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Banking   the way we see it




Trends in Retail Banking
Channels: Improving Client
Service and Operating Costs
Key emerging business and technology trends
across retail banking channels to meet new client
demands and optimize channel distribution costs
Contents


     1	Highlights	                                                               3


     2	Introduction	                                                             4
        2.1 Financial Performance and Background	                                4

        2.2 Key Market Trends and Challenges	                                    5


     3	 Emerging Trends in Retail Banking Channels: 	                            7
     	 Improving Client Service and Channel Operating Costs


     4	 Trend 1: Increased Online Market Presence Using Advanced 	               8
     	 Technology Platforms Such As Web 2.0 and Social Networks


     5	 Trend 2: Investment in Enterprise Mobile Financial Service Solutions	   10
     	 to Drive Innovation and Reduce Costs


     6	 Trend 3: Increased Push Towards Web-Based Activities to Put	            12
     	 the Online Channel on an Equal Footing with Branch Networks


     7	 Trend 4: More Emphasis on Seamless Multi-Channel Integration to	        15
     	 Better Serve Clients and Gain a Competitive Edge


     8	 Trend 5: Increased Spending on Customer Analytics Tools to	             17
     	 Improve Customer Relationships


     References	19




	2
the way we see it




                                              1	Highlights
                                              Traditionally, retail banks have used branches, ATM, call centers, mobile, and
                                              Internet to interact with their customers, though newer direct channels such as
                                              social media have emerged recently. Branches have always played an important role
                                              and remain a key banking channel. However the changing needs and preferences of
                                              customers, coupled with growing technological innovations, has led to the increased
                                              popularity and adoption of direct channels over the last decade.

                                              Because of their growing popularity, direct channels are expected to hold the
                                              highest share of global banking transaction volume by 2012, though traditional
                                              channels are still expected to command the highest share of the sales volume1. As
                                              branch networks typically constitute around 75% of a banks’ total distribution costs,
                                              the key challenge banks face today is to justify the high branch-operating costs at a
                                              time of lower branch-driven revenue growth.

                                              The current economic scenario gives banks an opportunity to identify channels that
                                              are most important to their customers, and provide a positive experience across
                                              them. Banks are shifting their customers from high-cost to lower-cost channels, thus
                                              reducing their total cost-to-serve. There is a growing trend to achieve a seamless
                                              multi-channel integration by banks who want to make their customer interactions
                                              channel-agnostic. This will help banks leverage their distribution networks by
                                              offering the right products to the right customer segment through a desired
                                              channel, resulting in overall cost savings and an enhanced customer experience.
                                              Banks also face highly saturated markets where product and price no longer remain
                                              the key differentiators, thus pushing up retention costs. Innovations around better
                                              and faster delivery of the right products to a customer will help banks provide a
                                              differentiated customer experience, thus supporting better customer retention.

                                              Global IT spending on retail banking channels remained stagnant in 2009, but is
                                              expected to grow to $45.8bn at a compound annual growth rate of 4.2% through
                                              20122. Key trends are emerging which are expected to drive future growth and
                                              transform the key customer touch points for delivering better and more cost-
                                              effective client service.

                                              Banks globally are investing in enterprise mobile financial service solutions
                                              to deliver more mobile-based banking services and reduce the overall cost of
                                              operations. As the adoption rate of online banking continues to increase globally,
                                              banks are expected to increase their online marketing presence by leveraging
                                              technologies such as Web 2.0 and social networks, which have evolved as an
                                              integral part of the banking channel mix. Banks are also increasingly spending on
                                              customer-centric analytical tools to better understand client buying and channel-
                                              usage patterns, which can help build and improve customer relationships.




                                              1
                                                  Sales volume includes the closing stage of the sales process only (excluding pre-sales steps such as simulation and
                                                  information-gathering)
                                              2
                                                  Retail Banking Technology Spending Through 2015, Datamonitor/Ovum


Trends in Retail Banking Channels: Improving Client Service and Operating Costs	                                                                                        3
2	 Introduction


     2.1.	Financial Performance and Background
     Though branches remain an important channel for customers, transaction
     volumes across branch networks are estimated to have grown only marginally
     through 2008-11, and are expected to remain flat in the future. In contrast, the
     online transaction volumes within the online channel are estimated to have grown
     at the highest rate through 2008-11, and are expected to continue growing at
     a healthy pace going forward. The usage of the call center or phone banking
     channel is estimated to have seen the second highest growth after the web over
     the same time period.


               Exhibit 1: Global Distribution of Sales Volume by Channels (%), 2000–2010E3


                                                                                                         Percentage Point
                                                                                                       Growth (%) ('00-'10E)
                                                                                                         Growth       Growth
                                                                                                        (’00-’05)   (’05-’10E)
                             100%                              1%                  3%
                                    4%     2%                                                Others       1.0%        2.0%
                                                       8%
                                                       5%                 13%

                             80%                                                             ATM          0.0%        0.0%
                                                                          17%
     % of Sales by Channel




                                                                                             Phone        4.0%        5.0%
                             60%
                                                                                             Online       3.0%       12.0%
                                    94%
                                                      86%
                             40%
                                                                                             Branch      (8.0%)     (19.0%)
                                                                          67%

                             20%



                              0%
                                    2000              2005               2010E

               Source: Capgemini Analysis, 2011; Capgemini Bank Executive Survey, 2006




     While direct channel transactions have been growing steadily, branches still remain
     the most important channel for driving overall sales. Though banks have generally
     been successful in shifting day-to-day financial transactions from branch networks
     to low-cost direct channels such as online and mobile, they have had little success
     in cross-selling products and services through direct channels.




     3
          Sales includes the closing stage of the process only (excluding pre-sale steps such as simulation and
          information-gathering)


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the way we see it




                                              Though branches still emerge as important in driving sales, they have the highest
                                              operating costs. The key challenge for banks is to justify the elevated branch costs
                                              while at the same time facing difficulties in achieving branch-driven revenue
                                              growth. Also, the new regulatory environment and heightened competition for
                                              retail deposits are putting pressure on banks’ profitability, forcing them to reduce
                                              their overall transactions costs. Branches and call centers have the highest average
                                              per-transaction cost ($4.0 and $3.8 respectively), with ATMs having an average per-
                                              transaction cost of $0.94.

                                              If banks can effectively transition their customers from higher-cost to low-cost
                                              channels such as the mobile and online channels, they can reduce their overall cost-
                                              to-serve while also improving their return on investment.

                                              2.2.	Key Market Trends and Challenges
                                              Technology advancements and changing client preferences (such as the demand for
Global retail banks are                       convenience and around-the-clock access to banking services) have driven a shift
increasingly focused on                       in customer demands and usage patterns of traditional banking channels such as
                                              branches. The shift has resulted in direct channels emerging as important media to
achieving multi-channel
                                              reach a larger audience at a much lower cost.
integration to achieve seamless
customer navigation across                    Global retail banks are investing and innovating to better align their distribution
different channels.                           channel strategies with evolving customer needs and preferences. They
                                              are increasingly focused on achieving multi-channel integration to achieve
                                              seamless customer navigation across different channels. Though multi-channel
                                              interconnectivity is not new and banks have already made some progress in this
                                              direction, delivering a true seamless experience across channels will require banks
                                              to overcome some key challenges. Banks face challenges around their existing legacy
                                              applications, systems, and processes which often operate in silos, and the lack of
                                              staff training to function in a multi-channel environment.

                                              The growing influence and popularity of direct channels, supported by changing
                                              channel usage patterns, has resulted in need for a role transformation of traditional
                                              channels such as the branches. Though customers continue to see the branches
                                              as an important channel for carrying out financial transactions, they expect their
                                              role to gradually evolve to one which also focuses on providing more advisory and
                                              relationship-based services. The issues related to queue management and waiting
                                              times across traditional channels such as the branches and call centers are also
                                              resulting in greater use of direct channels such as online and mobile.




