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In many financial institutions, the strategic
planning process gets mixed reviews at best. In some
firms, a prior attempt was so poorly received that the
notion of trying again is a non-starter. However, when
we examine powerhouse financial business units that are
gaining share, we inevitably find that strategic clarity and
executional alignment are key underpinnings of their
success. |
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Many nonbank financial institutions are
searching for funding sources with more reliable liquidity
characteristics. Some are considering entry into or
expansion of direct bank deposit gathering activities as an
option. What will it take to be successful? |
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Overdraft fees have become a material source
of revenue growth for many banks. Some bankers worry
they have gone too far. This concern is warranted, and
so thinking through what new approaches and decisions are
called for. |
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Many banks have chosen a customer value
proposition of "superior service" in some form.
However, many of these institutions have had disappointing
results due to a lack of focus. |
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Disaster will inevitably spawn rebirth and
provide high return opportunities for savvy players. |
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For most regional banks, payments strategy
should center on the checking account. |
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Banks have made various “bets” in retail distribution. Variations in
strategic choices and the quality of execution have resulted in
surprisingly material differences in stock price performance. How
do you choose and execute well?
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In our consulting work with treasurers and other finance and
risk executives, we often uncover potentially serious flaws
in A/L risk assessments. In this white paper, we
provide FMCG's viewpoint on one of them: we show that using
interest rate shocks - instead of ramps - creates more
accurate information for A/L risk measurement and hedging
purposes.
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Front-line incentive plans aim to drive value-creating
behavior. However, not withstanding good intentions,
many cause unintended and undesirable behaviors. Where
do the problems lie and how can they be fixed?
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In the aftermath of the mortgage industry’s 2007 version of
the Perfect Storm, even some of the largest players will be
struggling to survive. Many of the “giants” have already
shut, or severely restricted sub-prime, non-GSE products,
third-party lending, and warehouse financing. For the vast
majority of companies, “How do we survive?” is the question.
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Management at some banks is wondering if retail brokerage is worth
the effort, or worse yet, a distraction from opportunities in core
banking and a source of compliance and reputation risks. The
complications are that retail investment services meet financial
needs for some valuable customers, and brokerage firms are competing
for more of their banking business.
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Many senior executives feel that their IT team "doesn't get
it." Such feelings are not one-sided: IT executives have
frustrations in supporting business units that "don't have a
clue" about being effective users. How can this be
fixed? The key: identify and deliver on business
outcomes. |
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Our Street Corner Excellence award winners include some
familiar names and some new ones. They share common
characteristics that drive their superior growth performance
and value creation for shareholders.
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Our discussions with senior executives involved in risk
committees often uncover their frustrations as to the
time and effort spent versus value added. In this white
paper, we provide FMCG’s perspectives from numerous
assignments where we have helped to create more
effective risk committee meetings.
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New analysis shows that the majority of branch consolidations result in a negative
NPV due to customer attrition well beyond levels typically
assumed. |
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Could this "disruptive" business model put 30% of banks'
stock price at risk? What should your strategy be as
more competitors offer high rates via this approach?
The answer depends on your bank's situation. |
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Striving for too many "best practices" can actually
compromise revenue growth and increase cost. Here's
why. |
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New techniques are needed to enable continued productivity improvement while driving
revenue growth simultaneously. |
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You have taken steps to grow deposits, yet your branch
network keeps missing its targets. Meanwhile, everyone
is complaining about their goals. What went wrong and
what can be done? |
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The essence of effective strategy is defining a value
proposition for attracting and retaining customers, as well
as the means to deliver that value to customers while
earning an attractive ROE. |
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Making key strategy-to-execution choices correctly is the
difference between strong organic growth and organizational
frustration.
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Proper measurement and use of advanced segmentation leads to
competitive advantage. |
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Many banks have added resources aimed at small businesses.
This investing to what we describe as Level II has often
worked, but will moving to level III or IV soon be
necessary? |
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How a relationship approach combined with customer-level and
industry segment insights can win.
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This white paper describes an approach to tuning your
performance dashboard to measures valued by shareholders and
to report leading indicators of your strategy's
effectiveness.
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Direct mail has been used for attracting low balance
customers to free checking offers. Can it be used for
gaining share of higher balance customers? |
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New approaches to segmenting the market can improve
marketing and lead to share gains.
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Too much "best practices," although designed to implement
top-notch functionality, processes, and procedures, can get
in the way of effective frontline execution, resulting
instead in subpar revenue growth, excessive cost, confused
customers, and poor frontline morale. |
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New analysis of bank stocks highlights Revenues per Share
and Same-Store Deposit Growth as key measures that drive
shareholder returns, and reveals a wide variations in banks'
organic growth performance. |
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Over half of the market capitalization of many banks is
retail deposits. This is how one bank diagnosed and
fixed their momentum problem. |
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Notwithstanding the emphasis of sell-side analysts, FMCG
finds the efficiency ratio to be a problematic performance
measure. Over-emphasis can be counter to shareholder
value. |
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Most retail banking call centers seek to minimize cost-per call
and maximize cross-sales. This paper suggests
modifying this mindset to reduce costs and increase
revenues.
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Retail Banking is less volatile than generally perceived.
However, market share shifts are more dramatic than
previously thought. To understand this, refinements to
FDIC data are necessary to understand "retail" deposit
growth trends and who is winning share on the street corner. |
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Should increasing the percent of revenues from fees be one of top
management's agenda items?
