White paper

September 2012

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Daoud Fakhri Senior Analyst Retail Banking

I joined Datamonitor as an analyst in 2009, having previously worked in market research, and I specialize in the retail banking sector. The succession of banking-related events over the last few years have made this a very interesting field to work in, and I have written numerous reports on topics such as the prospects for new and non-traditional entrants in the sector, the future of branch banking, developments in online and mobile banking, and the vexed issue of consumer trust. I have also spoken at several industry events, including a Financial Services Forum seminar on the future of branch banking, a Digital Banking Club presentation on meeting customer needs in digital banking, and a Marketforce panel discussion on the customer experience and digital banking. I have also spoken on BBC radio about the recent service failure at Royal Bank of Scotland Group.

If you have questions about the research, data, and findings within this document you can put your questions directly to the analysts. Simply email your questions to askfs@datamonitor.com. To find out more about Datamonitor Financial contact us at: email datamonitor_fs@datamonitor.com phone +44 20 7551 9437 Visit our website: www.datamonitorfinancial.com Or follow us on Twitter: @DatamonitorFS

DISCLAIMER

While every care is taken to ensure the accuracy of the information contained in this material, the facts, estimates, and opinions

stated are based on information and sources which, while we believe them to be reliable, are not guaranteed. In particular, it

should not be relied upon as the sole source of reference in relation to the subject matter. No liability can be accepted by

Datamonitor, its directors, or employees for any loss occasioned to any person or entity acting or failing to act as a result of

anything contained in or omitted from the content of this material, or our conclusions as stated. The findings are Datamonitor's

current opinions; they are subject to change without notice. Datamonitor has no obligation to update or amend the research or to

let anyone know if our opinions change materially.

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The Financial Customer Intelligence framework presents eight mega-trends that

help us to understand the needs, preferences, and demands of consumers. It is

vital to understand the attitudes and behaviors of consumers in order to design

products and services that align with these demands.

Source: Datamonitor. Report: Marketing Strategies for Rebranding Financial Services, June 2012

This document will focus on the Digital Lifestyles mega-trend. Digital Lifestyles

is one of the eight mega-trends that Datamonitor has identified as being a

significant driver of consumer behavior in relation to the purchase and use of

financial services and products.

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The convenience, flexibility, and immediacy associated with the Internet have

helped to make this the dominant channel for day-to-to-day banking across

most of the world. According to Datamonitor's 2011 Financial Services

Consumer Insight (FSCI) Survey, for example, 79% of global consumers view

online banking facilities as essential in a current account, and 72% use online

as their main channel for checking their balances. With retailers leading the way

in the provision of online and mobile services, banks are under huge pressure

to ensure that their digital capabilities keep pace with rising consumer

expectations.

Source: Datamonitor. Report: Marketing Strategies for Rebranding Financial Services, June 2012

In order to accommodate the evolving requirements of consumers in the digital

sphere, financial providers have to make sure that consumers not only have

immediate and ever-present access to the information, products, and services

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they need, but that they are able to conduct all manner of payments and

transactions as, when, and where they want.

Datamonitor's Financial Customer Intelligence framework

summarizes these two Digital Lifestyles trends as

Always Connected and Digital Consumption. This white

paper will use current case studies to illustrate how each

of the sub-trends is now impacting on the financial

services industry.

Information is no longer something that consumers need to wait for; they have

access to vast quantities of realtime information online and through their mobile

phones and tablets. Providers need to ensure that consumers have all the

relevant information when they want it.

Personal finance managers (PFMs) are digital applications that link with

consumers' bank accounts and other financial holdings to provide them with a

fully integrated, holistic view of their finances.

Strands Finance, a US-based provider of PFM solutions to banks around the

world, has taken the concept to a new level by offering several new features.

These include:

The ability to customize the online interface to display the most relevant

information.

A timeline view of historic expenditure.

Sophisticated budgeting tools.

Personalized product recommendations.

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The facility to compare financial activity against peer groups.

There is considerable pent-up demand for such services, with Datamonitor's

2011 FSCI Survey finding that globally, 43% of consumers who bank online

want the ability to analyze their spending. This rises to 51% among those aged

18–24.

Simple, a new "virtual" bank in the US, prides itself on its innovative approach to

banking. One of its biggest selling points is its "Safe-to-Spend" balance feature,

which provides a forecast of a customer's available balance after factoring in

scheduled payments and planned expenditures, using a complex set of

algorithms. Used properly, it should help to reduce customers' chances of going

overdrawn and incurring charges, and is a great example of how a bank can

provide information that is transparent and easy to understand.

