Banking on the New Style of BusinessShaping the Bank of the Future

Executive Introduction

Research from Gartner: How to Develop Digital Banking That Delivers More Than Multichannel Integration

Customer Engagement and Experiences: The Age of the Digital Bank

The Multichannel Evolution: Shaping the Bank of the Future

Branch Transformation: Evolving Beyond Traditional Banking Transactions

Cards and Payments — The Next Generation: Achieving Customer Satisfaction

Why HP?

2

3

7

10

17

21

24

2

Executive Introduction

Technology is no longer just an enabler of business ideas; it is now the key seed for innovation within the business. In March 2015, Gartner published the findings of its Digital Business Baseline Survey which outlined the following results:

“Digital business is here. Twenty-two percent of organizational leaders say they are currently doing some form of digital business, resulting in higher investment in IT.

Digital business is growing. Fifty percent of businesses intend to be a digital business in 24 months, and 83% in three to five years, which will result in high stresses on individuals in organizations.”1

The New Style of Business is challenging conventional notions about how businesses should operate. With each passing day, more and more use cases evolve on how technology is redefining the customer experience.

The art of the possible with customer experience is limited only by imagination. Change must be managed to maximize the value from existing investments and to optimize the returns from investments. To

achieve this, organizations must identify the right business issues to address to deliver maximum returns, adopt the latest technologies to minimize costs and discover new ways to fund innovation.

In this newsletter, we explore how The New Style of Business is impacting the banks and how technology is redefining their relationship with their customers. It is a transformation journey that we can help you embark on.

Bank on the New Style of Business and shape the bank of the future.

Andrew Clarke Vice-President APJ Industry Solutions Practice, HP Enterprise Services

1 Gartner Inc., Digital Business Is Here Now, G00269535, 18 March 2015

Banking on the New Style of Business is published by HP. Editorial content supplied by HP is independent of Gartner analysis. All Gartner research is used with Gartner’s permission, and was originally published as part of Gartner’s syndicated research service available to all entitled Gartner clients. © 2015 Gartner, Inc. and/or its affiliates. All rights reserved. The use of Gartner research in this publication does not indicate Gartner’s endorsement of HP’s products and/or strategies. Reproduction or distribution of this publication in any form without Gartner’s prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. The opinions expressed herein are subject to change without notice. Although Gartner research may include a discussion of related legal issues, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner is a public company, and its shareholders may include firms and funds that have financial interests in entities covered in Gartner research. Gartner’s Board of Directors may include senior managers of these firms or funds. Gartner research is produced independently by its research organization without input or influence from these firms, funds or their managers. For further information on the independence and integrity of Gartner research, see “Guiding Principles on Independence and Objectivity” on its website, http://www.gartner.com/technology/about/ombudsman/omb_guide2.jsp.

3

Research from Gartner:

How to Develop Digital Banking That Delivers More Than Multichannel Integration

Introduction

Banks’ IT efforts to integrate channels have been difficult at best. Channel integration initiatives typically focus on improving channel solutions’ access to back-office systems, but generally have failed to give banker staffs in IT or business what they seek: differentiating value and better customer experiences that improve product sales as well as customer acquisition and retention. In the digital banking environment, supporting existing and new channels, and providing integration to the back office, is not enough. With the proliferation of Nexus of Forces technologies, a bank IT delivery strategy that focuses only on multichannel integration will also fail to support digital banking. At best, multichannel integration enables the bank to digitalize existing banking transactions for existing traditional channels, like online and mobile banking. Multichannel integration alone supports banking on multiple (although maybe not most) mobile devices, tablets and desktops/laptops, but it will not support the banking business and IT in the development of new digital transactions, assets and customer experiences. Furthermore, delivery strategies that just focus on creating digital transactions of existing online or mobile banking transactions or processes do not necessarily deliver any cost efficiencies or better customer experiences.

Bank CIOs must understand that digital banking is fundamentally different from traditional channel-based banking. To support digital banking, bank CIOs and senior IT staffs must create a digital banking strategy and an architecture to support it. Digital banking requires bankers to move from a single view of the customer experience (which relies on delivering existing products and services across devices, browsers and operating systems [OSs]) to an architecture that supports applications that take into account customer location, context and identity to deliver relevant banking services to customer devices. Digital banking will also support the taxonomy of functionality that Gartner has defined.

Digital banking incorporates multichannel integration, but focuses on creating new business models and digital assets that are valuable to the customer. Bank CIOs and other business leaders must make sure they deliver a multidimensional customer experience to all digital channels.

Key Challenges

• Multichannel integration is important to, but not the focus of, digital banking. Bank CIOs must resist focusing only on multichannel; otherwise, they will not move beyond digitalizing existing bank transactions.

• Bank technology strategies that just focus on creating digital transactions of existing online or mobile banking transactions or processes do not necessarily deliver any cost efficiencies or better customer experiences.

• These strategies will create a single view of the customer experience, but do not enable IT leaders to support applications and apps that take into account customer location, context and identity in the delivery of relevant banking services to customer devices.

• A delivery architecture focused on channel integration and digitalization of existing transactions will not enable banks to support traditional Web-based and mobile banking, appropriate third-party social sites, wearable devices, partner ecosystems, and other resources to generate new customer value networks.

Recommendations

Bank CIOs; enterprise strategic planners; LOB heads; and product development and marketing managers:

• Shift the digital banking strategy from a focus on the transaction to a focus on the customer experience.

• Create an architecture foundation that enables banks to support an environment that includes new and emerging digital touchpoints.

• Plan to deploy digital banking by implementing a solution that incorporates online, mobile and physical in an integrated approach.

4

Analysis

Shift the Digital Banking Strategy From a Focus on the Transaction to a Focus on the Customer ExperienceTraditional online and mobile banking solutions focus on the bank transactions. These consumer transactions typically include “view account balance,” “transaction history,” “pay bill,” “create a payee,” “transfer funds” (typically me to me within the financial institution), “open new account” and “locate bank ATMs or branches.” Many banks also offer customers the ability to originate a person-to-person (P2P) payment from the online banking website or mobile banking application. Some banks have created apps that just allow check balance or P2P payments. Transactions for small or midsize business (SMB) and other business customers typically include similar transactions, as well as a variety of domestic and cross-border payments, cash management capabilities, trade finance, delivery management and data sourcing.

While online and mobile banking solutions move transactions from the teller or call center to the online banking website or the bank’s mobile banking application, it is unclear whether the result is cost efficiencies or better customer experiences. To improve both of these, bank CIOs should:

• Create a digital delivery strategy that puts the customer experience at the center, rather than a newer version of transaction-centric delivery through digital channels. A strategy that automates, digitalizes or streamlines existing transactions is transaction-centric. A strategy that supports digital banking capabilities puts the customer at the center of digital delivery. These digital capabilities directly impact and create a customer-centric experience (see Table 1).

• Focus on customer requirements for interacting with the bank. Transactions must not take priority over the customer’s requirements. A “funds transfer” is a bank activity, not a customer activity. Customers do not care whether a payment translates into a “bill pay” or “payment transfer” for the bank. They care about cost, speed and ease of use. Typical online and mobile banking solutions are transaction-centric rather than customer-centric. They offer rigid workflows that require the customer to start by figuring out which transaction will accomplish his or her goal, rather than starting with a process that is focused on achieving the customer’s goal — such as improving an SMB owner’s cash flow.

