swim or sink? essential insights for staying afloat in the banking market place

Sink or Swim? Essential Insights for Staying Afloat in the Banking Market Place

Caroline Andrieuc.andrieu@pac-online.com

Rajeena Brarr.brar@pac-online.com

Fergus O’Reillyfergus.o-reilly@sap.com

Agenda

I. Introduction: Presentation of the Research

II. Industry Analysis: Major Challenges for the Banking Sector in 2012-2015

III. Innovation in Banks: Insight Into How Traditional Business Models Can Be Adapted

IV. “Emerging Models” and New Market Entrants: Focus on the UK Market

V. Conclusion: Summary and Key Take Away Points

I. IntroductionPresentation of the Research

Pierre Audoin Consultants (PAC) undertook a study, sponsored by SAP.

The objectives of the study are to:

• Highlight the key challenges banks are facing across the globe;

• Understand the intensifying factors impacting banking business models;

• Investigate how banks can innovate in order to improve their business andfinancial performance;

• Provide insight into innovative approaches in order to remain competitive ina dynamic market.

Objectives

Annual reports, market data and other desk research

PAC knowledge management database

Interviews with business users and IT professionals

Research Methodology

Retail Banking

Wholesale/Corporate Banking

Investment Banking

Private Banking

Scope of the Paper

Personal/ consumer (mass market), includes accounts, mortgages, personal loans, etc.

B2B banking business including corporate customers and financial institutions such as cash management, etc.

Financial exchanges, clearing houses, trading, projects finance and hedging activities for companies, and

institutional investors, etc.

All services offered to wealthy individuals: asset and wealth management, retail investment services for private individuals (public fund, life insurance, etc.)

II. Industry AnalysisMajor Challenges for the Banking Sector in 2012-2015

A Fast-changing Environment…

Regulatory changes

New technologies and evolving customer habits

Pressure from new entrants

Customer expectations

- Single view of the customer- Meeting levels of capital / liquidity levels set by regulators by 2015- Organizational restructuring e.g. Vickers (UK)

Regulatory changes

Customer expectations- Reduced customer loyalty- Shift to innovative, ‘lifestyle’ banks- Relationship-based pricing

- Consumerization - Internet and mobile channels- Real-time services, e.g. quotation

Regulatory changes

Regulatory changes + new technologies= increasing competition

Regulatory changes

… Putting Current Business Models Under Pressure

Pressure on margins

=> Need to adapt post financial crisis & new economic outlook, pricing pressure from new

entrants, reform of financial system, etc.

Reduced customer loyalty Changing consumer behaviourPressure from new entrants

=> Need to enhance customer service levels, renew service offerings, build new delivery channels, etc.

III. Innovation in BanksHow Traditional Business Models Can Be Adapted

… Dealing with declining revenues

New generations of products and services to reconnect with customers

Deployment of new channels that meet market expectations

New approaches to customer relationship, consistent across the organisation

…Dealing With Pressure on Margins

Design of new architectures in which smart tools play a key role

Improved customer analytics

Ability to better profile and target high-value customers

Enhanced control over processes (billing, invoicing, etc.)

Which of the following is the biggest driver of innovation at financial institutions?(only 1 response)

• Regulatory reform• Access to new technologies• Declining cost to income ratios• Competitive pressures• New entrants to the market

POLL #1 PLACEHOLDER

2 CASE STUDIES FROM THE RESEARCH

Case Study 1: Corporate Bank

• A new generation of products and services to reconnect with customers

Corporate clients expect their financial partners to help them improve cash management

Challenge: banks’ difficulty in funding the level of investment required to succeed in the cash management business

Focused IT investments help determine the required financial equation to launch offers

Introduced electronic platforms with best of breed analytical and invoicing tools to help improve both top and bottom lines

Benefits: able to satisfy large account requirements, acquire new clients (suppliers), diminish activity ratios and reduce average collection time on outstanding invoices

Ecosystem & Requirements

Retail Customers

Capital MarketsExchanges &

Clearing Houses

CorporateClients

Relationship Pricing

CreditBureau

Payment ServiceProviders

Consolidated Invoicing

AR/AP Factoring

Commissions

Case study 2: BNP Paribas Online Banking

• Internet banking as a core line of business… BNP Paribas adopts an innovative approach to online banking

