T H E P R E D I C T I V E B A N KTransforming customer experience through data-driven innovation

TABLE OF CONTENTS

INTRODUCTION ....................................................................................................................................................................... 3

DIGITAL TRANSFORMATION ................................................................................................................................................ 4

OPERATIONAL AGILITY ......................................................................................................................................................... 6

PREDICTIVE BANKING ............................................................................................................................................................ 8

FIVE STRATEGIC IMPERATIVES FOR THE PROGRAMMATIC OEM .................................................................................10

ABOUT ROCKET FUEL ........................................................................................................................................................... 11

ABOUT THE PROGRAMMATIC VERTICAL SERIES ............................................................................................................. 11

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The digital landscape is transforming at lightning speed. The amount of transactional data at our disposal has grown exponentially in the last decade, as has the speed with which we can process that data. Smart companies, including banks, have an incredible opportunity to leverage this data to personalize customer experiences and drive business outcomes at an unprecedented pace. Customer transactional data, accumulating moment by moment, is the key to truly engaging with audiences, deepening their connections with your brand.

Automation, processing speeds, and artificial intelligence now enable a new wave of leaders in the financial service industry to produce, analyze, and drive performance like never before. This new technology is causing a seismic shift within global financial companies, creating a gap between those banks taking advantage of the new digital age, and retrograde institutions that are risk-averse and reluctant to change. Your bank does not want to be on the wrong side of this gap.

How do you ensure that your financial institution is positioned to take advantage of today’s technological innovations and stay competitive today and in the future? Two vital macro-trends are critical to banks and other companies within the financial sector in navigating the new digital age:

• Digital Transformation: The Accelerating Pace of Technology Evolution and Utilization

• Operational Agility: Dynamic Business Models that Drive Improved Efficiencies

Understanding these macro-trends and building a customer-centric strategy around them is imperative to becoming a predictive bank of the future. Going forward, successful, market-leading banks will be the ones that can quickly leverage large amounts of signal-rich data to impact customer experience and ultimately influence business outcomes.

Innovative banks and other financial services companies are investing heavily in capturing audience intelligence through transactional moments. A single authenticated interaction on a website. Opening a new checking account at a retail branch. Engaging with an offer to activate a new credit card with 0% interest. Withdrawing a specific amount of cash at 2:30 PM when it’s raining outside. Having a fulfilling experience through a call center that solved a pressing problem. Taken individually, these are moments in time. However, your customers generate thousands, even millions of these transactional moments in a banking lifecycle. In aggregate, all of these moments can provide banks with cumulative intelligence to inform how they segment audiences and customize their experiences. For the first time in history, the technological power exists to capture, analyze, and act on these moments as they happen, in a programmatic manner. Truly predictive banks can react with agility and optimize at scale to a new audacious standard—

INTRODUCTION

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PREDICTIVE BANKING

OPERATIONAL AGILITY

DIGITAL TRANSFORMATION

one that provides both a seamless experience for customers and also continually acquires data that can help predict future outcomes.

Predictive banking is not just the latest trend or another buzzword. It’s a visionary solution design that combines the principles of agile banking, design thinking, and functional customer integration. The purpose of programmatic technology in banking is to deliver optimal experiences and services to the right customers through the right channels and platforms of distribution, instantly. The concept illustrates a fluid framework that organizations can use to start scoping and building requirements for a more informed and agile way of doing business. The front end of the predictive banking design is a customer-centric business model. That front end is powered and supported by a rich data integration, activation, and discovery infrastructure on the back end. This back end enables banks and financial services companies to not only be more nimble and reactive with real-time demand triggers and signals, but also allows them to create a sophisticated asset that leverages data to make informed business, operational, and strategic decisions, in the long term, often predictively. Predictive marketing is transforming all business, and it represents a monumental shift in the banking industry. Understand it, or be left behind.