                                              4
                                                  How to Achieve a Compelling ROI from Mobile Financial Services, Fiserv, 2009


Trends in Retail Banking Channels: Improving Client Service and Operating Costs	                                                                5
The distribution of banking services is becoming channel-independent due to the
     emergence of innovative technologies such as interactive multimedia screens and
     multi-utility ATMs, which are helping banks to deliver products and customer
     service through multiple channels and touch points.

     At a regional level, mobile banking adoption continues to gather momentum in
     North America and Europe due to strong consumer appetite for smartphones and
     banks’ development of new mobile-based applications and services. While banks
     in North America and the Asia-Pacific region are focusing on alternate channels,
     European banks’ key focus tends to be on achieving true multi-channel integration
     for delivering cross-channel customer experience.

     Key Channel-Specific Trends
     We see the following key channel-specific market trends for retail banks globally.
     Each of these trends and challenges have multiple business and technology
     implications.
     ■ While the branch remains a cornerstone of a bank’s sales and service proposition,
       its role is transforming in areas such as layout and design, sales and service, and
       staff and people.
     ■ Banks are increasingly focusing on driving sales through the online channel due to


       the steady growth in the number of customers using online banking.
     ■ The growth of smartphones, technology advancements, and enhanced security


       levels have helped increase the adoption of mobile banking services. As a result,
       banks have seen reduced operational costs and improved efficiency.
     ■ ATMs are evolving with increased automation, integration with direct channels


       such as mobile and online, and delivering value-added services to customers.




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                                              3	 Emerging Trends in Retail
                                                              Banking Channels: Improving
                                                              Client Service and Channel
                                                              Operating Costs
                                              Retail banks today are under pressure to improve their quality of service, while also
                                              reducing costs to remain competitive in an extremely volatile and uncertain market.
                                              Improving customer service is imperative for banks in the current market and
                                              economic scenario, where product and price no longer provide a clear competitive
                                              edge. Distribution channels play a key role in delivering an enhanced customer
                                              experience as customer interactions begin and end with channels.

                                              Banking customers are increasingly expecting more convenience, accessibility,
                                              personalization, and reliability across the distribution channel network. Banks
                                              need to deliver these features by leveraging innovative technologies and solutions
                                              for a seamless and personalized experience. There is a clear demand for banks to
                                              invest in their channel networks to make them more customer-centric and user-
                                              friendly, while in the process improving the channel efficiencies for better return on
                                              investment and increased profitability.

                                              These changes have led to the emergence of five key trends across retail banking
                                              channels5:
                                              1.	Increased online market presence using advanced technology platforms such as
                                                 Web 2.0 and social networks.
                                              2.	Investment in enterprise mobile financial service solutions to drive innovation
                                                 and reduce costs.
                                              3.	Increased push towards web-based activities to put the online channel on an
                                                 equal footing with branch networks.
                                              4.	More emphasis on seamless multi-channel integration to better serve clients and
                                                 gain competitive edge.
                                              5.	Increased spending on customer analytics tools to improve customer
                                                 relationships.




                                              5
                                                  Trends shown are not necessarily comprehensive, but have been highlighted due to their relevance and potential impact
                                                  on the industry


Trends in Retail Banking Channels: Improving Client Service and Operating Costs	                                                                                          7
4	 Trend 1: Increased Online
                                          Market Presence Using
                                          Advanced Technology
                                          Platforms Such As Web 2.0
                                          and Social Networks

                                 4.1.	Background and Key Drivers
                                 The online banking channel has evolved into an essential part of the banking
                                 channel mix. Banks are now focusing on achieving the optimal balance between
                                 channels with self-service capabilities (such as online and mobile) for day-to-day
                                 financial transactions, and advisory-based channels (such as the branches) for more
Web 2.0 and social media         complex client needs. Easy availability and affordability of high speed internet,
platforms provide banks with     personal computers, and improved online security are also contributing towards the
                                 increase in Web 2.0 adoption.
an opportunity to communicate
effectively with their clients
                                 Online banking has evolved over the last decade from a source of product
and to better understand         information to a one-stop-shop providing a complete set of banking services. As a
their behavioral traits and      new generation of banking clients demand more services to be delivered through
expectations.                    the online channel, the online banking model has evolved from being purely tactical
                                 to a strategic tool through which banks can deliver better customer engagement and
                                 service.

                                 4.2.	Analysis
                                 With the growth and popularity of the online channel, banks are now expected
                                 to deliver a personalized online customer experience through Web 2.0 and social
                                 media tools. The focus for banks is also expected to be on maximizing revenue
                                 opportunities by achieving the optimal balance between the channel usage for basic
                                 transactions and advisor-assistance for more complex transactions.

                                 U.S. retail banks have been the most active in adopting Web 2.0 technologies for
                                 marketing and communications, with European and Asian counterparts not very
                                 far behind. While the online channel is becoming important for banks globally,
                                 differences exist across mature and emerging markets. In mature markets, the key
                                 focus area for banks is to upgrade their existing online platform by supplementing
                                 them with advanced functionalities and features. In emerging markets, the focus is
                                 on investing in online banking technologies to meet customer demand.




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                                              Banks have been a relatively late-comer compared to industries that have already
                                              embraced Web 2.0 and social networks. The key reasons have been an aversion
                                              to operational, compliance, and reputational risks that were associated with a new
                                              and unknown medium such as Web 2.0. However, banks today are investing in
                                              Web 2.0 tools such as blogs, wikis, RSS feeds, and social networking to create
                                              awareness and to expand their reach. The ultimate goal is to attract new customers
                                              and generate increased loyalty across existing customer segments, which will help
                                              banks increase their revenues and profitability. Over the last few years both the
                                              acceptance and adoption of Web 2.0 has increased, with customers demanding a
                                              more user-friendly, integrated banking experience—one that delivers higher trust,
                                              transparency, and interactivity with their banks.

                                              4.3.	Implications
                                              Before making any investments around Web 2.0, banks need to identify the
                                              business areas where it can be leveraged most beneficially. It is recommended to run
                                              small pilots before launching a full-scale enterprise-wide implementation of Web
                                              2.0 technology. Banks may also face multiple challenges when they open their doors
                                              to the outside world, including customer data security, legal, and reputational risks,
                                              and a credibility risk. Web 2.0 adoptions of social marketing and social advocacy
                                              are fairly new and banks are taking cautious steps towards implementation to avoid
                                              the associated risks.

                                              While banks will have to overcome the above challenges, Web 2.0 technologies
                                              can help firms realize the full potential of their online platforms by creating new
                                              possibilities for enhanced communication with their clients. For example, banks can
                                              start blogs or forums to discuss new products or services with clients, or participate
                                              in social networks to increase transparency and foster customer loyalty. Web 2.0
                                              can also help banks reduce their overall channel costs by opening up significant
                                              opportunities to sell complex products and services through the online channel,
                                              resulting in faster turnaround and much lower operational costs.

                                              To be successful in the Web 2.0 world, banks will require a clear strategy around
                                              their clients’ needs, the bank’s product portfolios, and overall marketing efforts.




Trends in Retail Banking Channels: Improving Client Service and Operating Costs	                                                    9
5	 Trend 2: Investment in
                                             Enterprise Mobile Financial
                                             Service Solutions to Drive
                                             Innovation and Reduce Costs
                                   5.1.	Background and Key Drivers
                                   Though mobile banking has been around for over a decade, its adoption rate and
                                   popularity have grown over the last few years. Customer attitudes towards mobile
                                   banking have become positive due to the emergence of advanced mobile and
The mobile channel addresses       smartphone technology, advancements in functionalities and security features, and
customer needs for convenient      an overall increase in the use of smartphones by the banking public.
and frequent transactions, while
reducing the overall channel       Most of the existing mobile banking solutions typically support only a basic set of
                                   self-service transactions, making it difficult for banks to differentiate their offerings.
operating costs.
                                   The key reason for this is that most banks responded to the increased demand
                                   for mobile banking services with an ad-hoc approach, providing basic services
                                   like account alerts and balance enquiries. However, due to the emergence of
                                   technologically-advanced mobile phones, there has been a significant surge in the
                                   demand for better mobile banking services.

