Review2017
INNOVAT ION TRANSFORMAT ION DISTR IBUT ION MARKET ING AND CUSTOMER DATA
How are exciting new business models disrupting the industry?
Will banks of the future be bionic?
What are the winning strategies for impressing customers?
How will data analytics differentiate your business from the rest?
November 2017
Asia Retail Banking Summit Singapore - www.efma.com/asia17
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SME AppsBank Awards Ceremony Milan - www.efma.com/smeawards
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Insurance SummitLondon - www.efma.com/insurance17
26 April 2017
Efma-Accenture Innovation in Insurance Awards Ceremony London - www.efma.com/insuranceawards17
6 July 2017
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Welcome to Efma Review 2017.
The retail financial services industry is an exciting place to be at the moment. While it is important to acknowledge the continued pressure facing the sector, there’s no question that the number of opportunities being presented to banks and insurers – via the rise of fintechs, data analytics, robots and artificial intelligence for example – is quite phenomenal.
At Efma we’re making it our mission to help the financial services community to reap the rewards of these new opportunities. We’ve launched three new portals (the Fintech portal; the SME AppsBank portal; and the Innovation portal for insurance) in order to showcase the most exciting implementations from across the industry. We’ve evolved our digital content portfolio so that it’s topic-centric and more valuable for members. And we’ve transformed our events and networking meetings, not only running the popular conferences and summits that our members know and love, but also adding into the mix new learning expeditions, as well as redesigned co-working councils, incubation programmes and co-creation projects.
You can find out more about the new and exciting developments that are happening at Efma in the following pages. You can also discover how different innovations and approaches are being adopted in different parts of the world in our series of regional overviews. And get an in-depth overview of the latest research, case studies and thought leadership surrounding the most important topics facing financial services organisations today including innovation, fintech, transformation, operational excellence, SMEs, affluent and private banking, insurance, dynamic distribution, marketing and customer data.
I hope you find this a valuable resource.
Foreword
Vincent Bastid Efma CEO
Efma is a global non-profit organisation, established in 1971 by banks and insurance companies, Efma facilitates networking between decision-makers. It provides quality insights to help banks and insurance companies make the right decisions to foster innovation and drive their transformation. Over 3,300 brands in 130 countries are Efma members.
Headquarters in Paris. Offices in London, Brussels, Barcelona, Stockholm, Bratislava, Dubai, Mumbai and Singapore.
With thanks to our contributors
Olivier Crespin, Ramón Heredia, Jim Marous, Chris Skinner, Fahim uz Zaman for their exclusive articles. Vincent Bastid, Somprachanh Kham Phone, Céline Ristors, Monica Tirsogoiu for their valuable input. Special mentions to Karine Coutinho for her advice, Géraldine Mondet for her graphic skills, Boris Plantier for his extensive research. Our production team at Tudor Rose: Stuart Fairbrother, Toby Ingleton, Lindsay James, Libby Sidebotham.
Anne-Laure Jozan Editorial Project Leader
Contents
3 | Foreword 6 | Efma: Instigating change in financial services 8 | Meet the board10 | Efma around the world12 | Efma membership14 | Associate membership15 | Efma studies and reports
16 | The outlook for Europe post-Brexit – Chris Skinner, The Finanser18 | Why US banking innovation is falling short – Jim Marous, Digital Banking Report20 | What lies ahead for the Latin America banking ecosystem? – Ramón Heredia, Digital Bank Latam22 | Africa’s digital transformation – Greg Rung, Paul Calvey and Pierre Romagny, Oliver Wyman24 | Middle-East: Digital winners vs the banking dinosaurs – Fahim uz Zaman, Efma26 | Southeast Asia: Seizing the digital opportunity – Olivier Crespin, DBS Bank27 | A new era of financial growth in China – Raphaël Goué, Efma
38 | Banking in 2050: What does the future hold? – David Gyori, Banking Reports40 | Why banks need to become bionic – Findings from a new white-paper from Efma
and The Boston Consulting Group41 | The signature of a sector in flux – New research by Dr Kevin McLafferty, in association
with Efma
28 | The emergence of new banking business models – Findings from Efma and Infosys Finacle’s eighth annual study of innovation in retail banking
30 | Efma-Accenture Distribution and Marketing Awards
33 | The rise of the fintech movement – Findings from the recent World Fintech Report, by Capgemini and LinkedIn in collaboration with Efma
35 | Fintechs: allies or rivals? – An extract from the ‘Fintech & Banking: Collaboration for Disruption’ report by Efma and Axis Corporate
36 | The first Efma Fintech Awards
Regional Focus
Transformation
Innovation
Fintech
About Efma
5
42 | The path to mobile-first banking success44 | What will define the future of banking? – Findings from Efma and Capgemini’s annual
World Retail Banking Report
46 | Responding to change: How are banks using information and pricing strategies to boost profitability? – Findings from a recent report from Efma and Oracle
48 | Why do banks fall short in terms of customer experience? – A summary of Efma and Forrester’s ‘The State of CX Management in Retail Banking’ study
50 | Innovative services for SMEs – Giuseppe Calegari, UniCredit51 | Getting big in small business banking – New research and client work
from Efma and The Boston Consulting Group
52 | Roundtable – Creating a better wealth management industry55 | Going digital tops priority list for private banks – Results from ‘The Evolution of
Private Banking and Wealth Management Resulting From Digitization’ survey, by Efma and Comarch
56 | Surviving technological disruption in insurance – Michael Naylor, Massey University57 | How to meet new needs in insurance – Daniel Tu, Ping An58 | Efma-Accenture Innovation in Insurance Awards
Distribution
Marketing and customer data
SME
Affluent
Insurance
6 Efma Review 2017
ABOUT EFMA
Since his appointment as Efma’s CEO in 2015, Vincent Bastid has initiated a huge amount of change. In this interview he explains how he is paving the way for a new financial services landscape via industry-wide collaboration.
Instigating change in financial services
When Vincent Bastid took the position as Efma’s CEO just over a year ago, he promised to transform the global not-for-profit organisation for the better by improving efficiency and collaboration and creating new services and high value digital platforms and content for its community of over 3,300 member banks and insurers.
Fast forward to today, and he has delivered on his promise and more. Within a few months he had found new state-of-the-art premises, replaced the 15-year-old IT system and restructured the organisation in order to achieve new efficiencies. “Our new premises provide a more appropriate environment in which to thrive,” he says. “We can invite our members here, who can hold their own meetings and co-creation events – something that we weren’t able to facilitate in the past.
“We’ve replaced our incumbent IT systems with new CRM and CMS systems (including next generation event management and campaign marketing automation software), shifting IT development from apps to APIs and participative digital platforms. We also work differently internally – we have created new HR and business management processes, formed teams based on expertise and initiated more virtual collaboration. As a result, we are realising 15% additional working productivity,” Bastid continues. “That extra efficiency has been used to launch and test new initiatives to deliver a new augmented value proposition to members and to
set up a new foundation for growth, without claiming for external funding.”
Bastid has also instigated the launch of three new online portals: the Fintech portal; the SME AppsBank portal; and the Innovation portal for insurance. “The success of the insurance portal has been unprecedented and has provided huge industry recognition to winners, as well as a great database for Efma members who can get inspired by hundreds of case studies and find the direct contacts they need,” he says. “It is still too early to assess the SME and Fintech portals, but I’m confident that they will provide competitive advantage for our members.”
By evolving in this way, Bastid is confident that Efma is able to help its members meet the many challenges of operating in retail financial services. “Some bankers have lost the pride in what they do, and trust has decreased. We need to work together to rebuild this because a bank moving in a separate direction will not help set up the standards of banking for tomorrow. It’s a collaborative, industry-wide venture. That’s why our new mission is to reinvent financial services as an industry, to set up clear advanced standards for end customers – getting new thinking and inspiration from our large community of banks and insurers – and leveraging key learning and analytics from Efma portals and research.
Bastid says that Efma will achieve this via a shift in its offering. “We don’t want to be considered to be simply a content provider – we want to be a strategic transformation catalyser,” he says. “To this end, we’re now delivering a wide range of topic-centric digital content and services to our members. For example, an SME manager will have access to an SME digest which summarises all of the major research in the SME industry. They will also have access to a range of Efma co-branded reports on SME banking, as well as an Efma voice of members’ document which brings together thought leadership from the biggest names in the industry. They can attend three free SME co-working council sessions per year (an exclusive
INTERVIEW
Our new mission is to reinvent financial services as an industry
7
to members), visit the yearly SME conference where they can network with more than a hundred peers and also take advantage of the SME portal and have a chance to win an industry award that will provide tremendous publicity and business opportunities. We are also offering the same package for private banking, insurance, operational excellence, innovation, fintech, and other key topics that are front of mind for our members.”
The new approach is already paying off. A record number of banks and insurance companies joined Efma in 2016 – including Standard Chartered Bank in the UK, Mizuho Financial Group in Japan, Raiffeizen Bank International in Austria, DBS in Singapore and many more.
Looking forward, Bastid says that over the next 12 months there will be even more value to be had from an Efma membership. “Co-creation will be the buzzword for the next year,” he says. “We’re about to launch our first co-creation event and we’re keen to organise more of these. We will also be co-creating the next versions of our portals.
“We’ll also be running new learning expeditions, as well as redesigned workshops, incubation programmes and more,” he explains. “And I’m excited to announce our new ‘executive advisory programme’ catch up sessions which are aimed at bringing busy executives up to speed with where the trends are, what they need to do to transform and how they can do it. These will begin next year in the UK and Asia.”
Bastid is also looking forward to the evolution of Efma’s portals and awards programmes. “These will become more community-based, and topic-centric,” he says. More interaction on the portals will result in more data. “In the past our research was done by interviewing members,” Vincent explains. “But by creating these large databases and industry portals we are able to analyse information and pinpoint more trends. This will be extremely valuable.”
“Overall, I truly believe that Efma has evolved from being a nice to have into something that is absolutely essential to get to industry sustainable models and new standards,” Bastid concludes. “This kind of community is invaluable to the success of the industry as a whole and our members will be the first ones to get high returns and see the value of this wide community collaboration on our future.” n
We don’t want to be simply a content provider – we want to be a strategic transformation catalyser
8 Efma Review 2017
ABOUT EFMA
MEMBERSHIP
Efma’s board is made up of 33 senior executives from retail financial services organisations across the world. Each elected for a term of three years, renewable once, the board members are involved in creating and sustaining new policies and for driving the organisation forward.
Meet the board
Javier San FélixChairmanHead of Retail and Business Banking and Deputy CEO at Santander
Pierre HacquetVice President & TreasurerFormer Retail Banking Director, Crédit Agricole
Philippe WallezVice PresidentHead of Retail & Private Banking at ING Belgium
Marianne Auvray-MagninDirector of Relationships and Retail Regulation, Société Générale, France
Luisa BajettaStrategies and Markets Area, Associazione Bancaria Italiana, Italy
Bojan BlecicSenior Vice President, Head of Experience Design, Group Customer Experience, OCBC Bank, Singapore
Omar BounjouCEO Retail Banking, Attijariwafa Bank, Morocco
Sebnem Dag GuvenSenior Vice President, Strategy, Akbank, Turkey
Regine DebeuckelaereGeneral Manager Wealth, Private Banking and Mass Affluent, KBC Bank NV, Belgium
Michel DelaigueDirector Market Segments and Brand, Groupe Credit Mutuel, France
Véronique FaujourMarketing and Communication Director, Crédit Agricole Group, France
Karen FawcettCEO Retail Banking, Standard Chartered Bank, Singapore
John GoddardGlobal Chief Operating Officer, Group Retail Banking , HSBC, UK
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Datuk Boorhan HamirullahHead of Community Financial Services, Maybank, Malaysia
Manroop KhelaCOO Retail & Business Banking, Santander UK
Shekhar KrishnamurthyHead of Retail Banking Strategy, Emirates NBD, United Arab Emirates
Maurício Machado de MinasExecutive Vice President, Banco Bradesco, Brazil
Roberto ManconeManaging Director, Global Head Disruptive Technologies and Solutions, Deutsche Bank, Germany
Francesca NiedduHead of Customer Experience and CRM, Intesa Sanpaolo, Italy
Svyatoslav OstrovskiyHead of Sberbank’s Bank XXI Department, Sberbank, Russian Federation
Amélie Oudea-CasteraChief Marketing and Digital Officer, Axa Group, France
Philippe PoirotDirector of Digital Development, Transformation and Quality, BPCE, France
Mikhail PovaliyMember of the Board, Head of Retail Business Division, Alfa Bank, Russian Federation
Benjamí PuigdevallExecutive President, Caixabank Digital Business, Spain
Antonio QueirozDeputy Head of IRB Retail & SME, BNP Paribas, France
Yalçin SezenDeputy CEO, Retail & Private Banking, Isbank, Turkey
Makoto ShibataPrincipal Analyst and Head of Global Innovation Team, Digital Innovation Division, Bank of Tokyo-Mitsubishi UFJ, Japan
Martin SponaHead of Digital Sales, Erste Bank, Austria
Mathieu StaniulisSenior Director, Client Segments and Member and Client Experience, Desjardins, Canada
Remo TaricaniHead of Retail Sales and Marketing, UniCredit, Italy
Johan van TholenDirector, Group Market Management & Distribution, Allianz SE, Germany
Vyacheslav VorobievDeputy President and Chairman of the Board, VTB 24, Russian Federation
Vuyo MpakoHead of Digital Banking and eCommerce, Standard Bank, South Africa
10 Efma Review 2017
ABOUT EFMA
DUBAI OFFICEMiddle EastFahim uz Zaman [email protected]
BARCELONA OFFICESouthern Europe, Latin America, AfricaAlain Enault [email protected]
Throughout the world, leading retail banks are seeing the benefits of Efma membership. This map shows, by country, the percentage of leading retail banks that are Efma members.
2017EFMAAROUND THEWORLD
MEMBERSHIP
25%
40%
80%
40%25%
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BANGALORE OFFICEIndia, Sri LankaAnil Kumar [email protected]
SINGAPORE OFFICEAsia PacificWai Ling Lee [email protected]
SHANGAÏ OFFICE China, Mongolia, Myanmar, VietnamRaphaël Goué [email protected]
Over 3,300 corporate brands from 130 countries are Efma members. In fact, 80% of European retail financial services institutions are members, as are 35% in Russia, 25% in Latin and North America, 40% in Middle-East and Africa, 20% in India, 45% in East and Southeast Asia and 20% of those in Australia and New Zealand.
Is your institution a member? Find out by emailing [email protected] more details, please visit www.efma.com/membership
STOCKHOLM OFFICEBaltics, Nordics, Poland, TurkeyLukas [email protected]
LONDON OFFICEUnited KingdomJohn [email protected]
PARIS OFFICEFrance, Canada, USAVincent [email protected]
BRUSSELS OFFICEBeneluxPhilippe Van [email protected]
BRATISLAVA OFFICECEE, Russia, Germany, Israel Lubomir Olach [email protected]
35%
40%20%
20%
45%
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ABOUT EFMA
MEMBERSHIP
By becoming an Efma member, retail financial services organisations from across the world gain access to a number of exclusive benefits and networking opportunities.
