EFMA 2011 Growing CRM Role


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EFMA 2011 Growing CRM Role

  1. 1. The Expanding Role of E-Channels in CRM May 2011 Best practices in retail financial services more information on www.efma.com
  2. 2. Contents04 Executive Summary07 E-Channel Availability and Use16 E-Channels and CRM24 E-Channels Strategy24 Operation of E-Channels35 Benchmarking of Services and Capabilities38 About the Research41 About Us
  3. 3. T H E E X PA N D I N G R O L E O F E - C H A N N E L S I N C R M PrefaceWe are happy to present you this third study in a series jointly developed by Efmaand Atos Worldline. The first and second study focused exclusively on the subject ofCRM, but this year we have taken a wider spectrum on the development of electronicchannels, and the impact this is having on the management of customer relationships.Since the launch of Internet Banking in the 1990’s, there has been a steady growthin the usage of electronic channels, driving transactions and sales away from branchesand gradually changing the nature of the bank’s relationship with its customers.However, the rate of change has accelerated recently:• Smart phones with advanced features and 3G or 4G access are widely used now, enabling more sophisticated applications and a better customer experience.• Broadband access for Internet is growing rapidly making it possible to offer services like video conferencing, and much richer, personalized Internet banking experiences.There is clear evidence that banks across Europe, as they emerge from the financialcrisis, are developing new products and services in order to anticipate and takeadvantage of these trends. The nature of communication between banks and theircustomers is therefore starting to change quite rapidly and banks need to be able toexperiment and adapt themselves in nearly real time.There are some banks who are clearly leading in the area of e-channel servicesoffered, CRM capabilities used within the e-channels, and the overall e-channel andCRM integration. All banks are making progress in this area but not all have beenable (or chosen) to keep up with the leaders. One of the big challenges is where toprioritise developments in a cost-constrained environment.This study is still focused on retail banking and we have maintained the dualmethodology that formed the success of the first two reports. Hence, it is based ondesk research as well as a quantitative survey and a qualitative survey. The quantitativesurvey was conducted using an online questionnaire to banks, which resulted in 47complete responses from 8 countries: Belgium, France, Germany, Netherlands, Poland,Spain, Turkey and the United Kingdom. The qualitative survey included 17 interviewswith senior managers responsible for e-channels or CRM within their institution. Julie Noir de Chazournes Patrick Desmarès Head of Markets Secretary General Business Marketing & Strategy Efma Atos Worldline 3
  4. 4. Executive SummaryThe availability of electronic channel services from banks varies quite considerably, andthere are differing views on the role of SMS banking and video conferencing, but the trendis for a rapid increase in the provision of all services within the next 3 years:• SMS alerts are the most common service offered by banks with 79% already providing the service, but SMS banking is much less common with just 32% of banks offering the service.• Mobile banking is now being offered by 64% of banks but this is expected to increase to 90% of banks within 3 years, with Mobile Internet and iPhone being the most common applications.• Mobile P2P and contactless payments are offered by only 15% of banks. This proportion will grow to 61% and 64% respectively within 3 years.• Web meeting services like video conferencing and/or document or form sharing are much less common; only 15% of banks offer this now and only 50% of banks expect to offer this in the future.• The use of social media (mainly Facebook and Twitter) is already relatively high, being offered by 38% of banks, and the use of these channels is expected by 76% of banks within 3 years.The importance of electronic channels for marketing is expected to grow, but CRMcapabilities in electronic channels are still quite limited for many banks, hampered by thelack of a single customer view and by the lack of customer contact details and marketingpermissions:• Pre-planned marketing communications are expected to shift even further from Direct Mail to Email and SMS – from 29% of communications now to 53% of communications in 5 years.• Only 53% of banks have a single customer view across channels, so 47% of banks do not have this capability yet. One consequence is that customer based pricing is used by only 52% of banks.• Banks hold on average only approximately 35-40% of their customers email or mobile details, and have marketing permission on average for only approximately 30-35%.• The use of event-based marketing on the Internet has become very common, with 78% of banks doing this, but only 39% of banks are using event-based marketing in the SMS channel.• Similarly, the Internet is being used to get immediate customer feedback on interactions by 63% of banks but only 20% of banks use SMS for feedback.• Electronic channel use provides banks with even more, trackable information on customers (e.g. web-browsing behavior) but there is little evidence yet of banks putting this information to optimum use. 4
