TowerGroup outlines the seven threats to European banks


With sixteen of the top 25 banks in the world located in Europe, players in the European financial services industry are excelling in the global market, according to TowerGroup. Presenting at the 2007 TowerGroup Financial Services Business & Technology Conference & Exhibition, Ralph Silva, senior research analyst, outlined the strengths of the European financial services industry and the threats it faces.

Banks have finally recognized the value of increased brand value in improving client retention, share of wallet, margins, pricing power and the forgiveness factor. However, relying on brand value alone is not enough for the banks to remain industry leaders. According to TowerGroup there are seven disturbing trends that are threatening the strength of European banking:

Nontraditional banks - nontraditional banks, including mobile operators, large grocers, car manufacturers and appliance and electronic companies, have long been taking advantage of their brands to move into the financial area and are already eroding bank profits.

Share of wallet - less than 10 per cent of customers have a relationship with only one bank, they use multiple banks which leaves each bank with as little as 20 per cent of the consumers assets, not the 100 per cent they used to enjoy.

Customer retention - customers are less forgiving and will move and close accounts if they are not happy with the service they are receiving. The retention levels have trended downward for the past six years.

Customer acquisition - the cost of customer acquisition is growing at 15 per cent a year, persuading customers to use companies' services is more expensive than ever, banks have to shell out to attract new customers.

Decreasing margins - margins are suffering in every line of business, except private and investment banking.

Cost of customer support - customer support is eating into margins as customers will ask around to get the best deal but only choose one supplier in the end.

Employee costs - European banks are opening more branches than ever before, they are smaller and sell more products, employees need more sophisticated, and therefore expensive, training and support.

Although the European financial services market is at the forefront of the industry, TowerGroup believes it needs to address the threats identified in order to continue as an industry leader.

(This is the press release of TowerGroup)

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