Knowledge Area Review

Impact of digitisation on business banking relationship management model

July 2012 Disclaimer

ICG has made good faith efforts to ensure that this Knowledge Area Review (KAR) is a high-quality publication, and a reasonable interpretation of the material it purports to review. However, ICG does not warrant completeness or accuracy, and does not warrant that use of the KAR through ICG’s provisioning service will be uninterrupted or error-free, or that the results obtained will be useful or will satisfy the user's requirements. ICG does not endorse the reputations or opinions of any third party source represented in the KAR.

Confidentiality

ICG and their clients compete in a marketplace that generates value through the creation and management of information. It is therefore important that both parties maintain the confidentiality of each party’s information.

ICG will protect the confidentiality of all client information it receives and manages. Similarly ICG asks that its clients protect ICG interests and under no circumstances share, or in any other way distribute, ICG information without the explicit and prior written permission of ICG.

While third party materials have been referenced and analysed in this KAR, the content represents the original work of ICG's personnel. This work is subject to copyright. ICG is the legal copyright holder. No person may reproduce the KAR without the explicit written permission of ICG. Use of the copyright material in any other form, and in any medium whatsoever, requires the prior agreement in writing of the copyright holder. The user is allowed "fair use" of the copyright material for non-commercial, educational, instructional, and scientific purposes by authorised users.

© Internal Consulting Group 2015 “We know exactly where technology is heading. What we lack is the imagination [regarding] what to do with it” Samil Ismail Global Ambassador, Founding Executive of Singular University

Convinced, as I am, that no industry sector or organization will be immune from digital transformation, I have spent the last two years looking at the effect of digitization on more traditional industries. My conclusion is that digitization is probably three steps ahead of our managerial capabilities to exploit it! Didier Bonnet Global Practice Leader at Capgemini Consulting and Executive Sponsor for Capgemini Consulting’s Digital Transformation program

1. Introduction

2. Key messages

3. Impact of digitisation

4. Lessons from retail banking

5. Digitising business banking

Appendices

This document is a Knowledge Area Review (KAR). It summarises available public research and case studies on the impact of digitisation on business banking*. More specifically, it describes how the pervasive adoption of connected, cloud, and mobile technologies across industries is being leveraged to improve the efficiency, revenue or customer satisfaction of the relationship management model currently used by most banks to serve their business customers (‘the business banking model’).

Much has been said and written about the impact of digitisation on consumer banking and other industries; not so much, though, on business banking. Business banking has so far not been at the forefront of application of new technologies, except for some digitisation of back-office processes. A recent CEB TowerGroup survey found business banks rolled out mobile solutions for the first time predominantly in late 2010 and 2011.

In our view, this is because lending is the core product for most SME businesses. Credit assessment of these typically riskier borrowers requires the costly (for the customer and the bank) collection and maintenance of a large amount of information on the customer. This dependence on credit can be leveraged by the bank to cross-sell a number of other products. Thus business customers, especially the small and mid-sized corporates, have tended to have a single bank and long-standing relationships.

Surely there have been for a many of years a number of players on the fringes of the business banking world providing payments and other specialised services. But so far no non-bank entrant has come in with an all- encompassing value proposition for mid-corporates with credit at its core.

So the question is not so much one of what bank incumbents or new entrants are doing in Australia or other markets, but more one of to what extent digital technologies question the implicit assumptions behind the traditional business model centred on a relationship manager facilitating access to a range of product specialists.

* ‘business banking’, throughout this document, will be used in a broad sense to mean providing banking products and services to 5 businesses with more than $1m of turnover (i.e. all businesses except micro-businesses)

In other words, the question of the impact of digitalisation on business banking is more one of forecasting how digital technologies could impact the current business model. This document is structured as follows: 1. ‘Impact of digitisation’ asks what do new technologies mean and how are they changing our lives; it describes the types of technological innovation industries can experience and how responses need to differ, as well as how we can estimate the likely speed and quantum of digitisation in business banking 2. ‘Lessons from retail banking’ looks at disruptive innovation in consumer and small business banking; specifically, what new customer value propositions and business models are being created, who are some of the new players, and obstacles to offering an all-encompassing proposition to this segment that rivals the banks’ 3. ‘Digitising business banking’ revisits the traditional relationship management model and its rationale and asks a. how is the model evolving (how digital technologies are being deployed to sell and service business customers by banks and non-banks and possible future developments) b. how do data analytics create value; what’s the current state of development of data analytics in banking; how can analytics capabilities be developed; and how can ‘big data’ be leveraged c. to what extent are the implicit beliefs of that model being questioned by new digital technologies d. how it could be disrupted, i.e. how could banks be desintermediated e. how investments in digitisation should be prioritised

This document focuses on the relationship management model that is typically used by banks to cover their business customers (here defined as businesses above $1m of turnover). It excludes micro-businesses and financial institutions

Micro Small Mid-corporate Corporate Financial Segment businesses business* / Middle Market Institutions

Turnover <$1m $1 - 50m $50m - $500m >$500m

Main Business owner Business owner / Finance Team interface Finance Director

Typical • Branch staff RM based in Business Banking Centrally based RM + coverage Centre + BBC and HO-based • Branch-based Product Specialists model small business Product Specialists RM team

Focus of this document

* Some small businesses with complex needs may also be served by the coverage model typically associated with mid-corporates 7 Source: ICG analysis

This KAR is a synthesis of relevant public domain materials obtained by searching the sources below using a multitude of key words

§. Google Scholar §. Google Web §. Business and financial journal databases §. Management consulting firms’ websites §. Websites of major consulting firms

1. Introduction

2. Key messages

3. Impact of digitisation

4. Lessons from retail banking

5. Digitising business banking

Appendices

§. The explosion of new digital technologies (broadband, mobile devices, cloud computing) – and the myriad of internet applications and new business concepts that ride on their cusp – are fuelling the imagination (and generating concerns) about how the traditional business banking model could be transformed. §. Most of this innovation has so far been in the consumer banking arena. The thinking is only now starting about the application of new digital technologies to business customers, especially at the front-end. §. Nevertheless, the time has well and truly come for the business market. Accenture argues we are reaching a tipping point where the relationship between the business customer and the bank is eroding and the traditional bundled product offer to SMEs (with credit at its centre) could be unpicked as a result of a combination of credit unavailability, lower credit needs, new technologies, changing SME needs and regulatory pressure to make switching banks easier. §. Most of the expected innovation in business banking is focused on new products and services leveraging the mobile channel (payments products being the most prominent). Nevertheless, we can easily imagine a world where a number of new technologies are leveraged to transform quite substantially the way a relationship manager performs his/her key activities. §. It is difﬁcult to anticipate where disruptive innovation could come from (points of entry), but given the centrality of credit for most businesses, especially SMEs, innovation in lending is likely to be the biggest threat for incumbents (e.g. ‘rating agency’ for SMEs that allowed businesses – once rated – to shop around for credit). §. Given the large number of possible applications of digital technologies to better sell and service businesses, it is imperative to have a clear view of priorities. For incumbents, these should be dictated by (1) the need to pre-empt potential disruptive innovation from other banks and non-banks, and (2) the opportunities with the largest scope for value creation.

1. Introduction

2. Key messages

3. Impact of digitisation

4. Lessons from retail banking

5. Digitising business banking

Appendices

© Internal Consulting Group 2015 3. Impact of digitisation New technologies Three core technologies – broadband, mobile devices and the internet – have spawned a multitude of applications and counting...