                                   Mobile financial services not only fill the need for “anytime” banking for customers,
                                   they also have the potential to reach out to a large un-banked population.
                                   Low operating costs and higher penetration rates of mobile phones across all
                                   demographics make this particularly attractive in developing markets. While mobile
                                   financial services offer an enhanced value proposition to current and future banking
                                   customers, the medium also provides a viable business case for banks through
                                   reduced operational costs and increased revenues.

                                   5.2.	 Analysis
                                   As the demand for mobile banking services grew, banks implemented solutions
                                   that would allow their customers to perform basic financial transactions on their
                                   mobile devices. However, with the growing demand from customers and an urgent
                                   need to cut down their operating costs, banks have realized the need to provide
                                   mobile banking services aligned with other banking channels to improve the overall
                                   customer experience.

                                   Banks have begun to recognize the value of various access modes for reaching out
                                   to their different customer segments. They are also seeing the value in performing
                                   certain kinds of secure transactions on devices ranging from the most basic mobile
                                   phones to the latest smart phones and mobile devices. As banks continue to
                                   increase their focus and investments around mobile financial services, there are
                                   contrasting differences that exist across developed and developing markets.

                                   In emerging markets, favorable demographics demonstrated through a tech-savvy
                                   younger population and lower banking and internet penetration make mobile
                                   banking an attractive channel for retail banks. For this reason, there may be higher
                                   potential for mobile banking services in developing countries as compared to their
                                   developed counterparts. However, consumer protection and growing security
                                   concerns in developing markets may slow down the growth rate.




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                                              5.3.	Implications
                                              Banks are expected to focus on migrating customers from costly traditional channels
                                              to online and mobile banking to improve their profitability and meet new customer
                                              demands. Banks have stopped looking at the mobile banking channel in isolation
                                              and are focusing now on a multi-channel approach to deliver a seamless customer
                                              experience. To deliver an enhanced mobile banking experience, banks will have
                                              to come up with a comprehensive mobile banking strategy where technology and
                                              smartphone functionalities are leveraged to deliver enterprise-wide banking services.

                                              The mobile financial services strategy can integrate financial transactions, payments,
                                              and mobile content to deliver custom services across different customer segments.
                                              To drive a high-level of adoption, banks also need to have in place an integrated
                                              mobile banking platform that delivers an optimized solution across different device
                                              types and mobile platforms.

                                              A mobile banking platform that is well integrated with a bank’s core banking, online
                                              banking, and payment platform has dual advantages. On one hand, the mobile
                                              platform can offer customers a more consistent and rich banking experience. At the
                                              same time, it can provide banks with a single customer view to support cross-selling
                                              and delivering differentiated customer services across various segments.

                                              Mobile banking is fast approaching a tipping point due to increasing demand
                                              from customers supported by faster adoption cycles for mobile banking. Banks
                                              that embrace and develop a holistic mobile banking strategy are expected to be
                                              better positioned to drive customer acquisition, improve profitability, and increase
                                              customer retention.

                                              While banks are increasingly making investments in enterprise mobile financial
                                              services platform, they need to understand the reasons behind what is important for
                                              their customers while using the mobile channel. Banks can uncover a wide range
                                              of compelling reasons, such as how customers use the mobile channel, and which
                                              segments prefer to use it for achieving different goals. Analyzing what is important
                                              for their customers will enable banks to develop a focused channel-specific strategy
                                              and will boost customer retention and loyalty.




Trends in Retail Banking Channels: Improving Client Service and Operating Costs	                                                  11
6	 Trend 3: Increased Push
                                                                             Towards Web-Based
                                                                             Activities to Put the Online
                                                                             Channel on an Equal Footing
                                                                             with Branch Networks


                                                               6.1.	Background and Key Drivers
                                                               Over the last decade, the adoption rate and usage of digital channels such as
                                                               mobile phones and social media has been growing rapidly. Though security
                                                               remains a key issue (real and perceived) with most digital channels, consumer
                                                               adoption rates have been on the rise due to the ease of use, faster turnaround to
                                                               carry out banking activities and transactions, and convenience that these digital
                                                               channels provide. While the growth of online banking is important for banks as
                                                               they seek to reduce their cost-to-serve, this trend also signifies that consumers
                                                               will be more likely to use the online channel for buying more complex financial
                                                               products and services in the future.

                                                               Though banking customers continue to rely on branches for complex transactions,
                                                               the web has emerged as the key banking channel for doing simple transactions,
                                                               gathering information, and checking account status.

                                                               With the online banking channel providing the closest approximation to the
                                                               branch for driving future growth, banks are expected to increase their focus and
                                                               investments around e-business and channel strategy.



 Exhibit 2: Importance of Channels to Customers by Products and Lifecycle, 2011


                                       Overall                                                                                     Overall
                                     Importance                                                                                  Importance
                                           6                                                                                           6


                                             5                                                                                         5

                                                                                                        Account                                       Information
                                                                      Current, Deposit
      Mortgages                              4                                                           Status                        4              Gathering /
                                                                      Accounts and
                                                                                                       & History                                      Decisioning
                                                                      Payments
                                             3                                                                                         3




                    Loans                                   Credit Cards                           Problem Resolution                         Transacting




                                                     Branch             ATM            Online             Phone         Mobile


 Source: Capgemini Analysis, 2011; 2011 Retail Banking Voice of the Customer Survey, Capgemini, 2011




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                                              6.2.	Analysis
                                              The online channel has emerged as a high-investment priority for global banks
                                              due to its low cost-to-serve, higher profitability, and client adoption rate. In 2010,
                                              a large portion of a bank’s IT budget was spent on the online channel and this
                                              trend is expected to grow in the coming years. Banks globally are looking for
                                              enhancing their online channel functionalities across the board for delivering a
                                              better client experience.

                                              Banks are hunting for new revenue streams as new regulations have put a dent in
                                              the traditional sources of fee income for many financial services providers, including
                                              overdraft fees and credit card late fees. Banks are looking to recoup some of the
                                              lost income by charging for value-added services that can be provided through the
                                              online channel.




                                               Exhibit 3: Key Factors Influencing Banks’ Investments in the Online Channel




                                                                                                      Increasing
                                                                                                     smartphone
                                                                                    Web’s role         adoption        Web has
                                                                                   in increasing                        become
                                                                                  the interest of                  primary research
                                                                                  consumers in                        channel for
                                                                                  other financial                       financial
                                                                                     products        Investment in     products
                                                                                                      Web-Based
                                                                                                        Channel
                                                                                     Increasing        Initiatives
                                                                                                                       Increased
                                                                                   comfort levels
                                                                                                                   budget allocation
                                                                                  of customers in
                                                                                                                   by banks for web
                                                                                  using the online
                                                                                                                        channel
                                                                                       channel




                                               Source: Capgemini Analysis, 2011




Trends in Retail Banking Channels: Improving Client Service and Operating Costs	                                                                     13
6.3.	Implications
      Banks will have to focus on enhancing their web-based offerings by focusing
      on leveraging user data for improving their cross-sell efforts, integrating online
      channels for enhanced web experience, and making their online presence more
      sophisticated.

