efma 2011 growing crm role

Best practices in retail financial services

more information on www.efma.com

The Expanding Role of E-Channels

in CRM

May 2011

Couve_V2_Mise en page 1 09/05/11 10:42 Page2

04 Executive Summary

07 E-Channel Availability and Use

16 E-Channels and CRM

24 E-Channels Strategy

24 Operation of E-Channels

35 Benchmarking of Services and Capabilities

38 About the Research

41 About Us

Contents

3

T H E E X P A N D I N G R O L E O F E - C H A N N E L S I N C R M

We are happy to present you this third study in a series jointly developed by Efmaand Atos Worldline. The first and second study focused exclusively on the subject ofCRM, but this year we have taken a wider spectrum on the development of electronicchannels, and the impact this is having on the management of customer relationships.Since the launch of Internet Banking in the 1990’s, there has been a steady growthin the usage of electronic channels, driving transactions and sales away from branchesand gradually changing the nature of the bank’s relationship with its customers.However, the rate of change has accelerated recently:• Smart phones with advanced features and 3G or 4G access are widely used now,enabling more sophisticated applications and a better customer experience.

• Broadband access for Internet is growing rapidly making it possible to offer serviceslike video conferencing, and much richer, personalized Internet banking experiences.

There is clear evidence that banks across Europe, as they emerge from the financialcrisis, are developing new products and services in order to anticipate and takeadvantage of these trends. The nature of communication between banks and theircustomers is therefore starting to change quite rapidly and banks need to be able toexperiment and adapt themselves in nearly real time.There are some banks who are clearly leading in the area of e-channel servicesoffered, CRM capabilities used within the e-channels, and the overall e-channel andCRM integration. All banks are making progress in this area but not all have beenable (or chosen) to keep up with the leaders. One of the big challenges is where toprioritise developments in a cost-constrained environment.This study is still focused on retail banking and we have maintained the dualmethodology that formed the success of the first two reports. Hence, it is based ondesk research as well as a quantitative survey and a qualitative survey. The quantitativesurvey was conducted using an online questionnaire to banks, which resulted in 47complete responses from 8 countries: Belgium, France, Germany, Netherlands, Poland,Spain, Turkey and the United Kingdom. The qualitative survey included 17 interviewswith senior managers responsible for e-channels or CRM within their institution.

Patrick DesmarèsSecretary General

Efma

Julie Noir de ChazournesHead of Markets

Business Marketing & Strategy

Atos Worldline

Preface

4

The availability of electronic channel services from banks varies quite considerably, andthere are differing views on the role of SMS banking and video conferencing, but the trendis for a rapid increase in the provision of all services within the next 3 years:• SMS alerts are the most common service offered by banks with 79% alreadyproviding the service, but SMS banking is much less common with just 32% of banksoffering the service.

• Mobile banking is now being offered by 64% of banks but this is expected toincrease to 90% of banks within 3 years, with Mobile Internet and iPhone beingthe most common applications.

• Mobile P2P and contactless payments are offered by only 15% of banks. Thisproportion will grow to 61% and 64% respectively within 3 years.

• Web meeting services like video conferencing and/or document or form sharingare much less common; only 15% of banks offer this now and only 50% of banksexpect to offer this in the future.

• The use of social media (mainly Facebook and Twitter) is already relatively high,being offered by 38% of banks, and the use of these channels is expected by 76%of banks within 3 years.

The importance of electronic channels for marketing is expected to grow, but CRMcapabilities in electronic channels are still quite limited for many banks, hampered by thelack of a single customer view and by the lack of customer contact details and marketingpermissions:• Pre-planned marketing communications are expected to shift even further from DirectMail to Email and SMS – from 29% of communications now to 53% ofcommunications in 5 years.

• Only 53% of banks have a single customer view across channels, so 47% of banksdo not have this capability yet. One consequence is that customer based pricing isused by only 52% of banks.

• Banks hold on average only approximately 35-40% of their customers email ormobile details, and have marketing permission on average for only approximately30-35%.

• The use of event-based marketing on the Internet has become very common, with78% of banks doing this, but only 39% of banks are using event-based marketingin the SMS channel.

• Similarly, the Internet is being used to get immediate customer feedback oninteractions by 63% of banks but only 20% of banks use SMS for feedback.

• Electronic channel use provides banks with even more, trackable information oncustomers (e.g. web-browsing behavior) but there is little evidence yet of banksputting this information to optimum use.

Executive Summary

5


The development of new electronic channels has been haphazard for many banks and builton to inflexible legacy systems, which means that integration is often quite low, butinvestment in e-channels and integration of e-channels is likely to grow:• Full integration of the front and back offices for electronic channels has beenachieved by only around 50% of banks; most of the other banks are focused onincremental evolution and not renewal.

• However, the IT budget for electronic channels is expected to increase at 76% ofbanks, and at 17% of banks it will strongly increase.

• In the current environment, costs are a big concern and most banks have optimizedelectronic channel costs with an internal cost review. There has been someexternalization of development and one fifth of banks considered externalization ofhosting or use of software-as-a-service. Their primary reasons for consideringexternalization of hosting would be to achieve a faster time to market with newdevelopments, to access up-to-date external know-how, and for cost efficiency relativeto internal costs.

Investment decisions have been relatively defensive for many banks and measuring returnon investment has been a major problem, but some banks have clearly taken a lead andnew innovation priorities are emerging:• Our survey and interviews show that defensive factors are the most significant whenconsidering electronic channel investments, in particular retaining customers andreducing costs. Of course, this is not a universal view and there are “challengers”in each market who want to use electronic channels to attract customers away frommore established competitors.

• The priorities for innovation in electronic channels are personalization of the customerexperience, payments services and money management or financial advice relatedtools. Perhaps surprisingly, community features do not appear to be a high priority,and video conferencing is generating very mixed views.

