Where have all the global retail banks gone?

Where
have all the global retail banks gone? The banks that had the ambition to
become truly global retail banks. What happened to HSBC and ‘The World’s Local
Bank’? (see HSBC
goes back to its roots
) It isn’t only HSBC that has lost the appetite to
be a global retail bank but also Citibank, Standard Chartered, Barclays and RBS
amongst others have made it clear that they no longer have that aspiration.
Each of them has and continues to be in the process of selling off or closing
down selected retail banking operations across the globe.

So
what made some of the largest banks in the world consider becoming a global
retail bank?

Myth 1: Banking is
the same all over the world

For
a long time the myth has been actively peddled by consultants and banking
applications salespeople that retail banking is the same the world over. After
all a loan is a loan, a mortgage is a mortgage and a savings account is a savings
account wherever they are in the world – aren’t they?

On
the surface this appears to be true. The definition of a residential mortgage
is fundamentally the same wherever you are in the world. However the process to
take out that loan, the regulations that must be complied with and how the bank
treats the mortgage asset is unique to each country. For example in the UK most
loans are not securitised whereas in the US Fannie Mae or Freddie Mac play a
role in almost every mortgage. The role that notaries play in the sales process
in Spain is quite different from that which solicitors perform in the UK.
Santander found this out to their cost when they replaced Abbey National’s
banking platforms with Partenon, the Santander European retail banking
platform. Significant parts of the banking platform had to customised to meet
the different way that business is conducted in the UK compared to Spain. The
ease with which Partenon could be implemented was a core part of the business
case for the acquisition of Abbey by Santander. It turned out to be a lot more
expensive and took a lot longer than envisaged.

 Likewise Bradford & Bingley and Barclays
both found out separately that implementing a US mortgage application in the UK
market was nigh on impossible with both writing off the complete cost of the implementation
after many years and millions of pounds being spent trying to modify the applications
to meet the local requirements. They had wanted to believe what the mortgage
platform sales person had told them.

Both
Citibank and HSBC decided to address the problem a different way by building
their own custom global retail banking platforms. Neither of them succeeded in
delivering a single core banking platform that has been rolled out to all their
retail operations but hundreds of millions of pounds (if not billions) were
spent trying to achieve that. Neither programme was completed.

As
has previously been mentioned, Santander has come the closest to achieving this
is. The Santander Partenon platform has been implemented for their European and
parts of their US operations. For their South American operations Santander recognised
that bending and force fitting Partenon was not going to be a viable option.
Instead they needed to develop a different platform Altair but even this needs
significant customisation for each new implementation.

Even
when looking to implement in only one different country and with more modern
architectures than HSBC, Citi or Santander were working with, one of the world’s
largest platform vendors, SAP, has found it far more difficult and expensive to
implement a core banking system than was envisaged as has been illustrated by
the troubled programmes at Commonwealth Bank (Australia), Postbank (Germany) and
Nationwide Building Society (UK). Commonwealth Bank has achieved the
implementation and is now reaping the benefits (see CBA
proves case for core banking replacement
)  

Myth 2: Retail Banking
is highly profitable

Politicians
and consumer lobbyists across the world continue to complain that banks make
excessive profits. When the total profit that the large banks make is looked at
the numbers can seem very large but when you look at the margin being made it
presents a very different picture. Retail banking is only really profitable
when operated at scale. It is for a very good reason that in most countries the
retail banking market is dominated by a small number of large banks. The costs
of capital, of meeting global and local regulations, setting up branch and back
office infrastructures, of putting in place the IT systems, of either creating
or joining the payments infrastructure are huge. The risks and returns for large
banks entering a new market and building a customer base from scratch are very
unattractive. This and the myth below are two reasons why the large global
banks have been selling or closing their operations in many countries – they simply
didn’t have the scale and couldn’t see a way to get to the scale to make the
business attractive.

Myth 3: Global brands
matter to retail customers

The
global banks that have entered local markets have been under the
misapprehension that the power of their global brand would be sufficient to
make local customers change their primary banking relationship to them. HSBC is
the bank that spent the most money in trying to make this true with their ‘The
World’s local bank’ campaign. Despite all that money being spent they
discovered that it wasn’t true and have and are withdrawing from countries
where they could not build enough scale. Citi discovered this to their cost in
countries such as Spain, Germany, Poland and Turkey where they could not get
local customers to move to them. (see Citi
in Europe
). The reality is that the majority of customers want to bank with
local banks with all the perceived benefits of local and national regulation
and the knowledge that the bank is not going to disappear if Head Office
decides that the operation in that country is not making enough money.

What of the future of
global retail banking?

So
does all this mean the end of global retail banks? In terms of a Barclays UK
customer walking into an Absa branch in Capetown and transacting as if they
were a local customer or a Santander UK customer walking into a branch in Sao
Paulo then that is not something that the banks are willing to invest in, nor
do they see sufficient demand to justify it. In terms of banks having
significant retail presences in other geographies then there won’t be too many
banks that will do that – HSBC and Santander being the exceptions.

Santander
stands out as the leader in global retail banking particularly given that it is
a  Spanish bank where the profits from
its retail bank in the UK exceed those of its local market. Despite the death
of Emilio Botin it doesn’t appear that that strategy is going to change with Ana
Botin fully supporting the direction he set with ambition to expand further
globally particularly in the US and Poland.

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