  5. 5. T H E E X PA N D I N G R O L E O F E - C H A N N E L S I N C R MThe development of new electronic channels has been haphazard for many banks and builton to inflexible legacy systems, which means that integration is often quite low, butinvestment in e-channels and integration of e-channels is likely to grow:• Full integration of the front and back offices for electronic channels has been achieved by only around 50% of banks; most of the other banks are focused on incremental evolution and not renewal.• However, the IT budget for electronic channels is expected to increase at 76% of banks, and at 17% of banks it will strongly increase.• In the current environment, costs are a big concern and most banks have optimized electronic channel costs with an internal cost review. There has been some externalization of development and one fifth of banks considered externalization of hosting or use of software-as-a-service. Their primary reasons for considering externalization of hosting would be to achieve a faster time to market with new developments, to access up-to-date external know-how, and for cost efficiency relative to internal costs.Investment decisions have been relatively defensive for many banks and measuring returnon investment has been a major problem, but some banks have clearly taken a lead andnew innovation priorities are emerging:• Our survey and interviews show that defensive factors are the most significant when considering electronic channel investments, in particular retaining customers and reducing costs. Of course, this is not a universal view and there are “challengers” in each market who want to use electronic channels to attract customers away from more established competitors.• The priorities for innovation in electronic channels are personalization of the customer experience, payments services and money management or financial advice related tools. Perhaps surprisingly, community features do not appear to be a high priority, and video conferencing is generating very mixed views.• There is a very big difference between the leaders and the laggards in terms of services and capabilities. Some of this is to do with deliberate strategic positioning, but some is due to lack of investment or lack of vision for what can be achieved with e-channels and customer relationship management. 5
  6. 6. In conclusion, we have found that banks in general are making good progress in termsof introducing new channels and services, and developing new ways of managingcustomer relationships. However, there is still much greater potential to use electronicchannels for gathering and analyzing more information about customers and theirbehaviors. If this information is managed well, it should lead to a better understandingof customers, more sophisticated behavioral segmentation and targeting of relevantoffers, and provision of an appropriate customer experience. However, to achievethis and to improve their sales and service performance, banks will need to ensurethey are learning from the best-in-class e-commerce companies and not just other banks. 6
  7. 7. T H E E X PA N D I N G R O L E O F E - C H A N N E L S I N C R M E-Channel Availability and Use Countries across Europe are at different stages of development in terms of Internet access and Internet banking use. Figure 1 highlights some key measures for the 8 countries included in our survey. For example, 91% of households have Internet access in the Netherlands but only 59% of households have Internet access in Spain. The divergence in Internet banking use is even higher – in the last 3 months of 2010, 77% of adults used Internet banking in the Netherlands but only 27% in Spain. Interestingly, the ownership pattern of mobile phones does not match the use of Internet and Internet banking. In mobile phone use, the Netherlands and Spain are quite comparable, whereas France has a relatively low number of subscriptions per 100 inhabitants. The high level of ownership of mobile phones, even in those countries at an earlier stage of economic development, make it an attractive channel for banks to reach more of their customers, and a convenient channel for more of their customers to use. However, mobile phone use for banking is still relatively low - according to comScore, 8% of mobile users in the 5 largest EU countries (France, Germany, Italy, Spain and the UK) accessed their bank accounts from their mobile phones in December 20101. Use of Internet and Mobile in EuropeFigure 1 Mobile Phones Internet Access Internet Banking Use Per 100 Inhabitants Note 1 2 3 Belgium 73% 51% 108 France 74% 53% 95 Germany 82% 43% 132 Netherlands 91% 77% 122 Poland 63% 25% 118 Spain 59% 27% 111 Turkey 42% 6% 88 United Kingdom 80% 45% 130 1. Percentage of households who have Internet access at home at end of 2010 2. Percentage of individuals using Internet banking in last 3 months of 2010 3. Mobile phone subscriptions per 100 inhabitants at end of 2009 Source: Eurostat 1 The comScore 2010 Mobile Year in Review 7