Source: Simple (2012)

The opinions of online peers are highly valued by consumers, as these are seen

as an extension of their direct network of friends and family. The influence of

online peers and social media is set to grow, with the 2011 FSCI Survey finding

that 57% of global consumers visit social media sites at least once a day. These

are therefore highly influential channels, and providers need to find effective

ways to harness their considerable power.

This means that providers need to harness these channels and meet consumer

demand.

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American Express (AmEx) has one of the highest social media profiles of all

financial services providers. As of August 2012 the card provider has over 2.5

million fans on Facebook, which compares favorably to around 570,000 for

MasterCard. Amex is also represented on other sites such as Twitter, YouTube,

Foursquare, and LinkedIn.

Source: American Express (2012)

In order to maximize customer engagement, Amex created its "Sync" initiative

that allows card holders to link their cards to their social media accounts and

gain access to special discounts and offers. On Twitter, for example, sending

tweets that include special offer "hashtags" will result in offers being directly

loaded onto synced cards. Similarly, customers who connect via the "Link, Like,

Love" Facebook application will receive personalized offers and deals based on

their Facebook likes and preferences.

Complementing this interactive approach, Amex has created a Facebook-based

application called Nextpedition, through which consumers can answer a series

of attitudinal questions to create a unique profile, and then purchase a

customized mystery holiday based on that profile.

This concerted strategy by Amex to engage with its customers has set it apart

from its competitors by adding value to what is generally regarded as a

commodity product, and should help to boost usage and improve retention.

Although Commonwealth Bank in Australia was relatively late in establishing a

presence on Facebook, it had amassed over 100,000 fans by its first

anniversary in January 2012, and more than 218,000 by August 2012. This

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compares favorably to its rivals, with NAB scoring 62,000 likes, ANZ Australia

just over 10,000, and Westpac less than 5,000.

Commonwealth Bank has achieved this success

through running a number of interactive campaigns

on the platform, including "Community Seeds,"

where customers were invited to vote on how a

A$125,000 donation was to be distributed to various

community groups, and "Centenary Time Vault," a two-

week treasure hunt offering a daily prize of A$2,000.

Social media-led strategies such as these can play a valuable role in improving

customer goodwill and increasing the level of brand warmth.

Consumers are using more than one channel at a time to find information,

communicate with peers, and carry out chores. This means that any differences

in the quality of the customer experience between channels will be very

noticeable to consumers. Providers must therefore ensure that they are creating

a uniformly good experience for consumers across all touchpoints.

Although the online channel offers many advantages to consumers, especially

with regard to convenience and immediacy, there are some weaknesses that

need to be addressed. Chief among these is the online

application process, which is often confusing, thus

leading to high attrition rates.

LivePerson, a specialist in online consumer

engagement, provides a number of different

strategies to address this issue, including LP Chat. This

tool allows providers to communicate with customers in

realtime during the application process, identify where applicants are at risk of

abandoning the process, offer hands-on assistance with text-highlighting and

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co-browsing capabilities, and to transfer chats between mobile and desktop

devices. Live chats can also be initiated in external locations through the use of

Quick Response codes.

Implementation of LivePerson's services has resulted in clients seeing

improvements in first-time problem resolution and application completion rates,

higher levels of customer feedback and customer satisfaction, and reduced

support costs.

Consumers want to make purchases and transactions digitally. The rise of

online and mobile channels is driving this demand from consumers who will

want all their tools in one place.

Following the lead set by overseas banks such as ANZ and Commonwealth

Bank, in February 2012 Barclays Bank in the UK launched its Pingit smartphone

application for mobile payments and transfers. Consumers, who do not have to

bank with Barclays, can download the application and use it to instantly send up

to £750 a day via their mobile phone contacts, thus bypassing the need to enter

account numbers and sort codes.

By August 2012 Pingit had been downloaded

by around 1 million users, demonstrating that

there is huge consumer demand in the UK for

solutions that make it easier to transact

payments and transfers (although, admittedly,

actual usage data are hard to come by). The

service is now being rolled out internationally,

starting in Kenya, which should further

increase its popularity.

Source: Barclays Bank (2012)

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Since May 2012, UK consumers with PayPal accounts have been able to use

PayPal's instore mobile application to buy goods at selected retailers. At the

point of purchase the user activates the application, which generates a unique

barcode and number that the shop assistant scans at the till. The payment is

then deducted from the customer's PayPal account in the usual manner, and

any relevant offers or discounts will be automatically applied.

