Traditionally, banks have viewed the online channels as competitive with bank branches. But that is rapidly changing. The combination of accelerating online channel utilization and the pressure most banks face to dramatically reduce operating expenses are leading an increasing number of executives to examine where the lines between branches and online channels are blurring. This presentation explores opportunities to marry the differentiating benefits of online channels with those of in-person, local branches to drive more fee revenue and deposits at a lower total cost than was achievable just a few years ago. It highlights how your competitors might utilize an integrated “clicks and mortar” strategy to attack your institution, steal your customers and reduce your profits. Other key topics include: -- Online channel innovations and the substitution/augmentation impacts on branch-based transactions -- How online account opening and funding is creating new value for branch banking -- The roles of online channels and branches in financial product shopping and purchase behaviors -- Why online is not cannibalistic to the branch and why banks that don’t aggressively pursue deposits and payments online risk losing existing customers

1. Best of Both Worlds Leveraging Branch Delivery with Online Channels Paul McAdam eCom Advisors March 2, 2010

3. Increase cross-sell

4. Increase online services activation

5. Reduce operating expensesNew Customer Accounts

6. Discussion topics The Multichannel Mandate The Customer Journey Management Implications

7. The influence of eChannels is accelerating Source: ABA telephone survey of 1,000 U.S. consumers conducted by Ipsos-Reid. The 2009 survey was conducted Sept. 14 - 16

10. In spite of this, the # branches and branch operating expenses have increased dramatically Additional annual branch operating expenses $1.8 B $.69 B $1.7 B $1.1 B $.13 B $.46 B $.27 B $.35 B $.63 B $27.3B Source: FDIC and U.S. Census Bureau. eCom Advisors analysis

11. Customers still reward banks for branch convenience…But for how much longer? What if a third of new accounts are opened online in five years? Accounts Opened in Branches Accounts Opened Online

12. The unit costs of branch-based interactions will steadily increase Source: TowerGroup, Fiserv/M-Com Source: Highline Financial, Novantas

13. Online account origination is now a competitive “must have” Source: eCom Advisors review of bank websites, as of 02/22/2010

14. Four significant shifts in thinking are required A growing number of customers will trade local branch presence for an improved online value proposition It’s time for meaningful modifications to the density, configuration and operations of the branch network It’s time to invest branch channel savings into the next generation of eChannel capabilities It’s time to stop viewing online and branch as distinct channels when it comes to new customer and account generation. It must be an integrated customer experience

15. Yes, online banks can make money!!! Segmented and multichannel players perform well $ Bln. All Commercial Banks Assets $10B+ - 4.57% Source: Call Reports, eCom Advisors analysis

16. Within many banks, the process is inefficient and not necessarily customer friendly Industry Averages Traffic Internal/External organic and marketing (Banner Ad ) - viewed a page with “Apply Now” on it. Traffic Apply Now Clicked “Apply Now” and landed on the “Overview” page. Products Page 50% initiate app from the first / products page Application Initiated Clicked “Next” button on the “Application Start” page and landed on the “Personal Info” page. 20% drop at personal info questions Apps Initiated 10% drop after providing contact info 70% complete the application Apps Completed 20% drop out for manual verification Application Submitted Completed the app. and clicked “Submit” 10% fail due to fraud / risk reasons Apps Funded Funded Accounts ACH/Internal Transfer/Check 44% industry Conversion Rate* * Conversion Rate begins at application Source: eCom Advisors client engagement sand executive interviews with ~20 FI’s

18. $8 - $15 with manual involvement

19. $56 - $85 per account marketing cost Source: eCom Advisors client engagement sand executive interviews with ~20 FI’s

20. We need to start thinking about “online branches” and how they support physical branches and reduce overall delivery system costs Physical Branch Online Branch 6 – 7 FTE 7 – 9 FTE ~ $2 million to build ~ $1.75 million annual operating expense ~ $1.2 million first year operating expense (fully loaded with staff, technology & extensive marketing)

22. Compatibility – the degree to which an innovation is consistent with past experiences

23. Technology Clusters – Adoption of innovations are higher when the technical elements of the process are perceived as being highly interrelatedInnovators Enthusiasts, Change Agents 2.5% Early Adopters Respected, Opinion Leaders 13.5% Early Majority Pragmatic, Deliberate 34% Late Majority Conservative, Skeptical 34% Laggards Traditional, Suspicious 16% Source: Adoption curve framework and insights regarding adoption; Everett Rogers, “Diffusion of Innovations.”

