The Future Role of the “ Store” and its Interconnectivity with Other Channels

Tony Emerson, Microsoft Banking Director - EMEA Presenting on behalf of: John Kirkbright Chief Executive K-Strat International Senior Retail Banking Adviser to EFMA Chairman EFMA Banking Advisory Council . May 20,2008 Background to EFMA Banking Advisory Council

 EFMA Banking Advisory Council established in 2005 with the support of Microsoft

 Senior Executives from leading European meeting 4 times a year to discuss trends and create a blueprint for future delivery

 Members include ABN Amro, Millenium BCP, Unicredit, LloydsTSB, Caja , , BNP Paribas, , Fortis, , , Erste Bank etc

 First report on the Future of Multi-channel Delivery published in 2006 The Future of Multi- Channel Delivery 2006 Report Conclusions  Need for a much more customer centric approach to financial services  Move towards providing a truly integrated channel and customer experience - progress has been slow to date  Process excellence will be an increasing requirement to provide the superior customer experience  Desire to provide a simpler set of product and service propositions  Bankers admit to not using technology and CRM systems to maximum effect  Matrix management of product, channel and customer has proved difficult – need a simpler model  Developing the right people skills and support is an increasing problem Channels – some key facts

 In most retail banks distribution accounts for 70% or more of the total costs of the bank  New branches need to become profitable much quicker – the norm for many banks has been 3-5 years – best practice is now 18 months  In the past twenty years the number of bank branches in the USA has almost doubled and in Western Europe it has increased by a third Sales – Some key facts “A resounding vote for the Branch”

 Leading Worldwide Retail Bank – “80% of new sales are to existing customers “  “70% of all our profitable customers visit the branch at least once a week”  80%- 90% of financial product sales still come through branches  Most banks sell less than 10% of their product sales through non- branch channels  Branches are seen by many as the “ cornerstone of delivering financial service products” Quote from Chief Executive of Leading European Bank

“The available potential in the retail banking business segment will only be successfully exploited in the long run if a more integrated customer approach is combined with better and intelligent distribution channel integration” People and Management Issues

 Branch staff quality is a key determinant of future success  Pressure on staff to sell more but also spend more time with customers  New skills required - recruiting for aptitude and attitude rather than traditional banking skills  Need new types of staff with more interpersonal skills and customer care focus  The increasing importance of the meeter/greeter or concierge role in the branch  Devote more resource and time to staff training What bankers say about their People

“The performance of the branch depends on the quality of the people working in them. You can have a marvellous technology system and physical lay-out, but at the end of the day the people are the most important thing. We need to give the branch staff better support tools to do a better job.”

“Our branch sales advisers spend 30 per cent of their working day calling customers.” “We are currently finding it a challenge to find people with “Give me someone good in the right skills to customer service – I can teach work in our branches.” them to be a banker in 6 months Bank Staff Revolution –Key roles in Banks in need of Transformation

 Branch or Local Retail Outlet Manager

 Teller or Customer service representative in branch or call centre

 Relationship Manager or product sales representative Branch Manager

 Key challenges

- Branch profit performance - Sales growth - Cost control - Manage compliance and regulation - Staff development and skills - Create a more welcoming attractive environment - Customer retention and acquisition - Provide leadership and strategy to achieve branch goals Teller or Customer Service Manager

 Key challenges:

- Under pressure to serve more customers faster - Better understanding of individual customer needs - Meet compliance and regulatory needs - Better communication tools to serve customers better - Increasing need to spot sales opportunities for other staff to follow up on - Work more effectively with other channels to deliver an integrated customer experience - Front line in handling initial customer complaints - Simpler quicker processes to reduce delivery time and improve quality of service Sales representative or account manager

 Key challenges

- Sell more product quicker and faster - Better identification of customer needs and specific sales opportunities - Quicker application and delivery process - Meet compliance and regulatory requirements - Develop good product knowledge of all existing and new products - Understand how to get the best use of personal skills and technology to achieve the above. - Better communication and marketing material to facilitate product sale Key issues for Advisory Council members