  8. 8. The growth in use of Internet banking has been relatively slow in the last 15 years, since the launch of most services in the mid 1990’s (see Figure 2). This pattern needs to be considered when we look at the potential usage of new types of e-channel services. Internet Banking Use Over Time in the UK and SpainFigure 2 % of individuals using Internet banking in last 3 months of the year (development curve fitted from 1995 which is assumed as the starting point) 50% United Kingdom 40% 30% 20% Spain 10% 0% 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 Source: Eurostat We have assumed that 100% of banks now offer Internet banking, so we focused our survey questions on the availability of other e-channels and services (see Figure 3). We found that: • SMS alerts and mobile banking are the most common services currently provided, and planned within the next 3 years. • SMS payments and mobile payments (P2P or contactless) are not very commonly provided currently but within 3 years should be available from around 60% of banks. • Secure email and social network features are expected to be offered as channels by over 70% of banks within the next few years. 8
  9. 9. T H E E X PA N D I N G R O L E O F E - C H A N N E L S I N C R M • The least common service is live web meeting, currently offered by only 15% of banks and planned by a further 36% of banks. In our interviews we found a divergence of views on the role for SMS banking. Some of the banks we spoke to felt that, having not been early movers with SMS banking, it was now sensible to focus investment on a full mobile banking service with much greater functionality. Other banks have found that SMS banking has been extremely popular with their customers. Services Provided By Banks – Current and PlannedFigure 3 Current Plan < 1yr plan 1-3 yrs SMS alerts 79% 6% 6% SMS payments 26% 15% 17% SMS banking 32% 19% 17% Mobile P2P payments 15% 9% 37% Mobile contactless payments 15% 21% 28% Mobile banking 64% 15% 11% Live web meeting 15% 19% 17% Secure email 45% 15% 17% Social network features 38% 21% 17% Source: Efma/Atos Worldline Survey Rabobank MiniTix – Mobile Payments A successful example of an Internet and mobile payments service is the online wallet from Rabobank called MiniTix. It is a payment method that allows users to make purchases immediately and easily, with low charges that are suitable for small payments. Consumers can use MiniTix to make small purchases quickly and conveniently via the Internet or mobile phone. It enables them to purchase a broad spectrum of products and services such as downloading music or ordering a research report. (Source: Rabobank) 9
  10. 10. The development of mobile contactless payments is less of an individual bank strategy issue and more of an industry issue within each country, though some banks are going it alone with pilot testing. For example, in the Netherlands, the 3 largest banks and the 3 major mobile telcos have announced co-ordinated plans to widely introduce mobile contactless payments in 2012. In France, after several trials, a larger scale commercial deployment is taking place in Nice involving banks, mobile telcos, transport operators and local government. By contrast in the UK, there have been no significant mobile contactless payments developments as yet, although the roll-out of contactless cards is continuing. We asked banks to estimate the percent of their customer base using different services (where those services were offered by the bank), both currently and expected in 5 years (see Figure 4). The key observations are: • Customer use of the Internet channel is unsurprisingly higher than other e-channels but is still only around 40%. This is expected to grow to nearly 70% in 5 years. • Use of the SMS channel by customers is relatively low although it is expected to grow to over 30% in 5 years. • The role of the IVR channel is not expected to change at all in the next 5 years, with around 25% of customers using it. • Use of the mobile banking channel is expected to increase significantly from less than 15% today to over 40% in 5 years. • Secure email use is also expected to grow significantly to over 50% in 5 years. Use of E-Channels by CustomersFigure 4 Current and Expected Average % of Customer Base Using the Channel for Banking (for those banks currently offering the channel) 66% Current In 5 Years 56% 42% 44% 32% 27% 26% 29% 15% 14% Internet SMS IVR Mobile Email Source: Efma/Atos Worldline Survey 10
