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Page 1: RETAIL BANKING: How to Avoid Digital Disruption and …solutions.yodlee.com/rs/789-EJH-884/images/ES_Retail-Banking-How... · Ongoing digitalization is transforming all industry sectors,

Ongoing digitalization is transforming all industry sectors, retail banking

included. This is leading to widespread disruption and, according to

Accenture, banks that are slow to respond could lose a third of their

market share by 2020.

But the reverse is also true: Retail banks that embrace digital innovation

and make it work for them can reap significant benefits.

How financial institutions can jump out in front and take advantage of

these opportunities was the focus of a recent web seminar hosted by

American Banker. Accenture’s Wayne Busch, who leads the western

region for the professional services firm’s North American banking

practice, suggested that to stave off competition and gain market share

traditional full-service banks must shift their orientation from products

to customers.

RETAIL BANKING:How to Avoid Digital Disruption

and Gain Market Share

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Five Key TrendsMultiple disruptive forces are converging on the banking industry, Busch noted, “creating an increasingly complex and highly dynamic environment with permanent volatility.” Busch highlighted five significant trends that are shaping this environment:

1. “Convergent disruption” is leading to structural change in the banking industry.

2. Customer satisfaction with existing banking models is declining.

3. New digital technologies are creating competitive threats across the retail banking spectrum.

4. Banking’s evolution will ultimately be shaped not by technology per se, or by how banking products are developed and distributed, but by customer preferences.

5. The path forward for financial institutions is to become part of an ecosystem that Busch has called an “Everyday Bank.”

Although customers indicate that they are generally satisfied with their banks and the services that they provide, Accenture’s 2015 North American Retail Banking Survey reveals that consumers are also taking advantage of offerings from new market entrants and comparing rates online to shop around for their financial products. As a result, while retail banks still retain four-fifths of the market for traditional services like checking accounts and bill pay, not surprisingly their share of high-margin products like mortgages and auto loans has steadily dropped to about a third of the market overall.

Consumer BehaviorsTo recover or even gain new market share, Busch pointed to seven consumer behaviors that banks should capitalize on with their customer retention strategies:

1. Customers are buying more financial services, but they are purchasing fewer of them from traditional retail banks – this presents an opportunity for financial institutions to take advantage with strategic customer retention programs.

2. Customers’ inclination to switch providers is primarily driven by two factors: price and service levels—including how readily the customer can access information and complete transactions online.

3. Digital channels give customers more opportunities to interact with their bank, but this can work for or against the bank depending on the quality of the interaction.

4. The ways in which consumers engage with their bank differs based on the channel and the device that they’re using. For example, while someone is unlikely to try and originate a mortgage online using a mobile device, that same customer may comparison-shop for one using a tablet.

5. In tandem with overall service levels, how trustworthy consumers perceive their financial institution to be is a key determinant of customer satisfaction. Banks need to be tactical with their customer retention programs in order to keep satisfaction levels high.

81% of consumers would not switch banks if their local branch closed.

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6. Nearly a third of all customers participate in bank loyalty programs, and these are an effective way to increase customer satisfaction. When they’re applied more broadly, across all product lines, they can help banks increase their share of wallet.

7. Innovative banking models are increasingly attracting customers across the board. For instance, according to the Accenture survey, 30 percent of retail bank customers now say they would be willing to do business with a digital-only bank—compared with fewer than 10 percent just three years ago.

Building BlocksHaving pointed to the various ways in which banks need to respond to the new digitized environment to remain successful, Busch then described these actions in terms of three “building blocks” for achieving a sustainable competitive advantage. The first building block refers to optimization and simplification - banks need to be as efficient and effective as possible in their current structure in order to streamline and simplify the business and manage regulatory requirements. The second building block focuses on agility and the need for banks to be able to seize opportunities in times of change such as becoming more digital and customer-driven. Finally, the third building block reinforces the need for continuous innovation and the importance of proactively staying ahead of the market with the right ideas, vision and leadership.

Rationalizing their organizational structure sets the stage for continuous innovation and engaging customers beyond the bounds of existing banking models.

79% of consumers consider their banking relationship to be transactional.

3 Building Blocks for Sustainable Competitive Advantage in the “Era of Convergent Disruption”

Building the Future BankThree building blocks are essential for achieving sustainable competitive advantage.

SustainableCompetitiveAdvantage

DriveEfficiencyThrough

AdaptThrough

DifferentiateThrough

3. Year 2020 Leaders

2. Year 2020 Table Stakes

1. Today’s Table Stakes

What Must Banks Do TODAY to Succeed in the “Era of Convergent Disruption”?