Search Blogs E-government E-wallets, e-cash, NFC cards Video- Business Process Internet conferencing Games Management tools advertising Coupons websites Automatic Workflow EDI E-commerce, translation tools online auctions P-2-P Geo-location E-health Lending SMS, instant services messaging, email Social media Group Collaboration Buying tools Online Cloud Online encyclopedias, news, storage communities medical databases Document and content Comparison shopping management websites

Mobile devices (smart Broadband Internet phones, tablets) 12 Source: ICG analysis

© Internal Consulting Group 2015 3. Impact of Macro impacts on business and consumers digitisation Collectively, these new digital technologies are having a profound impact on numerous aspects of our lives and changing every element of the business model: how personal and business relationships are built and maintained, how information is collected and exchanged, how businesses are organised and how value is created and shared

New products New needs

What…? What…? ... product/service /information ... product/service can I provide? • • do I want/need?

Automation Anytime Industrialisation Real time Who…? When…? • ... renders the service? • ... do I want to buy/receive the • ... sells the product? product/ service/information? Anywhere Right here (De-localisation) (‘hyperlocality’) New competitors At work (consum- Where…? Business Consumers erisation) Where…? • ... are transactions processed? ... do I want to received the ... are services provided? • • product/ service/information? Big data: • ... do sales take place? Individualisation Customer control Real time offers

On what basis…? On what basis…? • ... are products developed and offered? • ... do I make my purchase decision? Who • ... are customers segmented? Changed influences me? economics 13 Source: ICG analysis

© Internal Consulting Group 2015 3. Impact of Seven macro impacts digitisation Collectively, these new digital technologies are having a profound impact on numerous aspects of our lives: how personal and business relationships are built and maintained, how information is created, collected and exchanged, how businesses are organised and how value is created and shared

De-localisation • Services that do not involve physical contact with the customer (unlike e.g. hairdressing, massage) can be performed from anywhere • Face-to-face interaction with customer does not require co-location • Co-workers need not be co-located • Companies do not have to have a physical presence to compete in foreign markets Individualisation • Customer segments can be much smaller (segments of one person at the limit) • Products and communications can be highly customised (e.g. loan’s features, internet banking site) Automation • Needs can be anticipated without human intervention (based on digital info collected by the systems themselves); interactive, adaptive response as customer navigates through the bank’s website

‘Big data’ • Segmentation can be done on the basis of a wealth of psychographic data • Much larger amount of customer data available to develop new products and services • Location-dependant products and services can be offered Real time • Customers want to communicate anytime, from anywhere, and expect an answer also in real time (the emergence of the 24x7 channel) • Multi-channel interaction requires real time processing and channel integration • Opportunity to market to existing customers as they interact with the bank Customer control • The customer has a multitude of sources of information • The rise of the militant consumer: the customer can take control of the brand and can organise easily to corral like-minded consumers • Amplifier effect of service quality (good and bad) Changed economics • Changes in cost-to-serve, improved productivity and the entry of new players with novel business models create and re-distribute value along the chain 14 Source: ICG analysis

The level of technological change we are experiencing is likely to require a high level of business transformation and thought leadership, but the benefits could be high as well

CONCEPTUAL

Five levels of IT-enabled business transformation Response required High

Business Scope Redefinition

D.Thought Business Network Redesign leadership

Revolutionary C. Leap- Business Process Redesign Levels frogging

Internal Integration B. Global best Evolutionary A. Business practice Levels basics Localised Exploitation Degree of business transformation Degree of business transformation (hygiene)

Low Low Range of potential benefits High

Source: ‘IT-Enabled Business Transformation: From Automation to Business Scope Redefinition”’, Venkatraman, N. Sloan Management Review,1994 15

The financial services industry is expected to be intensely impacted by digitisation relatively early on

Factors driving speed and quantum of Likely impact on Financial Services industry digitisation in each industry:

Barriers to entry • Medium speed of penetration

High impact on products/services and business models Information is the primary • product or a key success factor

Human or physical capital intensity • High impact on labour productivity and capital intensity

16 Source: Booz & Co., ‘The Next Wave of Digitization – Setting your Direction, Building your Capabilities’, 2011

In your view, which of the following business sectors will be most transformed (for the better) by information technology over the next 5 years? (% stating “greatly transformed”)

17 Source: PWC, ‘The new digital economy’, 2011

Digitisation is expected to impact the financial services industry at three levels

Rationale

• Real-time, high resolution business insights (e.g. shopping habits, location, finances, social activities, search history, securities trading, travel, medical Improved business and history, voting, advocacy) customer insight and reach • Ability to reach out to customers more effectively • Growing use of critical business techniques such as social marketing, crowd sensing, and crowd sourcing

• More targeted management of workforces • Increase in process automation Increased productivity • Leverage of virtualization (e.g. in testing) • Cloud-enabled cooperation models allowing the tapping of talent globally • Better investment decisions due to better data

• Value shifts will be primarily within industries as a result of changes in New value pools and business market share or industry structure models • Consumers will gain power • Need for a new wave of growth in capital investment

18 Source: Booz & Co., ‘The Next Wave of Digitization – Setting your Direction, Building your Capabilities’, 2011

1. Introduction

2. Key messages

3. Impact of digitisation

4. Lessons from retail banking

5. Digitising business banking

Appendices

Disruptive innovation in retail banking follows six themes, all focused on the delivery of a range of financial, emotional and physical benefits

20 Source: McKinsey & Company, ‘Retail banking: time to innovate’, 2011

Virgin Money appear to be planning a move from niche player in financial services to full-service provider of retail banking. They will face an uphill challenge though

Recent developments Assessment

• Founded as Virgin Direct in 1995 as a jv with • While existing banks may be more unpopular than before Norwich Union offering index-tracking equity funds the financial crisis, even a brand as strong as Virgin will • In 1997 launched The Virgin One Account, a jv with find it tough to shake-up the UK personal banking RBS, the UK’s first current account mortgage market: [mortgage account coupled to an off-set account) o Consumers’ attachments to notionally “free” banking • In 2001 RBS buys out Virgin; Virgin Direct changes services (current accounts, ATM transactions, credit its name to Virgin Money and launched a credit card, cards) resulted in significant cross-subsidies between savings and insurance products in jv with Bank of different groups of banking customers and thus acts America as a significant barrier to innovation and competition • In 2004 Virgin Group acquired full ownership in pricing • In 2010, Virgin Money had 2.5 million customers with o Compliance requirements related to data protection, over £2 billion of funds under management and over identity confirmation and money laundering make it 2.3 million Virgin Money cards in issue difficult to simplify products and processes • In 2010 Virgin Money bought Church House Trust, a o While 65 per cent of Tesco Bank’s business is small regional bank offering deposits and mortgages, currently done online, 70 per cent of customers which it intends to turn into its platform for a full would welcome an opportunity of transaction fledged retail banking business banking in store. If Virgin Money’s customers are like • Jv with Fortis for insurance Tesco’s

21 Source: Steve Worthington, Peter Welch, (2011),"Banking without the banks", International Journal of Bank Marketing

1. Introduction

2. Key messages

3. Impact of digitisation

4. Lessons from retail banking

5. Digitising business banking

• Innovation in business banking • Developing analytics capabilities • Conclusion Appendices

Accenture argues that as a result of skyrocketing of rejection rates and contraction of lending since 2008, the relationship between SME and bank is eroding. This, combined with new technologies, changing SME needs and regulatory pressure to make switching banks easier, is leading to a tipping point whereby the traditional SME bundled product offer could be unpicked

• mobile credit card payments • virtual advisers • automated cash deposit machines • social networking

* SMEs are defined by Accenture in this paper as businesses with between 50 and 250 employees 23 Source: Accenture, ‘Next generation SME banking’, 2011

© Internal Consulting Group 2015 5. Digitising business banking Four best practices in middle-market banking Several of the best practices in middle-market banking require the leveraging of digital technologies (in green below). Several also impact the relationship management model (starred)

Key elements

• Starting point is a well designed, intuitive and well-integrated online portal, similar to the Enhanced service at offering of a good personal bank, but with more features and flexibility (e.g. web portal of low cost Wells Fargo) • Others are remote cheque capture, EDI, payables outsourcing, payroll cards

