Optimizing-Distribution Channels Next Geneneration of Value
IBM Institute for Business Value
Optimizing distribution channels: The next generation of value creation
Following a decade of above-market performance, retail banks are feeling the fallout from strategies that, while fueling growth, failed to leverage the rich potential of these institutions’ customer-facing channels — fertile ground for growing and sustaining profitable, long-term relationships. By shifting their focus back to the customer, banks can set off a new wave of value creation.
By Vikram Lund, Ian Watson, John Raposo and Christa Maver
Optimizing distribution channels
Contents 1 Introduction 2 The past decade: How banks prospered 4 Facing the point of diminshing returns 5 Unmet expectations for channel migration 7 What banks can do: A three-stage approach to channel optimization 11 Is your bank enhancing its value across channels? 12 Get started today 12 About the authors 12 Contributors 13 References
Introduction
From 1994 through 2001, the S&P Banking Index grew at a compound annual rate of 12.7 percent — outperforming the S&P 500 over the same time period.1 In driving this period of prosperity, banks pursued three key strategies: revenue diversification through wide institution of fees, consolidation through mergers and acquisitions, and risk reduction through asset securitization. While these tactics allowed retail banks to create significant value for their shareholders, they came with a heavy price: weakened customer relationships. Today, with stabilization of noninterest income, slowing securitization and a lull in merger and acquisition (M&A) activity, banks are facing a sobering reality: While they were focusing on getting broader and bigger, their customers were becoming increasingly alienated by arbitrary fee hikes, inward-looking strategies and “one size fits all” service models. In the face of a bruised and unsure economy and growing numbers of dissatisfied customers, retail banks are searching for new sources of
Optimizing distribution channels: The next generation of value creation
Following a decade of above-market performance, retail banks are feeling the fallout from strategies that, while fueling growth, failed to leverage the rich potential of these institutions’ customer-facing channels — fertile ground for growing and sustaining profitable, long-term relationships. By shifting their focus back to the customer, banks can set off a new wave of value creation.
By Vikram Lund, Ian Watson, John Raposo and Christa Maver
Optimizing distribution channels
Contents 1 Introduction 2 The past decade: How banks prospered 4 Facing the point of diminshing returns 5 Unmet expectations for channel migration 7 What banks can do: A three-stage approach to channel optimization 11 Is your bank enhancing its value across channels? 12 Get started today 12 About the authors 12 Contributors 13 References
Introduction
From 1994 through 2001, the S&P Banking Index grew at a compound annual rate of 12.7 percent — outperforming the S&P 500 over the same time period.1 In driving this period of prosperity, banks pursued three key strategies: revenue diversification through wide institution of fees, consolidation through mergers and acquisitions, and risk reduction through asset securitization. While these tactics allowed retail banks to create significant value for their shareholders, they came with a heavy price: weakened customer relationships. Today, with stabilization of noninterest income, slowing securitization and a lull in merger and acquisition (M&A) activity, banks are facing a sobering reality: While they were focusing on getting broader and bigger, their customers were becoming increasingly alienated by arbitrary fee hikes, inward-looking strategies and “one size fits all” service models. In the face of a bruised and unsure economy and growing numbers of dissatisfied customers, retail banks are searching for new sources of
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