A New Era in Banking - Finance Montréal · Economic growth and the related growth in banking markets are rapidly changing where banks need to be

A New Era in Banking Landscape After the Battle

July, 2015

The global financial crisis impacted different parts of the world very differently…

How we got here?

Copyright © 2015 Accenture. All rights reserved.

o Deregulation o The Great Moderation o Global Imbalances o Search for Yield o Under-appreciated Risks o Complex Interdependencies o Mismatched Incentives o Implicit Guarantees

Complex Drivers

2

o Loss of Trust o Reconsider Role of Banks o Re-regulation o Level Playing Field o Deleverage o De-risk Business Models o Digitalisation o New Growth Agenda

… but regardless of the immediate impacts the crisis marks a turning point for the global banking and financial system

Crisis Outcomes

World in the process of recapitalization: the trees and the forest

Copyright © 2015 Accenture. All rights reserved. 3

Impact on Common Equity Tier 1 ratio from 2013 to 2016 in the adverse scenario by country and for individual banks sorted by size of the impact 1

Source: European Banking Authority

6.3

1.9

1.9 1.2 1.7

3.6

2.4

15.1

1.0

2.4

ROE FY13 Regulatory & Capital Increase

Run Rate Changes

Asset Quality Normatization

Strategic Cost

Reduction

Capital & Risk Management

Cutomer Engagement & New Profit

Pools

ROE Target

0.1

Non-Digital Change Drivers Digital Enabled Change Digital Change Levers

ROE Evolution, Developed Market Bank – Business Model Change Analysis Base Case for 15% ROE

Development Market Banks ROE Projection Analysis-Business Model

0,0% -1,0%

-1,5% -1,6%

-1,8% -2,0% -2,1% -2,2%

-2,6% -2,7%

-3,1% -3,3%

-3,7% -4,0%

-4,4% -4,7%

-5,2% -5,5%

-6,2% -6,8%

-8,0% -9,8%

-12,0% -10,0% -8,0% -6,0% -4,0% -2,0% 0,0%

NOPLESSEMTUKLVFRDKNLATITDEHUFILUPTCYIEBEGRSI

The trends that are shaping the new era go far beyond the outcomes of the crisis


Macro Trends

Need for a New Business

Model in Banking

Source: Afi, Analistas Financieros Internacionales, S.A.

Ageing & Millennials Global middle class Emerging Markets Mobile technology

Competition Excess Capacity Disintermediation New technology Talent war

Legitimacy Lack of trust Criticism about incentive & compensation Lower customer loyalty

Regulation New capital requirements Separation of activities Risk management requirements Consumer protections New taxes

A set of mega macro trends are reshaping the world banks operate in


The demographic agenda

The technology revolution

Growth of the emerging market economies

The rise of the global middle class

From ageing to the millennial generation, demographics shapes who banking customers are and what they need.

The consumerisation of technology means we are rapidly approaching digital saturation.

Economic growth and the related growth in banking markets are rapidly changing where banks need to be.

Earnings and wealth will be much more distributed in the multi-polar world.

0 5

10 15 20 25 30 35 40 45 50

Demographics shapes who banking customers are and what they need


World & Canada Population Forecast and Age Composition (bn)

Source: United Nations Population Division, World Population Prospects 2012

2050 2100 2075 2025 2000 1975 1950

Canada Population, m

2

6

12

10

4

0

2050 2100 2075 2025 2000 1975 1950

0-14 15-29 29-64 65+

% of world population aged

>65 2010 7.7%

2030 11.6%

2050 15.6%

1990 11.2%

2010 14.2%

2030 22.7%

2050 24.7%

World Population, bn

8

1990 6.1%

% of Canada population aged

>65

Shifting engines of growth are changing where banks need to be

14,2 18,8

14,9 17,9

12,4 15,2

64.3

2013

52.6

2016F

Asia-Pacific North America Europe Latin America Middle East Africa

HNWI Wealth Forecast to 2016 by Region HNWI Investible Wealth ($tn)

Sources: IMF World Economic Outlook, April 2015; Cap Gemini/RBC, World Wealth Report, 2014, Credit Suisse World Wealth Report 2014

Global GDP Forecast to 2019 GDP current prices ($tn)

18,7 22,9 33,6 17,6 19,9

25,9 19,2 21,1

27,8

2010

64.0

2019F

100.9

2013

74.0

+6.6%

CAGR %

+4.5%

+4.7%

+7.2% +5.3% +3.9%

2019F

1.945,3 1.838,9

2013 2010

1.614,1

Canada GDP Forecast to 2019 ($USD bn )

Canada Wealth Development (US$) 1,138

2014

No. of Millionaires (k)

