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The Bank of the Future

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Georges Masoud, Managing Partner, McKinsey & Company, Ukraine

Georges Masoud, Managing Partner, McKinsey & Company, Ukraine

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  • 1. The bank of the futureKiev, June 4, 2013Georges Massoud, Managing Partner McKinsey UkraineCONFIDENTIAL AND PROPRIETARYAny use of this material without specific permission of McKinsey & Company is strictly prohibited2nd International Banking Conference & Exhibition
  • 2. McKinsey & Company |BDP-ZWO832-20120208-7592P1EA-WS1Modern financial services revolutionSOURCE: Oracle; web search; McKinseyThe trendPrimary financialindustry implicationFactAlwaysonline▪  Smartphone becomes theintegrated personal onlinemultifunction device▪  Mobile paymentrevolution intransaction industryGlobal smart phone penetration willreach 50% by the end of 2019 andaccount for over 80% of bankingrelevant population▪  Industry leaders getopportunity to make moreand smarter data-baseddecisions▪  Change in customerservice model and dataoperations“Every 48 hours in 2010,more data was created than in thepast 30,000 years” /Eric Schmidt,Google/Bigdata“New” customers ▪  Customers are getting “over-informed” and finding newforms of emotional decisionmaking▪  Next generation PR,marketing and productcustomization“Gen-Y customers demandexclusivity and personalizedproducts. …[they] expecteverything suited to theirpreferences”Digital revolution ▪  Customers demandingincreasingly faster andmore convenient service▪  The digital channelrevolution“Newest generation checks emailsbefore breakfast and after going tobed”/Eric Schmidt, Google/
  • 3. McKinsey & Company |BDP-ZWO832-20120208-7592P1EA-WS2SOURCE: Bank 2.0; McKinseyCustomers adopt tech enabled innovation faster than ever before0.82.02.03.04.07.022.038.0iPod (2001)iPad (2010)Groupon (2008)Twitter (2006)Facebook (2004)Internet (1974)TV (1928)Radio (1902)Years required to reach 50 mln units/usersYears
  • 4. McKinsey & Company |BDP-ZWO832-20120208-7592P1EA-WS3Death of the hour-glass – new generation customers simply do not want towait“Video on Demand consumption willincrease to 9% of the TV viewing totalby 2015 from 3% in 2008”British Telecom to offer 300 Mbpsfiber optic broadband on demand in2013 vs. the current average vs. thecurrent UK broadband average of 7.6Mbps“And new job entrants are changingcareers faster than college studentschange their majors, creatingfrustration for employers struggling toretain and recruit talented high-performers”“On the average Web page, usershave time to read at most 28% of thewords during an average visit; 20% ismore likely.”SOURCE: bbc.com; USAToday; Enders Analysis; Harald Weinreich, Hartmut Obendorf, Eelco Herder, and Matthias Mayer: "Not Quite the Average: AnEmpirical Study of Web Use," in the ACM Transactions on the Web, vol. 2, no. 1 (February 2008), article #5.Expected limit for waiting timefor banking services are downfrom 15 minutes to 5 mintes injust 7 years
  • 5. McKinsey & Company |BDP-ZWO832-20120208-7592P1EA-WS4Social media – important vehicle for information and adviceSocialMediaSocialnetworks1Micro-blogs2Mediasharing3Social gaming4Discussionforums5Blogs6Reviews7▪  Register for communities todiscuss specific topics, seekadvice, and discuss mutualinterests▪  Evaluate and rateproducts andservices based onpersonal experience▪  Create individualblogs to discussopinions andexperiences based ondaily life▪  Sign up for a personalfeed to broadcastactivities and receivereal-time updates (e.g.,news, friends,celebrities)▪  Upload, share, andcomment on photos,videos, and audio tofacilitate massdistribution of richmedia▪  Create personal profiles tofacilitate keeping in touch,meeting new people, andsharing key interests▪  Connect with friends andstrangers to play and discusspopular games in the onlinespaceSOURCE: McKinsey research