Efma membership
Becoming a member of Efma offers many benefits. Not only do members gain the opportunity to network with peers and industry experts from more than 3,300 financial services institutions worldwide, they also gain free access to industry-leading research, online portals, events and more.
Plus, as Efma now counts a third of the world’s largest retail financial services institutions as part of the association, becoming a member offers an effective way for banks to boost cross-industry relationships.
When a financial institution becomes a member of Efma, it is provided with a dedicated Efma representative, along with access to customised services. All employees of the organisation gain instant access to various online and printed resources via the Efma website. Functioning as a self-service research centre, the website features industry-focused interviews, reports and studies on various topics, as well as the Innovation portal for banking, the Innovation portal for insurance, the SME AppsBank portal and the new Fintech portal.
By tapping into the wide range of studies, benchmarking reports and statistical data, members can increase their understanding of the biggest issues facing retail bankers and insurers, track industry trends and developments across the globe and monitor the progress of other key players. The data, which is regularly updated and supplemented with executive interviews and articles authored by industry experts, also provides an insight into new products, technologies, operational and customer service innovations.
Members are also entitled to participate in various international conferences such as the SME Summit, Distribution Summit, Insurance Summit, Innovation Summit and Efma advisory councils where Efma organises face-to-face, on-site meetings – as well as virtual think tanks, webinars and presentations. n
To learn more, view www.efma.com/joinefma
Our organisation has access to credible sources of information, such as the studies Efma regularly produces with reputable consulting firms, and also best practices for marketing. This valuable information helps us to challenge ourselves and encourages us to think outside the box.François Duchesne Principal Director of Strategies & Innovation Desjardins, Canada
Participating in this Efma study tour has helped us become more purpose-driven, outside-in oriented and lean in our methods. In addition, we’re learning how to partner with fintechs in a way that is mutually rewarding and commercially pragmatic for all parties involved.Paul Steenkamp Innovation Capability Executive Standard Bank, South Africa
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I’m glad to participate in Efma events because you hear stimulating insights and influential keynotes from inspiring professionals. I’m also a judge for Efma’s Innovation Awards and it’s a real privilege to evaluate the nominations for their originality and impact. Sharing ideas and experience about different approaches to innovation is very beneficial. Gürhan Çam Senior Vice President for Digital Generation Banking DenizBank, Turkey
Being part of Efma enables Bradesco’s team to gain a full overview of the whole banking industry and current or future trends. It also allows us to see how other banks are performing around the world. We compare the information in Efma’s global sources with data about our banks and trends in our local market and from this, we’re able to gain insights into different areas of our business. Marcelo Frontini Director, Head of the Research & Innovation Department Banco Bradesco, Brazil
Banco Galicia (Argentina)
Bank BRI (Indonesia)
BIL (Luxembourg)
CNP Assurances (France)
Creditbank (Lebanon)
DBS Bank (Singapore)
Defence Bank (Australia)
FINCA Microfinance Bank (Pakistan)
Fransabank (Lebanon)
Garanti Bank (Turkey)
Government Savings Bank (Thailand)
Halkbank (Turkey)
Krung Thai Bank (Thailand)
Mizuho Financial Group (Japan)
Raiffeizen Bank International (Austria)
Saudi Hollandi Bank (Saudi Arabia)
Standard Chartered Bank (United Kingdom)
UBI Banca (Italy)
XAC Bank (Mongolia)
View more at www.efma.com/members
New Efma members 2016
19 institutions joined the Association in 2016:
14 Efma Review 2017
ABOUT EFMA
MEMBERSHIP
Becoming an associate member of Efma provides non-financial institutions with the opportunity to network with key industry players, produce reports and participate in international events.
Associate membership
Just like banking and insurance members, the associate members can attend Efma’s international events at a discounted rate, network with more than 3,300 players in the industry and access a range of reports, research, interviews and more via Efma’s website. Additional benefits include the chance to access bespoke services; contribute regular updates to the online news database; benefit from marketing opportunities; collaborate on reports and events; and present at international conferences.
Efma can organise meetings between key retail financial services players and associate members to help them identify industry challenges and gather data to produce reports. When these reports have been published, Efma can organise customised events – such as meetings, debates and conferences – to help members promote their findings to the banking industry. Efma can also host virtual think tanks with banking and insurance executives. n
Accenture
A.T. Kearney
Axis Corporate
The Boston Consulting Group (BCG)
Capgemini
Comarch
Deloitte
Edgeverve
Ernst & Young
Exton Consulting
Forrester
McKinsey & Company
Microsoft
Nomura Research Institute (NRI)
Oracle
Roland Berger
SAP
Vidyo
Wavestone
For more information about Associate membership, contact
Karine Coutinho [email protected] +33 1 47 42 52 72
Associate members
We appreciate not only the reach Efma has developed in terms of international banks, but also the depth of content and mutual confidence established with partners, banks and non-banks, allowing a diversity of interactions beyond simple information sharing or conferences.Ernst & Young
We are proud to be able to co brand some valuable studies with Efma and look forward to be part of more high level conferences and retail content.Wavestone
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STUDIES AND REPORTS
Efma works with a host of partners to create reports and studies covering the major topics and trends that are shaping the retail financial services industry today. Here we take a look at the key studies that have been released in the past 12 months.
Efma studies and reports
World Insurance Report 2016Efma, Capgemini March 2016
Digital transformation: The challenges and opportunities facing banksEfma, Oracle March 2016
Video banking: The next chapter in a bank’s digital transformationEfma, Vidyo April 2016
World Retail Banking Report 2016Efma, Capgemini April 2016
Innovative new players in retail financial servicesEfma April 2016
Insurance in Central Europe: On the road to full automation of the back officeEfma, Roland Berger May 2016
Blockchain - Out of the blocks: From hype to prototypeEfma, KBC Securities, Deloitte May 2016
Digitization of insurance distributionEfma, Roland BergerJuly 2016
Moments of truth surveyEfma, Pegasystems August 2016
Fintech & banking: Collaboration for disruptionEfma, AXIS Corporate September 2016
Evolution of private banking and wealth management resulting from digitalisationEfma, Comarch September 2016
Wealth management and private banking – Global market, global clients but local specificitiesEfma, Deloitte September 2016
Innovation in retail banking: The emergence of new banking business modelsEfma, Infosys Finacle October 2016
Central Europe banking outlook: Winning in the digital arms raceEfma, Deloitte October 2016
The new place of financial advisors in customer experienceEfma, Wavestone October 2016
World FinTech Report 2017Efma, LinkedIn, Capgemini November 2016
Retail banking in Asia Pacific: Digital transformationEfma November 2016
Responding to change: how are banks using information and pricing strategies to boost profitability?Efma, Oracle November 2016
The state of CX management in retail banking 2016Efma, Forrester November 2016
Getting big in small business bankingEfma, BCG November 2016
Digital engagement and collaboration in wealth and investment managementEfma, Objectway November 2016
Digital transformation of the banking salesforceEfma, Accenture November 2016
Retail banking in Africa 2016: The digital transformationEfma, Oliver Wyman December 2016
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EVENTSRetail Banking Summit in the Middle East31 January 2017 – Dubaiwww.efma.com/dubai17
Learning expedition31 May to 2 June 2017 – Londonwww.efma.com/london17
Retail Banking Summit in Lebanon6 July 2017– Beirutwww.efma.com/lebanon17
Learning expedition26 to 29 September 2017 – San Franciscowww.efma.com/sanfrancisco17
Asia Retail Banking SummitNovember 2017 – Singaporewww.efma.com/asia17
REGIONAL REVIEWSRetail banking in the Middle EastEfma, January 2017
Retail banking in Latin AmericaEfma, June 2017
Retail banking in North AmericaEfma, September 2017
www.efma.com/reports
REGIONAL FOCUS
Hit by the global financial crisis (GFC) in 2008, and then a double-whammy in 2011 when the sovereign debt crisis (SDC) hit, European states have been severely challenged. Portugal, Italy, Greece and Spain have been forced to remain within European rules for interest and monetary supply, but their debt levels have been increasing dramatically and unsustainably. Add to this the British decision to exit the European Union, colloquially known as Brexit, and you have a melting pot of pain.
The end result is a European banking sector which has been suffering from a prolonged period of low interest rates, rising levels of non-performing loans, increasing regulatory demands and costs, weak balance sheets and capital ratios, difficulties in selling non-strategic assets and more. This has led to a crisis in confidence in European banking. For example, we saw the collapse of Commerzbank and RBS in 2008, then many of the smaller banks in Spain failed, culminating in the major disaster of Bankia, a bank formed from seven regional savings banks that had to be bailed out by the government in 2012.
As a result, the Single Resolution Fund was implemented in January 2016 to ensure that member states no longer bailed out their domestic banks, as Spain had with Bankia. Instead, all European countries pay an insurance as such, into a central fund that could bail out failing banks if the European Central Bank believed it was right to do so.
This was a good idea in principle but, in practice, is not operational. For example, Italy had a terrible year in 2016 and had several banks teetering on the edge. The year ended with the potential failure of the worlds’ oldest bank, Monte Paschi di Siena (MPS). The bank needed billions to survive and those billions came from the Italian government in December 2016, when other investors decided not to join. The Italian governments’ €20 billion bailout of MPS breaks the EU Single Supervisory Mechanism rules, but the alternative is that the country fails.
This crisis is not limited to the poorer EU member states. During 2016, the pandemic of under-capitalised banks spread to France and Germany. France has €300 billion of exposures to Italy, and Germany has one of its biggest banks teetering towards failure:
EUROPE
Is Brexit the final nail in Europe’s coffin? Chris Skinner says that, while the region has certainly been having a bad time of late, its future is full of new opportunities.
The outlook for Europe post-Brexit
17
Deutsche Bank. The bank lost three-quarters of its value between summer 2015 and autumn 2016, at one point being valued at just over US$15 billion. A bank in serious trouble, and yet one that we all viewed as the most important and stable European bank through most of this crisis.
Then we add the final nail in Europe’s coffin: Brexit. Brexit was the shock vote of June 23 2016, when the British public voted to leave the European Union. No one believed this would happen and it has led to huge soul searching in Britain, a new Prime Minister and a raft of questions over what this means to the European integration plan. To be honest, the Brexit vote today has had zero impact on the future as no one knows what it means. No one knows if Brexit will be soft – most of the current trade continues as it did before – or hard – Britain loses all rights of access to the Single Market and has to create bilateral trade deals from scratch. No one knows if it will take two years – the UK Government view – or ten years – the unofficial view of British diplomats in Europe. All we know is that it sent a seismic shock throughout the European system and changes the game fundamentally.
What is that game? That game is the EU Financial Services Action Plan (FSAP). The FSAP was agreed by European politicians in Lisbon in 2000. It has resulted in a multiplicity of new regulations and directives from the Payment Services Directive (PSD) to the Markets in Financial Instruments Directive (MiFID), and a further forty directives in between. The fact that the markets have been working on these regulations for over 15 years, and suddenly finds that there are several spanners in the works makes for a bleak landscape.
With all this in mind, are there any bright spots in Europe? Well yes, there are at least two: London and Berlin. London has seen a huge breakout of creativity through fintech since the crisis hit. Over the past eight years, more than US$7 billion has been invested in London fintech start-ups, more than any other nation. The result is not only many new companies that stand out, such as Zopa and Nutmeg, but a raft of neobank startups from well-funded heavyweights such as Atom
and Starling, to many new niche banks such as Tide, Civilised and Clearbank.
Berlin is also a European fintech breakout centre, nurturing new firms from N26 and Solaris to Fidor and Wirecard. Other European countries are also showing major digital innovations, particularly in the Netherlands (Bunq and Knab) and Poland (Idea Bank, mBank and more).
In other words, the traditional structures of European banking may be stressed to the hilt but, in times of crisis, there is always opportunity. These opportunities are supported by the regulators with the UK Financial Conduct Authority (FCA)’s Regulatory Sandbox. The Regulatory Sandbox is exactly that – a place where startups can engage with the regulator to play out their ideas and see if they will get licenced.
All in all, 2017 will be a continuation of the crisis for the major countries of Europe. As Brexit plays out its strange path, it may damage the region further or it might even save it. We have yet to see what Brexit does, but the mixture of innovation and regulation is making an interesting year for all. n
Chris Skinner is a bestselling author, CEO at The Finanser and chair of The Financial Services Club.
Traditional structures of European banking may be stressed to the hilt but, in times of crisis, there is always opportunity
18 Efma Review 2017
REGIONAL FOCUS
NORTH AMERICA
The US banking industry is lagging other markets when it comes to innovation, says Jim Marous. Success requires a different approach.
Why US banking innovation is falling short
The banking industry in the US has always been slow to innovate. When asked why this may be, most industry studies find legacy back office infrastructures, the lack of leadership commitment, regulations and compliance, organiational silos and the lack of budget to be inhibitors.
Despite these limitations, the US banking industry has tried to increase its focus on innovation through upper management commitment and support of innovation initiatives, development of innovation labs, increases in dedicated financing and even an openness to invest in, or partner with, fintech firms. Some may question if the increased level of attention has had any measureable impact.
Just look at the numbers. Over the years, multiple global trade organisations like Efma have sponsored innovation competitions. With very few exceptions, banks from the US have been absent from the winners’ circle and even when they do win, it is usually for improvements to traditional distribution networks or completely new banking organisations like Simple, Moven or BankMobil. Conspicuously absent are the big five banking organisations in most cases.
Outside the awards designation, there is some innovation occurring in the US, but the majority appears to come from those organisations with overseas ownership (BBVA and Santander), smaller digital banking organisations (Simple, Moven and Bank Mobile) and US based fintech firms. In fact, 35 of the ‘KPMG Fintech 100’ were from the Americas.
The lack of meaningful innovation in the US is a threat going forward. With expectations of the digital consumer rising rapidly, and competition from fintech firms and global financial innovators increasing, the need to ‘move the needle’ by legacy banks can’t be overemphasised. And while the largest banks in the US are seeing very positive customer satisfaction results from their digital banking improvements, there is the question of whether that will be enough in the future.
So why is it that, in the USA, home to some of the largest banks in the world, true innovation is so difficult to find? Bradley Leimer, head of fintech strategy and innovation at Santander US says: “While there are many reasons US banks are innovation laggards, I think legacy technology, regulation, compliance, and risk aversion have to top the list of reasons why we’re not seeing more movement.”
“The US is a major leader in Internet innovations but, outside this, it has been behind most other regions of the world on mobile developments, adds Chris Skinner, CEO at The Finanser Ltd. “This is largely due to the tariffs and state splits between cellphone usage and providers which, when you get to China or Africa is a totally different position. These newer markets do not have the old systems in place and therefore saw mobile as a leapfrog for digital services to the customer. American banks just don’t see it that way, and see it more as an overlay to what’s already there.”
