The“Magnificent 7 Cs of Change” in U.S. Financial Services · 2013-10-23 · Game Changers 4...

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Mark Sievewright President, Fiserv Credit Union Solutions October 25, 2013

The  “Magnificent  7 Cs of Change”  in

U.S. Financial Services

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Game Changers

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The 7Cs: • Consolidation

• Convergence

• Customer (Member) Focus

• Competition

• Channels

• Compliance

• Cost Management  ”

Macroeconomic & Geopolitical Risks • Interest rates/inflation • Unemployment • U.S. housing market • Sovereign Debt/EU instability • Energy and commodity prices

In  the  Future………….

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….we  will  see  a  major  shift  in  the   established way of doing business;

it will be replaced with a radically different way of doing business.

Market Dynamics

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© 2012 Fiserv, Inc. or its affiliates.

Summary of Credit Union Market Dynamics

Continued consolidation of the credit union system • Expected to accelerate

Heavy burden of regulation • Expected to increase • Deep concerns about future impact of

CFPB, Dodd-Frank and the NCUA

Overall financial performance of the CU system is much-improved • Expected to continue but improvement is

concentrated among larger CUs • NCUA Special Assessments trending

down to zero (pre-Recession levels)

Gains being made by CUs in terms of new members and asset growth • Expected to continue

Increasing levels of focus on digital transformation and payments • Significant implications for member

experience and relationship management • Importance of Mobiliti is obvious but not

affordable for all CUs • Concerns about disintermediation/

relevance (especially in payments)

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Strategic Concerns: Financial Services Short Term Concerns Long Term Concerns

Economic

Environment

The Great

(and ongoing) De-Leveraging Interest Rates

and Inflation

Government

Finances

Real Estate

Markets

The Operating

Environment

Margin

Compression

Declining Non-

Interest Income

Default Risk

Morphing into

Interest Rate Risk

Continued

Industry

Consolidation

Competitive

Environment

The Mobile Platform

New Payments

Paradigm

The Role of the

Branch in an

Electronic

Environment

Alternative

Providers of

Financial Services

Regulatory

Environment

CFPB Managing

Growing

Compliance

Costs

OD/ NSF

Restrictions

Qualified

Mortgages

Indirect

Lending

Exposure Durbin/Interchange

Taxation

© 2012 Fiserv, Inc. or its affiliates.

Credit  Unions’  Reduction  in  Provision  Expense  is  Driving Earnings

Net Interest Income

Operating Expense

Source: NCUA Quarterly Data; 2013 is 1st quarter annualized

Mortgage refinance and gain on sale

Non-Interest Income

© 2012 Fiserv, Inc. or its affiliates.

Key Metrics Net Interest Margin vs. Operating Expense

10

bps

Sources: NCUA; CUNA Research

Without Non-Interest Income, the

CU System would – at best – be a

Break-Even business

© 2012 Fiserv, Inc. or its affiliates.

Lack of Scale and Investment Capacity Matters Impacting the Performance/Competitiveness of Smaller CUs

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% Growth Growth Rates by CU Asset Segments

Sources: NCUA; CUNA Research

© 2012 Fiserv, Inc. or its affiliates.

Lack of Scale and Investment Capacity Matters Impacting the Performance/Competitiveness of Smaller CUs

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% Percent of CUs with Positive ROA by Segment

Sources: NCUA; CUNA Research

….we  should  worry  much  less  about  becoming insolvent and much more

about becoming irrelevant……

In  the  Future………….

Technology will be the catalyst for a paradigm shift in financial services delivery, service

and information management

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Mobile  Has  Impacted  Consumers’  Daily  Habits   More Deeply and More Quickly Than Most Expected

Blogs

IM/chat

SMS/Alerts

Music

Search

News Video

Mobile web

Games

Maps

Budgets Payment Commerce

Banking

Ticketing

Transit

Social

Pictures

Email/MMS

Organizer Voice

Communicate

Create Consume

Control

TV

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The Evolution of Netflix

reshaping life

© 2012 Fiserv, Inc. or its affiliates.

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Fast  Forward  to  the  Future……… Augmented Reality

reshaping

life

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Top 5 Disruptive Technologies in 2025 (Measured in terms of Maximum Economic Impact)

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Re-imagine Your World - No-Touch Interfaces: The Next Paradigm Shift?

member expectations >everywhere

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Each new iteration of technology has required us to learn new skills to  use  it  proficiently……

Connected Devices Change How We Transact

Future: Untethered Interactions with Consumers

425,000 ATMs Billions of

Devices

114,000 Branches

16,000 FIs

Devices & Experiences People Want

Enterprise-Grade Solutions

Enterprise-Grade Solutions Organizations Need

Devices & Experiences People Love

Smart Phones Outsell Basic Handsets

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Source: Fiserv-Raddon Financial Group National Consumer Research

Mobile Banking Showing Rapid Adoption Branch Usage Declining Slightly

Fudged online banking number. Actual data is 62% but that too was incorrectly generated and creates a "blip."82%

84%

79%76%

28%

67%

10%

20%

35%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Spring'03

Spring'04

Spring'05

Spring'06

Spring'07

Spring'08

Spring'09

Spring'10

Spring'11

Spring'12

Spring'13

Q22: Percent of Consumers Who Use Channel in Typical Month

Any Lobby or Drive-Up Any Online Any Mobile From 2003 to 2010, between 80% and 84% of consumers indicated they use a branch lobby or drive-up in a typical month. In the last three years, fewer than 80% of all consumers use a branch, with 76% indicating monthly branch usage in Spring 2013.