• There is a very big difference between the leaders and the laggards in terms ofservices and capabilities. Some of this is to do with deliberate strategic positioning,but some is due to lack of investment or lack of vision for what can be achieved withe-channels and customer relationship management.

6

In conclusion, we have found that banks in general are making good progress in termsof introducing new channels and services, and developing new ways of managingcustomer relationships. However, there is still much greater potential to use electronicchannels for gathering and analyzing more information about customers and theirbehaviors. If this information is managed well, it should lead to a better understandingof customers, more sophisticated behavioral segmentation and targeting of relevantoffers, and provision of an appropriate customer experience. However, to achievethis and to improve their sales and service performance, banks will need to ensurethey are learning from the best-in-class e-commerce companies and not just other banks.

7


E-Channel Availability and UseCountries across Europe are at different stages of development in terms of Internetaccess and Internet banking use. Figure 1 highlights some key measures for the 8countries included in our survey. For example, 91% of households have Internet accessin the Netherlands but only 59% of households have Internet access in Spain. Thedivergence in Internet banking use is even higher – in the last 3 months of 2010, 77%of adults used Internet banking in the Netherlands but only 27% in Spain.

Interestingly, the ownership pattern of mobile phones does not match the use of Internetand Internet banking. In mobile phone use, the Netherlands and Spain are quitecomparable, whereas France has a relatively low number of subscriptions per 100inhabitants. The high level of ownership of mobile phones, even in those countries atan earlier stage of economic development, make it an attractive channel for banks toreach more of their customers, and a convenient channel for more of their customersto use.

However, mobile phone use for banking is still relatively low - according to comScore,8% of mobile users in the 5 largest EU countries (France, Germany, Italy, Spain andthe UK) accessed their bank accounts from their mobile phones in December 20101.

Use of Internet and Mobile in Europe

Figure 1

Internet Access Internet Banking UseMobile Phones

Per 100 Inhabitants

Note 1 2 3

Belgium 73% 51% 108

France 74% 53% 95

Germany 82% 43% 132

Netherlands 91% 77% 122

Poland 63% 25% 118

Spain 59% 27% 111

Turkey 42% 6% 88

United Kingdom 80% 45% 130

1. Percentage of households who have Internet access at home at end of 20102. Percentage of individuals using Internet banking in last 3 months of 20103. Mobile phone subscriptions per 100 inhabitants at end of 2009Source: Eurostat

1 The comScore 2010 Mobile Year in Review

8

The growth in use of Internet banking has been relatively slow in the last 15 years,since the launch of most services in the mid 1990’s (see Figure 2). This pattern needsto be considered when we look at the potential usage of new types of e-channelservices.

Internet Banking Use Over Time in the UK and Spain% of individuals using Internet banking in last 3 months of the year

(development curve fitted from 1995 which is assumed as the starting point)

Figure 2

Source: Eurostat

0%

10%

20%

30%

40%

50%

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

United Kingdom

Spain

We have assumed that 100% of banks now offer Internet banking, so we focused oursurvey questions on the availability of other e-channels and services (see Figure 3).We found that:

• SMS alerts and mobile banking are the most common services currently provided,and planned within the next 3 years.

• SMS payments and mobile payments (P2P or contactless) are not very commonlyprovided currently but within 3 years should be available from around 60% of banks.

• Secure email and social network features are expected to be offered as channelsby over 70% of banks within the next few years.

9


• The least common service is live web meeting, currently offered by only 15% ofbanks and planned by a further 36% of banks.

In our interviews we found a divergence of views on the role for SMS banking. Someof the banks we spoke to felt that, having not been early movers with SMS banking,it was now sensible to focus investment on a full mobile banking service with muchgreater functionality. Other banks have found that SMS banking has been extremelypopular with their customers.

Services Provided By Banks – Current and Planned

Figure 3

Current

79% 6% 6%

26% 15% 17%

32% 19% 17%

15% 9% 37%

15% 21% 28%

64% 15% 11%

15% 19% 17%

45% 15% 17%

38% 21% 17%

SMS alerts

SMS payments

SMS banking

Mobile P2P payments

Mobile contactless payments

Mobile banking

Live web meeting

Secure email

Social network features

Plan < 1yr plan 1-3 yrs

Source: Efma/Atos Worldline Survey

Rabobank MiniTix – Mobile PaymentsA successful example of an Internet and mobile payments service is the online walletfrom Rabobank called MiniTix. It is a payment method that allows users to makepurchases immediately and easily, with low charges that are suitable for small payments.Consumers can use MiniTix to make small purchases quickly and conveniently via theInternet or mobile phone. It enables them to purchase a broad spectrum of productsand services such as downloading music or ordering a research report. (Source: Rabobank)

10

The development of mobile contactless payments is less of an individual bank strategyissue and more of an industry issue within each country, though some banks are goingit alone with pilot testing. For example, in the Netherlands, the 3 largest banks andthe 3 major mobile telcos have announced co-ordinated plans to widely introducemobile contactless payments in 2012. In France, after several trials, a larger scalecommercial deployment is taking place in Nice involving banks, mobile telcos,transport operators and local government. By contrast in the UK, there have been nosignificant mobile contactless payments developments as yet, although the roll-out ofcontactless cards is continuing.

We asked banks to estimate the percent of their customer base using different services(where those services were offered by the bank), both currently and expected in 5years (see Figure 4). The key observations are:

• Customer use of the Internet channel is unsurprisingly higher than other e-channelsbut is still only around 40%. This is expected to grow to nearly 70% in 5 years.

• Use of the SMS channel by customers is relatively low although it is expected togrow to over 30% in 5 years.

• The role of the IVR channel is not expected to change at all in the next 5 years, witharound 25% of customers using it.