The general banking culture also seems to be a considerable barrier to innovation. “Innovation is simply not in the DNA of most bankers,” explains JP Nicols, managing director of Fintech Forge. “They’ve been trained throughout their whole career to identify and avoid risks, and innovation is about taking small risks and failing fast and cheaply and learning from those mistakes to get to the right answer quickly.”
Looking ahead, we will certainly see more examples of innovation in the US, either by traditional financial
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institutions, by one of the many newer neo banks that have been created, or from some of the financial intermediaries that are providing the tools for US banks to serve customers better.
One of the major changes that will need to be embraced will be to move what is being developed in the newly outfitted innovation labs to customer-facing environments. In research done over the past year, The Financial Brand and the Digital Banking Report found that, while new ideas are being tested in many organisations, few make it out of the lab.
One banker admitted: “Our innovation lab looks great for the investor public, but in reality, the best ideas are coming from the front line and from our test branches. The digital banking areas of the bank think completely different than the legacy banking departments and even the innovation lab…they get ideas to the consumer faster.”
Most importantly, the biggest adjustment that will be needed in the US is a much stronger culture of
innovation and acceptance of tolerable risk. Just read some of the annual reports from banking organisations like BBVA and it is clear that the innovation culture starts from the top. Without this level of commitment, innovation will come slow.
Many bankers became bankers because of the promise of a lifelong career, where advancement was guaranteed with tenure and change came without hurry. That is not a recipe for success in today’s banking environment.
The barbarians are at the gate, and these are the digital consumers who expect the kind of innovation (and digital experience) they receive from large technology firms like Google, Amazon, Facebook and Apple. If the US banking industry continues to be complacent, eventually the digital consumer will notice that the grass is truly greener across the street and they will switch providers. n
Jim Marous is a financial industry strategist, co-publisher of The Financial Brand and the owner and publisher of the Digital Banking Report.
The lack of meaningful innovation in the US is a threat going forward
20 Efma Review 2017
REGIONAL FOCUS
LATIN AMERICA
Ramón Heredia outlines his predictions for the future of financial services in Latin America.
What lies ahead for the Latin America banking ecosystem?
2016 saw an influx of major technology projects from banks across Latin America. Big technology updates, core banking overhauls, omnichannel solutions and digitisation projects took a significant portion of the yearly budgets. However, the vertigo of the digital revolution, changing user behaviour and increasing pressure from non-bank actors are forcing financial companies to make a much deeper change in their internal processes.
Moreover, fintechs are becoming allies in Latin America, allowing traditional banking services to be complemented by a more innovative digital offer that has greater connection with customer needs.
According to our projections, in 2017 we will see a series of actions taken by banks operating in this region, in order to face the challenges of the digital revolution:
E-wallets and mobile payments2016 was the year when several of these solutions were launched and we expect this trend to continue with the appearance of more applications and the increase in use of those that already exist. A challenge in all Latin American countries is the consolidation of a mobile payment ecosystem which allows people to make their day to day payments from their checking or debit accounts, without the use of credit cards and its consequent collection of commissions. There are countries like Chile, with a high banking rate, where it is expected that the prepaid industry will develop in 2017, which will allow other non-banking players to enter into the financial system
Chat Bot and communication via social networksCustomer service and the continuous response to people is one of the key challenges for a service-based industry, such as banking. To meet these needs, banks are incorporating chat solutions with responses based on human operators, such as Banco Santander’s solution in Chile. Another example is solutions connected to automatic bots that can sustain a conversation with the client, without the intervention of a human from the bank, such as the solution Arturito from BCP Bank of Peru. Another important trend in this regard in 2017 will be the increasing presence of banks with transactional services in social networks.
BiometricsBiometric solutions will deepen their presence in financial services this year. The use of fingerprint or face biometrics for enrolment and validation of transactions is already being used by the first Banks in Latin America. Biometrics reduce friction in user enrolment processes, replacing the signature of physical documents with lean, and in some cases immediate, digital processes. In Argentina, Banco Supervielle implemented biometric identification technology to improve its customer service model and avoid fraud. It also deployed a biometric solution based on fingerprint readers for access to safety deposit boxes.
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Banking API PlatformsAs a way to respond to customer demands and connect banks to the digital places where people are living their daily lives, Latin American banks are incorporating APIs into their systems, allowing them to connect services from their legacy systems to their ecosystem of external solutions. This is an important option to generate new types of income for banks and respond better to the threat of non-bank actors.
Hackathons and open innovation labsWe’ll see many more hackathons in 2017. These have enabled Latin American banks to reach the startup ecosystem and allowed developers to provide solutions to financial institutions’ challenges. In 2016, Banco Galicia in Argentina, Banco BCI in Chile, Grupo Aval in Colombia and Banco BNB in Bolivia carried out successful hackathons.
The creation of open innovation laboratories will also proliferate, allowing banks to attract, select and integrate fintech solutions to their business.
BlockchainDuring 2017 we will see the creation of the first blockchain laboratories by banks in Latin America. During 2016, these types of labs only really existed outside of the traditional financial system. Several solutions were created in terms of Bitcoin and Blockchain for the operation of Smartcontracts and processing of digital currencies. We will see these same technologies inside banks, with laboratories that will allow these solutions to be tried and tested.
Transformation and digital cultureThe incorporation of all these new technologies will be of no use if they do not go hand in hand with a cultural change. Banking employees must finally respond to the needs of the clients via digital transformation. The incorporation of new knowledge, such as Lean Startup, Agile, Scrum and Design Thinking among others, will be key to achieve this in Latin America. n
Ramón Heredia is director of the innovation ecosystem at Digital Bank Latam.
Banking employees must finally respond to the needs of clients via digital transformation
22 Efma Review 2017
REGIONAL FOCUS
AFRICA
Greg Rung, Paul Calvey and Pierre Romagny from the Oliver Wyman financial services Africa team highlight some of the main opportunities and challenges banks in Africa face as they move towards digital service delivery.
Africa’s digital transformation
Emerging markets like Africa have often proved an optimal testing ground for innovative digital models. High mobile phone usage rates, a digitally-savvy population and lack of alternatives have put African countries at the forefront of digital innovation in financial services.
Without established infrastructures, firms are less constrained by compatibility with existing systems. The emergence of telco payment offerings such as m-Pesa are revolutionising the money transfer market. And partnerships between banks and telco providers are helping to bring banking services to the unbanked.
So far restricted to East Africa, these partnerships are now emerging across Africa and more recently in West Africa, mostly driven by both strong sector economics and the need to move towards new models as the traditional banking model is facing headwinds.
Africa’s population of 1.1 billion is set to double by 2050 and with it will come a need for widespread access to financial services. But before we get to this point, banks must tackle low banking penetration rates within the existing population. To do this, they will need to develop new approaches and new ways of connecting with their customers, creating
Gauging customer satisfaction and loyalty across different industries
1 Net promoter score = % of promoters – % of detractors Source: Satmetrix NPS benchmark report 2015
Net promoter score1
Retail 50%26% 73%
Online/digital services 46%13% 76%
Technology 37%6% 71%
Hospitality 28%-9% 66%
Financial services 24%-15% 83%
Telecom 11%-21% 38%
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sustainable business models that improve financial inclusion, help them to connect with new market segments, improve their reach and keep costs down.
Banks will be left with a choice: embark on the digital journey alone or seek new and innovative partnerships with digital non-banking players. Choices have implications and partnering with fintechs and mobile network operators that are already disrupting the market will also mean sharing some of the value created.
Those that capitalise on the opportunities presented by digital will be able to differentiate themselves from the competition by offering a better customer experience – delivering banking services that are seamless, remote
and easy to use and access, new payments and products. And they will ultimately be more sustainable too – positioning themselves to optimise and automate their processes, lower costs, improve risk management and boost their profit margins.
The wide majority of banks are now busy implementing new models leveraging digital capabilities in every corner of their operating and business models, many of them with much success. We have now entered a new age of banking in Africa which will transform the traditional model to its core over the next decade. n
Greg Rung, Paul Calvey and Pierre Romagny are partners at Oliver Wyman.
How payment methods are changing in the West African Economic and Monetary Union zone1
1 Based on interviews with retailers in West AfricaSource: Ovum, GSMA, Oliver Wyman
2011
95%
0%5%
80%
2%
18%
55%
15%+
30%
2016 2021
Mobile moneyElectronic moneyCash
Growth of e/m-commerce and P2P paymentsAfrica, €Md
Source: Ovum, Rocket Internet 2015 annual report, Oliver Wyman
2015
0.3 0.9
2016
CAGR +171%
2017
2.7
2018
7.3
2019
16.3
E/m-commerce
Mobile network usage ratesNumber of subscribers in the Economic Community of West African States
Source: GSMA, OVUM, Oliver Wyman
2014
84%
1%
15%
43%
1%
56%
2020
4G3G2G
Smartphone adoption ratesNumber of connections (millions) in the Economic Community of West African States
Source: GSMA, OVUM, Oliver Wyman
CAGR +46%
2010
5
2011
10
2012
20 2013
32
2014
50
2015
72
2016
97
2017
125
2018
156
2019
190
2020
227
24 Efma Review 2017
REGIONAL FOCUS
MIDDLE EAST
Fahim uz Zaman speaks to retail banking leaders in the Middle East to find out how technology, changing customer preferences and the economic environment are impacting the region’s retail banking landscape.
Digital winners vs the banking dinosaurs
Banks operating across the Middle East are having to relook at how they operate. “There are a number of macro trends that are impacting us at the moment,” says Suvrat Saigal, managing director and head of global retail at NBAD. “The falling price of oil is having a big effect on our economy, and this is filtering down to the job market and consumer attitudes to spending. Confidence levels are lower than they have been, and this influences borrowing and investment patterns.”
Interest rates are likely to change too. “For a while now, we have lived in a world with virtually zero interest rates,” says Saigal. “We expect a rise in interest rates over the coming months – to what extent we’re unsure of yet. In return, retail banks, particularly in this region, are likely to shift their focus to deposits – something they have largely ignored over the last seven years because it didn’t make them enough money.”
While Saigal expects the industry to refocus on deposit growth, the number of deposits being made isn’t necessarily going to grow so success is going to come down to market share. “The competition for those deposits will be fierce,” he says. “This is why banks are going to have to look to differentiate themselves, and this ultimately comes down to product innovation.
“You have to stand out,” Saigal explains. “In my opinion, there are two key areas where you can do this: change the way you distribute your products and services – in particular this is about providing a seamless digital and physical experience – and make it as simple and convenient for customers to engage with your business.”
Digitisation is forcing banks to relook at their delivery models for products and services. “The evolution of mobile and digital technologies has meant banks have had to rethink their policies and the way they deliver products and services to meet new customer demands,” says Suvo Sarkar, group head of retail and wealth management at Emirates NBD
Growing digitisation and the proliferation of mobile devices means that customers expect more. “Customers expect to be able to pick the products or services they want and to find all the information they need immediately, wherever they are,” explains Sarkar. “The combination of self-service and customisation is transforming the way retail customers want to bank, so when they want help they expect to get it immediately, at any time of the day or night.”
According to Mudassar Aqil, CEO at FINCA Microfinance Bank Pakistan, the cumulative consumer experience of the digital solutions retail banking players bring to the market will determine success or failure. “The winning solution will amalgamate a digital solution’s ease of use and seamless customer experience,” he says.
An optimum delivery model relevant to the customers in the region is something which combines the global trend of digitisation with local customer behaviour and preferences. Explaining this Suresh Bajpai, head of the consumer banking group at the National Bank of Kuwait said: “The global trend is all about digitisation, putting the bank in the customer’s hands and offering instant access to products and services that are relevant to their lifestyle. The regional trend in GCC is that malls are becoming social destinations for both locals and nationals. Now the challenge facing the consumer banking industry is to bring together those two trends to deliver a customer experience that is easy to use and relevant to customer in GCC.”
Digital isn’t a threat, it’s an opportunity for us to disrupt our own industry
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Talking about changing role of existing physical channels and new digital channels in the region, Philip King, head of retail banking for UAE at Abu Dhabi Islamic Bank says: “I don’t think the branch is going to disappear anytime soon as I think it has an advisory role to play. I think transactional banking will shift from more to the digital channels and that’s a good thing as it will mean people can enjoy the branch experience without having to queue.”
King believes that the digital offering will be used by digitally active customers for transactions they feel comfortable with such as quick transactions, balance checks, payments and top-ups. “But when they want personal advice, those people want to come to the relationship manager,” he explains.
Discussing the emergence of digital players and digital models in the region and across the globe, Martin Leong, AGM, retail and consumer banking at the Commercial Bank of Qatar says that digital banking could be seen as the cannibalisation of traditional banking. “But digital isn’t a threat, it’s an opportunity for us to disrupt our own industry before other organisations come and do it for us.”“Digital transformation cannot simply take the form of digitising a process. A lot of work is needed initially to look at every single process and every customer journey to see what is lacking. After that, you need to identify how much of it can be digitised,” Sarkar added.
A co-creative approach is the only way to truly deliver the experience customers want. “We can’t change the world alone, and in the world of banking we need to work with our partners, whether they are merchants, IT vendors or from other industries, to co-create innovations that work for the customers,” Sarkar said.
Other major attributes of successful players will be their flexibility and ability to adapt quickly to the changed environment. “I think that the ability to react with speed and flexibility are going to be important differentiators in this industry in the future. Those banks that are able to adapt and keep up with their customer needs are going to be the ones that will ultimately thrive in this uncertain world,” Saigal concludes. n
Fahim uz Zaman is Efma’s general manager for the Middle East.
The ability to react with speed and flexibility are going to be important differentiators
26 Efma Review 2017
REGIONAL FOCUS
SOUTHEAST ASIA
Banks in Southeast Asia need to seize a range of digital opportunities to meet customer needs and ensure future success. Olivier Crespin from DBS Bank tells us more.
Seizing the digital opportunity
How has the rise of digital impacted customer expectations in Southeast Asia?Customers want more than just a secure place to deposit cash. People want to transact anytime and anywhere, and they want to get ready access to their finance-related information. As a result, people may not need banks, but they still need banking services. Our customers have jobs to be done in the new digital world. We need to help them save time, be recognised, get the best advice and have peace of mind.
Can a bank be successful without digital transformation?Without embracing digital transformation, they won’t remain successful for much longer. The pressures to transform are coming from numerous sources: new players, cost reduction and customer demands, to name but a few.
What are the most important digital innovations that are critical to a bank’s success?A change in mind-set is fundamental. Banks need to shift from being product-focused to being customer-centric. Also of critical importance is establishing the structural foundations for digital innovation. To turn great ideas into reality you have to do the hard work of reengineering your technology stack, revamping your delivery methodologies and automating your operational processes so that you can rapidly deliver digital solutions to customers.
