Transcript Players in the securities industry are consolidating to

Enhancing Value Through Retail
Banking Distribution
May 2002
Contents
Context
Market dynamics
Internal responses
Issues and implications
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
2
context
Banks are seeking new avenues for shareholder value creation in the
face of a sputtering economy and an alienated retail customer base
Framing the Issues
 Value creation strategies: Banks employed several distinct strategies during the 1990s that
succeeded in creating shareholder value growth across the sector
– Consolidation: Regulatory changes triggered a three-stage period of consolidation in the banking sector
– Revenue diversification: Banks pursued a more balanced income mix by implementing fee-based services and
rolling out non-bank financial offerings
– Risk securitization: Banks attempted to improve their risk profiles by taking risk off the balance sheet through
the aggressive use of asset-backed securities
 Diminishing returns: While these strategies allowed banks to outperform broader market indices,
the returns realized from these initiatives are diminishing
– Each of these strategies is exhibiting signs that their respective benefits are in decline
– In retrospect, these strategies gradually lost focus on the retail bank customer value proposition
– The increased customer dissatisfaction stemming from lack of customer focus further exacerbates the situation
facing retail banks
 Retail bank distribution optimization: To reverse the recent downturn in market performance and
customer satisfaction, banks must develop and implement strategies that optimize their retail
distribution networks
Source: IBM Institute for Business Value analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
3
THE “DOTCOM ROLLERCOASTER”
context
Other than the Asian banking crisis, the banking industry as a
whole has outperformed the S&P 500 in the 1990s
Yearly Percentage Gains of S&P Bank Index vs. S&P 500, 1994 - 2001
S&P Banking Index
S&P 500
60.0%
49.3%
50.0%
43.5%
40.0%
35.2%
30.5%
30.0%
23.6%
21.6%
24.6% 24.7%
20.0%
7.8%
10.0%
9.0%
0.0%
-2.3%
-10.0%
-2.0%
-5.5%
-6.5%
-20.0%
-17.3%
-16.0%
-30.0%
1994
1995
Note: (1) The S&P Banking Index began in May 1993
Source: Yahoo, Apr 02; IBM Institute for Business Value analysis
July 17, 2015 >> Banking Retail Distribution
1996
1997
1998
1999
2000
2001
The S&P Banking Index grew at a CAGR of 12.7%
from 1994 – 2001, as opposed to an 11.3% CAGR
increase by the S&P 500 Index
© 2002 IBM Corporation
4
context
Banks’ market performance during the decade was bolstered
by three primary value creation strategies
Banks’ Strategies Targeted the Levers of Bank Shareholder Value
Revenue
Growth
Cost
Reduction
Revenue
Diversification
Fee-based services and the emphasis on nonbank financial offerings grew annuity-type
revenue sources, reducing banks reliance on
interest income
Consolidation
Major regulatory changes spurred tremendous
industry consolidation and afforded survivors
significant scale and scope economies
Risk
Securitization
Increased usage of asset securitization improved
banks’ risk profile and allowed them to lower their
net charge-off rates in the current economic
downturn
Shareholder
Value
Asset
Productivity
Cost of
Capital/Risk
Source: IBM Institute for Business Value analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
5
context > value creation strategies >> revenue diversification
Banks produced stable revenue growth through the 1990s by
shifting towards a greater reliance upon non-interest income…
Bank Revenue Mix, 1990 - 2001
FDIC-Insured Savings and Commercial Banks
100%
$501B
$453B
$405B
$393B
$403B
$462B
$486B
$521B
$566B
$596B
$676B
$656B
Total Revenue
CAGR: 2.5%
79.7%
78.5%
76.5%
75.7%
74.2%
80.7%
79.2%
74.2%
82.2%
79.1%
Interest Income
CAGR: 1.0%
20.3%
19.3%
20.8%
21.5%
23.5%
25.8%
24.3%
25.8%
Non-interest
Income CAGR:
9.4%
1994
1995
1996
1997
1998
1999
2000
2001
90%
80%
70%
60%
87.4%
85.4%
50%
40%
30%
20%
12.6%
14.6%
17.8%
20.9%
1990
1991
1992
1993
10%
0%
Source:
FDIC, Sep 01; IBM Institute for Business Value analysis
July 17, 2015 >> Banking Retail Distribution
The retail banking industry’s emphasis on noninterest income sources produced an 13.2% shift in
income mix from 1990 - 2001
© 2002 IBM Corporation
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context > value creation strategies >> revenue diversification
…As non-interest income increased nearly three-fold during
the course of the decade
Bank Industry Net Income Trends, 1990 - 2001
FDIC-Insured Savings and Commercial Banks
175
$164
$169
$154
Non-Interest
Income
CAGR: 9.4%
150
$133
125
$112
$, Billions
$101
100
75
$89
$63
$66
1990
1991
$82
$82
1993
1994
$72
50
25
0
1992
1995
1996
1997
1998
1999
2000
2001
Source: FDIC, Sep 01; IBM Institute for Business Value analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
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context > value creation strategies >> revenue diversification
Non-interest income expansion was fueled largely through
newly implemented fees on existing bank products
Non-Interest Income, 1997 - 2001
FDIC-Insured Savings and Commercial Banks
$ Billions
$169
175

From 1997-2001, non-interest
income expanded by $57 billion

Only $13 billion of that increase
was attributable to non-bank
revenue, including:
$13
150
125
$112
Non-bank product
revenue
100
$156
75
–
–
Non-Interest Income
–
Investment and brokerage fees
Insurance commissions and
fees
Trading gains and fees
50
25
0
1997
2001
Note; (1) FDIC Quarterly Banking Profile, Dec 01
Source: FDIC, Apr 01; IBM Institute for Business Value analysis
July 17, 2015 >> Banking Retail Distribution
Commercial banks generated $26.5 billion in 2001 on
service charges and fees from core deposit accounts¹
© 2002 IBM Corporation
8
context > value creation strategies >> consolidation
The upswing in retail bank consolidation in the 90s unfolded in
three distinct stages
Strategic
Driver
Trigger
Key
Examples
Stage 11: 1990 – 1995
Stage 2: 1995 – 1998
Stage 3: 1998 – present
Intra-Regional
Inter-Regional
Cross-Industry
Optimize the efficiency of
existing bank infrastructure by
significantly increasing
customer base in core
geographies using the network
Enhance regional footprint and
accelerate the penetration of
new markets
Cross-sell the full range of
financial products and
services to banks’ growing
customer base
High efficiency ratios and a
need to cut costs in a
recessionary environment
Riegle-Neal Interstate Banking
and Branching Efficiency Act,
September 29, 1994
Gramm-Leach-Bliley Act,
November 12, 1999
Chase ManhattanManufacturers Hanover
Bank of AmericaNationsbank
Citibank – Travelers
First Chicago-Bank One
Wells Fargo-Norwest
Citibank-Travelers merger,
October 8, 19982
Chase – JP Morgan
Note: (1) Stages represent peak periods for each type of merger. M&A activity in all three categories continues today; (2) Though changes to the Glass-Steagall Act were in the works in
1998, the Citibank-Travelers merger occurred before the legislation officially passed, and became a major force in accelerating the passage of the act
Source: IBM Institute for Business Value analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
9
context > value creation strategies >> consolidation
The wave of M&A activity concentrated customer assets and
industry competition to a shrinking number of institutions
Retail Bank Asset and Competitive Concentration
Number of
Banks
Market Share of
Assets by Bank Type
 The number of banks declined 33.0% from 1991 - 2001
15,000
100%
Thrifts and
Independents
90%
14,000
80%
One-bank holding
companies
Thrifts and
Independents
13,000
70%
50%
40%
11,000
30%
Multi-bank
Multi-Bank Holding
holding companies
Companies
10,000
Thrifts
-10%
One-bank
holding
companies
3%
Multi-bank
holding
companies
7%
60%
One-bank
holding companies
12,000
Shift in Market
Share
20%
10%
0%
9,000
1991
Number of
Mergers 600
400
1993
443
424
1995
501
548
1997
606
552
598
1999
2001
557
417
453
357
200
0
1991
1993
1995
1997
1999
2001
 1980-1990 average
number of mergers:
351
 1991-2001 average
number of mergers:
496
Source: FDIC, Dec 01
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
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context > value creation strategies >> consolidation
The retail banks that survived this period of consolidation
achieved unprecedented scale
Retail Bank Asset and Branch Scale
Assets Per Bank¹ ($, Billions)
Branches Per Bank
$8
9
 Assets per bank grew
187% from 1991-2001
$7
8
7
$6
6
$5
 Branches per bank grew
60% from 1991-2001
5
$4