Segmented product • Offer tailored solutions in an economical way (e.g. standardised product packages) and service offerings • Segment the middle market into size-tiers and by industry

• Embrace relationship managers from both commercial lending and cash management, Revamped sales matching their expertise to the customer segment organisation • Reward RMs for cross-selling cash management products (both initial sale and continued use) • Credit cash-management sales personnel with the full value they create • Find economical ways of leveraging product specialists for smaller middle-market customers

World-class account • Invest in account-planning tools and the underlying systems planning • Use a robust, centralised lead-generation database

24 Source: McKinsey & Company, ‘How US banks can attract middle market customers’, 2008

Strategic bets

Defensive moves Innovation Type C Offer new (non-financial) products and services No brainers leveraging new technology Innovation Type B Examples: Create a new financial product or service • Create an on-line community for small enabled by new technology businesses Innovation Type A Examples: • Offer marketing advice Do the same with new tools • Allow businesses to check online the Examples: progress of their loan application • Talk to customers via video-call • Fully-automated, contextual internet and mobile offers • Process loan applications using workflow tools • Offer depositors opportunity to (co-) fund directly a small business • Apply for a business credit card online Productivity plays 25 Source: ICG analysis

Financial Product/ Financial Product/ Overview Overview Institution Service Name Institution Service Name

Connect small businesses with local experts and Business Advice Centre Helps small businesses refine and articulate a clear

guarantees a response within 24 hours. Project Re:Brand branding message.

Hybrid online community and competition for small Breakthrough businesses. Small Business Online Online community for small businesses to connect and

Community receive advice. Businesses can monitor creditworthiness of corporate Experian customers and send invoices at the right time.

Online and mobile community that links investors with SoMoLend Comprehensive mobile service offerings -‐ for mid sized businesses virtually and locally. CEO Mobile

businesses.

Online, peer-‐to-‐peer, start-‐up allows individuals to Mobile applications that allows businesses to accept SquareUp payment through their smartphones or tablets, via a Civilised Money transact, invest, donate, lend and borrow money with each other at fair and transparent rates. card reading device or entirely virtually.

Streamlined service offering to small and mid-‐sized Virtual MasterCard app for B2B payments that requires Straight2Bank GlobalVCard businesses through an online and mobile platform.

no cards but ensures convenience, control and security.

NFC technology lets businesses to collect payments from Twitter hashtag that connects small businesses with Google #SmallBizFridays customers using Google Wallets. experts.

Online competition for small businesses to win lending Global Connections Wide-‐ranging advice for businesses delivered from opportunities, cash prize and networking event.

The Small Business Hub professionals and experts and community-‐building

through its LinkedIn group. Mobile payment system that requires only a phone and PingIt account number. Comprehensive online advice platform for small Connect businesses that’s fully integrated with social media. Grant competition for small businesses that allows Mission: Small Business consumers to virtually vote. Peer-‐to-‐peer online community centered around Visa Business Network advice and achieving goals.

26 Source: ICG analysis

SMEs Make and Mobile Cash flow Specialised financial Credit receive Invest channel management products needs payments

Innovations • Access accounts via • Receive credit • Mobile point-of-sale • Active money • Provide balances • Businesses can secure website that decisions via SMS payment technology management and and recent authorize trade customers can (using near-field credit tools transaction history transactions • Select repayment enter into their options if communication) by sms through the smartphone’s web mobile app upgrading or • Collect payments • Text messaging browser acquiring a from credit cards via around events • View, import and export letters or • Mobile application business vehicle a card reader sleeve including transfer which services both and mobile completion credit and • Review and reset retail and business application execute online rates for expiring • Text alerts that banking clients queries term loans on • Mobile remote check indicate to business • Offer additional smartphones deposit offers owners when services specific to deposits through transactions or their business smart phone image withdrawals exceed customers’ needs capture limits through an • Mobile payments • View statements integrated mobile (customers can pay from up to 7 years application businesses through back • Offer mobile their phone) banking • EDI, payables applications outsourcing, payroll specific to the iPad cards • Business-specific • Make and amend bill online portal payments to new or existing payees immediately or up to 45 days in advance 27 Source: ICG analysis

According to Accenture, most innovation is happening in origination and fulfillment. Both directly affect the role of the Relationship Manager or Business Banker

Service and Portfolio Origination Fulfillment Management

• New value-based and needs-based • Adoption of more light-touch segmentation models relationship manager models – including remote relationship • Offer SMEs variable pricing and service options across products managers available via online messaging tools • Support through multiple channels

28 Source: Accenture, ‘Next generation SME banking’, 2011

© Internal Consulting Group 2015 5. Digitising Four cases of innovation best practice business banking Accenture showcases four instances of innovation best practice in SME banking: virtual RMs, faster loan approval and automated e-invoicing, additional (non-banking) advice and support services, and sponsoring social communities

29 Source: Accenture, ‘Next generation SME banking’, 2011

Banks risk being desintermediated in the emerging SME banking marketplace, pushed to the side as the unbundling of deposit, transaction and risk gathers pace

Company Need Offer

Square Accept card payments on Instant card payment utility for iPhone the go iZettle Tool enabling customers to accept credit card payments through swipe technology; includes feature that allows merchants to email a photo and receipt to buyers who can then upload details of their purchases to Facebook. OCBC Bank OCBC’s app allows customers with Android devices to scan barcodes, obtain billing details, and make payments with merchant partners thanks to their “Scan & Pay” facility BankInter Provide anytime, anywhere Launched online video conferencing, ‘Mobile Virtual Network’, in access partnership with Dutch telecoms operator KPN, using the Orange network to reduce customer’s cost of data transfer. A Cisco case study claims this model delivered positive results with over 1,000 video calls Leumi Bank ‘Leumi V’ delivers face-to-face contact for customers at their desktop and through mobile devices Barclays Learning and development Launched ‘MyBusinessWorks’ – a fee-based service for business start-up programs for employees customers HSBC Launched e-Masterclass – a Global Knowledge Centre for SME learning – with free modules 30 Source: Accenture, ‘Next generation SME banking’, 2011

iZettle allows merchants to accept credit card payments through swipe technology; it includes a feature that allows merchants to email a photo and receipt to buyers who can then upload details of their purchases to Facebook

31 Source: ICG analysis

Pi is the open source platform of ‘Albert’, a new portable, multi-functional merchant terminal. It will allow businesses to download, create and upload apps. While they wait for Albert to be launched in mid-2013, businesses can use Pi to turn their iPod touch and iPhone 4 into a payments platform by means of another device called ‘Leo’ (planned for Q4/12)

‘Albert’ terminal: ‘Leo’, based on iOS, functions like a mini-EFTPOS terminal (a cradle) strapped to the back of i-pads and i-phone4s to allow them to accept • 7’’ screen, portable, touch interface all forms of card payment with PCI-PTS 3.x security level: • Powered by Android v0.4 • Cards with EMV chips • Includes 5 MP camera for scanning • Cards with a pin • Accepts EMV chips and pin transactions • Magnetic stripe (‘magstripe’) cards • Wireless • Contactless cards • Inventory management app Loyalty and rewards programs • It includes functions like: • Can integrate with the customer’s electronic cash Purchase/Refund register • • Tipping • Highly customisable • Customers can install their own or third party apps • Split bill • CBA is encouraging the development of an • Reporting ecosystem on the Pi platform (software development kit to be available later in 2012)

32 Source: Commonwealth Bank of Australia website, July 2012

Users can subscribe for free and use the following features: • Forums: discussion threads focused around business opportunities, tips for starting a business, financing tips, merchant services, managing employees and HR, technology and legal matters, etc. • Business Articles: a series of articles on a wide range of small business management issues. • Stories: this section highlights success stories of small business owners about how they started their business and tips to others about succeeding as business owners.

• Events: live webinars led by subject matter experts around key issues for small business owners.