Key to all of this is the need to get rock-solid commitment from the top down for digital transformation. Change is never easy and every bank’s digital transformation will require a lot of energy and sustained investment.
How do you believe the retail financial services industry will evolve in the years to come?I see digital-only banks becoming more prevalent, as well as an increased ability for customers to conduct banking transactions outside of bank channels. So we will see things like authorising a payment as part of a social media dialogue, or using your watch to check your remaining monthly budget for fuel while filling up at the gas station.
I think data analytics will continue to grow in importance and I also see increased use of AI in customer engagement, not just in answering questions but also in guiding our customers through product choices and processes. Blockchain technologies will also take hold.
Banking products and services will increasingly be delivered via an expanding ecosystem, and I envisage banking becoming so embedded in people’s day-to-day lives that the bank itself becomes invisible, while remaining extremely present and helpful. n
Olivier Crespin is managing director and group head of digital banking at DBS Bank.
I envisage banking becoming so embedded in people’s day-to-day lives that the bank itself becomes invisible, while remaining extremely present and helpful
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CHINA
Efma’s Raphaël Goué highlights the major changes taking place in China’s financial services industry.
A new era of financial growth
China is now the world’s second largest economy – a testament to its record of successful reforms and development policies. But the country is still far from rich. In 2014, its per capita income (PPP basis) was proportionate to just 24% of that of the US, and only 14% when you equate it to what it would be in US dollars.
Growth in China’s economy is also slowing. In 2014, growth rates fell to 7.5% and, in 2015 they slowed further to 6.9% on the back of slower investment, especially in real estate. This means, then, that China is moving to a ‘new normal,’ characterised by slower yet safer and more sustainable growth.
The transition is challenging, but the authorities are committed to it. In its 13th Five-Year Plan for 2016-2020 adopted in March 2015, the Chinese Central Committee has adjusted its expectations to a point where moderate growth levels (between 6 and 6.5% next year, for example) will still allow it to meet its goals of doubling GDP and per capita income over the next five years.
Alongside this, four forces are ushering in a new era of transformation in the Chinese consumer market: the rise of upper-middle-class and affluent households as the drivers of consumption growth; a new generation of freer-spending, sophisticated consumers; the increasingly powerful role of e-commerce; and the proliferation of smartphones. Together, these factors are driving the development of digital finance. Consumers own smartphones and they want to be able to access financial services from their devices.
From digital sales to financial innovation, new champions are developing innovative consumer finance models. Internet giants Tencent, Baidu and Alibaba, for example, have developed their own digital banks in recent years.
At the moment, the financial services industry in China remains dominated by local players, but
international firms are showing greater interest, recognising the market’s potential. Local banks are also stepping into the P2P game to compete with the fintechs. And now that they have gained experience in their own industry, some Chinese firms are now looking to branch out into other markets, including India, Korea and the US.
This growth is opening up more new services, helping more customers gain financial access, and ultimately adding value to what is already a multibillion dollar industry. n
Raphaël Goué is Efma’s general manager for China, Mongolia, Myanmar and Vietnam.
28 Efma Review 2017
A combination of factors is leading to the development of new business models in banking – disruptive digital technologies are emerging and being deployed in real applications, and innovative start-ups are transforming all different aspects of retail financial services.
Threats to established players are coming from multiple sources but most banks are responding with more investment in innovation and in technologies like artificial intelligence. They are also partnering with innovative start-ups, or acquiring innovative start-ups. The trends we have observed are consistent around the world hence banks should have a global perspective when considering innovation trends and developments.
A majority of banks (74%) say that they have an innovation strategy which is around the same level as last year. However, innovation investment is not increasing as much as it was with only 78% of banks saying they are increasing innovation investment compared to 86% last year.
Most banks (69%) believe they are becoming more innovative, although the self-assessed innovation performance scores by area and overall have more or less plateaued. At the same time there is room for improvement – for example only about a quarter of banks believe their innovation performance is high.
The trend to work with innovative start-ups is growing. Over 40% of banks say they work with start-ups as suppliers and around 30% of banks are investing in start-ups or working with start-ups in accelerators/incubators.
As a strategy for supporting digital transformation, a growing number of banks, around 20%, are now launching or considering launching a digital bank as a parallel bank to the existing operation. A small minority of around 5% are also acquiring or considering acquiring a digital only banking business.
For those banks launching digital only banks, 85% will have different products and services, and 81% will have different channel applications and back office technology and processes
REPORT
Efma and Infosys Finacle’s eighth annual study of innovation in retail banking outlines the emergence of new banking business models and explains how disruptive technologies are driving the latest developments in the industry.
The emergence of new banking business models
EVENTSInnovation Summit23 to 24 October 2017 – Rome, Italy www.efma.com/innovation17
Attendees will see how leading financial firms are flourishing by achieving engagement across their business.
Efma-Accenture Distribution and Marketing Innovation Awards 25 October 2017 – Rome, Italy www.efma.com/innovationawards17
The Innovation Awards share the endless possibilities innovation bring to banking with a global audience of leaders.
REPORTSFrictionless payments & walletEfma, A.T. Kearney, March 2017
Robo-advisory: The future of banking financial advisory servicesEfma, AXIS Corporate, May 2017
Innovation in retail banking Efma, Infosys Finacle, October 2017
www.efma.com/reports
INNOVATION PORTALThe Efma–Accenture Distribution and Marketing Innovation portal is a repository of all of the best in practise examples of innovation in retail financial services from across the globe. Via the portal bankers can vote for the most inspirational innovations, which will be recognised at the annual awards ceremony.
www.efma.com/innovations
INNOVATION
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from the core bank. The vast majority will use the same banking license as the parent company.
The priorities for banks in their digital transformation are creating a customer-centric organisation (for 78% of banks), enhancing channels to give an omnichannel digital experience (for 74% of banks), and maximising usage of mobile and social technologies (for 68% of banks).
The biggest barrier to digital transformation is the legacy technology environment according to 50% of banks. The lack of a unified vision for digital is considered a barrier by 44% of banks, and the lack of skills and experience is considered a barrier by 38% of banks.
The threat of disruption from technology companies is believed to be high by 48% of banks. A similar number, 47%, perceive the threat from start-up challenger banks to be high. Overall, the threat level from new competitors is deemed to be similar to last year.
The most disruptive technologies for the industry are believed to be advanced analytics and big data, open APIs, and artificial intelligence. Most banks say these are having a significant impact now or will do over the next 2 years except for artificial intelligence where the impact is likely to take longer.
Blockchain/distributed ledger technologies are expected to have an impact by fewer banks (only 47%) and over a longer time. Internet of Things is expected to have a significant impact by only 38% of banks.
In order to access these technologies, 74% of banks say that working with innovative start-ups as suppliers or partners is of high relevance. Also of high importance is internal research and development according to 46% of banks.
Banks in low income countries are lagging in terms of their adoption of an innovation strategy but more are increasing investment in innovation than banks from middle or high income countries.
They are also less concerned about the impact of disruptive technologies and are therefore unlikely to be currently focused on working with technologies like open APIs or artificial intelligence.
It is very clear that common developments are taking place in all parts of the world with the launch of digital banks, alternative lenders and various kinds of payment systems. This is happening in countries ranging from the United States to Brazil, China, Australia and South Africa. How these developments are taking place does vary to some extent, with technology and e-commerce companies taking a lead in China, for example. n
74% of banks say that working with innovative start-ups as suppliers or partners is of high relevance
Survey results for open APIsHigh represents a score of 6 or 7 on a scale of 1 to 7
39%
59% 67%
Proportion of banks expecting
high impact
Proportion of banks expecting
impact in the next 2 years
Proportion of banks with
high level of investment
Source: Efma-Infosys Finacle Innovation Survey 2016
30 Efma Review 2017
INNOVATION
Widiba won the Customer Experience Award for Widiba2020, a smart and intelligent banking search engine, which can be used by employees and customers alike to search for a page, a function or information, or even manage transactions. The engine was built in house and takes advantage of big data and behavioural algorithms to help users find what they’re looking for.
Bank of Ayudhya (Krungsri Bank) won the Digital Marketing Award for its PAPA Form, the world’s most entertaining loan application form. Building on its popular ‘Yellow Big Daddy Music VDO’, which was launched alongside the Krungsri Market website and has since earned 4.5 million views, the bank decided to create personalised music videos based on the data the customers enter into each different field within the form. Now, when a customer enters information about their chosen vehicle type or price into the PAPA Form, they see a music video with ‘Yellow Big Daddy’ singing their words.
WIDIBA, ITALY
Widiba2020
BANK OF AYUDHYA, THAILAND PAPA Form
INNOVATION AWARDS
The fourth Global Distribution & Marketing Awards saw more than 200 financial institutions from 61 countries submit over 460 innovations within 10 categories. The winners were selected by a combination of votes from a panel of judges comprised exclusively of senior retail bankers from around the world and online votes from Efma members and non-members. Three criteria were taken into account: the originality of the innovation, the impact it is having on the industry, and how adaptable it is for use in other markets and countries. All innovations can be viewed online at www.efma.com/innovations.
Efma-Accenture Distribution and Marketing Awards
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Santander won the Payments and Wallets Award for its International Payments app, which uses blockchain technology to enable customers to make faster and cheaper international payments. The service is currently available to UK-based staff through an internal iOS app pilot. Users can transfer between £10 and £10,000, and payments can be made from GBP to EUR and USD.
NBG won the Physical Distribution Award for its online service that enables customers to book an appointment with the most convenient branch based on real-time information and current waiting times. They are then remotely issued an electronic priority number for the cashier’s desk and are notified when to head to the branch. The i-bank pass service was first launched as a smartphone application and is also now accessible from www.nbg.gr.
DBS won the Digital Distribution Award for Digibank, an end-to-end digital bank that can be accessed from a smartphone. Built from the ground up for the digital world, the app has been designed to integrate seamlessly into customers’ digital lives. Using cutting-edge customer analytics technology, Digibank is built to virtually remove the need for operational support intervention and can meet the toughest banking security standards in the world.
Sberbank won the Salesforce Change Management Award for its Smart Management System, an innovative self-learning technology that automatically monitors all employees, assigns tasks, identifies strengths and weaknesses in the business and generates the best managerial solutions.
SANTANDER, UK
International Payments app
NBG, GREECE
i-bank passDBS, INDIA Digibank
SBERBANK, RUSSIA
Smart Management System
32 Efma Review 2017
INNOVATION
CaixaBank won the Global Innovator Award for bringing a number of innovative services to market in the last year, including imaginBank, the first mobile bank in Spain; mi imaginBank in Facebook, which allows customers to manage their bank accounts within the social networking site; a service that allows customers to apply for a card and get a result immediately based on an online real-time credit score limit; plus much more.
The Most Disruptive Award went to Banco Original (Brazil) for its Open Banking solution, which was chosen out of shortlist of five other finalists. Banco Original is a fully digital bank that has opened up its banking APIs via its Open Banking project. Through Open Banking, developers can integrate the bank’s financial services technology with any third-party application in a fast and secure way.
CAIXABANK, SPAIN
Global InnovatorBANCO ORIGINAL, BRAZIL
Open Banking
Alior won the Big Data, Analytics and AI Award for Dronn, an intelligent virtual agent designed to respond quickly and consistently to customers and interactively guide them through a personalised conversation.
KBC won the Best New Service or Product Award for Digital Trade Chain (DTC), a blockchain solution that facilitates secure international trade, focused on SMEs. This digital platform manages, tracks and protects domestic and international trade transactions, providing follow up for the entire trade process from order to payment, displaying it in an at-a-glance flowchart and guaranteeing payment when all contractual agreements have been met.
ALIOR, POLAND
DronnKBC, BELGIUM
Digital Trade Chain
Don’t miss the Innovation Awards Ceremony (www.efma.com/innovationawards17) on 25th October in Rome, which follows the Innovation Summit (www.efma.com/innovation17) and precedes the 45th Efma Congress (www.efma.com/transformation17)
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Fintech focus at Distribution Summit26 to 28 April 2017 – London, UK
Efma’s Distribution Summit will have a special focus on fintechs, offering attendees the chance to discover how best to navigate the current fintech revolution and to find out how the pioneering banks are collaborating with the most impressive startups.
REPORTWorld Fintech Report 2017Efma, Capgemini, LinkedIn, October 2017
www.efma.com/reports
FINTECH PORTALThe Fintech portal is a repository of leading fintech solutions and services which acts as a forum for networking and collaboration.
To learn more, view www.efma.com/fintech
FINTECH
EVENT
REPORT
The term ‘fintech’ might be both the most over-hyped and under-estimated term the industry has seen in decades. On one hand, from an investment standpoint, venture capital (VC) funding of the fintech revolution has been staggering, resulting in billions of dollars of investment. We have seen a significant reduction in barriers to entry and customers’ digital expectation demands explode. However, very few start-ups have managed to use their agility and innovation to fill gaping holes in the customer experience left by traditional firms with viable business models that achieve scale and distribution.
At the same time, traditional firms have largely struggled with clunky legacy systems, regulatory burden and leadership challenged with balancing short-term profitability and long-term viability. Executive conversations are increasingly revolving around the need for customer-centricity and the importance of developing customer-centric rather than product-centric solutions. However, are traditional firms effectively putting this philosophy into practice, and what specifically are those moments of truth that have the biggest impact on customers choosing who they will leverage for their financial services needs?
We have seen a plethora of investment and activity in innovation labs, hack-a-thons, building internal fintech teams, and even acquiring startups. And while there have been a few exceptions to the norm, most of these investments have failed to deliver their desired outcomes. Too often, innovation investments are too disconnected from the business or too close to the business and handcuffed by legacy culture.
Clearly, the investment and technology communities are enamoured with fintech. However, those investments have recently slowed down. What will be the real impact on the industry? Was it all hype or do they have viable business models to compete with traditional firms? What do customers think about these new players? Based on customer reactions, how should traditional firms respond? Do they have the ability to be agile and more innovative? What is preventing traditional firms from replicating the innovation solutions and services being provided by fintechs? Are we truly seeing a disruption and revolution in the financial services industry or more of an evolution? Are the recent collaborations and partnerships between fintechs and traditional firms a sign of more to come or could we be looking at completely new business models and a platformification of the business?In our inaugural World Fintech Report, in collaboration with
Here we summarise the findings of the recent World Fintech Report, by Capgemini and LinkedIn, in collaboration with Efma.
The rise of the fintech movement
34 Efma Review 2017
FINTECH
Capgemini and LinkedIn, we address these important questions. Backed by a survey of more than 8,000 customers in 15 countries, as well as over 100 interviews with senior-level executives, and a world-class executive steering committee, this report goes beyond the hype of fintech.
Here is a summary of the key findings:
• The rise of fintech has been aided by a perfect storm, created by increasing customer expectations, expanding VC funding, reduced barriers to entry, and increased pace of technological evolution.
• Customers are embracing new fintech providers, with 50.2% globally saying they do business with at least one non-traditional firm.
