The top 10 initiatives that will be of strategic importance to CEOs during 2005 for both retail and corporate banks across the European Union

Europe UK Spain Scandinavia

Financial Insights The successful banks are mobilizing task forces around many or all of these 10 initiatives to determine their courses of action. Those banks that tailor their strategies to these key initiatives will be best positioned to reap the rewards of future growth opportunities. Despite a very disparate European banking environment at various stages of maturity, Financial Insights has identified some common challenges and strategies, which cross the regulatory boundaries. While operational efficiency and cost management are always important, improved operating results have enabled banks to focus more strategic areas for investment. Here two broad themes are important: regulatory and standards compliance and industrialization of the value chain. Regulation and increasing standardization tend to impact banks in different regions very differently:

In the United Kingdom, the banks have moved quickly to the chip and PIN standards for credit and debit cards, because they see major advantages for controlling card fraud, which is costing banks heavily. In Spain, card fraud has been traditionally very low and banks have been more reluctant to make the investment. The Nordic region is very advanced in terms of electronic payments and digital signatures compared with the rest of Europe.

However, all banks are suffering from a very high level of mandated technology investment for regulatory compliance, which is likely to continue over the next few years. This requirement has greatly increased pressures for shared service solutions and consolidation.

The outlook for 2005 remains quite positive for European banks, with performance indicators in the major groups continuing to show improvement. However, the European project of harmonization and ever-closer integration creates special conditions for banks that are quite different from those of other global regions. The European banking industry is rapidly recognizing the need to replicate models borrowed from the manufacturing world, leveraging technologies and processes to achieve the industrialization of the value chain. The decoupling of manufacturing from the distribution of products and services needs to be achieved by all because distributed finance is fast becoming the norm in Europe.

Generally, the management at leading banks understands the value of identifying how strategic use of technology is critical to their long-term success. Using technology as an enabler to attain business objectives in an innovative way, focused on both revenue generation and operational efficiencies, is the key challenge for European banks today. Seeing beyond the burden of regulatory compliance is among the key challenges for European banks today. Those banks that can leverage tactical project IT spending across the enterprise, converging business and technology needs while carefully managing their performance, will deliver growth and shareholder value. Top 10 Strategic Initiatives in European Banking for 2005: Manufacturing the Bank of the Future,

Publ 20050511