National Australia Bank UK is so pleased with the performance of its integrated financial solutions (IFS) concept, which is operated by its UK holdings Clydesdale Bank and Yorkshire Bank, that it is now exporting the model to other parts of the world – starting with Australia.
The core elements of the IFS model are the financial solutions centres (FSCs). These are branches for small and medium-sized enterprises (SMEs) and high-net-worth individuals. The two defining features of FSCs are that they are run by local managers, who have true autonomy from regional and head office, and they act as a one-stop-shop for all of a customer’s needs because credit managers and other experts are based in the same building.
Clydesdale and Yorkshire have 74 FSCs between them across the UK. They have been built up since 2004, when the IFS concept was implemented, and now employ 2200 people. The banks’ share of the business banking market might still be small but Yorkshire came joint top and Clydesdale came third in the league table of best performing business banks in the Forum of Private Business’s latest biennial survey. This is a major turnaround from a decade ago, when both banks were languishing near or at the bottom of the table.
Enterprise model
The FSCs are run more like local enterprises than bank branches, says Mike Williams, who, as executive general manager for IFS at National Australia Bank (NAB) in the UK, is leading the roll out of the IFC model across the NAB Group internationally.
FSC managers are known as ‘managing partners’. They are in charge of a local team of credit managers (‘credit partners’), business relationship and development managers (‘business partners’), private bankers (‘private partners’), other specialists and support staff (‘associates’), all of whom work together to make local decisions on strategy, pricing, credit and other matters.
“This set up – based on local autonomy – makes us unique,” claims Mr Williams. “It’s been so successful that the group is extending it to other parts of the world.”
The Australian business bank was the first to take on the IFS model, in October last year. “We’re still in the process of implementation there, which has necessitated breaking down many internal silos to make it work,” says Mr Williams. “New Zealand is next, with implementation due to start in October 2008.”
The group is evaluating how to apply the model in its other major spheres of operation, Singapore, Hong Kong and Japan. It will also look at the US, once the $798m acquisition of Great Western Bank, an agribusiness-oriented bank in South Dakota, is concluded this summer.
Model variations
There will be some variations in how the IFS model is developed around the world, but essentially it will operate as it does in the UK. Success will depend to a large extent on the inertia of competitor banks and whether competitors choose to remain loyal to their existing centralised, bureaucratic and siloed business banking models.
So why don’t competitors simply copy NAB? “I think most banks have lost their way,” says Mr Williams. “Our model is based on common sense and simplicity. Other banks have pushed customers to the outside of the decision-making process, when they should be at the centre, as they are with us. Large banks are very siloed and centrally focused. They have arguments about who ‘owns’ the customers.
“Some banks have copied little bits of what we do, but they are missing the point. You have to take a holistic approach.”
Adding shareholder value
NAB hopes to emulate the growth that it has achieved in the UK in other countries. Despite the credit crunch, in the six months to March 2008, deposits were up 22% and revenue and lending were up 27% at UK FSCs. The long-term trends are also impressive: between the first half of 2004 and the first half of 2008, the FSCs achieved combined annual growth rates (CAGR) of 15% in profit before tax, 23% in lending and 21% in deposits.
Executives at NAB in the UK are pleased with progress and the fact that what they have developed themselves has been exported to the parent company. They regard it as a vivid demonstration of how innovation on the other side of the world can add value for Australian shareholders.