 The future role of the branch  Creating a truly integrated overall customer experience  Increasing the sales efficiency of all channels  Distribution cost control  The role of technology  Recruiting and training the bank staff of the future  Communicating with customers more effectively. Key Council member questions

 What products and services should a branch offer?  How many different types of branch format do we need?  How can we make sure we have the right staffing and people skills for each distribution channel?  How can we make sure the right types of customers are coming in to our branches?  How do we best communicate with our customers in the future? Future role and function of the branch differing views

“I do not believe that “Any bank and any branches, as such are the relationship should be based future, but I believe the on trust. I do not think you people in the branches are.” need branches for that.”

“The biggest challenge is “It is the people and functions redesigning the role of the you make available to branch and redesigning the customers that are essential” customer relationship.” Making Segmentation work at a national and local level

 Specialisation and segmentation  The need for different branch formats in different micro-markets  The investment and use of detailed micro-market analysis  The importance of the right location for branch formats  Learning from the experience of retailers. Segmentation

“We can learn from the way “The main reasons for supermarkets operate on different customers choosing a scales and with different formats branch are influenced adapting their offering to the time by the branch format.” of the day and the specific market segments they are targeting.”

“I can certainly see us “We are moving towards offering or promoting offering a different range of different products at products in different channels different times of the day.” and branches.” Future Look and Feel of the Branch

 “It is important to create an atmosphere in branches that attracts people.”

 “We will have to go through a couple of branch designs before we find the right one.”

 “Branch opening hours are still a really big issue – we need to be a lot more flexible on this issue.”

 “Over a third of our branches already have no teller function (cashless) and we expect that to increase considerably over the next few years.” Branch closures

 “We closed perhaps 10 per cent of our branch network due to the development of the Internet.

 “It is possible to close branches [without any adverse effect].”

 “There is a natural equilibrium you have to reach in each local market with regard to density of branch coverage per head of population.”

 “Having the right location for the branch is absolutely essential.” Creating Branch Traffic

“Artificially creating a lot of “We invite customers in branch traffic is not going to be to our branches for a very helpful when they are not meeting at least once a the right type of customers year.” visiting the branch.”

“We invite 30 per cent of our customers to come regularly to branches.” Creating Branch Traffic

“We need to encourage customers to come in to the branch and talk to us.”

“Our main problem is branch traffic generation.”

“The people we want are not coming to the branch.” New Branch Concept Case Studies

 ABN Amro   Rabobank  Unicredit  BNP Paribas ABN Amro Case Study

 Teleportal Branch “ high tech bank” concept  Interactive technology  No need for staff in the branch  Can perform most of the functions of a traditional branch  Customer interacts with a camera and a 3D like projection screen – near live meeting experience created – very positive response from customers so far  ABN Amro vision is that within 5 years the internet will be the primary channel for customers ABN Amro Teleportal Branch ABN Amro Teleportal Branch Rabobank Case Study

 New customer experience retail stores being created by Rabobank with learnings from major retailers  Fresh modern in store image focusing on the quality of peoples lives  Use of video walls for broadcasting and LCD touch screens for narrowcasting. Use of video/photomail so customers can send messages by internet Rabobank

 Use of LCD interactive technology in new look branch Deutsche Bank Case Study

 New Q110 concept creates new type of branch experience more akin to visiting a high class department store  Barriers for customers to enter in to sales discussions lowered  Test lab for introducing new concepts and rolling them out to the retail network  Remove the prejudice that banking is boring  New technology in use -video-link, LCD screens and tablet screens for customer documentation Deutsche Bank

 Relaxed open style format Deutsche Bank

 A relaxed “department store feel and look” Deutsche Bank Deutsche Bank Unicredit Case Study

 Unicredit has developed new range of branch formats servicing different market segments – affluent and sme two main segments  Use of micro-market analysis and approach to segment market and provide highly personalised approach tailored to local market  Reshaping almost every aspect of the traditional branch  Use of next generation atms and kiosks  New branches move in to profit much quicker than traditional branch Unicredit