• Proactively invest in initiatives that will build the business rather than reactively respond to regulations, competitors and industry changes

• Fundamentally shift from a product-oriented organization to a customer- driven organization

• Rebuild bank reputations

• Embrace and integrate new technologies, channels and strategies

3. ContinuousinnovationHave the ideas,

vision and leadershipto proactively

stay ahead of the market

2. AgilityBe able to seize opportunities in times of change

• Become More Digital• Be Customer-Driven• Fulfill Omni-Channel Potential (incl. social media)• Manage the New Talent Dynamic• Employ Optimal and Flexible Financial Strategies

1. Optimization and simplificationBe as efficient and effective as possible in current structure

• Channel Fulfillment• Streamline and Simplify The Business• Manage Regulatory Requirements• Manage Enterprise Risk Management Regime• Create Capital and Funding Strategies

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To succeed at building the future bank, Busch then described five things banks must do to improve their current capabilities:

• Better understand their customers: By making use of micro-segmentation, banks can better comprehend their customers as groups, sub-segments and individuals. As part of an omni-channel strategy, this will guide banks to direct resources that they need, as well as help develop products and service customer needs through individual interaction models.

• Re-imagine the banking experience: Using analytics, banks can create customer-centered journeys that go beyond conventional banking encounters. Using these data analytics, they can also develop test-and-learn approaches to trigger continuous improvement efforts that customers have hinted towards in their behaviors and feedback.

• Change their distribution mix: Given the diminished role of the branch and the growing importance of online activity, banks need to rethink the distribution mix to make the most of their customers’ changing patterns of digital channel usage.

• Sustain and deepen customer loyalty: By combining implicit loyalty benefits, such as advice, matching donations or services like merchant-funded offers, with explicit, point-based loyalty rewards, banks can retain more customers and even grow their share of wallet.

• Evolve into ‘Everyday Banks’: If banks get all of the above right, Busch declared, then they can actually reinvent themselves and provide a digital platform that serves their customers day in and day out. This means helping customers orchestrate their financial lives by providing timely and relevant advice; assembling a distinctive combination of products that can meet all of their customers’ financial needs and expectations, and then using the contact points that all these services create to further engage with their customers in other areas of their lives.

18% of Millennials switched banks within the past 12 months.

The Everyday Bankshould position themselves at the center of an extended “ecosystem” that offers consumer benefits beyond banking.

Advisors:continuously leveraging analytics engines/ algorithms to gain the deep customer knowledge that will enable them to personalize their advice

Value Aggregators: offering a distinctive portfolio of products and services through the bank, but within a broader ecosystem of services providers

Poly-morphic

Payments

BuyingSuggestions Comparator

Ticketing

D-MarketPlace

Comparator

Couponing,Vouchering,

Loyalty

Facilitators:accessing cross-industry products and services through designed experiences with partners

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Envestnet® | Yodlee®’s Financial Cloud

Aaron Adolphson, Director of Product Marketing at Envestnet | Yodlee and the webinar’s second presenter, weighed in and described how Envestnet | Yodlee’s cloud-based financial services platform could help banks obtain a complete picture of their customers’ finances. This, Adolphson said, is instrumental, if banks are going to break through the newly competitive landscape and provide the highest standard of advise to their customers. Such a break-through would enable banks to more effectively guide them toward their financial goals.

Adolphson drew attention to two Envestnet | Yodlee tools that help with this process:

Analyzing and detecting patterns in transaction data, the Envestnet | Yodlee Sense offering is an intelligent way for banks to discover valuable customer insights using information that a bank already provides to its clients. Banks can use these insights to deliver better advice and thus, build stronger loyalty among their customer base, developing new tools and offerings that create a more personalized and predictive experience to foster a deeper consumer interaction. Envestnet | Yodlee Sense is an innovative digital financial solution that ultimately creates significant new opportunities for financial institutions. It leverages data to deliver a personalized and predictive user experience, while continually engaging consumers by providing the tools, know-how, and encouragement to help them move forward with their current plans and future financial goals. This approach lets banks enable their consumers by focusing on taking care of basic financial habits first and then builds trust with the consumer over time.

Envestnet | Yodlee Tandem enables banks to give their customers a complete picture of a household’s finances. Adolphson noted that most individuals have around 12 accounts spread among different financial institutions, but that within households—and even larger family circles that include multiple generations—this number can grow geometrically. By linking held-away accounts, Tandem allows banks to survey their customers’ complete financial landscape, allowing them to share the full picture with their account holders and provide timely advice when called for.

Both offerings, Adolphson concluded, create a tremendous opportunity for banks to increase customer loyalty and win a greater share of wallet by serving as the customer’s knowledgeable and trusted advisor.

Guide Households Towards Financial Goals

Long Term Planning

Short Term Planning

Get Out Of DebtBasic Financial Habits

Add SavingsAdd & Pay billsAdd LoansChallenges

View Net WorthShort Term Goals

Add InvestmentsLong Term Goals

First Time User ExpAdd AccountsGet To Know YouView Balances

ADVICE

Engagement

Func

tion

alit

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