1. Banking Industry Overview
Jane Backer
Forms Expert
© Copyright IBM Corporation 2007

2. Agenda
In this module, you will learn about…
 the latest global trends in the banking industry.
 the current business challenges and how technology may offer answers.
 regional variations and geography related issues.
When you have completed this section and the suggested additional readings
you will…
 be able to have conversations with bank executives on many different
banking topics.
 understand concepts that they may expect you to respond to.
 have a guide to more in depth materials available to you through other
sources.
2 © Copyright IBM Corporation 2007

3. Financial Services Sector
Financial Insurance
Banks
Markets
Retail Banking Commercial & Investment Banking Banking Infrastructure
 Government Central Banks
 Consumer/Retail  Automated Clearing House
Deposits  Credit  Sales and Trading (ACH)
 Mortgage and Lending  Finance &  Wholesale  CHIPS
 Private Banking Advisory Brokerage  SWIFT
 Investment  Payments &  Custody Services  Central Banks &
Management Cash  Securities Depositories
 Thrifts, Savings banks Management Services  Credit Card –FDR, TSYS
 Credit Cards  Treasury  Underwriting &  Credit Bureaus
 Credit Unions Services Syndication  Regulatory bodies
Banks provide the infrastructure to flow capital from those holding an excess to those
who require capital for production and consumption.
Banks help an economy optimize the use of capital to increase production of goods
and services.
3 © Copyright IBM Corporation 2007

4. In IBM’s view, Banking is big and growing
7.0%
Aerospace &
Defense
Banking
Relative Market Growth
M&E Local Government
6.0%
Health Telecom
Petroleum CSI Fin Markets
5.0% Education Insurance
Utilities
Life Sci Central Government
W'sale
Transportation Retail Electronics
4.0% Travel
CPG Industrial Products
Chemical
Automotive
3.0%
0 10 20 30
Relative Market 50
40 Size 60 70 80
Data Source: GMV 1H07 (Served, Non-Memo, 1000+ and NonBusiness)
Note: AGR and Growth Amount are for 2006 to 2007.
4 © Copyright IBM Corporation 2007

5. But for bankers, profitable growth is harder to generate
Operating Profit Margin, Return on Assets, Price-Earnings Ratio,
1995-2005 1995-2005 1995-2005
20 4 30
Percent Percent
18
25
16
3
14
20
12
10 2 15
8
10
6
1
4
5
2
flattening declining declining
0 0 0
95
97
99
01
03
05
95
97
99
05
95
97
99
03
05
01
03
01
19
19
19
20
20
20
19
19
19
20
19
19
19
20
20
20
20
20
Key
Small (Assets < $5B)
Medium (Assets $5B - $70B) A one point drop in P/E ratio for a bank with $350B in
Large (Assets > $70B)
assets would result in $4B in lost market value.1
Note: Graphs show trend for the global average of all banks by asset size group;1Based on 2005 data and assumes no change in earnings
Source: Thomson One Banker; IBM Institute for Business Value
5 © Copyright IBM Corporation 2007

6. The Call to Action: CEOs recognize the need for fundamental change
But banks are not recognized as innovators
Source: Business Week
6 © Copyright IBM Corporation 2007

7. Innovation through Business/Technology integration
Linking the business model innovation with technology enablers is critical
86%
81% Banking CEOs on Importance of
Business-Technology Integration:
61% Integration Gap in
Banking  “…integration of business and
46% technology is critical..”
 “…there are few, if any, processes
Banking that are not totally dependent on
technology…”
All Industries
 “…technology is critical as a pre-
requisite, innovation required to
Integration of Significant Extent of generate value…”
Significant Integration
Importance
Sample size: Banking = 84, All industries = 765
Source: IBM 2006 CEO Survey
7 © Copyright IBM Corporation 2007

