harnessing the potential of digital in financial services
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Harnessing the Potential of Digital in Financial Services. Stephen Phillips September 23, 2013. Harnessing the potential of Digital in Financial Services. Context and perspective. Leading Digital practice. Organising for success. Consumers will be more connected with more devices. - PowerPoint PPT PresentationTRANSCRIPT
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Harnessing the Potential of Digital in Financial Services
Stephen PhillipsSeptember 23, 2013
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent 2130916-Belgium Finance Conference v5STK
Context and perspective
Leading Digital practice
Organisingfor success
Harnessing the potential of Digital in Financial Services
This information is confidential and was prepared by Bain & Company solely for the use of our client; it is not to be relied on by any 3rd party without Bain's prior written consent 3130916-Belgium Finance Conference v5STK
0
20
40
60
80
100%
Broadband internet subscriptions
( % of households )
EU
BRIC
USA
Japan
00 02 04 06 08 10 12 14 16 18 20
Consumers will be more connected with more devices
2000 2005 2010 2015
PCs
Smartphones / PDAs
Netbooks
Gaming console
TV
Mobile Inter-net device
Car
DVD players
Domotics ?E-book/ tablets
CONSUMERS ARE INCREASINGLY CONNECTED… …USING MORE AND MORE DEVICES
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0
20
40
60
80
100%
2002
65
2008
75
2014E
Trad
ition
al
med
ia
Online
media
83
Share of weekly per capita media
consumption ( hours/week )
-1%
10%
( 08-14 )
CAGR
0
1
2
3
4B
2004 2005 2006 2007 2008 2009 2010
Total time spent online in US
(hours/month )
Social media
Search
Content
Communications
Commerce
10%
6%
19%
21%
222%
( 04-09 )
CAGR
ONLINE WILL CONTINUE TO TAKE SHARETOTAL TIME SPENT ON SOCIAL MEDIA
HAS INCREASED DRAMATICALLY
The shift “online” is pronounced, particularly time spent using social media
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Digitally active customers are more valuable
-40
-30
-20
-10
0%
-36
-21
-12
-2
NPS
(Mass affluent/Affluent )*
None Low Med High
On-line and Mobile Use**
DIGITALLY ACTIVE CUSTOMERS ARE MORE SATISFIED
PROMOTERS GENERATE MORE VALUE…
-2.0
-1.0
0.0
1.0
2.0
Annual
revenue
100
94
78
Revenue
growth
rate
100
-16
-86
Defection
rate
100
88
151
Customer characteristics by NPS score,
indexed to promoter
…AND REFER MORE
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
Net average number of
referrals/ discouragements
per year per customer
Promoter
1.7
0.7
Detractor
-2.9
Passive
DISGUISED MASS AFFLUENT SEGMENT EXAMPLE
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RESULTING IN “U CURVE” EFFECT
Digitalisation lowers distribution costs by 10-30% for some customers… but not for high-frequency users
0
50
100
150
None
100
Low
71
Medium
89
High
136
Total transaction cost by distribution
channel ( Mass affluent/Affluent*; indexed )
0
15
30
45
60
75
90
No digital
17
Low
18
Medium
33
High
88
74% 70% 69% 67%
Average number of uses of channel per quarter
( Mass affluent/Affluent )
Branch ( Transaction )
Branch ( Sales/ Service )
ATM
Phone
Mobile
Online ( Transaction )
Online ( Other )
HIGHLY DIGITAL CUSTOMERS HAVE SIGNIFICANTLY HIGHER USAGE
UK EXAMPLE
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Financial Services companies have much to think about in relation to our increasingly digital world
•Fundamental changes in consumer behaviour
•Unprecedented regulatory pressure
•Fast moving technology trends
•Increasingly competitive landscape
•Legacy environments are slow and expensive to upgrade
•Not all technology & consumer trends are of equal importance
•Must not divert attention from today’s business and regulatory commitments
•Reduce opex/capex vs. increase digital investment
•Where is current business model under most pressure?
•Which are the digital trends to really get behind?
•What is the scale of implied effort?
•What are priorities if cash constrained?