  11. 11. T H E E X PA N D I N G R O L E O F E - C H A N N E L S I N C R MThe growth in mobile banking services is linked to the growth in the use of smartphonesand phones with web browsing capability. According to comScore, in December2010 in the 5 largest EU countries, 31% of handsets in use were smartphones (around73m) and 61% of handsets in use had a web browsing capability2.For the provision of mobile banking services, iPhone applications and Mobile Internetapplications are clearly the most important, and will continue to be so, althoughAndroid applications in particular are expected to catch up (see Figure 5). Blackberryand Mobile Windows 7 are likely to be offered by fewer banks, and will be lesscommonly used by customers (see Figure 6). Sociéte Génerale Mobile Development Société Générale has been developing its multi-channel strategy for the last 20 years by implementing innovative projects. Concerning the mobile strategy it decided to offer a comprehensive mobile banking application to its customers consisting of eight functions including account checking, stock market access, geo-location of branches and budget management. Launched mid 2010 on iPhone and iPod Touch, the "Appli" now also supports Android devices.A few of the banks we interviewed have made mobile a key feature of their strategy– for example Rabobank in the Netherlands and La Caixa in Spain – and these banksalready offer mobile banking services on all applications and platforms. Several banksare also quite advanced in their strategy and development of services for tablet devices(such as the iPad), which opens up a new type of user interface for banking services.The potential from mobile is a lot greater than just mobile payments and mobilebanking. In Spain, Banco Sabadell has recently launched a mobile application forremote deposit capture by the scanning of cheques. Also in Spain, Bankinter hasdeveloped an augmented reality application for identifying real estate for sale andrent as the user moves down a street, and then providing supporting information asrequired. In Turkey, Turkish Economy Bank is using mobile phones for its non-branchsales force to take and complete credit card applications from new customers.2 The comScore 2010 Mobile Year in Review 11
  12. 12. Current or Planned ProvisionFigure 5 of Different Mobile Banking Applications Current Plan < 1 yr Plan 1-3 yrs iPhone 52% 20% 20% Android 22% 36% 24% Blackberry 24% 29% 20% Mobile Windows 7 18% 27% 16% Mobile Internet 66% 13% 15% Source: Efma/Atos Worldline Survey Expected Customer Use ofFigure 6 Different Mobile Banking Applications Average Rank from 1 to 5 Where 1 is the Most Commonly Used Mobile internet .............................. 2.3 iPhone application ......................... 2.3 Android application ........................ 3.1 Blackberry application ................... 3.6 Mobile Windows 7 application ........ 3.7 Source: Efma/Atos Worldline Survey 12
  13. 13. T H E E X PA N D I N G R O L E O F E - C H A N N E L S I N C R M We have already noted that live web meeting is currently offered by only 15% of banks and planned by a further 36% of banks over the next 3 years. There are strong differences in opinion about video conferencing with some banks seeing this as key to the future of relationship management, and others finding it ineffective and not attractive to customers. Looking at other interactive e-channels (see Figure 7), we can see that document push and form sharing are expected to be used by around 50% of banks, but VoIP and chat are less likely to be offered. The low interest in chat is quite surprising when you consider that one bank we spoke to achieved a significant increase in web sales when chat was introduced. Current or Planned Provision of DifferentFigure 7 Web Meeting Applications by Banks Yes No Video conferencing 54% 46% Voice over IP 39% 61% Chat 38% 62% Form sharing 50% 50% Document push 53% 47% Source: Efma/Atos Worldline Survey There is huge interest in social media from banks and the results of our survey reflect this - 76% of banks are currently or intend to be present on Facebook, and 62% of banks are currently or intend to use Twitter (see Figure 8). Garanti Bank in Turkey is a good example of a bank which has actively used Facebook to promote its brand and services – as of April 2011 there were 75,000 followers. It is expected that professional networks like LinkedIn and Viadeo will be much less important. 13
  14. 14. Many banks are also now actively using social media to identify customer feedback and service issues. Banco Sabadell is the first bank in Spain to use Twitter as a service channel, promptly responding to any customer service issues. One large bank in the UK told us it monitors Twitter to quickly find out if there are availability problems with its Internet or mobile banking services. YouTube is another “channel” which is being actively used by some banks. Again Banco Sabadell is a leader in this context using YouTube to display a short video of the making of an ad with Barcelona coach Pep Guardiola. This video has generated 90,000 views as of April 2011, and provided valuable brand promotion for the bank. Some banks in the US are using YouTube to display customer testimonials, advice videos, or copies of their TV ads. However, there is still considerable uncertainty as to how banks should make the most of social media. One banker we spoke to had the view that social networks will be increasingly used for “customer self-care” and “customers advising customers”. Banks need to be careful in this new area according to Philippe Wallez of ING Belgium who pointed out that “social network users communicate peer-to-peer and push advertising or promotion of the bank’s services may produce a negative reaction”. Current or Planned UseFigure 8 of Different Social Networks by Banks Yes No Facebook 76% 24% Twitter 62% 38% Viadeo 5% 95% LinkedIn 20% 80% Source: Efma/Atos Worldline Survey 14