4
$3
Multi-Bank Holding
Co.’s
$2
3
2
$1
1
$0
0
1991
1993
1995
1997
1999
Note: (1) The average includes multi-bank holding companies only
Source: FDIC, Dec 01
July 17, 2015 >> Banking Retail Distribution
All Banks
2001
1991
1993
1995
1997
1999
2001
The large number of community banks in the US with
fewer assets and branches dramatically depresses
the averages for each measure
© 2002 IBM Corporation
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context > value creation strategies >> risk securitization
Banks’ pursuit of risk profile improvement drove up sharply
the volume of securitized assets in the US
Sample Asset-Backed Securities Growth, 1993 - 2001
U.S. Mortgage Backed Securities Volume, 1993 - 2001
U.S. Credit Card Backed Securities Volume, 1993 - 2001
All Institutions
FDIC-Insured Commercial Banks
200
CAGR: 6.7%
CAGR: 22.8%
360
180
310
160
$, Billions
$, Billions
260
140
120
210
160
100
110
80
60
1993 1994 1995 1996 1997 1998 1999 2000 2001
Change
Since
1993
1993 1994 1995 1996 1997 1998 1999 2000 2001
67.4%
415.8%
Source: Federal Reserve, Apr. 01; FDIC Quarterly Banking Profile, Dec 01; FDIC Analysis on Emerging Risks in Banking, Feb 98; IBM Institute for Business Value analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
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context > value creation strategies >> risk securitization
Improved net charge-off rates offer evidence that risk control
measures have mitigated the full impact of recessionary forces
Charge-off Rates1
Q3 ‘89- Q3 ‘91
Charge-off Rates1
Q1 ’00 - Q4 ‘01
2.00%
2.00%
1.75%
1.80%
1.60%
1.60%
1.55% 1.57%
1.67%
1.60%
1.43%
1.27%
1.40%
1.20%
1.80%
1.09%
1.00%
1.36%
1.40%
1.20%
Recessionary Period2:
July 1990-March 1991
0.80%
1.00%
1.00%
0.79% 0.79%
0.80%
0.60%
0.60%
0.60%
0.40%
0.40%
0.20%
0.20%
0.00%
0.87%
1.01%
0.63% 0.65%
Recessionary Period2:
March 2001- present
0.00%
Q3 89 Q4 89 Q1 90 Q2 90 Q3 90 Q4 90 Q1 91 Q2 91 Q3 91
Note:
(1) Charge-off rates listed are for all banks and are seasonally
adjusted; (2) The dates of both recessions were determined by
the National Bureau of Economic Research (NBER)
Source: Federal Reserve; FDIC Analysis on Emerging Risks in
Banking, Feb 98; IBM Institute for Business Value analysis
July 17, 2015 >> Banking Retail Distribution
Q1 00 Q2 00 Q3 00 Q4 00 Q1 01 Q2 01 Q3 01 Q4 01
While not the only factor, securitization has helped to
reduce dramatically retail banks’ charge off rates
during the present recession
© 2002 IBM Corporation
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context > value creation strategies > results
We can observe the effect of these three strategies in the
changes of the bank income statement from 1990 to 2001
Banking Industry Income Statement, 1990 vs. 2001
Revenue
Diversification
Non-interest income increased 172.6% since
1990, and it now accounts for 25.8% of total
income, as opposed to 12.4% in 1990
Equipment and occupancy expenses as a
percentage of bank net revenue¹ declined from
41.7% in 1990 to 31.1% in 2001
Consolidation
500
450
487
400
235
350
110
300
100
$ Billion
250
252
200
296
31
62
150
100
Loan loss provisions as a
percentage of net interest
income decreased from 28.9%
in 1990 to 17.9% in 2001
Risk
Securitization
169
59
46
1
438
63
142
50
22
41
0
Interest
Income
Int
Expense
Net
Interest
Income
44
Non
Interest
Income
Non Int
Expense
Empl.
Occup.
Loan
Loss
87
1
Sec
Gains
9
Income
Taxes
11
Net
Income
Key
1990 Income statement
2001 Income statement
(1) Note: Total revenue was derived from adding net interest income to non-interest income
Source: FDIC, 01; IBM Institute for Business Value analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
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context > diminishing returns
However, each of these value creation strategies are
approaching the point of diminishing returns for retail banks
Returns on Value Creation Strategies Evaporating
• Retail banking fees are beginning to plateau
Revenue
Growth
Cost
Reduction
Revenue
Diversification
Consolidation
• The mix between the interest income and noninterest income has settled in the 75%-25%
range
• Efficiency gains achieved through post-merger
integration have dropped significantly as
acquisitions have become less synergistic
Shareholder
Value
Asset
Productivity
Cost of
Capital/Risk
Source: IBM Institute for Business Value analysis
July 17, 2015 >> Banking Retail Distribution
Risk
Securitization
• The portion of loans outstanding that banks are
securitizing and selling off their balance sheets
has similarly begun to settle into a stable range
These same strategies that produced so much
shareholder growth for banks have also conspired to
alienate a growing portion of their customer base
© 2002 IBM Corporation
15
context > diminishing returns >> revenue diversification
After years of growth, the mix of non-interest income to total
bank income has begun to level off
Non-Interest Income as a Percentage of Bank Net Revenue, 1990 - 2001
30%
25%
20%
15%
25.8%
23.5%
10%
20.9%
20.3%
19.3%
1993
1994
1995
17.8%
20.8%
21.5%
1996
1997
24.3%
25.8%
14.6%
12.6%
5%
0%
1990
1991
1992
1998
1999
2000
2001
Source: FDIC, Apr 01; IBM Institute for Business Value analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
16
context > diminishing returns >> consolidation
The market has exhibited a familiar pattern of behavior
throughout each of the three periods of bank mergers
Annual Stock Price Performance for Highly Acquisitive Banks¹, 1991 - 2001
Intra-Regional Merger
Period
Cross-Industry
Merger
Period
Inter-Regional Merger
Period
80%
 Each period of M&A
activity was unleashed by
a trigger point
70%
60%
50%
 The market recognized the
greatest synergies in the
acquisitions first
undertaken during each
period
40%
30%
20%
10%
0%
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
-10%
-20%
Trigger: High efficiency
ratios and a need to cut
costs in a recessionary
environment
Trigger: Riegle-Neal
Interstate Banking and
Branching Efficiency Act
Trigger: Citibank-Travelers
merger; passage of
Gramm-Leach-Bliley Act
2001
 As each period
progressed and the
transactions became less
synergistic, Wall Street
stopped placing premiums
on the M&A strategies
Note: (1) The Highly Acquisitive Bank Index consists of 19 publicly traded banks that were both part of the S&P Banking Index and active in M&A activities throughout the 90s. Banks
include the following: Bank of America, Bank of New York, Bank One, BB&T Corp., Comerica Inc., Fifth Third, FleetBoston Financial, Golden West Financial, Huntington
Bancshares, KeyCorp, Mellon Financial, National City Corp, Northern Trust, PNC Financial, Southtrust Corp., Suntrust Corp, Synovus, US Bancorp, and Union Planters
Source: FDIC, 01; IBM Institute for Business Value analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
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context > diminishing returns >> risk securitization
The portion of credit card loans outstanding that banks are
securitizing and selling is beginning to slow down
Credit Card Loan Outstanding, 1993 - 2001¹
FDIC-Insured Savings and Commercial Banks
100%
90%
80%
46.9%
70%
69.8%
69.4%
63.6%
60.0%
42.0%
45.4%
58.0%
54.7%
1999
2000
40.5%
54.8%
60%
50%
40%
30%
53.1%
20%
30.2%
30.6%
1993
1994
36.4%
40.0%
1995
1996
59.5%
45.2%
10%
0%
Securitized & Sold
Note:
Source:
1997
1998
2001
Held on Balance Sheet
(1) Credit card loans held on balance sheet include check credit and other revolving credit plans. The analysis only includes credit card loans drawn down; it does not
include unused commitments.
FDIC, Apr 01; IBM Institute for Business Value analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
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context > diminishing returns
Exacerbating the situation, banks largely created shareholder
value at the expense of retail customers’ best interests
Bank Strategies Lost Focus on the Customer Value Proposition
Revenue
Diversification
In pursuit of income diversification, banks levied
fees and charges on customers’ deposit account
holdings, resulting in fees of $26.5B in 2001
New data shows that over two-thirds of
customers believed that the service they
received from banks declined following a merger
Consolidation
500
450
487
400
235
350
110
169
300
100
$ Billion
250
252
200
296
31
62
150
100
By securitizing and selling off
assets, banks squandered
opportunities to develop deeper
relationships with these
customers
Risk
Securitization
59
46
1
438
63
142
50
22
41
0
Interest
Income
Int
Expense
Net
Interest
Income
44
Non
Interest
Income
Non Int
Expense
Empl.
Occup.
