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Transforming the Retail Bank

Transforming the Retail Bank. Kevin Reevey , Managing Director, FSI Group, LLC David Bomser, Senior Director, Oracle. Program Agenda. Banking Pre Global Financial Crisis New Economics of Banking Banking Transformation Enabling Technologies. Return on Equity in US Banks. Global

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Transforming the Retail Bank

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  1. Transforming the Retail Bank Kevin Reevey, Managing Director, FSI Group, LLC David Bomser, Senior Director, Oracle

  2. Program Agenda • Banking Pre Global Financial Crisis • New Economics of Banking • Banking Transformation • Enabling Technologies

  3. Return on Equity in US Banks Global Financial Crisis Source: SNL

  4. Return on Equity: Mature vs. Emerging Markets • From “pre-crisis” returns in the “mid 20s%”, RoE in mature market banks has collapsed to low single digits” • Increased capital requirements (Basel III, Dodd Frank, and local regulator requirements for “top-ups”), stagnant balance sheets and higher cost of funds represent approx. 17% of that collapse • Reaching Accenture’s post crisis target of 15%, requires strategic changes Source: Accenture - Winning in the New Banking Era

  5. Fee Income Global Financial Crisis Source: SNL

  6. What’s Changed Since the Global Financial Crisis • Interchange Income • Overdraft Fee Income • Loan Demand Margins Compressed Margins • Regulatory Compliance • Capital Requirements • Expenses

  7. Share Performance Global Financial Crisis Source: SNL

  8. Thomas Hoenig Vice Chairman Federal Deposit Insurance CorporationJune 2013 “If they’ve now targeted a return on equity that’s 20 percent, we have a problem…”

  9. Progressive Transformation

  10. Successful TransformationsBalance All Stakeholders’ Needs

  11. How to Get There Strategic Actions to reduce expenses and grow revenue

  12. I. Modernize Aging Infrastructure Minimizing operational vulnerabilities • Mission critical systems developed during the 70’s & 80’s • Scarcer and costlier support resources • Integration challenges and brittle architecture • High total cost of ownership Your Bank’s Data Processing Dept. circa 1975

  13. Lineage of Common Core Banking Platforms • CSC (Hogan) Celeriti • FIS (M&I/Metavante) IBS • FIS (Kirchman/Metavante) Bankway • FIS (Newtrend/EDS/Aurum) Miser • FIS (Systematics/Alltel) Impacs • Infor (UCCEL / Computer Associates) Infopoint • Accenture Alnova • Infosys Finacle • SAP Corebanking • Temenos (Globus) TCB • Web 2.0/3.0 • Dodd Frank Durbin • Internet • Interstate • POS • Oracle Banking Platform • Deregulation • ATMs • Call Centers • FIS (Sanchez) Profile • Fiserv (Newtrend) CBS • Jack Henry Silverlake • TCS (FNS) Bancs • Temenos (Globus) T24 • NOW Accounts • Check 21 • Mobile Most core banking replacement options aren’t much newer

  14. II. Adopt Straight Through Processing Transforming your back office • Eliminate duplicate posting • Simplify processing • Reduce reconciliations • Streamline exception processing • Enhance customer service

  15. Debunking the Myths of Real Time Posting Is your bank ready for “real-time”? • Cash and “Cash-like” Transactions • Since the money has already left the bank, is it better to immediately post the debit to a customer account or debit a suspense account? • Benefits of fixing posting issues earlier in the cycle • Transactions that have windows for return • Preserve posting order and retain control • These transactions can be staged, sorted and posted anytime within the window for return (e.g. checks, ACH debits) • Shortened day end batch cycle • Minimize risk of batch failure • Run posting updates throughout the day or multiple times, if necessary

  16. III. Focus on the Customer Placing the customer at the heart of the business model • Provide a holistic view of the customer relationship across all products & services • Price at relationship level • Manage credit limits & collateral at relationship level • Incorporate customer/relationship data into servicing business rules

  17. Reorienting Your Financial Institution Investment Accounts Real Estate Loans Consumer Loans Deposit Accounts • Time to free customer data from product silos Unified Financial Institution Business Processes Business Process Business Process Business Process Business Process Enterprise Account Origination Account Origination Account Origination Account Origination Account Origination vs. Enterprise Customer Information Customer Information Customer Information Customer Information Customer Information Transaction Services Transaction Services Transaction Services Transaction Services Transaction Services Loans Investments Other Deposits Common Business Services Business Services Business Services Business Services Business Services • Optimized share-of-wallet with relationship pricing • Single source of truth • Complete customer centric views • Streamlined processes • Limited cross selling and bundling opportunities • Fragmented customer data • Incomplete, account centric customer views • Redundancies and inefficiencies across front, middle and back offices

  18. IV. Target New Niches Offering innovative, new products/brands that appeal to new segments • Meeting Unmet Needs • Innovation • Flexibility • Winning Over Customer Niches • Identifying, Locating and Communicating to Your Prospects • Competitive Differentiation • Knowing your Core Competencies

  19. Targeting a Niche Winning Share Young Families Unique Value Proposition Brand Awareness Retirees Well Capitalized Business Owners Innovation Ethnic Gen Y Traditional Banks Niche Players First Time Homebuyers Established Specialty Focus Mass Affluent Tech Savvy Customer Experience Convenience

  20. Enabling Technologies

  21. “Transforming retail banking by building a new platform is born out of recognition that an incremental approach will not deliver the strategic outcomes required…” Paul Burgin General Manager, NextGen Program Strategy National Australia Bank The key objective of a Retail Banking transformation revolves around enabling business capability, improving business agility and reducing the cost & operating risk of technology Existing core banking platforms are typically heavily customized over decades and are many versions behind the current versions. Given the complex nature of the IT architecture developed over the years, banks need to approach the replacements progressively Oracle Banking Platform is designed to enable banks to progressively modernize their IT platforms

  22. Oracle banking platform launched September 2012

  23. Oracle Banking Platform Early Adopters • “Greenfield” direct bank • Full domestic Retail Banking Transformation • Replacement of Hogan Platform (deposits, consumer lending and CIS) and modernization of peripheral systems • Customer Solutions

  24. Expected OBP Results: Highlights • Consolidating 20 partial customer systems into a single customer view • Moving from ~500 products to <100 • Offering >100 self-service capabilities, up from <10 • Targeting AUD$800m in annual savings • Corresponding Cost Income (Efficiency) Ratio improvement from 41.3% to 36.5% * • National Australia Bank Source: Oracle Analysis

  25. Oracle Banking Platform can help your bank…. • Drive dramatic improvements in operating efficiency (ER) • Get return on equity back on track (RoE) • Increase earnings per share (EPS)

  26. OBP: Progressive Modernization

  27. Oracle Banking Platform An oracle insight or diagnostic can help your bank understand where to get started

  28. Oracle Insight leverages OBP empirical results to build the business case for transformation Illustrative

  29. Graphic Section Divider

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