Where Retail Banks Are Projected To Make, Spend Money In 2004

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Retail financial institutions, which have performed well during the past 24 months, should do even better during 2004, according to projections by research firm TowerGroup.

"Contributing factors to this performance include consumers seeking 'safe harbor' for their assets in banking deposit accounts, and a continued focus on investments in technologies and processes that further a bank's understanding of its customers," TowerGroup stated. "Though the retail banking sector did not make significant increases in technology spending during this recent period, TowerGroup expects to see a noteworthy bump in 2004 as banks continue to improve the customer experience with the ultimate goal of achieving higher levels of satisfaction, retention and profitability."

TowerGroup said its new research shows that:

* Among the top five US commercial banks, revenue derived from retail banking products and services (including demand deposit, savings and money market accounts; installment loans; mortgages and credit cards) accounted for between 50% and 74% of total revenue through the third quarter of 2003.

* Technology spending on consumer banking business lines occupies a significant share of total spending by US commercial banks and thrifts. For example, within traditional consumer banking activities of deposit-taking and consumer lending, the 45 largest institutions (roughly those with $45 billion or greater in assets) account for about 65% of total technology spending. "This is without factoring in the technology investments of two other categories of consumer banking players: the 'monoline' lending institutions and captive finance companies," the company said.

* TowerGroup said it believes that 2004 budgets will provide for an increase of 5% above 2003 levels, which indicates a loosening of purse strings when compared to the just over 3% increase seen in the previous year. The consumer banking franchise will focus 2004 budgetary increases on three key areas: sales effectiveness; risk management; and operational efficiency.

* Leading areas of investment for sales effectiveness will be delivery channels and customers analysis. Leading areas of investment for risk mitigation will be combating fraud and controlling credit risk. Operational efficiency investments will be directed toward technologies that drive both workflow and process automation, with a focus on areas like outsourcing and systems to improve consumer lending processes.

" In 2004, retail bankers will continue on the path of revenue growth with a focus on improving cross-sell capabilities," said Jim Eckenrode, vice president of the consumer banking practice at TowerGroup and author of the research. "As they prepare for a changing business climate with economic recovery growing but still on shaky ground, retail bankers also will be looking to solidify their overall operating structure and free up resources to allocate to new projects."

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