What banks can learn from the high street

The Independent Commission on Banking's (ICB) plans to ring fence the UK retail operations of universal banks to protect business lending and depositors assets have been highly publicised in recent weeks. However, one problem with this proposal is that, with the notable exception of HSBC, no UK universal bank has enough retail deposits to cover retail loans.

In contrast to popular conceptions, the investment operations of universal banks subsidise the retail operations and not the other way around. As a consequence, universal banks would need to make their retail arms more profitable.

Improving customer insight is one of the many ways in which banks can do this and an area where they could learn a lot from high street retailers.

Retailers for years have been gathering, storing and utilising the information they have built up on their customers in an intelligent and effective manner. By analysing their customers' transaction histories, retailers can predict what an individual or type of customer might be likely to purchase in the future and target them appropriately with products or offers. In the same vein, analytics can be used to improve customer insight and target customers appropriately to maximise profitability. It is perhaps unsurprising that two retail banks which are doing this very well, Tesco Bank and Virgin Money, were founded by organisations with strong retail backgrounds.

For the established universal banks that are still lagging behind in this area, this is not only a case of developing their IT but also of changing their culture. For many retailers, it's second nature. For some banks, it's a big leap.