BBVA’s 7 Steps to Digital Transformation FEBRUARY 5, 2015 BY JJ HORNBLASS

One theme from the current earnings seasons is that digital transformation for financial institutions does not come cheap.

That makes it all the more important for banks going down the path of digital to do so smartly. Angel Cano Fernandez, BBVA’s president, chief operating officer and executive director, yesterday described the bank’s steps to digital transformation this week, and they deserve consideration, particularly considering that BBVA has drunk the digital Cool-Aide in hefty portions.

Fernandez highlighted the following seven steps to the bank’s digital transformation:

1. Develop a strategic roadmap2. Revise your distribution model3. “Deeply” transform the customer experience4. Reduce servicing costs for the bank5. Align IT process, branches and commercial activities “all in the same digital way.”6. Roll out cultural organizational changes to simplify structure7. Look to create value “in this new digital environment” by pursuing “cornerstone digital

transactions”

At the end of last year, BBVA had 9 million digital customers, which it defines as customers that interact with the bank via the internet or mobile phone. Of those, 4.2 million are mobile banking customers, according to the bank.

Fernandez pointed out that, as part of its “cornerstone digital transactions,” in addition to acquiring Simple last year, BBVA invested in Coinbase, a bitcoin platform, and acquired Madiva Soluciones, a Spanish company that specializes in big data.

What kind of cost savings might digital transformation provide? Fernandez emphasized some impressive numbers:

The results of just these two lines of transformation in 2014 are already starting to deliver significant cost efficiencies, with costs coming down in Spain in the corporate center area by €340 million or minus 8%, and if we exclude amortizations by 9% or €357 million reduction.

By region, I need to highlight the substantial cost savings achieved in Spain, where as a result of our digital transformation plan costs went down by €340 million, also taking into account as well the corporate center.

Those cost savings certainly appear to be a salve to BBVA’s IT spending in recent years. The bank, which had $745   billion of assets at the end of last year, spent $951 million on IT last year, a 3.8% increase.

Capital One’s Fairbank Gets Passionate About Digital OCTOBER 17, 2014 BY PHILIP RYAN

Capital One founder and CEO Richard Fairbank got passionate about digital in the bank’s earnings call yesterday. The subject came up repeatedly during the call.

We are also making significant investments in digital and technology, banking inherently is a digital product and digital will transform banking over time. The momentum around digital is building across financial services. Consumers increasingly expect elegant and robust digital experiences from all companies, including banks. Software is a predominant way consumers interact with their banks even today and that engagement will only go up. Activity in the payment space from financial services companies and non-banks is accelerating.

The ability to efficiently store and use vast amounts of data will unlock new opportunities. Capital One is well positioned to succeed in a digital world and we are investing in the foundational infrastructure and capabilities to be a digital leader. We are continuing to expand Capital One 360 as a national digital banking platform. We are bringing in significant native digital talent, engineers, product developers, designers and data scientists. We are very active in mobile and in payment. For example we are one of only a handful of banks, included in Apples launch of Apple pay in September and shortly thereafter launched our Capital One digital wallet.

He later referred to the above as his “spit-flying, little passionate speech” about digital. Fairbank has spoken passionately about digital before, saying last December that “digital is who we are and how we do business.” He elaborated on his comments more in yesterday’s call:

At Capital One, we’re embedding technology, data and software development deeply into our business model and how we work. For example we’re focused on building reusable plug and play middleware using RESTful APIs, modern software development and design, integrating our platforms and making them scalable in real time and building a powerful and flexible data infrastructure.

He also touted the cost-savings benefit of digital, saying the marginal cost of a digital transaction is “virtually zero.” But beyond cost savings, Fairbank said, is “being able to be faster, more efficient, a better customer experience, better controlled in an intense regulatory environment, much more able to innovate a better associate experience.”

An analyst asked about P2P lending as a potential disruptor and Fairbank agreed, saying that at Capital One, they “pretty obsessively study” financial startups, including lending startups. One way they do this is to invite entrepreneurs to do guest stints at Capital One Labs.

Fairbank wrapped up the digital discussion, which took up a large proportion of the call, with an intriguing comment about digital going beyond just mobile banking:

One thing I want to say is the way digital is transforming banking goes far beyond what I think the thing people mostly think about, which is, today there are branches and tomorrow there is a branch in people’s pocket. And look, that is [a] very important component of that whole thing.