• Use of the mobile banking channel is expected to increase significantly from lessthan 15% today to over 40% in 5 years.

• Secure email use is also expected to grow significantly to over 50% in 5 years.

Figure 4


42%

15%

27%

14%

29%

66%

32%26%

44%

56%

Internet SMS IVR Mobile Email

Current In 5 Years

Use of E-Channels by CustomersCurrent and Expected

Average % of Customer Base Using the Channel for Banking(for those banks currently offering the channel)

11


The growth in mobile banking services is linked to the growth in the use of smartphonesand phones with web browsing capability. According to comScore, in December2010 in the 5 largest EU countries, 31% of handsets in use were smartphones (around73m) and 61% of handsets in use had a web browsing capability2.

For the provision of mobile banking services, iPhone applications and Mobile Internetapplications are clearly the most important, and will continue to be so, althoughAndroid applications in particular are expected to catch up (see Figure 5). Blackberryand Mobile Windows 7 are likely to be offered by fewer banks, and will be lesscommonly used by customers (see Figure 6).

A few of the banks we interviewed have made mobile a key feature of their strategy– for example Rabobank in the Netherlands and La Caixa in Spain – and these banksalready offer mobile banking services on all applications and platforms. Several banksare also quite advanced in their strategy and development of services for tablet devices(such as the iPad), which opens up a new type of user interface for banking services.

The potential from mobile is a lot greater than just mobile payments and mobilebanking. In Spain, Banco Sabadell has recently launched a mobile application forremote deposit capture by the scanning of cheques. Also in Spain, Bankinter hasdeveloped an augmented reality application for identifying real estate for sale andrent as the user moves down a street, and then providing supporting information asrequired. In Turkey, Turkish Economy Bank is using mobile phones for its non-branchsales force to take and complete credit card applications from new customers.

Sociéte GéneraleMobile DevelopmentSociété Générale has been developing its multi-channel strategy forthe last 20 years by implementing innovative projects. Concerningthe mobile strategy it decided to offer a comprehensive mobilebanking application to its customers consisting of eight functionsincluding account checking, stock market access, geo-location ofbranches and budget management. Launched mid 2010 on iPhoneand iPod Touch, the "Appli" now also supports Android devices.

2 The comScore 2010 Mobile Year in Review

12

Current or Planned Provision of Different Mobile Banking ApplicationsFi

gure 5

Expected Customer Use of Different Mobile Banking ApplicationsFi

gure 6

66%

18%

24%

22%

52%

13%

27%

29%

36%

20%

15%

16%

20%

24%

20%

Mobile Internet

Mobile Windows 7

Blackberry

Android

iPhone

Current Plan < 1 yr Plan 1-3 yrs



Mobile internet .............................. 2.3

iPhone application ......................... 2.3

Android application ........................ 3.1

Blackberry application ................... 3.6

Mobile Windows 7 application ........ 3.7

Average Rank from 1 to 5Where 1 is the Most Commonly Used

13


Current or Planned Provision of Different Web Meeting Applications by BanksFi

gure 7


We have already noted that live web meeting is currently offered by only 15% ofbanks and planned by a further 36% of banks over the next 3 years. There are strongdifferences in opinion about video conferencing with some banks seeing this as keyto the future of relationship management, and others finding it ineffective and notattractive to customers.

Looking at other interactive e-channels (see Figure 7), we can see that document pushand form sharing are expected to be used by around 50% of banks, but VoIP andchat are less likely to be offered. The low interest in chat is quite surprising when youconsider that one bank we spoke to achieved a significant increase in web sales whenchat was introduced.

There is huge interest in social media from banks and the results of our survey reflectthis - 76% of banks are currently or intend to be present on Facebook, and 62% ofbanks are currently or intend to use Twitter (see Figure 8). Garanti Bank in Turkey isa good example of a bank which has actively used Facebook to promote its brandand services – as of April 2011 there were 75,000 followers. It is expected thatprofessional networks like LinkedIn and Viadeo will be much less important.

53%

50%

38%

39%

54%

47%

50%

62%

61%

46%

Document push

Form sharing

Chat

Voice over IP

Video conferencing

Yes No

14

Many banks are also now actively using social media to identify customer feedbackand service issues. Banco Sabadell is the first bank in Spain to use Twitter as a servicechannel, promptly responding to any customer service issues. One large bank in theUK told us it monitors Twitter to quickly find out if there are availability problems withits Internet or mobile banking services.

YouTube is another “channel” which is being actively used by some banks. AgainBanco Sabadell is a leader in this context using YouTube to display a short video ofthe making of an ad with Barcelona coach Pep Guardiola. This video has generated90,000 views as of April 2011, and provided valuable brand promotion for the bank.Some banks in the US are using YouTube to display customer testimonials, advicevideos, or copies of their TV ads.

However, there is still considerable uncertainty as to how banks should make the mostof social media. One banker we spoke to had the view that social networks will beincreasingly used for “customer self-care” and “customers advising customers”. Banksneed to be careful in this new area according to Philippe Wallez of ING Belgium whopointed out that “social network users communicate peer-to-peer and push advertisingor promotion of the bank’s services may produce a negative reaction”.

Current or Planned Use of Different Social Networks by BanksFi

gure 8


20%

5%

62%

76%

80%

95%

38%

24%

LinkedIn

Viadeo

Twitter

Facebook

Yes No

15


First Direct – Social Media and MarketingFirst Direct ran a campaign to harvest all comments on the bank fromforums and blogs and stream these live on a First Direct microsite,showing the positive versus negative balance at any time. Outdoormedia and online banner ads were used to promote this campaign,and it was all linked to a “call to action” to switch to First Direct. Theyachieved 64,000 visits to the microsite and measured an increasein their differentiation from competitors and an increase in purchaseinterest. Functionality to respond to customer comments has beenintroduced on a 24/7 basis. (Source: First Direct)

16

E-Channels and CRMThe development of e-channels has presented new opportunities for banks to improvetheir customer relationship management but at the same time has created significantnew integration and co-ordination challenges. As we will explore later in the report,some banks who are leaders in e-channel services offered, are not quite so advancedin their customer relationship management capabilities and vice versa.

