A comparative analysis of the US and EU retail banking markets - Wsbi

Assuming that a shift towards efficient instruments
can be achieved (as suggested as a hypothesis
in the table immediately above), what types of
economies of scale can be achieved by US banks,
payment schemes and operators Would such
economies be all passed on to US customers, or
would they be (partly) used to finance banks’,
card schemes’ and operators’ expansions abroad,
and notably in the European Union
- Banking payment communities in the European
Union have for a long time taken pride in the high
level of efficiency and customer friendly instruments
and payment solutions that they have developed.
This pride was justified. However, in this post-euro
phase, regulators have began exerting pressure
on the banking industry to establish a Single Euro
Payments Area (SEPA), which would deliver core
customer payment functions in 2008, with a full
migration from current national solutions ideally
completed by the end of 2010. Some regulators
have been pressing to include as many technological
changes and innovations into this migration to
pan-European payment instruments as possible.
Some regulators also expect the economies of
scale to be reaped from the accompanying
standardisation to be fully passed on to
customers. Because of the present focus on SEPA,
the European payment industry should however
not lose sight of the developments currently
underway outside the European Union, and decide
from a market participant perspective the level
and the pace of the migration to undertake, and
which alliances to form in order to accompany
that migration.
6.4 Distribution channels in retail banking
6.4.1 United States
6.4.1.1 The bank branch
As reported in the economic section of this paper,
though the number of credit institutions in the US
has decreased significantly in the last couple of decades
(by 44% between 1985 and 2003, and by 22%
between 1995 and 2003), the number of branches
of credit institutions has in fact been increasing: from
89,509 branches in 1995 to 99,807 in 2003, an
increase of 12%. This increase has in fact been
driven by growth in the branches of commercial
banks (19% over that same period), since the
number of branches of savings institutions has
actually fallen over that period, while that of the
credit unions has remained stable (see table 2 in the
economic comparison).
On a per capita basis, as we reported also in the
economic comparison, the total number of branches
per 1 million heads of population has remained stable,
with 336 branches recorded in 1995 and 343 in 2003.
Looking at commercial banks alone however reveals
that they grew their branch network over that period
by nearly 10% (see table B in table annex).
It isn’t known exactly why the number of (mainly
commercial) bank branches has grown to such an
extent in the US in spite of significant decreases in
the number of credit institutions. There exists enough
anecdotal evidence however to suggest first of all
that banking executives still regard the bank branch
as an essential distribution channel, and second that
many also regard having a wide retail network as a
competitive necessity in the US today.
A 2004 survey 376 of bank executives in the US
conducted by The Economist publication goes some
way to explaining the nature of the importance of
bank branching in the US, as well as the reasons for
recent growth in bank branches there. It reports on
‘WaMu’, once a Seattle thrift, which has recently
risen to rival with Wells Fargo for leadership of
the national mortgage market in the US by buying
1,000 branches in the last 4 years.
376 “Trust me, I’m a banker: survey on international banking”, 15th April 2004, The Economist.
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