Uncovering the benefits of client lifetime value for investment banks during challenging times

Last month, our article1 outlined our views on re-discovering customer lifetime value (“CLV”) within the capital markets sector. This month, we explore why adopting a CLV lens to customer lifecycle management can bring enhanced benefits for both corporate and investment banks (“CIB”) and their clients.

Autumn, with its shorter days and darker evenings, has continued to cast a shadow over the capital markets sector. Declines in profit earnings, new capital rules in Europe, negative interest rates, uncertainty due to Brexit, and fall out from the US-China trade war are impacting financial institutions. HSBC2, UBS3 and Goldman Sachs4 have reported a fall in quarterly profit earnings last month and Deutsche Bank has axed its loss-making equity trading business over the summer5. It brings to question how investment banks can continue to maintain and sustain their profitability during continued challenging political and economic times.


Confronted with cost and regulatory pressures, many European investment banks are changing their operating model to move away from a ‘one-stop-shop’ model of providing universal banking services. A prime example is illustrated by UBS’s move to expand and focus on wealth management and cut back on its investment banking business. This pattern continues to emerge with other key European and some US investment banks6. While the dominance of US investment banks broadly prevails with their market share increasing from 49 per cent in 2010 to 58 percent in 20177, managing cost and maintaining sustainable profitability remains a priority.

Our approach is to apply a CLV lens to have sustainable profitability. This enables focus on specific client portfolios and relationships to support the banks’ specialist ‘go-to’ sector agenda. On whichever side of ‘the pond‘, a CLV lens can support managing costs as well as continuing to innovate, maintain and sustain growth.  Our view is supported through:

  1. CLV enables organisations to holistically understand who their clients are and their changing needs over time. Take Amazon.com as an example: 25 years ago, when Jeff Bezos founded initially his ‘online bookstore’ operating from his garage in Washington, the financial needs of this organisation, then a ‘garage-based start-up’ evolved to what is now a multinational technology company with profits reported over $10 billion in 2018 and employing over 600,000 people worldwide. For a CIB to understand the lifecycle value of a client is crucial in developing and maintaining long-term relationships. It also provides them opportunities to develop products and services tailored to their clients’ needs over their lifetime, as their businesses continue to grow.

  2. By understanding ‘who are the clients and what they need’ over time, enables investment banks to target specific client groups and sectors. An example of this eloquently demonstrated by Professor Clayton Christensen’s Theory of Jobs to be Done, what organisations really need to consider is "the progress that the customer is trying to make in a given circumstance—what the customer hopes to accomplish. This is what we’ve come to call the job to be done" 8. At present, investment banks use clients’ historical revenue data as their benchmark on valuing the client, which in turn determines the level of service a client is to receive from an investment bank. We believe this approach prioritises clients who offer ‘quick win’ opportunities but may not offer long-term business potential.

Without strategically refining and paying attention to CLV in customer lifecycle management, investment banks are at risk of failing to deliver new and enhanced solutions to new and existing clients. A plethora of investor and crowd funding platforms, with the likes of Seedrs and Crowdcube, now offer alternative pools of financing to new and existing businesses – posing a potential threat to investment banks in tapping in to these opportunities. Emerging companies are now starting to pave the way for a new era of stock market sales, by directly listing their shares to the market, with the likes of Slack and Spotify9 setting the trend.

We believe it’s not all ‘doom and gloom’ for our investment banking clients, if they seek to refocus on CLV. Earlier in October, David Livingstone the new CEO of Citigroup EMEA, signalled his confidence in London continuing to be Europe’s top financial centre irrespective of Brexit impact10. Despite structural changes implemented due to Brexit, Citigroup is keeping its EMEA London headquarters and is continuing to focus on clients in London and Europe.