The single customer view

One of the critical problems in customer relationship management is how to get asingle customer view when the customer is using many different channels to interactwith the bank. Our survey results show that just over half of banks now have a singleview across all their channels including branches (see Figure 9).

For those banks without a comprehensive single customer view, we found that 70%at least have a single customer view across branches and the Internet, which aretypically the most significant and most actively used channels. It is newer channels likeemail, SMS and mobile which are less likely to be included.

Hence we can conclude that almost all banks do have some ability to look at thecustomer from a broader (if not entirely complete) relationship perspective, but wealso should note that there is a difference between banks in terms of whether this isupdated in real time, overnight (which is quite common), or even more slowly. Thereare also differences in the richness of the information which is being collected – thelatest challenge being the collection of data on web site usage including informationon which web sites customers have arrived from and which they leave to.

% of Banks witha Single Customer ViewFi

gure 9


53%47%

Yes No

17


Our discussions with banks suggest that there is not a unanimous opinion that a singlecustomer view is critical but many banks have made it central to their customerrelationship management strategy. For example, in the Netherlands, SNS Bank hastaken a strategic approach in the last few years to deliver a single customer viewwhich now provides the platform for improved customer relationship management,making it better able to provide relevant offers to customers.

Metro Bank is a recent start-up in the UK with a customer-centric business model.According to a case study by Temenos, a key criterion for selecting a core bankingsystem at Metro Bank was “the proven ability to provide the bank with a real-time,single view of the customer across all channels, which would permit employees to dealwith customer requests seamlessly and efficiently – without asking the customer, forexample, to provide the same information again and empowering employees to beable to answer questions about all the products and services taken”3.

Customer and channel pricing

A single customer view makes it possible to offer customers pricing based on theiroverall relationship with the bank, or based on profitability. Our survey found that52% of banks were using some form of customer-based pricing (see Figure 10). It maybe that for some banks this is only offered to groups of customers, or only for assetproducts (loans and mortgages) where pricing is based on risk rather than customerrelationship. However, there are a growing number of examples of banks offeringcustomer relationship based pricing such as LCL in France (see box) and Caixa Geralde Depositos in Portugal.

% of Banks usingCustomer-Based PricingFi

gure 10


52%48%

Yes No

3 Breaking the Mould but Breaking the Malaise? Temenos, March 2011

18

LCL – Personalised PricingWith “LCL a la Carte" a new customer composes a day-to-daybanking cart, by the user-friendly simulation on the Internet or withhis bank adviser in a branch, and benefits from permanent discountson the standard rate of each product. These discounts increaseaccording to the number of products and paying services subscribedfor and can represent up to a 20% saving on their total cost. If thecustomer domiciles his income at LCL, he will benefit from a further10% discount. The customer sees in real time, thanks to the simulator,the cumulated cost of the services he selected. This new approach isaligned with the LCL development strategy based on customerknowledge, the quality of customer advice and the price transparencythat is now expected by all customers. (Source: LCL)

There are widely varying approaches to charging for the use of different e-channelsand no particular patterns emerge (see Figure 11). The main observations from thesurvey are:

• By far the majority of banks provide Internet banking and mobile banking servicesfor free.

• Charging for SMS alerts, which are offered by nearly 80% of banks, is split relativelyevenly between a flat fee, transaction fee, or not charged for at all. SMS bankinghas a similar charging profile.

• In contrast, when charged for, SMS payments and mobile P2P payments are typicallycharged for on a transaction fee basis. Mobile contactless payments (not offeredby many banks yet) are mostly free.

• Use of IVR is free for 52% of banks in the survey but the other 48% do charge, eitherwith a flat fee or with a transaction fee.

19


Method of Charging for E-Channel Use

Figure 11


52%

89%

71%

50%

36%

25%

34%

71%

19%

4%

14%

0%

36%

13%

41%

16%

30%

7%

14%

50%

27%

63%

24%

13%

IVR

Mobile banking

Mobile contactless payments

Mobile P2P payments

SMS banking

SMS payments

SMS alerts

Internet

Free Flat fee Transaction fee

The fact that mobile banking is generally a free service, similar to Internet, is actuallyslowing down its development by some banks who are concerned about the businesscase. The challenge for all banks is that more e-channels are being added, increasingcosts and complexity, but without clear revenue benefits. We will return to this issuelater in the report.

Use of e-channels for marketing and feedback

The big prize in customer relationship management is to be able to personalize thecustomer offer or customer service, based on information held about the customer.However, unless the customer visits the bank’s web site, it can be a challenge to contactthem with relevant offers.

According to the survey, approximately 50% of banks have email or mobile contactdetails for less than 40% of their customers (see Figure 12). Once a bank has thosedetails, it is still necessary to have marketing permission from the customer. The surveyshows that more than 60% of banks have marketing permissions from less than 40%of their customers (see Figure 13).