Loan
Loss
87
1
Sec
Gains
9
Income
Taxes
11
Net
Income
Key
1990 Income statement
2001 Income statement
(1) Note: Total revenue was derived from adding net interest income to non-interest income
Source: Banking Strategies, 01 Jan 02; FDIC, 01; IBM Institute for Business Value analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
19
context > bank distribution optimization
Looking ahead, the next source of value creation will focus on
optimizing retail distribution to maximize the value of the customer
Retail Bank Value Creation Strategies
Revenue
Growth
Revenue
Diversification
Cost
Reduction
Consolidation
Shareholder
Value
Asset
Productivity
Retail
Distribution
Cost of
Capital/Risk
Risk
Securitization
By optimizing their retail distribution channels,
banks will address each of the levers of
customer and shareholder value, while
simultaneously honing in on the issue of sagging
customer satisfaction
Source: IBM Institute for Business Value analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
20
context > bank distribution optimization
To respond to this critical challenge, banks must understand
and address three key areas
The anticipated returns from banks’
investment in alternative distribution
channels have not materialized
Market
Dynamics
Internal
Responses
By optimizing retail distribution, banks will
improve each of the levers of customer and
shareholder value
Issues &
Implications
By optimizing their retail distribution
channels, banks will address each of the
levers of customer and shareholder value
Source:
IBM Institute for Business Value analysis
July 17, 2015 >> Banking Retail Distribution
This study will address these issue areas and explore
how each will affect the levers of bank shareholder
value
© 2002 IBM Corporation
21
Contents
Framing the issues
Market dynamics
Internal responses
Issues and implications
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
22
market dynamics
Banks have not realized the anticipated returns on their
distribution channel investments and migration strategies
A More Cost-Efficient Retail Fulfillment Function Has Not Materialized

With technology as the key driver, spending on retail distribution continues to be a major
expense obligation for banks across the globe

In an effort to reduce customer fulfillment costs, banks have invested heavily in the deployment
of alternative channels

–
Banks hoped to reduce service costs as customers replaced branch visits with lower-cost channel
options
–
Alternative channel adoption has been impressive to date, but signs of plateauing exist
–
Banks will continue to allocate investment dollars to develop alternative channels, but branch spending
will remain robust
Banking customers have not abandoned traditional channels in favor of newer ones, but rather
increased the ways and frequency with which they interact with retail banks, creating three
critical considerations for banks:
–
The branch channel continues to be the focal point of customer activity
–
The availability of multiple channel access points for banking customers has not produced the expected
cost savings that banks had anticipated
–
The more convenient aspects of certain channels (e.g., ATM, Internet) have raised customer
expectations and demands and given banks more chances of disappointing their customers
Source: IBM Institute for Business Value analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
23
market dynamics
Supporting product and service fulfillment is becoming
increasingly expensive for retail banks around the world
IT Spend on Distribution
Channels: U.S.
$ bn
$20
CAGR: 4.5%
$18
IT Spend on Distribution
Channels: Europe
80%
70%
CAGR: 6.1%
60%
$14
$12
$10
7.8
8.1
8.5
8.9
9.3
70%
15.2
$14
50%
$12
40%
$10
30%
80%
$18
$16
$16
$8
$ bn
$20
IT Spend on Distribution
Channels: Asia Pacific
12.9
13.7
14.4
$8
20%
$4
10%
$2
$0
0%
$0
2001
2002
2003
2004
2005
70%
60%
$14
$12
40%
$10
30%
$8
50%
6.6
6.9
7.3
7.7
8.0
30%
20%
2001
2002
2003
2004
20%
$4
10%
$2
0%
$0
2005
10%
0%
2001
2002
2003
2004
2005
Key
IT Spend on Distribution Channels
Source: Datamonitor Nov 2001
July 17, 2015 >> Banking Retail Distribution
40%
$6
$4
$2
80%
$18
50%
$6
$6
CAGR: 4.9%
$16
60%
12.0
$ bn
$20
% of Total IT Spend
While AP is still suffering from the 1997 economic crisis and
the U.S. is shifting spend into capital markets, EMEA retail
banks have been accelerating IT channel spend
© 2002 IBM Corporation
24
market dynamics
The impetus behind alternative channel development was to
capitalize on more favorable marginal transaction costs
This Assumption Was Aligned With the Objective of Reducing Costs to Serve
Marginal Transaction Cost By Channel
$1.20
$1.07
$1.00
$0.80
$0.60
$0.54
$0.40
$0.27
$0.20
$0.02
$0.01
PC Banking
Internet
$0.00
Branch
Source: Booz, Allen & Hamilton, Feb 01
July 17, 2015 >> Banking Retail Distribution
Telephone
ATM
Banks hypothesized that retail customers would
transact and interact with the bank at historical
frequency levels
© 2002 IBM Corporation
25
market dynamics
Several US retail banks have acquired a critical mass of online
customers in a relatively short period of time
45%
Customer Adoption of Online Banking Services For Selected US Banks
(as of
March 31, 2001)
40%
Online customers at Fleet hold 93% higher deposit
balances, 48% higher loan balances and use 7.7 products,
whereas traditional customers use 3.2
40%
36%
35%
Online customers at Wells Fargo hold 20%
higher balances and purchase more
products than offline customers
30%
30%
27%
25%
26%
26%
25%
24%
25%
25%
23%
20%
US online banking
penetration rate
22%
20%
21%
19%
18%
16%
16%
14%
15%
17%
15%
15%
13%
13%
2001
16% 16%
13%
13%
12%
10%
10%
5%
5%
8%
7%
1998
12% 12%
8%
6%
5%
5%
3%
1999
10%
9%
8%
8%
2000
2%
8%
7%
6%
5%
4%
2%
1%
1%
0%
FleetBoston Wells
Fargo
Source: CSFB, May 2001
July 17, 2015 >> Banking Retail Distribution
Wachovia
SunTrust
Banks
PNC
Fith Third
Bank of
America
KeyCorp
First Union J.P.Morgan AmSouth
Corp.
Chase
Bank
One
US
Bancorp
National
City
While the leading US banks have realized significant
customer uptake, most banks have yet to reach the 25%
penetration threshold
© 2002 IBM Corporation
26
market dynamics
Led by Sweden and Germany, Europe has seen slightly greater
online banking adoption than the U.S.
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
Percentage of European Consumers
Banking Online
42%
2001
US penetration rate
26%
24%
120,000
Growth of Online Banking
Consumers in Europe
113,183
28%
100,000
Luxembourg
Ireland
Norway
Denmark
Greece
Finland
Portugal
Austria
Belgium
Switzerland
Sweden
Netherlands
Spain
France
Italy
UK
Germany
CAGR: 26.3%
21%
17%
13%
80,000
Europe Sweden
Italy
UK
France
Spain
Germany
Total European Customers, by Channel
2001-2005
70
60
50
40
30
20
10
0
Internet
Mobile
60,000 44,454
40,000
20,000
0
2001
2001
2002
2003
2004
2002
2003
2004
2005
2005
Source: Datamonitor, Oct 2001
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
27
market dynamics
Despite the impressive uptake of online banking relative to
ATMs, we expect the adoption curve to similarly plateau
US ATM and Internet Banking Adoption, 1982 - 2002
70%
70%
60%
60%
50%
50%
ATM adoption has remained relatively stable since
reaching 60% in 1989
ATM
Internet
40%
40%
30%
30%
20%
20%
10%
10%
0%
0%
1982
Source: CSFB, May 2001
July 17, 2015 >> Banking Retail Distribution
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
Introduced in the 1960s, ATMs took nearly 20 years to
reach 20% penetration, while the Internet has surpassed
25% in over six years
© 2002 IBM Corporation
28
market dynamics
Banks in the US will continue to invest in alternative
channels, but not at the expense of the branch
US IT Delivery Channel Spending
US IT Delivery Channel Spending
(Datamonitor)
(TowerGroup)
CAGR
2001-2005
4.5%
$12
CAGR
2001-2005
7.8%
$12
$10.5
$8
$7.8
$8.1
$8.5
$8.9
$9.9
$10
$9.3
6.5%
$6
3.4%
$4
3.2%
$2
$8
18.9%
$8.8
12.4%
US$, Billions
US$, Billions
$10
56.5%
$8.0
10.7%
$7.4
9.3%
$6
3.2%
$4
$2
$0
$0
2001
2002
Branch
Call centers
2003
2004
Branch
Rel'p Sales
ATM/Kiosk
Internet
Source: Datamonitor, Nov 2001; TowerGroup, 2002
July 17, 2015 >> Banking Retail Distribution
2001
2005
2002
2003
ATM/Kiosk
Internet
2004
2005
Call Center
Wireless
While spending on non-branch channels is expected to
comprise as much as 61% of total channel IT
investment, branch spend is expected to grow as well
© 2002 IBM Corporation
29
market dynamics
European banks will follow the spending trends of their US
peers, with a slightly higher allocation towards the Internet
European IT Delivery Channel Spending
European IT Delivery Channel Spending
(Datamonitor)¹
(TowerGroup)²
CAGR
2001-2005
$16
$14.4
US$, Billions
$12
$12.9
6.1%
6.2%
$16
7.3%
$13.7
$14
$12.0
15.9%
$12
US$, Billions
$14
$15.2
CAGR
2001-2005
$10
5.8%
$8
$6
$4
3.0%
$2
-1.3%
$10
$9.1
$9.8
$10.5
$11.0
$11.4
$8
31.6%
5.1%
15.0%
3.4%
7.9%
$6
$4
4.9%
$2
$0
$0
2001
2002
Branch
Internet
2003
ATM
Wireless
2004
2005
2001
Branch
Rel'p Sales
Call center
(1) Datamonitor’s high IT channel spending forecast reflects
its inclusion of non-bank financial services providers (e.g.,
insurance companies, retailers) in its estimates. The
inclusion of non-bank financial providers also contributes to
the relatively low percentage of IT channel spend at the
branch level.