Online banking continues its decade-long growth, with two-thirds (67%) of all consumers now using this channel regularly.

Meanwhile, mobile banking is being adopted even more rapidly than online banking was. Mobile banking usage has more than tripled from 10% in 2011 to 35% today.

Preferred Channel Has Changed

Source: 2011 American Banker Association Survey and Jan 2012 Online Banking Report

62%

20%

8%

6%

3% 1%

Internet Banking

Branches

ATM

Mail

Telephone Mobile

Digital  Channels  Are  Becoming  the  New  “Normal”

3.5

9

14

20

25

30

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2008 2009 2010 2011 2012 2013 2014

4X growth in last 5 years Households in millions

Explosive Mobile Banking Growth

Source: Javelin Strategy & Research Report July 2013

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Wells Fargo customers who use four channels are 1.8 times as profitable as

customers who use one American Banker, March 18, 2013

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Consumer Interactions with Financial Institutions

Source: Tower Group

In the future, attitudes toward loyalty and service quality will be influenced largely by how much self-service is available

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member expectations >ease

member

expectations

>immediate

Sales & Service Channels are Increasing

Branch Branch Call Center

Branch Call Center ATM

Branch Call Center ATM Web

Branch Call Center ATM Web Mobile

Branch Call Center ATM Web Mobile Tablet TV?

NFC?

Biometric Recognition?

Social Networks?

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?

The Payments

Revolution

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Shift to Electronic Payments Continues

POS Payments Value, Share by Instrument

3.6 2

3.7 2 2

35

4.2 3

31

35

4.5 3

31

34

4.7 4

31

33

4.8

29

32

4.6

28

32

4.8

4

29

31

5.1

3

30

29

5.4

2

30

27

5.9

2

30

24

6.6

2

30

23

7.1

2

29

22

7.7

2002 03

4.0

30

18 04 05 06 07 08 09 10 11 12 14 16 2020

36

30

35

31

36

2

31

Check

Credit

Other1

Cash

Debit

Value in $T, share in %

Source: McKinsey U.S. payments map 1 Other instruments include ACH, prepaid and book entry transfer

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Transforming  How  We  Pay  Bills……..

Mobile BillPay Emerging  Fast…….

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The Future of the Plastic Card?

The Future of the Plastic Card?

Common Themes in Recent Payments Innovations

New technology is

the enabler

FIs have not played

a central role

Getting to scale

has been

remarkably fast

The future of the plastic card may not involve plastic or a card….

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Bluebird: How Significant a Competitor?

Facebook to add Mobile Payment Feature

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The Future of the Plastic Card?

In the future, the information associated with a transaction could be more valuable

than the transaction itself

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Data to insight

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When people are inundated with indistinguishable choices, they perceive an experience - with a specific point of differentiation - to be superior.

Scott  McKain  “Collapse  of  Distinction”

The Power of Experience

“When  our  competition  Zigs,  we  Zag…..”

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Avenues of Growth

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New Geography New Niches

New Products

Member Leverage

Segments that fit

with competencies

of the organization

Products that fit

the competencies

of the organization

Selective growth in

new markets with new

branching models

Deepening relationships

will be a key to growth for

the foreseeable future

Growth Strategies

Strategic View: Avenues of Growth

Segmentation is a critical aspect for each of these

growth approaches

I. To Grow, Identify Key Segments and Offer Products and Programs Tailored to Their Needs

• Don’t  think  of  your  member base as homogeneous in needs

• Utilize research to better understand various market niches

• Your markets and your core competencies will determine the appropriate niches

II. Relationship Development Is Vital to Organization Success

• Technology solutions (CRM and BI) are increasingly important

• Relationship pricing will deepen wallet share and help manage expenses

• Biggest hurdles: technology cost and staff development

• Loyalty and referrals are crucial for growth

III. Expanding the Share of Wallet is Crucial for Growth

• An important aspect of growth will come from acquiring existing loans held elsewhere

• Account acquisition costs for existing customers is a fraction of acquisition costs for new customers

IV. Diversify Income Sources: New Non-Interest Income Sources are Crucial

• Margin income and traditional sources of non-interest under increasing pressure

• Prime examples include investment and wealth management, insurance product sales, etc.

V. Transform the Branch Network with Upgrades in Both People and Technology

• Branch evolving into sales-and-service hub and away from transaction hub but remains essential as a channel

• Consistent experience across all delivery platforms becoming increasingly important

• Competency of staff magnified in importance: high-tech means high-touch

You can and should shape your own future; because  if  you  don’t,  someone  else  surely  will.    

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Mark Sievewright President, Fiserv Credit Union Solutions October 25, 2013

The  “Magnificent  7 Cs of Change”  in

U.S. Financial Services