Banks feel pressure to globalize: IBM study
But many are not prepared to operate in emerging markets
Monday, February 11, 2008
By Regan Ray
The banking industry is counting on market expansion into emerging markets, but is not yet prepared to seize these opportunities, said a study released by IBM today.
The report, “No Bank is an Island: Get Global Before Globalization Gets You,” indicates 69% of banking executives acknowledge their organization is not operating in a globally integrated fashion.
As a result, the report notes, not many banks are positioned to effectively operate outside their domestic markets or compete in key emerging markets such as China, South Korea, India, Ireland, and Turkey. Demand for new banking products and services in these countries is set for rapid growth and 51% of universal banks rank their global integration capabilities as moderate to poor.
“The worldwide financial system is expected to quadruple to US$1,300 trillion by 2025,” said Shanker Ramamurthy, global industry leader, banking and financial markets, IBM global business services. “Banks of all sizes are feeling the effects of globalization as rising cross-border banking M&A and the proliferation of non-bank, online and mobile banking providers increases competition for customers.”
Rananurthy says the big questions are what role traditional banks will play in a globally integrated industry and if they will be able to adapt their business models to take advantage of globalization. “We believe banks that specialize and collaborate with other players both within and outside the industry to meet specific consumer needs in various markets will be best positioned for growth," he said, in a release.
The report found that 75% of banking executives believe universal banks are best prepared for globalization, but said specialists have an edge in critical growth areas.
Banking executives felt that specialists have the advantage when it comes to creating future shareholder value, but universals are better off when it comes to risk management and capital/financing capabilities.
More than half of respondents said they are seeking to establish strategic relationships with service providers and vendors outside of the banking industry over the next five years. Surprisingly, over 40% said they will seek to collaborate more closely with their traditional rivals (other banks).
IBM says industry research shows banking consumers consider consistent service, advice and convenience essential to quality service. However, according to this study, banks continue to divorce convenience from advice and service, with 65% of bank executives putting a premium on delivering consistent service, but only 19% stating that increasing convenience was among their top priorities.
Consumers are finding new ways to access banking convenience and advice through online and mobile specialists. Meanwhile, nearly 30% of bank executives said they view online and mobile specialists as a threat to their business.
The study recommends banks break away from the herd by understanding both their own strengths and the changing nature of the financial sector. For example, banks that can get a handle on the potential impact of industry interdependence (as evidenced by the global credit crisis that began in 2007) will be better positioned to mitigate risk and uncover new growth opportunities, according to the report’s authors.
Organizational culture is another key to making the shift toward more fluid, globally integrated enterprises, which will enable banks to capture opportunities whenever and wherever they exist on the revenue and cost sides,
The survey was conducted by the IBM Institute for Business Value in cooperation with the Economist Intelligence Unit. More than 640 industry executives from 89 countries and 320 firms responded and 30% were from the Americas.