The Ultimate Frontier: Globalization of Consumer Banking: Some of Largest US Financial Institutions Are Targeting Retail Markets Overseas for Profit-Making Opportunities

By Perelman, Ellen S. | American Banker, May 23, 1985 | Go to article overview

The Ultimate Frontier: Globalization of Consumer Banking: Some of Largest US Financial Institutions Are Targeting Retail Markets Overseas for Profit-Making Opportunities


Perelman, Ellen S., American Banker


Most bankers now consider interstate banking, and hence the existence of a nationwide consumer financial services market, a self-evident truth. But while they have been coming to grips with this new reality at home some of their most prominent competitors have been broadening their horizons toward the ultimate frontier -- the worldwide consumer market.

Just technology, deregulation, and general competitive pressures in the United States created a national market out of many local markets for banking and related services so too have they pushed several of the largest and most innovative companies into what they call "global consumer" or "international retail" markets.

Some of the nation's largest banks have begun to penetrate retail markets overseas. Citicorp and Chase Manhattan, for example, have built sizable international branch networks. Security Pacific and Bank of America, through their private banking divisions, are courting the growing affluent market overseas.

Similarly, Merrill Lynch and American Express are developing new strategies and products to meet the needs of "global consumers."

Expansion of U.S. financail giants into foreign markets is not new. For many years they have been chasing their customers around the world in the service of multinational trade and commerce. Most international banking growth historically was centered on correspondent banking and commercial lending.

Financial service providers' more recent focus on global individual banking as a potentially major source of funds and profits marks a radical change of strategic direction.

The necessary mobilization of marketing resources on an international scale raises questions about the ability of an American corporation to attract individuals in foreign countries and cultures.

For example, can Citibank use skills honed in the New York City mass market to win consumer deposits away from competitors in the south of France?

If Coca-Cola can sell the world over with relatively slight linguistic modifications in its advertising, can a financial institution do the same?

The strategic issues are perplexing, but they are being confronted head-on by the major banks and competing financial service providers. To them, the global market is as real as the interstate domestic market, and they are going after it.

One reason may be that the international corporate markets which seemed so attractive for nearly 30 years of sustained post-World War II economic growth have lost their luster. Meanwhile, numerous loans to Third World governments and government-sponsored projects went sour.

With business growth stalled by recessions punctuated by volatile swings in interest rates and currency values, bankers began to look elsewhere for profit-making opportunities.

Paul Tongue, senior vice president of international consumer banking at Chase Manhattan Bank, said, "We recognized a good opportunity for us to begin serving these [international retail] markets. With the lending business becoming less profitable, with the profit spreads narrowing, we are looking for other ways to become more profitable."

He added, "Ten years ago the consumer banking business wasn't profitable. It's only during the last seven to eight years that things have really begun to turn around."

Change in Management Structures

The shift in emphasis from wholesale to retail has spurred some of the largest financial service providers to restructure their managements.

For instance, Merrill Lynch recently broke its overseas individual business away from its institutional organization. "That's something that we did in the U.S. seven years ago," said William F. Waters senior vice president and director of international retail sales and marketing for Merill Lynch.

Similarly, Citibank's international consumer services group is part of the division commonly called the "individual bank. …

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