DIGITAL TRANSFORMATION The accelerating pace of technology evolution and utilization

We are at the center of a converging digital explosion. As the rate of humanity’s capacity to compute compounds (Moore’s Law in action), the number of users coming online for the first time and the number of devices per user are also growing exponentially. With this digital information boom comes a dramatic increase in the number of opportunities to reach customers and prospects. Financial services companies, especially banks, have a tremendous opportunity to leverage big data to better understand their customers and influence them across channels and touch points. As digital advertising continues to grow, consumer data compounds significantly, which presents a lucrative opportunity for banks.

In addition, advertising and marketing now moves at a real-time pace. Programmatic marketing is transforming the way we show up to customers in the digital space, and it continues to take over traditional means of media buying. Today, over 50 percent of all real-time buy (RTB) advertising opportunities are mobile.1

1 Rocket Fuel internal research.

10-10

1900‘10 ‘20 ‘30 ‘40 ‘50 ‘60 ‘70 ‘80 ‘90

Electromechanical Relay Vacuum Tube Transistor Integrated Circuit

2000‘10

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EXPONENTIAL GROWTH OF COMPUTING

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In short: we have access to more real-time transactional data than ever, we have the technological power to analyze and interpret it in real time, and we can use that data to serve up personalized messages and solutions to customers in real time as well.

As banking consumers spend more time using mobile media and accessing financial accounts via their smartphones and tablets, the financial services industry has seen this proliferation in digital transactional data play out in full force. In the six years since banking apps became commonplace on mobile devices, customers have come to expect no less than to be able to access their banking information any time, from anywhere.

As in the rest of the business world, that trend is expected to continue—and in fact, accelerate—in the coming years. Mobile payments have already transformed financial services in some emerging markets, where mobile phone ownership significantly outstrips penetration of bank accounts. (For example, in Africa, only one in four people has a bank account but eight in ten have access to a mobile device.) Upstart mobile payment services that often lack proper security have bypassed traditional banking in these areas.2 Online banking has evolved too—with some banks even offering banking services through Facebook. These

2 “The bank in your pocket,” The Economist, May 9, 2015.

transactional touch points—digital breadcrumbs, if you will—will continue to compound and provide a wealth of consumer data that is still largely untapped.

For example, with the increase of customers with access to smartphones, financial services advertisers are shifting more dollars to mobile ad efforts. A Mobile Global Data Forecast by Cisco suggests that by 2019, smartphones will attain the largest share to reach nearly 40 percent across all digital devices.3 However, according to Accenture research for 2016, despite the increase in smartphone usage for banking, 35 percent of consumers still do not use their mobile phone for banking.4 Also, data is still just one of the many types of first-party transactional data that banks have at their disposal—there’s also online banking data, face-to-face interactions, credit card activity, and more. Banks not only need to invest in a digital strategy, it needs to be a strategy that encompasses all forms of transactional data, with a platform that can capture and analyze it all.

What type of platform can handle this astronomical amount of data? While humans could readily handle teller windows and call centers, the human mind simply cannot process all the transactional moments generated in real time. Beyond processing, value comes from the ability to govern this data, analyze it, and optimize these moments between the brand

3 “Cisco VNI Global Mobile Data Forecast,” 2014-20194 “2016 North America Consumer Digital Banking Survey,” Accenture.

Other Portable Devices (0.2%, 0.2%)

Laptops (3%, 2%)

Smartphones (29%, 40%)

Non-Smartphones (61%, 27%)

2014BILLIONS OF DEVICES

0

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*Figures refer to 2014 and 2019 device shares

2015 2016 2017 2018 2019

Tablets (1%, 3%)

M2M (Internet of Things) (7%, 28%)

FIG1 – GLOBAL MOBILE DEVICE GROWTH BY TYPE

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and consumer. Even a decade ago there was no way to successfully align and harness this data and leverage it to take action.

