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Saturday, April 23, 2011

The powershift from wholesale to retail banking

If you are an undergrad(either degree or MBA) with an interest in finance, chances are that you would already have an area of interest laid out. Given the vastly different nature of the customer base(wholesale banks deal with mostly corporates/FIs/Govts-all sophisticated customers- while retail banks deal with not so financially savvy customers), retail bankers were looked down upon by their wholesale banking brethen-not least because of the 'inferior' growth and bonus prospects. But consider other factors too.

But in the new paradigm post 2008, there are many shifts which make retail banking more important
  1. To avoid wholesale funding issues, banks have realized the importance of customer deposits. Retail banking achieves that, and the strategic importance as the net funds provider will grow, given the capital starved scenario in a post Basel III world. That way, it could still punch above its weight.
  2. Given the technology innovations, the existing branch infrastructure could be leveraged to deliver value adding services, with all routine services going online. How to do this, is one of the most exciting challenges of the 21st century.
  3. As the RBS UK retail banking head mentioned in an Apr-11 conference call(http://tinyurl.com/RBSApr11), When clients do go into branches they want real added value, so we need to make sure that the people are in there are good people. This has implications for talent mobility within the bank, recruitment strategies etc
  4. Retail banking is the 'catch them young' way to bank with future private wealth clients. Personally, I would prefer to bank with the bank which sanctioned loans when I needed them the most(education etc). This 'balance sheet backed' relationships is exactly how it works in wholesale banking too.
So assuming both become equally attractive options(career wise), people with an operational/marketing flair would do well in retail banking while those more 'numbers oriented' would still like wholesale banking. This is though just my opinion.

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