Internet opens up Europe for banks

The cost of opening bricks and mortar branches has been the main stumbling block for banks when trying to expand abroad. Now banks could become the UK’s greatest export as the Net leapfrogs this obstacle.

Paul Troy is one of a new breed of executives charged with creating the first retail banking brands across Europe (MW April 13). Lloyds TSB has promoted him from brand communications director to head of marketing at the new separately branded bank which launches in Spain this summer, and will then be rolled out in the UK.

Troy’s promotion comes as HSBC announces an agreement with Merrill Lynch to put &£1bn into a global online bank, offering retail banking and investment services. Abbey National has also revealed its own plans to roll out a new Internet bank called Cahoot into Europe following its UK launch in June. But, given the varied approaches the citizens of different countries have to banks and the importance of trusted brands in this sector, the idea of having one brand which can run across the Continent is, to say the least, ambitious. Troy declined to comment and the bank would give no further details on its roll-out plans.

Meanwhile, EasyGroup, one of the many non-financial services companies planning a move into the sector, says it will look to roll its planned Easymoney brand into Europe after it has found its feet in the UK.

Lucian Camp, creative director at advertising agency Camp Chipperfied Hill Murray, says banks are entering the second generation of European expansion: “In the past ten years European banks have moved, somewhat half-heartedly, into a few countries. Now, the banks are thinking about offering a pan-European bank through the Net.” Most banks’ expansion into Europe to date has been carried out by acquiring overseas companies or stakes rather than by rolling out their existing brand or creating a new one.

Barclays operates a handful of branches in France, Portugal, Greece and Spain, targeting wealthy customers, and plans to launch its brand online across European markets later this year.

Abbey National operates Abbey National Italia, a telephone mortgage bank in Italy. But these are rare examples of UK banks rolling out their brands to Europe.

A handful of overseas banks including Holland’s ABN Amro and ING and Germany’s Deutsche Bank – whose proposed &£50bn merger with Dresdner Bank recently collapsed – have also spread their wings into other European countries.

Ian Poulter, a banking analyst at Williams de Broe, says: “The Net has made it so much cheaper to move into Europe, while increasing competition in the UK market has made the banks grateful for the new customer bases the region provides.”

Observers say the second generation of European banks tend to be new brands because there is still a widespread reluctance to trust a foreign bank with your money and because Net companies tend to have different sounding names to traditional companies. New measures such as the decision in 1992 to allow any bank in the EU to open a bank in any other EU country combined with the launch of the Euro, have brought the zone closer both economically and psychologically.

Camp says: “Retail banking is one of the last great service industries to internationalise. Hotels, airlines, car rental companies and, with the merger of Vodafone AirTouch and Mannesmann, telecoms are much further down the road.”

Malcolm Oliver, a former marketing director of the life divisions of Barclays and Norwich Union and now a financial services consultant, says: “Because branches are so expensive, most banks haven’t really succeeded overseas. They simply didn’t have enough branches. To succeed you needed to carve out a niche for yourself.” Oliver cites Irish bank Allied Irish as a rare example of a bank that has been successful in an overseas market – the UK – by targeting Irish ex-patriots and general practitioners.

But observers say that, despite the Net, creating a pan-European brand will be extremely difficult.

Tim Sawyer, marketing and business development director at Cahoot, says: “Anyone who thinks that they can just roll out the brand across Europe will come a cropper. No one format will work across Europe.” Sawyer says the Cahoot name will be used in each market that the business enters but that the product range and branding will be tailored to suit the country.

For example, the Germans do not use credit nearly as much as the British, while Italy has a low Net penetration but a high percentage of wireless application protocol telephone users.

James Rothnie, director of corporate affairs at easyGroup, agrees: “We are aware that there are very different customs in the European markets and we have to be extremely careful how we roll the brand out.”

But both Sawyer and Rothnie believe they can successfully roll the brand out across a good deal of Europe.

However, a Royal Bank of Scotland (RBS) spokesman claims this is the wrong strategy. He says: “Europe is grossly over-banked and there is a great deal of loyalty to domestic banks. We think cross-shareholdings and alliances are a far better way of getting into Europe.” RBS has a stake in Spanish bank BSCH, which provided some of the cash for its successful &£26bn bid for NatWest at the end of last year. It also has a partnership with Spanish company BankInter, through its subsidiary Direct Line. The brand is called Linea Directa and is based in Spain. The spokesman says it could be rolled out to other European countries.

Although the banks claim to be experimenting in Europe, observers believe many are serious about making Europe work as competition heats up in the domestic market.

Mike Sommers, former marketing director at Prudential and now a consultant, says: “Although the Net makes it far less expensive to move into Europe, to make it work would still require a significant expenditure. Any company which is half-hearted – and I suspect some are exaggerating their plans to boost their share price – is not going to succeed.”

Analyst Ian Poulter says: “If a bank goes into Europe with its eyes open, I believe the opportunity is there to make money and it makes sense to have a single brand.”

If the new Net banks get the branding right, then the economies of scale they achieve from being pan-European will enable them to undercut domestic rivals.

The revolution in the UK market spearheaded by new entrants such as Prudential’s Egg and Tesco Personal Finance could end up becoming Britain’s greatest export to Europe.

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