As humanity’s capacity to compute compounds, and the amount of real-time data available to analyze multiplies, artificial intelligence (AI) has become a very real and very powerful tool for businesses that are serious about serving customers and cultivating relationships. The age of instant gratification and personalization requires super-human capacity to capture, analyze, evaluate, and make data-informed decisions. In our automobile, healthcare, appliance, and, yes, banking experiences, AI will be a part of everyday life. And it will change how financial institutions and other industries market to customers.

Your competitors know this. When the Economist Intelligence Unit (EIU) and banking software provider Temenos surveyed banking executives worldwide in December 2014,5 they found that implementing a digital strategy was respondents’ highest retail banking priority for the year ahead. Forward-thinking financial institutions are building technology infrastructures that can govern and leverage this growing amount of transactional data to bolster customer engagement efforts and improve the ability to target customers not just in segments, but also in micro-segments. This transformation will also play a key role in transforming banks themselves into more agile institutions with dynamic operating models and iterative processes.

5 “Future Factors,” Economist Intelligence Unit, March 2014.

OPERATIONAL AGILITY Dynamic business models that drive efficiencies

If banks want to respond quickly and innovatively to customer needs, operational agility is critical. But as relatively slow-moving, risk-averse institutions with years of legacy technology, most banks will have to reinvent themselves in order to achieve true agility. Those institutions that are already doing so are developing new products and leaner, more flexible business models for the future. These banks are poised to deliver the returns their investors are looking for, even against the headwind of low global economic growth, with easily accessible data, customer-centric thinking, and flexible, scalable teams and solutions.

Complete operational agility won’t be a reality until banks have an underlying technology infrastructure that can function as a single source of truth for all of their customers, tying together the multiple channels, digital and experiential, through which customers can access information, transact business, and purchase products. However, there are

Source: eMarketer.com (December 2014)

Implementing a digital strategy

Improving customer segmentation by product, service levels, or distribution channel

Adapting to changes in the size, structure, and role of the branch network

Cutting costs or improving margins on retail business lines

Responding to regulatory requirements

Managing nonperforming loans (NPLs)

Ring-fencing operations from other parts of the bank business

Considering foreign expansion

Simplifying their business

Considering exiting foreign markets

0 12.5 25 37.5 50

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TOP PRIORITIES FOR RETAIL BANKS ACCORDING TO BANKING EXECUTIVES WORLDWIDE

cultural and organizational shifts that banks can make that will improve agility and promote a more holistic view of the experience of a single customer.

Technological transformation aside, operational agility requires flexibility across the organization and a more customer-centered philosophy. Traditional banks tend to operate on a product-first model. The agile bank flips that model into a customer-centric ideology that can be implemented at scale. In a single financial institution, one customer can cross several product lines, channels, and devices and have multiple IDs. It’s imperative to tie those various transactions and IDs back to the person or household. Each of those product lines or channels also ties back to a different business unit within the bank. So in order to see transactions and IDs for a single person

across the bank, these different teams need to open up lines of communication and share data. This is easier done with technology that provides a single source of the truth and breaks down silos between teams. But it is also a shift that banks can begin with a cultural overhaul, if not a technological one.

While most global banks with vast product portfolios have not reached the level of true operational agility yet, many are poised for transformation. According to Accenture (2016),6 the combination of a digital-physical footprint, trusted customer data access, and an innovative spirit creates a ready platform for success. Once your bank can develop

6 “The agile bank journey includes four steps to deliver a top customer experience,” Accenture Consulting, 2016.

agile building blocks— customer obsession, unconventional collaboration and an adaptive operational backbone—you can begin your journey.

This becomes the mission for which all else is done, because it positions banks to solve big problems. For instance, there may be specific geographic segments that influence customers toward specific products based on income levels. For these segments, there are micro-niches of people that will be more receptive to tailored messages in order to become more fully connected. This is the power of brand affinity and audience segmentation.

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FIVE CHARACTERISTICS OF AGILE BANKING

• Customer-centered philosophy

• Dynamic offerings

• Flexible business models

• Optimal experiences

• Iterative channel and communication distribution

FIVE CULTURAL IMPERATIVES OF AGILE BANKING:

• Agile banks must be empathetic to customers and reframe their business with the customer as the center of focus.

