Harnessing the Potential of Digital in Financial Services

Harnessing the Potential of Digital in Financial Services
Stephen Phillips September 23, 2013

Harnessing the potential of Digital in Financial Services Context and perspective Leading Digital practice Organisingfor success

Consumers will be more connected with more devices Consumers are increasingly connected… …using more and more devices Car ? Domotics E-book/ tablets TV Netbooks Mobile Inter-net device DVD players Gaming console Smartphones/ PDAs PCs 2000 2005 2010 2015

2_84 The shift “online” is pronounced, particularly time spent using social media online will continue to take SHARE Total time spent on social media has increased dramatically

Digitally active customers are more valuable DISGUISED MASS AFFLUENT SEGMENT EXAMPLE Digitally active customers are more satisfied Promoters generate more value… …and refer more On-line and Mobile Use**

Digitalisation lowers distribution costs by 10-30% for some customers… but not for high-frequency users UK EXAMPLE Resulting in “U curve” effect HighLY digital customers have significantly higher usage

Financial Services companies have much to think about in relation to our increasingly digital world Situation complications questions Fundamental changes in consumer behaviour Unprecedented regulatory pressure Fast moving technology trends Increasingly competitive landscape Legacy environments are slow and expensive to upgrade Not all technology & consumer trends are of equal importance Must not divert attention from today’s business and regulatory commitments Reduce opex/capex vs. increase digital investment Where is current business model under most pressure? Which are the digital trends to really get behind? What is the scale of implied effort? What are priorities if cash constrained?

Most banking transactions are already ‘digital’ RETAIL BANKING EXAMPLE

Example: Commonwealth Bank of Australia Technology delivery CBA strategic focus Customer: Revitalised front-line customer interface 1 People Technology Strength Productivity Strategic Advantage: Best-in-class online platforms 2 More customer needs met in core franchise “One CommBank” Continued growth in business and institutional banking Core: Core Banking Modernisation (CBM) 3 Disciplined growth outside of Australia

Advancements in technology improved face-to-face interaction with customers 1 Self-service Flagship Branch layout Commseereal-time customer snapshot Frontline customer interface used by bank teller staff/agents Single view of customer Integrated with Core Banking to provide real-time transaction details for all personal accounts Interactive/self-serviceoptions for customers to undertake all transaction banking requirements Customers become familiarised with technology options (iPads and iPod apps) thereby reducing the need for bank visits Self service options reduce demand on tellers and waiting times FX and coin counting machines available Branch acts as a ‘one-stop-shop’ with a coffee shop, events and seminars for customers

Bank’s technology allows for easier customer banking at any time of the day 2 online mobile social Point of sale Pi - Albert: Open platform POS payment method Businesses can create own compatible apps Secure merchant terminal QR scan, card scan, chip, NFC payments Customers can split bill Pi – Leo: Device plugged into iPhone/iTouch turning it into payment terminal Similar payment functionality to Albert NetBank (online banking): Real-time account information Tools accessible on-site Google Chrome integration CommSec(online brokerage): Market leading platform Easy access to information Ability to trade instruments FirstChoice and Commbiz Portals for wealth and SME clients CommBank app: Real-time view of A/C Trade stocks FX calculator Undertake bank transfers and B-pay Kaching: Pay 3rd parties using mobile number, email, Facebook or bump Contactless payments Property Guide app: Reality view Loan repayment calc. Facebook: 236k likes Competitions, new products and offers announced via Facebook Winner of Facebook’s Studio Live Awards for the smartest use of Facebook YouTube: ~1.3m views ~1k subscribers Twitter: ~9.5k followers

Core Banking Modernisation has focused on improving processes to optimise front-end 3 Real-time banking, 24x7 Instant account opening Customised product offers Enhanced customer experience Straight through processing Faster speed-to-market Lower cost-to-income Greater efficiency Greater system reliability Less manual re-work and errors Improved risk management “Bank of the Future” Greater flexibility Industrialisation Separate distribution/manufacturing Broader growth opportunities Future proofing