(2) Figures are for European Union
Source: Datamonitor, Nov 2001; TowerGroup, 2002
2002
2003
ATM
Internet
2004
2005
Call center
Wireless
Note:
July 17, 2015 >> Banking Retail Distribution
Spending on the Internet will shift from up-front
investments to integration projects as banks seek to tie
the web together with existing channels
© 2002 IBM Corporation
30
market dynamics
Uncertainty in the Asian market will continue to constrain
overall channel IT investment levels relative to other regions
AP IT Delivery Channel Spending
AP IT Delivery Channel Spending
(Datamonitor)
(TowerGroup)
CAGR
2001-2005
$8
$6.6
$7.3
$6.9
$7.7
$8.0
3.6%
$8
7.0%
$7
16.2%
$6
US$, Billions
US$, Billions
$7
$9
4.9%
$9
5.0%
$5
$4
CAGR
2001-2005
2.1%
$3
$6.5
$6.7
$7.0
$7.2
$7.5
$6
0%
10.7%
0%
0%
$5
6.5%
$4
$3
$2
$2
3.5%
$1
1.4%
$1
$0
$0
2001
2003
2002
Branch
eBanking
ATM
Wireless
2004
2001
2005
2002
Branch
Rel'p Sales
Call center
2003
ATM
eBanking
2004
2005
Call center
Wireless
Though under intense economic pressure, Asia-Pacific
banks demonstrate commitment to branch spending
Source: Datamonitor, Nov 2001; TowerGroup, 2002
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
31
market dynamics
Banks’ efforts to decrease fulfillment costs with alternative
channels have produced some key unplanned results
The Evolution of Alternative Channels Has Created New Issues For Banks

Continued Branch
Loyalty

Unmet Cost
Reduction Targets
Enhanced
Fulfillment
Requirements

While adoption rates for certain alternative channels have approached levels of critical mass,
banking customers generally remain “branch loyal”
–
Despite the spending emphasis on non-branch channels, customers still prefer in-person banking
–
Banks have acknowledged this preference by directing a significant portion of future investment to
revitalize the branch channel
The availability of lower-cost bank access points has not succeeded in reducing the overall
cost to serve retail bank customers to banks’ initial anticipated levels
–
Customers’ channel usage behavior is not a zero-sum game; using a particular bank channel does not
necessarily mean that another channel is completely abandoned
–
In fact, customers are using more channels with greater frequency, driving up the aggregate cost of
customer service and fulfillment
The conveniences afforded by non-branch channels (e.g., 24x7 access, ATM proximity,
queue elimination) has raised the bar on customers’ fulfillment expectations across a banks’
multiple channels
–
The expanded capabilities of new channels has led customers to expect anytime access and seamless
service integration across all channels
–
Failure to meet customers channel requirements has helped to drive down retail bank customers’
satisfaction ratings
Source: IBM Institute for Business Value analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
32
market dynamics > continued branch loyalty
Despite the emphasis on alternative channels, bank customers
remain branch loyal
U.S. Customers Channel Preferences
2002
100%
European Consumers Channel Preferences
2001
1
92%
79%
90%
Personal Visit
80%
11%
70%
In four of Europe’s leading banking
markets – France, Spain, Germany and
Italy – at least 80% of customers prefer
personal bank visits over other available
channels
Phone
60%
50%
50%
Europe
4%
40%
Sweden
Internet/ E-mail
Italy
30%
UK
France
3%
20%
Spain
Mail/ fax
10%
Germany
0%
Prefer branch to automated
channels
Have used branch in last
month
0%
20%
40%
60%
80%
100%
Note:
(1) Branch use in the last month does not include usage of on-premesis ATMs
Source: TowerGroup 2002 Primary Market Research; Datamonitor Oct 01
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
33
market dynamics > continued branch loyalty
Banks have acknowledged this preference by directing a significant
portion of future investment to revitalize the branch
US Retail Banking Branch IT Spend, 2001 - 2005
$ billions
100%
$2.9
$3.1
$3.5
$3.8
$4.1
Branch Renewal IT
Expense Drivers
 Upgrade of DOS-based bank teller
platform
90%
80%
 Replacement of OS/2 operating
platform
70%
60%
85%
86%
84%
83%
82%
 CRM-enabled teller and branch
employee workstations
50%
40%
30%
 Integration of branch channel to
other customer touch points
20%
10%
14%
15%
16%
17%
18%
2001
2002
2003
2004
2005
0%
Branch Renewal IT Spend
Source: TowerGroup, Feb 2002
July 17, 2015 >> Banking Retail Distribution
General IT Branch Spend
By 2005, even thrifts and credit unions are expected to
make an estimated $1.1 billion in investment to upgrade
and maintain branch IT systems
© 2002 IBM Corporation
34
market dynamics > continued branch loyalty
Banks in Europe are balancing the pressure to reduce costs
with customers’ bias for branch fulfillment
EMEA Retail Banking Branch Spend, 2001 - 2004
$ billions
100%
$3.5
$3.5
$3.5
$3.5
CAGR
2001-2004
90%
80%
60%
93%
92%
91%
89%
– As a result, branch renewal spending is expected
to become increasingly important
– Transition to web-based systems
-1.2%
40%
– Integration with technologically-advanced
channels
– Implementation of CRM systems
30%
 Longer term, branch renewal will expand to the
following:
20%
10%
0%
– At the same time, banks recognize that the
majority of European customers prefer in-person
banking interactions
 In the short term, branch renewal will consist of
the following:
70%
50%
 Under pressure to reduce costs, banks are
attempting to keep branch spending flat
7%
8%
9%
11%
2001
2002
2003
2004
Branch renewal spend
Source: Datamonitor, Jan 2002
July 17, 2015 >> Banking Retail Distribution
13.4%
General branch network spend
– Events-based branches
– Business-to-employee (B2E) branch banking
– Collocation
– Franchise systems
Growth in branch renewal spending will be steady
initially (2001 – 2002) but is expected to pick up in 2003,
as cost pressures gradually subside
© 2002 IBM Corporation
35
market dynamics >unmet cost reduction targets
Frequent branch transactions by online adopters have
hampered banks’ ability to reduce costs to serve
This Behavior Counters the Logic Supporting Alternative Channel Investment
Percent of Customers Using The Branch In The Last Month1
100%
92%
90%
85%
All U.S. Households
80%
75%
2
Online U.S. Households
70%
60%
60%
60%
50%
50%
40%
30%
22%
22%
20%
10%
10%
10%
0%
Total Branch Usage
Lobby tellers
Drive-through tellers
In-store branches
Other branch employees
Note:
(1) Branch use in the last month does not include the usage of on-premesis ATMs
(2) Online households includes online bankers and those households who have yet to
adopt Internet banking
Source: TowerGroup spring 2001 survey of 3,333 individuals
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
36
market dynamics >unmet cost reduction targets
Instead of replacing the branch, customers are adding new
channels and increasing overall fulfillment activity
Customers Now Interact With Their Banks More Frequently Than in the Past
Number of Bank Delivery Channels
Used by U.S. Households, 2001
Average Yearly Transactions, 2001
Panel of over 1,500 U.S. Internet Users1
300
Four,
20%
250
One, 30%
200
269
227
35
15%
120
53%
36
13%
52
19%
150
Three,
24%
139
100
52%
Two, 26%
50
72
32%
42
16%
0
The number of UK customers using two
or three channels has increased from
69% in 1997 to 80% in 2001
Non Users
Branch Visits
Calls to Telephone Banking
Online Bankers
ATM Visits
Internet
Note: (1) Branch, ATM and phone data is from Verdi & Company, 2001; Internet data is from PSI Global’s profile of young affluent retail banking transactions. Using the
1999 baseline of 2.4 Internet transactions a month, we applied a conservative growth rate of 1.25% to get 3 Internet transactions a month.
Source: Financial Services Industry Council, Apr 02; eMarketer, Sep 01; Verdi & Company, 2001; IBM Institute for Business Value analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
37
market dynamics >unmet cost reduction targets
As banks developed their online channels, they expected
customers to shift their channel usage to the Internet
Channel Behavior: Actual Offline vs. Anticipated Online
Marginal Transaction
Cost
Channel Mix
Actual
Offline
Branch
$1.07
72
Anticipated
Assumptions
Online
Conservative
Aggressive
48
12
Call Center
$0.54
35
23
24
ATM
$0.27
120
120
132
Internet
$0.01
0
36
59
Total Transactions
227
227
227
Cost to Serve
$128
$96
$62
Source: Verdi & Company, 2001; IBM Institute for Business Value analysis
July 17, 2015 >> Banking Retail Distribution
Illustrative
 Though they expected the
frequency of interactions to stay
constant, banks hoped that
online banking would reduce
branch transactions
− Before online banking,
customers visited the branch six
times a month
− In the conservative scenario,
customers would still visit the
branch, but only four times a
month
− In the aggressive scenario,
customers would only transact at
the branch once a month and
frequent ATMs more often to
obtain cash
In migrating customers online, banks were hoping to
realize a savings of 25 - 52% per online customer
through a shift in channel mix
© 2002 IBM Corporation
38
market dynamics >unmet cost reduction targets
In reality, online customers have increased their total
transactions, resulting in smaller cost savings
Channel Behavior: Actual Offline vs. Anticipated Online
Marginal Transaction
Cost
Illustrative
Channel Mix
Actual
Offline
Anticipated
Online
Conservative
Aggressive
Actual
Online
Branch
$1.07
72
48
12
42
Call Center
$0.54
35
23
24
52
ATM
$0.27
120
120
132
139
Internet
$0.01
0
36
59
36
Total Transactions
227
227
227
269
Cost to Serve
$128
$96
$62
$111
 While online
customers have
reduced branch
transactions,
they have
increased call
center and ATM
transactions
 The higher
number of total
transactions has
led to a higher
cost to serve
than anticipated
Though banks have achieved a cost savings of 13%,
they have missed their expected range by 12% - 39%
Source: Verdi & Company, 2001, IBM Institute for Business Value analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
39
market dynamics >enhanced fulfillment requirements
As number of fulfillment options increased, so have customer
demands and expectations
Characteristics of an Ideal FS Branch
Preferences For Online Banking Issue Resolution
(10 = Strongly agree; 1 = strongly disagree)
(10 = Strongly agree that bank should be able to resolve online
banking problem; 1 = strongly disagree)
Online banking problems should
be resolved…
6.0
6.4
Could help with tax prep
By phone
8.8
6.4
6.5
Has financial planner
By e-mail
8.3
In-person/at
branch
8.3
6.6
Has online training center
5.5
7.8
Employees are knowledgeable
around online svcs
6.2
8.3
7.6
Has 24 hour self-service area
By instant
messaging
Has free ATM
Online Bankers
Non-users
7.8
9.3
8.3
0
0
2
4
6
8
2
4
6
8
10
10
Online Bankers
Non-adopters displayed a strong interest in
non-banking financial services, while adopters
value service capabilities
Online banking users expect that all
distribution channels are capable of resolving
their online banking issues
Source: Verdi & Company, 2001
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
40
market dynamics >enhanced fulfillment requirements
Failure to meet these heightened channel requirements has
contributed to a sharp decrease in customer satisfaction
Bank Customer Satisfaction Ratings1
(Based on a 100-Point Ratings Scale)
78
76
ACSI score
74
72
All Banks
(5% Decline)
70
Bank One
(9% Decline)
68
66
Wells Fargo
(6% Decline)
64
First Union/ Wachovia
(13% Decline)
62
60
Q4 94
Bank of America
(13% Decline)
Q4 95
Q4 96
All Banks
Bank One Corporation
Q4 97
Q4 98
Wachovia Corporation
Wells Fargo & Company
(1) The ratings were provided by American Customer
Satisfaction Index (ASCI), a national economic indicator of
customer satisfaction with the quality of goods and services
available to household consumers in the U.S.
