The financial services sector has been much in the news recently – and the news has not been good.

Within the space of a few months, we have seen the onset of a severe credit crunch, a liquidity crisis at Northern Rock leading to a run on the bank and Société Générale revealing it has lost €4.9 billion ($7.1billion; £3.7 billion) closing out massive unauthorized trades placed by a rogue employee. Some respected commentators are speculating about the onset of a global recession.

This edition of frontiers in finance is primarily focused on retail banking, but touches on all of these themes. While it is impossible – and foolhardy – to predict in detail how the credit crunch will play out, some general implications can be foreseen. And the rest of 2008 looks certain to be a bumpy ride.

On the other side of an increasingly-connected globe, China’s capital markets continue to expand. The sheer size of the sums of money involved means that the country is already a significant force. The authorities are steadily liberalizing China’s exchanges. Stock market capitalization has risen ten-fold in just 2.5 years. Bond and derivative markets are less well-developed as yet. But unless there is a dramatic policy U-turn by the government, these are likely to follow suit.

In Europe, SEPA, the Single Euro Payments Area, now being introduced, will have profound implications, perhaps not yet fully appreciated. The move to real-time payments presents additional challenges, most notably in relation to the increased potential for fraud.

Meanwhile, despite the background of turbulence and uncertainty, the imperative of improving the efficiency and effectiveness of current business models remains. Banks are increasingly realizing the need to become more customer-centered. Despite those who believed – or hoped – that it might wither away, the branch network remains an important channel, and improving branch effectiveness can contribute to sales growth.

Islamic banking is forecast to grow twice as fast as conventional banking, and the race for success in this niche market is hotting up. An effective economic capital framework is increasingly essential to help quantify risk and satisfy regulatory requirements. The issues raised above highlight retail banking’s need to improve its innovation performance in both products and services.

We hope you find this edition of frontiers in finance informative and thought-provoking.

Brendan Nelson
Vice Chairman, KPMG in the U.K. Global Chairman, Financial Services

Visit Frontiers in Finance (March 2008): Retail banking in focus Website

This edition of frontiers in finance focuses on 'hot' topics in the financial services sector in general, and the retail banking sector in particular.

KPMG partners' examine new ways to help retail banks to become more innovative, customer-focused and better prepared to deal with payments fraud.

Download Frontiers in Finance (March 2008): Retail banking in focus

PDF format, 2.1MB, 48Pages.

In this issue:
For your information
fyi…

Topics
Retail banking in the U.K. and the U.S.: An inside perspective
Banking on innovation
Fighting fraud
The future of payments: Challenges looming?
SEPA: Deserving more attention
After the crunch: Where now?
Economic Capital: Paper tiger, dead duck, or still alive and kicking?
Branch effectiveness: Delivering a high performing sales culture
A customer-centric approach: The key to driving revenue growth
Mobile payments in Asia Pacific

Series
Islamic finance: Watch this space
Emerging markets: China rising: Stocks, bonds and derivatives in the world’s most dynamic economy

Knowledge
In this section: 42 Updates from KPMG member firms, thought leadership, contacts

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