SITUATION COMPLICATIONS QUESTIONS
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Context and perspective
Leading Digital practice
Organisingfor success
Harnessing the potential of Digital in Financial Services
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0
20
40
60
80
100%
Australia US Korea Canada UK Spain India Mexico Thailand
42% 40% 36% 36% 33%58% 58% 55% 55% 53% 53% 52% 51%
2 1 2 4 19 74 9 8 2 14 10 10
# interactions per customer by country
Germany France China Singapore
% Online and mobile
interactions
No. of respondents
(000s)
Most banking transactions are already ‘digital’
RETAIL BANKING EXAMPLE
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Example: Commonwealth Bank of Australia
People Technology Strength Productivity
More customer needs met in core franchise “One CommBank”
Continued growth in business and institutional banking
Disciplined growth outside of Australia
CBA STRATEGIC FOCUS TECHNOLOGY DELIVERY
Customer:
Revitalised front-line customer interface
Strategic Advantage:
Best-in-class online platforms
Core:
Core Banking Modernisation (CBM)
1
2
3
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Advancements in technology improved face-to-face interaction with customers
1
SELF-SERVICEFLAGSHIP BRANCH LAYOUT
COMMSEE REAL-TIMECUSTOMER SNAPSHOT
• Interactive/self-service options for customers to undertake all transaction banking requirements
- Customers become familiarised with technology options (iPads and iPod apps) thereby reducing the need for bank visits
- Self service options reduce demand on tellers and waiting times
- FX and coin counting machines available• Branch acts as a ‘one-stop-shop’ with a
coffee shop, events and seminars for customers
• Frontline customer interface used by bank teller staff/agents
• Single view of customer• Integrated with Core Banking to provide
real-time transaction details for all personal accounts
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Bank’s technology allows for easier customer banking at any time of the day
2
ONLINE MOBILE SOCIAL POINT OF SALE
• NetBank (online banking):
- Real-time account information
- Tools accessible on-site- Google Chrome
integration
• CommSec (online brokerage):
- Market leading platform- Easy access to information- Ability to trade
instruments
• FirstChoice and Commbiz
- Portals for wealth and SME clients
• CommBank app:- Real-time view of A/C- Trade stocks - FX calculator- Undertake bank
transfers and B-pay
• Kaching:- Pay 3rd parties using
mobile number, email, Facebook or bump
- Contactless payments
• Property Guide app:
- Reality view- Loan repayment calc.
• Facebook:- 236k likes- Competitions, new
products and offers announced via Facebook
- Winner of Facebook’s Studio Live Awards for the smartest use of Facebook
• YouTube:- ~1.3m views- ~1k subscribers
• Twitter:- ~9.5k followers
• Pi - Albert:- Open platform POS
payment method - Businesses can create
own compatible apps- Secure merchant
terminal- QR scan, card scan, chip,
NFC payments- Customers can split bill
• Pi – Leo:- Device plugged into
iPhone/iTouch turning it into payment terminal
- Similar payment functionality to Albert
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Core Banking Modernisation has focused on improving processes to optimise front-end
3
Enhanced customer
experience
Greater efficiency
Improved risk management
Industrialisation
Future proofing
•Real-time banking, 24x7 •Instant account opening •Customised product offers •Straight through processing •Faster speed-to-market •Lower cost-to-income •Greater system reliability •Less manual re-work and errors
•“Bank of the Future” •Greater flexibility •Separate distribution/manufacturing •Broader growth opportunities
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IT investment has paid off in the form of more efficient processes
5 YEARS AGO TODAY
•50% of spend on infrastructure
•23 data centres
•70 severity 1 incidents
•1,200 changes into production monthly
•26% of spend on infrastructure
•2 data centres
•7 severity 1 incidents1
•3,000 changes into production monthly
•74% customer-focused content
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Digitalisation strategy helped CBA become the market leader
#1 Online banking
#1 In the youth
segment
>40% of all payment transactions
#1iTunes app
#1Social &
460k Kaching
downloads
1st Real-time banking
#1 Contactless acceptance
points
4.25m active online customers
>2.0m customers on
mobile
Main Financial Institution for1 in 3 Australians
#1 Contactless (7M PayPass
enabled cards)
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Context and perspective
Leading Digital practice
Organisingfor success
Harnessing the potential of Digital in Financial Services
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What does it take to launch impactful digitalisation initiatives?