      While integration within the online channel will help banks provide a wide variety
      of products and services through the web at a lower cost, rich media proliferation
      within financial services is expected to play a key role in the evolution of rich web
      content and applications. Banks may have to develop and provide enhanced web
      interface functionality by leveraging rich internet application (RIA) technology to
      provide an enhanced web experience for their customers. Banks will also be able
      to leverage the online customer traffic to boost their cross-selling efforts by using
      smart tools and technologies. As the online channel evolves to become the key
      customer touch-point for most types of financial services interaction, banks have
      to understand their customer preferences in order to develop a winning online
      channel strategy.




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                                              7	 Trend 4: More Emphasis
                                                             on Seamless Multi-Channel
                                                             Integration to Better
                                                             Serve Clients and Gain a
                                                             Competitive Edge


                                              7.1.	Background and Key Drivers
                                              Today’s multi-product, multi-channel environment presents significant challenges
                                              for retail banks. The key challenge is the ad-hoc approach followed by banks
As banks globally focus on                    in delivering products and services to their customers. Due to this, banks can
achieving a seamless multi-                   easily fall into the “3E trap” by trying to sell everything to everyone, everywhere6.
channel integration across their              Another key challenge is around the difficulty of integrating channels to deliver
channel networks, channel                     a seamless experience to customers as they move from one channel to another
management is shifting from just              within an institution.
being an operational function to
becoming a tactical tool.                     To address these challenges, banks will have to develop distribution strategies
                                              that take into account customer segmentation and profiling for directing the right
                                              product to the right customer through the right channel. Though banks have made
                                              some progress in achieving multi-channel integration, banking customers globally
                                              are demanding the ability to fluidly switch back and forth across different channels
                                              for the same sales or service event.

                                              7.2.	Analysis
                                              Banks now recognize the importance of achieving a seamless multi-channel
                                              integration and have been investing heavily to achieve this, but few have yet
                                              to realize their goal. The key challenges banks face today in achieving a true
                                              seamless integration are existing legacy applications and systems, bank processes
                                              operating in silos, and the lack of staff training to be able to function in a multi-
                                              channel environment.

                                              For retail banks today, channel management is moving from just being an
                                              operational function to a tactical tool as part of their larger business strategy. There
                                              are three main dimensions that banks are focusing on to achieve a true multi-
                                              channel management which is integrated with a successful overall business strategy:
                                              ■ Review channel strategy before making a channel investment.
                                              ■ Move the right customer to the right channel to optimize satisfaction and profits.


                                              ■ Design channel experience with a customer-centric approach.




                                              6
                                                  The CMO Imperative: Multi-Channel Customer Engagement, 2010


Trends in Retail Banking Channels: Improving Client Service and Operating Costs	                                                    15
7.3.	Implications
      Achieving a seamless customer experience through multi-channel optimization
      of service delivery will increasingly be a source of differentiation among banks.
      Achieving full benefits of a true seamless multi-channel integration is a long and
      expensive process which will require the alignment and standardization of systems
      and data. On their journey to achieve excellence in multi-channel integration, banks
      will have to take the following three key steps:
      ■ Focus to achieve channel excellence across key customer touch points: The
        first step for banks will be to achieve and deliver the basic (per industry standards)
        sales and service transactions across each channel individually.
      ■ To achieve consistency across channels: The second step will be to standardize


        information while also developing a uniform look and feel across all channels.
      ■ Focus to achieve a true seamless multi-channel integration: The final stage


        will be a state of seamless multi-channel integrations where customers should
        be able to start sales or service transactions in one channel and complete these
        transactions easily in another.

      Banks that successfully create an integrated multi-channel strategy with a customer-
      focused approach are expected to turn their channel management efforts into a key
      differentiator in the market.




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the way we see it




                                              8	 Trend 5: Increased
                                                          Spending on Customer
                                                          Analytics Tools to Improve
                                                          Customer Relationships

                                              8.1.	Background and Key Drivers
                                              In retail banking, the customer is at the core of operations. Developing a long-
                                              term relationship with their existing and potential customers is important to gain
By implementing analytical                    and retain market share. Due to exponential growth in product complexity and
tools that can help convert data              customer touch-points, banks’ relationships with their customers have become
into actionable insights, banks               more complex over time. To better understand customer demands across a
are able to deliver enhanced                  more global and heterogenous client base, it is important for banks to effectively
customer value by exhibiting a                leverage analytical tools and technologies to enhance customer value and increase
differentiated value proposition.             market share.

                                              While customer relationship management systems without analytics support
                                              may help in reducing costs and bringing about a customer-centric view to the
                                              organization, data mining and advanced business intelligence can help banks
                                              gather deeper customer insights. As banks grapple with the numerous challenges
                                              facing the banking industry today (ranging across elevated operational costs,
                                              declining revenues, regulatory pressure, and evolving customer demands), they
                                              require a robust analytical solution to better understand drivers for customer
                                              retention and attrition.



                                               Exhibit 4: Key Challenges in Retail Banking Market, 2011


                                                                                       Reducing
                                                                                      Operational
                                                                                        Costs

                                                                       Complexity
                                                                         around                           Price
                                                                      Products and                      Competition
                                                                        Services




                                                                        Evolving                       Fragmentation
                                                                        Customer                        of Customer
                                                                        Demands                          Segments


                                                                                      Proliferation
                                                                                     of Distribution
                                                                                        Channels


                                               Source: Capgemini Analysis, 2011




Trends in Retail Banking Channels: Improving Client Service and Operating Costs	                                                    17
8.2.	Analysis
      Banks are likely to increase their adoption of financial analytics, customer
      intelligence, and performance management, and look beyond the transactional
      nature of their existing systems. Trends show that banks are segmenting customers
      on the basis of their age, gender, net-worth to ensure better service to their
      customer segments. This also ensures that relationship managers have a greater
      opportunity to cross-sell depending on the nature of different customer segments.

      Embracing analytics is helping banks understand the real power of combining
      customer data with business intelligence and predictive analytics. Predictive
      analytics helps increase customer value by offering management insights to devise
      pricing strategies based on predictions of customer risk and value over time.

      There are multiple benefits that banks can achieve by adopting a robust analytical
      solution, including reduction in customer attrition, increased profitability, increase
      in cross-sell opportunities, and enhanced customer value.

      8.3.	Implications
      An advanced analytics capability can help banks in not only improving customer
      service, but also in differentiating their brand and growing revenues by cross-
      selling the right product through the right channel to the right customer. Adoption
      of advanced analytics will also help banks realize significant business benefits by
      customer profitability analysis, cost analysis, customer loyalty analysis, time value
      predictions, and overall return on investment analysis. To fully benefit from their
      customer analytics solutions, banks will have to take a well-defined approach
      starting from data assimilation to data analysis. Ultimately, such banks will be able
      to take insight generation into the development of winning long-term strategies.




	18
the way we see it




                                              References
                                              1.	 How to Achieve a Compelling ROI from Mobile Financial Services, Fiserv, 2009

                                              2.	 North American Retail Banking eBusiness and Channel Strategy, Forrester,
                                                  Feb 2010

                                              3.	 Changing the Channel, A New Approach to Multichannel Strategy in the
                                                  Financial Services Industry, Peppers and Rogers Group, 2010

                                              4.	 Multi-Channel Banking: Unravel Complexity to turn Ambitions into Reality,
                                                  Oliver Wyman, 2010

                                              5.	 Transforming Retail Banking to Reflect the New Economic Environment,
                                                  Efma and Microsoft, 2010

                                              6.	 Three Imperatives for Optimizing Retail Banking Channels,
                                                  Peppers and Rogers Group, 2010

                                              7.	 The evolution of CRM in retail financial services, Efma, 2009




Trends in Retail Banking Channels: Improving Client Service and Operating Costs	                                                 19
www.capgemini.com/banking




About the Author
Ashish Kanchan is a Lead Consultant in Capgemini’s Strategic Analysis Group within
the Global Financial Services Market Intelligence team. He has ten years of experience
in the banking and capital markets industry with expertise in private banking, wealth
management, and asset management.
The author would like to thank Bhaskar Banerjee, David Wilson, and William
Sullivan for their overall contribution on this publication.

