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

Dutch banks, particularly ING, are strongly committed
to internet banking, not only in the Netherlands but
across Europe. In June 2002, ING announced that its
internet banking arm, ING Direct, had welcomed its
4 millionth customer, thus becoming the largest
internet bank in the world. ING Direct operates in
Canada, Spain, Australia, France, the United States,
Italy and Germany.
While southern Europe is lagging in the penetration
of internet banking, this basically reflects a low
internet access in countries such as Italy, Spain and
Portugal. However, while Italian banks appear
generally reticent towards internet banking, this is
certainly not the case for the Spanish banks, which
have been very active and quite innovative in their
strategies and product deployment.
6.4.3 Comparison
The importance of the branch as the primary distribution
channel in both the US and the EU is evident, not only via
the statistics revealing the growth of branch banking in the
last two decades, but also via the proportion of customers
that express a preference for the branch and the comments
of the retail banking executives on the importance of having
a branch centred retail banking strategy. Whatever the retail
banking strategies of a few years ago, it would seem
therefore that most banks today, whether in the US or the
EU, have realised that reducing the branch network is not a
strategic option.
In terms of the numbers of branches in the US and the EU,
while the EU has twice the number of branches (186,009
in the EU compared to 99,807 in the US), translating to
485 branches per 1 million inhabitants in the EU compared
to 343 for the US, the growth in the number of branches
has been much more significant lately in the US than the EU,
with respective growth rates for each of 12% and 1%
between 1995 and 2003.
What is interesting about both the US and the EU is that
the number of branches has continued to increase in spite
of the significant decline in the number of banks and
the significant growth in the number of ATMs. This goes
to show that ATMs are indeed seen as a complimentary
channel to the retail branch, as opposed to a substitute.
The same can be said about online banking. The prevailing
view today is that internet banking can only succeed if it is
thoroughly integrated within the existing infrastructure,
which should combine click and mortar. Under this view,
internet is considered as another distribution channel,
complementing the physical branch, phone banking and
ATM networks.
6.5 Issues of competition in retail banking
6.5.1 United States
The share of domestic debt funded by banks in the US has
declined over the years. For instance, while three decades
ago, 30% of US domestic debt was funded on commercial
bank balance sheets, it now stands at 20%. Also, commercial
bank loans now account for only 60% of short-term
borrowing by non-financial businesses, compared with 75%
in the mid-1970s 394 .
This decline occurred in parallel with a dramatic increase in
the extent to which lending to households and even
businesses became securitised. Advances in the application
of information technologies in the financial-services industry
have driven down the costs of securitisation, making it
increasingly feasible to standardise, unbundle, and
repackage credit flows and risks; thus, many of the loans
that used to be funded by traditional lenders are funded
instead in securities markets.
In order to assess the evolution of credit financing by US
banks, the Federal Deposit Insurance Corporation reports 395
on the areas which have been traditionally funded by banks.
Considering first of all the role of banks in funding shorterterm
non-mortgage business borrowing 396 , commercial banks
now fund around half of such credit, as against 75% in the
early 1970s. The share funded by finance companies (nonbanks)
has steadily increased, now accounting for 20% of
shorter-term non-financial business-sector credit, as against
around 10% in the early 1970s. ABS issuers, who did not
exist 20 years ago, have also made inroads in this market,
although they account for only 6 percent of it at present.
Commercial paper, which is also a type of short-term nonmortgage
business borrowing, accounts for only 7% of the
US short-term business credit market, in spite of the fact that
it has often been cited as an alternative to bank borrowing.
394 “The evolving role of commercial banks in US credit markets”, Future of banking study, FDIC, 2004.
395 “The evolving role of commercial banks in US credit markets”, Future of banking study, FDIC, 2004.
396 Which includes all non-mortgage loans to non-financial businesses—from vehicle or equipment loans to business credit lines. It also includes the very liquid
commercial-paper issues that fund only the largest corporations.
143