Scope & focus Ambition
Governance & capability Investment principles
• Clear and unambiguous definitions of what is to be considered ‘digital’
• Solid understanding of likely impacts of key marketplace and technology trends
• Prioritised sense of the most important challenges and gaps
• Translation of digital potential into business impact
• Clarity on choices associated with differing levels of digital ambition and investment
• Quantitative goals that will excite and engage the business
• Organisation model for digital efforts that ‘goes with the grain’
• Clarity on who is accountable for what, and where the buck stops
• Right competencies in right place to ensure successful execution
• Know starting position on levels of current digitally related spend
• Debate carefully ‘new toys’ versus driving adoption of existing
• Create investment portfolio… from reinforced basic service delivery all way to latest mobile experiments
1 2
3 4
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CUSTOMER/CHANNEL/PRODUCT RELATED DIGITAL INNOVATIONS
Customer portal
Advisor portal and tablet interface
Lead generation/prospect management
Organisations have many different definitions of digital
Social media
New digital products (e.g. Telematics)
Distributor management
1
1
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INCLUDE BROADER SET OF APPLICATIONS?
CUSTOMER/CHANNEL/PRODUCT RELATED DIGITAL INNOVATIONS
Customer portal
Advisor portal and tablet interface
Lead generation/prospect management
Enterprise components
Business support solutionsPolicy systems
Organisations have many different definitions of digital
Social media
New digital products (e.g. Telematics)
Data management
Distributor management
1
2
1
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Hosting Network Workplace
INCLUDE BROADER SET OF APPLICATIONS?
CUSTOMER/CHANNEL/PRODUCT RELATED DIGITAL INNOVATIONS
Customer portal
Advisor portal and tablet interface
Lead generation/prospect management
Enterprise components
Business support solutionsPolicy systems
System management tools IT development tools Security and access
management
Organisations have many different definitions of digital
INCLUDE IT INFRASTRUCTURE AND ENABLING TOOLS?
Social media
New digital products (e.g. Telematics)
Data management
Distributor management
Middleware
1
2
3
1
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Key to identify and align upon priority areas for digital transformation
Digital needs will impact all existing plans Significant digital capability gaps Ratify existing plans
CUSTOMER
SHAR
ED S
ERVI
CES
SHARED SERVICES
IT INFRASTRUCTURE & ORGANISATION
BUSINESS COLLABORATION
GUIDED
VERT
ICAL
PR
OPO
SITI
ON
S Individual Retirement Corporate SME
ONLINE PORTALADVISED
DIS
TRIB
UTI
ON
&
CU
STO
MER
IN
TERF
ACE
ILLUSTRATIVE INSURANCE EXAMPLE
1
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Digitalisation can make a significant contribution to companies’ ambitions
Back-office
Front-line
Increasedrevenues
Lowercost
Differentiate through
online/ mobile
Increase product
cross-sales
Best advisory
tools/apps
Decrease process and re-work cost
Move customer contact to lower cost channels
Decrease infra-
structure maintenanc
e cost
Enable growth
initiatives
Most effective pricing/ under-writing
Eliminate critical system
incidents
Stronger customer relation-
ships
Best channel-partner
interface
Enable customer
self-service
Digitalisation plays a fundamental roleDigitalisation plays a supporting role
LIFE CO EXAMPLE
2
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0
20
40
60
80
100%
Other
Div
este
d
trans
actio
ns
WM
Financial
Other
Mixed deposit
Cash withdrawal < X
Cash withdrawal > X
Cross entry
Cash deposit
XM
Non
financial
Cust.
enquiry
YM
# transactions (Y1 )
Card status
Card order
Card activation
Sales
ZM
Total = XXXM
0
XXXM
A Y3
EOY
B C D E Y4
EOY
Target
Gap
# non-self service transactions
Y1
Start
point
Y3
Forecast
Y6
Strategic
view
Goals leading banks are establishing to move ‘self service’ to the next level are extremely bold
STRIVE TO DECREASE NON-SELF-SERVICE TRANSACTIONS
WHAT HAS BEEN DONE WHAT CAN BE DONE IN 2013 BEYOND 2013
TRANSACTIONS WITH POTENTIAL FOR SELF-SERVICE
New functionalities
being delivered
Potential toself-serve via:Online/mobile
CDM onlyATM/CDM
Limited potential to self-serve
ILLUSTRATIVE
2
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We see 5 approaches to managing digital initiatives
Inspiration from Global,
Local organisations deliver
Central innovation team and seed capital
Active facilitation of global best
practice sharing
•Initiation, funding and delivery resides with countries /regions
•Full autonomy to use own local application solutions
•Global formulates global vision, goals and global idea exchanges
Targeted standardised/
shared investment
Systematic, global
standardisation and roll-out
•Global funds and manages a portfolio of innovation ideas
•Central innovation team(s) to incubate ideas for broader local application, acts as catalyst for invention
•Global structure and resources to support int’l alignment and best practice sharing
•Global plays a role in establishing test pilots
•Funding and delivery resides with local
•Full autonomy to use own local applications
•Global actively supports shared investment priorities
•Select areas governed by global architecture and compliance
•Key systems platforms centrally owned and managed
•Autonomy only for select local app.