• Traditional firms hold an advantage over non-traditional firms as they closed the gap on areas of convenience and quality of service over the last year. Fintechs and traditional firms must both improve on delivering positive moments of truth.
• Customers indicated significantly low levels of overall positive experience. Mobile, however, struck a chord with key customer segments of Gen Y and tech-savvy.
• Both traditional and non-traditional firms struggle to meet customer expectations on the most important moments of truth, which revolved around digital transactions, transparency, convenience, and proactive updates.
• Gen Y and tech-savvy customers, widely regarded as influential customers of the future, offer higher revenue potential. In the face of fintechs, traditional firms are trying, but struggling to apply innovation.
• Fintechs have made headway into financial services, with close to two-thirds of executives stating fintechs are setting the bar higher for the entire industry.
• Traditional firms have become more open to partnership with fintechs, and they are pursuing a wide range of strategies in response to fintechs. Almost as many firms are developing their own in-house capabilities (59.2%) as are seeking partnerships with fintechs (60.0%).
• The actions of traditional firms to foster innovation have not measured up to the amount of effort put into them. Inculcating innovation requires methodical approach.
• Adopting a step-wise approach for applying innovation – for example, using the four stage Capgemini framework of Discover, Devise, Deploy and Sustain – can be useful in helping institutions spread innovation throughout the organisation.
• Securing senior leadership commitment, having a clear vision, and adopting a more innovative culture will be important for addressing disruption.
• Financial services firms need to be prepared for prospective future disruptive scenarios such as the entry of bigtech or platformification, which can lead to a fundamental shift in the industry. n
Customers using at least one non-traditional firm for financial servies, by domain (%), 2016
Investment management
Payments and transfers
Insurance Banking
Customers using only non-traditional firmsCustomers using both traditional and non-traditional firms
44.8%
27.4%
17.4%
41.6%
27.8%
13.8% 31.4%
17.6%
13.8%
29.4%
26.5%
2.9%
Note: The percentage on the chart indicates the customers who use traditional and/or non-traditional firmsQuestion: ‘Please indicate if you use the following products and the nature of the firm you interact with for each product; Products: Banking, Payments and Transfers, Investment Management, and Insurance; Nature of Firm: Only traditional firms, Only Non-traditional firms, Both traditional and non-traditional firms’
Source: Capgemini Financial Services Analysis, 2016; Capgemini and LinkedIn WFTR Voice of the Customer Survey, 2016
35
There is no question that financial services, as we have known them, are evolving and that fintech is leading much of the change we are seeing.
In the early days of fintech, the common perception was that fintech firms were poised to slay the major banks and eventually replace them. Instead, we are increasingly seeing fintech companies partnering with these institutions in order to provide faster and more affordable services to customers.
A panel made up of banking sector executives and new fintechs have debated the pros and cons of what banks and modern fintechs can provide. They discussed the obstacles they face when attempting to collaborate and which areas and formulae can be used to unite them to achieve a common objective. They believe that a joint venture approach between banks and fintechs will foster the most successful industry ecosystem.
For it to be an optimal relationship, however, banks need to overcome their own internal barriers and, above all, identify the people best-placed to bridge the gap between their team and that of the fintech. This must be done to promote a suitable collaboration framework which provides transparency for teamwork, clearly sets realistic objectives and gives both sets of workers the freedom they require.
Banks must recognise that fintechs are here to stay and that they will, with varying degrees of success, overcome the barriers they currently face. Even though there are examples of start-ups which have become sufficiently large or sufficiently good enough to compete with banks – Zopa is a leading example - they still only constitute a relatively small group overall which is restricted to highly specific activities within the sector. The vast majority are providers of services, applications or new customer relationship models which banks cannot ignore.
Although the pursuit of joint ventures with fintechs is a much lauded approach, the future of bank-fintech collaboration is still uncertain. There are alternative
models shaped by the business culture of each institution, from innovation labs acting as ‘incubators’ to white-labelled offerings. Regardless of approach however, traditional banks want to ensure that they have control of the development and data associated with their businesses. Hence the most conservative approach which they have pursued to achieve technology and talent development objectives: the creation of the in-house innovation labs.
Each form of collaboration has its own challenges and its own obstacles, but ultimately big banks and fintechs have a great deal to offer each other. Banks have a large customer base, stable infrastructure, and deep pockets to fund new projects. Start-ups provide out-of-the-box thinking, technical expertise, and the agility to adapt quickly to change. The limitations of fintechs are precisely the strengths of incumbent banks, and vice-versa. The future for them lies in pursuing a collaborative relationship. Together, they can be far more successful at improving financial service offerings than if they compete against one another. n
This is an extract from the ‘Fintech & Banking: Collaboration for Disruption’ report by Efma and Axis Corporate.
REPORT
The banking industry is stronger when players recognise and leverage the strengths of each other.
Fintechs: allies or rivals?
36 Efma Review 2017
FINTECH
Minalea won the Insurance Award for its Smart Assistant for Insurance Vendor which delivers immediate and high value to insurers to improve their commercial performance and customer relationship quality by focusing on innovation, technology, data and deep insurance knowledge.
North Side won the PFM-Payment Award for VerbalAccess – a solution which enables plain-English access to financial services and large document databases through mobile and web channels, cutting cost for financial institutions and making it easier for consumers to use financial services and discover new products and services they may need.
MINALEA, FRANCE
Smart Assistant for InsuranceNORTH SIDE, CANADA
VerbalAccess
INNOVATION AWARDS
Last year Efma, Microsoft, Avanade and their partners BNP Paribas, Groupe BPCE, Deutsche Bank, Intesa Sanpaolo, ImaginBank and Santander gave awards to six fintech firms during the Efma Distribution Summit in London. These fintechs can be viewed on www.efma.com/fintech.
The first Efma Fintech Awards
PayKey won the Jury Special Award. PayKey’s goal is to create a bridge between social and banking. PayKey is the simplest and fastest mobile centric way of making personal and commercial payments.
PAYKEY, ISRAEL
Bridge between social and banking
Minalea won the Insurance Award for its Smart Assistant for Insurance Vendor which delivers immediate and high value to insurers to improve their commercial performance and customer relationship quality by focusing on innovation, technology, data and deep insurance knowledge.
North Side won the PFM-Payment Award for VerbalAccess – a solution which enables plain-English access to financial services and large document databases through mobile and web channels, cutting cost for financial institutions and making it easier for consumers to use financial services and discover new products and services they may need.
37
Maestrano won the Business Banking Award for its Maestrano Enterprise solution – a business platform to help SMEs run their business better in the cloud, while improving banking experience.
Essentia Analytics won the Distribution and Marketing Award for its Essentia Insights software which helps humans make better investment decisions.
The new Efma Fintech portal will be launched in 2017!A result of a co-creation process between fintech companies and Efma members, the portal is a virtual marketplace where financial institutions and fintech companies will be able to exchange information, collaborate and envision the future of financial services together.More content, more networking opportunities, more features. Including:• Cutting-edge information about trends in fintech• Library of more than 1,000 fintech companies
worldwide and a powerful search engine• Matchmaking features allowing banks to post
their projects and find the right fintech company according to their needs
Stay tuned!
MAESTRANO, AUSTRALIA
Maestrano Enterprise
The Fintech portalESSENTIA ANALYTICS, UK
Essentia Insights
SaleMove won the Efma Special Award for its Engagement Platform which it believes will meet or exceed the in-person customer experience, online.
SALEMOVE, USA
Engagement Platform
38 Efma Review 2017
EVENTS45th Efma Congress: Banking Transformation26 to 27 October 2017 – Rome, Italy www.efma.com/transformation17
The annual Efma Congress has become the leading annual event for ‘C’ level bankers and senior executives from multiple departments in retail banking.
Operational Excellence Council21 March 2017 – Torino, Italy08 June 2017 – Stockholm, SwedenNovember 2017 – Lisbon, Portugal www.efma.com/councils
With 37 members from 19 countries, senior executives from Efma member banks and insurance companies, can join together to discuss developments.
REPORTSThe case for digital mutation: How retail banks can become bionic at scaleEfma, BCG, January 2017
Digital by design: Retail banks need new models for a new world Efma, A.T. Kearney, January 2017
Banking information systems in the digital era Efma, Deloitte, April 2017
Digital transformation digestEfma, September 2017
Transformation Observatory Efma, BCG, October 2017
www.efma.com/reports
TRANSFORMATION
There are four major strategic challenges banking executives have to solve simultaneously today: low-rates; overregulation; the fintech revolution; and millennials.
These are strategic challenges and are all issues that first have to be addressed from the boardroom. These challenges all call for strategic adjustment, initiated, controlled, supported and incorporated into written strategy by the top management. Furthermore, these new strategies have to correspond naturally to the history, culture, structure, brand, position and legacy of the given organisation. Is this complex? Yes. But this is why top banking executives often take eight digit annual incomes home.
What’s clear is that these challenges all call for a new paradigm between competition and cooperation. The traditional relationship between competition and cooperation is ‘either/or’. But in the new paradigm of capitalism, competition and cooperation can coexist within any business relationship. The fintech revolution is the ultimate call for the mixture of competition and cooperation (often called ‘coopetition’). Think about a company like Moven, a global leading personal finance dashboard. Moven provides a super intelligent, beautiful, millennial-compatible and interactive smart phone interface between banks and their clients. Moven partners one bank in each country. Is that bank a competitor of Moven or a cooperating partner? The answer is clearly: both. So banks have to learn this brave new world of competition and cooperation to succeed in the years to come.
Looking further ahead, there are many predictions out there available for the next five years and some for the next 10 to 20 years. But almost no predictions are available for beyond 20 years. Therefore, I will focus on ‘Banking in 2050’:
• Banks in 2050 will be cashless and paperless, but not branchless. The number of branches will be reduced from the current global average of 14 branches per 100,000 adults to approximately one to two branches per 100,000 adults. The role of branches will be financial education, brand management and design.
• The key channel of interaction with a bank (and almost any other entity) will go through smart contact lenses. We will call it ‘retina-banking’. Smart contact lenses will provide augmented
David Gyori, CEO at Banking Reports, outlines the biggest issues affecting banks today and outlines what he believes the bank of the future will look like.
Banking in 2050: What does the future hold?
INTERVIEW
39
reality solutions. Augmented Reality is the mixture of computer provided information with the vision of real life. (virtual reality is solely computer generated.) These contact lenses will be navigated by the eyes of the users, clicking by blinking and navigating by looking. One of the key functions will be to turn off the augmentation – when people want to concentrate to each other, the lenses will just act as normal contact lenses. Yet, tiny pieces of info like the time, your bank balance, your next programme in your calendar can remain on ‘screen’ permanently.
• Central banks will issue digital-only currencies (so digital currencies will be not only embraced, but also controlled and regulated by sovereign countries), and central counter-party clearing and distributed-ledger-based clearing (the technology behind block-chain) will coexist. Economists, monetary and fiscal experts will be closely cooperating in 2050 about the principals of exo-banking – the concept of a new financial system on a planet outside Earth.
• An issue, which will point way beyond banking – but will have effects within banking as well – will be ‘singularity’. Singularity is the theoretic moment when human-made machines will be equally intelligent as humans themselves. This point is very important, because machines get to this point on
a steeper learning curve than humans. So the next step after ‘singularity’ has to be that machines overtake humans in terms of intelligence – because they learn faster. This will soon be the case with self-driving-cars. They are not only already driving better than we do, but their software is updated in real time by the conclusion of analysis with all events (e.g. accidents) happening with any self-driving cars using the same software globally. So their abilities are improving fast. This is also an IoT (internet of things) use-case: self-driving fleets of millions being connected online and running mutual real-time machine-learning algorithms in the background.
• Financial inclusion will be better than currently. As of now half of the global adult population lacks a relationship with any fully licensed bank. Financial inclusion will be near-total. People will have the so called One-Number, which is one number that stands for their personal ID, their primary phone number, their primary bank account number, their passport number and their IP address. This One-Number will be globally granted at birth.
I encourage every banker to take the courage and think outside the box, to be brave enough to take a long term view ahead. These views, these visions, these ideas, these fantasies will eventually shape our future. n
The fintech revolution is the ultimate call for the mixture of competition and cooperation
40 Efma Review 2017
TRANSFORMATION
According to a new report from Efma and The Boston Consulting Group (BCG) titled ‘The Case for Digital Mutation: How Retail Banks Can Become Bionic at Scale’, banks that undertake a digital mutation – where they digitise across all layers of the bank – stand the greatest chance of winning in the digital era.
Those who fail to do this will find it harder to attract and retain customers as competitors develop more appealing value propositions and provide a more compelling customer experience. The result will be decreased customer acquisition, higher churn, diminished cross-selling and lower revenues per customer. Based on BCG’s Retail Banking Excellence benchmark, these factors could lead to a 10-20% decrease in revenue.
With all this in mind, retail banks need to step up their digitisation efforts. Customers demand it and margins depend on it. But retail banks need to become more than simply digital versions of their current selves. They need to employ digital capabilities and new ways of working to create compelling, human experiences.
The digital era has made the quality of the customer experience a defining competitive advantage, with increased importance relative to more traditional attributes like branch location. At a time when digital practices and technologies make it easier for rivals to match and eclipse technical features, the human touch, if anything, has become critically important. Winning banks will be those that combine information, machine intelligence and digital tools with human advisors to create richer personal interactions. Simply put, the winning banks will be bionic.
Few retail banks have internalised digitisation in this way. Many are wrestling with a diffuse digital agenda, running data and analytics, process automation and front-end experiments as separate initiatives rather than fusing these capabilities into seamless customer experiences. To close the gap, retail banks need to do more than simply transform around the edges. They need to mutate digitally – and evolve their organisation from the DNA-level outward. Banks that succeed in evolving their business models in this way have the potential to increase revenues by 1.5 and lower operating costs by as much as 20%. n
REPORT
A new report from Efma and The Boston Consulting Group has found that those banks that digitise all layers of their business will achieve the most success.
Why banks need to become bionic
Most banks are on the journey but not yet ‘at scale’
Source: Poll, BCG – EFMA Think Tank, 12th July 2016
Not started
% o
f res
pond
ents
20
40
60
80
100
0Digital
opportunismDigital
developmentBionic
at scale
6
47
41
<6
41
REPORT
Automated straight through processing (STP) is fundamental to the seamless provision of products and services. Currently, STP is both the means and the measure through which service efficiency is quantified and operationalised. However, my recent research, where I surveyed leading operations executives from Europe, Middle East, Africa and South America at Efma’s Operational Efficiency conference held last year in Barcelona, has revealed major weaknesses in the design and application of the STP measure in financial organisations – predominantly the application of STP within commercial and investment banking.
The results of the survey identified that over 60% of the banks in attendance at the conference use STP as the primary measure flow performance. The 40% of those organisations who did not use STP use alternative measures of flow such as right first time and first pass yield. Remarkably, when the survey asked if the STP measure was an ‘accurate measure of flow performance’, a near equal proportion of those not using STP (42%) said that the measure was not accurate further intensifying the debate into appropriate measures of flow and speed.
