Banks Feel Pressure to Globalize and Offer New Services for Consumers
Competition Driving Industry to Specialize and Collaborate to Capture New Markets
ARMONK, NY.- IBM (NYSE: IBM) today announced the results of a global research report that reveals the banking industry is counting on new market expansion, particularly in emerging markets, to fuel growth and efficiency opportunities over the next five years, yet banks say they are not prepared to seize these opportunities.
The report, “No Bank is an Island: Get Global Before Globalization Gets You,” indicates 69 percent of banking executives acknowledge their organization is not operating in a globally integrated fashion. As a result, few banks are positioned to effectively operate outside their domestic markets or compete in key emerging markets such as China, South Korea, India, Ireland, and Turkey where demand for new banking products and services is set for rapid growth.
“The worldwide financial system is expected to quadruple to (US) $1,300 trillion by 2025,” said Shanker Ramamurthy, global industry leader, banking and financial markets, IBM Global Business Services. “Banks of all sizes are feeling the effects of globalization as rising cross-border banking M&A and the proliferation of non-bank, online and mobile banking providers increases competition for customers. The question is: what role will traditional banks play in a globally integrated industry? And will they be able to adapt their business models to take advantage of globalization? We believe banks that specialize and collaborate with other players both within and outside the industry to meet specific consumer needs in various markets will be best positioned for growth.”
The global survey, conducted by the IBM Institute for Business Value in cooperation with the Economist Intelligence Unit, includes responses from more than 640 industry executives across 89 countries to determine the impact of globalization on the banking industry. Key findings include:
1) Seventy five percent of banking executives believe universal banks are best prepared for globalization, but said specialists have an edge in critical growth areas of the industry. When asked who has the advantage on creating future shareholder value, banking executives chose specialists on four out of the top six categories including organizational flexibility, knowledge of client needs, consistent service excellence and superior execution -- all capabilities that allow specialists to better understand their clients and go to market quickly. Universals were viewed to have the advantage on risk management and capital/financing capabilities.
2) Collaboration will enable banks to build the strategic capabilities they need to target growth and efficiency opportunities. More than half of respondents indicated they are seeking to establish strategic relationships with service providers and vendors outside of the banking industry over the next five years. Unexpectedly, over 40 percent of respondents said they will seek to collaborate more closely with their traditional rivals (other banks). Of the top capabilities banks said they would seek through these relationships, a surprisingly large number plans to augment their strategic front office and corporate effectiveness by partnering for sales (38 percent), strategy and planning (32 percent) and risk management (28 percent) capabilities.
3) Banks are struggling to match their delivery priorities with consumer demands and specialization can help close the disconnect. Industry research shows banking consumers consider consistent service, advice and convenience essential to quality service. However, this study reveals banks continue to divorce convenience from advice and service, with 65 percent of bank executives putting a premium on delivering consistent service, but only 19 percent stating that increasing convenience was among their top delivery priorities. As a result, consumers are finding new ways to access banking convenience and advice through online and mobile specialists. Additionally, nearly 30 percent of respondents said they view online and mobile specialists as a threat to their business.
Study analysis reveals banks can take specific actions to better capitalize on the opportunities of globalization:
-- Break away from the herd - Executives recognize the need to measure the risk and reward trade-offs, and fear world-wide windows of opportunity may be closing. Understanding their own strengths against the changing nature of financial sector sophistication in different parts of the world allows bankers to choose the right strategy for their bank. For example, banks that can effectively identify and analyze the potential impact of industry interdependence across the financial services sector (as evidenced by the global credit crisis that began in 2007) will be better positioned to mitigate risk and uncover new growth opportunities as compared to the competition.
-- Specialize to gain advantage - Specialist banks, with their targeted strategies and specific expertise, seem to own the advantage in understanding customer needs. New entrants with an ability to empower key customer segments are targeting the base of the innovation S-curve to win the hearts and minds of their customers. Banks must focus and strengthen their key capabilities to be able to compete with these innovators or risk being left behind.
-- Globally integrate your capabilities - Banks are struggling to operate in a more agile and global fashion. Fifty-one percent of universal banks rank their global integration capabilities as moderate to poor. The shift toward more fluid, globally integrated enterprises will enable banks to capture opportunities whenever and wherever they exist on the revenue and cost sides.
-- Win minds - Executives realize that organizational culture is both the top enabler of global integration and a formidable barrier. Banks must actively win minds and address the cultural cues -- both with customers and internally -- to better manage for success.
To view a copy of this study and for more information on IBM banking solutions, visit http://www.ibm.com/gbs/globalbanking.
IBM surveyed 644 business leaders from 89 countries and 320 firms. We conducted qualitative interviews of 184 executives and surveyed 460 executives in partnership with the Economist Intelligence Unit. Our respondents were based around the world: 30 percent in the Americas, 32 percent in Asia-Pacific and 38 percent across Europe, the Middle East and Africa. Analysis of the research focused on gaining insights from selected banking industry participants including universal banks, national/regional banks, community banks/savings & loans/cooperative banks and building societies, specialist and boutique banks, industry vendors and service providers, non-governmental organizations, academics and regulators.
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