20

Customer Contact Details Held by Banks

Shown as % of banks holding different % levels of customer contact detailsFor example, 5% of banks have email and mobile contact details for 80-100% of their customers

Figure 12

33%

26%21%

14%

5%

22%27% 27%

20%

5%

0%

10%

20%

30%

40%

0-20% 20-40% 40-60% 60-80% 80-100%

% ofBanks

% of Customers With Details Held by Bank

Email Mobile


Marketing Permissions Obtained by Banks

Shown as % of banks holding different % levels of marketing permissionsFor example, 13% of banks have email marketing permissions for 80-100% of their customers

Figure 13

43%

18% 20%

8%13%

56%

12%

21%

6% 6%0%

10%

20%

30%

40%

50%

60%

0-20% 20-40% 40-60% 60-80% 80-100%

% ofBanks

% of Customers With Marketing Permission Given to Bank

Email SMS


21


It is very clear that banks expect marketing communicationsto make a significant shift from direct mail to email and SMSin the next 5 years (see Figure 14). Within 5 years, 35%of communication is expected to be by email and 18% bySMS. However, as we have already pointed out, bankscurrently hold a relatively low proportion of email andmobile contact details for customers so achieving this willbe a challenge.It is worth noting that some banks havefocused their efforts on improving sales functionality in theInternet channel rather than introducing new channels orinvesting in more sophisticated customer relationshipmanagement. Ultimately, more sophisticated event-basedmarketing will not be effective without good online salesprocesses. One bank we spoke to also highlighted the needto better understand the reasons for customers abandoningpurchases when using the Internet.It is worth noting that some banks have focused their effortson improving sales functionality in the Internet channelrather than introducing new channels or investing in more

sophisticated customer relationship management. Ultimately,more sophisticated event-based marketing will not beeffective without good online sales processes. One bankwe spoke to also highlighted the need to better understandthe reasons for customers abandoning purchases whenusing the Internet.

In general, banks emphasized the challenge of managingand using all of the online data that can now be collected.To do this well, banks need to learn from leaders in otherindustries like Amazon and Google. These companies arealso at the forefront of mobile commerce and are learningfast about the potential from this new channel.In general, banks emphasized the challenge of managingand using all of the online data that can now be collected.To do this well, banks need to learn from leaders in otherindustries like Amazon and Google. These companies arealso at the forefront of mobile commerce and are learningfast about the potential from this new channel.

Mix of Marketing CommunicationsCurrent and in 5 Years

Figure 14

38%

33%

20%

9%

21%

27%

35%

18%

Direct MailStatement Inserts

Direct MailOther

Email SMS

Current In 5 years


According to our survey results, event-based marketing on the Internet is already beingused by 78% of banks (see Figure 15), although some of the functionality andpersonalization of this is quite basic. Event-based marketing is expected to increaseon SMS and mobile but it is still only likely to be in place for about two-thirds of bankswithin 3 years. As an example of the potential from event-based marketing, RBS inthe UK has reported that its first stage development of Internet prompts resulted in14,000 incremental online sales in the first few months4.4 UK Retail Investor Round Table, RBS, November 2010

22

Turkish Economy BankPersonalised MarketingAt the Efma Congress in 2010, Deniz Devrim Cengiz of TurkishEconomy Bank described how the bank had successfully used apersonalized outbound Email and SMS campaign to promote the useof Internet banking for paying vehicle tax, with the offer of a freevehicle check-up as an incentive. (Source: Turkish Economy Bank)

Current and Planned Use of E-Channels for Event-Based Marketing

Figure 15

27%

39%

78%

20%

13%

11%

18%

11%

9%

Mobile

SMS

Internet



It is worth noting that some banks have focused their efforts on improving salesfunctionality in the Internet channel rather than introducing new channels or investingin more sophisticated customer relationship management. Ultimately, moresophisticated event-based marketing will not be effective without good online salesprocesses. One bank we spoke to also highlighted the need to better understand thereasons for customers abandoning purchases when using the Internet.In general, banks emphasized the challenge of managing and using all of the onlinedata that can now be collected. To do this well, banks need to learn from leaders inother industries like Amazon and Google. These companies are also at the forefrontof mobile commerce and are learning fast about the potential from this new channel.

23


The use of e-channels for customer service feedback is also likely to grow significantlyin the next 3 years according to our survey (see Figure 16) - 95% of banks will beusing the Internet for immediate service feedback and 67% of banks will be usingmobile for service feedback.

Current and Planned Use of E-Channels for Immediate Customer Feedback

Figure 16


23%

19%

60%

60%

23%

14%

16%

21%

21%

16%

9%

14%

Mobile

SMS

Email

Internet


SNS Bank – Integrated CRMSNS Bank’s award-winning, centralized marketing platform usescustomer records, transaction and interaction data from all channels,and data from recent Web site visits to create personalized inboundand outbound offers. This information is combined to makepersonalized product and service offers online based on businessrules and predictive analytics. Customers also receive consistent andpersonalized product offers via traditional outbound channels likedirect mail and during calls to the call center.5

5 How SNS Bank Put The Web At The Heart Of Its New Multichannel Strategy,Forrester, October 2010

24

E-Channels Strategy Our interviews with banks identified a range of different strategic approaches to e-channels based on the bank’s country of operation, market position and a range ofother factors such as whether the bank is part of a larger pan-European group. Whatmakes sense for one bank does not necessarily make sense for another.

As we have already noted, different countries are at different stages of developmentin terms of Internet and Internet banking use, and in some countries there is still muchmore relevance for the branch network in day-to-day banking. Mobile phone use ismore common in all European countries than Internet use, but mobile banking is stillnot being widely used. We interviewed banks in 6 countries and broadly speakingwe can say that they fall into 2 groups, with the first being more advanced and thesecond being less advanced:• Most advanced: France, Netherlands, Spain• Least advanced: Belgium, Germany, United Kingdom

This situation becomes self-reinforcing in the short-term because once a few banks ineach country have introduced new services, other banks have to follow. Even so, withineach of these markets, there are clearly some banks that see themselves as leadersand others who are content to be fast followers. There is no evidence to suggest thata fast follower strategy puts the bank at a long term disadvantage. Most banks, evenfast followers, are aiming to differentiate from competitors with their e-channel strategybut a significant minority of 32% is simply aiming to maintain parity (see Figure 17).

