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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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2
3
4
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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
11
% 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
12
% 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
18
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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
Telephone Mobile
Digital Channels Are Becoming the New “Normal”
3.5
9
14
20
25
30
35
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