33 Source: http://smallbusinessonlinecommunity.bankofamerica.com/index.jspa

© Internal Consulting Group 2015 5. Digitising business banking Imagine a world where... Nevertheless, for the moment, a lot of the technological innovation in the business banking relationship model is more imagined than actually realised

Online Scheduling: Imagine your small business customers’ having 24x7 ability to reserve a time that is convenient for them to meet or talk with their banker or service representative. No more back and forth calls or emails, or waiting at the branch.

Seamless channels: Imagine allowing the customer to begin and finish opening an account or submitting a service request on any combination of channels (in the branch, online, over the phone or on a mobile device) without having to start over. Thus allowing them to return to the process and provide the necessary documentation how, when and where it is convenient for them.

Ask the Expert: Imagine sitting in the bank with your prospect and instantly bringing up via video conferencing an available treasury management or mortgage expert to aid in addressing customer questions. Being able to instantly check the availability of the “expert” and bring them up allows there to be a “face-to-face” connection, eliminates the need for an additional appointment and expedites the sales or service cycle.

Digitized Forms: Imagine there were digitized forms which allow for pre-populating customer data from CRM or other systems, eliminating inapplicable sections of the form in real time based on the service being sold and creating a digital record of information for further processing.

House Calls: Imagine using mobile platform support, digital signature capture, interactive forms and secure communications to reduce the customer’s need to go to the branch.

Scalable Relationship Management: Imagine having a CRM system that guides and informs small business bankers in ways that promote relationship building and timely contact with their customers based on priority, “trigger” events or anticipated needs. This supports the banker’s ability to focus on serving their customers when and where it is needed most.

34 Source: West Monroe Partners, ‘How banks compete in the small business market’, 2011

We can imagine a world where a number of new technologies are leveraged to transform quite substantially the way a relationship manager performs his/her key activities. Some of these are already starting to happen

Initial Product & Training & Sales Meeting Customer Sales Service Internal Strategy Preparation Approach Delivery Governance

Key • Prospect • Prospect cold calls • Presentation material • Sales calls • Solution • Training sessions, Activities identification • Initial customer calls creation • Meetings and implementation • Coaching from • Competitor/ • Preliminary needs • Specialist presentations • Customer problem manager industry research identification and consultations • Proposal resolution • Internal meetings • Product- and qualification • Credit analysis and negotiation • Collection of • Credit committee service-need • Meeting scheduling underwriting • Sales closure additional materials review planning • Process, pricing and • Informal • Review of • Admin and • Call strategy terms coordination relationship customer's reporting creation and approval building/ business • tasks • Closing document networking • Credit portfolio management • Re-negotiation of monitoring • Business or industry product terms and learning conditions

Examples of • Sophisticated • Identify and make • Assisted presentation • Video (conf) calls • Automated product • Online training possible analytics contact with development tools with RM and and service delivery • Online coaching, innovation • CRM tools customers in online • Calendar sharing for product • External info instant messaging • Internet search social forums ease of scheduling specialists providers helpdesk service • Automated alerts various product • Real time pricing • Real time, voice- • Leverage of third specialists and approvals input database party info services updates 35 Source: ICG analysis

1. Introduction

2. Key messages

3. Impact of digitisation

4. Lessons from retail banking

5. Digitising business banking

• Innovation in business banking • Developing analytics capabilities • Conclusion Appendices

McKinsey identifies five ways in which ‘big data’ can be leveraged that offer transformational potential to create value

Creating transparency

Innovating with new business Enabling experimentation to discover models, products and services needs, expose variability, and improve performance

Replacing/supporting human Segmenting populations to decision making with customise actions automated algorithms

* Big data refers to datasets whose size is beyond the ability of typical database software tools to capture, store, manage, and analyze 37 Source: McKinsey & Company, ‘The challenge and opportunity of big data’, Summer 2011

The finance and insurance industries are likely to benefit strongly from digitisation and ‘big data’ if barriers are overcome

* Big data refers to datasets whose size is beyond the ability of typical database software tools to capture, store, manage, and analyze 38 Source: McKinsey & Company, ‘The challenge and opportunity of big data’, Summer 2011

© Internal Consulting Group 2015 5. Digitising business banking The ladder of analytical capabilities Harris & Davenport ladder of analytical capabilities is now a classic. It says that data analytics capabilities progress along a “ladder” where sophistication and value increase as companies proceed up each rung

CONCEPTUAL

39 Source: Jeanne Harris and Tom Davenport, Analytics at Work: Smarter Decisions, Better Results (Harvard Business Review Press, 2010).

© Internal Consulting Group 2015 5. Digitising business banking Current state of development of data analytics in banking “Few banks at this point have really developed capabilities to exploit data as a corporate asset”, Brian Johnston, Principal, Deloitte Consulting LLP

Forces pushing the development of data analytics capabilities:

• Regulatory reform: Dodd-Frank Act; more and more timely data is being requested by regulators • Systemic risk: requirement to develop a ‘living will’ • Customer analytics: banks are focusing on customer segmentation, pricing, profitability and how to grow and enhance the customer relationship over time

Where are banks right now?

• Creating data strategies • Developing data roadmaps and governance modes

• Appointing a data czar

40 Source: Deloitte, ‘Leveraging Analytics in the Banking Industry ‘ podcast, 2011

© Internal Consulting Group 2015 5. Digitising business banking Excellence in big data and analytics Banking & Payments Asia has not attributed the award for excellence in data analytics. Instead, awards were given for customer experience and service innovation. The Editor’s Special Award 2012 for the Most Innovative Bank in Asia Pacific was given to OCBC Bank (Singapore)

Nominations categories Awards Product excellence Prepaid payment Bank of the Philippine Islands (Philippines) and Beam Money (India) Credit card Siam Commercial Bank (Thailand) Special Commendation: RHB Bank (Malaysia) Debit card KASIKORNBANK (Thailand) Special Commendation: OCBC Bank (Singapore) Mobile payment Security Bank (Philippines) e-wallet - e-commerce Bank Mandiri (Indonesia) P2P payment CIMB Bank (Malaysia) Payment innovation Maybank (Malaysia)

Channel Excellence Branch OCBC Bank (Singapore) Awards Special Commendation: Bankwest (Australia) Internet OCBC Bank (Singapore) Special Commendation: Bank of the Philippine Islands (Philippines) Mobile DBS Bank (Singapore) Special Commendation: Bank Commonwealth (Indonesia) Social media DBS Bank (Singapore) Multi-channel integration -

Service Provider Payment processing Customer experience: Citibank (Singapore) Excellence Awards: Customer data management Special Commendation: Maybank (Singapore) Core banking Service innovation: Standard Chartered Bank (Singapore) Big data/analytics Virtualisation Risk management

Strategy Excellence in Business model innovation ICICI Bank (India) Business Innovation Financial inclusion Special Commendation: KASIKORNBANK (Thailand)

41 Source: www.vrl-financial-news.com/bpa/banking--payments-asia/events/retail-banking-and-pay-in-2012/trailblazer-awards1.aspx

Gartner launched its BI Excellence Award in 2005. So far three banks have been distinguished

Winners of Gartner’s Business Intelligence Excellence Award Global/EMEA APAC 2005 Continental Airlines - 2006 HypoVereinsbank - 2007 Richmond Virginia Police Department - 2008 n/av - 2009 Tetra Pak ICICI Bank (India) 2010 Komerční Banka n/av 2011 UPS Singapore's Land Transport Authority 2012 Medway Youth Trust -

42 Source: Gartner

Komerční banka won the 2010 Gartner Business Intelligence Award. "Komerční banka stood out because it demonstrated in very clear terms how it was able to use technology for quantifiable business benefits. It showed that BI is not a one time investment but that transformation happened over several years.“ Gartner

Teradata: Enterprise Data Warehouse (EDW) requirements to turn a financial mess into banking success: • Strong support from top management • Rigorous application of metadata • Clearly defined, business-essential, but incremental business intelligence (BI) projects • Robust, flexible technology

About Komerční banka Subsidiary of Societe Generale in the Czech republic, is one of the best run universal banks in Central Europe. It provides comprehensive services to clients in the areas of retail, corporate, and investment banking. The Komerční banka Group's 8,843 employees serve more than 2.7 million clients, who can use an extensive network of 398 points of sale throughout the country. Komerční banka currently operates 682 ATMs and more than 972,000 of its clients use one of direct banking channels.

