Global Banks

Global bank profits are high despite low consumer trust

Resident regulators monitor daily business

Banks earned large profits as they refocused their operations, often pursuing high-wealth clients on the consumer side of the business and serving the medium and smaller organizations of rising entrepreneurs on the business side.

Because of ongoing revelations of past misdeeds, banks continued to suffer from a massive deficit in consumer trust even as consumers patronized banks, believing that their money was protected, if not by the bank then by government guarantees.

Restoring consumer trust was important to safeguard the brand, lift internal morale and sustain growth, at least in the case of retail banks. In some instances, CEOs proclaimed a higher vision aimed at both internal and external audiences.

Not known for their innovation, banks became even more risk averse under the in-house scrutiny of government regulators. But the rest of the business world did not pause while the banks sorted themselves.

Instead, Alipay, a banking function of Alibaba, and Apple Pay were only the most publicized examples of how non-traditional players nibbled at the perimeter of banking and portended category disruption and transformation.

Making money

The post-crash regulatory environment raised two key questions: in what businesses do banks want to operate, and in what businesses can they operate? Generally, global banks concentrated on three businesses – commercial, investment and retail banking – but their levels of involvement varied by bank.

Regulations and consumer pressure made it more difficult to be in the most profitable business, investment banking. Banks attempted to resolve the tension between being a highly profitable investment bank and strictly adhering to their social responsibility values.

Banks divested some businesses because they were unprofitable or because of the regulatory burden. With exceptions like Goldman Sachs, J.P. Morgan and Morgan Stanley, many investment banks ceased equity trading. Citi returned strong profits, even as the bank streamlined many of its operations.

Many banks pursued wealth management business. Leveraging its heritage in international trade, HSBC cultivated relationships with high-wealth individuals among its commercial clients to build its personal banking and wealth management practice.

Businesses of small and medium size, with an annual revenue of $50 to $500 million, increasingly interested HSBC and many other commercial banks, as governments in developing markets sought to drive their economies by financing entrepreneurial, often family-owned operations.

Santander prospered as Spain's economy strengthened. Economic growth in the US helped balance the slowdown in Brazil and elsewhere in Latin America. Spain's economic recovery also boosted the financial results of BBVA, the country's second largest bank.

Following years of post-financial crisis restructuring, the large Dutch bank ING reported strong earnings, repaid its government bailout early and passed the European stress test.

Top 10 Chart

Transformation and disruption

But even as the banks prospered, they faced potential threats as the industry transformed faster than banks innovated. A growing market of young people with above average income transacted most of their financial affairs online, and not always with banks.

As home ownership or family formation complicates their financial needs and they need a banking relationship, these younger consumers may favor the Internet brands with which they transact business everyday.

Internet brands could own the consumer payment relationship, even if banks remain the clearing house for all the transactions. In that situation, the banks would gain fees and interest revenue, but they'd perform more like a utility.

The infiltration into banking by online brands could quickly penetrate beyond payment systems. Regulations that restrict some banking activities don't apply to the online brands, at least for now. Easy Internet access also eliminates the viability of banks as financial supermarkets. Any one-stop shopping will happen online.

The impact of Internet brands on banking is already evident in China, where online leaders like Alibaba, Tencent and Baidu offer mobile apps that make banking easier and more nimble than interacting with a large, highly regulated bank. (Please see the regional banks story.)

Future challenges

The entry of nontraditional players could threaten not only the key profit drivers of banks, but also their fundamental role as the gatherers and custodians of savings and fees from transacting.

Banks potentially could be squeezed into gaining just cost recovery and a small margin – a utility business – unless they preempt the Internet brands in forming banking relationships with the younger generation of customers.

Responding to changing demographics is also critical. Aging boomers are entering a phase of their lives when they're no longer increasing their assets, but rather drawing down their savings. The younger affluent consumers will become the source of savings deposits.

As many of these consumers for the first time face major financial decisions, brand and trust become important. Banks have the requisite knowledge but the social networks have the customer relationships.

Brand Building Action Points

1.

Re-establish trust.
This can happen through: a) massive cultural change; b) hiring nonbanking people (including C-suite) who understand the hopes, dreams and fears of consumers, not just their financial affairs; c) rewarding staff on attitude over performance.

2.

Determine focus.
Banks need to decide where they want to make their profit going forward. Do they want to double down on the things they can be successful at, or do they want to be part of the broader financial conversation and provide services to consumers?

3.

Create a clear vision.
Banks need to articulate a vision for the business, ensuring that leaders walk the talk and develop the internal behaviors aligned with the vision. They need to design everything – systems, products, processes, pricing, promises and communications – through a customer experience lens. Then banks need to simplify, simplify, simplify.

10-Year Trends & Analysis

Global and regional banks experience image decline

The Brand Value of global banks declined 5 percent over the past 10 years, while the Brand Value of regional banks almost doubled, and the Top 100 brands overall grew 126 percent.

This divergence in the value growth of global and regional banks reflects the fact that regionals were less impacted by the worldwide financial crisis and buoyed by faster growing Asian markets, particularly China.

But neither the global nor regional banks did a good job of ingratiating themselves to consumers. The global banks declined in being trusted and increased in being seen as dishonest, arrogant and uncaring. Regional banks declined in their level of desirability, trust, and difference while being seen as more uncaring.

Consumer perception of banks did not turn sharply negative until the last few years, suggesting that during the economic downturn, consumers waited for banks to reform themselves, and when they saw little change, lost patience.

Consumers probably didn't discriminate between global and regional bank brands but rather viewed them both as large financial institutions that did little to earn trust. This general perception subjected all brands to a category effect.

Perceived dishonesty impacts Brand Value

Future View

  • With disruptive innovation, the brands that are part of our everyday lifestyles – the major consumer technology giants – will dominate the category. Within only a few years we'll see the mainstream adoption of online brands that offer savings, investment and even insurance products. These brands currently have permission: they're trusted, and for the moment they operate without the same regulatory constraints as banks.
  • The challenge for banks is to grasp the opportunity digital technology now presents to completely reinvent not just brands, but the entire industry. Banking brands that invest in technology to bring their relationships with customers into the second and third decade of the 21st century have the best chance of breaking free from the financial quagmires of recent years.

Down -2%


Global Banks - Top 10 Total Brand Value
$120.8 BILLION


Category Definition
The bank category, which includes both retail and investment institutions, is split into two segments, with the brands classified as either global or regional. Global banks are defined as deriving at least 40 percent of revenue from business outside their home market.


BrandZ Top 100 2015

BrandZ Global 2014 Report Top 100 Report

Top 100 Chart

Top 100 Infographic


Methodology and valuation by Millward Brown

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