For more information, visit www.capgemini.com/banking or e-mail
banking@capgemini.com.




                       About Capgemini and the
                       Collaborative Business Experience

                     Capgemini, one of the     Present in 40 countries, Capgemini reported
                  world’s foremost providers   2010 global revenues of EUR 8.7 billion and
  of consulting, technology and outsourcing    employs around 112,000 people worldwide.
  services, enables its clients to transform   Capgemini’s Global Financial Services
  and perform through technologies.            Business Unit brings deep industry
  Capgemini provides its clients with          experience, innovative service offerings and
  insights and capabilities that boost their   next generation global delivery to serve the
  freedom to achieve superior results          financial services industry.
  through a unique way of working, the         With a network of 21,000 professionals
  Collaborative Business Experience™.          serving over 900 clients worldwide,
  The Group relies on its global delivery      Capgemini collaborates with leading banks,
  model called Rightshore®, which aims to      insurers and capital market companies to
  get the right balance of the best talent     deliver business and IT solutions and thought
  from multiple locations, working as one      leadership which create tangible value.
  team to create and deliver the optimum   For more information please visit
                      About Capgemini and the
  solution for clients.                    www.capgemini.com/financialservices
                      Collaborative Business Experience

Copyright © 2012 Capgemini. onerights reserved.
                 Capgemini, All of the      Present in 40 countries, Capgemini reported
                  world’s foremost providers   2010 global revenues of EUR 8.7 billion and
  of consulting, technology and outsourcing    employs around 112,000 people worldwide.
  services, enables its clients to transform   Capgemini’s Global Financial Services
  and perform through technologies.            Business Unit brings deep industry
  Capgemini provides its clients with          experience, innovative service offerings and
  insights and capabilities that boost their   next generation global delivery to serve the
  freedom to achieve superior results          financial services industry.
  through a unique way of working, the         With a network of 21,000 professionals
  Collaborative Business Experience™.          serving over 900 clients worldwide,
  The Group relies on its global delivery      Capgemini collaborates with leading banks,
  model called Rightshore®, which aims to      insurers and capital market companies to
  get the right balance of the best talent     deliver business and IT solutions and thought
  from multiple locations, working as one      leadership which create tangible value.
  team to create and deliver the optimum       For more information please visit
  solution for clients.                        www.capgemini.com/financialservices



Copyright © 2012 Capgemini. All rights reserved.

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Trends in retail_banking_channels__improving_client_service_and_operating_costs

