Infinity Bank - Will the Supermarket Strategy Work? Essay example

2204 Words Aug 6th, 2010 9 Pages
Introduction

Infinity bank was one of the 10 largest banks in the UK with over 1800 retail branches. However, due to the change in the nature of the banking industry since the 1980’s Infinity bank had seen a consistent drop in its profitability. Deregulation of the industry had been one of the major changes that had taken place during this time which had increased the competition in the industry. Even though Infinity had followed other major banks in responding to this challenge by cutting costs, closing branches and making use of information technology, its results were far worse than others.

Since retail banking was a major source of their costs as well as revenue, they conducted a branch efficiency review which pointed out issues
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This kind of a situation looks really bad on paper. But of course, statistics only tell half the story. If Infinity managers were to base their decisions solely on this number then they should probably fire most of their current account holders. This issue will be analyzed further on in the paper when we discuss the recommendations.

The story is completely different in the credit cards only segment in Figure 2. As we can see, around 95% of the customers contribute to nearly 170% profitability. There are 5% customers who cause 70% decline in profits. If we put these numbers in the context of Figure A, we see that this curve fits the top right quadrant where a small number of customers are highly unprofitable. So there is room for action. If we look closely at the data, we find that these small numbers of customers are the ones who defaulted on payments. So the bank needs a strategy to ensure that defaults do not affect the segment profitability to such an extent.

It’s important to note that in Figure 3 which shows the curve for just mortgages, one single customer which is 0.1% of the dataset causes a decrease in profitability of 20%. This is a significant figure and highlights the risk of default in mortgages.

Another significant result we can see is from the Current accounts and Credit Card Segments shown in Figure 4. As we can see here, 75% of the customers are responsible for generating 130% of the profit and the rest are
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