Capability Example of Customer Experience

Identity Use social logon to give customers easy access to their accounts.

Access and control

Offer customers the ability to manage and pay monthly bills on time based on an analysis of their actual monthly cash flows.

Location and context

Automatically adjust the capabilities available to customers based on their devices and the technology available.

Data and information

Enable customers to receive just-in-time advice regarding the use of various payment methods based on their personal financial cash flows, budgets and debts.

• Separate the customer experience from the transaction. Customers will expect and want a different experience when accessing a mobile app, as opposed to when they access the bank’s online website. The customer’s experience on a device should take his or her location and context into account in helping him or her accomplish a task. For example, the customer’s experience in using a smartphone or smartwatch to get an account balance before making a purchase should be different from when he or she uses a laptop at home for the same activity. A graphic display on a smartphone enables the customer to quickly get the information without giving away his or her account information. Westpac Banking in New Zealand, for example, created the Cash Tank app for mobile phones, and recently for the Sony SmartWatch. When a customer is on a laptop at home, he or she may like the option to view an account balance as well as any upcoming bills.

Table 1. Digital Banking Capabilities

Source: Gartner (March 2014)

Create an Architecture Foundation That Enables Banks to Support an Environment That Includes New and Emerging Digital TouchpointsThe digital banking delivery strategy should include multichannel integration, which must accommodate all kinds of banking customers (that is, consumers, SMBs, high net worth, private and business). A digital delivery architecture must be ready to distribute bank transactions, products and services to any device via any delivery mechanism to any customer, whether consumer, business, or associated third party, third-party app or third-party site. This architecture is shown in Figure 1.

5

Bank CIOs should:

• Provide the technical infrastructure for sophisticated integration capabilities. The digital delivery architecture supports not only channel integration, but also data and analytics, whether from the bank’s sources and analytics or from third-party sources and analytics. In addition, the architecture supports channel integration to not only bank-owned channels, but also third-party-owned channels or networks. Also, the architecture must support bank-owned apps as well as APIs to enable third-party apps and open banking.

• Manage customer experience from device to device (whether customer-owned or bank-owned) separately from transaction processes and integration. This management means the architecture must be able to identify the device and type of technology (for example, browser, native app and so on) that the customer is using. The bank must also deliver consistent data and services that are appropriate to the device.

• Separate the presentation or rendering of functionality and services from the services themselves. The architecture should support transactions, alerting, security and other

Source: Gartner (March 2014)

FIGURE 1 Digital Delivery Architecture

capabilities for any channel or device. These capabilities should not be tied to a specific channel or device. This will free the bank to create new apps and support new devices more rapidly. For example, if the consumer line of business wants to enable customers to open new accounts on their smartphones, the IT group can reuse the account opening functionality. That functionality is not linked to the presentation on the smartphone devices.

• Monitor the emergence and use of devices and OSs. Consumer preferences are constantly changing, and they — not banks or their IT organizations — will determine which devices and OSs must be supported. Information about consumer preferences will, in turn, support CIOs’ business cases for supporting functionality for new devices and Oss.

• Leverage the digital delivery architecture to assemble assets using digital technology and deliver them to customers with value that is not otherwise available. As a result, this architecture will enable the bank’s ability to marry partner data, products and services to create digital assets. This architecture should be the foundation for a partner ecosystem and other resources to generate new customer value networks.

6

Plan to Deploy Digital Banking by Implementing a Solution That Incorporates Online, Mobile and Physical in an Integrated ApproachBank CIOs should build or buy digital banking solutions that support delivery to all types of devices and across all digital channels. Traditional online and mobile banking solutions have focused on creating self-service versions of existing bank transactions. Many mobile banking solutions copy the functionality and customer experience from online banking. While online and mobile banking frees customers from needing to visit branches, the popularity of these and other services (such as balance checking and mobile-based alerts) also limits customers’ interactions with bank representatives.

In addition, the bank’s cost of supporting these digital services erodes gains by pushing transactions to digital channels. Many banks’ IT staffs have seen increased costs of maintaining separate and aging mobile and online banking solutions, without a clear connection to revenue generation. Thus, bank IT and other line-of-business leaders must determine how to build relationships with customers who use a variety of digital services.

Bank CIOs should create delivery technology replacement strategies that reflect the focus on customer-centric delivery rather than transaction-centric delivery. These replacement strategies should focus on enabling customers to accomplish their goals and tasks, rather than locating the transaction required. These strategies also should accommodate digital banking capabilities. Bank CIOs should:

• Use centralized customer communication and preference management to create a personalized delivery matrix that works with alerting and transactions to support customer requirements for information and communication. Doing so will enable the bank to provide messages and information that are consistent with the methods the customer wants to use to interact with the bank.

• Identify solutions that:

• Have a single delivery platform to support integration, devices, user interfaces, customers and technology environments. Separate customer experience from the bank transactions, and separate functionality from the specific device. Doing so is crucial to designing customer experience and functionality that are appropriate and relevant to the device, and to the contexts in which the customer uses that device.

• Build in social capabilities, personal financial management (PFM) tools and gamification functionality that can be deployed to a variety of OSs, browsers, devices and device types. Do not segregate these capabilities as mobile banking or online banking.

• Deliver customer data, transactions and services in ways that are appropriate and relevant to the specific device. However, recognize that understanding the nuances of customer experiences and requirements on various digital devices does not mean delivering or supporting all functionality at every digital destination.

• Support distinct presentation, transaction and integration layers that can and do function autonomously. This enables IT to develop and support capabilities that are flexible and agile enough to follow the customer’s location and context, rather than force the customer to a specific device or channel.

• Adopt context-sensitivity to the delivery of channel-agnostic functionality, such as alerts and PFM. The separation of functionality from presentation will guide the bank to appropriate and relevant locations and devices.

• Consider solutions that can replace stand-alone online and mobile banking solutions with a single digital banking solution for basic transactions, and also offer integrated digital banking capabilities.

Technology providers that support many of these capabilities include Backbase, Comarch, Crealogix Group, D3 Banking, FidorTecS, Finantix, Intelligent Environments, Misys, Q2, Vipera and Yodlee.

Deploying a digital banking solution does not mean the bank should not also develop apps to meet specific customer requirements for smartphones or tablets. The digital banking solution must also be part of the bank’s mobile financial services strategy.

Gartner RAS Research Note G00263075, Stessa Cohen, 31 March 2014

7

Customer Engagement and Experiences: The Age of the Digital Bank

When was the last time you had to wait in line at the bank to withdraw money or deposit a cheque?

That might have been a typical scene some 20 years ago, but today’s customers want the ability to perform banking transactions on their smartphones and other mobile devices. They are not going to wait in line just to deposit or withdraw money, and they want these services to be integrated into their buying cycle. They also want the information and intelligence to help them make the right purchase.

Banks that are unable to transform their business and meet these changing customer requirements risk losing their market relevance and client base. They need to start looking at how they should integrate their traditional and digital operations, and change the way they deliver services.

It is not simply about creating a new digital channel, but building a platform that can work seamlessly across different channels including ATMs, phone banking, and online banking.

In short, it is no longer business as usual. It is now the age of the digital bank, and a new era where banks need to get involved in their customers’ buying cycle and help them fulfill the entire lifespan of their transactions. While doing so, banks still need to ensure their cost remains below 30% for every dollar they make.

Clearly, financial market players face a challenging road ahead.

