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106-016-1

Infinity Bank (A)

Retail Branches and Customer Profitability

Winner of the 2009 European Case Clearing House Award in the category “Finance, Accounting and Control”

06/2009-5348

This case was written by Igor Vaysman, Professor of Accounting and Control at INSEAD, and Stephen Smyth of Esfren Consulting as a basis for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.

Financial support from INSEAD Alumni Fund is gratefully acknowledged. Copyright © 2006 INSEAD TO ORDER COPIES OF INSEAD CASES, SEE DETAILS ON THE BACK COVER. COPIES MAY NOT BE MADE WITHOUT PERMISSION.

ecch the case for learning
106-016-1

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Marc Rickard, Infinity Bank’s new CEO, asked Philippa Smith to review a new strategy proposed by the retail banking division:

“Our retail banking has lost ground against all major UK competitors over the last five years. I don’t trust their management team. Now they have hired some overpaid consultants and have come up with a new “supermarket” strategy. I see you are Head of Customer Intelligence - why don’t you tell me if their strategy is intelligent!”

Philippa had 48 hours to figure out what she thought of the strategy proposed by the retail division, formulated with the help of a major consulting firm. That meant finding out what the new branch strategy involved and whether it made sense – fast. She hoped a recent study of customer profitability would help provide the answers.

History

Infinity Bank, one of the 10 largest banks in the United Kingdom, was a major force in banking. The bank had over 1,800 retail branches – one of the largest branch networks in the UK. Infinity’s management viewed the branches as essential to its retail banking strategy: branches drove the majority of costs and recruited over 70% of clients. Vice-President of Retail Operations, Andrew Shebbeare, summarised the significance of the branch network:

“The branches are where we first meet new customers. They are where we help existing customers to solve their problems. They are our frontline. We have over 50,000 customer interactions per day. Twenty thousand full- and part-time staff work in our branches, well over two-thirds of our workforce. The branches are the heart and soul of this organisation.”

However, its vast branch network had not helped Infinity achieve a high level of profitability. (Exhibit 1 shows the bank’s performance compared with some of its peers in 1998-2003). Industry analysts felt that Infinity had not successfully coped with the major changes that had affected the UK banking industry – particularly retail branch banking – over the previous 20 years.

Numerous structural changes had altered the ways banks interacted with customers through retail branches. (Exhibit 2 describes the key changes that affected UK banks, beginning in the 1980s). Deregulation, new technology and branch alternatives had all had a major impact, transforming retail banking to such an extent that it had become practically unrecognisable in less than 20 years.

Deregulation had been a major shock to the industry.Competition from new entrants, particularly the building societies and American banks, put severe pressure on profits. Many UK banks had responded effectively, tightening operations and becoming more competitive. With a record boom in consumer lending in the 1990s, many banks’ profitability and value- added metrics had improved despite increased pressure on margins.

Retail banks had become expert users of technology to automate processes and make them more efficient.Technology investments had enabled a significant...
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