Of those using STP they were asked to indicate which area(s) of their organisation used STP. Strikingly, the results show 50% said ‘all areas’ of the bank (front to back) measure performance using STP. This result exposes a wider issue affecting performance management in that the majority of banks are attempting to measure transactional flow end-to-end. However, the results show that the measurement of full end-to-end flow performance is – by participants own admissions – currently unachievable due to the inaccuracy of the STP measure, and the fragment approach (front-office, middle-office and back-office only) to measuring flow performance in the operational environment. The inability to accurately and confidently measure flow performance is major flaw in the operational design of systems and processes in this sector. Research has identified a significant vacuum within the operations
management body of knowledge to provide a suitable alternative to the poor fit and application of the STP measure.
The survey result exposes a fundamental weakness in the design of not only STP but the design and ability of banking organisations to accurately measure flow performance and speed. This report calls for a shift in management thinking towards straight through processing and flow through the development of new change agenda focused on removal of the inhibiting factors which not only effect the operational stability of the bank but the welfare of its customers and clients. n
New research by Dr Kevin McLafferty, in association with Efma, has emerged to challenge the widely accepted use of the STP measure within commercial and investment banking. Here he outlines his findings.
The signature of a sector in flux
Inhibiting factors preventing an organisation from achieving 100% straight through automated flow
ITProcesses running E2EStandardisationRegulationsAutomationPrioritisationExceptionsData quality
Risk appetiteIntegration problemsCustomer habitsLack of skillsControlsKYCLegacy systemsFunding
27
13
1311
4
4
4
4
222
22 2 2
2
42 Efma Review 2017
Studes a
EVENTSMobile Banking & Digital Wallet Summit23 to 24 February 2017 – Barcelona www.efma.com/wallet17
Distribution Summit26 to 28 April 2017 – London, UK www.efma.com/distribution17
Attended by more than 300 top executives from approximately 45 countries.
Physical Channels Council21 March 2017 - Torino, Italy 07 June 2017 - Stockholm, Sweden www.efma.com/councils
Digital Channels Council 22 March 2017 – Torino, Italy 07 June 2017 – Stockholm, Sweden www.efma.com/councils
REPORTSOpen banking digestEfma, March-April 2017
Driving banks’ digital transformation with video banking Efma, Vidyo, April 2017
Global distribution report Efma, McKinsey, April 2017
Mobile banking, digital banks: Business model and impactEfma, Wavestone, June 2017
www.efma.com/reports
DISTRIBUTION
Innovative mobile solutions are helping banks to boost productivity and deliver exciting experiences, anywhere. Jacqui Griffiths reports.
The path to mobile-first banking success
Effective mobile banking solutions are proving crucial to today’s financial services industry, enabling banks to compete with fintechs and deliver exciting customer experiences. “For many years, technology has enabled banks to develop industrialised, scalable but standardised services,” says Marcelo Marquez, director of worldwide financial services at Microsoft. “Today, we are using technology to differentiate between users – whether they are employees or customers – and provide the experience they need.”
Steve van den Heever, group sales director financial services at Dimension Data, notes that banks are increasingly looking to leverage collaboration technologies to reduce costs, enhance the customer experience and improve services. “The cost to service a client on mobile is less than 10 cents compared to over US$4.25 for a traditional branch visit,” says van den Heever. “Mobile offers more convenience and personalisation in the client’s real-world banking and retail experiences, driven primarily by location, Internet of Things, data intelligence and collaboration. Mobile devices immediately deliver client benefits in terms of convenience, lifestyle apps, image capture and social awareness capabilities. These collectively provide a compelling business case to prioritise transforming not only the customer channel, but the end-to-end process to enable a more seamless business model in the future.”
As consumers demand more convenient ways to manage their money, banks are increasingly focused on delivering a mobile-enabled self-serve model – but legacy investments can present a challenge. “Research shows that customers would prefer to move their money using their bank’s technology rather than a third-party app,” says Lori Murray, worldwide bank offering director at Hewlett Packard Enterprise (HPE). “Banks are looking to develop apps that enable customers to open accounts, apply for loans and transfer payments. However, their legacy technology can make it difficult to deliver their core applications on a mobile device. We developed our framework to help them achieve that, so they can deliver the experience today’s users need without having to replace their legacy systems.”
HPE provides a framework – using Microsoft technologies such as Enterprise Management Suite, Windows 10 and Azure – to deliver end-to-end or individual solutions that can integrate with the bank’s legacy technologies. These include a lending solution
REPORT
43
that enables banks to provide mobile apps for two-tap loan applications, the Digital Enterprise Branch Transformation solution which helps to pull banks through to an integrated, digital experience, and the Continuum network which enables users to plug into the television or other large screen as well as using smartphones and tablets.
A user-focused approach is key to delivering this. “Mobility is about much more than the device,” says Enda Curran, mobile solutions business development lead at HPE. “It’s about the application, how it’s accessed, by whom, where, and how their data is secured. For example, Microsoft Azure is enabling new ways to interact with different users, whether they are customers or employees. We work with our clients and their users to design an application, to make sure we understand how they’re going to use it, what will drive adoption and usage, and how to ensure that it provides the user with data or notifications that are relevant to them.”
With the right mobile solutions in place, bankers can effectively take the branch to the customer. “Capabilities such as encryption, remote identity management and digital signatures mean that bankers with a mobile device are no longer locked to their desk,” says Marquez. “Apps such as Cortana Intelligence Suite leverage machine learning to create predictive models so they can recommend the next best conversation to have with a customer. When they need input from an expert, bankers can use Skype for Business to bring the right persona into their discussion with the customer. They can use digital signatures to conclude any transactions securely on the spot. Teams of bankers and investors can meet and share notes across the world using Surface Hub. This capability for paperless operation is transforming banks and making them much more efficient.”Dimension Data works with global banking organisations to enable seamless collaboration and communication between employees, service providers and customers. For example, a Skype for Business branch advisor solution implementation at a leading Australian bank has resulted in increased customer satisfaction with access to expert lending and financial advisors, improved reach through video-conferencing, and streamlined collaboration between employees.
“Collaboration technology across mobile devices is having a significant impact in enabling banks to meet the needs of customers in remote locations,” says van den Heever. “In particular, mobile
payments and wallets are poised for massive growth. We are also seeing increasing interest in delivering a compelling and personalised digital experience to clients, combining data intelligence at the client point of contact, social gamification and converged collaboration.”
Banks that embrace a persona-driven mobile strategy are poised to work smarter, and to reach more customers, than ever before. “We are moving into an era of persona-driven technology and services,” concludes Marquez. “Technology that used to be cost-prohibitive is now mainstream, enabling banks to provide any capability. That could be low-cost, GPS-enabled devices that enable microfinance loan collectors to visit customers in remote locations, or developing bot advisors that will provide the next generation of user interface on customers’ devices. The key to success lies in knowing who is using the technology, and delivering the apps and information that gives each user the experience they need.” n
This article first appeared in the Summer 2016 issue of The Record magazine.
44 Efma Review 2017
DISTRIBUTION
In the latest issue of Efma and Capgemini’s World Retail Banking Report, thousands of retail banking customers around the world were polled to gauge their attitudes toward their financial service providers. The most startling insights to emerge from this survey – the largest of its kind in the industry – have to do with the undeniable inroads fintech firms are carving into banking’s core businesses.
While fintech firms have been picking away at market share for some time, the nature of banking – highly regulated and deep-pocketed – has muted their impact. The survey indicates that a tipping
point is imminent, with fintech firms beginning to win overwhelming favour with customers compared to the entrenched banking industry.
Strategies that banks have traditionally employed to attract and retain customers are not proving strong enough against the emboldened fintech competition. This is because a marked improvement in the Customer Experience Index (CEI) in 2016 failed to translate into greater levels of profitable customer behaviour. Indeed, generally high levels of customer experience have resulted in only marginal improvements in measures like customer retention and referrals.
REPORT
Efma and Capgemini’s annual World Retail Banking Report outlines what needs to be done for banks to remain relevant in the years to come
What will define the future of banking?
India’s second-largest private bank, HDFC Bank, is using robots at its branches to assist customers.
Nitin Chugh, HDFC’s country head for digital banking, said more humanoids would be deployed after seeing the response from customers. At this point, the scale of work done with robots would be expanded.
This is part of the bank’s artificial intelligence (AI) project which aims to better its customer service, marketing and process automation. It is also looking at using these methods to drive growth in rural areas, for which it is open to partnering with fintech entities working in these places.
HDFC says that, because the majority of its customers have moved to digital banking, it is focusing on extending the digital process. In line with this, it has forayed into the use of chatbots – computer programmes powered by AI which can imitate conversations like a human, for help with transactions such as recharge, bill payment and so on.
It says it is also inviting ideas from startups as it looks at the internet of things, virtual reality, AI, blockchain and rural fintech.
CASE STUDY: HDFC HDFC deploys robots
45
Especially striking was the finding that only 15.9% of customers said they would buy additional products from their bank. Clearly, the ingenuity and creativity that fintech firms are bringing to product development are starting to have an impact. Customers’ expectations are also augmented by the superior experience they are receiving with the technology in their day-to-day life. Customers are expecting much more in the way of innovation, but are not getting it from their banks.
In the face of increasingly aggressive fintech competition, banks know they need to do more than just improve the customer experience. As a result, banks are now looking to partner with fintech firms at an accelerated rate. Partnering not only empowers banks in product development, but gives them a strong voice in defining the future of the digital banking ecosystem.
There is little doubt that fintech is a game-changer. Banks have begun accepting that reality, but still need to move much more forcefully toward cementing their place in a more interconnected digital financial ecosystem. n
KEY FINDINGS
Customer experience rises, but not enough to greatly improve profitable customer behaviourRetail banks improved their position on Capgemini’s Customer Experience Index by 2.9 points. However, younger customers registered lower levels of customer experience, raising concerns about the ability of banks to meet the higher expectations of this important segment. Despite the overall rise in CEI, profitable customer behaviour improved only marginally.
Fintech firms gain prominenceNearly two-thirds of customers globally said they are using products or services from fintech firms. What’s more, 87.9% or more of customers across all regions somewhat or completely trust their fintech providers.
Fintech partnerships will define the future of bankingNearly two-thirds of banks view partnerships as the most effective way of responding to the growing fintech threat. To get the most from their fintech partnerships, banks will need to embrace APIs and begin laying the groundwork to revamp their core systems.
Likelihood of customers to stay, refer, and buy from their primary bank (%), 2015-2016
Source: Capgemini, Efma – World Retail Banking Report 2016
Percentage point decrease from 2015Percentage point increase from 2015
Unlikely
Stay
Refer
Buy
Likely
2016 9.5%
2015 11.0%1.5 pp
6.4 pp
0.6 pp
2016 9.1%
2015 15.5%
2016 28.1%
2015 28.7%
2016 55.1%
2015 53.7%1.4 pp
1.0 pp
0.6 pp
2016 38.4%
2015 37.4%
2016 15.9%
2015 15.3%
46 Efma Review 2017
EVENTCustomer focus at Distribution Summit26 to 28 April 2017 – London, UK www.efma.com/distribution17
Efma’s Distribution Summit is a leading global conference, attended by more than 300 top executives from banks and insurance companies from 45 countries. This year’s event features a dedicated customer stream allowing customers to find out more about customer experience, customer loyalty, big data and digital marketing.
REPORTSReal-time marketing analyticsEfma, EY, January 2017
Artificial Intelligence in Retail BankingEfma, Deloitte, April 2017
www.efma.com/reports
MARKETING AND CUSTOMER DATA
REPORT
The financial services sector is currently in a state of flux. This is due to a range of factors – the changing and changeable economic climate over the past few years; internal industry factors (such as more stringent regulations; changes in customer behaviour and expectations; and developments in technology – not least, digitisation).
Banks need to respond to these changes quickly and positively. The use of customer information is the starting point for improving the customer experience and increasing profitability. Most banks are failing to make full use of the customer information that they possess – big data, for example, is seen as a costly initiative that requires deep pockets and a proven return on investment.
However, it’s an area that they can’t afford to ignore. In the recent Oracle webinar hosted by Efma, a poll looked at how the participant banks were leveraging big data – including
A recent report from Efma and Oracle outlines how banks are using information and pricing strategies to boost profitability.
Responding to change
How are you leveraging data/information to better engage customers and increase profitability?
Using marketing triggers for customer focused
campaigns
96%
33%16%
Using machine learning
algorithms for better product targeting at
individual level
Marketing real-time based
on location
9%
Real-time offers based on
social media behaviour
47
web logs. The webinar poll showed that, although internet banking has existed for over a decade, only 57% of the banks were effectively using the customer data it provides.
Those who are successfully using data are doing so in different ways and for different purposes. For example, they might monitor the people that visit their website and look at other places they’ve visited – such as an aggregator website for insurance products. As a result, the bank might want to change the adverts the customer will see on its website. Similarly, some banks check on complaints and other comments on social media sites to see whether they can help to ease the ‘pain points’ that customers experience when dealing with the bank.
Other approaches to the use of big data can require complex programming and strategy. Oracle believes that to use big data effectively, banks need to be channel-agnostic in relation to their customer touchpoints. They should start to use big data at all decision-making points and should prioritise its use for quick wins in order to secure committed investments at a later stage.
The adoption of more relationship-based pricing strategies can also make a big difference. The take-up of relationship-based pricing is continuing but is still slow. Oracle believes that this is because the pricing method used is a function of need and legacy systems. In regions which are highly competitive and in those where banks have reached a saturation point in terms of attracting new customers, they’ve moved more rapidly towards relationship-based pricing. However, legacy systems and bank silos are key barriers that prevent banks from adopting true relationship pricing.
Despite these perceived barriers, a move towards relationship-based pricing should be an important future goal – which will also involve the elimination of silos. As banks start to reward customers for being more loyal, this will be a valuable aid to proactive retention. Not only does the price have to be right but it also has to be perceived correctly.
Overall, although banks are showing signs of responding to the changes in the industry, there is still much more left to do if our financial institutions are to thrive (or, indeed, survive). n
A new report from Efma and NRI has found that the use of big data analytics is delivering tangible results across Asian markets.
Efma and NRI surveyed leading retail banks in five of the biggest regions in Southeast Asia and in India and found that those retail banks that use data analytics most effectively have grown their revenue by more by than 25%. What’s most surprising is that they have also reduced costs by similar amounts.
The report, which is titled ‘Driving Revenue with Data Analytics’, also highlights the importance of data analytics in today’s Asian financial services organisations. Every retail bank that participated in the survey views data analytics as essential and already has initiatives underway to increase their use of data analytics.
These initiatives are largely internal, so bankers are training their own staff or potentially poaching data analytics experts to develop their capabilities. However, many are shifting both data and analytics to
a centralised department or centre of excellence so that they can leverage skills and data more comprehensively.