• They must cultivate a disciplined approach and align this perspective across all other areas of their business.

• Interdisciplinary collaboration is the key to designing a fresh customer experience.

• Bringing in data across the organization—both from customers and operational elements—are critical to success.

• Innovation and decision-making are de-centralized, so all stakeholders can respond quickly and at scale.

PREDICTIVE BANKINGData-driven customer experience optimization

We’ve laid out two big challenges for financial institutions as they move into the next era of customer service and business operations—harnessing, governing, and leveraging an explosion of transactional data, and operating with unprecedented agility across customer IDs and teams. Mastering these two areas positions today’s banks to become the predictive banks of the future.

What exactly is predictive banking? Thanks to an increasing number of channels through which they can interact with banks, customers now want to engage with banks whenever they want, however they want, and wherever they want.

Customers want a ubiquitous experience, where they can shift seamlessly between channels. Transactional moments help us understand which devices and media customers prefer for respective interactions and experiences, and what they want–often before they know it.

Consumers engage differently across different devices. For example, a customer probably will not hesitate to complete a payment or a balance check via smartphone. But customers still rely heavily on personal branch staff for advice, buying and selling investments. The evolution of technologies such as digital printing may eventually enable customers to issue their own cards at home.

At their most advanced, mobile wallets could offer a single gateway to access multiple accounts across multiple banks. Increased use of smartphones, combined with contactless technology, will potentially transform remittances — for which combined transaction fees and exchange rate margins can still cost more than 10 percent. They will also transform cash management in these markets. Should mobile wallets with enhanced biometric security become the norm, the cost of obtaining banking services in emerging markets will be dramatically reduced and penetration rates significantly increased. Still, while self-service machines are

Channel frequency

Online/Internet ATM Mobile Branch Call Center

Paying bills or making transfers

Balance inquiries

Getting advice

Buying and selling investments

Making deposits

Reporting problems

0 15 30 45

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TOP FREQUENCY AND USAGE PER CHANNEL

eventually expected to replace cashiers and mobile wallets to become commonplace, branch staff will still have a critical advisory and sales role.

The key is to score every engagement against exposures and model off of users that have the right eligibility for certain products. By analyzing these transactional moments to detect patterns and to pull formerly ‘dark data’ into context, it becomes clearer which experiences each individual customer prefers over which channels. That is valuable information that helps banks engage with the right customers, offering the right products and experiences at the right time—even more valuable when banks are able to act with agility and respond in real time to real-time transactional information.

What does a predictive bank look like? An AI-driven platform that supports increased agility, data-driven decisions and customer-centric experiences will transform banking at an unprecedented pace. The predictive bank of the future will include:

• Dynamic Customer Journey Modeling – Rather than relying on the antiquated concept of a static, traditional marketing funnel, retail banks will be able to take different modeling approaches that enable them to deliver unique experiences at the touch point level throughout a customer’s nonlinear journey.

• Portfolio Optimization – Not only will predictive banks be able to find the right products for their customers, they will be able to use data attributes, indexing approaches, and fluid budgets to drive share of household, as well as overarching market share across the product portfolio. Portfolio optimization enables countless cross-sell and upsell opportunities to more refined audiences that matter, rather than relying on broader, more traditional market segments.

• Life Stage Marketing – Eligibility rules can be applied to specific audiences and life-stage events, and banks will be able to speak to them with more resonant messages. For instance, having a child means opening 1029C, getting a new job means activating or utilizing a 401K.

• Meaningful digital experiences – As digital transactions proliferate and AI technology becomes more sophisticated, digital experiences will become more emotionally satisfying for customers. For example, machine learning and AI can potentially emulate the

best teller experience for a customer, comparable or better than the average face-to-face interaction. Decision management platforms can exchange intelligence across systems to take advantage of digital opportunities in real time, even predictively.

