Press detail

Münster/Frankfurt, 16 October 2008 – The franchising of bank branches – a business idea largely unknown to date – is a promising sales model in banking. This is the conclusion drawn by zeb/, the leading German management consulting company in the financial services sector, in a Europe-wide study presented today that was prepared in co-operation with the France-based European Financial Management & Marketing Association (Efma) and the Belgian KBC Group. The positive assessment of this novel sales system is based on a variety of reasons: The management of branches by self-employed entrepreneurs whose income exclusively depends on their performance opens up not only opportunities for raising revenue but may also contribute to improving customer satisfaction and loyalty. External branch managers who, together with their own employees, mediate financial services on behalf and for the account of a bank bear a share of the investment and running costs of their branch. Thus, expanding into hitherto unprofitable regions may become worthwhile for banks for the first time and involves less risk. Being experienced sales pros, external branch managers contribute local networks of existing customers and market expertise. In return, they are offered considerable profit potentials as well as entrepreneurial freedom and development possibilities.

“The results of our study show that branch franchising can be a win-win partnership for banks and committed entrepreneurs. And, what is more, customers also benefit from branch franchising!” says Dr. Andreas Rinker, Managing Partner of zeb/. As self-employed branch managers have the opportunity to build and expand their own business, they are less likely to quit their job for career reasons. This promotes the development of sustained, stable customer relations. Hence, a competent partner, whose personal business success is intricately linked with the clients’ satisfaction and trust, provides continuous support to customers during more convenient opening hours .

Although 80% of the executives of European banks surveyed for the study show a positive attitude to the idea of franchising in branch distribution, the model is currently only applied in four European countries — first and foremost in Belgium where, with around 4,000 self-employed branch managers today, branch franchising has been a common practice for decades. In the younger Polish bank market, too, franchising is a well-established tool of rapid expansion. “The contradiction between the obvious potentials of branch franchising and its generally low diffusion on European banking markets raised our curiosity. After all, the traditional exclusive broker organisations set up by insurance companies are rather similar to the franchising idea. In our study, we wanted to find out why banks have been reluctant to apply this model so far and whether this reluctance is justified,” explains Florian Knörrich, Senior Manager of zeb/.

The study found that the low presence of franchise banking in Europe is mainly caused by the wide-spread concern of executives about losing control over independent branches and about the resulting operational risks. Another major reason was the prevailing assumption that the relevant national bank supervision legislation would prevent the outsourcing of branches. An examination of the business models used by pioneers of branch franchising shows, however, that consistently applied steering and controlling mechanisms allow the management of the increased risks of branch outsourcing. To control image risks, for example, Belgian ING Bank regularly surveys customer satisfaction for each external branch manager and uses the results as a factor in determining their remuneration. AXA Bank has mobile audit teams who, in case of customer complaints, can visit any of its almost 1,000 entrepreneur-led Belgian branches for problem resolution within one hour. Modern information technologies ensure that credit institutions are constantly informed about the current business activities of their external branches.

With regard to supervisory legislation, zeb/ also gives the “all clear” sign. To explore the actual compatibility of branch franchising with national legal frameworks, the team of consultants confronted executives of the bank supervisory authorities of 33 European countries with the parameters of a franchising model in extensive discussions. Based on the feedback received, a preliminary assessment of the model‘s feasibility was performed. As a result, franchise banking seems to be strictly impossible in regulatory terms only in five of the countries studied — Austria, Bosnia and Herzegovina, Montenegro, Portugal and Serbia. For Germany, the analysis shows that it may well be conceivable that bank-authorised, self-employed entrepreneurs who do not hold a banking licence themselves have far-reaching business opportunities in a franchising model. “Provided that banks comply with the Banking Act and the relevant outsourcing regulations and take responsibility for the actions of their self-employed branch managers, German franchised branches can, in all probability, offer virtually all the products and services available at the bank’s own branches. The entrepreneurs would most likely even be able to use extensively the bank’s brand – just as we know it from classic franchising models,” states zeb/’s research analyst Christof Jauernig.

According to zeb/, the findings of the study open up new perspectives for franchising bank branches at the national and international levels. In particular, the opportunity to raise revenues and make costs more flexible without compromising customer orientation is highlighted as a valuable feature of the distribution system. On the hotly contested retail banking market where banks with a branch network are faced with growing competitive pressure, shrinking margins and decreasing customer loyalty, this approach may bring essential strategic advantages in complementing the bank’s own branch network. Neighbouring banking markets, such as Poland and Romania, illustrate how pioneering institutions realised and consistently exploited the potentials of branch franchising. In Romania, for example, ING was able to attract more than half a million customers through its 170 franchised branches within four years. Compared with the costs of bank take-overs in Romania, the cost per new customer were very low for ING.

zeb/rolfes.schierenbeck.associates is a management consulting company specialising in the financial services sector with twelve offices in Germany, Austria, Switzerland, Poland, the Czech Republic, Hungary and Ukraine. With more than 670 employees and several subsidiaries, zeb/ is one of the leading consulting companies for banks, insurance companies and other financial institutions.

Contact: 
Dr. Anne Täubert
Corporate Communications
Phone:  49.251.97128.220
Fax: 49.251.97128.110
E-mail: ataeubert@zeb.de