Along with the expected use of data analytics in marketing, the survey has found that improvements in operations and credit are key drivers for performance enhancement. Credit and operations professionals already see reduced costs resulting directly from data analytics that have increased bank profitability, and they expect the positive financial impact to rise as data analytics pervades more sectors of the bank.
REPORT Reaping the rewards of data analytics
48 Efma Review 2017
MARKETING AND CUSTOMER DATA
The results from Efma and Forrester’s customer experience (CX) survey demonstrates retail banks’ lack of maturity at managing CX across a wide range of competencies.
In terms of customer understanding, banks collect feedback but don’t analyse and use it meaningfully. Four-fifths of banks regularly ask customers for qualitative feedback about their interactions with the bank, for example through feedback forms with open-ended text boxes. However, only half regularly analyse unstructured data – from call centre transcripts or social media posts, for instance – to gain insights into customers’ values, needs, and expectations. Worse still, only around a third of banks capture what they know in a single vivid picture of the customer. So although they are collecting qualitative feedback, it’s unlikely to reach those who need it.
Consumers’ perceptions are swayed more by negative experiences than positive ones, so CX leaders should prioritise eliminating negative ones. Lloyds Bank, for example, uses empathy maps to reveal pain points. This helps it identify ways to replace negative emotions with positive ones. USAA, meanwhile, uses exploratory methods to learn how its customers are changing: To understand what checking accounts mean to Millennials, it conducted ethnographic research on teens without credit cards and it discovered companies like Kickstarter and Venmo were serving them in a fundamentally different way.
Others are observing customers directly. For example, Westpac New Zealand is trailing a new prototype branch where it can watch how customers interact with its services to help it plan new branches.
Banks also struggle to choose which CX initiatives to focus on. Prioritisation is where the banks surveyed were weakest. Mature CXM organizations evaluate how every project or programme will affect CX. They
say no to those that pose too big a risk to CX quality, and they skip CX improvements that don’t align with core CX priorities. Yet only about half of banks regularly identify their most important customer groups, core customer experiences, and the characteristics that each core experience must have. Only 13% regularly say no to work that might improve overall CX but does not align with core CX priorities; 27% never veto such initiatives. Without setting these priorities, employees can’t be sure what to aim for.
As a best practise example, Westpac New Zealand uses the data it collects to help prioritise initiatives. By establishing where there’s a customer pain point, how many customers it impacts, and how often it happens, it can prioritise certain CX initiatives over others.
OneSavings Bank in the UK, meanwhile, uses customer feedback to help prioritise all operational changes. It uses detailed journey maps to which it adds customer sentiment – scores measured at various touchpoints and data from the complaints team. It then uses these maps when looking at key journeys with operational managers to see where customer pain points are and how it can repair problems in customers’ existing journeys.
A large number of banks fail to align experiences with the CX vision. Forty-three percent of banks regularly document their overarching CX vision – an aspirational description of the intended experience for its customer. Yet disappointingly, almost one-fifth of banks never validate that a design or update of a core experience aligns with the CX vision. To enhance experiences, at least, 43% of banks regularly use a human-centred process to design or update each of the bank’s core customer experiences; 61% include partners from across the CX ecosystem, such as product managers, developers, or legal and compliance, in the process. With this in mind, banks need to work more closely with marketing to align the CX with the brand promise.
REPORT
A new report from Efma and Forrester titled ‘The State of CX Management in Retail Banking’ reveals the key reasons why banks are struggling to deliver exceptional customer experiences.
Why do banks fall short in terms of customer experience?
49
Another downfall is that banks often underequip employees, giving them inadequate tools. Firms with mature CXM don’t need their frontline employees to be heroes to give customers excellent experiences. Why? Because, they instead give employees the tools to deliver core experiences right every time. Unfortunately, however, only 38% of banks provide tools like templates and automated workflows for common tasks on a regular basis, and only about half regularly train or coach frontline employees on how to execute the part of the customer experience that they personally deliver.
Best practice banks give employees the support to deliver the best experience possible. Metro Bank in the UK, for example, provides tools that give all employees a single customer view. Customers who phone the bank wanting to discuss multiple products do not have to be passed from department to department; employees instead see information on a single screen about all of a customer’s products as well as any recent interactions.
While 82% of banks regularly measure customers’ overall perception of the core customer experiences, a mere 29% measure how well the actual CX matches the must-have characteristics for each core experience. With banks’ budgets continually under review, it’s vital that CX professionals be able to
justify their efforts. However, only about half regularly report CX quality metrics to senior decision-makers to help inform future decisions. It’s also important that they design report metrics in a way that is useful and easy to use for all employees, yet only about a third of banks do this regularly.
Leading banks use metrics that the whole organisation can understand and track. They combine perception, descriptive and outcome metrics to measure CX.
A number of financial institutions don’t cultivate or propagate the values they should. To create a customer-centric culture, banks should hire naturally empathetic employees, but only a third of our respondents do so consistently. Once in the door, it’s important that employees are educated about customers, the CX vision, the ecosystem that delivers it, and their role in that ecosystem, yet only around half of banks regularly do this.
Nationwide Building Society makes it a mission to foster empathy so employees see things through customers’ eyes. Each time it starts work to launch a product, it brings the project team together in a life-size re-creation of a customer’s house. This helps the team assume the identity of key customers and talk through their wants, needs, and emotional state. n
Banks where marketing and CX are strategic partners conduct more of the CXM practices“How would you characterise the relationship between your customer experience leader/team(s) and marketing departments?”
Those who selected “Marketing and CX are strategic
partners in developing new customer engagement methods”
Those who did not select “Marketing and CX are strategic
partners in developing new customer engagement methods”*
RegularlySporadicallyNever
Average percentage ofCXM practices conducted:
6% 17%
42%
41%
39%
55%
On average, banks wheremarketing and CX are strategic partners regularlyconduct more of the 30 CXM practices.
Base: 21 to 30 banking executives *Base: 32 to 49 banking executivesSource: Forrester/Efma September 2016 Global Customer Experience In Retail Banking Online Survey
50 Efma Review 2017
Giuseppe Calegari, head of data monetisation at UniCredit, tells us about the challenges facing banks as they work to meet the needs of SMEs.
Innovative services for SMEsINTERVIEW
Calegari says that banks face three major challenges in terms of meeting SMEs’ needs. “Banks face the challenge of understanding common needs among different industries,” he says. “In addition, banks need to be able to push SMEs towards digital transformation, as resistance to innovation is often an obstacle. They need to meet SMEs’ needs by looking towards what they should be tomorrow, after digital transformation, rather than what they are today.”
UniCredit is meeting these challenges in a number of ways. “We have continuous interaction with our customers in order to better understand their needs and their feedback about our new services,” says Calegari. “We work to co-create new services through focus groups and pilot phases, and we organise open days at a national level to evangelise about our new services.”
At the recent Sales and Marketing Summit, Calegari shared details of two new innovative services designed by UniCredit for its small business customers. “I focused on two innovative services: My Business View, which was ranked second in the Big Data and Analytics category at the Efma Innovation Awards 2015; and My Business Manager, a version of Personal Finance Management for SMEs which has won domestic awards,” says Calegari. “The session included a comparison of distribution models (My Business View is totally physical, while My Business Manager is e-commerce), with insight into selling processes and results. I discussed the percentage adoption among UniCredit’s customers, including critical issues, actions taken by UniCredit to face those issues, and the results of those actions. I also shared insights on the lessons learned about digital transformation within both UniCredit and our customers.”
Calegari believes that digital transformation is of critical importance for banks and their customers. “Digital transformation is the only way to effectively meet customers’ needs and face competition, both for banks and their customers (they both have to pursue digital transformation together), if we consider the current pace of change,” says Calegari. “Digital transformation means delivering better services in half the time we were used to. This can be achieved by rebuilding the organisation and processes around the assets of the bank, using technology as an enabler.” n
EVENTSSME Summit 23 to 24 March 2017 – Milan, Italy www.efma.com/sme17
Efma’s upcoming SME Summit will help banks capitalise on the significant opportunity presented by this segment.
SME AppsBank Awards Ceremony23 March 2017 – Milan, Italy www.efma.com/smeawards
The first annual SME AppsBank Awards Ceremony will recognise the best players and the best apps in the SME community.
SME Council22 March 2017 – Torino, Italy 08 June 2017 – Stockholm, Sweden November 2017 – Lisbon, Portugal www.efma.com/councils
With 40 members from 19 countries, Efma’s SME Council brings together likeminded senior executives.
REPORTSME banking digestEfma – February 2017
www.efma.com/reports
THE SME APPSBANK PORTALThe first online space dedicated to banks’ SME business, the SME AppsBank portal comprises a best-in-class app store, a development environment and an awards ceremony recognising the best SME apps.
www.smeappsbank.com
SMES
51
REPORT
The latest report from Efma and The Boston Consulting Group (BCG) outlines what banks need to do to leverage the opportunities presented by the SME market.
Getting big in small business banking
Small businesses contribute roughly 5-10% of total revenues to banks per year on average. With such a substantial revenue pool one would imagine banks would be falling over themselves to service this segment. But most see the small business market as unprofitable and costly to serve, in other words, as an obligation rather than an attractive business in a bank’s portfolio.
Yet, new research and client work from Efma and BCG shows that the small business segment is worth winning. Not only do small businesses have a number of high-value unmet needs but there are also many concrete factors that have left many banks’ small business divisions much less profitable than they could be. They include relatively weak digitisation, inadequate segmentation, poor sales alignment, inconsistent pricing practices and lack of predictive credit risk modelling based on account data.
Fintechs and digital attackers, of course, are well aware of this potential; over 50% of cumulative fintech investment since 2000 has been focused on corporate banking. Their high levels of digitisation and automation
allow them to offer payments, lending and other services faster and with a better customer experience than traditional models. And their online savvy often results in a richer, more personalised experience.
But big banks bring advantages that fintechs can’t match. That includes existing client relationships with strong relationship management, access to cheap and stable deposit funding and scale. Established banks have a major opportunity to gain share and profits within the small business market. They can do this via four concrete steps:
1. Align the service model and product portfolio with value
2. Start the digital transformation3. Optimise pricing and fix disparities4. Refine and digitise processes to improve efficiency
and cost-to-serve.
These four measures can help banks improve revenues by 20-25%, reduce cost-to-serve by 30-50% and sharply improve their non-performing loan ratios through predictive risk modelling. n
52 Efma Review 2017
EVENTAffluent and Private Banking Council 22 March 2017 – Torino, Italy 08 June 2017– Stockholm, SwedenNovember 2017 – Lisbon, Portugalwww.efma.com/councils
With 38 members from 22 countries, Efma’s Affluent and Private Banking Council enables senior executives from leading banks and insurance companies to keep abreast of the latest ideas and developments happening around this segment.
REPORTAffluent and private banking digestEfma, June 2017
www.efma.com/reports
AFFLUENTROUNDTABLE
Leaders in wealth management discuss the challenges they face today and the potential for the future.
Creating a better wealth management industry
What are the biggest challenges in affluent and private banking at the moment?Mujtaba: In some of the developed markets, many affluent investors are being left without access to investment advice. Meanwhile, in emerging markets, this segment is almost completely cut off from any access to international investment opportunities.
Silvani: Swiss private banks face a significant backlash from the sunset of the classic European off-shore market that was particularly predominant in the past. This goes hand-in-hand with the new performers in the leading wealth management centres (mainly Hong Kong and Singapore) fuelled by the growing number of high net worth individuals in the Asian
THE PANEL
Thierry DerungsCDO and head of digital solutions, private banking at BNP Paribas Wealth Management, France
Luc RasschaertCEO at International Wealth Insurer, Luxembourg
Nadeem MujtabaCEO at Gulf Wealth Management, United Kingdom
Marc MichelDirector and innovation manager at UBS Wealth Management Innovation Lab, Switzerland
Marco SilvaniManaging director at Lemanik, Switzerland
53
continent. Meanwhile, the new regulatory framework is increasing the complexity of managing compliance with the inevitable outcome of major costs. This brings about a shrinkage in the gross margin and an upsurge of banks with operating losses.
How are the needs of private banking customers unique, and how are you meeting these needs? Michel: It is certainly valid that affluent customers may require a higher degree of sophistication or complexity in terms of services compared to retail clients. However, our focus is upon delivering added value to our clients, regardless of affluence or other stereotypes which are often associated with them. We are working on understanding the changing environment in which our clients live, and how their needs can be addressed. By revising traditional client structures into a ‘segment of one’, we seek to deliver advice which is truly aligned to the client’s life.
Rasschaert: Their needs are unique not only as a group of customers because of their education, their wealth, their ambitions and their demanding attitude, but also individually. The affluent customer has his or her own demanding professional activities and sometimes a complex family life. Compared to ultra-high net worth individuals, where you can really talk about tailor-made solutions, for the affluent customer you need solutions ‘tailor made’ in order to serve them in a personalised, yet efficient, manner.
Derungs: For the last 200 years, wealth management has been about trust, relationships and expertise. Our clients are modern, entrepreneurial and open to new technology, especially in the digital era. They have huge expectations regarding digital solutions. Our challenge is to fulfil these via a sophisticated offering and through complex products while building our future business model through our client experience programme. With this in mind, we have recently deployed a new app called ‘The Voice of Wealth’ which is designed to educate and inform clients about investment trends and market trends as soon as they happen.
What do wealth management companies need to do to meet the needs of private banking customers more effectively? Michel: First of all, they need to get an understanding of how new trends and technologies have changed customers’ needs and behaviours, and then regularly reflect upon and revise that perception. In our case, in order to be truly client-centric, we seek to identify appropriate intervals and touchpoints with which to reach out to our clients. For example, we evaluate at what point during their day banking is most needed, and what is the right balance between human versus robo-interaction. Once these parameters are identified and a respective strategy is defined, new solutions need to be created, which will likely rely upon strong automation to ensure quicker delivery and processing.
Rasschaert: They need to clearly define what affluent customers mean to them and what they want to offer them and what not. They should put in place an organisation to service this segment in an efficient though personalised way, differentiating it from other segments. They also need to create a platform allowing them to offer tailor-made solutions making their lives easier and to save their time.
How important is digital transformation? Silvani: As a prominent Swiss banker stated: “challenge is not regulation, but digitalisation.” Almost half the Swiss population makes online payments or uses online banking services. Alongside the growth of e-commerce there is a demand for the development of easy-to-use payment options. Although digital investing via social media and robo-advisors in Switzerland is still in its infancy, with the increasing use of the internet, the forecast for market volume looks positive. Deloitte estimates that in 2020, the market volume of digital investing in Switzerland might reach 90 billion Swiss Francs.
Derungs: In wealth management, transformation must be driven by the added value for the clients. The crucial objective and driver must be the business model’s evolution, providing the expected client experience. This implies in-depth changes in the organisation from business to IT. Such transformation must go along with an ambitious change management programme to take the most from each new capacity, service or functionality.