Top Decile Wealth (USD bn)

2,766

2006

+9.8%

CAGR %

+6.4%

+7.1%

+6.0% +6.6% +2.3%


+6.9% +5.3% +4.9%

0,9% 4,4%

2014

4,279

2010

3,559

Growth opportunities and wealth will be much more distributed in the multi-polar world

Source: Homi Kharas, The Emerging Middle Class in Developing Countries, OECD, 2010

5,6 5,8

8,1 11,3

3,1 4,9

32,6

21.2

2030 2010

0.3 0.8

55.6 0.8 2.0

1.5

MENA Sub-Saharan Africa Asia Pacific North America Europe Central & South America

Middle Class Consumption ($tn)

338 322

664 680

313 525

3 228

234

1,845

181

32

2030

4,884 107

2010

105

Middle Class Population (m)


The consumerisation of technology means we are rapidly approaching digital saturation


Source: GSMA, The Mobile Economy, 2014; Pew Research Centre: A Portrait of Generation Next, 2010

Mobile Social

Data & Analytics

Cloud

• Always on, anywhere • Interactive customer experience • Integrated products and services • Inherently social

Technology forces driven new customer experience

9

SIM Connections

Mobile Broadband

Connections

Unique Subscribers

Mobile Economy Global, Users and Connections (bn)

Canada, Users and Connections (mn)

2020 2013 6,9

2,2 3,4

9,2

5,9 4,3

28,1 20,7 19,2

36,4 34,5

23,6

A complete overhaul One of the most important outcomes of the financial crisis is a complete overhaul of banking regulation, but the question remains:

Regulation: new rules for the game


New capital requirements

New risk management approaches

Separation of activities

New incentive controls

Greater consumer protection

New taxes on banking and financial activities

“Is the system safer?” Safety & Stability

Efficiency & Market Discipline

Banking System Inherent Tensions

The depth and market orientation of financial systems are among the key forces that define the banking system…

Bank market composition – structural differences continue to dominate competitive agenda


Source: European Commission High-Level Expert Group on Reforming the Structure of the EU Banking Sector. Chaired by Erkki Liikanen, October 2012; World Bank, Global Financial Development Report, 2013, European Central Bank * Data for 2008

Structural differences in market depth and competition

Structural differences in market depth and composition

… financial development, financial access and deleveraging are changing these structures in addition to regulation

Low income

Canada Lower middle income

Upper middle Income

High Income

FS Domestic Credit to GDP, 2013 (%)

Lending-Deposit Spread, 2013 1(%)

0 5.000 10.000 15.000 20.000 25.000 30.000 35.000

EU

EA

US

JP

Asia

Bank Assets Compared to Equity and Debt Markets [VALUE]

% [VALUE]% [VALUE]

% [VALUE]

%

[VALUE]%

[VALUE]%

[VALUE]%

[VALUE]%

[VALUE]%

[VALUE]%

*

Trust is the currency of banks and is, therefore, beyond a PR problem

Legitimacy: What trust means for today’s customers?


Banking and FS are the least trusted industries

Source: Edelman Trustbarometer, 2015

Entertainment

Consumer Packaged Goods

Food and Beverage

Telecommunications

Brewing and Spirits

Pharmaceuticals

Energy

Consumer Health

Chemicals

Financial Services

Banks

Media

67%

67%

66%

63%

63%

61%

60%

60%

57%

54%

53%

51%

Technology

Consumer Electronics

Automotive

78%

75%

71%

The decline of legitimacy

Bank legitimacy has suffered on three fronts • A decline in trust with

all stakeholders

• Criticism of corporate governance and incentives

• Declining customer loyalty

Banks need to re-asses how they build legitimacy • Trust goes beyond a PR

problem Encompass corporate governance, stakeholder management and risk management

• Top management attention

• Short term technical and long term cultural change

How much do you trust businesses in each of these industries to do what is right?

Digital disruption – will technology disrupt banking as it has done to other industries?


Consumers

Technology

Retailers Mobil

Network Providers

Commerce

Source: Accenture, The Digital Disruption in Banking, 2014

Technology Convergence in Retail Banking

Two driving forces Increasing flexibility for customers to switch • Low levels of trust and satisfaction

with the banking industry

• Little differentiation and engagement with young population

• Regulatory initiatives to facilitate switching

• New entrants to industry facilitated by technology

Customer experience is Key 41% 26% 29% 23% 29%

of Customers “likely” or “very likely” to bank with the following brands % 13

Companies that consumers trust most with their personal data

If these companies offered banking services, how likely would you be to bank with them? (Likely or Very likely)