•Global strategy, architecture and compliance policies
•One global systems platform
•Global formulation and funding of initiatives
•Process ownership roles installed locally
Level of central controlA CB D E
3
INSURANCE EXAMPLE
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One of hottest digital CEO debates we observe is ‘adoption of the old’ versus ‘investment in the new’
Technology and hardware
Promotion & communication
Staff training & customer education
Incentives Enforcement & penalties
• Online splash screens
• Leaflets & signage• Advertising
campaigns
• Staff-led discussions with customers using in-branch technology
• Security and fraud awareness campaigns
• Financial rewards to switch to paperless billing
• Higher interest rates on accounts opened online
• Higher service fees for assisted transactions
• Restrictions on low-value assisted cash withdrawals
Technology and hardware • New ATM/CDM machines; Functionality across all channels
ADOPTION LEVERS
SUPPORTING CAPABILITIES
1 2 3 4
Self-service adoption targets
Technology and hardwareManagement information • Goals and quantifiable metrics; Reporting and data gathering
Technology and hardwareBranch design and format • ATM/CDM positioning and signage; Tellers location
RETAIL BANKING EXAMPLE
4
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Part of digitalisation budgets must improve IT service quality basics to satisfy increasingly demanding clients
0
250
500
750
1 000
1 250
S1 S2 S3 S4 S5 S6 S7
S8
S9
S10 S11
S12
S13 S14 S15 S16 S17 S18 S19 S20 S21 S22 S23 S24 S25 S26 S27 S28 S29 S30 S31 S32 S33 S34 S35 S36 S37 S38 S39 S40 S41 S42 S43 S44
Critical business applications
(S# )
Average monthly minutes downtime
(Y1 )
Down time target
RETAIL INSURANCE EXAMPLE
4
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Bold CEOs are stepping-up to a ‘digital investment bubble’ but holding divisional execs accountable for RoI
CASH NUMBERS BU1 Budget
BU1 to be approved
BU2 BudgetBU2 to be approved
BU1 incremental
BU2 incrementalCustomer-facing; incrementalShared incrementalIT incremental
Key
~XXM spend above approved current plan in
Year 2, with additional XXM IT Strategy recommended
spend
4
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Where are the Digital Execution Challenges?
Scope & focus•Are you working with clear and ambiguous definition(s) of what digital means?
•Are SL’s digital efforts ‘go to market’ and distribution focused or do they extend to product and policy space?
•Are infrastructural prerequisites such as IT architecture considered within scope?
Ambition•Is there agreed linkage from SLs stated business ambitions through to the role that digital capabilities must play?
•To what extent have these requirements been driven down into concrete KPIs?
•How have any conflicts between competing ambitions been resolved?
Governance & capability•What are the role and associated decision accountabilities in different geographies?
•To what extent are country and product groups aligned and engaged with digital efforts?
•What, if any, have been resourcing and capability related ‘pinch points’?
Investment principles•Is there a clear point-of-departure factbase on current SL digital expenditure?
•How are Divisional executives being held accountable RoI on their share of the transformation investment?
•Will further waves of investment be required?
Scope & focus Ambition
Governance & capability Investment principles
• Clear and unambiguous definitions of what is to be considered ‘digital’
• Solid understanding of likely impacts of key marketplace and technology trends
• Prioritised sense of the most important challenges and gaps
• Translation of digital potential into business impact
• Clarity on choices associated with differing levels of digital ambition and investment
• Quantitative goals that will excite and engage the business
• Organisation model for digital efforts that ‘goes with the grain’
• Clarity on who is accountable for what, and where the buck stops
• Right competencies in right place to ensure successful execution
• Know starting position on levels of current digitally related spend
• Debate carefully ‘new toys’ versus driving adoption of existing
• Create investment portfolio… from reinforced basic service delivery all way to latest mobile experiments