8. Innovators produce superior results
And the benefits for those who innovate is generally acknowledged
Operating Profit Margin, Return on Assets,
Selected Innovators1 vs. Industry Average Selected Innovators1 vs. Industry Average
Percent Percent
30% 2.5%
25% 2.0%
20%
1.5%
15%
Wells Fargo 1.0%
10% Bank of America
HSBC
5%
Standard Bank
Royal Bank of
0.5%
Scotland
Industry average
0% 0.0%
96
90
93
99
02
05
93
90
96
99
02
05
19
19
19
19
20
20
19
19
19
19
20
20
1
List of selected innovators is for illustrative purposes and is not exhaustive; innovators were selected based on IBV discussions with
industry experts and quantitative and qualitative analysis
Source: Thomson One Banker; IBM Institute for Business Value
8 © Copyright IBM Corporation 2007

9. Innovation through Business/Technology Integration
A Closer Look at the Innovators
Products, Services & Operations Business & Enterprise
Markets Models
Develop new products and Improve effectiveness and Refocus, restructure and
services, target new markets efficiency of core functional extend the enterprise
and audiences areas
My Spending Report – Engine Room – single back office MobileMoney – joint venture with
automatic online display of for independently operating group cell phone provider MTN provides
transactions from credit card, check companies spurs efficiency and mobile accounts – also to
card, checking account and bill pay enables white-labeling driving C/I ratio un(der)banked clients. Uptake
– used by 25% of clients within 6 from 58,1% (1996) to 41,8% (2005) exceeded targets. Imitators quickly
weeks of launch followed.
“Keep the Change” – rounds up Insourcing – low-cost, high-tech Adaptation - business model
card purchases & transfers back office in India with proprietary in- tailored, as needed, to enable
difference to savings account. house applicaitons furthers reach penetration of diverse, local markets
Since start in 2005, 2 million abroad. Rapid expansion amongst around the globe. 125m clients in 76
customers, 800.000 new savings under- banked, high net worth clients countries. Voted “Global Bank of the
and 500.000 new checking in Canada and UK year” for last four years
accounts
9 © Copyright IBM Corporation 2007

10. Executive Summary
In the coming years, five key trends will drive the industry to become
a highly specialized market with tremendous demand complexity
2015 Mega-Trends IBM’s Vision - The Future of Banking
Customers
Customers redefine the rules  Pronounced shifts in demographics, attitudes and behaviors, in
1 of the game addition to ubiquitous information, are giving customers
increased purchasing power
Competition
Universal banks and ultra-focused  The marketplace will further consolidate and non-bank banks
2 niche players thrive and industry specialists will both compel and enable traditional
banks to specialize
Human Capital
Changing workforce composition  An older and increasingly mobile and diverse workforce will
3 dictates new approaches require new and more flexible approaches to compensation
and performance management
Regulation
4 Regulatory burdens intensify  Heightened requirements around privacy, security and
operational and partnership risk will require banks to take an
enterprise-wide approach
Technology
Technology improves inexorably to  Advances in global connectivity, computing power, service-
5 enable breakaway value oriented architectures, and data analysis will lead to
unprecedented functionality
Source: IBM Institute for Business Value
10 © Copyright IBM Corporation 2007

11. A bank’s strategy starts with a vision for business and
technology mega-trends.
Competitive Mega-Trend
Response
Technology Inputs Market Forces
Business Inputs
Improve Customer Experience Customers redefine the rules
Data of the game
with Customer Data Integration
Infrastructure Universals and niche players
Build scale and/or specialize
thrive, squeezing the middle
Use analytics, algorithms, and Regulatory burdens intensify,
knowledge to change the game Risk plus privacy, fraud concerns
Innovate with new technology – Technology continues to enable
don’t be left behind Innovation breakaway value
Collaboration, social network Workforce, demographics
tools accelerate -- globalization Global dictate new approaches
Sources: IBM Institute for Business Value, IBM Research Global Technology Outlook
11 © Copyright IBM Corporation 2007

12. IBM investments in solutions correspond to
bankers’ initiatives to build competitive
advantage
Front Office Transformation
 Branches  Portals
 Self-service  Call Centers
Solutions
Back Office Transformation
 Core Systems
Verticals
 Center of Excellence
 Payments  SmartBank Architecture &
 Risk Infrastructure
Architecture and Infrastructure Industry
 SOA  Data Models Leadership
 System z  Ref Architectures
 Software Portfolio
Industry Leadership Verticals
 Ecosystem  Mortgages
 Thought Leadership  Healthcare
 Points of View  The Unbanked
12 © Copyright IBM Corporation 2007