 Segmented micro-market branch formats BNP Paribas Case Study

 Strong focus on automated branches and self service areas in new branch formats  Strong focus on reception and service areas with use of next generation ATMs  Minimise need for cash tellers through use of avanced ATMs with cash-in facilities etc  New branches producing higher levels of customer satisfaction, recruitment and retention BNP Paribas

 Automated branches with high self-service Selling through non-branch channels

“We now have more online “Our biggest challenge is than branch customers, but to be able to ensure bigger most of our sales are still sales through our non- through our branches.” branch channels.”

“The online customer “The cost of sales is likely experience at most banks is to go up – not down – so it still very poor -a lot can still will become increasingly be done to improve the buying important to drive sales experience through non- through cheaper direct branch channels.” channels.” Technology

 Technology is not seen as an inhibitor but best use is not being made of existing technology

 Many banks still have problems with legacy systems and poor use or implementation of CRM systems which are limiting their ability to provide an integrated customer experience

 The use of automated technology to remove routine transactions from the physical branch

 Banks that replace their core banking systems may have a potential source of competitive advantage in personalisation, customisation and interconnectivity. Technology

 The increasing importance of technology in generating the right leads for branch staff to pursue.

 The main problem is not the quality of the technology but how it can be applied to real business problems and solutions bank executives are looking for

 Interconnectivity technology needs to be applied where it will have the greatest impact Finally Summary points

 The need for a new customer relationship model which is bank rather than branch centric  An increasing focus on better channel interconnectivity to provide a truly integrated customer experience  Continuing branch transformation to create retail branch stores that are smaller and more sales orientated  Increasing focus on customer personalisation and customisation – better use of technology to assist  Better selling and advice through non-branch channels and mobile sales force Summary Points 2

 People and Management skills increasing importance – give the staff the tools to provide good service and develop new staff roles and capabilities  Give the customer more control and choice in the customer relationship model for the future  Avoid over reliance on branch for sales and advice  Decide on distribution model approach- distribution, product or cost led  Leading banks will control distribution costs carefully but be very customer centric Conclusions – Council member quotes

“We do not need to dramatically change the “We are looking to learn structure of the branch or the from retail and hotel way we treat customers.” businesses how to treat customers better.”

“We should be more concerned with behaviour and culture than with technology.” Conclusions – Council member quotes

“As an industry we have to create new products, which we have not done well so far.”

“We need to employ more marketers in banking – the role of the marketer was not needed to push customers out of branches but attracting them back has proven beyond the ability of most bankers.” Ideal Scenario – Customer perspective

 Start a transaction in one channel, continue in another and finish in another  Receive timely informative communications from the bank  Be able to use the bank’s channels as and when I want to use them  Have the bank channel identify me on entry and treat me as an individual to understand my needs  Have one phone number and one person to speak to regarding complaints or problems  Deal face-to-face with the bank on more complex products. Ideal scenario – Bank perspectives

“Be able to identify the “Whether the relationship is customer personally when with the physical branch or they enter the branch and online channel is not offer the appropriate service important.” and advice.”

“My dream is to take all the administration and service out of the branch and move it 100 per cent to remote channels, leaving the branch of the future to focus exclusively on a sales and advisory role” The Future – Bank Executive Quotes

“The challenge is how to “The majority of our provide advice at the right cost branches in future will focus level. How can technology help on selling no more than four a branch network provide a high core products which we quality customer advisory believe will meet the majority service?” of our customers’ needs.”

“Branches are our best point of sale but in the future we need to focus more on our people and on segmentation and personalisation. We also need to know how other channels can push branch sales. This is where future potential lies.” Future Focus

“THE BANK BRANCH IS NO LONGER AT THE CENTRE OF THE BANK; THE BANK IS EVERYWHERE”

“IN FUTURE, RELATIONSHIPS WITH BANKS WILL BE CUSTOMER CENTRIC RATHER THAN BRANCH-CENTRIC”