During the time of distributive change and greater demand from investment banks’ clients wanting a bigger ‘bang for their buck’ from their investment banks, adapting to clients’ changing needs is essential. More increasingly, understanding data is the answer to understanding clients, their needs and their value. As Charles Darwin famously said: “It is not the strongest of the species that survives, not the most intelligent that survives. It is the one that is the most adaptable to change”. We believe an investment bank’s ability to understand their clients will help to them to truly adapt and thrive. In our next blog post, we will share insights and examples on how CIBs can adopt a CLV approach to improve their understanding of their clients and the value they bring.

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Following this article, there will be a series of publications that will address various topics in relation to customer lifecycle management of corporate and investment banks with a focus on customer lifetime value in capital markets.

For further information in relation to this topic, please contact Rawad Halawi and Dinesh Sharma

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1 Deloitte, ‘Measure client lifetime value to maximise value for the organisation and for the organisation’s clients’, September 2019, https://blogs.deloitte.co.uk/financialservices/2019/09/measure-client-lifetime-value-to-maximise-value-for-the-organisation-and-for-the-organisations-clien.html

2 HBSC interim CEO to “remodel” bank as quarterly profit falls 24%, October 2019, https://www.ft.com/content/604ef8f8-f939-11e9-a354-36acbbb0d9b6

3 UBS profits slide as investment bank struggles , October 2019, https://www.ft.com/content/4a56d6d0-f496-11e9-a79c-bc9acae3b654

4 Goldman Sachs chief executive appeals for patience on profits, October 2019, https://www.ft.com/content/96437f2e-ef89-11e9-ad1e-4367d8281195

5 Deutsche Bank starts cull of 18,000 jobs, July 2019, https://www.ft.com/content/65cfe4ec-a144-11e9-974c-ad1c6ab5efd1

6 Is UBS losing its edge in investment banking?, May 2019, https://www.ft.com/content/070da1d8-7c91-11e9-81d2-f785092ab560

7 Alevizos Alevizakos et al., Investment Banking Monitor Quarterly, Q2 2018, HSBC Global Research, July 11, 2018.

8  Professor Clayton Christensen et al., Know Your Customers’ “Jobs to Be Done” https://hbr.org/2016/09/know-your-customers-jobs-to-be-done

9 Slack Is Going Public Without an IPO. Here’s How a Direct Listing Works, June 2019, https://fortune.com/2019/06/20/slack-stock-ipo-dpo-direct-listing/

10 Citi sets post-Brexit Frankfurt trading hub in motion, March 2019,  https://www.ft.com/content/8e4a7ec0-49c7-11e9-8b7f-d49067e0f50d

 

Tom Lewthwaite

Tom Lewthwaite - Partner and Forensic FSI client lead, Financial Advisory

Tom is a Partner in Forensic with specialist skills in financial crime, investigations, regulatory compliance and matters of misconduct. Tom is a member of the Deloitte panel for FCA and PRA Skilled Person appointments relating to Conduct of Business (Lot D), Governance and Individual Accountability (Lot B)’ and Financial Crime (Lot E). Additionally, Tom is a member of the Deloitte Skilled Person quality assurance expert panel.

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David Myers

David Myers - Partner and Capital Markets leader, Consulting

David is a Partner in Deloitte’s NSE Financial Services practice. Based in the UK, he leads the firm’s Capital Markets sector. With more than 25 years of global experience, he is an expert in the areas of trading, exchanges, ECNs/MTFs, clearing houses and central depository systems, as well as investment bank operations. He has worked in a variety of business lines, covering both cash and derivative processing. In addition, he focuses on the implementation of large change programmes using technology for business advantage.

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Suresh Kanwar

Suresh Kanwar - Partner, UK Capital Markets Leader, Consulting

Suresh Kanwar is a Partner in Deloitte Consulting, leading the U.K. Capital Markets Consulting Practice and overseeing complex business process change through technology and workforce-transformation in this sector. Through his 22 years in consulting, he has advised and delivered successful global programmes for investment banks, investment managers and custodians and directed large, global, multi-workforce and culturally diverse teams on programmes spanning the full spectrum of scale business and technology re-engineering – from target operating models and location strategies to process redesign and systems implementation.

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