According to McKinsey’s May 2014 report “Strategy Principles for Competing in the Digital Age”, digitization is rewriting the rules of competition, with incumbent companies most at risk of being left behind. Citing a banking CEO, it noted that the industry was witnessing a transition that occurred once every 100 years and market leaders would face pressure tests of their growth strategy.

Consumers in the digital age expect a different way of banking, but many banks today are not ready for the digital evolution. This has led to gaps in the market and provided opportunities for non-traditional players to fulfill these needs with innovative financial services, threatening

the space that incumbents have long dominated. eBay, Apple, and PayPal are just a handful of non-traditional financial services providers, with strong expertise in technology, that have emerged to offer new ways of delivering services that typically would have been part of a bank’s portfolio, such as payment, vouchers, and insurance.

New market entrants threatening traditional players

In his November 2014 report “Five Future Forces Impacting Banks”, Joseph H. Cady observed that technology had enabled non-traditional market players to step into the banking arena and these new entrants would continue to build out their footprint and gain market share.

A managing partner at CS Consulting Group, Cady further cited a study where 71% of bank executives perceived these market entrants as a threat, pointing to players such as Walmart, Amazon, and Google. He said these companies were likely to remain niche players due to the lower profit margins and high investment associated with banking services, but noted that they could still prove disruptive to traditional banks and eat into their lucrative niche service segments.

“If that occurs in a meaningful way, financial institutions risk becoming irrelevant among consumers and then serve largely as a quasi-utilities offering monetary safekeeping,” he cautioned. To remain competitive, banks must differentiate their lines of business and provide distinguishable services, he said, and compared these to those offered by the finest hotels and restaurants.

McKinsey’s report noted similar observations: “Japanese web retailer, Rakuten, is using its network to offer financial services. Web powerhouses like Google and Twitter eagerly test industry boundaries through products such as Google Wallet and Twitter’s retail offerings.

“New competitors can often be smaller companies that will never reach scale but still do a lot of damage to incumbents,” it said. McKinsey added that some traditional players were turning to partnerships with new

8

market entrants as part of efforts to remain competitive. The consulting firm pointed to Santander’s alliance with startup Funding Circle as an example, noting that the U.K. bank recognized that a segment of its customers sought access to peer-to-peer lending and realized it would be too costly to build this service from ground zero.

Banks also should create new store-fronts in the digital domain and significantly change the way they do business. They need to keep consumers in the center of any service development efforts, and this means becoming more agile so they move quickly to meet their customer’s changing demands.

By gleaning more insights about what matters most to their customers and the platforms on which they want services delivered, they can build products that involve them in the customer’s purchasing cycle and lead to better consumer outcomes.

Today, when consumers browse online stores such as eBay or Amazon, they search and identify the product they want, purchase it on the website, and expect it to be delivered to their doorstep. Banks need to be more involved in this digital domain.

Ideally, they should have a virtual assistant that can dispense advice and help consumers obtain the best deal available in the market. For instance, they can help a customer looking to buy a car secure a good deal by providing a list of models from their business partners in this market segment, such as car manufacturers or dealers. Banks can offer recommendations that are within the buyer’s targeted price range and link them to the seller when a choice is made. They can then provide information about the most suitable car loan and recommend an insurance plan.

This is just one example of how financial institutions can be involved in the customer’s purchasing lifecycle and become an integral part of the consumer’s decision-making process. For this to happen, though, banks need to realize that trust is a critical component in terms of user experience and working with the bank. This is where traditional banks can differentiate themselves from new market entrants.

An Australian bank, for instance, whose portfolio includes mortgage services developed a property app to help consumers search for available property across the country, according to their specifications. Once they have found the property they are interested in, they can make an offer for the house and view the bank’s mortgage services.

The bank will then assess the customer’s financial background, conduct the appropriate checks, and pull up the relevant legal documents they need to apply for a loan to purchase the property as well as a home insurance plan.

So the app makes property search quick, hassle-free, and easy. It is highly innovative and impactful, providing much convenience for the bank’s customers. On its part, the financial institution had created an app with the goal of differentiating themselves in the digital space and in so doing, built a new style of brand loyalty and stickiness. The bank is able to position itself as one that can not only provide financial services, but that can also help customers along with their purchasing journey and assist them in securing the best deal.

Ensuring market sustainability through customer experience

This need to reinvent themselves will be vital for banks, as their industry is expected to see disruptive changes ahead.

According to Ernst & Young, the financial and sovereign debt crises had forced the global banking industry to snap out of a relatively calm, prosperous period and face an era of great uncertainty. As a result, major market forces will shape the banking realm over the next few years through to 2030 and beyond.

Among these is the transformation of customer relationships, noted the consulting firm, where consumers increasingly want more control of their financial associations. “By 2030, banks will deepen their personal connections with customers via data analysis techniques that might seem fantastic by today’s standards,” it said.

To do that, financial institutions can work with technology vendors such as HP to identify what they need to drive their business and establish a roadmap. This blueprint will prioritize digital services they need to provide and determine the underlying technology that is needed to support them.

9

Banks need to start looking at disruptive technology, such as cloud, mobility, and big data analytics, and figure out how these would work within the organization. As previously highlighted, customer insights will provide important guidance on what consumers want and the kinds of services they expect their banks to provide.

And customer experience in future may not require physical outlets.

In his report, Cady said consumers will find decreasing need to visit branches, noting that branch visits for many banks were already dipping by double-digit figures. “Younger generations will have less need for traditional institutions, opting instead for person-to-person lenders and niche players,” he explained.

In future, banks also may no longer be able to sustain costly branch networks and subsidize money-losing customers, he added. To cope with these changes, financial institutions will need to move this customer segment to lower cost, technology-based service delivery channels. “The key to a successful transition will be to educate and incentivize your customers, making the benefits of doing so readily apparent,” he said.

Challenges in the digital banking era

The route toward the digital, however, will not be without its challenges. Bank employees, for one, will need to change the way they work and embrace innovation.

Transforming their core backend systems will also prove challenging because most banks operate mainframes, which are expensive and built on decades-old technology. These systems are heavy and monolithic, and designed to work in silos to support specific services such as credit card and mortgage processing. This makes it difficult to enable integrated service delivery.

Rather than overhaul their system overnight, which would be a costly exercise, banks should look to evolve their IT infrastructure to an “as-a-service” model and consume IT services without the need for heavy backend systems.

They should also look to technology as an enabler of their transformation in the digital age, helping them to become more agile through automation and better understand their customers through analytics.

To sum up, competing in the digital age requires a whole new way of doing business and banks will need to break out of their silo-ed environment and tap technology to bring their services together to provide a more cohesive experience for their customers.

It is no longer business as usual. We are now fully immersed in the digital era and banks must catch up in order to remain relevant in the market.

Sudesh Shah is a Chief Technologist for HP Enterprise Services, Asia. Sudesh has over 20 years’ experience in helping enterprises be successful by developing innovative new approaches to solving business problem leveraging technology as an enabling agent for reducing costs, improving customer experiences and growing revenues. Sudesh has spent his career primarily helping organizations in the Banking and Telecommunications sectors. Prior to taking up this role Sudesh worked with the Commonwealth Bank of Australia helping define their Digital Workplace Strategy transformation and defining the development of their On Demand Platform for providing cloud services.

Chien-Wei Ching (Ken) is an Industry Principal for Financial Services Industry for HP Enterprise Services. He has more than 14 years of experience in financial services industry and provides strategic consulting for financial institutions. He provides thought leadership to ensure the business strategies and technology of clients are effectively implemented to achieve business outcome, with pace, certainty and strategic agility.