Source: ACSI, bus.umich.edu/research/ngrc/acsi.html, Jan 02; IBM
Institute for Business Value analysis
Q4 99
Q4 00
Q4 01
Bank of America Corporation
Note:
July 17, 2015 >> Banking Retail Distribution
Unmet channel expectations are not solely responsible
for declining ratings, but certainly have not helped stem
this downward trend
© 2002 IBM Corporation
41
market dynamics
These three issues leave banks with three seemingly
irreconcilable imperatives
Issues
Market
Dynamics
Internal
Responses
Issues &
Implications
 Bank customers continue
to utilize the branch
channel for the
preponderance of their
fulfillment needs
Imperatives
Increase customer satisfaction: Recognizing
and addressing the link between unmet channel
expectations and increasing frustration will be a
key acquisition and retention play for banks
 Banks have yet to achieve
the levels of cost savings
that was expected as
customers migrated to
more automated channels
Increase profitability of distribution network:
The unexpected increase in customer
transactions merits banks developing innovative
migration strategies to incent change in customer
behavior
 Customers who have
adopted alternative
channels have increased
their requirements around
bank fulfillment
Serve customers as they want to be served:
Customers’ commitment to the branch means
banks can not simply roll out new channels and
expect customers to switch
Source: IBM Institute for Business Value analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
42
Contents
Context
Market dynamics
Internal responses
Issues and implications
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
43
internal responses
By optimizing their distribution networks, banks will improve
each of the levers of customer and shareholder value
Fulfillment Efficiencies Will Create Sustain Competitive Advantages

Past efforts to optimize retail channel fulfillment have been plagued by a non-integrated, onesize-fits-all approach that has failed to fully improve upon key bank customer value levers

Banks must align their fulfillment strategies with a segment-based strategy that places the
needs and the value of the customer of the customer relationship at its core

The retail channel optimization initiative will involve a three-step process in which banks
restructure fulfillment to account for the specific requirements of individual customer segments
and address all of the key levers of customer value
–
Customer strategy: Understand the three drivers that influence retail financial purchases and segment
customers appropriately
–
Service approach: Target the value levers associated with each of the customer segments by
developing a relationship model that enables the realization of key strategic objectives
–
Touch point renewal: Design distribution and fulfillment points according to the nature of the customer
segment served, considering the distinct preferences of the customer as well as the profitability associated
with each group
Source: IBM Institute for Business Value Analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
44
internal responses
Efforts to optimize distribution have suffered from a
disjointed, “one-size-fits-all” approach
Past Shortcomings
Customer
Strategy
Relationship
Approach
Touchpoint
Renewal
•
Failure to understand the specific needs,
preferences and drivers of different classes
of customer
•
Failure to successfully alter channel usage
behavior
•
Failure to customize the approach given to
sell and serve each of the distinct classes of
bank customers
•
Failure to rationalize channel deployment
investments with regard to the latest “front
office” fulfillment trends
Key Issues to Rationalize
•
What product and channel purchase drivers influence your customer
segments’ buying decisions?
•
Through which channels will customer segments prefer to purchase bank
products and resolve service issues?
•
What incentives may motivate customers to change existing channel usage
and modify future behavior?
•
Are channel networks structured to sell and service specific retail customer
segments profitably and effectively ?
•
How can legacy organizational designs be reconciled to facilitate true multichannel, multi-product collaboration?
•
How can CRM and other pan-enterprise platforms be enablers to provide
customer-facing staff with the tools to provide world class fulfillment?
•
Failure to apply customer learnings to the
deployment of the multi-channel networks
•
How should the channel access points be designed to best meet the
distinct needs of customers of specific segments?
•
Failure to create an integrated and consistent
user experience across all elements
•
How can existing channel assets be optimized to generate maximum
productivity?
The inherent product-centric orientation of retail
banks presents a major obstacle to successfully
deploying an integrated multi-channel architecture
Source: IBM Institute for Business Value Analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
45
internal responses
A more integrated, rationally-deployed distribution network
can increase customer value by improving three key levers
Opportunities Exist to Improve Upon the Leading Indicators of Customer Value
Cost to
Serve
 Continue to reallocate the mix
of channel usage towards
lower cost customer fulfillment
points
 Educate non-adopters about
the benefits of using
alternative channels to
accelerate adoption levels
Note: (1) Financial Services Industry Council, Apr 02
Source: IBM Institute for Business Value Analysis
July 17, 2015 >> Banking Retail Distribution
Share of
Wallet
 Cross-sell installed base of
single-product customers
complementary offerings
 Aspire to the European
universal bank model where
customers own 3 products
from their primary banks1
Customer
Retention
 Create lock-in to improve
upon historical retail customer
churn rates of 15% - 20% per
annum
 Migrate longer-term
customers into more of a
trust-driven (e.g., multiproduct) relationship with the
bank
The collective positive effect on customer value
realized through maximizing the productivity of
fulfillment will produce bottom line results for banks
© 2002 IBM Corporation
46
internal responses
Banks must reshape their retail fulfillment strategies to
consider the value of customer relationships
Channel Optimization Initiatives Must Address Three Critical Components
Customer
Strategy
Optimizing a channel network
begins with a deep
understanding of the purchase
drivers that influence retail
customers
Touch Point
Renewal
Relationship
Approach
A redesigned touch point
architecture will correspond
to the nature of each
customer segment served
Segment-based relationship
models will profitably target the
value levers associated with
each customer group
Retail banks’ frequent efforts to optimize their
fulfillment function have neglected to integrate all
three of these strategic components
Source: IBM Institute for Business Value Analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
47
internal responses > customer strategy
Customer strategy is dictated by understanding the three
distinct drivers that govern retail financial purchases
All Retail Bank Customers Can Be Segmented According to Buying Drivers
Primary Purchase
Drivers
Description
Defining
Customer
Attributes
Price
Convenience
Trust
 Price-driven consumers are
exclusively motivated by
obtaining the best rates for all
of their banking needs
irrespective of existing
relationships
 Convenience-driven
consumers will enter into
banking relationships that
allow them to conduct their
personal financial duties more
efficiently
 Trust-driven consumers are
seeking to develop a
relationship in which the bank
will eventually serve as the
primary financial advisor
 Price-conscious
 Demanding
 Price-elastic
 Service-oriented
 Hand-holders
 Loyal
Each one of these purchase drivers has implications
for banks in terms of sales and marketing, product
manufacturing and packaging, and product fulfillment
Source: IBM Institute for Business Value Analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
48
internal responses > customer strategy
Always looking for the best deal, price conscious customers
can be easy to acquire, but difficult to retain
Price-Based Customer Segment
Acquisition Trigger
• Low fees and high interest rates
are always the deciding factor for
these customers
Product Requirements
• Price conscious customers tend to be
more interested in banking products
than any other financial product
• Typically younger than other segments,
many of these customers have not
developed relationships with FSI
providers, and therefore make
purchases on an as-needed basis
100%
80%
60%
40%
20%
0%
Highly Influential Factors in Making Decision to Bank Online
Rates and Fees
Convenience
Local branches
near me
Bank I trust
Bank has good
reputation
Financial Products Owned
Banking Products
Insurance (Net)
Stocks
Mutual Funds
Bonds
0%
Retention Mechanisms
Offered by
current bank
20%
40%
60%
80%
100%
Where Opened Online Banking Account
• The willingness of this segment to switch
banks for a better deal makes retention
challenging
Switched
to a new
bank,
52%
Stayed
with my
current
bank,
48%
Source: IBM Institute for Business Value Analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
49
internal responses > customer strategy
Convenience seekers reward banks that provide efficient
processes with above average loyalty
Convenience-Based Customer Segment
Acquisition Trigger
• The major influences center on
conveniences such as availability
through existing providers and
branch proximity
Product Requirements
• Convenience seekers keep a basic yet
balanced portfolio
100%
80%
60%
40%
20%
0%
Highly Influential Factors in Making Decision to Bank Online
Rates and Fees
Offered by current
bank
Local branches
near me
Bank I trust
Bank has good
reputation
Financial Products Owned
Banking Products
Insurance (Net)
• They are likely to respond to cross-sell
initiatives, provided the bank takes a
proactive approach
Retention Mechanisms
• Convenience seekers remain fairly
loyal to the bank, especially when
opening new accounts or purchasing
new products can be done efficiently
Stocks
Mutual Funds
Bonds
0%
Switched
to a new
bank,
17%
Source: IBM Institute for Business Value Analysis
July 17, 2015 >> Banking Retail Distribution
20%
40%
60%
80%
100%
Where Opened Online Banking Account
© 2002 IBM Corporation
Stayed
with my
current
bank,
83%
50
internal responses > customer strategy
Trusters value relationships above all else, making them
prime candidates for increasing share of wallet
Trust-Based Customer Segment
Acquisition Trigger
• Trusters also look to stay with their
current bank, but their decisions are
based more upon established
relationships with the bank than time
savings or convenience
100%
80%
60%
Highly Influential Factors in Making Decision to Bank Online
40%
20%
0%
Rates and Fees
Offered by current
bank
Local branches
near me
Bank I trust
Bank has good
reputation
Financial Products Owned
Product Requirements
Banking Products
• Trusters are the most diversified
across all lines of financial products,
due to their willingness to seek and
