The Bankwatch

Tracking the consumer evolution of financial services

Financial Services in 2010 – Deloitte | Review and analysis

Thought provoking and well prepared new report from the prolific team at Deloitte. Following is a brief summary and analysis of the report, then my take on the conclusions. [hint: no-where in this report does the word internet or social media appear – is that right or wrong?]

Financial Services in 2010 – Deloitte Touche Tohmatsu [produced June 2006]

The worldwide market for financial services is evolving rapidly, and is likely to look very different by the year 2010. This study from Deloitte Research identifies major market drivers and operational challenges that financial institutions will likely face over the next four years and pin-points the strategies and practices recommended to create the “Hallmarks of Success.”

Hallmarks of Success
These are characteristics Deloitte Touche Tohmatsu (DTT) expect to be exhibited by the winners in 2010:

  1. Global markets and a business model to match
  2. Mass efficiency and focussed premium service
  3. Consolidation (mergers) with a purpose
  4. Winning the struggle for growth through stronger customer relationships
  5. Transparency and compliance as a performance springboard
  6. Cracking the IT value code

Market drivers

  1. New asset classes
  2. Aging population
  3. Payments
  4. Emerging markets

Some key quotes:

  • on customer retention and growth: successful organisations will embed innovation into … strategy, processes, people …
  • on transparency and compliance: .. using transparency and compliance as a way to win hearts and minds of investors
  • on general observation: we expect evolutionary progress … unlikely to see revolutionary change … highly regulated and high barriers to entry
  • on market driver – new asset classes: the major impact of new asset class firms is likely to be on the business models of traditional capital players
  • on market driver – aging population: .. large influx of retirment related funds .. people who neglected their nest egg trying to catch up … seeking higher than average returns
  • on market driver – aging population: next wave of retirees .. more
  • will the consumer identify their relationship with the FI as peer to peer? [Anyone from Deloitte care to explain this one further?]
  • On market driver – payments: each market area of the financial services marketplace has its won separate infrastructure .. plumbing is duplicated .. opportunity to eliminate or truncate paper
  • on market driver – emerging markets: exportable, repeatable model
  • more top performing FI’s need to commit themselves to enhancing customer experience through service innovations .. even where the cost is high [example Commerce Bank – 30% annual growth / exceptional service/ below market returns offered on products]

Summary:
DTT see a shift to payments and away from product. Product margins in traditional products will continue to become thinner, with greater competiion for yields. The markets will be awash with boomer money, and this will both force competiion for returns, and development of new assets classes that offer better returns.

People still need to move money however, and the focus on payments and revenue from that source, as well as eradication of duplication and costs will be a focus.

The few, and getting fewer big Banks (DTT expect to see 700 banks disappear worldside by 2010) will require globalk scale to achieve growth targets.

Relevance to Bankwatch:
I see the market drivers as a mix of drivers and outcomes:

  1. New asset classes – outcome
  2. Aging population – driver
  3. Payments – outcome
  4. Emerging markets – outcome

This where I get on my internet bandwagon. Internet changes everything, and now that it is pervasive it is easy to forget that. Internet has flattened old hierarchies, made information free, and eliminated distance. That is a revolutionary driver of customer expectations, and customer buying methods. It has also had the impact of opening previously closed kimono’s and exposed old style advertising for what it is … management of peoples opinions. Internet has allowed people to form their own opinions and that empowerment is fundamental to many changes we see now.

I would respectfully suggest one market driver is therefore ‘customer empowerment’.

Another driver, comes from the way customers are continually required to manage their own affairs, at the ATM, the pin pad, online banking, bill payments, office card access, airport check in, car rental drop off, quick hotel checkout, travel booking. This frequency of self service is now pervasive and required several times daily for everyone. Organizations have become impersonal and are represented by their self service touchpoints. Self service has been underway for a long time, and internet has only sped up that process.

Customers apppreciate self service, but the sheer pervasiveness of it, means customers are contunually, comparing and evaluating it. Without realising it, customers are comparing your bill payment web process flow, to the Hilton quick check out, the credit card pin pad machine to your ATM, etc etc. People do not interact with products; they interact with self service touch points, and that is where the value is experienced, or value is lost.

So my next driver is the advent of ‘the experiential economy’.

Why are customer empowerment, and customer experience important? I believe they help us understand why the items I marked as outcomes above.

Payments come across as obscure to many, but if we think of them not as SEPA, or as interchange, but as customer experience, the complexity falls away. If ever anything is crying for innovation it has to be payments.

Similarly the need for new asset classes is driven by a surplus of worldwide liquidity seeking higher returns, but those new classes do not just apply to the hedge fund type money referred to in the report. In fact the report mentions the current vlaue of hedge funds at $700 Bn, and 15,000 funds so its relatively small. The real money, and the war for Banks will be in the new asset class expectations of the mass affluent (as the report recognises). Their experential needs must be taken into account, and that includes how they expect to interact with their FI. I note one item mentioned in the report ‘peer to peer’ [refer above] and I suspect that while it was not discussed, one of the authors may have intended this point.

Anyhow, great report, worth taking the time to read and digest, and hope this was of some value.

Written by Colin Henderson

July 18, 2008 at 11:33

3 Responses

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  1. FYI The Deloitte report, while good, isn’t exactly new. It was published June 2006.

    MWilson

    July 18, 2008 at 22:02

  2. @Mwilson … thanks for that. I looked and could find no date until now… its in the file name. I checked back in case I had seen before, and no I had not, so its new to me. Anyhow, comments still stand.

    Colin

    July 18, 2008 at 22:33

  3. […] are payments important?  As I stated earlier, when we look at payments not as technology or standards, but as customer experience it becomes […]


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