  15. 15. T H E E X PA N D I N G R O L E O F E - C H A N N E L S I N C R MFirst Direct –Social Media and MarketingFirst Direct ran a campaign to harvest all comments on the bank fromforums and blogs and stream these live on a First Direct microsite,showing the positive versus negative balance at any time. Outdoormedia and online banner ads were used to promote this campaign,and it was all linked to a “call to action” to switch to First Direct. Theyachieved 64,000 visits to the microsite and measured an increasein their differentiation from competitors and an increase in purchaseinterest. Functionality to respond to customer comments has beenintroduced on a 24/7 basis.(Source: First Direct) 15
  16. 16. E-Channels and CRM The development of e-channels has presented new opportunities for banks to improve their customer relationship management but at the same time has created significant new integration and co-ordination challenges. As we will explore later in the report, some banks who are leaders in e-channel services offered, are not quite so advanced in their customer relationship management capabilities and vice versa. The single customer view One of the critical problems in customer relationship management is how to get a single customer view when the customer is using many different channels to interact with the bank. Our survey results show that just over half of banks now have a single view across all their channels including branches (see Figure 9). For those banks without a comprehensive single customer view, we found that 70% at least have a single customer view across branches and the Internet, which are typically the most significant and most actively used channels. It is newer channels like email, SMS and mobile which are less likely to be included. Hence we can conclude that almost all banks do have some ability to look at the customer from a broader (if not entirely complete) relationship perspective, but we also should note that there is a difference between banks in terms of whether this is updated in real time, overnight (which is quite common), or even more slowly. There are also differences in the richness of the information which is being collected – the latest challenge being the collection of data on web site usage including information on which web sites customers have arrived from and which they leave to. % of Banks withFigure 9 a Single Customer View 53% 47% Yes No Source: Efma/Atos Worldline Survey 16
  17. 17. T H E E X PA N D I N G R O L E O F E - C H A N N E L S I N C R M Our discussions with banks suggest that there is not a unanimous opinion that a single customer view is critical but many banks have made it central to their customer relationship management strategy. For example, in the Netherlands, SNS Bank has taken a strategic approach in the last few years to deliver a single customer view which now provides the platform for improved customer relationship management, making it better able to provide relevant offers to customers. Metro Bank is a recent start-up in the UK with a customer-centric business model. According to a case study by Temenos, a key criterion for selecting a core banking system at Metro Bank was “the proven ability to provide the bank with a real-time, single view of the customer across all channels, which would permit employees to deal with customer requests seamlessly and efficiently – without asking the customer, for example, to provide the same information again and empowering employees to be able to answer questions about all the products and services taken”3. Customer and channel pricing A single customer view makes it possible to offer customers pricing based on their overall relationship with the bank, or based on profitability. Our survey found that 52% of banks were using some form of customer-based pricing (see Figure 10). It may be that for some banks this is only offered to groups of customers, or only for asset products (loans and mortgages) where pricing is based on risk rather than customer relationship. However, there are a growing number of examples of banks offering customer relationship based pricing such as LCL in France (see box) and Caixa Geral de Depositos in Portugal. % of Banks usingFigure 10 Customer-Based Pricing 52% 48% Yes No Source: Efma/Atos Worldline Survey 3 Breaking the Mould but Breaking the Malaise? Temenos, March 2011 17