25. Changed or modified in the process of its implementation

26. Occurs when an innovation must be adapted to the structure of the organization that is adopting it

27. Later adopters profit from the experiences gained by earlier adopters

28. Re-invention leads to:

29. A faster rate of adoption

30. A higher degree of sustainabilityInnovators Enthusiasts, Change Agents 2.5% Early Adopters Respected, Opinion Leaders 13.5% Early Majority Pragmatic, Deliberate 34% Late Majority Conservative, Skeptical 34% Laggards Traditional, Suspicious 16% Source: Adoption curve framework and insights regarding re-invention; Everett Rogers, “Diffusion of Innovations.”

32. Office Depot

33. REI

34. Sears

35. Tiffany & Co.

36. Ace Hardware

37. Best Buy

38. Kay Jewelers

39. L.L. Bean

40. LowesSource: Walmart website & press releases

41. Discussion topics The Multichannel Mandate The Customer Journey Management Implications

42. Multiple channels play key roles through the entire purchasing process Shopping Account Opening Onboarding Relationship Building Buying Event Activation Experience Loyalty Trial Awareness Consideration Research Decision Defections

43. Shopping for and purchasing banking products is a multichannel experience 2008 McKinsey European survey of banking/insurance customers Offline sales influenced by online touchpoints Cross-channel impact Online sales influenced by offline touchpoints Purely offline sales Purely online sales Source: McKinsey & Company

44. The multichannel shopping & account opening experience Shops online for bank account Online chat with CSR during shopping process Completes account application online Establishes account and communication preferences Opts to complete the final documentation and funding process at a branch Schedules an appointment at branch to complete the process At the end of the session, notified that’s prequalified for loan up to $10,000 Pop up message. “Thank you. Call us if you have questions”

45. The multichannel account funding & activation experience Email confirmation of account opening details Banker leaves “Looking forward to our appointment” voicemail Day before the appointment, receives a text message reminder on mobile phone Arrives at branch for appointment Banker greets customer and has all information Banker helps customer enroll in online services and account alerts. Receives activated debit card Banker explains opt in and overdraft protection opportunities Banker probes for credit opportunities

47. Account funded and ready for operation

48. Practical information

49. When checks and debit cards will arrive

50. How account operates and fees

51. Account benefits

52. Highlights other services related to DDA

53. Promotes:

54. ATM deposit

55. Online banking

56. Bill payment

57. Overdraft protection

58. Alerts

59. Leads into cross-sell based on monitoring of account behavior

60. Notifies of other bank servicesWelcome kit via mail Phone call from bank Day 1 Day 7 Day 5 Day 14 Day 28

61. For starters, apply this multi-channel approach to your most valuable / profitable customers Tech Savvy, Emerging Affluent Account ~ 15% of population Retirement Income Account ~ 10% of population Young, Tech Savvy Account ~ 25% of population Mass Market, Loyalty Account ~ 40% of population Income / Wealth Age Checkless Checking Account ~ 10% of population

63. Better educated

64. Wealthier

65. Higher social status

66. Greater upward social mobility

67. Interpersonal networks that extend outside of their local system

68. Change Agents

69. Opinion Leaders

70. Role modelsInnovators Enthusiasts, Change Agents 2.5% Early Adopters Respected, Opinion Leaders 13.5% Early Majority Pragmatic, Deliberate 34% Late Majority Conservative, Skeptical 34% Laggards Traditional, Suspicious 16% Source: Adoption curve framework and insights regarding early adopters; Everett Rogers, “Diffusion of Innovations.”

71. Discussion topics The Multichannel Mandate The Customer Journey Management Implications

72. Each cell in the “multichannel account opening experience” requires explicit attention & ownership Sr. Exec Oversight Develop guiding principles, strategies and tactics for each cell

73. Best Buy’s defeat of Circuit City is instructive Source: Time magazine. CustomerThink.com

74. Management implications: Some potential quick fixes Education Have every frontline employee open an account online Sales goals & performance tracking Recognize the multichannel influence in sales goal setting Recognition of leads that come in online, but are opened in a branch Employee compensation & recognition Incent branches to encourage customers to open accounts online Pay commissions for online sales made within a specified distance to the branch Give the online sales team credit for sales closed in branches – when customer researched online but opted to close in a branch Marketing & Customer Experience Measure the return from online advertising and search engine marketing across total sales across all channels, rather than just against online sales Create a team dedicated to creating experiences for the customer journey

75. Contacts eCom Advisors provides executive consulting services to banks, billers, vendors and investors in financial services technology and online banking, billing and payments. Our consultants possess 175+ years of direct operating experience, and are considered leading experts in the industry. We help executives make their most crucial ecommerce management decisions. Boston office Chicago office 95 Washington St. Canton, MA 02021 781.784.1663 1 Westbrook Corp. Cntr. Westchester, IL 60154 630.865.3135 Atlanta office Columbus office 3340 Peachtree Rd. NE Atlanta, GA 30326 404.848.7709 5650 Blazer Parkway Dublin, Ohio 43017 614.734.8372