Retail: The Hub of Financial Services: In October 2003, the AIBF Held Its Highly Successful Retail Financial Services Forum in Sydney, Featuring Presentations by Some of the Banking and Insurance Industry's Most Dynamic Executives and Prominent Experts

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The forum was an outstanding opportunity for financial services professionals and those in associated industries to gain insights into current developments and the latest strategic thinking by industry leaders.

My opening remarks at the forum

"With representatives here from a wide range of financial services professions--as well as those from many other industries--I can't think of a better indication of the growing importance of the retail financial services sector within the economy.

Participants come from industries including retailing, telecommunications, IT, educational institutions, accounting firms, human resource consultancies, regulators and even crime investigation!

This forum will examine the key strategic issues for financial institutions as providers of retail financial services including:

* the prospects for growth in an increasingly crowded and competitive market;

* alternative value creation and distribution models;

* how to harness technology to deliver optimal customer relationship management solutions; and

* market developments and regulatory intervention.

Why the renewed retail focus?

Let's look firstly at why there's been a renewed focus on the retail financial services segment. The answer is there have been more opportunities for growth in this area and greater stability.

Wealth management has been the fastest growing segment of the financial services sector and will continue to grow, with the baby boomer cohort stepping up their savings efforts as they move towards retirement.

Declining net interest margins and low interest rates in the past decade have shifted the strategic focus of financial services suppliers back towards retail banking services. This is where income growth is derived from non-interest sources, such as fees from long-term savings and securities transactions.

Whereas wholesale and investment banking have been very volatile and damaged financial institutions' balance sheets, diversified consumer banking revenues are more stable. Banks can leverage their wide distribution networks and broad customer bases to access long-term savings.

In fact, the distribution model in retail banking is now swinging back to branch networks and face-to-face customer relationship management.

Key strategic retail issues in Australia

Uncertain prospects

Although profits have been fairly stable in retail banking in Australia, fee incomes and margins are under pressure.

Some of the other key challenges in next 12 months will include:

* investors' reduced appetite for risk and limited available low-risk investment growth opportunities;

* reduced institutional interest in retail lending relative to other income-generating products and services (due to rising bad debt levels, etc);

* uncertain economic conditions both in Australia and the rest of the world;

* the potential for the current boom in the residential property market to bust; and

* the possibility that the Reserve Bank could increase interest rates to forestall further escalation in property prices.

Changing competitor landscape

The major financial institutions and specialised providers face strong competition from new market entrants seeking to build or extend brand and distribution capabilities.

Cost reduction pressures are also likely to remain, with ongoing industry convergence and more new entrants into the retail banking industry including stand-alone internet banks, supermarkets and other non-financial institutions.

Strong emphasis on customer retention

It's always been cheaper and more efficient to retain profitable customers than to win new ones, but increasing the "share of wallet" is now a critical element of customer relationship management strategies.

Service quality is increasingly important, due to strong competition from non-traditional institutions and more sophisticated customers demanding more personalised attention. …