Competitive Objectivesof E-Channel Strategy

Figure 17

68%

32%

Differentiate Maintain parity


25


In each market, there are typically a handful of banks (anything from say 3 to 5) thatare long established and have significant branch networks. These banks are generallytrying to hold on to customers rather than acquire new customers and may be slightlyless aggressive than some of the medium size challengers in their market.

At the other end of the scale there will be several smaller, niche banks which mightbe independent or might have a foreign parent. These smaller banks in general appearnot to be leaders in the development of e-channels. For example, one bank we spoketo in this category felt that there was no demand for at least the next few years fromits customers for mobile banking services, so did not see the need to invest.

Management of e-channels

For the management of e-channels, most banks have either an independent departmentor use the marketing department as the central point of coordination (see Figure 18).In some cases responsibility is shared between the marketing department and adelivery department. In less than 10% of banks, e-channels are managed by the ITdepartment. A critical issue is how best to avoid the conflict between channels,particularly in terms of sales targets for branches, call centers and Internet banking.

An example of one successful approach comes from La Caixa in Spain which set upan independent department to manage e-channels several years ago with its own P&Laccount. eLa Caixa has successfully developed a range of online and mobile servicesand consequently is the leader in terms of e-channels use in Spain.

Which Department is Responsible for Management of E-Channels?

Figure 18

45% 45%

9%

2%

Independent Marketing IT Other


26

The survey respondents were split approximately 50/50 between those with a parentcompany and those with no parent company. So for example, BNP Paribas Fortis inBelgium has BNP Paribas in France as a parent company, whereas ABN Amro Bankin the Netherlands does not have a parent. We found that for banks with parentcompanies, only 22% have their e-channel strategy and supplier contracts dictatedby the parent, whereas 78% are free to make their own decisions (see Figure 19).We believe this is likely to change because there is a clear trend towards larger pan-European groups, and also a trend for these groups to centralize some aspects of theirIT and operations in order to gain the benefits of economies of scale.

22%

78%

Yes No


Figure 19

Investment criteria for e-channels

In trying to understand the most important factors driving investment decisions in e-channels we have identified 2 different types of criteria or metrics:• Financial-related: increasing return on investment, increasing revenues and reducingcosts

• Customer-related: acquiring new customers, customer retention and cross-selling

Figure 20 illustrates that the most important factor being considered for the investmentin e-channels is customer retention, and the least important factor is return oninvestment. This may seem quite surprising but many of the banks we spoke toacknowledged that measuring the return on investment in new channels was extremelydifficult, and in general there was no choice but to make the investment in order tomeet customer expectations. Another metric that was mentioned in our interviews wascustomer satisfaction, which would then reflect in customer retention and cross-sales.

Does the Parent CompanyDictate E-Channel Strategy?

27


One major bank we interviewed which is a leader in developing new channels,admitted that the “fear of losing customers” was a key driver of their strategy. Anotherbank said that “multi-accessibility, anytime to customers is a vital condition for moresatisfied and more loyal clients, to whom more products can be more easily sold”.

A growth oriented factor such as attracting new customers is generally believed to berelatively less important, whereas cost reduction is the second most important factor.Again this emphasizes the bias towards e-channel investment being somewhatdefensive rather than offensive in nature, although attracting new customers was moreimportant for some of the “challengers” in the market who were starting with arelatively low market share.

Importance of Various Factorsin E-Channel Investment Decisions

Average scores on a scale of 1 to 10, where 10 is extremely important


Figure 20

6.687.57 8.00

6.858.09 7.57

Increasereturn oninvestment

Increaserevenues

Reducecosts

Attract newcustomers

Retaincustomers

Cross-sellor up-sell

Financial -Related Customer -Related

The migration of transactions from branches to e-channels is a long term trend whichis already very well developed in many countries. Banks will normally have some sortof target for channel migration. RBS in the UK has recently reported publicly thecontribution of channel migration to the reduction in branch workload in the 12 monthsto August 20106. Of the total 17% reduction in branch workload in that period,channel migration accounted for 20%. However, the largest contributor was the

6 UK Retail Investor Round Table, RBS, November 2010

28

adoption of lean processing techniques which accounted for around 60% of thereduction.

The challenge for banks is how to prioritize investment that inevitably will need to bemade at some point. This should start with a clear understanding of the target customersegments, and the changing customer behavior and expectations in those segments.A baseline prediction of trends for the next 10 years should be made but these trendsalso need to be monitored closely because there is still a lot of uncertainty in howcustomer behavior is changing.

The full range of potential channels and services then needs to be articulated andsome sense of relative customer demand for these services developed. The strategiesof the primary competitors with respect to these services needs to be predicted, asdoes the potential impact on customer retention and cross-sell from not being a firstmover.

A road map needs to be created to work out what core infrastructure developmentwill be required in the next 5-10 years, and what services should be phased in andwhen. The bank also needs to consider how much to invest in different customersegments – for example mass market, affluent market and small business – and howmuch to invest in sales processes and how much to invest in service processes.

This whole exercise is extremely complex and difficult but without a clear vision, it isunlikely that a successful strategy will be implemented. Ultimately, online sales andonline transaction migration will be key drivers of the cost benefits and hence thereturn on investment, but the benefits from retaining customers who might otherwisehave been lost will be a key factor and difficult to measure accurately.

Innovation in e-channels

Increasing the number of channels and migrating transactions from branches and callcentres are clearly basic objectives in any e-channel strategy, but where is theinnovation taking place? We asked banks to rate the importance of different aspectsof innovation and found that personalization of the customer experience was the mostimportant area of focus (see Figure 21).

Payment services are the second most likely area for innovation reflecting the potentialfor new mobile contactless and P2P payments. This is followed closely by tools whichcan enhance the customer relationship such as money management, automatedfinancial advice and account aggregation. Perhaps surprisingly, the areas of leastimportance for innovation are community features and video conferencing.