IT investment has paid off in the form of more efficient processes 5 years Ago Today 50% of spend on infrastructure 23 data centres 70 severity 1 incidents 1,200 changes into production monthly 26% of spend on infrastructure 2 data centres 7 severity 1 incidents1 3,000 changes into production monthly 74% customer-focused content

Digitalisation strategy helped CBA become the market leader #1 Online banking #1 In the youth segment >40% of all payment transactions #1iTunes app #1Social & Facebook 460k Kachingdownloads 1st Real-time banking #1 Contactless acceptance points 4.25mactive online customers >2.0m customers on mobile Main Financial Institution for1 in 3 Australians #1 Contactless (7M PayPass enabled cards)

What does it take to launch impactful digitalisation initiatives? 1 2 Scope & focus Ambition Clear and unambiguous definitions of what is to be considered ‘digital’ Solid understanding of likely impacts of key marketplace and technology trends Prioritised sense of the most important challenges and gaps Translation of digital potential into business impact Clarity on choices associated with differing levels of digital ambition and investment Quantitative goals that will excite and engage the business 3 4 Governance & capability Investment principles Organisation model for digital efforts that ‘goes with the grain’ Clarity on who is accountable for what, and where the buck stops Right competencies in right place to ensure successful execution Know starting position on levels of current digitally related spend Debate carefully ‘new toys’ versus driving adoption of existing Create investment portfolio… from reinforced basic service delivery all way to latest mobile experiments

1 Organisations have many different definitions of digital 1 CUSTOMER/CHANNEL/PRODUCT RELATED DIGITAL INNOVATIONS Customer portal Social media Advisor portal and tablet interface New digital products (e.g. Telematics) Distributor management Lead generation/prospect management

1 Organisations have many different definitions of digital 2 INCLUDE BROADER SET OF APPLICATIONS? 1 CUSTOMER/CHANNEL/PRODUCT RELATED DIGITAL INNOVATIONS Customer portal Social media Advisor portal and tablet interface New digital products (e.g. Telematics) Distributor management Lead generation/prospect management Policy systems Enterprise components Data management Business support solutions

1 Organisations have many different definitions of digital 3 INCLUDE IT INFRASTRUCTURE AND ENABLING TOOLS? Hosting Network Workplace 2 INCLUDE BROADER SET OF APPLICATIONS? 1 CUSTOMER/CHANNEL/PRODUCT RELATED DIGITAL INNOVATIONS Customer portal Social media Advisor portal and tablet interface New digital products (e.g. Telematics) Distributor management Lead generation/prospect management Policy systems Enterprise components Data management Business support solutions System management tools IT development tools Security and access management Middleware

1 95_84 99_84 Key to identify and align upon priority areas for digital transformation ADVISED GUIDED ONLINE PORTAL ILLUSTRATIVE Insurance example DISTRIBUTION & CUSTOMER INTERFACE Individual Retirement Corporate SME VERTICAL PROPOSITIONS CUSTOMER BUSINESS COLLABORATION SHARED SERVICES SHARED SERVICES IT INFRASTRUCTURE & ORGANISATION Significant digital capability gaps Digital needs will impact all existing plans Ratify existing plans

2 7_84 Digitalisation can make a significant contribution to companies’ ambitions Digitalisation plays a fundamental role Life Co example Digitalisation plays a supporting role Front-line Enable customer self-service Move customer contact to lower cost channels Increase product cross-sales Differentiate through online/ mobile Eliminate critical system incidents Best channel-partner interface Enable growth initiatives Best advisory tools/apps Decrease infra-structure maintenance cost Decrease process and re-work cost Stronger customer relation-ships Most effective pricing/ under-writing Back-office Increasedrevenues Lowercost

2 Goals leading banks are establishing to move ‘self service’ to the next level are extremely bold ILLUSTRATIVE transactions with potential for self-service STRIVE TO DECREASE non-self-service transactions BEYOND 2013 WHAT CAN BE DONE IN 2013 WHAT HAS BEEN DONE Potential to self-serve via: Online/mobile New functionalities being delivered CDM only ATM/CDM Limited potential to self-serve