  • 6. McKinsey & Company |BDP-ZWO832-20120208-7592P1EA-WS5Changing customer banking behavior – where is the bank?Example of the day in a life of a mobile payments usersTube ride Enable easy and convenient transit payment NFC (POS payment)Purchase coffee Allow for quick purchase of coffee at localstory through mobile prepaid cardBarcode (POS payment)Pay pocket money Enable quick and paperless payment of amicro paymentMicro-paymentTransfer funds Enable secure and quick transfer of fundsfrom an overseas account of a friendRemittancePay a friend Quick and convenient way to make a micropayment to a friend after a mealP2P paymentAccount summary One-touch summary of account balancesacross all your accountsAccount aggregationPay plumber Convenience to pay plumber for fixing waterpipe at home through portable card readerSMB acceptanceTravel home Ability to pay easily for afterhours via mobile Authentication,micro-paymentPurchase gift online One click pay that is fast and secure viamobile for gift purchased online1-click paymentLocate restaurantand pay billAllow for real-time location of a restaurantwith ability to easily prepay the billLocation, Coupon,LoyaltyPotential non-bank providersSOURCE: McKinsey
  • 7. McKinsey & Company |BDP-ZWO832-20120208-7592P1EA-WS6SOURCE: Forester; World Retail Banking Report survey of 41 banks, Finalta / EFMA Multichannel survey 2008, McKinseyanalysisSplit of transactions by channel, Europe%70423019292825182834BranchATM542015F22010F3452PhoneInternetOther1220052920002Over the next few years, mobile will become the predominant channel forbanking services
  • 8. McKinsey & Company |BDP-ZWO832-20120208-7592P1EA-WS7Top 200 iPhone financialapplicationsAs of Aug 2011 (subject to fast change)SOURCE: Press search; Apple AppStore; McKinseyNon-banks are clearly attacking banks in the smart phone space54100100% =BankNon-BankPaid2000Free20046Sample non-bankentrants Description of activity▪  Square allows anyone toaccept card paymentsusing their smart phones▪  TxtLoan provides a quickway to get a £100 loan forseven days via your mobilephone▪  Moneyzoom provides aneasy-to-use personalfinancial management tool▪  Lending Club is a peer-to-peer lending platform forcredit worthy borrowers &affluent lenders
  • 9. McKinsey & Company |BDP-ZWO832-20120208-7592P1EA-WS8Opportunity is far bigger than just (mobile) paymentSOURCE: McKinsey; web searchValue-chainEffect ofmobilerevolutionExamples▪  Certain testapplicationssupportcomparinglocal retailers▪  Mobilephones arecapable ofcontactingandnavigating toretailers▪  Mobilephones cancompareprices, offersof differentprovidersand also theopinions ofothercustomers▪  Purchasefeedback canimmediately beshared aftertransaction▪  Experiences,opinions areshareable onsocial networksLoyalty /returningcustomerPurchaseevaluation,feedbackPaymentPurchasedecisionContacting /searchingthe dealPricecomparingsitesMapretailersSearch, evaluation of alternatives Decision making Transaction Post-evaluation▪  Mobilephonesarecapableof real-timelocationbasedsearch▪  Mobilepayment▪  Mobilephones areable tocollectloyalty pointsandparticipate inotherpromotions▪  Yelp helps tofind the bestretailer withevaluations▪  Google Localcollectsinformation▪  GoogleMaps plansroutes▪  RedLasermaps thebest prices▪  Foursquare is aplace to sharecustomerexperience▪  Swipely collectspost salesdiscounts▪  AroundMcompareslocalstoresandprices▪  Tabbed-Outhelpsrestaurantpaymentwithoutwaiting forthe waiterGeneratedemand▪  Mobile phonesare effectivetools for imagedevelopmentandadvertisement(location-based)▪  Cellfire collectsuniquecoupons anddiscounts1 Considering commercial margin along the value chainBank penetrationEntire retail intermediary universe1~$10bnTransactionuniverse1~$1bn