29


Relative Importance of Future Innovations in E-Channels

Average scores on scale of 1 to 10, where 10 is the most important


Figure 21

5.1

5.4

5.6

6.3

6.4

6.8

7.7

8.0

Video conferencing

Community features

Add-on non-financial applications

Account aggregation

Automated financial advice

Money management tools

Payments services

Personalisation of the customer experience

Innovations in the areas of money management tools, account aggregation andautomated financial advice are to some extent related and several examples areemerging in Europe, including:

• Banco Sabadell is extending its online banking with a free service that lets customersmake a detailed analysis of their expenses and income at any time, broken downby categories and comparing them with other months, or with the same period ofthe previous year. According to Manuel Tresánchez, Director for Personal Bankingat Banco Sabadell, “with this new service we are taking a giant step forward in ourstrategy of rewarding customer loyalty by offering useful, value-added services thatmake it easier and more convenient for customers to manage their transactions withour bank”.

30

• BBVA’s tú cuentas service aggregates financial information, not just from BBVA, andalso non-financial information such as electricity and phone bills. Information iscategorised and presented more visually, providing customers with an instantsnapshot of all their finances to better understand what they are spending their moneyon. The service also then offers the user personalised advice based on knowledgeof their tastes and preferences. This can include more sophisticated options whichuse artificial intelligence to help find opportunities tailored to the customer’spreferences and needs.

Several banks talked about the continued “digitization of the customer relationship”as the critical future trend and one of the leading European banks spoke of the needto keep investing in pilots of new services because it is unclear what the future “cashcow” will be for banks.

31


Stage of Integration of Back Officesand Front Offices for E-Channels

Back Office Front Office

45%

21%

34%

Yes No Partially

52%

17%

30%

Yes No Partially


Figure 22

Operation of E-ChannelsThe effective operation of e-channels is critical given the increasing complexity theyadd to the bank’s business and the impact on customer service when things go wrong.Since the introduction of Internet banking in the 1990’s, for many banks there hasbeen a haphazard approach to development by adding more and more pieces ontoexisting legacy core banking systems. In contrast, newer start-up banks, have beenable to build their multi-channel capabilities from scratch and have achieved betterintegration.

According to our survey, only around one half of banks have fully integrated their e-channel back and front offices. Around one fifth of banks have not even achievedpartial integration (see Figure 22). There is no particular pattern in these results otherthan to observe that many of the banks in Germany and the UK have not achievedfull integration yet.

For those banks who do not have fully integrated front and back offices, we lookedmore closely at their stage of development (see Figure 23). This suggests that abouttwo-thirds of banks are in the process of incremental evolution (either study ordevelopment) and one-third of banks are working on a complete renewal of their e-channels infrastructure. A very small proportion of banks have no current developmentplans.

32

Stage of Development for Back Officesand Front Offices E-Channels

Banks Without Full Integration Currently

Back Office

Front Office

25%

9%

38%

22%

6%

Renewal - Development

Renewal - study

Incremental evolution - development

Incremental evolution - study

No development plans

17%

13%

30%

30%

9%

Renewal - development

Renewal - study

Incremental evolution- development

Incremental evolution - study

No development plans


Figure 23

33



Most banks spend less than 10% of their IT budget on e-channels, but a significantminority of banks is spending more than 15% (see Figure 24). Interestingly, it is someof the largest banks in the most mature markets in Europe who are spending the highestproportion of their IT budget on e-channels – perhaps a reflection of the need toaddress the lack of integration due to incremental development in the past. Notsurprising is the fact that 76% of banks expect the IT budget for e-channels to increaseor strongly increase in the next few years, and no banks expect the IT budget todecrease (see Figure 25).

% of IT Budget Spent on E-Channels

Figure 24

33%

25% 25%

10%8%

< 5% 5-10% 10-15% 15-20% > 20%


Expectations for the Change in the IT Budgetfor E-Channels in Next 2-3 Years

Figure 25

17%

59%

24%

0% 0%

Stronglyincrease

Increase No change Decrease Stronglydecrease

34

While the costs of developing and maintaining e-channels are clearly increasing,there also needs to be a focus on optimizing those costs. The most common ap-proaches taken to reduce costs in e-channels have been internal cost reviews andexternalization of developments (see Figure 26). Other effective approaches suchas externalization of hosting (outsourcing) and Software-as-a-Service (SaaS) havebeen considered by only around one fifth of banks.

The primary reasons for considering externalization of hosting would be to achievea faster time to market with new developments, to access up-to-date external know-how, and for cost efficiency relative to internal costs (see Figure 27).


% of Banks Taking Steps to Optimise E-Channel Costs

Figure 26

24%

21%

53%

71%

SaaS opportunities

Externalise hosting

Externalise developments

Internal cost review

1 Time to market with new developments2 Up-to-date external know-how3 Cost efficiency versus internal costs4 Potential for new technology maturity5 Better Service Level Agreement6 Benefits from up to date compliancy7 Secured hosting know-how

Most Important

Least Important

Primary Reasons for Considering Externalisationof E-Channel Hosting

Overall position on a forced ranking of importance

Figure 27


35


Benchmarking of Servicesand CapabilitiesThe results of the survey clearly show that some banks are much more advanced thanothers in terms of their electronic channels and customer relationship managementservices and capabilities. We have organized the key benchmarks in the survey into3 categories and shown the results in Figure 28. For some of the benchmarks we haveshown the current position as well as the position taking into account short term plans(less than 12 months) because in practice, once the study is published, many of theseservices will be available.