  • 1. Banking the way we see it Trends in Retail Banking Channels: Improving Client Service and Operating Costs Key emerging business and technology trends across retail banking channels to meet new client demands and optimize channel distribution costs
  • 2. Contents 1 Highlights 3 2 Introduction 4 2.1 Financial Performance and Background 4 2.2 Key Market Trends and Challenges 5 3 Emerging Trends in Retail Banking Channels: 7 Improving Client Service and Channel Operating Costs 4 Trend 1: Increased Online Market Presence Using Advanced 8 Technology Platforms Such As Web 2.0 and Social Networks 5 Trend 2: Investment in Enterprise Mobile Financial Service Solutions 10 to Drive Innovation and Reduce Costs 6 Trend 3: Increased Push Towards Web-Based Activities to Put 12 the Online Channel on an Equal Footing with Branch Networks 7 Trend 4: More Emphasis on Seamless Multi-Channel Integration to 15 Better Serve Clients and Gain a Competitive Edge 8 Trend 5: Increased Spending on Customer Analytics Tools to 17 Improve Customer Relationships References 19 2
  • 3. the way we see it 1 Highlights Traditionally, retail banks have used branches, ATM, call centers, mobile, and Internet to interact with their customers, though newer direct channels such as social media have emerged recently. Branches have always played an important role and remain a key banking channel. However the changing needs and preferences of customers, coupled with growing technological innovations, has led to the increased popularity and adoption of direct channels over the last decade. Because of their growing popularity, direct channels are expected to hold the highest share of global banking transaction volume by 2012, though traditional channels are still expected to command the highest share of the sales volume1. As branch networks typically constitute around 75% of a banks’ total distribution costs, the key challenge banks face today is to justify the high branch-operating costs at a time of lower branch-driven revenue growth. The current economic scenario gives banks an opportunity to identify channels that are most important to their customers, and provide a positive experience across them. Banks are shifting their customers from high-cost to lower-cost channels, thus reducing their total cost-to-serve. There is a growing trend to achieve a seamless multi-channel integration by banks who want to make their customer interactions channel-agnostic. This will help banks leverage their distribution networks by offering the right products to the right customer segment through a desired channel, resulting in overall cost savings and an enhanced customer experience. Banks also face highly saturated markets where product and price no longer remain the key differentiators, thus pushing up retention costs. Innovations around better and faster delivery of the right products to a customer will help banks provide a differentiated customer experience, thus supporting better customer retention. Global IT spending on retail banking channels remained stagnant in 2009, but is expected to grow to $45.8bn at a compound annual growth rate of 4.2% through 20122. Key trends are emerging which are expected to drive future growth and transform the key customer touch points for delivering better and more cost- effective client service. Banks globally are investing in enterprise mobile financial service solutions to deliver more mobile-based banking services and reduce the overall cost of operations. As the adoption rate of online banking continues to increase globally, banks are expected to increase their online marketing presence by leveraging technologies such as Web 2.0 and social networks, which have evolved as an integral part of the banking channel mix. Banks are also increasingly spending on customer-centric analytical tools to better understand client buying and channel- usage patterns, which can help build and improve customer relationships. 1 Sales volume includes the closing stage of the sales process only (excluding pre-sales steps such as simulation and information-gathering) 2 Retail Banking Technology Spending Through 2015, Datamonitor/Ovum Trends in Retail Banking Channels: Improving Client Service and Operating Costs 3
  • 4. 2 Introduction 2.1. Financial Performance and Background Though branches remain an important channel for customers, transaction volumes across branch networks are estimated to have grown only marginally through 2008-11, and are expected to remain flat in the future. In contrast, the online transaction volumes within the online channel are estimated to have grown at the highest rate through 2008-11, and are expected to continue growing at a healthy pace going forward. The usage of the call center or phone banking channel is estimated to have seen the second highest growth after the web over the same time period. Exhibit 1: Global Distribution of Sales Volume by Channels (%), 2000–2010E3 Percentage Point Growth (%) ('00-'10E) Growth Growth (’00-’05) (’05-’10E) 100% 1% 3% 4% 2% Others 1.0% 2.0% 8% 5% 13% 80% ATM 0.0% 0.0% 17% % of Sales by Channel Phone 4.0% 5.0% 60% Online 3.0% 12.0% 94% 86% 40% Branch (8.0%) (19.0%) 67% 20% 0% 2000 2005 2010E Source: Capgemini Analysis, 2011; Capgemini Bank Executive Survey, 2006 While direct channel transactions have been growing steadily, branches still remain the most important channel for driving overall sales. Though banks have generally been successful in shifting day-to-day financial transactions from branch networks to low-cost direct channels such as online and mobile, they have had little success in cross-selling products and services through direct channels. 3 Sales includes the closing stage of the process only (excluding pre-sale steps such as simulation and information-gathering) 4
  • 5. the way we see it Though branches still emerge as important in driving sales, they have the highest operating costs. The key challenge for banks is to justify the elevated branch costs while at the same time facing difficulties in achieving branch-driven revenue growth. Also, the new regulatory environment and heightened competition for retail deposits are putting pressure on banks’ profitability, forcing them to reduce their overall transactions costs. Branches and call centers have the highest average per-transaction cost ($4.0 and $3.8 respectively), with ATMs having an average per- transaction cost of $0.94. If banks can effectively transition their customers from higher-cost to low-cost channels such as the mobile and online channels, they can reduce their overall cost- to-serve while also improving their return on investment. 2.2. Key Market Trends and Challenges Technology advancements and changing client preferences (such as the demand for Global retail banks are convenience and around-the-clock access to banking services) have driven a shift increasingly focused on in customer demands and usage patterns of traditional banking channels such as branches. The shift has resulted in direct channels emerging as important media to achieving multi-channel reach a larger audience at a much lower cost. integration to achieve seamless customer navigation across Global retail banks are investing and innovating to better align their distribution different channels. channel strategies with evolving customer needs and preferences. They are increasingly focused on achieving multi-channel integration to achieve seamless customer navigation across different channels. Though multi-channel interconnectivity is not new and banks have already made some progress in this direction, delivering a true seamless experience across channels will require banks to overcome some key challenges. Banks face challenges around their existing legacy applications, systems, and processes which often operate in silos, and the lack of staff training to function in a multi-channel environment. The growing influence and popularity of direct channels, supported by changing channel usage patterns, has resulted in need for a role transformation of traditional channels such as the branches. Though customers continue to see the branches as an important channel for carrying out financial transactions, they expect their role to gradually evolve to one which also focuses on providing more advisory and relationship-based services. The issues related to queue management and waiting times across traditional channels such as the branches and call centers are also resulting in greater use of direct channels such as online and mobile. 4 How to Achieve a Compelling ROI from Mobile Financial Services, Fiserv, 2009 Trends in Retail Banking Channels: Improving Client Service and Operating Costs 5
  • 6. The distribution of banking services is becoming channel-independent due to the emergence of innovative technologies such as interactive multimedia screens and multi-utility ATMs, which are helping banks to deliver products and customer service through multiple channels and touch points. At a regional level, mobile banking adoption continues to gather momentum in North America and Europe due to strong consumer appetite for smartphones and banks’ development of new mobile-based applications and services. While banks in North America and the Asia-Pacific region are focusing on alternate channels, European banks’ key focus tends to be on achieving true multi-channel integration for delivering cross-channel customer experience. Key Channel-Specific Trends We see the following key channel-specific market trends for retail banks globally. Each of these trends and challenges have multiple business and technology implications. ■ While the branch remains a cornerstone of a bank’s sales and service proposition, its role is transforming in areas such as layout and design, sales and service, and staff and people. ■ Banks are increasingly focusing on driving sales through the online channel due to the steady growth in the number of customers using online banking. ■ The growth of smartphones, technology advancements, and enhanced security levels have helped increase the adoption of mobile banking services. As a result, banks have seen reduced operational costs and improved efficiency. ■ ATMs are evolving with increased automation, integration with direct channels such as mobile and online, and delivering value-added services to customers. 6
  • 7. the way we see it 3 Emerging Trends in Retail Banking Channels: Improving Client Service and Channel Operating Costs Retail banks today are under pressure to improve their quality of service, while also reducing costs to remain competitive in an extremely volatile and uncertain market. Improving customer service is imperative for banks in the current market and economic scenario, where product and price no longer provide a clear competitive edge. Distribution channels play a key role in delivering an enhanced customer experience as customer interactions begin and end with channels. Banking customers are increasingly expecting more convenience, accessibility, personalization, and reliability across the distribution channel network. Banks need to deliver these features by leveraging innovative technologies and solutions for a seamless and personalized experience. There is a clear demand for banks to invest in their channel networks to make them more customer-centric and user- friendly, while in the process improving the channel efficiencies for better return on investment and increased profitability. These changes have led to the emergence of five key trends across retail banking channels5: 1. Increased online market presence using advanced technology platforms such as Web 2.0 and social networks. 2. Investment in enterprise mobile financial service solutions to drive innovation and reduce costs. 3. Increased push towards web-based activities to put the online channel on an equal footing with branch networks. 4. More emphasis on seamless multi-channel integration to better serve clients and gain competitive edge. 5. Increased spending on customer analytics tools to improve customer relationships. 5 Trends shown are not necessarily comprehensive, but have been highlighted due to their relevance and potential impact on the industry Trends in Retail Banking Channels: Improving Client Service and Operating Costs 7