Source: HP

10

Source: HP

FIGURE 1 Recent technological disruptions

Internet

Email

Mobile Phones

Smart Devices

Social Collaboration

Online Banks and Services

Cloud Services (Banking,

Travel, Music, Retail, etc)

Internet of Things

90’s 00’s 10’s ‘15

Technology disrupts. That is a given, but the disruptions that are occurring because of the technologies enabling the New Style of Business is far more revolutionary than any other new technologies. It is a confluence of various technologies that will redefine the way organizations relate to their stakeholders.

The banking industry have benefited immensely from emerging technologies in the past, ranging from advancements in core-banking solutions, to automated teller machines, electronic transactions, and online banking. However, banking today is different than it was 20 years ago and yet, many of the systems in place have not evolved alongside these changes. There are many fragmented silo-ed systems and an overall architecture that is labor-intensive and expensive to maintain.

Over the past two decades, there has been a plethora of technologies that changed consumers’ lives:

be designed to take into account, and enhance, the consumers’ lifestyle. It is no longer about just providing a product, but supporting an entire relevant purchasing lifecycle.

Banks should have the insights to provide the best possible service, such as loans, when the consumer requires it. The questions banks need to ask themselves are:

• How do we know that the consumer is looking for a loan?

• What is the best possible loan?

• What other services are required, such as insurance, transfer fees, taxes, search fees, and so on?

• How do we get involved in the entire lifecycle of the purchase decision for a home or a new investment property?

The Multichannel Evolution: Shaping the Bank of the Future

Adapting to The New Style of Business

These new technologies have changed the way people live and their daily routines, putting intelligence in the consumers’ hands with information at their fingertips—24 hours a day, 365 days a year—so they can make intelligent, informed decisions. Traditional services that consumers expect from shopping, window browsing, going to the bank, paying with cash, and so on, are rapidly changing. Services need to

• How do we provide the right service to the consumer through the entire purchase lifecycle?

• How do we maintain this service throughout the life of the mortgage or the loan?

• How do we ensure our relevance in the life of the consumer?

The digital channel appears to be the answer.

11

Transformation through the digital channel

Clients are dictating what services need to be created as well as where and when these will be consumed. Channels need to adapt to meet these requirements and banks need to look at a redesign.

Imagine the following scenario:

It is a Saturday morning and the consumer, using their smartphone, searches for the property they want on the bank’s property portal. They use the bank’s wealth management portal to calculate what they can afford. The portal also provides insights into the properties they are looking at. They identify properties that match their needs and arrange for viewings using the same portal. The Navigation feature creates an itinerary for the viewings and contacts are downloaded to their car’s navigation system.

After viewing the properties, they make their choice and decide on a property. Again, using the same portal, the property buyer informs the bank, which then arranges for the necessary background checks and legal documents. The complexity for the consumer has been significantly reduced.

The purchase was made simple and efficient. Some rules, regulations, and compliance obviously need to be reworked to make this scenario a possibility, however, the technology already exists today. It requires a cultural shift in the way banks do business today.

HP has found helping their clients build a solution like this blurs the boundaries of what a bank can do in a positive way. The bank becomes a convenient service provider, and not simply a checking account manager. If a bank continues to think of ways to make using their money more convenient, easy, and seamless, customers will think of banks as more than a place to store their money and one that plays a more central role in the lives.

Technological advancements in unrelated areas are creating an impact on the banking industries as well. Consider the following:

• Internet of Things (IoT). This evolving technology is increasingly pervasive and finding its ways into concepts such as smart cars and smart homes. Smart cars, for instance, that can book itself for a service and accept payment for the service (with the bank and customer’s approval), as well as ensure best insurance package has been secure and fuel paid.

• Point-of-Sales (POS) and payment systems. Traditionally, this is the confluence of the customers, retailers, and banks, but with Apple Pay and Android Pay, new entrants are entering the purchasing Ecosystem and changing the dynamics of the transaction.

• Potential new market payers. Google already has a banking license1 and market watchers are speculating that Apple also will eventually provide banking services2.

These new entrants can be formidable competitors to traditional banks as they are at the bleeding edge of technologies that underpin disruptive changes. These market players are already years ahead before products and services hit the market, forcing traditional banks into catchup mode, and are highly adapt to fast changes.

In comparison, traditional banks have proprietary, disparate solutions running on outdated business models, and rely on products that force customers to conform to the way banks offer their products and services.

The new entrants also do not have legacy systems or processes to worry about. They are in the perfect position to recreate the customer experience by deploying the latest technological advancements to enable change. HP has solutions for traditional bank models to allow them to compete with the new entrants by updating their business process and operating model all while keeping existing systems such as their loan origination system.

1 http://www.huffingtonpost.com/brett-king/would-google-make-a-bette_b_443317.html2 http://www.marketwatch.com/story/an-apple-ibank-is-only-a-matter-of-time-2014-09-12

12

As a sign of the things to come, Google announced at the World Mobile Congress 2015 that its Android Pay will provide a ubiquitous platform for developers to create specific payment applications for merchants and other businesses. This will incorporate payments for the Internet of Things (IoT) touch points that include smartphones, smart TVs, smart fridges, smart homes, smart cars, and any intelligent devices that can be connected to the internet.

Future-proofing banks with multi-channel strategy

The key point here is that traditional channels are slowly but surely becoming a thing of the past. The players in the purchasing lifecycle is fast changing in the digital era. Banks need to adapt to the customer-centric purchasing ecosystem or risk being overtaken and start thinking of multichannel strategies they need to support their future growth.

This requires significant transformation of their legacy infrastructure to a technology ecosystem that is more agile and responsive to the changing needs of the banking industry. This also means they should avoid solutions that are standalone proprietary, and designed for specific business processes. Many HP clients have moved to As A Service solutions to allow them to be more agile and responsive to change in this fast past technology world.

Banks need an enterprise architectural framework that supports the approach of putting the customer and their life demands at the center of operations, planning, and services. They must have a roadmap that allows them to plan for the future--one that comprises the digital channel.

The digital channel is now impacting and influencing every channel of the bank. Some banks view digital channels and systems as the core of the Bank of the Future, while others are simply bolting on tactical upgrades to their existing systems in an effort to provide the service demands of the web-connected consumer.

Remember that banks now need to compete with other non-traditional market entrants such as Google and Apple. The cost models of these ‘non-banks’ are a lot lower and they posses strengths that traditional banks do not, such as:

a. They are agile

b. They don’t have large monolithic siloes of IT systems and business processes.

c. Their processes are leaner.

d. They identify and enter niche market segments where gaps exist in current banking portfolio.

e. They operate in a startup culture, where there are more inclined to take risk and try new things. They are innovative and adopt a try-and-fail-fast model.

f. They have leaner cost models

g. They are more inclined to provide digital services to market faster than banks.

Most banks have been on a digital journey for years now, but how many actually have adopted or looked at changing their architectural framework to move toward a customer-centric, rather than product-centric, model? In HP’s experience with their clients, those that have moved to a customer centric approach have realized greater customer engagement and increased revenue.