Currently, this facility is only available at a small number of fashion retailers, but

there are plans to expand the service in coming months. For many consumers

who are used to the convenience of using PayPal to buy goods online, the

ability to use PayPal in the real world may prove just as attractive. Datamonitor

research suggests that there is demand for such means of payment: the 2011

FSCI Survey found that 59% of consumers expressed interest in buying goods

instore using their mobile phones.

Consumers want rewards and discounts that are immediately relevant to their

actual location. Targeted offers are pertinent, and therefore attractive, to the

consumer.

DBS in Singapore is at the forefront of integrating

conventional banking service activities with added-

value lifestyle services. The bank offers two mobile

applications – Shopper and Indulge – that provide users with

a range of special discounts and promotions from retailers and restaurants. The

applications use augmented reality and GPS functionality to identify

participating outlets in the vicinity, and time-limited offers are made on the basis

of a user's prior retail activity.

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By the end of 2011 the applications had been downloaded by more than

400,000 users, and have helped DBS to become the market leader in mobile

banking in Singapore. Through these services, DBS is positioning itself as much

as a lifestyle partner to its customers as it is a bank, thus creating a stronger

sense of customer affinity.

In an effort to attract consumers to its new Google Wallet digital payments tool,

Google is combining it with its location-based deals and discounts service,

Google Offers (currently in development). Google Wallet integrates users' credit

and debit cards onto a near field communication-enabled Android smartphone,

allowing them to pay for goods and services both online and instore. Google

Offers provides access to local deals from retailers, and these are fully synced

with users' Google Wallets.

Digital wallets are a completely new and unfamiliar payments technology, and

consumers need to be given clear and tangible reasons to persuade them to

make the switch. Providing financial incentives, such as Google's offer of retail

deals that are available exclusively to users of its wallet, is an effective means

of doing this.

Datamonitor's 2011 FSCI Survey presents evidence for this, finding that 48% of

global consumers are interested in receiving location-based offers through their

handsets.

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The rapid consumer adoption of digital financial services, both online and

mobile, demonstrates just how important this channel has become. The case

studies outlined in this paper highlight the ways in which many providers are

seeking to innovate in this sphere and introduce solutions that make life easier

for consumers.

Datamonitor's Financial Customer Intelligence framework offers a useful means

of identifying the different aspects that providers need to be aware of when

trying to maximize the effectiveness of their digital strategies.

If new digital services are to be successful in terms of boosting the popularity of

financial providers, raising levels of customer satisfaction, and improving

acquisition and retention rates, they must meet clearly defined consumer needs.

Introducing new technology for its own sake is a strategy that rarely works, and

running the risk of confusing and alienating consumers.

Digital provision of financial services needs to satisfy two basic conditions.

Firstly, content must be of high quality. Provision of basic information is no

longer sufficient, and providers must offer content that adds value to customers'

lives by enabling them to manage their finances more efficiently and profitably,

and allowing them to engage with other consumers.

Secondly, consumers must be able to use financial services how and when they

want. Increasingly, this means while they are on-the-go. Mobile provision of

services is rapidly moving from being a luxury to a prerequisite. Providers need

to allow their customers to conduct the full range of financial activities through

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their mobile handsets, and to access content that is tailored to particular

locations. Providers that do well in this area will become much more closely

aligned with their customers' lives.

Design products and services to allow consumers to use digital

channels for as many activities as possible – Consumers expect to be

able to conduct a wide range of activities digitally.

Enable 24/7 access to services and support – Consumers no longer

view their providers as 9am–5pm operations; they expect round-the-clock

access to services through digital channels.

Embrace social media – Social media is not a fad but rather a trend that

is here to stay; providers must use this to their advantage and strengthen

customer relationships.

Allow consumers to use their mobiles for financial chores –

Consumers are ever more reliant on their smartphones and want to be

able to use these for a range of activities. Providers should allow these

tasks to be conducted in a pleasant and engaging manner.

Use technology to make offerings more attractive – Promotions or

rewards based on a consumer's location will be more attractive because

they are immediately more pertinent.

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If you have questions about the research, data and findings within this document you can put your questions directly to the analysts. Simply email your questions to askfs@datamonitor.com. To find out more about Datamonitor Financial contact us at:

email datamonitor_fs@datamonitor.com

phone +44 20 7551 9437

visit our website: www.datamonitorfinancial.com

Or follow us on Twitter: @DatamonitorFS

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