Source: Edelman Trustbarometer, 2015

12%

8%

4%

5%

8%

12%

14%

21%

23%

27%

41%

None of these

Don't konw

Wikipedia

Twitter

Amazon

Apple

Facebook

Your broadbard …

Google

Your mobile phone…

Your bank

6%

7%

5%

7%

9%

20%

24%

23%

23%

34%

34%

33%

40%

37%

46%

Apple

Walmart

Google

Amazon

PayPal

55+ 35-54 18-34

http://www.paywithisis.com/


Rapid approach of mobile saturation

Source: World Bank, World Development Indicators; GSMA, State of the Industry 2013, Mobile Financial Services for the Unbanked, 2014

1 2 2 5 6 7 11 16 38

64

116

179

219

2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001

Number of Live Mobile Money Services for Unbanked

0

50

100

150

2014 2010 2006 2002 1998 1994 1990 Brazil High Income Low Income World

Mobile subscriptions per 100 people

The challenge of mobility & connectivity

The rise of mobile telecommunications will be one of the most important technology developments for banks • The mobile phone is the

first device to be used by nearly the entire population

• Mobiles have diffused very fast

• It is a cheap consumer technology

• Mobiles are an engaging

• It is beloved by the young

• Is being rapidly adopted in emerging markets

With profound implications for customer interaction in retail financial services • Faster adoption of mobile FS

in developing markets where largest customer and asset growth is occurring

• Young customers are already mobile customers before they are bank customers

• Non-banking competitors are using mobile to launch competition in FS

• While not replacing branch infrastructure – mobile requires a rethink of distribution

14

75% of interactions by 2018

will be initiated through online or mobile channels

1. Data as 2012 Source Accenture Global Consumer Survey, 2012

20% of customers switched

retail banks in 2012, and 26% added banking

providers1

2 out of 3 customers consider it

“extremely important” to be able to buy what they want, when they

want1

1 out of 2 customers uses social

media as an appropriate source of product

information1

1 out of 2 customers view shopping

as an “experience”, rather than a mere

transaction1

A vision for digital transformation


Bank as advice provider Provide specific buying suggestions, based on deep customer knowledge and purchasing algorithms

Bank as value aggregator Assembly components (financial and non financial, own and third parties) to create an integrated solution for "real world" customer needs

Bank as access facilitator Support the customer in "everyday/everywhere" buying processes (shopping, access to daily services)

Banks can now satisfy a broad range of customer life-cycle needs

Source: Accenture, The Everyday Bank, 2013

JUST IN TIME

Business + Customer

+ Interactions + Transactions

+ Variable cost + Assembling services and

utilities + Flexible & fast

Embedded into customer digital life

Multiplying customer interactions with bank thru

ecosystem

Advice benefits & New banking facilitator thru ecosystem

Banking services ecosystem internal / external

Explaining potential business thru digital

UBIQUOUS AND MOBILE

Just in time personalized marketing and analytics services


Define Strategic

Dimensions

Assess Drivers of Change

Identify Key Capabilities

Bank New Era Vision

Questions to respond for the new era


How to compete in the digital era

integrating banks in the new ecosystems

What's the right size and shape of Bank portfolio

of businesses and geographies for the new

era?

How segmentation shall respond to the macro trends impacts: brand, products and services, relationship models?

How to rebuild trust and confidence in the new competitive landscape?

How to deal with talent and rewards needs in banking?

Banks need to move at “2 Speeds”…

Questions to respond for the new era


• Omnichannel customer experience • Real time event management • Online selling • Remote advisory • Personal financial management • …

• Innovation architecture to enable agenda and drive value (e.g. incubate, build, venture, partner)

• Digital attacker for specific targets (e.g. tech savvy, specific geo)

• D-wallet and ecosystem • P2P platforms (e.g. lending, payments) • Life need platform linked to banking products (e.g. health,

real estate) • Big Data factory to leverage external and proprietary data in

real time and monetize them (e.g. social media based propensity scoring)

Create Options

Innovate the “core”

Strategic alignment by capability

Markets Public & Regulatory Customers

Customer Affinity Stability Financial

Returns

Banking Entrepreneur

Technology Entrepreneur

Digital Entrepreneur

Customer Experience


A New Era in Banking The Landscape After the Battle provides an independent point of view around the future of banking.

The book identifies the main drivers of change at the heart of this wholesale transformation of the financial services industry.

It examines the complex challenge for financial institutions to de-risk business models, reconnect with customers, and approach stakeholder value creation.

It is NOT just a diagnosis of the key issues the industry faces, but also provides clear guidance on what the banks need to do to emerge successfully.


Documents

A New Era in Banking - Finance Montréal · Economic growth and the related growth in banking markets are rapidly changing where banks need to be