respond to advisors
Insurance (Net)
Stocks
Mutual Funds
Retention Mechanisms
• Trust customers tend to remain loyal
to their existing bank providers
Bonds
0%
40%
60%
80%
100%
Where Opened Online Banking Account
Switched
to a new
bank,
18%
• The impetus to switch arises if the
richness of the relationship or quality
of the service erodes
Source: IBM Institute for Business Value Analysis
July 17, 2015 >> Banking Retail Distribution
20%
© 2002 IBM Corporation
Stayed
with my
current
bank,
82%
51
internal responses > customer strategy
At the product level, attracting and retaining these segments
requires a detailed understanding of needs and value drivers
Purchase Drivers Will Dictate High-Level Relationship Requirements
Price
Primary
Acquisition
Trigger
Baseline
Products
Requirements
Retention
Mechanisms
Convenience
Trust
 Price/rate competitiveness
 Promotional campaigns
 Innovative offerings to save
time and improve processes
 Cross-selling existing
customers
 Brand integrity
 Face-to-face interaction
 Up-selling and cross-selling
existing customers
 Individual banking products
purchased on a one-off basis
 Full suite of banking products:
 Full gamut of financial
services products:
 Continued price/rate
competitiveness
− DDA
− Loans
− Credit cards
 High switching costs
 Efficient fulfillment and
service processes
 Proximity
−
−
−
−
Banking
Brokerage
Insurance
Advisory
 Relationship depth
 Share of wallet
 Service/advice quality
The approach banks take to cultivate customer
relationships will be determined by each of the three
purchase driver segments
Source: IBM Institute for Business Value Analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
52
internal responses > relationship approach
Segment-based relationship models will target the value levers
associated with each customer group
The Application of Purchase Drivers Will Extend Into the Realm of Relationship Approach
Price
Convenience
Trust
Strategic
Objective
 Migrate price-oriented
customers to lower cost
delivery channels
 Justify pricing premiums
through innovative
offerings and exceptional
service
 Develop advisory-based
relationships by crossselling a wide variety of
financial products
Operational
Considerations
 How can the bank
profitably serve this
segment given its
constraining cost
structure and propensity
to switch providers?
 What is the complete
offering (e.g., product,
channel) required to
create a “sticky” value
proposition to this
segment?
 How can the bank
position itself relative to
competitors to deliver a
value proposition of the
trusted advisor to this
segment?
Customer
Value Lever
Targeted
Cost to Serve
Customer Retention
Share of Wallet
Source: IBM Institute for Business Value Analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
53
internal responses > relationship approach
The model must balance the needs of the customer with an
approach that can be justified by the segment’s economics
Channel Usage Must Become Part of the Overall Offer
Source: IBM Institute for Business Value Analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
54
internal responses > relationship approach
Various banks are segmenting their customer base to better
align their relationship models with appropriate groups
Royal Bank
of Canada
Woolwich
Bank
Segmentation Efforts
Relationship Model Implications
 After conducting extensive research on their
client base, RBC divided their customers into four
main groups
 Research validated the importance of the branch,
as the most profitable group was strongly branch
dependent
 Trusted financial advisors were placed at the core
of their banking relationship
 By encouraging in-person interactions with other
segments, RBC hoped to increase overall
customer profitability
−
−
−
−
Nexus ($144 - average profit per customer)
Builders ($524)
Accumulators ($120)
Preservers ($419)
 Due to declining customer loyalty, the bank built a
customer database in-house to obtain more
complete customer information and identify which
of their customers were key growth and retention
targets
 Upon determining that profitable customers
wanted less restrictions, the bank designed the
Open Plan, which allows these customers more
freedom in self-service transactions
 Open Plan customers hold 3.1 products and have
a defection rate of 2%, against industry averages
of 1.7 products and 10%
Source: Bank Marketing International, Feb 02; IBM Institute for Business Value Analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
55
internal responses > touch point renewal
In the final stage of the process, banks design their touch
points according to the nature of the customers served
Banks Will Encounter Two Different Scenarios in Assessing Touch Points
Touch Point Optimization
Situation
Greenfield Situation
 “Carte blanche” initiative in which the
bank is seeking to target and
penetrate a market segment that is
currently not being served
 Most typical situation where a bank is
seeking to improve upon the ways in
which it interacts with its current
customer base
 Advantages: Banks possess
maximum flexibility in developing a
touch point strategy to serve the exact
requirements of the segment
 Advantages: Existing channels have
enjoyed some degree of success in
retaining customers and thus may
only require slight modifications
 Disadvantages: Moderate-to-high
incremental channel investment
necessary since existing means of
fulfillment are likely not conducive to
serving the targeted segment
efficiently and profitably
 Disadvantages: Internal resistance
from internal champions of legacy
channel investments; expensive to
retrofit changes in touch points across
the entire distribution network
Source: IBM Institute for Business Value Analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
56
internal responses > touch point renewal
In an ideal situation, touch points are deployed to map exactly
to the nature and needs of a given customer segment
Standard Bank Developed a Separate Brand to Penetrate South Africa’s Mass Market
Touch Point Strategy
• Standard Bank in 1994 created a distinct brand – AutoBank E
– to penetrate this market segment
Situation
• The South African mass market represents an enormous
untapped opportunity for the nation’s banks
• AutoBank E combined Standard’s highly functional ATM
network with an on-site support staff to provide low-cost, “pay
as you go” centers
− Only one-quarter of the 18M “economically active” South Africans
have access to formal banking facilities
– Each center has a 24-hour automated lobby, where the bulk of
transactions take place at ATMs
− Approximately three-quarters of South Africa’s low-income
population do not have bank accounts
– Support staff members are available to answer questions and provide
demonstrations
Challenges
• The “pay as you go” model has been replaced by an offer that
includes savings account, funeral plan and microlending2
• Convincing customers to open their first bank account
would involve a targeted educational campaign
• Profitably servicing this large, low-income segment would
require low-cost fulfillment:
Successes
– As 73% of South Africans earn less than R5,000 ($447)1, they would
maintain low balances, leaving little room for spread profit
• AutoBank E maintains a network of approximately 130
centers and over 2.6 million accounts, with the rate of new
account origination increasing to 60,000 per month
– Repeated branch visits would drive up the cost to serve, creating a
potential loss for the bank
• Customer information systems enable up-selling by
identifying likely lending customers
• Assimilating these customers to automated fulfillment would
require hand-holding on products and channel usage
• By eliminating the need for a back office, AutoBank E
centers are 40% less costly than a traditional branch
Note: (1) World Bank, 1999; (2) through a joint venture with African Bank Investments
Source: African Review of Business and Technology, 15 Nov 01; Bank Marketing International, 26 Oct 01; Bangkok Post 03 Sep 01
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
57
internal responses > touch point renewal
Most banks are not starting from scratch, so optimization
involves rationalizing distribution across existing assets
Banks Must Examine Distribution Assets and Prioritize Incremental Investment
Fixed Channel
Infrastructure
 Banks have sunk billions of
dollars of investment to fund
the development of their
multi-channel networks
Customer Base
Diversity
 Banks possess thousands
if not millions of retail
customers whose primary
purchase drivers cut
across the three
categories
Product Portfolio
Silos
Channel
Rationalization
Complications
 The siloed nature of most
bank product families
severely limits the extent to
which banks can efficiently
cross-sell their offerings
The objective of channel optimization is to move your
touch point architecture closer to the ideal, realizing
that compromises and prioritizations are necessary
Source: IBM Institute for Business Value Analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
58
internal responses > touch point renewal
Since products and channel networks are essentially fixed,
banks must prioritize optimization across customer segments
Focusing Renewal Exclusively Around Any One Segment Presents Certain Risks
Price
Convenience
Trust
 Past and future branch
investments and high fixed
operating costs of the branch
channels not fully leveraged
 Significant spending necessary to
fund the expanded coverage and
intuitiveness of all customer touch
points
 Considerable investments required
to renew the prevailing bank touch
point concept design
 Basis of competition shifts solely to
price, challenging profit margins
and dictating operational efficiency
improvements
 The pricing premiums needed to
further support the improvement
and expansion of touch points must
fall within acceptable ranges or
certain customers will leave
 Banks must upgrade underlying
branch capabilities to facilitate the
transition from a transaction to
more of a sales and service center
 The possibilities for up-selling and
cross-selling complementary
financial products to existing
customers are limited
 Banks must improve their crosschannel fulfillment processes to
best-in-class levels and roll out selfservice capabilities to customers
 Siloed-nature of bank product
classes impedes the degree of
cooperation necessary to enable
effective up- and cross-selling
Influencing channel usage and accelerating lowercost channel migration will allow banks to improve
margins and penetrate untapped customer segments
Source: IBM Institute for Business Value Analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
59
internal responses > touch point renewal
The price elastic nature of this segment will demand a strategy
that limits usage of higher-cost distribution channels
The Price Segment Will Be Receptive to Web-Based Channels
Price-Driven Segment Channel Preferences¹…
(Percent of Respondents)
Branch
Price
Online
Touch
Point
Emphasis
76%
Branch ATM
Inbnd Outbnd
Web Wireless
CC
CC
6%
Mail
Other
…Will Drive the Corresponding Touch Point
Strategy
