Ian Goodliffe, Partner, CACI

Retail Banking Innovation Conference

February 2016

FinTech: THE CONSUMER PERSPECTIVE AND HOW IT WILL AFFECT PHYSICAL DISTRIBUTION

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This has implications for investment across the 4 Ps:

INTRODUCTION

Digital transformation is happening in our daily lives…

…banking is no different

PEOPLE PLACES PRODUCTS PLATFORMS

BUT – things are not equal to all People and this means the other Ps need to be structured accordingly

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THE WAY WE BANK IS CHANGING

TOTAL CURRENT ACCOUNT INTERACTIONS:

Source: CACI Channel Impact. An Interaction = one branch visit; one answered call; one login

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TOTAL CUSTOMER INTERACTIONS

Source: CACI Channel Impact. An Interaction = one branch visit; one answered call; one login

TOTAL CURRENT ACCOUNT INTERACTIONS:

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MORE WAYS TO BANK THAN EVER BEFORE

Digital banking is becoming

increasingly popular, both on

mobiles, tablets and desktop

computers.

Access is driven by both by

internet availability and willingness

to adopt new technology

Communicating with your bank,

now often 24/7, is easier than ever

before – including through

telephone banking, SMS, email,

online chats, and using social

media such as Facebook or

Twitter

TECHNOLOGY/BEHAVIOUR COMMUNICATIONPHYSICAL ACCESS

Bank branches are still pivotal for

customers but there are a number

of other ways to bank now –

including through the Post Office,

ATMs, mobile bank branches, and

cash back facilities

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RETAIL BANKING IS FUNDAMENTALLY CHANGING

ONE SIZE DOES NOT FIT ALL…

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THE EARLY ADOPTERS

The first early adopters of “digital” banking were classified into one of three groups:

Source: CACI Ocean; research using real bank customers from our clients (c25 million individuals)

Student-dominated “free thinking” towns

Canterbury; Durham; Lancaster;

St Andrews

Remote communities, using “Mail Order” since the 1970s

Cornwall; Highlands & Islands of Scotland;

North Yorkshire

Cash Rich, Time Poor

Up to 50 miles from London along main motorways: M1;

M3; M4; M11

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A MORE SOPHISTICATED VIEW IS REQUIRED

We also compared to published sources on more general digital trends

Teamed up with the well-respected Research organisation GFK to pool data on the emerging banking behaviour in the digital world

CACI Econometrists and Statisticians ran forecasts for future banking behaviour for all channels – based on this data

Finally we reviewed the output with our banking clients and got their feedback

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IT’S DIFFERENT BETWEEN SALES AND SERVICE…

Transactions first…

Convenience Cost

New Accounts catching up…

But not all products are the same

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IT’S DIFFERENT BETWEEN PRODUCTS…

CURRENT ACCOUNTS:

of all transactions will be digital by 2020

SAVINGS ACCOUNTS:

90% 45% 85% 71%

of new accounts will be digital by 2020

of all transactions will be digital by 2020

of new accounts will be digital by 2020

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FORECAST: CURRENT ACCOUNT MANAGEMENT

Still At Home

Starting Out

Rising Metropolitans

Poorer Parents

Working Singles & Couples

Home-Owning Families

High Income Professionals

Older Working Families

Mid-Life Social Renters

Asset Rich Greys

Road To Retirement

Low Income Elderly

Mobile Log-ons per Individual, by Fresco Segment, 2015 & 2020

OVERALL GROWTH:

150%

INCREASE: +1.5 BILLION

LOG-ONS

Mobile logons per individual by Fresco Segment – 2015 & 2020

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High Income Professionals: TRANSACTIONAL BEHAVIOUR% of individuals using each channel to manage their current accounts

59% 70%39% 31%

20

15

branch visits a year

5 will open a new current account

this year

8%

20

20

branch visits a

year2

56% 36%80% 25%

branch visits a year

2

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Road to Retirement: TRANSACTIONAL BEHAVIOUR% of individuals using each channel to manage their current accounts

69% 46%10% 20%

20

15

branch visits a year

12 will open a new current account

this year

2%

20

20

branch visits a

year2

61% 46%53% 17%

branch visits a year

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High Income Professionals: BUYING BEHAVIOUR

Annual new savings deposits

are typically worth

£16K

Assumes an annual growth rate for this segment of 2.0% (source: CACI Channel Impact)

% of new savings accounts coming via each channel

2015 202038%

53%

9%5%

18%

77%

£4.1bn

£2.9bn

£0.7bn £0.4bn

£1.6bn

£6.8bn

Phone

Digital

Branch

Branch

Digital

Phone

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Road to Retirement: BUYING BEHAVIOUR% of new savings accounts coming via each channel

Annual new savings deposits

are typically worth

£6K

2015 202059%

31%

10%6%

36%

58%£2.8bn

£5.4bn

£0.9bn £0.6bn

£5.9bn

Phone

Digital Branch

Digital

Phone

£3.6bnBranch

Assumes an annual growth rate for this segment of 1.5% (source: CACI Channel Impact)

KEY TOWNS FOR EACH SEGMENT – VERY DIFFERENT PLACES

ExamplesGuildfordHarrogate

KingstonSolihull

Winchester

ExamplesBlackpool

EastbourneGreat Yarmouth

ScarboroughTorquay

Source: CACI Locality Market Geography

HIGH INCOME PROFESSIONALS ROAD TO RETIREMENT

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A “DIGITAL” LIFE vs. FS VALUE: TARGETING THE RIGHT PEOPLE WILL BE ESSENTIAL

VA

LUE

PER

CU

STO

MER

high

low

DIGITALISATION OF THEIR LIFElow high

DIGITALISATION: driven by a range of factors: smartphone/tablet ownership; app usage; online shopping behaviour; social media engagement etc.VALUE: driven by products & balances, cost not included

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SO WHAT?

Technology might make geography less relevant, but it doesn’t make demographics or socio-economic factorsany less important

There is only ONE Customer andDemand is FINITE

An optimal distribution strategy has to be a balanced distribution strategy - balanced across Channel; from a Sales, Service and Communication perspective

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IN CONCLUSION

Banking is changing as a result of technology and consumer requirement

Pace of change isn't equal across the country, as the biggest driver of consumer behaviour is demographic

Branches will still be important as "brand anchors“ and will need to change their format, purpose and location to stay relevant

Banks should optimise their future distribution effort based on a bottom-up appraisal of the local needs from physical and digital assets