Source: HP

FIGURE 2 From Product-Centric to Customer-Centric

product-centric to customer-centric

Transactions

Products

Queues

Service

Solutions

Convenience

13

The new growth market

The non-banked customer segment is out of reach to banks with legacy systems and infrastructures. These are consumers that do not have access to banking services and facilities, and it is estimated that only 30% of the world economy is banked. This indicates a massive opportunity in the non-banked segment where customers are more willing to adopt new technologies.3 The digital channel is ideal in addressing this market.

It is imperative that banks adapt and adopt the New Style of Business or risk being made irrelevant. The customer engagement model has to be re-engineered from ground-up, taking advantage of the cachet it has built with their traditional business and embracing the disruptions to its advantage. The Bank of the Future will have to be mindful of the following:

1. The consumer is at the center of the digital world.

2. The digital consumer will shape the new way of banking.

3. All other channels and systems will need to be tightly integrated to the new way of banking. These will include:

a. Branch banking;

b. Banking business process;

c. Operational culture within the bank to move from product-focus to customers-centric; and

d. Architectural framework, technologies, and strategy to service the new way of banking,

4. Banks need a lower operating model per transaction. The core of many existing banks are mainframes and these must transition to enable a lower cost per transaction.

Building the Bank of the Future

Let’s have a closer look at the architectural framework and technologies that banks have to adopt. First, they need to reach their target market through smart devices, so they need to support mobility. Banks will need to maintain customer contact through other channels such as call centers, e-mail, branch, ATM, and so on.

To support this, they need a common platform or what HP calls, Digital Presentation Platform, to ensure consumers have a uniformed and integrated interaction with the bank. Banks must ensure continuity across their channels and services, and look at multichannel transformation, ubiquitous channels, and omni-channel to establish consistency across the different channels.

Source: HP

FIGURE 3 The New Always Connected World

Processes : The customers world is changingInformation, Choice, Always connected – Our Service and Business Processes need to adapt

Trust, Service Excellence, Happy Consumer

3 C.K. Prahalad, The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits, Pearson Education, 2005

14

Another key requirement for banks is to be proactive and offer services that support the consumers’ lifestyle, buying patterns, and so on. They need customer insights and should deploy big data and analytics platforms to analyze structured and unstructured data sources rapidly.

To support a multichannel environment, banks need:

1. Mobility Platform

2. Digital Presentation Platform

3. Big Data and Analytics Platform

a. Campaign Platform

4. Enterprise Data Warehouse Platforms

5. Customer Relationship Management Platform

These five systems represent the key systems banks need to develop a growth strategy. More importantly, all these systems need to be strategically positioned in the bank’s Digital Architectural Framework. These services cannot operate in silos and should be consumed horizontally.

A five-layer architectural framework is required to support a bank’s New Style of Business, as shown in the figure 4: Many clients find great value in working with HP on their multichannel roadmap because HP provides end to end services and lessens the burden for the client to manage multiple vendors and interfaces into multiple vendor solutions.

The lower the level, the more consumable the service. This way, banks need not worry about designing, operating, and maintaining utility-based services. For example, Infrastructure such as network, memory storage, and compute should be consumed as utility-based services dependent on the workloads being serviced.

Compliance and regulatory requirements are mandatory considerations. Automation, orchestration, and end-user product services management also come to the forefront. Thus, banks will be the authority for specifying service specifications, while the delivery of the utility-based service and maintenance of the infrastructure and applications will be that of the service provider.

Source: HP

FIGURE 4 The Five Layer Architecture Framework

Channels

Business process as a Service

Software as a Service

Platform as a Service

Infrastructure as a Service

15

Platforms such as EDW, analytics and big data, and mobility must be strategically designed to service all channels within the bank. Another key change in the existing banking framework is the move away from vertical siloes to horizontal services that service the cross business units of the bank consistently. A typical framework for the future of banking architecture is shown in the figure 5.

Note how channels strategies are now serviced by horizontal services and not vertical siloes of the traditional banking framework. The DevOps chain refers to the new model of business operations, where IT application development and IT service management are coming together and being collaborative with services and a go-to-market strategy. This enables higher degree of more

Source: HP

FIGURE 5 Typical Framework for the Future of Banking Architecture

Digitised Services - HELIX Framework

Intelligent Business Framework - CHANNEL Presentation LAYER Customers Employees B2B (Hybrid Cloud)

Business Group 5

Business Group 4

Web Services - Workflow Services

REYAL NOITARGETNI LENNAHC - secivreS ssenisuB scitylanA deddebmE BPaaS Business Group

1

DBaaS

CoTs Cloud Services

IaaS

SDN DC

iCaaS MS Windows Server

tfihSnepOAzure

SQLaaS

iPaaS APaaS Application Platform Services – Platform Automation(Cloud Foundry based)

Oracle DB 2

Red Hat Enterprise Linux AIX

Vertica in memory DB

Software Defined Logical Network (DC, LAN, WAN)

Compute Storage

Mambu.Com Cloud

BlueMix

Amazon S5 Google HP Services S3plus Aurora Microsoft AZURE S6 Master Card Visa

HP Cloud OS (Openstack infrastructure services)

Automation Policy and Rules, Orchestration across services

SAP Hana

tropsnarT NAL

tropsnarT NAW

VeriPark

tnemganaM IPA duolC SCPH Legacy API Management BOLT Pivotal CF Apps Dev Framework

Softw

are

Def

ined

Dat

a C

entre

Memory Public Cloud 1 MPC 1 MPC 2

Braintree laPyaP

MPC 3 IaaS

NoSQL

DevOps Chain

DevOps Business services definition Business Process specification

DevOps Consumer Demand signals

OS

Business Group 2 Business Group 3

SaaS

Foundation SaaS Components

App3 App6 App6 App7

Sales force dot com Autonomy intelligent Analytics

App5 App 2 App 1

SaaS modules Receive Funds tnemeganaM ytitnedI tnemeltteS lortnoC tnemeganaM tnuoccA tnemeganaM yraicifeneB Identity Authoristion

Buy/Sell Currency Exchange Rates Make Payments

Buy/Sell Currency tnemeganaM ksiR Make Payments

Geo Location Travel Money tnemyaP snaoL Home Loan Origination Micro Loan Origination Cash Balance Enquiry

Up Sell Promotion Credit Check 1 ngiapmaC tekraM 1 ssecorP dnuobtuOMarket Campaign 2 Fraud Check Home Loan Origination trelA duarF Digital Signature

App4

Hadoop .cte ,emorhC ,elgooG ,swodniW SaaD tnioperahS.Net secivreS beW UCCaaS

DataCash. com Mambu.Com SAP

563 SM

Branch aaS VeriPark

Digital Framework aaS Polaris

Workflow aaS OO PH idrabmoL SaaPBDigitisation (Trim aaS)

MDM Airwatch Exchange

Cloud Data Centre Services (Global and Local)

DevOps Business Application services. IT Specification map to business Production, test, development. DevOps Lifecycle Services Application Management Release, Test, Production

DevOps foundation Standard application platform services

SDN Overlay WAN, LAN

PaaS Automation

BRANCH ONLINE TABLET MOBILE SMS SELF SERVICE KIOSK/ATM

CONTACT CENTRE

SOCIAL

innovative customer services and products. The supporting IT and applications services and processes will be more agile to cater to business demands because of the higher degree of automation and orchestration.

The diagram (figure 5) shows what the next level of the new banking architectural framework typically looks like. It is important that banks today reassess their framework and design a transformation blueprint to help drive the organization from the legacy mode of operation to the Bank of the Future, and protect their market from new entrants and ensure their customers continue to enjoy the services they are demanding from banks.