14%
Phone
Illustrative
Channel
Pricing
Implications
4%
0%
0%
20%
40%
60%
Level of
Integration
Required
80%
• Conditional pricing program:
− Usage fees and restrictions
placed on high-cost channels
• Minimal integration necessary
among channel points and
product classes
Key
Low
High
Note:
(1) Respondents were not asked about ATM and wireless channels
Source: IBM Institute for Business Value Analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
60
internal responses > touch point renewal
The first Internet only bank in the UK, Egg Bank has attracted
nearly two million customers to lower-cost channels
Price Case Study: Egg Bank
Touch Point Strategy
 To move customers to lower cost channels, the bank
launched an Internet-only savings account with market
leading interest rates
Situation
 Once a large enough price-driven customer base had
been acquired, Egg launched initiatives to migrate
customers into higher-value relationships
 Egg began as the telephone and postal banking arm of
Prudential plc in October 1998
– Egg lowered its savings rates but expanded its online offerings
 After two years in operation, the bank was looking for a
way to reduce their transaction costs and saw an first
mover opportunity in the UK online banking market
– It began positioning itself as the premier online supermarket,
offering banking, investments, insurance and online shopping
 To prevent customer attrition after dropping rates, Egg
trumpeted its services to price-conscious customers
Challenges
– Egg began proactively sending customers price and best buy
alerts
 Egg had two primary challenges to overcome to
become the UK’s first and most successful standalone,
online bank:
– In addition to the online channel, the bank extended its services
to wireless and digital TV channels as well
– Creating and promoting a brand independent from Prudential
Successes
– Balancing the market leading interest rates necessary to
attract customers while operating at a potential loss
• As of September 2001, Egg had over 1.8 million
customers and 625,000 deposit accounts
• The standalone brand had reached an 88% awareness
level in 2000
Source: Datamonitor, Oct 01
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
61
internal responses > touch point renewal
Serving the convenience-driven segments will require a more
balanced offering of fulfillment touch points
Customers Will Reward Efficient Fulfillment By Paying Premiums
Convenience-Driven Segment Channel Preferences¹…
(Percent of Respondents)
Branch
…Will Drive the Corresponding Touch Point
Strategy
Convenience
40%
Online
Touch
Point
Emphasis
50%
Phone
Illustrative
Branch ATM
Inbnd Outbnd
Web Wireless
CC
CC
10%
Mail
0%
Other
0%
0%
Channel
Pricing
Implications
10%
20%
30%
40%
50%
Level of
Integration
Required
60%
• Premium pricing implemented
for unlimited, multi-channel
usage
• Tight integration, especially
across the service function
(e.g., coordinated and
consistent service standards)
Key
Low
High
Note:
(1) Respondents were not asked about ATM and wireless channels
Source: IBM Institute for Business Value Analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
62
internal responses > touch point renewal
NSGB launched “the 4D Programme”: the “integrated multichannel distribution system for the retail bank of tomorrow”
Convenience Case Study: NSGB
Touch Point Strategy
 NSGB launched a CRM program (called CONTACT) to
allow employees across every area of the bank to have
the same, consolidated view of customers
Situation
− The strategy was unique in that it educated employees in how
to best leverage a holistic customer view
 Up until three years ago, each of National Societe
Generale Bank’s customer touch points operated on its
own information system
 The first phase of the strategy implemented sales and
marketing automation tools that helped employees:
 The bank needed a single database that would integrate
and coordinate branches, call centers, mid-office and
corporate staff
Challenges
 With over 6 million customers, 80 different banking and
sales applications, and 45 million product records, migrating
and consolidating the necessary customer data would prove
difficult
– Sell proactively by accessing customers’ product preferences
– Reduce attrition through a tool that rated customer satisfaction
– Map products to the customer lifecycle through a system that
tracked events and determined appropriate products
 Phase two involved linking all channels into the CRM
system, in the following order
– Branches, Call centers, online banking, and iTV
– ATMs will be last to link into the new system, due to the
complex functionality of new bank cards
Successes
 It hopes to recoup its investment within 3 - 4 years
 The bank expects to increase customer retention and
share of wallet by integrating all touchpoints
Source: European Banker, Apr 02
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
63
internal responses > touch point renewal
Trust-driven customers will favor a stronger emphasis on
high-touch channels
A Tightly-Coordinated Sales Function Will Maximize Cross-Selling
Trust-Driven Segment Channel Preferences¹…
(Percent of Respondents)
Branch
…Will Drive the Corresponding Touch Point
Strategy
Trust
55%
Online
Touch
Point
Emphasis
26%
Phone
Illustrative
Branch ATM
Inbnd Outbnd
Web Wireless
CC
CC
16%
Mail
3%
Other
3%
0%
10%
20%
30%
40%
50%
60%
Channel
Pricing
Implications
• Channel initiation and usage
fees waived for customers who
own multiple products with the
bank
Level of
Integration
Required
• Tight integration, especially
across the sales function (e.g.,
proactive cross-selling
platform)
Key
Low
High
Note:
(1) Respondents were not asked about ATM and wireless channels
Source: IBM Institute for Business Value Analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
64
internal responses > touch point renewal
WaMu is positioning itself to acquire more trust-driven
customers with its relationship-oriented Occasio branches
Trust Case Study: Washington Mutual’s Occasio Branch
Touch Point Strategy
 Occasio branches use a unique layout, staff, and offerings
to foster customer relationships and expand share of wallet
 Each branch has the same look and feel of a retail store
Situation
– The circular design removes typical bank barriers to make
customers feel comfortable
 In the mid-1990’s Washington Mutual spent two years
conducting primary research on their customer base to
determine needs and preferences
– The small tables and comfortable chairs next to the teller stations
allow customers to discuss private financial matters
 The bank found that the bulk of their customers wanted hightouch customer service above all else
 In the late 1990s the bank created the “Occasio” branch
concept to provide a more sales and service oriented culture
– By mid-April 2002, WaMu had opened 180 U.S. Occasio branches
Challenges
 WaMu had to change its image, both internally and externally
for Occasio to succeed
– Internally, the bank had to initiate a cultural shift, from a “transaction
approach” to a more intimate “relationship approach”
− A khaki-clad greeter guides customers to the right service area
 The bank has upgraded the resident branch skill set level
by placing licensed, on-site securities dealers to address
customers brokerage and investment needs
 Aside from typical banking products, Occasio branches also
provide a children’s play area, a financial bookstore section,
and teller dolls
Successes
 WaMu has achieved increased cost savings and customer
satisfaction since the launch of Occasio branches
– Externally, the bank had to convince the public it was more than just
an acquisitive mortgage specialist, but a customer friendly, retail bank
as well
Source: Business Wire, Mar 02; The Record, Bergen County, Apr 02
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
– Despite the new features, Occasio branches have proven cheaper
to build than regular branches due to the lack of an onsite vault
– Over 90% of customers in areas with Occasio branches said they
would refer the bank to a friend
65
internal responses
While this channel optimization approach will allow retail
banks to confront some key marketplace considerations…
This Process Addresses the Strategic Imperatives Outlined Earlier
Increase Customer Satisfaction
 Customer Strategy: Identifying the primary
purchase and retention drivers for retail
customers precedes all subsequent activities
and begins to improve the problem of
sagging satisfaction ratings
Customer
Strategy
Increase Channel Profitability
Touch Point
Renewal
Relationship
Approach
 Relationship Approach: Banks that assess
customer profitability and fulfillment needs
can gain competitive advantages by applying
a profitable relationship model to serve each
segment
Serve Customers Appropriately
 Touch Point Renewal: By deploying a
network of fulfillment touch points that are
aligned with customer needs and profitability
banks can avoid the hazards of past “onesize-fits-all” channel strategies
Source: IBM Institute for Business Value Analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
66
internal responses
…other internally-focused issues will present banks with
additional challenges to undertake
Issues
Market
Dynamics
Internal
Responses
Issues &
Implications
 Understanding customer
purchase and retention
dynamics requires bestin-breed data mining and
segmentation analysis
capabilities
 Creating customerfocused service models
involves gaining
cooperation from internal
teams that have
traditionally been
oriented around products
 The large installed base
of retail customers
presents a major
consideration for banks
to resolve ahead of
optimization initiatives
Imperatives
Enhance bank skill set and enable systems:
Customer-facing employees must have the
appropriate skills and information access to identify
and act upon purchase triggers
Prioritize initiatives around key segments: The
diversity of bank customers dictates that optimizing
existing channel strategies must be undertaken in a
staged approach, focusing on prioritized groups
Migrate customers horizontally to higher-value
relationships: To improve profitability across
lower-margin relationships, banks must
demonstrate added value to increase retention and
wallet share
Deliver a consistent multi-channel experience:
Banks must overcome the complexity of multichannel, multi-product fulfillment to deliver a
consistent, integrated experience with the branch
as the focal point
Source: IBM Institute for Business Value Analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
67
Contents
Context
Market dynamics
Internal responses
Issues and implications
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
68
issues and implications
As banks push their channel optimization initiatives forward,
several key imperatives will emerge
Customer
Strategy
Relationship
Approach
Touch Point
Renewal
Multi-Channel Consistency:
Banks that achieve service
consistency across all touch
points can compete on the basis
of fulfillment excellence
Segment-Based Initiative
Prioritization: Banks must
prioritize their channel optimization