3 8_84 We see 5 approaches to managing digital initiatives Level of central control Insurance example A B C D E Inspiration from Global, Local organisations deliver Targeted standardised/ shared investment Systematic, global standardisation and roll-out Active facilitation of global best practice sharing Central innovation team and seed capital Initiation, funding and delivery resides with countries /regions Full autonomyto use own local application solutions Global formulates global vision, goals and global idea exchanges Global structure and resources to support int’l alignment and best practice sharing Global plays a role in establishing test pilots Funding and delivery resides with local Full autonomyto use own local applications Global funds and manages a portfolio of innovation ideas Central innovation team(s) to incubate ideas for broader local application, acts as catalyst for invention Global actively supports shared investment priorities Select areas governed by global architecture and compliance Key systems platforms centrally owned and managed Autonomy only for select local app. Global strategy, architecture and compliance policies One global systems platform Global formulation and funding of initiatives Process ownership roles installed locally

4 One of hottest digital CEO debates we observe is ‘adoption of the old’ versus ‘investment in the new’ RETAIL BANKING EXAMPLE Self-service adoption targets ADOPTION LEVERS 1 2 3 4 Promotion & communication Staff training & customer education Incentives Enforcement & penalties Staff-led discussions with customers using in-branch technology Security and fraud awareness campaigns Online splash screens Leaflets& signage Advertisingcampaigns Financialrewards to switch to paperless billing Higherinterest rates on accounts opened online Higher service fees for assisted transactions Restrictionson low-value assisted cash withdrawals SUPPORTING CAPABILITIES Technology and hardware Technology and hardware New ATM/CDM machines; Functionality across all channels Management information Technology and hardware Goals and quantifiable metrics; Reporting and data gathering Branch design and format Technology and hardware ATM/CDM positioning and signage; Tellers location

4 Part of digitalisation budgets must improve IT service quality basics to satisfy increasingly demanding clients RETAIL INSURANCE EXAMPLE

4 4_84 Bold CEOs are stepping-up to a ‘digital investment bubble’ but holding divisional execs accountable for RoI BU1 Budget Key BU1 to be approved CASH NUMBERS BU1 incremental ~XXM spend above approved current plan in Year 2, with additional XXM IT Strategy recommended spend BU2 Budget BU2 to be approved BU2 incremental Customer-facing; incremental Shared incremental IT incremental

Where are the Digital Execution Challenges? Scope & focus Scope & focus Ambition Ambition Clear and unambiguous definitions of what is to be considered ‘digital’ Solid understanding of likely impacts of key marketplace and technology trends Prioritised sense of the most important challenges and gaps Translation of digital potential into business impact Clarity on choices associated with differing levels of digital ambition and investment Quantitative goals that will excite and engage the business Are you working with clear and ambiguous definition(s) of what digital means? Are SL’s digital efforts ‘go to market’ and distribution focused or do they extend to product and policy space? Are infrastructural prerequisites such as IT architecture considered within scope? Is there agreed linkage from SLs stated business ambitions through to the role that digital capabilities must play? To what extent have these requirements been driven down into concrete KPIs? How have any conflicts between competing ambitions been resolved? Governance & capability Governance & capability Investment principles Investment principles Organisation model for digital efforts that ‘goes with the grain’ Clarity on who is accountable for what, and where the buck stops Right competencies in right place to ensure successful execution Know starting position on levels of current digitally related spend Debate carefully ‘new toys’ versus driving adoption of existing Create investment portfolio… from reinforced basic service delivery all way to latest mobile experiments What are the role and associated decision accountabilities in different geographies? To what extent are country and product groups aligned and engaged with digital efforts? What, if any, have been resourcing and capability related ‘pinch points’? Is there a clear point-of-departure factbase on current SL digital expenditure? How are Divisional executives being held accountable RoI on their share of the transformation investment? Will further waves of investment be required?

Harnessing the Potential of Digital in Financial Services