16

Recommendations on how to get started

As more channels are developed, more will be used. Customers want it when they want it, and how they want it. This is, in part, because they generally get the services they want from other industries and companies, new and old. They do not want to resubmit data, resend documents the organization asked for in the past, and key in information more than once. Customers do not want to be inconvenienced because they do not have the time for it. They want to be able to research, open, change, check, and request, on any channel, whenever they want, so banks need to:

• Provide a relevant purchasing ecosystem for ever-changing customer behaviors and technology advances;

• Focus on identifying the strategy and engaging trusted partners to build it with them;

• Update their business processes, operational models, their culture, and their technology to compete in the digital world;

• Put customers at the center of the digital world; and

• Provide customer touch-points that are tightly integrated and seamless, and that deliver what customers want, when they want.

The successful bank of the future will be the bank that is best able to embrace the changes and adapt to meet the challenges and take advantage of the growth that disruptive technologies have to offer.

Sudesh Shah is a Chief Technologist for HP Enterprise Services, Asia. Sudesh has over 20 years’ experience in helping enterprises be successful by developing innovative new approaches to solving business problem leveraging technology as an enabling agent for reducing costs, improving customer experiences and growing revenues. Sudesh has spent his career primarily helping organizations in the Banking and Telecommunications sectors. Prior to taking up this role Sudesh worked with the Commonwealth Bank of Australia helping define their Digital Workplace Strategy transformation and defining the development of their On Demand Platform for providing cloud services.

Source: HP

Chien-Wei Ching (Ken) is an Industry Principal for Financial Services Industry for HP Enterprise Services. He has more than 14 years of experience in financial services industry and provides strategic consulting for financial institutions. He provides thought leadership to ensure the business strategies and technology of clients are effectively implemented to achieve business outcome, with pace, certainty and strategic agility.

Lori Murray has been with Hewlett Packard since 2010. She was in banking for 20+ years prior to moving to HP. She is currently the Global Offering Director of Banking for Business Process as a Service (BPaaS). She is responsible for meeting with bank executives to understand their current strategies and initiatives and identify HP BPaaS solutions that will assist in achieving them.

17

Branch Transformation: Evolving Beyond Traditional Banking Transactions

Banking has always been a competitive industry and it faces increasing challenges in the digital era. New market entrants and the increasing pace of technology innovation have left many banks with outdated applications and business practices.

In many cases, banking systems had been built from the ground up, with various applications, operating systems, and device infrastructures bolted on as customer demands and behaviors changed over time. The result? Systems are often fragmented, inconsistent, or redundant. The challenge is intensified with the race to move to a digital business in order to drive a better client experience, and banks need to figure out ways to correct their operating environments. They need to enhance customer experience, grow revenue, and reduce expense, and at the same time, deal with an antiquated operating environment and new entrants eyeing a share of the market.

The branch network is, in many aspects, the most severely affected by these changes. With the increased usage of online and mobile banking, branch transactions are decreasing. This network accounts for a large part of the bank’s expense, so it is no surprise that all banks are trying to solve the ‘Branch Transformation’ or ‘Branch of the Future’ puzzle.

Up until a few years ago, banks continued to build branches because the metrics and statistics told them to. Optimizing a network meant building out branches in highly populated geographies in markets where they had substantial market share. Of course banks were closing suboptimal branches, but the net new number was usually positive. That all changed with the enhancements of mobile, online, and ATMs, and the evolving expectations of customers who want what they want, when they want it, and how they want it. Banks, unfortunately, have not met the challenge.

As transactions decline, what should banks do with their expensive brick-and-mortar operations? Do customers still open their accounts based on the bank they see and know, or does that no longer matter? It still does, but the importance will continue to decline and so should the branch network size. Will it completely go away? Not in the near future and public data indicates this trend. For example, China’s largest bank

ICBC in 2010 recorded a total traditional branch transaction volume to total transaction ratio of 40.1%. In 2013, this number declined to 19.8%, and other Chinese major banks also showed the same trajectory.

So banks need to figure out how to optimize the size of the network--something banks have been undertaking for years--as well as optimize branch functions and drive down the cost while enhancing customer service and increasing revenue.

Banks need to pay attention to their current customer segments and target markets, and identify the best ways to bank with them. Knowing this will create the nuances the bank needs in their individualized branch transformation strategy and allow them to be more effective and efficient in executing this strategy.

Mapping the future of branch networks

The ‘Branch of the Future’ strategy comprises less use of tellers or transaction-based employees, and increased use of sellers and/or advisors who are trained not just as checking accounts sellers, but also as sellers of complicated products and services that customers are not comfortable transacting online or on their own.

The strategy may seem simple, where banks simply move tellers to assume the role of sellers and complete transactions when needed. Many banks tried this several years ago and called the new role, Universal Banker, but it did not work. Why? Because it is difficult to ensure one person can carry so much knowledge about the bank’s products and technology.

Today, sellers and tellers have to toggle between many applications to carry out everyday functions. That has to be rectified to successfully move away from teller- or transaction-based operating models. Key to success is creating a seamless and intuitive user interface that allows the teller, seller, or universal banker to complete the sale or transaction in the same guided session. HP’s Unified Front-End solution has enabled this for all branch employees to allow them to efficiently serve customers and eliminates the need to constantly switch between applications to complete a transaction.

18

Moving to a more sales-based branch operating model creates the need not just for more effective training programs, but also more effective technology and a more intuitive user interface that is seamless and easy.

The Branch of the Future also includes an updated version of ‘Know Your Customer’. No longer is it just a regulation or a form to complete but an atmosphere built with new technology and operating models within the branch. Customers expect their bank to know what they want and even suggest what they might want that they might not have been aware of. Banks have not utilized technology in this space because many feel it may be invasive or unwelcomed. Because other industries such as retail have utilized technology this way and made shopping, working, or researching with them so easy and intuitive, customer pretty much demand it now.

At the core of any branch transformation is a 360-degree view of the customer, every product and service they have with the bank, how they interact with it, when they last interacted with it, and their service requests. In addition, capturing personal information such as marital status, number of children, ages, and so on, will enhance the bank’s knowledge about its customers and make the interactions better. Branch employees also can further improve customer experience when they know what product offers have been sent and products specific customers would value.

What HP has found in offering this solution to banks is, this 360-view needs to be accessible on an easy to use dashboard, so the branch tellers or sellers can react more quickly if the customer is of high net worth, in overdraft, or has a complaint. The ability to recognize customers as soon as they enter the branch and know the reason for their visit without them saying a word is the way to do business. To offer further convenience, banks should provide online appointment booking or mobile queuing services so customers can join the queue even before arriving at the branch.

Banks need to take the 360-view further to include financial relationships customers have with other institutions. Customers park their money in various places and various products, but are not always good at managing it. Banks need to be able to pull data from other financial institutions to present the customer’s entire portfolio and provide their customer with a comprehensive view of their overall finances beyond the services they have at one bank.

Banks have more data on customer behavior and interaction than any other industry, but do not fully utilize the data. They need to mine the data to predict customers’ demands and when they are going to want a service before even realizing they need it, just like Amazon does with its recommendations. China’s second-largest bank CCB, for example, is establishing an enterprise-level data management department and data analysis center to better utilize its data on high net worth customers. HP’s experience in making data actionable for clients in a wide variety of industries can really make an impact on the banking industry.

