The New Banking Channel NetworkImproving the Bottom Line through Channel Optimization

Leading Research Paul HydeAshish JainKumar KanagasabaiJavier Sepulveda-Navarro

Booz & Company 1

Trends 2009–2015 Profitability

Gen YGen Y and younger to grow from 26% to about 40% of the workforce by 2015

Rely heavily on new media (e.g., social networking, iPhone applications) in day-to-day activities

MassFuture income stream hit by unemployment and flat/falling wages

Demand for lending products contracting as customers seek to de-lever and increase savings rate

Retirees

Population ages 65 and older to grow by 30% to almost 50 million by 2015

Demand increasing for investment products to supplement uncertain Social Security payments

Acceptance of online delivery methods is increasing

Small BusinessSmall businesses’ appetite for, and access to, debt will recover slowly, and banks and businesses continue to de-lever

Small business profits to recover slowly, in line with the economy and consumer spending

Segment

Mass Affluent

Income and home assets hit, but recovering as earning power more resilient and wealth diversified

Debt servicing capacity recovering, with balance sheet and income leading to some lending growth

Strong preference for remote channels for day-to-day transactions

Current Trends across Market Segments Point to a Difficult Low- Growth Environment for Banks

Booz & Company 2

TotalOnline/Mobile

5%

Call Center

10%

ATM

10%

Branch

75%

These Trends Are Creating New Pressures to Reduce Branch-Based Costs and Reinvest in Alternative Low-Cost Channels

Channel Cost Structure -

Banks

Reduce Costs

Increase Investments

Pressures on the Branch Network

Aggressive branch growth resulting in oversupply in certain markets

Shifting of branch volume for servicing and transactions to virtual channels driving higher unit cost at branch

70% of the branch traffic is driven by the least profitable customers (i.e., mass market)

Limited branch channel usage by younger, more affluent customers

Customer expectation for ubiquitous connectivity and seamless integration across all channels

Booz & Company 3

Previous Attempts to Develop a Coherent Multichannel Model Proved Unsuccessful

Poor Channel Alternatives

Customer Push Rather Than Pull

Continued Channel Conflict

Customer Reluctance to Migrate Transactions

Limited functionalities offered by alternative channels for banking needs

Poor customer experience in using the alternative channels (e.g., onerous voice response menus, fragmented and difficult-to-navigate online channels)

Introduction of “penalty fees” to drive customers toward the low-cost channels (i.e., stick instead of carrot)

Lack of systematic education of customers on capabilities and benefits of alternative channels

Lack of channel role clarity to perform sales, servicing, and transactions

Competing capabilities built across channels with limited integration, driven by siloed approach to channel management

Strong preference by most of the customer base to interact with banks through the branch

Reluctance to use alternative channels for banking needs because of lack of functionality, perceived lack of comfort and security

1

2

3

4

Booz & Company 4

Today, Customers Are Ready to Adopt Multichannel Access Points to Transact with Banks

Credit Card 15% 85%

Savings Account 39% 61%

Personal Checking

Account38% 62%

Might Obtain by Phone, Mail, or InternetWould Only Obtain Face-to-Face

Simple Product Origination

42%58%

Mortgage 64% 36%

Investment Management

Account

Personal Loan 61% 39%

Complex Product Origination

1

Booz & Company 5

ATM

With Significant Improvements in Alternative Channel Capabilities, Integrated Multichannel Strategy Is a Reality

Evolution of the Channel Network (1990–2010)

1990

2000

2010

Branch

ATM

Call Center

Poor channel alternatives to the branchSiloed delivery network

ATM Bank Website

Emergence of online channelBasic functionality in non-branch channels

Call CenterBranch

Call Center

Proliferation of attractive alternative channels (e.g., new media & mobile) Increasing adoption of alternative channels by customersPush toward channel integration

Mobile

Branch

CustomersBank

Website

Social MediaOnline

Budgeting

2

Customers

Booz & Company 6

However, to Make the Switch, Customers Need to Be Educated about Alternative Channel Capabilities

Aware of capability,but do not use

Not aware of ATM cashdeposit capability

All Segments

55%

45%

Prefers to do cash deposits in the Branch

Prefers to do cash deposits in the ATM

CASH DEPOSIT EXAMPLE

7%

Branch

ATM

Other

All Segments

75%

18%

75% of customers prefer the branch to make a cash deposit1

However, 45% of those customers are not aware they could do this transaction at the ATM2