  • 10. McKinsey & Company |BDP-ZWO832-20120208-7592P1EA-WS9Many innovations, but no winners yetSOURCE: GKIenet; eMarketer; MRSZ; Pyramid research; websites; McKinseyOverview:▪  Main application: payments without a mobile operatior▪  Company Citi (MasterCard PayPass)▪  POS: 70,000+▪  NFC device: no▪  TSM: No▪  Security element: Passive vignette▪  Other partners: Visa Europe, MasterCard Worldwide,Oberthur Technologies (matrica), Infineon Technologies(chip)▪  Passive vignette that can be attached to the mobilephone and can be used at all MasterCard PayPassterminal▪  Citi did not wait for solutions integrating mobile phonesfor market entry, however opened towards the markete.g., as key partner for Google Wallet▪  No information on additional services offered at themomentMicroSDkártyaPasszívmatricaCustomer benefit▪  Safer than credit cards, because of contactless technologyRetailer benefit▪  Can track shopping habits and trends for effective customertargetingOverview▪  Mobile payment system for Android phones that can be swipedagainst an electronic reader to make payment–  May also be used for other purposes, e.g., P2P transfers,coupon subscriptions, link to noncommercial information (e.g.,linking movie ticket purchase to reviews)▪  Requires use of NFC-enabled phones▪  Developed in conjunction with Citigroup and MasterCard, inconsultation with VeriFone Systems▪  System still undergoing testing
  • 11. McKinsey & Company |BDP-ZWO832-20120208-7592P1EA-WS10Banks will have to deal with big data explosionWorldwide data generatedExabytes (= 1 Billion Gigabytes)Worldwide data storage capacityExabytes (= 1 Billion Gigabytes)Nature of this growth in generated and available data▪  Scale: massive, multi-petabyte (= 1 Million Gigabyte) data sets,designed to scale and collect more information▪  Distribution: dispersed data sources from inside and outside theorganization▪  Diversity: semi-structured, unstructured, or a combination of differentdata types, especially from social media▪  Timeliness: rapid and real-time capture of data, analytics, and decisionmakingSOURCE: IDC Digital universe study 2011 and 2010; Team Analysis, McKinsey Global Institute; Hilbert and López,“The world’s technological capacity to store, communicate, and compute information,” Science, 2011ESTIMATE850130552000 2005 2010 2015 20204,80015,00011050 1,30020052000 202035,00020157,9002010All information stored inside theUS Library of Congress amountsto < 0.00025 Exabytes
  • 12. McKinsey & Company |BDP-ZWO832-20120208-7592P1EA-WS11Banks are very well positioned to integrate the multiple “hot topics” of thepuzzle…Cash 20%80%Transfers andtransactionsSOURCE: McKinseyCurrent marketingsystemsGROUP BUYINGSpamming withoutpersonalized offersLOYALTY PROGRAMSFragmented, minorshare of wallet(2–5%)ONLINE ADSNo connection withactual spendingBANKSBuilding oncurrent andnew clienteleMOBILE PAYMENTTECHNOLOGIESMobile banking/payment appsBIG DATAConsolidated, butunderutilized dataCUSTOMERRELATIONSHIPTrusted partner(No random“bargain hunters“)LOCATIONDetermine customers’current position (POSdata, smartphone data)SHOPPINGBEHAVIORFull information aboutspending detailsFINANCIALSTATUSPurchasing power ofcustomers is knowdBanks canleveragetheir 360degree viewof thecustomerIndividual spending
  • 13. McKinsey & Company |BDP-ZWO832-20120208-7592P1EA-WS12SOURCE: McKinsey Global Banking Poolstraditional banking products are likely to be increasingly attackedby non-banking players also in the EE regionBank account andTransactionLendingDeposits andinvestmentsProtection andInsurance80 % of profit pool isunder attackBankingproductsSpecialty LendersInsurersPostal Services Specialized PrivateBanking PlayersTelecomsTechnologyCompaniesRetailersGlobal retail revenue after risk cost
  • 14. McKinsey & Company |BDP-ZWO832-20120208-7592P1EA-WS13Challenges to overcome in CIS▪  Cash based economies in CIS▪  Infrastructure, large investments▪  Customer behavior & trust▪  Regulations▪  Banking new operating models▪  TalentHow and howquickly toembrace thechange