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
As we discussed earlier, the point of doing this analysis is to see the vulnerability of the customer base and see the degree of subsidization. We can see by these graphs that there is a high degree of subsidization in the Current accounts segment, so much so that the profitable customers are not generating enough profits to cover for the loss making ones. The interesting thing here is that customers who have mortgages either alone or along with other products are consistently profitable with very few incidences of losses. This might lead us to believe that Supermarket Strategy would work for Infinity with a focus on selling highly profitable mortgage. We will discuss more about this in the recommendations section.

Can this data also give some insight into why current accounts are so unprofitable?

Even though averages can be misleading, they can provide some insight. To find some information why current accounts are so unprofitable I took averages of the costs and revenues for profitable and unprofitable customers. What is evident from this data is that because unprofitable customers keep a lower average balance in their accounts and are more expensive to serve, they tend to drive the revenues down. Also, if the sample is an indication of the real pattern amongst consumers then just 30% of the current account customers are somewhat profitable.

Profitable | Unprofitable | Average Service Cost - £51 | Average