• E-channel services offeredA total of 9 services were listed and the top quartile of banks had 7, 8 or 9 of theseservices either currently or in plan for less than 12 months. The bottom quartile ofbanks typically offered only 1 or 2 of the services.Two examples of leading banks with all 9 services are Rabobank (Netherlands) andBanco Sabadell (Spain).

•CRM marketing and feedback capabilitiesFor this section we looked at the average customer contact details and marketingpermissions held by banks, and the use of event-based marketing and event-basedfeedback for the Internet and SMS channels. Only 32 of the banks provided completeresponses for contact details and marketing permissions so it was not possible to createan aggregated score for all of the banks in the survey.Two examples of leading banks in each of these areas are Turkish Economy Bank(Turkey) and ABN Amro Bank (Netherlands).

•E-channel and CRM level of integrationThere were 3 questions related to this issue: whether the bank has a single customerview and whether the front and back offices for electronic channels are fully integrated.Only 33% of banks gave a positive answer to all 3 of these questions, and 35% ofbanks could not give a positive answer to any of them.Two examples of leading banks on these integration criteria are La Caixa (Spain) andSociete Generale (France).

Overall we found that there is a very big difference between the leaders and thelaggards across each of these 3 benchmark categories of services and capabilities.Some of this is to do with deliberate strategic positioning, but some is due to lack ofinvestment or lack of vision for what can be achieved with e-channels and customerrelationship management. Each bank needs to look at its own score on the benchmarksand decide if its positioning is appropriate, relative to the leaders in Europe andrelative to its immediate peers.

CurrentCurrentPlus

Plan < 1yr

E-Channel Services Offered% of banks with each serviceSMS alerts 79% 85%SMS payments 26% 41%SMS banking 32% 51%Mobile P2P payments 15% 24%Mobile contactless payments 15% 36%Mobile banking 64% 79%Live web meeting 15% 34%Secure email 45% 60%Social network features 38% 59%Number of services offered 0-1 26% 15%(from the list above) 2-3 28% 17%

4-5 32% 28%6-7 11% 26%8-9 4% 15%Total 100% 100%

CRM Marketing and Feedback

Contact details held(% of customers)

EmailSMS

41%34%

n/an/a

Marketing permissions held(% of customers)

EmailSMS

34%29%

n/an/a

Using event-based marketing(% of banks)

InternetSMS

78%39%

89%50%

Using event-based feedback(% of banks)

InternetSMS

60%19%

83%33%

E-channel and CRM Level of Integration% of banksFull e-channel integration Back office 45% n/a

Front office 52% n/aSingle customer view across all channels 53% n/aNumber of integration questions answered "yes" 0 35% n/a

1 15% n/a2 17% n/a3 33% n/a

Total 100% n/a

36

Benchmarking of Services and Capabilities

Figure 28


38

23 24

Yes No

1512

20

1-5,000 5,001-10,000 >10,000

Survey Respondentswith a Parent Company

Figure 29

Survey Respondentsby Number of Employees

Figure 30

About the ResearchThe survey was conducted between October and December 2010. We receivedcomplete responses from 47 banks from 8 different European countries – Belgium,France, Germany, Netherlands, Poland, Spain, Turkey, and the UK. The profile ofsurvey respondents is set out below. In addition, we carried out 17 face-to-face andtelephone interviews with banks between January and March 2011.

39


Survey Respondents by Number of Customers

Figure 31

23

6

12

7

17

50,001 -250,000

250,001 -500,000

500,001 -1,000,000

1m - 2m 2m - 5m >5m

Notes on the Analysis of the Quantitative Survey Results

The question on current and expected use of e-channels by customers provided 5response options: 0-20%, 20-40%, 40-60%, 60-80% and 80-100%. The averageacross banks has been calculated by taking the mid-point of these ranges, for example0-20% would be 10%.

The same approach has been used for calculating the average customer contact detailsand customer marketing permissions held, which is shown in the benchmarking tablein Section 7.

41


About UsEuropean financial marketing associationEfma promotes innovation in retail finance in Europe by fostering debate anddiscussion among the main players involved in change. Formed in 1971, Efmacomprises 2,450 different brands in financial services worldwide today, including80% of the largest European banking groups. Through regular events, publications,and its comprehensive website, the association provides retail financial serviceprofessionals with answers to their questions about the main issues at stake in theirbusiness: multiple distribution strategies, customer approach, CRM, product and servicemarketing and improving profitability. Efma is above all a dynamic association,providing a great opportunity for discussion and exchanges without any commercialconstraints. It provides its members with a wide range of exclusive services as wellas discount rates on non-gratuitous activities. The loyalty of its members as well astheir permanent financial support are the best proof of its efficiency.www.efma.com

Atos Worldline

Atos Worldline brings together Atos Origin's core expertise in hi-tech transactionalservices. A leader in end-to-end services for critical electronic transactions, AtosWorldline is specialised in electronic payment services (issuing, acquiring, terminals,card and non-card payment solutions & processing), eCS (eServices for customers,citizens and communities) as well as services for financial markets. Atos Worldine’son-going commitments to research and innovation enable its customers to benefit fromaward-winning solutions in areas such as mobile payments, secure IPTV, online CRMand paperless solutions. Atos Worldline generates annual revenues of €867 millionand employs over 5,400 people worldwide.www.atosworldline.comdircom-atosworldline@atosorigin.com

About the AuthorMichael Pearson is a strategy and corporate development expert with 25 years’experience working for and advising financial institutions worldwide, developing newventures, and investing in start-ups. Michael founded Clarus Investments in 2006 toinvest in early stage ventures, with a particular focus on financial services and thenset up Clarus Insight to report on trends and developments in financial services andstrategic management. Michael is also the author of the Efma report “Innovation inRetail Banking” and provides advice on strategy to entrepreneurs and financialservices firms in developed and emerging markets. Michael has an MBA from HarvardBusiness School.

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