Sources: www.kb.cz/en/about-the-bank/press-room/press-releases/komercni-banka-wins-an-important-gartner-award-784.shtml 43 www.teradatamagazine.com/v11n02/Features/Revolutionary-Turnaround/

What they did.

• Integrated approach pairing an enterprise data warehouse (EDW) with a performance management system (initially, Oracle Financial Services tools for enterprise performance management (EPM)) • Step-by-step integration of this EPM functionality in an EDW from Teradata • Phase 1: Crisis Management. Members of the BI team targeted three critical areas: 1. developed reports to analyze sales performance, risk and revenue management 2. developed key performance indicators (KPIs) across the organization (Consistent, comprehensive KPIs, backed by helpdesk support and well-understood metadata) 3. work by the BI team enabled potential investors to conduct due diligence of the company’s business and financial data necessary for a bank-valuation model, which led to 60% of the bank being acquired by Société Générale in 2001 • Phase 2: From 2002 to 2004, a newly created BI team rolled out BI applications for cost management, direct channels and sales support, winning fans with each targeted project. • Phase 3: Starting in 2004, the BI group turned its attention to building sophisticated tools to handle risk and further concentrated on the metadata solution. It delivered new capabilities to thwart money laundering and meet regulatory requirements like Basel II • Phase 4: Since 2008, the priority has been consumer-focused efforts, such as analytical customer relationship management and campaign management

Sources: www.kb.cz/en/about-the-bank/press-room/press-releases/komercni-banka-wins-an-important-gartner-award-784.shtml 44 www.teradatamagazine.com/v11n02/Features/Revolutionary-Turnaround/

BNP Paribas has started on a multi-year digital transformation journey

Background: • BNP Paribas grew rapidly in the past decade by acquiring banks in several countries. The firm is now aiming to solidify its international position, aligning processes globally • Crisis, regulation and technology adoption by customers and employees are pushing BNP Paribas to consider digital transformation Their journey so far: • The first step of the transformation has focused on reach: creating a multichannel strategy that includes the web as well as emerging technologies such as mobile and social media • BNP Paribas is today in a transition phase to reach the second step of the transformation: integrating transactions across channels and building a conversation with clients via an external CRM and analytics-based tools • To improve customer experience, the firm launched multiple initiatives. − The firm increased customer touch points via social media, providing customer service on twitter and advertising on Facebook. − In 2010, BNP Paribas launched a new branch model. This Concept Store will help develop new ways of interacting and selling products to the customer via new technologies and self-service areas. − The firm’s next step is to start a conversation with customers on social media. This will require building social-customer knowledge, via an external CRM, and increasing analytics capability. − Mobile apps provide a substitute to using the internet website. In 2011, BNP Paribas launched new mobile bank services in partnership with a telecom operator. This was more than a simple website substitution. It was a switch from traditional business model to a digital one, with a different cost and revenue structure. • From an operational process point of view, BNP Paribas is still at the beginning of its transformation journey. The firm is focusing on security improvements and cloud solutions, which executives see as key differentiators in the industry. The objective of process rationalization will be to have end-to-end digitized processes in an integrated platform, which could generate international economies of scale. Next digital objectives: • Move into mobility, reach the next level of customer intimacy and develop a strong analytics strategy. 45 Source: MIT Center for Digital Business and CapGemini Consulting, ‘Digital transformation: a roadmap for billion dollar organizations’, 2011

“By transforming its approach to data and analysis, First Tennessee Bank has dramatically increased its marketing effectiveness. This is a bank that understands that measuring effective marketing must include realized compared with potential customer profitability as opposed to measuring just the number of new products sold. As every marketer knows, if you simply make an offer attractive enough, sales will follow. Many banks pursue this strategy to increase deposit rates — offering high interest accounts to bring in new business — but lose those customers as soon as a competitor has a better offer. Customers brought in by overly attractive offers are not only less loyal but also less profitable.

Using analytics effectively allows banks to manipulate offer attributes, in a very granular way, to achieve higher profitability from a growing customer base. First Tennessee uses models they have developed internally to create profitability tiers with varying product attributes. The bank has also developed customer scoring models, based on very granular data points, to determine each customer's likelihood to purchase potential offers. With these product and customer models, the bank can create profitability scenarios and use these to determine which product offers will generate the most value for the bank. The bank then uses this information to prioritize marketing programs and allocate resources effectively.

As a result of this approach, First Tennessee has produced quantifiable results. It has cut its mailing and printing marketing costs by 20% and 17%, respectively, by allocating resources more effectively. And at the same time, it has increased effectiveness — generating a 3.1% increase in response rates by putting better offers in front of its prospects without sacrificing profit targets.”

46 Source: IBM/IDC, ‘ Banking for Success: Using Analytics to Grow Wallet Share’, Jan 2012

IBM advises to start with selecting a critical question or objective

“it should not be assumed that analytical insight cannot be extracted until obstacles have all been resolved”

Typical obstacles: Approach: • Complex, heterogeneous technology

architectures Step 1: Identify and prioritize critical business issues and allow these • Operationally optimized but siloed processes priorities to steer the project and systems Decision criteria should include: • Data fragmented across multiple databases • Value of anticipated benefits to be derived from the project • Constrained investment budgets with Reports and insights need to be efficiently produced and competing agendas • securely delivered • Lack of skilled resources • Data sources must be trusted across functional boundaries • Perception that the data available is of • Analytics tools should be adopted broadly, support self-service, insufficient quality to support analysis. and be business-owned but IT-supported

Step 2: Conduct an inventory and assessment of the data to confirm that the scope is achievable and that analysis will yield actionable results within the agreed hypotheses

47 Source: IBM, ‘The shift to analytics: the next wave for transaction banking’, 2012

© Internal Consulting Group 2015 5. Digitising business banking Principles to leverage ‘big data’ Senior executives need understand big data’s potential in their businesses, the data assets and liabilities of those businesses, or the strategic choices they must make to start exploiting big data

Key elements

Size the opportunities • Identify threats and opportunities that leverage big data and threats • Estimate their size and value

• Conduct a ‘data audit’: thorough review of all relevant internal and external data to Identify big data develop a realistic view of the information and capabilities required; this will also help resources and gaps identify ‘data gems’ cloistered inside business units

Don’t rush into action: data strategies are likely to be deeply intertwined with overall Align on strategic • strategy and therefore require thoughtful planning about allocation of resources choices • Ensure senior management has visibility and sets the priorities of the analytics team

Understand the • Strategies involving ‘big data’ often have implications across the entire company that organisational only senior executives can address implications • To be useful, data must cut across organisational boundaries

48 Source: McKinsey, ‘Seizing the potential of ‘big data’’, Oct 2011

© Internal Consulting Group 2015 5. Digitising business banking Concerns regarding ‘big data’ Society and regulators are only gradually setting rules for ‘big data’. In the meanwhile, companies have to make decisions without regulatory clarity

Comments

• Biggest concern. Could be (partially?) resolved with more transparency and by giving users more Privacy control • Lack of clarity and potential legal framework changes surrounding property rights of personal information

• A pioneering law in California in 2003 required companies to notify people if a security breach had Information security compromised their personal information, which pushed companies to invest more in prevention. The model has been adopted in other states and could be used more widely.