  • 8. 4 Trend 1: Increased Online Market Presence Using Advanced Technology Platforms Such As Web 2.0 and Social Networks 4.1. Background and Key Drivers The online banking channel has evolved into an essential part of the banking channel mix. Banks are now focusing on achieving the optimal balance between channels with self-service capabilities (such as online and mobile) for day-to-day financial transactions, and advisory-based channels (such as the branches) for more Web 2.0 and social media complex client needs. Easy availability and affordability of high speed internet, platforms provide banks with personal computers, and improved online security are also contributing towards the increase in Web 2.0 adoption. an opportunity to communicate effectively with their clients Online banking has evolved over the last decade from a source of product and to better understand information to a one-stop-shop providing a complete set of banking services. As a their behavioral traits and new generation of banking clients demand more services to be delivered through expectations. the online channel, the online banking model has evolved from being purely tactical to a strategic tool through which banks can deliver better customer engagement and service. 4.2. Analysis With the growth and popularity of the online channel, banks are now expected to deliver a personalized online customer experience through Web 2.0 and social media tools. The focus for banks is also expected to be on maximizing revenue opportunities by achieving the optimal balance between the channel usage for basic transactions and advisor-assistance for more complex transactions. U.S. retail banks have been the most active in adopting Web 2.0 technologies for marketing and communications, with European and Asian counterparts not very far behind. While the online channel is becoming important for banks globally, differences exist across mature and emerging markets. In mature markets, the key focus area for banks is to upgrade their existing online platform by supplementing them with advanced functionalities and features. In emerging markets, the focus is on investing in online banking technologies to meet customer demand. 8
  • 9. the way we see it Banks have been a relatively late-comer compared to industries that have already embraced Web 2.0 and social networks. The key reasons have been an aversion to operational, compliance, and reputational risks that were associated with a new and unknown medium such as Web 2.0. However, banks today are investing in Web 2.0 tools such as blogs, wikis, RSS feeds, and social networking to create awareness and to expand their reach. The ultimate goal is to attract new customers and generate increased loyalty across existing customer segments, which will help banks increase their revenues and profitability. Over the last few years both the acceptance and adoption of Web 2.0 has increased, with customers demanding a more user-friendly, integrated banking experience—one that delivers higher trust, transparency, and interactivity with their banks. 4.3. Implications Before making any investments around Web 2.0, banks need to identify the business areas where it can be leveraged most beneficially. It is recommended to run small pilots before launching a full-scale enterprise-wide implementation of Web 2.0 technology. Banks may also face multiple challenges when they open their doors to the outside world, including customer data security, legal, and reputational risks, and a credibility risk. Web 2.0 adoptions of social marketing and social advocacy are fairly new and banks are taking cautious steps towards implementation to avoid the associated risks. While banks will have to overcome the above challenges, Web 2.0 technologies can help firms realize the full potential of their online platforms by creating new possibilities for enhanced communication with their clients. For example, banks can start blogs or forums to discuss new products or services with clients, or participate in social networks to increase transparency and foster customer loyalty. Web 2.0 can also help banks reduce their overall channel costs by opening up significant opportunities to sell complex products and services through the online channel, resulting in faster turnaround and much lower operational costs. To be successful in the Web 2.0 world, banks will require a clear strategy around their clients’ needs, the bank’s product portfolios, and overall marketing efforts. Trends in Retail Banking Channels: Improving Client Service and Operating Costs 9
  • 10. 5 Trend 2: Investment in Enterprise Mobile Financial Service Solutions to Drive Innovation and Reduce Costs 5.1. Background and Key Drivers Though mobile banking has been around for over a decade, its adoption rate and popularity have grown over the last few years. Customer attitudes towards mobile banking have become positive due to the emergence of advanced mobile and The mobile channel addresses smartphone technology, advancements in functionalities and security features, and customer needs for convenient an overall increase in the use of smartphones by the banking public. and frequent transactions, while reducing the overall channel Most of the existing mobile banking solutions typically support only a basic set of self-service transactions, making it difficult for banks to differentiate their offerings. operating costs. The key reason for this is that most banks responded to the increased demand for mobile banking services with an ad-hoc approach, providing basic services like account alerts and balance enquiries. However, due to the emergence of technologically-advanced mobile phones, there has been a significant surge in the demand for better mobile banking services. Mobile financial services not only fill the need for “anytime” banking for customers, they also have the potential to reach out to a large un-banked population. Low operating costs and higher penetration rates of mobile phones across all demographics make this particularly attractive in developing markets. While mobile financial services offer an enhanced value proposition to current and future banking customers, the medium also provides a viable business case for banks through reduced operational costs and increased revenues. 5.2. Analysis As the demand for mobile banking services grew, banks implemented solutions that would allow their customers to perform basic financial transactions on their mobile devices. However, with the growing demand from customers and an urgent need to cut down their operating costs, banks have realized the need to provide mobile banking services aligned with other banking channels to improve the overall customer experience. Banks have begun to recognize the value of various access modes for reaching out to their different customer segments. They are also seeing the value in performing certain kinds of secure transactions on devices ranging from the most basic mobile phones to the latest smart phones and mobile devices. As banks continue to increase their focus and investments around mobile financial services, there are contrasting differences that exist across developed and developing markets. In emerging markets, favorable demographics demonstrated through a tech-savvy younger population and lower banking and internet penetration make mobile banking an attractive channel for retail banks. For this reason, there may be higher potential for mobile banking services in developing countries as compared to their developed counterparts. However, consumer protection and growing security concerns in developing markets may slow down the growth rate. 10
  • 11. the way we see it 5.3. Implications Banks are expected to focus on migrating customers from costly traditional channels to online and mobile banking to improve their profitability and meet new customer demands. Banks have stopped looking at the mobile banking channel in isolation and are focusing now on a multi-channel approach to deliver a seamless customer experience. To deliver an enhanced mobile banking experience, banks will have to come up with a comprehensive mobile banking strategy where technology and smartphone functionalities are leveraged to deliver enterprise-wide banking services. The mobile financial services strategy can integrate financial transactions, payments, and mobile content to deliver custom services across different customer segments. To drive a high-level of adoption, banks also need to have in place an integrated mobile banking platform that delivers an optimized solution across different device types and mobile platforms. A mobile banking platform that is well integrated with a bank’s core banking, online banking, and payment platform has dual advantages. On one hand, the mobile platform can offer customers a more consistent and rich banking experience. At the same time, it can provide banks with a single customer view to support cross-selling and delivering differentiated customer services across various segments. Mobile banking is fast approaching a tipping point due to increasing demand from customers supported by faster adoption cycles for mobile banking. Banks that embrace and develop a holistic mobile banking strategy are expected to be better positioned to drive customer acquisition, improve profitability, and increase customer retention. While banks are increasingly making investments in enterprise mobile financial services platform, they need to understand the reasons behind what is important for their customers while using the mobile channel. Banks can uncover a wide range of compelling reasons, such as how customers use the mobile channel, and which segments prefer to use it for achieving different goals. Analyzing what is important for their customers will enable banks to develop a focused channel-specific strategy and will boost customer retention and loyalty. Trends in Retail Banking Channels: Improving Client Service and Operating Costs 11
  • 12. 6 Trend 3: Increased Push Towards Web-Based Activities to Put the Online Channel on an Equal Footing with Branch Networks 6.1. Background and Key Drivers Over the last decade, the adoption rate and usage of digital channels such as mobile phones and social media has been growing rapidly. Though security remains a key issue (real and perceived) with most digital channels, consumer adoption rates have been on the rise due to the ease of use, faster turnaround to carry out banking activities and transactions, and convenience that these digital channels provide. While the growth of online banking is important for banks as they seek to reduce their cost-to-serve, this trend also signifies that consumers will be more likely to use the online channel for buying more complex financial products and services in the future. Though banking customers continue to rely on branches for complex transactions, the web has emerged as the key banking channel for doing simple transactions, gathering information, and checking account status. With the online banking channel providing the closest approximation to the branch for driving future growth, banks are expected to increase their focus and investments around e-business and channel strategy. Exhibit 2: Importance of Channels to Customers by Products and Lifecycle, 2011 Overall Overall Importance Importance 6 6 5 5 Account Information Current, Deposit Mortgages 4 Status 4 Gathering / Accounts and & History Decisioning Payments 3 3 Loans Credit Cards Problem Resolution Transacting Branch ATM Online Phone Mobile Source: Capgemini Analysis, 2011; 2011 Retail Banking Voice of the Customer Survey, Capgemini, 2011 12
  • 13. the way we see it 6.2. Analysis The online channel has emerged as a high-investment priority for global banks due to its low cost-to-serve, higher profitability, and client adoption rate. In 2010, a large portion of a bank’s IT budget was spent on the online channel and this trend is expected to grow in the coming years. Banks globally are looking for enhancing their online channel functionalities across the board for delivering a better client experience. Banks are hunting for new revenue streams as new regulations have put a dent in the traditional sources of fee income for many financial services providers, including overdraft fees and credit card late fees. Banks are looking to recoup some of the lost income by charging for value-added services that can be provided through the online channel. Exhibit 3: Key Factors Influencing Banks’ Investments in the Online Channel Increasing smartphone Web’s role adoption Web has in increasing become the interest of primary research consumers in channel for other financial financial products Investment in products Web-Based Channel Increasing Initiatives Increased comfort levels budget allocation of customers in by banks for web using the online channel channel Source: Capgemini Analysis, 2011 Trends in Retail Banking Channels: Improving Client Service and Operating Costs 13