Internet and mobile habits are changing at an exponential rate

Since its launch 3 years ago, BNP Paribas Online Banking has grown to employ 1,000 people and manages 2.4 million clients

9% of savings accounts of BNP Paribas France are now signed up online, 80% of personal stock trades are placed through the Internet

These channels help build strong customer relationships

In an innovative cross-channel approach: all lines of business (traditional and online) are integrated and communicate collaboratively

Benefits: Avoid isolation of a channel from the other lines of business

IV. Emerging Models and New Market EntrantsFocus on the UK Market

• Established banks must adapt quickly to the changing market and increased competition

• Declining customer loyalty + regulations => more competition + lower barriers to entry

• Key examples include:

Metro Bank: 35k customers in the UK, 15k ahead of target since 2010 launch. Aims to open 200 branches by 2020.

Tesco Bank: investing in in-store branches…to launch current accounts in 2013.

Virgin Money acquired UK bank Northern Rock in Jan 2012…launched Virgin Savings Accounts.

New Banks As Challengers

• Refocusing on branches to reconnect with customers

• Key investments:

Enhanced customer service levels

Faster time-to-market

Flexibility

Consistent service across channels

Business process automation

• Turning to IT to enable business innovation -> tailored product offerings, pricing, real-time services… and to tackle internal inefficiencies e.g. revenue leakage

• Established banks must address legacy / inflexible systems to increase efficiencies and remain competitive

New Banks Adopt New Approaches

V. ConclusionSummary and Key Take Away Points

Customer-centric processes

• Relationship-based pricing to reward customer loyalty and strengthen relationships

• Ability to deal with complex business rules

• Consistent experiences across channels

• Real-time capabilities to offer fast and efficient services to customers

How Banks Leverage IT to Support Business Innovation

Back-office processes

• Capacity to handle high volumes of data for fast processing and in-depth analysis

• Integration of all levels of information across the enterprise to address accurate and single view of customers

• Emergence of a ‘middle office’

• Solutions to enable localisation (e.g. multi-currencies, multi-entity capabilities)

SAP solutions for Service to Cash

Bank/BrokerDemandsClient Satisfaction& RetentionAutomated Straight-Through ProcessingAuditability, Accuracy & TransparencyPlatform Consolidation

Bankers/BrokersProfitability

Value Chain DemandsReal-Time Revenue Management &Sharing

Flexible SLAsReal-Time Analytics & Reports

Flexible SLAsReal-Time Analytics & Reports Partner LoyaltyPartner Loyalty

Financial Services Partners

Flexible SLAsReal-Time Analytics & Reports Partner Loyalty

Financial Services Partners

Fee Calculation

Engine

Revenue & Expense

Management

Billing & Payment

Statements

Customer & Partner Relationship Management

Accounts Receivable / Payable / GL

Clients DemandsNew Innovative Services

Relationship Based PricingOn-Demand Price Quotes

Real-Time Analytics & ReportsConsolidated Statements

ClientsClients Client SatisfactionClient Satisfaction

Client TransactionsClient Transactions

Clients Client Satisfaction

Client Transactions

Business Intelligence

Which capability would you most like to have at your bank of choice?(multiple choices possible)

• Personalized quotations in real-time• Spend analysis & budgeting facilities• Mobile payments• Real-time suggestions for optimized

service fees• Free ice cream

POLL #2 PLACEHOLDER

Key Take Away Points• Financial services institutions need to embrace change to survive

• Must adopt new business models to drive out costs, enhance efficiencies and compete better and be compliant

• Leverage IT to enable innovation and enhance differentiation

• Differentiators include: time-to-market, enhanced automation, tailored products /services, consistent service across multiple channels, real-time services

• Established banks need to address legacy and inflexible IT landscapes to more quickly address market challenges and customer expectations

Otherwise financial institutions risk losing market share or being squeezed out of the market altogether!

Your questions are welcome!

Questions & Answers

Sink or Swim? Essential Insights for Staying Afloat in the Banking Market Place

Caroline Andrieuc.andrieu@pac-online.com

Rajeena Brarr.brar@pac-online.com

Fergus O’Reillyfergus.o-reilly@sap.com

swim or sink? essential insights for staying afloat in the banking market place

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