How is innovation shaping the future of wealth management? Derungs: Innovation is part of our DNA. We adopt innovation in the same way that start-ups do: we search for new added value and business models,
Innovation in the fintech space is redefiningwealth management
54 Efma Review 2017
AFFLUENT
new technologies being ‘just’ a means to succeed. BNP Paribas Wealth Management has stepped strongly into the start-up ecosystem, and is constantly looking for new collaboration opportunities.
Rasschaert: Technology will change the nature of financial advice in a significant way, like it has transformed other industries. The access to online and real-time information and tailored advice brings on big challenges in order for a company to stay relevant for its customers. Innovating in solutions and the way solutions are brought to the customer will be an important differentiator.
Mujtaba: Innovation in the fintech space is redefining wealth management in many ways. At present, there is a big gap between ‘haves’ in developed markets and ‘have nots’ in emerging markets. Innovations in fintech are helping us to reduce this undesirable gap. The institutional mechanisms largely exist to invest the medium- to long-term savings of affluent and mass affluent investors in the developed countries into international capital markets in a professional and diversified manner. Innovations in fintech are helping us move towards that state of utopia where a bridge of institutional mechanisms will also exist between
the savings of affluent and mass affluent individuals in emerging markets and the international asset managers that manage similar savings for their clients in the developed world.
Michel: Because of innovation, wealth managers can ensure they stay relevant and can keep delivering added value to their clients. Today, in every aspect of life and for almost every need, regardless of how small or trivial, there are creative and innovative solutions available (“there’s an app for that”). Wealth managers have to create these also for their industry. By using internal expertise and capabilities, and by taking inspiration from the rapid changes, in banking but also in other industries, they must create convenient, fulfilling experiences for their clients. Also, wealth managers should not simply look into how to deliver existing core services in new ways. Instead, they should go beyond traditional banking and explore other topics that are close to the clients’ hearts, and identify relevant needs.
Silvani: Various drivers of innovation fundamentally affect the traditional way of banking. Ultimately, new technologies offer opportunities for banks to become not only more efficient, but also to differentiate themselves from competitors. n
In an effort to lead the digitisation of wealth management services, and make such services more understandable and accessible, OCBC Bank has launched a mobile app to help customers achieve their wealth goals on-the-go in a simple and personalised way
With the OCBC OneWealth app, everyone from beginners to seasoned investors can quickly access customised, up-to-date market information and investment suggestions from OCBC Bank experts, easily monitor their investments and get personalised mobile alerts relevant to their investments. Customers can therefore make better sense of the markets they are invested in, and make informed and timely decisions in managing their investment portfolios.
Unlike other investment apps and news feeds, OneWealth helps customers with clear actionable opinions and insights specially developed by investment experts at OCBC Bank. By choosing categories they are interested in, customers
are only presented with content relevant to them. The app also pushes content specific to their OCBC holdings, to ensure they are informed of market and price movements that can affect their investments.
OCBC OneWealth was launched in March 2016, after a ten-month period of planning, designing and prototyping the solution. The app has already achieved 4.5 star ratings on Apple iTunes and the Google Play store, with very positive feedback from customers.
OCBC – SINGAPORE OneWealth app
55
Based on a survey of over 50 private banking institutions across European, Middle Eastern and ASEAN countries, ‘The Evolution of Private Banking and Wealth Management Resulting From Digitization’ explores the need to digitise the wealth management and private banking sectors.
The report finds that, while the industry recognises the importance of going digital, doing so is no easy feat. “According to 82% of our respondents, it’s not staying compliant that outweighs all other challenges to cope with, it’s going digital,” said the report. “This is the first time we’ve seen digitisation to be considered so seriously.”
However, while private banks and wealth management companies are already showing certain initiatives in terms of serving clients via digital channels, they aren’t rushing to digitise all functions any time soon.
The results show that client investment reporting and trading stand out as areas that might be fully moved to online channels. In both cases over 50% of the respondents would be willing to do so. These areas contrast distinctively with advisory – only 10% of respondents believe that digitising it to the maximum extent possible is reasonable.
Perhaps surprisingly, a rising number of banks are showing interest in tools that may be considered quite unconventional in the private banking sphere: robo-advice, social media and internet of things, followed closely by digital concierge.
“Robo-advice allows for building a diversified portfolio for a fraction of the cost of traditional advisors,” said Grzegorz Prosowicz, the head of Product Management for Capital Markets at Comarch. “Internet of things, in turn, opens the door to a wealth of contextual information gathered offline. Say a private banker can identify – based on parking fees – whether their particular clients pull up to a bank in a Tesla S P100D or Rolls-Royce Phantom Limo. These preferences might
further suggest a propensity for certain insurance products. That’s concierge 2.0. As for social media, they not only can be used as a complementary communication channel, but also a platform to acquire new clients.”
As the report puts it, going digital is “the clash of realities: the most tradition-bound banking realm, associated with wax seals and fountain pens is now cracking under the pressure of bits and bytes of the new tomorrow. When finally here, it’s bound to transform the way clients are engaged by, obtain information from and interact with financial providers.” n
REPORT
Entering the digital phase is high up on a private banker’s to-do list, according to a new report from Comarch and Efma.
Going digital tops priority list for private banks
Name critical areas you need to handle in your institution in the nearest future
Source: The Evolution of Private Banking and Wealth Management Resulting from Digitization
Going digital
Increasing profitability
Improving operationalefficiency
Lowering the retention of RMs
Standing out from competitors
Keeping up with ever-changing regulations
Achieving simplicity aboutproducts and processes
82%
67%
67%
53%
43%
41%
8%
56 Efma Review 2017
EVENTSEfma-Accenture Innovation in Insurance Awards26 April 2017 – London www.efma.com/insuranceawards17
This highly regarded awards ceremony will recognise the most innovative players operating in the global insurance industry
Insurance Summit 27 to 28 April 2017 – London www.efma.com/insurance17
Through interactive workshops, demos, presentations and networking sessions, Efma’s Insurance Summit will cover topical for insurance leaders.
REPORTSInsurance future is definitely mobile, but how can we get the most out of it?Efma, Comarch, April 2017
World Insurance ReportEfma, Capgemini, June 2017
Insurance digestEfma, December 2017
www.efma.com/reports
INSURANCE PORTALEfma and Accenture have teamed up to create the Innovation portal for insurance – a first of its kind repository of the best innovations from across the global insurance industry.
www.efma.com/innovationininsurance
INSURANCE
Michael Naylor, senior lecturer in finance and insurance at the School of Economics and Finance at Massey University, speaks to Efma about the future of insurance.
Surviving technological disruption in insurance
INTERVIEW
Can you give an overview of the biggest challenges facing insurers at the moment? The world of insurance is about to be overwhelmed by waves of disruptive technological change. Some of these disruptive challenges are the increased computerisation of internal administrative tasks, the use of big data from telemetrics devices and a revolution in customer expectations.
However, these challenges are combining to create an overall impact that is far larger than the effect of the individual parts. It’s not a one-off challenge, but a step-change in the rate of disruption so we can expect increasing waves of changes. The only way for current insurers to survive will be to transform their business model. ‘A Perfect Storm in Insurance: How to Survive the Looming Waves of Disruptive Technology’ examines these changes in detail, investigating what they mean for the underlying fundamentals of demand and cost. It also highlights why ad-hoc changes to current systems will not work.
How can insurers meet these challenges? The insurance industry will need to reimagine itself as supplier of data-intensive, risk-based value-added services, rather than a supplier of a discrete one-off product. The insurer-client relationship will also transform so that insurers can supply useful lifecycle services and become an integral partner in their clients’ lives.
What will the insurer of the future look like? Car insurance companies will be the first to be impacted because the arrival of 80-90% autonomous cars from 2017 will cause their profitability to disappear by 2030. Crash rates are estimated to drop by more than 50% by 2025 as insurance premiums on late model cars rapidly decrease. As most physical products will soon be sold with embedded chips so they can be tracked in real time, burglary will be increasingly unviable by 2020. This will substantially impact on house and contents insurance cash flow.
Using telemetrics to measure peoples’ health on a daily basis will become common by 2025, enabling medical personnel to access real-time detailed data about their patients. Insurers will then be able to underwrite clients based on their activities, and thereby encourage healthy choices. n
57
Daniel Tu, group chief innovation officer at Ping An, explains why a digital approach is needed to meet the needs of China’s insurance market.
How to meet new needs in insuranceINTERVIEW
How are you meeting the needs of customers?We are dedicated to becoming a world-leading integrated retail financial services provider. We have a comprehensive range of business licenses that can provide customers with a full spectrum of financial products and services including insurance, banking, investment, healthcare and lifestyle-related services. What’s more, our “Integrated Finance + Internet” and “Internet + Integrated Finance” model really sets us apart from the crowd.
What challenges is the company aiming to address?The challenges of operating in China are significant. The economic environment is changing dramatically and there’s an increasing middle class and aging population. What’s more, innovative new technologies are changing consumer behaviours – not only impacting the decision-making process, but also their way of interacting with their financial services providers. Changes in the competitive landscape also present challenges.
Disruptors, such as fintechs and internet companies, strive to expand their operations in the financial services industry.
Tell us about your digital strategyWe are taking advantage of digital technologies including internet, mobile and data science, ensuring that we’re always evolving. We aim to use digital solutions to reshape the whole business process across our front, middle and back offices. We’re giving our customers a more efficient, lower cost service, while enhancing their experience. What’s more, using data analytics, we’re able to better market to our customers, facilitate customized product design and improve risk management.
How do you expect the financial services sector in China to evolve in the years to come?The financial markets are highly regulated in China but we hope that, in the future, regulations will be formulated through a close partnership between the regulators and financial institutions. The fusion of ‘internet and finance’ and ‘finance and internet’ will gradually appear in parallel with evolving regulations. Regulators keep gaining experience from new innovations and are building up capabilities to properly handle the evolving industry. Based on a healthy regulatory environment, we expect innovations in financial services to continue to grow. And, given the worldwide economic environment, inclusive financing will become an ever-important focus as technical innovations allow institutions to invest in this area. n
Innovative new technologies are changing consumer behaviours
58 Efma Review 2017
INSURANCE
Europ Assistance Group won the Best Disruptive Product or Service Award for its Connect et Moi solution, which leverages IoT capacities to link a behavioural algorithm with an emergency human call centre, to allow elderly people to live at home securely.
AXA Group won the Global Innovator of the Year Award for its digital insurance model, which includes the Health Keeper health and wellbeing platform; the RUOK digital service which brings peace of mind to families with isolated seniors; the WellBe social network; and the AXA Drive app, which calculates a “driving score” using data such as acceleration, braking and turns during a trip.
EUROP ASSISTANCE GROUP, FRANCE
Connect et Moi
AXA GROUP, FRANCE
Digital Insurance
INNOVATION AWARDS
At the 2016 Insurance Summit in Milan, Efma and Accenture announced the winners of their inaugural Insurance Innovation Awards programme. 148 institutions from 37 countries submitted 224 innovations within five categories. The winners were selected by a combination of votes from a panel of judges comprised exclusively of senior executives from the insurance industry, and online votes from Efma members. View the full repository of innovations at www.efma.com/innovationininsurance.
Efma-Accenture Innovation in Insurance Awards
Mitsui Sumitomo Insurance Co, a member of MS&AD Insurance Group, won the Customer Experience and Engagement Award for its dramatic improvement of contact centre operations using Watson, which enables high quality responses to increasing customer needs and efficient contact centre operations. The system leverages Watson Explorer, Work Force Management System and Oracle Service Cloud.
USAA won the Digital and Omni channel Distribution Award for its Digital Virtual Assistant, which leverages web and mobile channels to allow more members to satisfy their needs without the assistance of a representative. Around 800,000 members engage with the Digital Virtual Assistant per month, and it has more than one million conversations per month.
Allianz won the Claims Management Award for its ‘Your Expert is in the Sky’ claims solution which uses drones to help the company manage large losses when claims adjusters must examine tall buildings or many buildings damaged in a storm. The drones take only a few hours to deploy, enabling the company to receive a quick first view of the extent of the damages.
MITSUI SUMITOMO INSURANCE CO, JAPAN
Contact Centre using Watson
USAA, USA
Digital Virtual Assistant
ALLIANZ, FRANCE
‘Your Expert is in the Sky’
Don’t miss the Insurance Awards Ceremony on 26 April in London (www.efma.com/insuranceawards17) which precedes Efma’s popular Insurance Summit (www.efma.com/insurance17)
20BENEFITSOF EFMA MEMBERSHIP
1 Discover the latest innovations: Members are able to access our Distribution & Marketing Innovation portal with almost 2,000 innovation case studies.
2 Take advantage of the Innovation portal for insurance enabling access to hundreds of innovation case studies in insurance.
3 Access the latest research and thought leadership content: Exclusive POVs, digests, regional reviews and reports (Accenture, BCG, Capgemini, Forrester, McKinsey…).
4 Discover the new Fintech portal: A Fintech hub, including ratings and comments by the Efma community.
5 Delve into the SME AppsBank: A best-in-class portal that recognises leading SME apps worldwide.
6 Take part in our workshops: Join our range of industry-leading councils.
7 Achieve industry recognition: A chance to win Efma’s monthly innovation awards (exclusive to members).
8 Attend, as a guest, our regional conferences: Covering Asia and the Middle East (except Dubai).
9 Receive a premium event experience: Exclusive conference wrap up sessions and lounge access (when applicable).
10 Network with the experts: All the contacts you need in a given topic via Efma.com (available end 2017).
11 Member to member introduction and meetings: Build valuable relationships with peers.
12 Receive monthly e-newsletter and read daily articles: Get the latest financial services news, facts and figures.
13 Get a Premium Pass to flagship events: attend Efma’s most popular conferences.
14 Enjoy special discounts: Members receive a special fee reduction at Efma events (-33%).
15 Endorsing an Efma report: Benefit from enhanced visibility of your brand.
16 Get yourself noticed: Hundreds of peers and fintechs can view your content on the Fintech portal.
17 Co-host an Efma conference: Your brand will stand apart from the rest.
18 Join the Efma Academy: Receive training about digital marketing, design thinking and more.
19 Take part in a Customised Learning Expedition: Discover new horizons and see behind the scenes with this unique in-depth immersive experience.
20 Join the Executive Advisory Programme (Asia and UK only): High level fact-based insight.
Benefits 14-20 not included in membership fee, but exclusive for Efma members.
For more information about membership, contact [email protected] l 10 Boulevard Haussmannl 75009 Paris l France l Tel:+33 1 47 42 52 72 l Fax:+33 1 47 42 56 76 [email protected] l www.efma.com NIF/TVA: FR 41 784 856 239 l N° SIREN: 784 856 239 l Code APE: 9499
At the Cutting Edge of Digital Banking TransformationThe Boston Consulting Group is helping retail banks around the world benchmark their performance, digitize their businesses and transform their capabilities.
bcg.com | bcgperspectives.com
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