Current rules on digital records limit the length of time when data can be stored. However, Rules on storage of • companies can and have an interest in keeping information for a long period of time; regulation is digital records also pushing in this direction

• Concerns around the legal implications of using statistical correlations: what if a computer model Data uses factors in the educational level of the applicant's mother, which in America is strongly correlated with race? And what if computers can predict his predisposition to committing a crime? • A new regulatory principle in the age of big data, then, might be that people's data cannot be used to discriminate against them on the basis of something that might or might not happen

Information integrity • Censorship pollutes the internet environment.

49 Source: The Economist, ‘New rules for big data’, 2010

1. Introduction

2. Key messages

3. Impact of digitisation

4. Lessons from retail banking

5. Digitising business banking

• Innovation in business banking • Developing analytics capabilities • Conclusion Appendices

© Internal Consulting Group 2015 5. Digitising business banking Where does all this leave the typical business banking model? The typical business banking model – centred on a business banker/relationship manager who often doubles up as the credit and payments product specialist, supported by a large range of product specialists, some based in the BBC, others stationed at HO – has a logical rationale. But to what extent are the implicit beliefs of that model being questioned now by new digital technologies?

Financial Planning

Payments/Merchant Services 20+ Product specialists

Share Trading Invoice finance/Factoring Business Insurance Equipment Finance/ Trade finance Leasing

FX/IR Derivatives Business Banking Centre Business Banker / Lending and Payments Product Specialist

Call Centre

Local retail branch Internet Business Customer 51 Source: ICG analysis

The current economic climate is making SMEs more open to considering alternatives (and easier too). But the fundamental issue of collecting and maintaining risk assessment information has not gone away

Beliefs underlying the traditional business banking model: The new reality:

• SMEs are riskier than larger corporates – the • Risk assessment needs to be more granular than just bank needs to take the time to understand their industry and size – this requires data and analytics business before extending credit or seek • The contraction in credit has led many small businesses guarantees feeling the need to diversify their banking relationships • SMEs lack sophistication; thus products need to • Financial comparison websites allow quick assessment of be simple suitability of products and comparison of prices and • SMEs are quite diverse – products need to be terms tailored, but not too much as that introduces • Products can now be more cheaply tailored complexity and cost; thus packaged solutions • More services can be provided in a fully automated way SMEs lack time and resources and it is very time • with no human intervention consuming to shop around and supply new banks with the necessary information on the SME • SMEs demand business banking offers that run on their owner and their business; it is also cumbersome mobile devices and time consuming to change transactional • The technology now exists to provide easier access (after banking arrangements hours) to the RM and product specialists (via video call)

Ø SMEs were fiercely loyal and ‘sticky’ customers that Ø SMEs expectations are rising; more willingness tended to have a single bank to shop around and buy different products from different providers

52 Source: ICG analysis

© Internal Consulting Group 2015 5. Digitising business banking A bank’s processes and key functions “The real issue of disintermediation therefore, is not around the core of banking – the holding money area that is protected by banking licenses – but around the boundaries of banking. The thing is the boundaries is where all the profit lies. […]

All of the processes and functions of a bank can become apps that users can download and integrate to build their own bank. The Build-Your-Own-Bank (BYOB) is the new generation of banking.”

Source: ACI Worldwide 53 Source: Financial Services Club Blog by Chris Skinner

© Internal Consulting Group 2015 5. Digitising business banking Imagine a world with no banks Our thesis is that the most disruptive innovation will come from business models that break the credit bond between bank and business customer. For larger corporates, this already happened decades ago with direct access to the capital markets, and the consequent decline in profitability of this segment. For SMEs, it could now happen as well

SMEs Make and Risk Credit Cash flow Specialised financial receive Invest assessment provision management products needs payments

Alternative • SME provides all • With a credit • The SME receives a • The SME uses a cash flow management (leasing, factoring, business its business and rating in hand, product firm that automatically sweeps account derivatives) models personal the SME shops recommendation balances to high yielding savings information to an around for credit tailored to its needs accounts according to pre-determined • The SME’s financial SME credit rating in one of many from a ‘Payments rules advisor recommends firm that issues financial Advisor’ that had and implements an initial risk supermarkets access to the info solutions assessment and provided to the monitors risk on ratings firm an on-going basis • The Payments Advisor implements the recommended solution after the customer approves it

The simpler you can make the product the less you need face-to-face advice

54 Source: ICG analysis

© Internal Consulting Group 2015 5. Digitising business banking New business models A number of financial services providers could desintermediate banks and reduce them to commodity providers of funding

Financial Supermarket Others Banks Financial Comparison website Payments Advisors SME Rating agencies ... Bank SME • Independent advice • Information gathering Other funding providers: • Product selection Solution implementation • Consumers • • SMEs • Corporates

55 Source: ICG analysis

New entrants can cherry pick on the margin (e.g. payments) or come in through the main door by breaking the bond between bank and business customer through lending

Entrant Need Offer

Funding Circle Funding An online marketplace where people can lend directly to small businesses in the UK Crowdcube Offering a new model for sourcing capital for start-ups by utilizing an online platform to help match investors with businesses through equity stakes and non collateralized loans GE Investing in growing their SME lending business through acquisitions

• Banks have the opportunity to co-create investment opportunities with their customers, playing a bigger part in this emerging market.

• Business banks can look to create new asset classes by allowing retail and private banking customers to invest in SME customers – effectively sharing the risk.

56 Source: Accenture, ‘Next generation SME banking’, 2011

57 Source: www.fundingcircle.com/how-it-works

58 Source: www.crowdcube.com/pg/how-it-works-4

What will it be like?

Eventually CivilisedMoney will offer all the services that you currently associate with traditional banks, and some you don't.

You'll be able to choose what happens with your money, whether you participate in lending, borrowing, investing, donating, fundraising or transacting.

59 Source: www.civilisedmoney.co.uk

There are four questions that are key in deciding how to prioritise investments in digitisation

• How will digitization impact my current business model and positioning • How much time do I have? within my industry’s value chain? (speed and quantum of impact and • What do I need to watch? respective determining factors) • Future economics? • Points of entry of disruptors? • What areas of my business offer new entrants clear opportunities to => Defensive moves disrupt my current business model, and how can I best fight back?

• Opportunities? • How can I best identify and enter areas where value is being created, both inside and outside my industry? => Offensive moves

• Which capabilities do I need to build to be a leader in the field? => Enablers

60 Source: Booz & Co., ‘The Next Wave of Digitization – Setting your Direction, Building your Capabilities’, 2011; ICG analysis

Regardless of bank or strategy, future technological platforms will have to offer some core, foundational capabilities that all customers will expect and demand. If properly leveraged, many of these capabilities also present great opportunities to reduce cost, increase revenue and strengthen customer loyalty

Capability Description

Real time / Same time • Real time integration across all channels (channel-agnosticism) • Real time processing of transactions • If not real time, at least ‘same-time’: all transactions reported as at the same time Single customer view This ‘holy grail ‘of banking (and other industries) has been difficult to achieve, but in the digital era it is really a foundational pre-requisite of any player or strategy

‘The glass bank’ Customer is able to self-service (e.g. check on the progress of their loan application)

Sophisticated analytics The increasing amount of data that banks can/will be able to collect on customers is a major asset that can be leveraged to develop much finer psychographic segmentation, customised products, real time offers, location-dependent offers or alerts, etc

Customisation • Ability to offer highly customised products and services • Customer control / self-design of products and services • Customised processes • Customised pricing

61 Source: ICG analysis

Digital technologies raise a number of new strategic issues for business banks that should be further investigated

§. Can we afford an RM-centred model for more/different customers if we use a different model? §. Can a more digitised coverage model make it economical for us to target new customers? §. Will our current coverage model remain competitive against an alternative, lighter coverage model of a competitor?

