Here we go:
- Greater regulation across the industry will reduce the number of ‘innovative” products making it more challenging to differentiate by product. As a result, companies will need to increase the importance on competing through superior distribution, and having an unique segment aligned value proposition.
- A greater need for solution sellers vs product pushers – In this environment, sales channels with reps that can sell value will be essential.” Additionally, the need to sell new services “bundles” necessitates more sophisticated reps. Product Pushers” who sell on price will continue to erode already pressured margins. We may also see someone like Progressive uses their direct model to commoditize more products/services perhaps some low end products in the Commercial Insurance market. If you are an agency or broker, move up the value chain to selling sophisticated service solutions. Wholesalers and/or Aggegrators may help facilitate that shift. Relationships are still key but “best price” will continue to be the key consideration driver.
- A significant need to lower the cost to sell – Increased regulation most likely will add cost and/or impact margin. Companies will have to find a way to do more with less. They may also look to new lower cost channels to distribute products. Relationships + low cost, self service channels = success. Because solution sellers are hard to find and more expensive, there will be a focus on finding ways to create “leverage” for channels/reps.
- Customers will have greater leverage – Good customers will be in the driver’s seat. They will be more cautious, demand greater value and lengthen sales cycles. Profitable customers will be highly valued and targeted, see bullets 6,7, and 8.
- New risk models or new underwriters – There may be a need to rethink how companies evaluate, take on, sell and/or manage risk. This may also be impacted by new regulations.
- Improved segmentation & predictive modeling – Cost pressure and increased competition will force the need to improve targeting, increase yield of programs and campaigns, and get the most out of existing customers (increasing cross sell and upsell opportunities).
- Increase focus on retention and loyalty – Investment banks, now bank holding companies or a part of a Retail bank will now have to fund their activities on customer deposits rather than “funny money”. Look for them to come after your best customers.
- New competitors, “Super Banks” & consolidation – Look for the pace of consolidation to pick up with the recent changes. The banking landscape has changed with Goldman Sachs and Morgan Stanley becoming bank holding companies. This sets them up to either acquire banks themselves and/or merge or being acquired. Existing players, such as BofA and Barclays, are picking up the pieces that will help them expand services.
My colleague, Mathew Stewart in our London Office chimes in;
- Safety in geographical diversification–Major international banks will seek a more geographically diversified portfolio. Being active in U.S. and Europe is not sufficiently diversified to protect against the crisis, as UBS discovered. Those who were strong in China, India, and Brazil have faired better. For example, HSBC’s huge U.S. write-offs were counterbalanced by spectacular gains in their Asian operations, so their shares have stayed stable. Santander, a European bank, has faired well due to its involvement in Brazil, and is now buying up businesses from cash-strapped competitors, e.g Royal Bank of Scotland. Some of the bigger banks will seek to copy HSBC and Santander – most do not have sufficient reach, and are more likely to merge with a domestic competitor.
- Domestic mergers lead to channel rationalization headaches. More domestic banking mergers mean more headaches around how to combine two different sets of distribution channels. These are tough decisions. Huge investment has been sunk into branch networks, a regulated sales forces, broker networks and brands. Exit costs are very high. Banks need a rational basis on which to base their channel rationalization decisions.
- You’ve killed your partner channel. What do you do now? Over the past 10 years many of the reputable agents and intermediaries have come to rely more and more on cheap credit deals for their income. When the banks stopped lending they were the first to go bust – not just the charlatans and quacks, but some good people who will not now come back to the market in a hurry. When the bank is ready to expand again, how do they rebuild the partner channel?
- Look again at Buy vs. Build. Mergers also present dilemmas for product portfolio managers. There are make or buy decisions for different product categories– e.g. should a bank sell its own general insurance? Difficult to know what will happen here. Will the drive for more transparency in investment products actually extend into all FS products?