Taking data a step further, how about a bank mining the data from the customer’s spending behaviors to notify them of vacation specials coming up for a cruise they have taken several times in the past. How would the bank know this information, because in the past the customer used their debit card to pay for the trip? Using spending behaviors can proactively alert customers of things they find value in and want to buy. These products are not bank products but they make the bank more valuable to the customer and provide a service of convenience, something customer are always looking for. Can you imagine sitting at your laptop and getting a notice from your bank that your favorite cruise is running a special? You click on the link, add it to your shopping cart, click ‘Buy’ and the vacation is booked and paid for. One last thing on your To-Do list and it wasn’t even on the list yet! Now that is ‘Know Your Customer’.

19

Changing face of a bank branch

Moving ahead, face-to-face interaction in the branch will change. With less focus on transactions, the teller space is moved to a less important area of the branch or removed entirely while the sales-centric model is enhanced. It is improved, for instance, with mobile queuing, allowing customers to swipe their debit card or ID as they walk into a branch to alert the branch they are there.

Bankers will have integrated front-end technology at their fingertips with the use of tablets or other mobile devices, and can access all the information they need to greet the customer with a 360-view. They are also aware of any product brochures recently sent to the customers, and can follow up on this while they are at the branch to perform an unrelated transaction. The product offer can be pulled up on a tablet and the customers can sign up for the service simply by tapping on the device. Alternatively, customers can be led to an assisted-service touchscreen or a self-serve kiosk, where they can also contact a specialist virtually using remote video. In the future branch, customers can choose to interact with the bank any way they want and complete multiple transactions in one visit.

Face-to-face transactions outside the branch changes as well. With evolving customer expectations, banks have to be able to mobilize their branch and sales force teams to meet the customer in a non-branch location. These sales force employees should be able to sell and transact

seamlessly, with access to the necessary customer data and technology to complete transactions, including card-swipe capabilities. HP has worked with many clients wanting to mobilize their Mortgage and Wealth Advisors, their Small Business Bankers and their Commercial Bankers. Communications should also be tailored for a more personalized experience.

The Branch of the Future introduces virtual face-to-face interactions to highly specialized services, such as investments and institutionalized lending, enabling bank employees and customers to see each other without being in the same room. To further enhance the experience, customers can easily check via their mobile device if tellers are available or whether the service queue is long before driving to the branch. Banks also can enable customers to communicate with bankers via instant messaging apps and alert bankers when they have a customer query, so they can respond as soon as they are able to.

The Branch of the Future also includes a seamless workflow across all channels and is a part of an omni-channel optimization (Figure 1). Customers are accustomed to being able to research services via one channel and transact on another, but banks today are unable to effectively support this behavior. Many still require customers to come to the

FIGURE 1 The Branch of the Future

Workflow Remove bottlenecks, Re-engineer process

Reduce expense, Increase efficiency

Analytics

Data Storage

Customer Interaction

Hardware/Devices/Tools

upload, scan, purchase, chat

Call Centre

Mobile

Branch

On-line

Gather Digital and non-digital information

Process Drive efficiency and reduce time

and expense

Store Electronic accessible information for customer

communication, regulatory reporting and compliance

Analyze

Respond

Customer Interaction

Software/Tools ,

Call Centre

Mobile

Branch

On-line ATM ATM

The way the customer wants

Enhance Cross sell, effective marketing

HP Analytics and Secure Managed Services

Source: HP

20

branch to complete a transaction or submit the required documents, such as pay stubs or driver’s license, multiple times. Customers often have to repeat their account number and other identifying information as they move across operators at the call center. This disparity has to be resolved and banks need to identify ways and technology to create a truly omni-channel experience for the customer.

At the core of the Branch of the Future strategy is a digital component, which takes cost out and enhances customer experience, thus enhancing revenue (Figure 2). Creating a digital strategy should aim to address antiquated business process and operating models, for instance, allowing customer to submit documents online, storing these documents to be used for future product requests, and using them to determine whether a customer has been approved for additional products. Digitizing internal processes at a branch such as retail operations, audits, and logs will not only take cost out, but also allow branch employees to spend more time with customers. HP has found their clients experience up to 50%

savings in operations, improvement in customer satisfaction due to decreased time for processing and effort from the customer and an improvement in compliance and reporting.

To conclude, banking is a very competitive industry and it is becoming increasingly so, with new entrants creating new products, new services, and new channels customers desire. Technology can help meet evolving customer behaviors and expectations. It can make branch operations more efficient and effective in moving from transaction to sales. It can help banks be more proactive in assessing their customers’ needs and make every interaction seamless and intuitive.

Banks of the future are about being where

customers are when they need them, and this

extends beyond typical banking services and

products. Banks should think about how they can

better improve everyday events in their customers’

life, and evolve from their traditional role to provide

additional products and services that normally would not be associated with them.

Lori Murray has been with HP since 2010. She was in banking for 20+ years prior to moving to HP. She is currently the Global Offering Director of Banking for Business Process as a Service (BPaaS). She is responsible for meeting with bank executives to understand their current strategies and initiatives and identify HP BPaaS solutions that will assist in achieving them.

Source: HP

FIGURE 2 Benefits From Going Digital

50%

Operational saving through digitizing paper and transform-ing the way you do business

By digitizing your business you can achieve:

Days to mins

Improved customer experience by giving your customers near real-time updates for key moments of truth using their channel of choice

5-10% Immediate revenue growth by reaching new customer channels through social, mobile and analytics. Create new revenue streams

Compliant Simplify your ability to be compliant to policy and regulation, reduce your risk and automate mitigation strategies

Now HP is leading enterprises to digitize, improving the customer experience and by providing the bridge from your current world to the digital world

Of your change investment redirected on truly

transforming projects rather

than “complying”

1

50% Up to

HP were known for innovating PCs and printing

90% Up to

90%

Source: HP

21

Cards and Payments — The Next Generation: Achieving Customer Satisfaction

How customers make payments is an area ripe for innovation. In a digital world, customers want a simple, easy, secure way to complete their transactions, and there are many ways banks can differentiate themselves in this area to increase customer acquisition and retention.

Cards and payments are changing rapidly, and there are great variations in the developments seen from region to region or even country to country. Many developed countries have been using chip and PIN credit and debit cards for years. This technology is just getting started in the US, although some would prefer to jump straight to mobile ecosystems. Contactless payment, which uses radio-frequency identification (RFID) but does not require a signature or PIN, is also beginning to appear in various places around the world-- although it has its critics.

The technology for mobile wallets and mobile payments can be cloud-based or driven by Near Field Communications (NFC). Models have been varied and are still emerging. It’s a chicken-and-egg problem. Merchants don’t want to incur the expense of replacing their current point-of-sale (POS) systems if there isn’t any demand from consumers, and consumers don’t want to switch to the new technology if there aren’t enough merchants making it available. More recently, Bluetooth low energy (BLE) solutions using local beacons have started to receive more interest and may be the breakthrough hybrid needed to deliver local payment services at the right price, with ubiquitous technology.

Making an impact with cards and payments

When a consumer uses a card or mobile to pay for a cup of coffee, he likely associates this customer experience with the coffee shop, not his bank. Even if it is a positive experience, it will not increase his loyalty to the bank. In this environment, how can banks increase customer acquisition and retention with cards and payments?

The answer is to put the customer first. The digital consumer now drives the model of usage. Start with the basic requirements that transactions must be simple, easy-to-use, and secure. Next, offer innovations that will encourage customers to increase their loyalty, for instance, by offering personalization, convenience, and money-saving features.