§. How do we leverage new digital technologies... §. ... without weakening the quality of the relationship? §. ... to leapfrog competitors with denser coverage and more resources? §. ... to increase cross-sell and deepen relationships? §. ... to create new products, services and value propositions? §. From where can we expect disruptive innovation? Can the traditional bundled product offer to SMEs (especially the smaller ones) be unpicked? How?

§. What do we need to do to ensure we retain the direct interface with the customer? E.g. do we need to offer third party products and provide independent advice?

§. How do we re-deﬁne the role of each channel and the customer value proposition? Could the mobile channel replace the relationship manager altogether for certain simple products and services?

62 Source: ICG analysis

1. Introduction

2. Key messages

3. Impact of digitisation

4. Lessons from retail banking

5. Digitising business banking

Appendices

There are four sets of factors driving the speed of digitisation

65 Source: Booz & Co., ‘The Next Wave of Digitization – Setting your Direction, Building your Capabilities’, 2011

66 Source: Booz & Co., ‘The Next Wave of Digitization – Setting your Direction, Building your Capabilities’, 2011

Digitization will allow for an increase in customer insight/reach, improvements in productivity and access to new value pools and business models

67 Source: Booz & Co., ‘The Next Wave of Digitization – Setting your Direction, Building your Capabilities’, 2011

The European Commission sees ICT having an impact on the banking industry in three ways

Key findings

• Mergers drive increased spend on ICT • ICT, in turn, makes integration easier Market structure • Acquiring certain technologies is a key thrust behind some acquisitions (e.g. Acquisition of Egg bank by Citibank)

• Productivity is increasing while average working hours per employee are falling. In other words, ICT capital investments are Process efficiency largely substituting labour, particularly in retail banking • Standardisation of ordinary financial services and increase in customer on-line self-servicing are rendering the tellers redundant

On-line increasingly used for traditional, manual banking services, Branch renewal while branches are reserved for face-to-face advisory services

Source: Rambøll Management for the European Commission , ‘ICT and e-Business Impact in the Banking Industry’, 2008 68

While the overall economic value of the media sector has risen, there has been a major shift from traditional media to new media

Source: PWC 2010 industry data for US and Western Europe; Booz & Co., ‘The Next Wave of Digitization – Setting your Direction, Building your 69 Capabilities’, 2011

Increased maturity in customer analytics will only deliver a sustainable competitive advantage – through increased bargaining power and marketing effectiveness and efficiency – if coupled with other unique company resources like scale advantages and privileged access to data

Sustainable competitive advantage power efficiency efficiency Improved Improved Increased Increased marketing marketing marketing bargaining bargaining effectiveness effectiveness

Scale Privileged access to data

Source: Olena Valentynivna Bazylevska, Master thesis ‘Customer analytics as a source of competitive advantage’, Delft University of Technology, 71 November 2011

• Nominate a Business Data Steward to define: − Business definitions & business rules Ensure support from the most senior business leaders − Identification of critical data elements • Establish a Data Governance committee to align the − Data quality monitoring, issue identification & • resolution processes and technologies to manage data strategically − Identification of trusted sources of data − Support in the simplification of the data environments • Create an enterprise data model which logically represents the business and shows the relationships • Use common business definitions Data between various subject areas • Move data quality checks as far upstream governance as possible • Create diagrams that show the lifecycle of how data moves across major business entities • Put data quality checks on critical data Data Data Identify data stakeholder roles, organizations, elements architecture • stewardship processes and applications • Understand the quality of the data • Define how data will flow between applications and • Execute common business rules once and centralize databases • Assign data stewards to subject areas, data entities, • Ensure that metadata is captured in a central source Data and application code sets Data quality • Identify trusted sources of data standards • Share data when possible • There must be an agreement among Data security all interacting parties that their data values will conform to that standard • Methodologies that can be utilized to improve an organization’s data quality are based on more generic quality improvement Data security, or Information Security, covers the confidentiality, methodologies, such as Six Sigma or Total integrity, and availability of data regardless of the form the data Quality Management may take: electronic, print, or screen visible. It also can be regarded as the protection of data from unauthorized (accidental or intentional) modification, destruction, or disclosure. 72 Source: Mortgage Bankers Association Residential Technology Steering Committee, ‘Data management best practices’, 2008

© Internal Consulting Group 2015 Excellence Awards The Banking & Payments Asia 2012 award for excellence in data analytics was not attributed. The Editor’s Special Award 2012 for the Most Innovative Bank in Asia Pacific was given to OCBC Bank (Singapore)

Nominations categories Awards

Process Excellence Awards Customer centricity Maybank (Malaysia) Special Commendation: Bank of the Philippine Islands (Philippines) Account opening Standard Chartered Bank (Singapore) Special Commendation: OCBC Bank Loan origination/approval Citibank Savings (Philippines) Special Commendation: Bankwest (Australia) Collection/debt management -

Risk management Kotak Mahindra Bank (India)

Product excellence Prepaid payment Bank of the Philippine Islands (Philippines) and Beam Money (India) Credit card Siam Commercial Bank (Thailand) Special Commendation: RHB Bank (Malaysia) Debit card KASIKORNBANK (Thailand) Special Commendation: OCBC Bank (Singapore) Mobile payment Security Bank (Philippines) e-wallet e-commerce Bank Mandiri (Indonesia) P2P payment CIMB Bank (Malaysia) Payment innovation Maybank (Malaysia)

Channel Excellence Awards Branch OCBC Bank (Singapore) Special Commendation: Bankwest (Australia) Internet OCBC Bank (Singapore) Special Commendation: Bank of the Philippine Islands (Philippines) Mobile DBS Bank (Singapore) Special Commendation: Bank Commonwealth (Indonesia) Social media DBS Bank (Singapore) Multi-channel integration -

Service Provider Excellence Payment processing Customer experience: Citibank (Singapore) Awards: Customer data management Special Commendation: Maybank (Singapore) Core banking Service innovation: Standard Chartered Bank (Singapore) Big data/analytics Virtualisation Risk management

Strategy Excellence in Business Business model innovation ICICI Bank (India) Innovation Financial inclusion Special Commendation: KASIKORNBANK (Thailand)

Source: www.vrl-financial-news.com/bpa/banking--payments-asia/events/retail-banking-and-pay-in-2012/trailblazer-awards1.aspx 73

74 Source: Accenture, ‘Data to Knowledge to Results: Building an Analytic Capability’, 2001

Commentators, analysts and banks recognize four key areas where analytics capability can provide value: • Customer analytics • Integrated risk management • Operational effectiveness • Optimized transaction products

Case Study: North American bank improves payment processing and customer satisfaction

A leading North American institution required real-time information on queued payments to calculate changes in intraday liquidity positions and assess the risk, based on time of day, of all payments not being completed by deadlines. The organization was also striving to improve payments customers’ satisfaction with its call-centre service, seeking insight on customers affected, expected completion and the potential liability of in-flight payments within the bank’s payment system. The operational dashboards made available through IBM’s payments and analytics solutions provided a consolidated real- time view of payments process flows, performance indicators for key customers, and alerts to appropriate team members for out-of-bound payments, bottlenecks and customers at risk. The solution accelerated the bank’s ability to identify and act on events by providing better insight into process bottlenecks. This resulted in improved STP rates, reduced service disruptions and lower operating costs. The net result was increased customer satisfaction by improving payment processing and enhancing information provision.

75 Source: IBM, ‘The shift to analytics: the next wave for transaction banking’, 2012

© Internal Consulting Group 2015 List of ACL references “ACL Services Ltd. is the leading global provider of audit analytics and continuous monitoring software to the audit and controls professions and the financial management community”

76 Source: www.acl.com/customers/success_stories.aspx

The Royal Bank of Canada saved over $15m after the implementation of a fraud prediction measures

National Bank of Canada increased Customer Retention rate by 40% through proactive initiatives in customer churn analytics

Bank of America reported a net reduction rate of 17% in loan defaults following the adoption of predictive scoring analytics

The Banco Santander Totta in Portugal increased conversion rates on credit card offers from 5% to 30% and reduced the churn by 25% by using data mining techniques

77 Source: http://cognitro.com/DMABA10-Seminar-Brochure.pdf

“FIDUCIA is the largest comprehensive outsourcing partner in the cooperative banking sector, serving more than 850 banks and 38 million banking customers in Germany. With IBM Cognos software at the core of its business intelligence competency centre, FIDUCIA can bring new answers and insights to its banking customers.”