initiatives around high-value
customer segments
Skill and System Enhancement:
Banks must enable employees to
convert channels from a
transaction fulfillment to a
relationship development focus
Horizontal Migration: Optimizing
distribution will eventually allow
banks to migrate customers
horizontally into higher-value
relationships
Source: IBM Institute for Business Value Analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
69
issues and implications
Retail banks have opportunities to reposition their fulfillment
competency into a value-creation function…
Strategic Issue
Enhance the skills and
systems of customer-facing
employees to enable the
transition from mere
transaction fulfillment to
relationship development
Actions
• Develop an inventory of skills necessary to provide best-in-class distribution and assess the
present skill levels resident in fulfillment and supporting personnel
• Offer sales and service training to front-line employees to fill in gaps and upgrade the overall
staff skill set
• Consolidate disparate customer databases to enable effective data mining and analytics
across the entire customer relationship
• Provide front-line staff with access to a consolidated view of the customer to facilitate more
proactive and effective interactions across all touch points
Strategic Issue
Prioritize channel
optimization initiatives
around high-value customer
segments, sub-segments and
and/or account holders
Actions
• Identify existing customer segments and categorize them according to purchase drivers
• Develop a prioritization framework to stage optimization efforts by higher-value customer
segments
• Consider investment, organizational and resource constraints that may further influence initiative
prioritization and adjust approach accordingly
• Launch a pilot program to test initial hypotheses and apply learnings to subsequent roll-outs
Source: IBM Institute for Business Value Analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
70
issues and implications
…that will also trigger important shareholder value levers in
times of lower growth for retail banks
Strategic Issue
Deploy a fulfillment
function that provides
consistency in service, as
well as information access
and integration, across all of
the retail distribution channels
Actions
• Create standards that guide employee interaction with customers across all non-automated
channels
• Apply consistent rules to govern self-service channels
• Integrate all channel points to provide customers and employees with similar information in
near real-time
• Develop a value proposition that incorporates this fulfillment competency
Strategic Issue
Actions
Migrate customers
horizontally into higher-value
relationships by aligning
offerings and fulfillment
against the specific drivers of
each customer segment
• Build systems that measure customer profitability on the segment, sub-segment and accountholder levels
• Identify high-priority customer classes to migrate horizontally into higher value relationships
• Implement tailored programs across all touch points and enable customer-facing staff to
initiate the cross- and up-sell processes proactively
• Evaluate the relative successes of the programs and refine accordingly
Source: IBM Institute for Business Value Analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
71
issues and implications > segment-based initiative prioritization
Banks must prioritize their channel optimization programs
around high-value customer segments
Segment-Based Initiative Prioritization
Actions
Benefits
Challenges
 Differentiate customers by drivers
Retail customers are motivated by
distinct drivers that will form the nucleus
of banks’ product and fulfillment
strategies
 Banks customize their offerings,
distribution and relationship models
around relevant value propositions for
separate segments
 Identifying the customers that fit into
each segment will require significant
research and a consolidated IT
infrastructure
 Develop prioritization framework
The size and diversity of banks’ existing
customer base will prohibit them from
simultaneously reshaping their entire
distribution network
 Banks target customer segments that
will be the most receptive to innovative
approaches and whose economics can
justify the project investment
 Banks must develop a thorough
framework that integrates customer
data and considers the long-term
objectives of the initiative
 Consider additional constraints
Banks may encounter additional
considerations beyond customer
preferences and profitability that shape
their strategic direction
 Banks identify significant capital,
organizational and resource obstacles
that may interfere with their initial plans
 Budgetary constraints, legacy
organizational structures and insufficient
resource capabilities may complicate
project implementation
 Launch a pilot program
Prior to rolling out the optimization
initiative on a large scale, banks must
test the program on a pilot basis and
refine their approach as necessary
 Banks experiment with preliminary
hypotheses on a small scale and can
implement these real-time learnings in
future iterations
 Banks must choose pilot segments and
geographies that are receptive to novel
approaches and implement a
measurement system to capture
learnings
Source: IBM Institute for Business Value Analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
72
issues and implications > skill set and systems enhancement
Banks must enable employees to convert the focus of channels
from transaction fulfillment to relationship development
Skill Set and Systems Enhancement
Actions
Benefits
Challenges
 Develop a skills inventory
Firms should develop a list of skills
required of all staff and assess how
personnel map against that standard
 Banks possess a capabilities standards
against which all customer touch point
personnel must measure
 Customer-facing staff are typically
among the lowest paid and least welltrained employees in the bank
 Offer sales and service training
Employee training programs must be
developed to fill high-priority gaps and
ensure a consistent customer
interaction across all touch points
 Banks enhance their fulfillment
capabilities and transition from a
transaction to a service orientation
 High staff turnover and poor incentives
will constantly force banks to scramble
to maintain baseline sales and service
capabilities on the frontline
 Consolidate customer information
Banks must identify customer data that
resides in disparate product-based
databases and unify that information
into a single data warehouse
 Banks develop their offerings and value
propositions around information
collected on customers
 Banks’ information systems are
architected around products, so data
consolidation would require significant
time, resources and capital
 Provide single view of customer
Database consolidation should allow all
customer-facing staff to access a
consistent data set for each customer
 Banks equip front-line personnel with
the data set necessary to recommend
complementary products and services
 Customer-facing employees must be
properly trained to leverage data to
cross- and up-sell
Source: IBM Institute for Business Value Analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
73
issues and implications > multi-channel consistency
Banks that achieve service consistency across all touch
points can compete on the basis of fulfillment excellence
Multi-Channel Consistency
Actions
Benefits
Challenges
 Create segment-based standards
Banks develop best-in-class standards
to guide customer interactions at the
branch and call center
 Customer interaction standards form the
core of all employee training and can be
replicated across the entire organization
 Attaining full compliance and proficiency
over the standards will require
comprehensive training programs
 Apply operating rules to self-service
The operating principles from fullservice channels must be pushed to the
bank’s automated and self-service
fulfillment channels
 Banks extend a similar level of service
consistency across all channels and
simultaneously strengthen the customer
value proposition
 The effort to apply consistency to panchannel customer service has been a
complicated, ongoing concern for retail
bank executives
 Integrate customer touch points
All of a bank’s retail fulfillment points
should be fully integrated to enable
maximum efficiency and consistency
 Customers gain complete flexibility to
access any retail channel to address all
of their sales, service and fulfillment
issues
 The process of consolidating all of a
bank’s touch points on the front and
back end will require considerable
resources and capital investment
 Expand customer value proposition
The value proposition that banks offer
customers should be expanded to
include the tailored fulfillment function
 Customers recognize the full extent of
the offering, allowing them to distinguish
the total offer from those of other retail
banks
 Banks must ensure that their fulfillment
is truly best-in-class and differentiated
from the competition
Source: IBM Institute for Business Value Analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
74
issues and implications > horizontal migration
Optimizing distribution will eventually allow banks to migrate
customers horizontally into higher-value relationships
Horizontal Migration
Actions
Benefits
Challenges
 Build measurement systems
Banks adapt their customer fulfillment
strategies in near real-time by acting on
continuously collected data
 Banks measure all customer
interactions and transactions and react
in real-time to the changing dynamics of
the relationship
 Legacy IT systems do not permit this
unified view, so banks will have to invest
to consolidate databases
 Identify high-priority customers
Certain customers will remain loyal to
their initial purchase drivers, so banks
must hone in on those with a higher
propensity to transition
 Banks increase the efficiency of their
promotions by designing programs
around the preferences and needs of
customers likely to move into highervalue relationships
 Architecting an infrastructure that
enables this level of marketing accuracy
will require best-in-class IT capabilities
 Implement cross-channel programs
Banks will customize promotional
programs across all of their touch points
to cross- and up-sell priority customers
 Banks take advantage of each customer
interaction to deliver value to these
attractive segments
 Human resources and IT systems must
be deployed across all channels to
ensure that the bank seizes the
opportunity to migrate the customer
 Refine programs over time
As systems collect historical customer
information, banks adapt their migration
strategies to leverage new learnings
 Programs maintain a relevant value
proposition and allow banks to continue
their quest to switch customers from low
to high-value relationships
 Bank programs must be flexible enough
to apply new learnings and modify their
approach in mid-launch
Source: IBM Institute for Business Value Analysis
July 17, 2015 >> Banking Retail Distribution
© 2002 IBM Corporation
75