And by having bought ING Direct, by having before that already built a digital bank of our own, and having a big commitment to digital innovation and having a heritage of 20-some years being a direct marketing company, I’m very interested in the opportunities there. But the bulk of our digital investment itself and capabilities is really for things that kind of extend beyond some of the narrowest view about just moving to a bank in your pocket kind of thing.

 

Digital Banking, part 3: How banks can stay competitive today and tomorrow OCTOBER 29, 2013 BY CAPCO

By Eric Disend, Partner

What can banks do to improve their competitive position in today’s evolving financial services marketplace? To begin with, they should address these priorities related to strategy, people, technology and data.

1. Start with the customer In setting digital strategy, it’s essential to start from the customer’s viewpoint and experience and work back to the bank. This is a departure from the traditional approach of starting with siloed banking channels, working out to the customer and trying to figure out how to unify the channels.Customer segmentation is a core consideration in setting strategy. This involves looking

at the distinct experiences of customers and prospects as well as differing expectations among various customer groups.

2. Change the internal cultureA major hurdle many banks face internally in implementing digital channels is political. The people managing branches, sales and transactions may see digital channels as a threat (when, in fact, digital is simply another channel that complements traditional channels).To overcome this misconception, senior management can create and champion a culture in which customer experience is the focus. Establishing a “chief customer experience officer” role can be a key step in overcoming organizational barriers to channel integration.

3. Deploy needed technologyFirst-generation digital banking applications are nearing the end of life and in need of refreshing. Providing a seamless customer experience will require redesign, reconfiguration and upgrading of bank IT from the customer interface to back-end systems.Banks will need to decide how much to rely on internal systems vs. service providers. Technology providers are approaching banks’ needs in one of two ways, either a) offering a flexible user interface (UI) that banks can customize to an extent for look and feel, or b) ceding ownership of the full UI to the bank, which brings it in house and manages it.

4. Make the most of customer dataBanks may overlook valuable customer data sources in the day-to-day rush to keep the institution running and keep up with competitors. As they rely on focus groups, usability labs and one-on-one interviews to gather information on customer needs and attitudes, they may be underutilizing online analytics to track consumer behaviors and understand trends. That’s a missed opportunity, as key insights from such data can provide the foundation for testing new products, services and marketing programs.

Positioning for the futureRising customer expectations, coupled with growing competition from traditional and nontraditional rivals, are compelling banks to consider how they can create a seamless, flexible customer experience both within the branch and in the digital world. By building strategy based on the customer’s point of view, rallying people and resources around the strategy, and making necessary upgrades in technology deployment and data usage, banks can strengthen their position in what promises to be a demanding, competitive industry future.

What other changes can banks make to improve their competitive position in today’s evolving financial services marketplace?

Digital Banking, Part 2: The hard reality of consumer-driven digital banking OCTOBER 15, 2013 BY CAPCO

By Eric Disend, Partner

The situation facing a Capco client specializing in small-business banking demonstrates the importance of customer experience, the shortcomings of many traditional bank offerings and the disruptive impact of new market entrants.

Signing up for a digital service on the bank’s website required customers to spend nearly 20 minutes just to find the page detailing service offerings. Then, after filling out online forms, customers received a message that a bank representative would get back to them within 48 hours to complete the application.

Contrast that experience with the ease of using Square Register, a device offered by Square, Inc., that allows merchants to accept card payments through Apple iPhones and iPads. The enablement process only takes a few minutes, and Square overnight ships the device, allowing a merchant to be in business the next day.

Wanted: a consistent consumer experienceConsumers can take care of their banking requirements using an array of digital devices and service offerings, but the experience is often anything but consistent. Whether establishing a new account, paying bills online or filling out a loan application, bank customers encounter different interfaces, different instructions and possibly different data from one device to another.

This deficiency is not surprising given the segmented nature of bank technology today. Mobile and online are often treated as two separate channels within the bank infrastructure, each provided by a different vendor. In this piecemeal environment, customers encounter quite different experiences — and uniting the IT resources, processes and people of each is extremely difficult.

Banks also run the risk of chasing the latest shiny object. They may become so focused on the growing mobile channel that they neglect the Web-based online channel, which remains a primary conduit for both transactions and information gathering. Even if banks are diligent in maintaining their Web-based presence and services, the “disconnect” between Web and mobile impedes delivery of a consistent customer experience across the two channels, as well as between digital channels and physical branches.

