Although its overall health has improved since the darkest days of the financial crisis, the retail banking industry is not yet out of the woods.
As discussed in The “New New Normal” in Retail Banking: How Banks Can Get Back on Course (BCG report, August 2012), revenue growth remains stagnant at best in many markets; some banks are still liquidity starved and capital constrained, while others have limited access to qualified borrowers or other high-quality targets for capital deployment. Regulatory changes are adding operational burdens—requiring branch staff to collect more customer information during the account-opening process, for example.
At the same time, customers have become more demanding. For instance, they expect banks to provide simple interaction processes across multiple channels, when and where they prefer. Providing a truly integrated multichannel offering is increasingly just the minimum table stakes in the competition to attract and retain clients.
Despite the challenges, the industry’s return on equity (ROE) in developed markets has improved from a nadir of 8 to 11 percent to 13 to 16 percent. ROE has been helped by dramatic reductions in impairments, improvements in bank cost positions, and a better pricing environment. Still, ROE is a far cry from precrisis levels of 19 to 25 percent. Banks face continuous pressure in the “new new normal” to further cut costs, one of the few realistic options for bridging the ROE gap.
The Boston Consulting Group’s third annual Retail-Banking Operational Excellence survey revealed the operational changes that the world’s top retail banks in the Americas, Europe, and Asia-Pacific are making under tough market conditions in order to address this cost-reduction mandate. The survey also showed how these banks—a group we call the premier-league banks—are using these changes to improve the speed and quality of customer services. Our interpretation of these results is that a holistic approach to operational excellence yields the biggest benefits, but careful design choices that will align the operating model with the business model are also necessary.