ZEW Survey Among Financial Market Experts: Strong Competition in Retail Banking – Banks Rediscovered Private Customers

Competition for customers has not only increased during the past two years but will also toughen in the future. These are the findings of a recent survey by the Centre for European Economic Research (ZEW), Mannheim, among approximately 246 financial market experts.

During the 1990s many established German branch banks withdrew from the then unattractive retail banking. They have rediscovered private customers as a stable source of income but by now, competition has grown in this business segment. Direct banks increasingly take over market shares of branch banks. Additionally, new providers, who attract customers with new sales channels, such as credit shops, have entered the market. Thus, it does not come as a surprise that nearly 90 per cent of the experts surveyed by ZEW observed an intensification of competition in the retail banking sector during the past two years and that one third of them expect an increase in competition for the coming two years.

The main reason for the growing competition is to be found on the demand side rather than on the supply side. Nearly 80 per cent of the survey participants believe that increasing price sensitivity of customers and decreasing customer loyalty are the major or very significant reasons. According to four in ten experts, the introduction of new sales channels to attract customers is an important reason for the growth in competition. One third of the financial market experts even state that this is a very important reason. Innovative sales channels in the German market are mainly used by foreign banks. Therefore, two thirds of the experts surveyed are of the opinion that the presence of new competitors such as foreign banks is another important or very important reason for the intensification of competition in Germany. “Foreign banks have seized the opportunity and took over market shares of German banks through price leadership and consistent use of new sales channels in retail banking, an area that has long been neglected”, explains ZEW expert Matthias Köhler.

Even though established German banks, which were sceptical about retail banking during the past years, have now rediscovered retail customers as a stable source of income and increasingly try to attract them, this development, known as the ?renaissance of retail banking’, only seems to play a minor role in explaining the growth in competition. Not more than half of the experts regard this ?renaissance’ as an important or very important reason. Nearly one fifth consider it unimportant or rather unimportant with regard to the increase in competition in German retail banking.

Contact

Matthias Köhler, E-mail: koehler@zew.de

Dr. Gunnar Lang, Phone: +49 621/1235-372, E-mail: lang@zew.de