Massimo Arrighetti, head of retail at Italy’s Banca Intesa, talks to Stephen Timewell about the earthquake in his bank’s retail sector that has led not only to a radical rethink, but also to a step change in processes.

When Banco Ambrosiano Veneto, Cariplo and Banca Commerciale Italiana joined forces in late 2002 to form the largest bank in Italy, Banca Intesa, they also formed a bank with a staggering 1,500 different retail products.

The issue for Massimo Arrighetti, who arrived as head of the retail division in November 2002, was how to untangle the jumble of products and systems that had evolved and how to provide a simplified platform for retail growth.

Time for a change

With traditional Italian retail banks not noted for efficiency or service quality and under threat from smaller banks and BancoPosta, which Mr Arrighetti helped establish, Intesa’s 2100-branch network was in need of a dramatic transformation.

“The earthquake struck in 2003,” according to Mr Arrighetti. “We had to change the way people thought; we had three banks and three product ranges. All the branches had to move to one target system.” And it was not just the systems that had to change but also the processes and procedures. Previously the separate banks each worked on three levels of reporting: the branch, the regional office and the head office. This was reduced to two levels only: the branch and head office, significantly simplifying back office operations.

Intesa did not buy off-the-shelf software to make the transition. Not surprisingly the new core banking systems were designed internally to deal with the massive degree of complexity.

At the beginning of the project Intesa had nine separate banking and trading platforms. Mr Arighetti was keen to reduce the complexity and the number of platforms has now been reduced from nine to three, one each for household business, professional trading and corporate.

Expansion opportunities

On the retail side, the 1500 products provided a clear obstacle to efficient solutions, especially when the bank had 48 different current account products. Radical surgery was needed and Mr Arrighetti used his 12 years

of experience as a consultant with McKinsey and four years in developing BancoPosta for the Italian post office to provide a consumer-driven approach.

While retail banking accounts for 51% of Intesa’s revenues, the bank was aware that Italian households did not use a lot of personal credit facilities and there were considerable opportunities in the small office/home office (Soho) and small and medium sized business (SME) sectors, especially in investment.

Using a lot of customer research, the bank sought to design a new range of products around its customers’needs and make a lot of old products redundant.

The bank identified eight segments of customers and has reduced the complexity of products, cutting the range available from 1500 in 2002 to 350 separate products today.

Old products will be phased out over time and customers shifted to new products.

The focus of this streamlining is the new single current account, known as Conto Intesa. Mr Arrighetti believes this account, designed around customer needs, not only replaces the existing 48 current account offerings but relates to bank profitability and the need for cross-selling.

Conto Intesa is a current account with a fixed cost of e10 a month. This immediately plays on the concerns of many banks in Italy and around the world that do not have fixed charges on their current accounts and are often forced to run these products as a loss leader.

Incentive for cross-selling

Another aspect of Conto Intesa is that it provides an incentive for cross-selling to the customer. If another product is purchased, the fixed cost of the current account goes down to e9 a month and if six products are purchased then the current account is free.

This pricing incentive is new in Italy and Mr Arrighetti adds: “This final discount mechanism is very transparent and helps customers and the bank’s sales force to focus on the product rather than the price.”

He believes banks should apply the techniques that retailers have used successfully for years and which are well understood by consumers.

From the bank’s perspective, the fixed cost and declining fee structure also radically simplifies the pricing strategy for the sales forces. In the past, the bank had 18,000 special price structures on its products; fixed costs are not only transparent for customers but they also help streamline sales operations.

So how successful has this new account been? Since its launch in April this year, Mr Arrighetti says, the bank has sold 300,000 Conto Intesa accounts, 40% to new customers and 60% to those switching accounts.

The new personal loan product, PrestIntesa, is also having a strong impact following its launch last October. Total personal loans in the first half of 2004 were e701m, 104% up on the same period last year and well ahead of market growth of 25% in this sector.

With simpler, easier products and more efficient branches, the prospects are good for significant growth in the personal finance sector.

In other areas, a new “capped” floating rate mortgage, launched last November, achieved 19% growth in the first half of 2004 reaching a total of e3bn in new residential mortgages. A new debit card – the only online debit card in the market – has ballooned to 3100 cards sold a day since its launch last November.

Mr Arrighetti’s restructuring of the retail franchise extends well beyond products and has an impact across the entire branch structure. In 2003, the branch network was cut by 200 and this year the bank has begun to redesign branches along retail lines. “Think of the bank as a shop,” he says.

New branches

By the end of 2004, 100 new experimental branches will be complete with a further 300 to be reviewed.

The new design will include a self-service area, open 24 hours a day, and more space for sales, fewer tellers and no back office.

This new model, which works like a shop rather than a traditional, dark and heavy branch, will be further tested before roll out across the network. In 2005, there is also a national plan where new branches will be opened in areas that are under-branched at present.

What impact have these changes had on costs? Mr Arrighetti explains that even with Italy’s tough labour laws, voluntary agreements have been reached and headcount has been reduced by 5000, bringing retail down from 33,000 to 28,000, around half of the group total.

While there has been obvious expenditure on new systems, research savings have been significant and the retail division posted a seven percentage point decline in its cost/income ratio from 70% to 63% in the first half of this year compared with the first half of 2003, along with a 3.9% decline in overall operating costs.

Going for growth

The bank is careful not to give savings or growth projections but it is clear that Mr Arrighetti believes the new strategy provides a strong platform for growth in a staid Italian retail sector.

With new integrated call centre and multi-channel capabilities, Intesa has opportunities to grow inside Italy and maintain strong expansion in the personal credit and bancassurance sectors.

While it is still early days and products have only been introduced in recent months, they have the potential to also be sold to other Italian banks and to be adapted by the group’s network of subsidiaries in central Europe in Hungary, Slovakia and Croatia.

Italy’s reputation for inefficient retail financial services has been genuinely shaken up.


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