  • 14. 6.3. Implications Banks will have to focus on enhancing their web-based offerings by focusing on leveraging user data for improving their cross-sell efforts, integrating online channels for enhanced web experience, and making their online presence more sophisticated. While integration within the online channel will help banks provide a wide variety of products and services through the web at a lower cost, rich media proliferation within financial services is expected to play a key role in the evolution of rich web content and applications. Banks may have to develop and provide enhanced web interface functionality by leveraging rich internet application (RIA) technology to provide an enhanced web experience for their customers. Banks will also be able to leverage the online customer traffic to boost their cross-selling efforts by using smart tools and technologies. As the online channel evolves to become the key customer touch-point for most types of financial services interaction, banks have to understand their customer preferences in order to develop a winning online channel strategy. 14
  • 15. the way we see it 7 Trend 4: More Emphasis on Seamless Multi-Channel Integration to Better Serve Clients and Gain a Competitive Edge 7.1. Background and Key Drivers Today’s multi-product, multi-channel environment presents significant challenges for retail banks. The key challenge is the ad-hoc approach followed by banks As banks globally focus on in delivering products and services to their customers. Due to this, banks can achieving a seamless multi- easily fall into the “3E trap” by trying to sell everything to everyone, everywhere6. channel integration across their Another key challenge is around the difficulty of integrating channels to deliver channel networks, channel a seamless experience to customers as they move from one channel to another management is shifting from just within an institution. being an operational function to becoming a tactical tool. To address these challenges, banks will have to develop distribution strategies that take into account customer segmentation and profiling for directing the right product to the right customer through the right channel. Though banks have made some progress in achieving multi-channel integration, banking customers globally are demanding the ability to fluidly switch back and forth across different channels for the same sales or service event. 7.2. Analysis Banks now recognize the importance of achieving a seamless multi-channel integration and have been investing heavily to achieve this, but few have yet to realize their goal. The key challenges banks face today in achieving a true seamless integration are existing legacy applications and systems, bank processes operating in silos, and the lack of staff training to be able to function in a multi- channel environment. For retail banks today, channel management is moving from just being an operational function to a tactical tool as part of their larger business strategy. There are three main dimensions that banks are focusing on to achieve a true multi- channel management which is integrated with a successful overall business strategy: ■ Review channel strategy before making a channel investment. ■ Move the right customer to the right channel to optimize satisfaction and profits. ■ Design channel experience with a customer-centric approach. 6 The CMO Imperative: Multi-Channel Customer Engagement, 2010 Trends in Retail Banking Channels: Improving Client Service and Operating Costs 15
  • 16. 7.3. Implications Achieving a seamless customer experience through multi-channel optimization of service delivery will increasingly be a source of differentiation among banks. Achieving full benefits of a true seamless multi-channel integration is a long and expensive process which will require the alignment and standardization of systems and data. On their journey to achieve excellence in multi-channel integration, banks will have to take the following three key steps: ■ Focus to achieve channel excellence across key customer touch points: The first step for banks will be to achieve and deliver the basic (per industry standards) sales and service transactions across each channel individually. ■ To achieve consistency across channels: The second step will be to standardize information while also developing a uniform look and feel across all channels. ■ Focus to achieve a true seamless multi-channel integration: The final stage will be a state of seamless multi-channel integrations where customers should be able to start sales or service transactions in one channel and complete these transactions easily in another. Banks that successfully create an integrated multi-channel strategy with a customer- focused approach are expected to turn their channel management efforts into a key differentiator in the market. 16
  • 17. the way we see it 8 Trend 5: Increased Spending on Customer Analytics Tools to Improve Customer Relationships 8.1. Background and Key Drivers In retail banking, the customer is at the core of operations. Developing a long- term relationship with their existing and potential customers is important to gain By implementing analytical and retain market share. Due to exponential growth in product complexity and tools that can help convert data customer touch-points, banks’ relationships with their customers have become into actionable insights, banks more complex over time. To better understand customer demands across a are able to deliver enhanced more global and heterogenous client base, it is important for banks to effectively customer value by exhibiting a leverage analytical tools and technologies to enhance customer value and increase differentiated value proposition. market share. While customer relationship management systems without analytics support may help in reducing costs and bringing about a customer-centric view to the organization, data mining and advanced business intelligence can help banks gather deeper customer insights. As banks grapple with the numerous challenges facing the banking industry today (ranging across elevated operational costs, declining revenues, regulatory pressure, and evolving customer demands), they require a robust analytical solution to better understand drivers for customer retention and attrition. Exhibit 4: Key Challenges in Retail Banking Market, 2011 Reducing Operational Costs Complexity around Price Products and Competition Services Evolving Fragmentation Customer of Customer Demands Segments Proliferation of Distribution Channels Source: Capgemini Analysis, 2011 Trends in Retail Banking Channels: Improving Client Service and Operating Costs 17
  • 18. 8.2. Analysis Banks are likely to increase their adoption of financial analytics, customer intelligence, and performance management, and look beyond the transactional nature of their existing systems. Trends show that banks are segmenting customers on the basis of their age, gender, net-worth to ensure better service to their customer segments. This also ensures that relationship managers have a greater opportunity to cross-sell depending on the nature of different customer segments. Embracing analytics is helping banks understand the real power of combining customer data with business intelligence and predictive analytics. Predictive analytics helps increase customer value by offering management insights to devise pricing strategies based on predictions of customer risk and value over time. There are multiple benefits that banks can achieve by adopting a robust analytical solution, including reduction in customer attrition, increased profitability, increase in cross-sell opportunities, and enhanced customer value. 8.3. Implications An advanced analytics capability can help banks in not only improving customer service, but also in differentiating their brand and growing revenues by cross- selling the right product through the right channel to the right customer. Adoption of advanced analytics will also help banks realize significant business benefits by customer profitability analysis, cost analysis, customer loyalty analysis, time value predictions, and overall return on investment analysis. To fully benefit from their customer analytics solutions, banks will have to take a well-defined approach starting from data assimilation to data analysis. Ultimately, such banks will be able to take insight generation into the development of winning long-term strategies. 18
  • 19. the way we see it References 1. How to Achieve a Compelling ROI from Mobile Financial Services, Fiserv, 2009 2. North American Retail Banking eBusiness and Channel Strategy, Forrester, Feb 2010 3. Changing the Channel, A New Approach to Multichannel Strategy in the Financial Services Industry, Peppers and Rogers Group, 2010 4. Multi-Channel Banking: Unravel Complexity to turn Ambitions into Reality, Oliver Wyman, 2010 5. Transforming Retail Banking to Reflect the New Economic Environment, Efma and Microsoft, 2010 6. Three Imperatives for Optimizing Retail Banking Channels, Peppers and Rogers Group, 2010 7. The evolution of CRM in retail financial services, Efma, 2009 Trends in Retail Banking Channels: Improving Client Service and Operating Costs 19
  • 20. www.capgemini.com/banking About the Author Ashish Kanchan is a Lead Consultant in Capgemini’s Strategic Analysis Group within the Global Financial Services Market Intelligence team. He has ten years of experience in the banking and capital markets industry with expertise in private banking, wealth management, and asset management. The author would like to thank Bhaskar Banerjee, David Wilson, and William Sullivan for their overall contribution on this publication. For more information, visit www.capgemini.com/banking or e-mail banking@capgemini.com. About Capgemini and the Collaborative Business Experience Capgemini, one of the Present in 40 countries, Capgemini reported world’s foremost providers 2010 global revenues of EUR 8.7 billion and of consulting, technology and outsourcing employs around 112,000 people worldwide. services, enables its clients to transform Capgemini’s Global Financial Services and perform through technologies. Business Unit brings deep industry Capgemini provides its clients with experience, innovative service offerings and insights and capabilities that boost their next generation global delivery to serve the freedom to achieve superior results financial services industry. through a unique way of working, the With a network of 21,000 professionals Collaborative Business Experience™. serving over 900 clients worldwide, The Group relies on its global delivery Capgemini collaborates with leading banks, model called Rightshore®, which aims to insurers and capital market companies to get the right balance of the best talent deliver business and IT solutions and thought from multiple locations, working as one leadership which create tangible value. team to create and deliver the optimum For more information please visit About Capgemini and the solution for clients. www.capgemini.com/financialservices Collaborative Business Experience Copyright © 2012 Capgemini. onerights reserved. Capgemini, All of the Present in 40 countries, Capgemini reported world’s foremost providers 2010 global revenues of EUR 8.7 billion and of consulting, technology and outsourcing employs around 112,000 people worldwide. services, enables its clients to transform Capgemini’s Global Financial Services and perform through technologies. Business Unit brings deep industry Capgemini provides its clients with experience, innovative service offerings and insights and capabilities that boost their next generation global delivery to serve the freedom to achieve superior results financial services industry. through a unique way of working, the With a network of 21,000 professionals Collaborative Business Experience™. serving over 900 clients worldwide, The Group relies on its global delivery Capgemini collaborates with leading banks, model called Rightshore®, which aims to insurers and capital market companies to get the right balance of the best talent deliver business and IT solutions and thought from multiple locations, working as one leadership which create tangible value. team to create and deliver the optimum For more information please visit solution for clients. www.capgemini.com/financialservices Copyright © 2012 Capgemini. All rights reserved.