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New analysis shows how seemingly benign securitizations can
deliver nasty and unanticipated write downs if not
dynamically reassessed. |
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Thirty leading financial institutions from around the globe
joined a study by the RMA and FMCG to agree on a useful
definition for Enterprise-Wide Risk Management. This
article discusses best practices for EWRM and
implementation/measurement strategies. |
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Many banks perceive they are being outgunned in technology spending.
We find little evidence of this being the case in most core
lines of business. The key is to have a focused
business strategy that guides IT investments.
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There is a perception that banks with strong retail market share will enjoy
superior stock price performance. Do the facts support
such assertions?
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Acquisition premiums are typically justified by analysis
prepared by investment bankers. However, many major
deals end up destroying value. What's the problem? |
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Break-out competitors of all sizes are emerging in Retail
Banking. What they all share is a focused. readily
perceivable value theme.
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Staffing the direct requirements of risk committees can
often add 10-15 FTEs, which, given the remuneration of
skilled risk staff, can be quite a cost. Using only
these five observations, financial institutions can often
turn their ineffective risk committee processes around.
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Bank CEO presentations reveal that revenue growth in retail is a top priority,
and that cross-sales are a critical pathway to hoped-for
gains. Will success be achieved this time?
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The U.S. economy has helped mask an overall weakness in
generating sustainable revenue and earnings growth among
U.S. banks. Beneath the cover of a robust economy and
low loan charge-offs, many banks are feeling the pinch in
profits from declines in primary business lines.
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Over the past several years, banking regulators have
recognized that many banks are well equipped to model risk
and estimate economic capital requirements. In
deference to banks' increasing sophistication in this area,
regulators are moving toward implementing internal capital
model approaches that would allow larger institutions to
differentiate capital requirements based on their assessment
of risk.
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We have found that "execution alignment" is a critical
determinant of achieving powerful revenue and profit
momentum. This article describes why execution
alignment is so critical, yet elusive, and offers ways to
find and fix its weaknesses. |
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Based on our extensive field research, the in-branch
customer experience varies widely and influences market
share. |
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Other retail industries obsess about same-store sales
growth. Should bankers adopt this point of view?
The answer is "yes." |
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Structural forces in the financial markets point to
continued strength in bank M&A. |
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Prior to the Wal-Mart settlement many banks had free rewards
programs for signature-based debit cards. FMCG's
recent revenue modeling suggests there is still a case for
the selective use of "free" rewards to stimulate checking
account growth. |
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What is more essential... technology sophistication or
understanding customer needs? This paper examines the
underpinnings that have enabled the best positioned
solutions vendors to win. Understanding market
segments and getting in early are consistently key.
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Moving beyond responder models can generate breakthrough
improvements in campaign ROI.
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During the 1980s and '90s, career opportunities in
management consulting skyrocketed, and college and graduate
school graduates flocked to consulting firms. Over the
past few years many of the job offers, often from the larger
management and IT consultancies, have dried up.
Underpinning this decline has been an economic slowdown,
client's tighter budgets, and ever-increasing demands for
bottom-line results. |
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"You can't manage what you don't measure." It's an old
adage, and particularly relevant to improving customer focus
while increasing profit per household. |
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FMCG is frequently asked to review enterprise-wide risk
management at leading U.S. and international financial
institutions. Our experience suggests that
notwithstanding the complex and costly risk control
frameworks in place at many trading floors, significant
operational risk vulnerabilities remain. |
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Many banks have announced branch expansion plans. Only
a few will "beat the odds."
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Surveys indicate almost two-thirds of banks are dissatisfied
with their internal IT support, but they also show that over
two-thirds of outsourcing deals fail to meet expectations.
If you are part of the two-thirds dissatisfied, how can you
become part of the one-third that succeeds at outsourcing?
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"Smaller banks" as the story goes, have been suffering due
to: (i) lack of scale to invest in technology and
infrastructure, and (ii) less branch convenience.
The reality differs from the theory.
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This study uses acquisition-adjusted growth to identify those who are capturing profitable market
share. We then examine the underlying strategies used
by these high-growth banks.
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It's not news to assert that service quality matters. But
how much is it worth? FMCG's new analyses of high
versus low performers in customer service shows that the
typical regional bank holding company can increase stock
price by 10%-15% through better quality. |
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The need in retail banking to move beyond current pricing
approaches is amplified by several findings from FMCG's
recent analyses and other client works. While some
banks are better at pricing than others, very few would
claim that they have yet amassed a sophisticated
understanding of demand elasticity.
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Survivors of the economic decline will be those firms with
both the good fortune to have avoided significant losses and
the skills to capture profitable market share from weakened
competitors.
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If the next three to five years in retail franchise banking
play out with the momentum identified during the recent BAI/FMCG
study, the competitive landscape will change materially.
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Should marketing be cut back, or expanded to drive revenue
growth? In most banks, top management is forced to
address this question on a judgment call basis.
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Systematic demand management and creative negotiations can
reduce market data, external brokerage, and other expenses. |
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Approximately 4,000 banks are now offering insurance products.
Banks are looking to bank insurance as a new source of
nonvolatile, growing fee income. Revenue potential is
huge; expectations for success have been high. |
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Retail franchise banking is suffering from the Rodney
Dangerfield "I get no respect" problem.
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Balance sheet liquidity management - the task of maintaining
sufficient cash to fund ongoing operations - has
historically proven to be a key determinant of survival in
times of stress.
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The path to profits in retail financial services will require providers to excel
in their customers' minds on some combination of price,
convenience, advice, customer recognition, and personalized
service. The question is, "What should my bank stand
for?"
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Our analysis of the products that dominate retail franchise
profits shows that on an acquisition-adjusted basis, balance
growth has been low. As usual, however, there is
considerable variation.
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