A useful way to visualize the competitive opportunity set that faces banks and other financial firms operating across the spectrum depicted in Figure 3.1 combines three principal dimensions in the delivery of financial services in terms of the clients served (C), the geographic arenas where business is done (A) and the products supplied (P) (Walter 1988). Figure 3.1 depicts these dimensions in the form of a matrix of C-A-P cells.

Individual cells represent a more or less distinct “market” in which Euroclear either is already active or might become active. The characteristics of each potential market can be analysed in terms of conventional competitive structure criteria. The competitive structure of each C-A-P cell is an important determinant of the excess returns a financial institution may be able to obtain. To the extent competition takes place on the basis of price, prospective returns are transferred to clients. Competitive structure is conventionally measured using concentration ratios based on the number of vendors, distribution of market share among vendors, and similar criteria.

The inherent attractiveness of each cell clearly depends on the size of the prospective risk-adjusted returns that can be extracted from it. The durability of these returns will depend on the ability of new players to enter the cell, as well as the development of substitute products over time. Entry into a new market (associated either with a new product, client-group or arena), if initially successful, can be described in terms of a time-path of sub-normal, super-normal, and normal returns such as that depicted in Figure 3.2. This time-path is important with respect to the entry costs, exit costs, as well as size and durability of excess returns. Durability is described by the time-path (decay) of excess returns that can be extracted from the new market in this context, and their discounted net present value can be compared with those other market initiatives including transfers of financial innovations across clients, arenas or products.