13. Bankers’ Priorities are Driven by Their Market
 Europe has a compelling event - Single European Payments Area
 China is modernizing – Core Banking replacement, Basel II, Multi-channel
 ASEAN – Cleaning up infrastructure after a wave on mergers - Multi-channel
 India – Rural Banking, Rapid Growth of Infrastructure
 United States, Canada, Australia Competing for market share – Customer Experience
 Africa, National Policy Changes – SOA, MDM, EAI
 Latin America, Compliance and Growth
 Central Europe & Middle East, A Giant Leap Forward – SOA, Multi-channel, Compliance
Know the Local Hot Topics
13 © Copyright IBM Corporation 2007

14. Major new study
IBM has point of view about business issues underway:
 Globally Integrated
Banking (working title)
- Reflecting the “globally
integrated enterprise”
theme, our next major
Banking 2015 Dare to be Today’s Challenges
Unlocking Customer Integrating sales Branches in Bloom
new study presents a
Different Tomorrow’s vision of the new
Advocacy with service in Will growing
Why Banking Opportunities
The Customer Focused financial services investment in business model of a
Innovation Putting financial
Enterprise customer care branches bear fruit for
Matters Now services IT
Centers banks? specialised, networked
organizations at the
heart of enabling
and integrated bank
business value - Publication planned:
October 2007.
Annual Update:
 Global Technology
Outlook: Financial
Progressive SEPA (Single Euro Considering the The clairvoyant Risk, regulation The impact of
Transformation Payment Area): broader CRO and return: electronically
Servcie Edition 2007
Building a flexible Achieving Critical implications of Risk management Financial Services stored information - Use of emerging
bank operating Mass the UK Faster that is insightful, Delivering value on corporate legal
model for efficiency Payments illuminating through enterprise and compliance technologies and
and growth initiative on the and ingrained risk management management: innovations in Financial
banking market An IBM point of Services
in the UK view
- Published March 2007
14 © Copyright IBM Corporation 2007

15. Industry Messaging Guides
FSS Messaging Guide FSS Innovation Sellers Guide
IBM provides a lot of banking resources
Industry Thought Leadership
Banking 2015 Primer The Customer Focused Enterprise e-info & compliance
Building an Edge
Today’s Challenges Tomorrow’s Opportunities (FSS Edition)
IBM Industry Landing Page Client Events Demos Briefing Centers
www.ibm.com/banking SIBOS / BAI
Banking Demos Hawthorne Briefing Ce
Solutions CE
FSS Share our Success Banking Podcast Banking SSI
Reason of Call Value Driven Proposal T
Community Call
SW Banking Links
SWG Industry Solutions Leverage SWG Banking Portal Banking Toolkit
Xtreme Banking Lotus Rational Banking IOD Banking Toolkit WS
Toolkit Tivoli Banking Toolkit
Banking Toolkit
15 © Copyright IBM Corporation 2007

16. The Banking Industry Matters a lot to IBM
Billion
25
SWG Revenue
20
Banking
Bank Global IT External Spending All Other
by Vendor
15
10
FM
Insurance
5
0
IBM HP EDS CSC Fujistu Accenture Cisco Microsoft Sun Hitachi
Ranked by American Banker & Financial Insights (2005)
16 © Copyright IBM Corporation 2007

17. Summary
Optimizing today’s “business as usual” is not enough to re-kindle growth
 Financial Services remains a leading sector for profitable investment
 But growth in Financial Services is slowing
 Innovation is considered the key to re-kindling growth
 Strategic investments in innovation are critical to success
 IBM plays a major role in the banking industry’s success
 The IBM sales force is the key to bankers’ awareness of our value
The old model of financial services has been pushed
forward by automation for the past 40 years – future
success will come from exploiting new models
Source: IBM Institute for Business Value analysis
17 © Copyright IBM Corporation 2007

18. Banking Industry Overview
Donald Hanson
Global Manager, Banking Industry Solution Sales
Software Group
© Copyright IBM Corporation 2007