Cognos fits perfectly with FIDUCIA’s streamlined ASP model—letting FIDUCIA offer BI capabilities to its hundreds of banking customers in a way that is consistent with its vision of providing comprehensive, value added services in a simple, secure, and scalable manner. Here are some of the key benefits that FIDUCIA executives attribute to Cognos:

• Expanded self-service offerings—One key to FIDUCIA’s success is the ability to empower its customers to use new BI solutions and capabilities at the desktop level—but without the complexity and expense of installing and upgrading desktop software.

• New revenues—Easy to deploy and use, IBM Cognos BI solutions expand FIDUCIA’s ASP model and enable it to serve its customers with cost effective, value-added applications and services— enhancing revenues and building the customer base.

• Better information and more transparency— Direct, fast, flexible, and integrated access to relevant information lets FIDUCIA help its customers achieve their business and profit targets. For example, by identifying market potential, they can ensure that they are maximizing it.

78 Source: IBM, ‘Business analytics for banking ‘- Three ways to win, 2010

Bank Austria AG is the clear number one in the Austrian banking industry. With a balance sheet total of around €145 billion, Bank Austria is about double the size of the next largest bank. Bank Austria needed a system with an independent and flexible response to be able to produce efficient ad-hoc reporting whenever it was required.

With Cognos 8 BI, reporting to the parent company is now uniform, and can be achieved much more quickly and at a lower cost than previously. This speed and flexibility are also apparent in the bank’s ad hoc reporting, particularly important in the current economic climate.

With all controlling content consolidated to a single platform, data discrepancies are a problem of the past – the bank can now have total confidence in its data.

IBM case study – Analytics in action: Major European Bank

A major European bank has deployed IBM SPSS predictive analytics to construct an innovative early warning system that detects potential failures among its business customers. It also models the relationships and economic dependencies among them. This allows the bank to predict the impact on the bank (and its other customers) of a business failure by a major client, taking into account the “domino effect” in which one failure may trigger others. It provides an effective safety net by allowing the bank to calculate the maximum risk from a major business failure.

79 Source: IBM, ‘Business analytics for banking ‘- Three ways to win, 2010

• ‘Driving Business Value From Investments in Informa6on’, Jiří Omacht, Michael Ventruba, available at hAp:// agendabuilder.gartner.com/BIE12I/webpages/SessionList.aspx?SessionType=140 • ‘The Komercni Bank Proﬁts From Investments in Informa6on -‐ Analyst Report, available from Gartner • IBM reports on business analy6cs for banking available at hAp://www-‐01.ibm.com/so\ware/be/analy6cs/banking/index.html • Rambøll Management for the European Commission , ‘ICT and e-‐Business Impact in the Banking Industry’, 2008, includes the following case studies: − ICA Banken – Making banking more convenient − Hansabank – Development of an e-‐banking product for private customers − Tapiola Bank – Dual-‐combina6on banking − Na6onal Irish Bank – The impact of ICT on post-‐merger branch renewal − Nova Ljubljanska Banka – Implemen6ng Online Banking in a CEE-‐context − SkandiaBanken – the role of ICT in the development of an Internet-‐only bank − Egg/Ci6bank UK – Acquiring Online Capabili6es − Eurobank EFG – ICT-‐facilitated Process Management − Glitnir Bank – Banking in an Online Society − Société Générale – Strategic Procurement of ICT • How Ci6bank uses TwiAer to improve customer service, available at hAp://cio-‐asia.com/resource/industries/how-‐ci6bank-‐uses-‐twiAer-‐to-‐improve-‐customer-‐service/?page=2

Face-‐to-‐face channels • “Face-‐to-‐Face: A €15–20 Billion Mul6channel Opportunity.” – McKinsey and EFMA • “The Future of Face-‐to-‐Face: How to Make the Transforma6on a Reality” – McKinsey

Mobile channel and payments • “Mone6sing Mobile: How Banks are Preserving Their Place in the Payments Value Chain” – KPMG • “Applied Mobility for the Banking Industry” – DeloiAe • “What’s the Future of Mobile Banking in Europe?” – McKinsey • “Your Wireless Wallet” – McKinsey • “Dialing up a Storm: How Mobile Payments Will Create the Most Signiﬁcant Revenue Opportuni6es of the Decade for Financial Ins6tu6ons” – PWC • “Online Merchant Acquiring: Innova6ng Beyond Payments” – McKinsey

Digi7sa7on • “Minding Your Digital Business: McKinsey Global Survey Results” – McKinsey • “Preparing for RDR: Opportuni6es and Challenges for Wealth Managers and Private Banks in the UK” – Accenture • “Measuring Industry Digi6za6on: Leaders and Laggards in the Digital Economy” – Booz • “The New Digital Tipping Point” – PWC • “Digital Insurance – Char6ng a Course to Best-‐in-‐Class Capabili6es” – BCG

Social media • “Designing the Transcendent Web: The Power of Web 3.0” – Booz & Co • “Banking on Social Media” – Booz and Co 82

Data analy7cs • "Crea6ng Value through Data Integrity -‐ a Pragma6c Approach" – Boston Consul6ng Group • “An 8-‐Point Tune-‐up to Boost Auto Lending: How Analy6cs and Business Rules are Helping Steer More Top-‐Line Growth to the BoAom Line” – FICO • “Driving intelligent growth with Customer Value Maximiza6on: How banks should go beyond CRM” – McKinsey • “Finally, Customer Analy6cs for Banks” – DeloiAe • “Seizing the Poten6al of ‘Big Data’” – McKinsey • “Compe6ng Through Data: Three Experts Oﬀer Their Game Plans” – McKinsey • “Analy6cs in Banking: Taking a Fresh Look at Your Challenges” – DeloiAe • “Turning Data into Dollars” – DeloiAe • “A New Virtuous Cycle for Banks – Linking Social Media, Big Data, and Signal Advantage” – BCG

Cloud compu7ng • “Cloud Compu6ng in Banking -‐ What Banks Need to Know When Considering a Move to the Cloud” – Capgemini • “Banking on Capability Clouds” – DeloiAe

Other • “A ‘New Normal’ is Emerging – But Not Where Most Banks Expect” – FICO • “Rethinking Retail Banking Growth: Eﬀec6ve Strategies for Increasing Revenue by Building Stronger Connec6ons to the Post-‐Crisis Consumer” – DeloiAe • “A Strategic Approach to Self Service: Capture the Value, Avoid the Piralls” – Booz and Co. • “IT Advantage Fall 2011” – BCG • “Commercial Banking: Compe6ng for Growth in 2012” – Oliver Wyman • “Banking Technology Vision: Technology Waves that are Reshaping the Banking Landscape” – Accenture • “Retail Banking in CEE: Exploi6ng the Poten6al of the Micro Business Segment” – Roland Berger 83

© Internal Consulting Group 2015 This document was prepared by Anna Videira-‐Johnson ([email protected]). Anna is an ICG affiliate who leads work in corporate and business unit strategy, opera6onal improvement and corporate restructuring. Anna spent six years with McKinsey & Company as a strategy and corporate finance consultant and over two years as a senior advisor in NAB’s Corporate Strategy & Investments team. Anna was assisted by ICG’s Wholesale Banking Prac6ce Leader, Peter Beaumont, and an ICG expert panel drawn from ICG’s affiliate pool. Internal Consulting Group Unbundled consulting §. Project support §. Capability building §. Professional association www.internalconsulting.com.au