Personalization

Personalization allows customers to feel more connected to your brand. In cards and payments, the simplest form of personalization involves letting customers choose the words and images that appear on the plastic of their payment cards. This feature is available in many countries. Although it is a niche, it is growing rapidly in popularity.

Individuals are different and motivated by different things. Some banks are experimenting with personalizing reward programs, either pushing the personalized solution to the customer, or opening up features that can be self-selected online to change the rules and rewards behind the consumer spend. The promotional push model requires an understanding of the customer and creating a “market segment of

22

one.” HP provides advanced analytics solutions to analyze structured data such as the customer’s transaction history, uniquely combined with unstructured data such as social media postings. This can help banks turn data into real, actionable insights, such as personalized offers. For instance, the analysis might lead to offering the customers the award of a discount at their favorite restaurant on an anniversary date that may be significant to them, such as their wedding anniversary. When the customer cashes in the reward, it’s a win-win-win: the customer enjoys the discount, the restaurant benefits from increased business, and the bank collects transaction fees — and gains a happier customer.

Convenience

From a customer perspective, payments must work well, securely and be almost invisible in their execution. The cost of switching to another bank is low, and consumers simply pull out another card when things do not work. Customers do not appreciate the multi-million dollar IT plumbing and risk management beneath every transaction. So banks need to increase their relevance before and after the sub-second payment transaction. The use of loyalty coupons, alerts, and personal finance dashboards all help customers feel more connected to their bank’s brand while generating more transactions.

For example, one of the biggest hassles of international travel is making payments in multiple countries and currencies, where travelers need to keep up with exchange rates and fees from one currency to the next. Banks can delight their customers by offering a simple, secure, and multicurrency card to eliminate these hassles. HP makes this easy for banks by providing a multi-currency card as part of its prepaid card services. With this offering, banks let their customers personalize cards with up to 12 different currencies. And when the traveler returns home, any funds remaining on the card can be converted back to the customer’s home currency.

Time or money saving

When banks provide informative, time-saving features, customers will engage and feel more loyalty to the bank brand. Banks can provide an advisory application to help customers understand the tradeoffs between different payment methods in a specific situation. For instance, to book a hotel room, the app might recommend using a frequent flyer card to maximize award points. To buy a new television, it might suggest using a different card to minimize fees, receive an extended warranty, take advantage of a personalized offer, or pay in monthly installments. An advisory application could also provide a dashboard to help customers stick to a budget, meet savings goals, and better understand where they spend money.

This approach puts the modern bank back in customers’ mind as the custodian of their finances and a relevant partner in their day-to-day routine. HP’s Cards and Payments Practice can guide banks on building mobile applications that provide smart and time-saving features for their customers.

Case Study: Customer satisfaction using reward programs with mobility

Chile’s third-largest bank, Banco de Crédito e Inversiones (BCI), engaged HP to build a mobile app for credit card rewards that use geo-referencing capabilities on mobile devices. After downloading the app, customers will know when they are near a store in which they can use their rewards. Almost 20% of BCI’s mobile-enabled customers downloaded the app as soon as it was available and used it actively. In addition to increasing customer satisfaction and engagement, BCI estimates that the app has helped to increase their credit card revenues by as much as 5%.

23

Looking into the future of payments

The payments industry is going through an unprecedented level of change. Simply put, the immediacy consumers enjoy with always-on online media has raised similar expectations of their financial institutions, utilities providers, and government.

• Instant gratification

• Anytime, anywhere, any device

• It’s all about trust

• Make it personal

• Business considerations

The common interaction between customers and their Financial Institutions (FIs) is changing.

• While traditional “bricks-and-mortar” FIs are still strong fixtures in the industry, increased standardization of transactional payments systems such as BPAY, POS, and Faster Payments means FIs are being forced to compete on price and value.

• The growth of online, self-service functions has meant that a significant portion of the FI’s customer base including individuals, small-medium enterprises, and large corporations are now more comfortable spreading their activities across multiple FIs.

• Coupled with the ease of moving their services to another provider, customer expectations are increasing and loyalty is deteriorating as customers place a premium on the experience they receive from FIs.

• The standardization of payments systems including mobile payments will continue to lower the cost of entry for competitors, particularly those that are able to offer a niche or targeted offering, such as insurance or credit cards.

• The retail banking business is challenged by transactional providers, such as Coles, PayPal, and TESCO. The wealth and securities areas also are challenged by groups that are able to tailor their services, for instance, BHP’s Plum.

The dichotomy facing FIs around payments is the ability to process transactions with reliability and efficiency on legacy infrastructure that has suffered from a lack of investment over the last two decades, while bringing new innovations to the market to protect against new entrants and other industry segments in the battle for the customer.

Source: HP

FIGURE 1 The New Connected Customer

Simplicity A requirement for

acceptance

Personalization Understanding the

individual

Security Creating customer

confidence

Participation Emergence of the active customer

Sustainability Environmental

awareness

Integration Capitalising on

connections

Immediacy Now or not at all

Mobility No gaps allowed

Quality Failure not tolerated

Multi-Channel Anywhere. Anytime.

Any Device.

24

As an HP Fellow and Chief Technologist of the Financial Services Industry for HP Enterprise Services in South Pacific, Daniel Biondi is responsible for helping clients shape their IT strategy for business innovation and growth, whilst delivering technology-enabled business solutions that reduce cost and complexity. Daniel’s 21-plus years of experience include working with multi-national organizations in more than 15 countries across every industry group. His previous leadership roles include HP Regional Chief Technologist for Latin America. Daniel is currently based in Sydney, Australia.

Source: HP

1 Gartner Inc., Transform Your Business With the Nexus of Forces, G00262353, 28 February 2014

According to Gartner, in reference to the ‘Nexus of Forces’, states:

“The trends that make up the nexus have given enterprises the means to reach new customer segments, improve customer interactions, launch new products, achieve previously unknown levels of operational efficiency and differentiate for competitive advantage.” 1

These enterprises understand the subtle relationships between behavior, sentiment, history, location, and intention and are agile to react in constant changing markets without uprooting proven business models and system architectures.

Every organization will be affected by this convergence of technologies and will need to identify ways to respond.

The cloud as an agile service delivery model is here to stay and is only growing bigger and more pervasive by the day. Mobile is becoming the way people interact, anytime and anywhere, with the organizations with which they do business. Social insights will increasingly provide the platform upon which to build relationships with the next generation of customers and employees, and generations after that. Real-time analytics

will become the only way FIs can efficiently handle the exploding volume of behavioral, transactional, and regulatory data streams. Individually, these trends affect parts of the value chain. Together, they transform it. While this won’t happen overnight, we need only look around at the changes wrought by smartphones and tablets to see how quickly the mobile industry has transformed. The same can be said for the payments industry, where the process has already started and cannot be stopped.

HP powers over 13 billion transactions globally

HP administers more than 3 million merchant accounts, 68 million cardholder accounts, and over 13 billion transactions globally. HP engineers and delivers 24x7 continuous payment services to ensure service quality and peace of mind. Fifty-one clients in 29 countries rely on HP for critical transaction processing-related services, including card issuing, merchant acquiring, and transaction switching across payment scheme networks. Services include electronic invoices and business exchange services, commercial and consumer cards, check and loans processing, pre-paid card services, PCI compliance, mobile payments, loyalty programs, web solutions, and other channels.

25