From a customer viewpoint, overcoming these barriers is essential. Customers want the same capabilities, look and feel regardless of what type of access device they use. And they want an integrated experience in which they can start something on one device, continue it on another and perhaps complete it in a branch.

Dramatic changes aboundAs banks work to deliver a loyalty-winning customer experience, they also contend with dramatic changes in transaction fee structures. Eased regulation is paving the way for increased use of price differentials between transaction channels. Transaction costs may vary, perhaps dynamically, depending on whether a customer uses a deposit account, credit card or loyalty points.

Retailers are also beginning to price products differently across payment channels. Channels with an associated fee are likely to face added pressure as customers demand more flexibility and lower costs, especially as digital wallets enable payment at point of purchase based on the best immediately available deal.

How would you rate your bank’s digital service? Have you found any financial institutions providing a seamless digital service for customers?

Coming in Part 3 of our Digital Banking series: How banks can stay competitive today and tomorrow.

Eric Disend is a Partner and leader of the new Capco Digital group and Innovation lab based in New York City

Digital banking, part 1: The importance of customer experience in the digital era OCTOBER 1, 2013 BY CAPCO

By Eric Disend, Partner

Digital technology is dramatically changing how banks interact with their customers. In just a few years, the financial services industry has evolved from traditional brick-and-mortar operations to online bill payment and deposits to the emerging world of mobile banking.

Two trends enabled by digital technology are at the heart of this transformation. One is the growing incursion of new, non-bank players into the industry. With digital banking, you don’t need a giant vault to offer financial services.

The second trend is the emergence of customer experience as a central consideration for banks as they create and execute their competitive strategies. Customers now evaluate their banking experience in the context of their interactions and relationships with retailers, travel companies and other service providers. They want digital banking to be as easy and seamless as ordering an item online or booking a flight with a mobile app.

Capitalizing on digital banking’s emergence

The ability to deliver services the way customers want, including through digital channels, is increasingly crucial to banks’ establishing and maintaining long-term relationships. At the same time, banks must address growing regulatory requirements and concerns over the security and privacy of information.

These trends point to a future of unprecedented convenience and exciting new services for consumers. They also suggest a period of enormous challenge for traditional banks, which must adapt to growing customer demands, new competitors and ceaseless technology innovation.

Capco believes banks can best position themselves to capitalize on digital banking’s emergence by taking a customer-centric view of their business. They can make the organizational and technology changes needed to execute a strategy focused on customer experience. And by using the growing troves of customer data available to them, they can identify and deliver the right products and services.

Growing expectations among consumers

Consumers are taking to the digital life with an enthusiasm that likely surprises even the strongest technology proponents. People are going online to buy products and services, conduct pre-purchase research, interact through social media, watch videos and listen to music, and yes, do their banking.

Recent and still-to-come innovations in mobile communications and commerce are further transforming how people live, work, play and shop, as anyone who’s fallen under the spell of a smartphone or tablet will testify.

Banks of nearly every size now offer customers online and mobile services, including balance viewing, statement downloading, funds transfers, investment transactions and bill payment. Online-only banks, while still only a small slice of the industry, have seen deposits rise 32 percent since 2010.[1] And banking via mobile devices has experienced explosive growth, with an estimated 530 million users globally in 2013, up from 300 million in 2011.[2]

Retailers of every stripe are providing mobile apps for customers to compare prices, get deals and make purchases. Target, Walmart, Shell and a dozen other market giants have joined forces to create the Merchant Customer Exchange (MCX), a new platform for smartphone-based transactions. Google Wallet, Square Wallet and Isis Mobile Wallet™ are competing for share in the mobile checkout market, offering payment solutions that allow customers to complete transactions by pushing a smartphone button, swiping a barcode or tapping a near-field-communication (NFC) reader.

These diverse initiatives have one thing in common: They all are taking place — and potentially taking share — in the banking value chain.

For their part, traditional banks understand both the growing customer demand for digital access and convenience along with the emergence of new competition within and outside the banking industry. They also recognize the need to expand their own digital services and capabilities, and many are innovating and investing heavily to do so. But are they doing enough, and are they doing the right things?

Coming in Part 2 of our Digital Banking series: The hard reality of consumer-driven digital banking.

Eric Disend is a Partner in Capco’s Digital practice