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

In its most extreme form, there are a relatively small
number of internet-only banks that offer their
services exclusively on the internet. As of July 2002
there were just 20 such internet-only operations in
the US. Approximately another dozen internet-only
institutions have failed, been acquired or have
voluntarily liquidated, and in addition several large
banks integrated their internet-only units into the
main bank after poor stand-alone performance 383 .
The prevailing view is that online banking is unlikely
to replace the bank branch as the main means of
conducting retail banking business. Instead, what
has been suggested is that the most successful banks
will be those that take full advantage of the stability
of traditional, branch based operations in combination
with the growing popularity of internet-based
banking services 384 . Such a strategy commonly entails
the following:
- Integration of bank branches, call centres and
internet-based offerings to consumers, providing
choices of place and method of banking services.
- Communication of a seamless brand identity and
level of service throughout branches, ATMs and
web sites.
- A broad offering of fee-generating services and
products that are presented and positioned in a
coordinated manner that will satisfy a customer’s
need for time-saving convenience and thorough
service and follow-through.
This would also suggest that the internet is more an
opportunity, rather than a threat, to relationship
banking. For instance, there have been suggestions that
thanks to the internet, large banks, mutual funds,
and brokerage companies can now seek deposits in
smaller communities without having a physical
branch or office there. This would mean that in such
communities, relationship banks such as community
banks could lose some deposit customers because
the lower costs of online companies allow them to
offer more favourable rates. Community banks could
also lose other customers who prefer the convenience
of online banking 385 . However, a more optimistic view is
that relationship banking, along with bank branching,
will always be highly valued by a certain proportion
of banking customers, especially in certain customer
segments such as small business lending.
The opportunity is therefore there for banks such as
community banks to use the internet to offer greater
convenience and choice of financial service to their
customers, while continuing to provide person-toperson
contact through brick-and mortar offices.
6.4.2 Europe
6.4.2.1 The bank branch
As already reported in the economic section of this
study, the total number of credit institutions operating
in the European Union has fallen considerably in
recent years, with numbers declining by 41% between
1985 and 2003. Parallel to this fall however, Europe
experienced a slight increase in bank branches, from
173,152 branches in 1985 to 186,009 in 2003, an
increase of 7.4%. The equivalent increase in bank
branches between 1995 and 2003 is less than 1%
(see table in the economic comparison for the
evolution of the number of bank branches in the EU,
per Member State).
On a per capita basis, there were 495 branches per
1 million inhabitants in 1995 in compared to 485 in
2003 (see table D in table annex).
A number of surveys have assessed the importance
of the branch in European retail banking. One 2005
branch banking survey 386 reveals that 70% of retail
financial sales come via branches in Western Europe.
Another survey 387 conducted in 2004 revealed
that 79% of customers in 6 European countries
(UK, Germany, Spain, Netherlands, Denmark and
Switzerland) still prefer to buy current and savings
account products from a branch rather than from
other sales channels, and also that 78% prefer
the branch for purchasing mortgages and 60% for
life insurance.
In addition, the preference for the branch doesn’t
seem to be eroding with time. A survey conducted
in 2001 388 already revealed that almost 80% of
European consumers state that a personal visit to a
branch is their preferred method for dealing with
banking products.
383 “The past, present and probable future for community banks”, R. De Young, W.C. Hunter, G.F. Udell, Journal of Financial Services Research, 2004.
384 “Major trends in the financial services industry”, Plunkett Research Ltd, 2004.
385 “The role of Community Banks in the US Economy”, Federal Reserve Bank of Kansas City, 2003.
386 “Branch banking in Western Europe 2005”, Lafferty, 2005.
387 2004 branch banking survey of 600 European banking customers by Booz Allen Hamilton.
388 Datamonitor, Impact 2001 Survey.
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