3

1) Represents answer to question in survey -

“In what way do you prefer to make a cash deposit?”2) Represents answer to question in survey -

“Does your bank offer you the capability to make a cash deposit at the ATM?”Source: Booz & Company proprietary research

Booz & Company 7

An Integrated Channel Architecture Is Required to Deliver on Segment Preferences, Economics, and Product Complexity

Deposits/ Withdraw-

alsPaymentsTransfers

Problem Resolu-

tionInquiriesServicingCross-

SellingClosingApplica-

tionResearch

TransactionOrigination Customer Service

Products

Mas

sS

mal

l Bus

ines

s

Simple

Complex

Online

ATM

Online

ATMOnline/Call Center

Branch

AllC

hannels

Branch

Online/Call Center

Simple

Complex

ATMATM/OnlineBranch

AllC

hannels

Branch/Call CenterOnline/Call Center

Branch

Online

BranchCall

Center Branch

4

Booz & Company 8

This Tailoring Will Result in a New Segment-Driven Branch Model with a Greater Focus on Sales

Mass Affluent Branch

Market Characteristics

Mortgage Tax IRA Treasury Merchant Services

Emerging Affluent

Branch Model

Branch Attributes

•

High-end branches exuding exclusivity•

Personalized service•

Support need for privacy

•

Extended hours•

Dedicated service personnel for business clients•

Integrated ATM capability

Small Business Segment

Small Business Branch

Remote Product Specialists Remote Product Specialists

•

High home ownership rate, with accessible equity

•

High-income area

•

High business density•

High proportion of business customers

Vault Services

Business Services

Business Services

Wealth RM ATM Imaging

ATMsBusiness

RM

Booz & Company 9

Specific Capabilities Need to Be Developed to Support Each Channel’s Mission

Required Channel Capabilities -

Examples

Single governing body managing investments across channels and ensuring alignment of channel roles to client needs

Incentives for channel owners to cooperate, not compete, with each other

Training and ongoing education for client-facing employees to understand client needs, enable collaboration and referrals across channels

Massive customer education campaigns to nurture better understanding of the capabilities in alternative channels

Improved sales collaboration and warm handoff processes across channels

Increased consistency and standardization of processes and policies across channels

Standardized customer experience aligned to segment needs and value across channels

Access to single view of customer across channels to understand current relationships and potential needs

Consistent information availability and customer data capture across channels

Integrated channels across origination, customer service, and transaction value chain

Channel Governance

People

Process

Technology

Booz & Company 10

Implementing the New Channel Network Drives 10% to 15% Cost Savings

75

45

TotalStaff-Related Technology

5

StaffSupport Services

25

Staff Reduction

Note: Based on a fully loaded RM salary of $100,000 per year.Source: Booz & Company proprietary research

EXAMPLE:Branch cost

base of $700M

Fully Loaded Branch Cost Savings(US$, in millions)

Channel Network Benefits

5% to 7% cost savings from reduced branch staff driven by transactional volume transfers to alternative channels

3% to 5% cost savings from streamlined branch support services - e.g., efficiencies in the internal call center

2% to 3% cost savings from a reduction in FTE-driven technology costs - e.g., software licenses and equipment

ILLUSTRATIVE

Booz & Company 11

Contact Information

ChicagoAshish JainPrincipal+1-312-578-4753ashish.jain@booz.com

New York

Paul HydePartner+1-212-551-6069paul.hyde@booz.com

Kumar KanagasabaiPrincipal+1-212-551-6455kumaresan.kanagasabai@booz.com

Javier Sepulveda-NavarroSenior Associate+1-212-551-6498javier.sepulveda@booz.com

Booz & Company 12

Booz & Company is a leading global management consulting firm, helping the world’s top businesses, governments, and organizations.

Our founder, Edwin Booz, defined the profession when he established the first management consulting firm in 1914.

Today, with more than 3,300 people in 60 offices around the world, we bring foresight and knowledge, deep functional expertise, and a practical approach to building capabilities and delivering real impact. We work closely with our clients to create and deliver essential advantage.

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Visit www.booz.com to learn more about Booz & Company.

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