail banking success
Wells Fargo
Business profile
Retail banking strategy
Evaluation of retail strategy
Banco Santander
Business model
Retail banking strategy
Evaluation of retail strategy
Itau Unibanco
Business profile
Retail banking strategy
Evaluation of retail strategy
Standard Chartered
Business profile
Retail banking strategy
Evaluation of retail strategy
Svenska Handelsbanken
Business strategy
Retail banking strategy
Evaluation of retail strategy
The Toronto-Dominion Bank
Business model
Retail banking strategy
Evaluation of retail strategy
Business profile
Retail banking strategy
Evaluation of retail strategy
Business profile
Retail banking strategy
Evaluation of retail strategy
Lloyds Banking Group
Business profile
Retail banking strategy
Evaluation of retail strategy

Chapter 13: The outlook for retail banking
What will change and what will not
The key variables underpinning the forecasts

Chapter 14:  Conclusions
Business model
The client
Distribution channels
Leadership and culture
Costs and systems
Risk management and regulation
The outlook for retail profitability
The case studies of retail success
The outlook as seen by our interviewees

List of Figures

Figure 1.1: Possible client segments in retail banking
Figure 11.1: Potential profitability improvement in retail banking after the crisis
Figure 12.1: Wells Fargo’s approach to excellence in execution
Figure 12.2: Breakdown of Santander’s geographic and line of business segments
Figure 12.3: Development of Toronto-Dominion’s US business
Figure 12.4: HSBC’s personal financial services global network
Figure 12.5: Bankinter’s segmentation strategy


Steven I Davis has spent his career in the banking and financial services sector as a senior executive, strategy consultant, author, analyst and teacher.  He is a graduate (magna cum laude) of Amherst College and of the Harvard Business School.

His 20-year career in international banking commenced at JPMorgan, where he managed a Paris-based research and M & A unit.  For Bankers Trust Company, he ran a venture capital subsidiary in New York and later the bank’s European businesses from a London headquarters.  Subsequently he set up and managed for six years the London-based merchant banking subsidiary of First International Bancshares of Dallas, Texas.

Since establishing Davis International Banking Consultants (DIBC) in 1980, he has managed several hundred strategy assignments for commercial and investment banks, global fund managers, insurers and other financial institutions.  In 1993, he headed a DIBC team which advised the Norwegian Ministry of Finance on the restructuring of the country’s banking sector during the Nordic banking crisis.  In addition, he and his colleagues have prepared over 60 research reports on the financial sector for publication by investment banks and other clients.

Mr. Davis is also the author of 14 books and reports published on best practice in the financial services sector.