Bankers Say 'External Pressures' Limit Industry Future

MBA (9/12/2008 ) Sorohan, Mike
In the wake of economic and demographic shifts, 82 percent of European bankers said external factors such as the credit crisis will increasingly determine the future of their industry, more so than internal changes they can initiate.
The findings come from a new survey commissioned by SAP AG, Walldorf, German, and conducted by Novametrie, polling leading banking officials and external industry observers, including economists and academics, on the future of banking over the next 10 years, taking into account the current environment.

Results painted a gloomy picture for European banks:

• Half of all bank executives believe that the credit crisis is part of a long-term transformation of the industry.

• More than 70 percent of respondents identify growing customer sophistication, ongoing change in the financial markets, globalization and competitive pressure as external catalysts for change in the industry, rather than internally driven processes.

• Nineteen percent identified information technology utilization as a success factor, even though many current banks run outdated, expensive and inflexible IT infrastructures. The limited emphasis given to business intelligence investments indicates that banks are not fully using the technology available to them to enhance customer care and turn these catalysts into business opportunities.

• Banks are aware of the need to adapt; more than 85 percent of respondents list distribution channels and customer relationships as key investments by today's banks.

• Management competence was identified as the most important internal success factor by 41 percent of the bankers interviewed.

“There is not much that we can do about it,” one respondent said. “[The crisis] will limit credit activity, limit growth and limit customer relationships." Another said “banks are not creating their own destinies."

"Banks see themselves as victims of the crisis, and are willing to let the current state of the industry determine where they go from here, not where they envision themselves to be 10 to 20 years from now,” said Arnoud De Meyer, director of the Judge Business School at Cambridge University. “The future of this industry will remain scattered if they allow themselves to be blown like leaves in the prevailing winds."

The survey suggested current investments by banks tend to be short-sighted. “They are aimed at retaining market share in the present, with a limited long-term structure in place to grow their business,” De Meyer said. “For example, banking respondents understand the rise of a new generation of customers that are not attached to any traditional banking model. One is a youthful niche of customers who are using new channels such as the Internet and mobile technology as their primary banking conduits. Additional customers segments are being carved out through changing demographic shifts among the elderly and immigrants.”

But other analysts note that banks are not laying enough of a foundation to capture these emerging niches. Several respondents noted that banks are more focused on the internal needs of their businesses rather than developing an understanding of customers that would spur more variety and flexibility in standard services and IT infrastructure. As one respondent stated,

"Banks talk about being customer-centric, but they are not," one respondent said.

SAP senior vice president Johan Kestens said banks “need to start thinking more strategically in order to take advantage of the opportunities that are knocking on their door."

SAP said banks should make customer management the “overarching long-time focus,” and involve risk management protections for all stakeholders. It added that banks should automate business processes across their enterprises; use more business intelligence tools, adopt outsourcing and insourcing strategies and target and retain employees who can act as “agents of change.”