• 360 audience hub – As data silos break down, banks will begin to have a 360-degree view of customers and households, with visibility across fragmented silos, systems, channels, products, and audiences. This visibility and the agility that it enables will increase flexibility in market, which creates more opportunities for innovation, growth, and an increase in operational efficiencies.

With these capabilities driving growth and innovation, we have a more audacious bank of the future, powered through data activation that will drive personalization and customer satisfaction, and that can anticipate customer actions and reactions several moves ahead. Bespoke models that are highly tailored based on audience archetypes and brand affinity will rule all. The data and technology will empower banks to create truly exceptional experiences and meaningful moments for customers.

In the meantime, as banks contemplate and build out a solution design for this next-level platform, they need to concentrate on building a system that can ingest, organize, manage, and activate both data and decisions, powered with machine intelligence to make optimal decisions in real time. Predictive modeling, automated calibration, and machine-to-machine communication enable top-tier solutions to instantly extract hidden meaning from untapped data within an organization, and just as quickly create actionable insights that reveal customer intent against future outcomes. Leveraging this holistic system can inform how to make decisions on product development, supply chain distribution efficiencies, creative testing and research for audience understanding, and aligning fragmented stakeholder groups within holding companies. The right solution design can impact all of these elements, which can dramatically accelerate business performance and transform banking and financial service institutions into agile, intelligent, data-driven organizations, delivering customer experiences and moments that matter while driving efficiency and enhancing profits.

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FIVE STRATEGIC IMPERATIVES FOR THE PREDICTIVE OEM

MOMENTS NOT SEGMENTS Traditional marketing segments are rooted in historical data. Predictive businesses build models that include transactional moments for real-time accuracy and power to anticipate and exceed customer expectations.

OWNED NOT RENTEDFirst-party data is a predictive organization’s biggest asset. The best decisions and innovations come when truly leveraging this proprietary data.

PEOPLE NOT DEVICESPredictive organizations are customer-centric, not product- or device-centric. All transactions and devices tie back to a universal ID of a single person or household.

JOURNEY NOT FUNNELPredictive banks know that a sale or conversion isn’t the final transaction. The customer’s journey never ends, and the path to conversion is often non-linear and crosses every partner and communications channel. Businesses that can anticipate future actions are the ones that will succeed.

DECISIONS NOT DATAFor the past decade, data management platforms have been hubs for data centralization, normalization, syndication, and analysis. Today, data management platforms must evolve into decision management platforms, exchanging models, with syndicated intelligence replacing syndicated data. In other words, one system’s AI talking to another system’s AI.

FIVE STRATEGIC IMPERATIVES FOR THE PROGRAMMATIC OEM

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ABOUT ROCKET FUEL INSTITUTEThe Rocket Fuel Institute is a research initiative dedicated to the transformative

field of artificial intelligence in digital marketing. The RFI aims to transform

the digital industry, propelling it to the forefront of the global shift to artificial

intelligence (“AI”) by exploring innovation at the intersection of data, technology,

and customer experiences. We seek ways to enable and sustain AI-based growth

in marketing and across verticals by understanding how digital transformation and

adaptive automation combined with human intuition accelerates over time. Our

long term research goal is to converge academic research with applied sciences in

machine intelligence to understand the nature of brand experiences. For inquiries

into our existing or forthcoming work, or to discuss how you might partner with us,

please reach out to:

Nikos Acuña

Head of Rocket Fuel Institute

nacuna@rocketfuelinc.com

www.rocketfuel.com

ABOUT THE PREDICTIVE VERTICAL SERIESThe Predictive Vertical series explores the way marketers in respective industry

categories can gain a significant competitive advantage with best of breed

solutions. The series covers in-depth macro trends that are shaping the global

economy, defining the fate of companies and careers, while providing a sweeping

perspective on the most advanced tools that are changing the way brands interact

with audiences, and the way businesses achieve actionable insights to make more

informed decisions in finance, CPG, retail, healthcare, and travel.

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