  18. 18. LCL – Personalised Pricing With “LCL a la Carte" a new customer composes a day-to-day banking cart, by the user-friendly simulation on the Internet or with his bank adviser in a branch, and benefits from permanent discounts on the standard rate of each product. These discounts increase according to the number of products and paying services subscribed for and can represent up to a 20% saving on their total cost. If the customer domiciles his income at LCL, he will benefit from a further 10% discount. The customer sees in real time, thanks to the simulator, the cumulated cost of the services he selected. This new approach is aligned with the LCL development strategy based on customer knowledge, the quality of customer advice and the price transparency that is now expected by all customers. (Source: LCL)There are widely varying approaches to charging for the use of different e-channelsand no particular patterns emerge (see Figure 11). The main observations from thesurvey are:• By far the majority of banks provide Internet banking and mobile banking services for free.• Charging for SMS alerts, which are offered by nearly 80% of banks, is split relatively evenly between a flat fee, transaction fee, or not charged for at all. SMS banking has a similar charging profile.• In contrast, when charged for, SMS payments and mobile P2P payments are typically charged for on a transaction fee basis. Mobile contactless payments (not offered by many banks yet) are mostly free.• Use of IVR is free for 52% of banks in the survey but the other 48% do charge, either with a flat fee or with a transaction fee. 18
  19. 19. T H E E X PA N D I N G R O L E O F E - C H A N N E L S I N C R M Method of Charging for E-Channel UseFigure 11 Free Flat fee Transaction fee Internet 71% 16% 13% SMS alerts 34% 41% 24% SMS payments 25% 13% 63% SMS banking 36% 36% 27% Mobile P2P payments 50% 0% 50% Mobile contactless payments 71% 14% 14% Mobile banking 89% 4% 7% IVR 52% 19% 30% Source: Efma/Atos Worldline Survey The fact that mobile banking is generally a free service, similar to Internet, is actually slowing down its development by some banks who are concerned about the business case. The challenge for all banks is that more e-channels are being added, increasing costs and complexity, but without clear revenue benefits. We will return to this issue later in the report. Use of e-channels for marketing and feedback The big prize in customer relationship management is to be able to personalize the customer offer or customer service, based on information held about the customer. However, unless the customer visits the bank’s web site, it can be a challenge to contact them with relevant offers. According to the survey, approximately 50% of banks have email or mobile contact details for less than 40% of their customers (see Figure 12). Once a bank has those details, it is still necessary to have marketing permission from the customer. The survey shows that more than 60% of banks have marketing permissions from less than 40% of their customers (see Figure 13). 19
  20. 20. Customer Contact Details Held by BanksFigure 12 Shown as % of banks holding different % levels of customer contact details For example, 5% of banks have email and mobile contact details for 80-100% of their customers % of Banks Email Mobile 40% 33% 30% 26% 27% 27% 22% 21% 20% 20% 14% 10% 5% 5% 0% 0-20% 20-40% 40-60% 60-80% 80-100% % of Customers With Details Held by Bank Source: Efma/Atos Worldline Survey Marketing Permissions Obtained by BanksFigure 13 Shown as % of banks holding different % levels of marketing permissions For example, 13% of banks have email marketing permissions for 80-100% of their customers % of Banks 60% Email SMS 56% 50% 43% 40% 30% 18% 20% 21% 20% 12% 13% 10% 8% 6% 6% 0% 0-20% 20-40% 40-60% 60-80% 80-100% % of Customers With Marketing Permission Given to Bank Source: Efma/Atos Worldline Survey 20
  21. 21. T H E E X PA N D I N G R O L E O F E - C H A N N E L S I N C R MIt is very clear that banks expect marketing communications sophisticated customer relationship management. Ultimately,to make a significant shift from direct mail to email and SMS more sophisticated event-based marketing will not bein the next 5 years (see Figure 14). Within 5 years, 35% effective without good online sales processes. One bankof communication is expected to be by email and 18% by we spoke to also highlighted the need to better understandSMS. However, as we have already pointed out, banks the reasons for customers abandoning purchases whencurrently hold a relatively low proportion of email and using the Internet.mobile contact details for customers so achieving this willbe a challenge.It is worth noting that some banks have In general, banks emphasized the challenge of managingfocused their efforts on improving sales functionality in the and using all of the online data that can now be collected.Internet channel rather than introducing new channels or To do this well, banks need to learn from leaders in otherinvesting in more sophisticated customer relationship industries like Amazon and Google. These companies aremanagement. Ultimately, more sophisticated event-based also at the forefront of mobile commerce and are learningmarketing will not be effective without good online sales fast about the potential from this new channel.processes. One bank we spoke to also highlighted the need In general, banks emphasized the challenge of managingto better understand the reasons for customers abandoning and using all of the online data that can now be collected.purchases when using the Internet. To do this well, banks need to learn from leaders in otherIt is worth noting that some banks have focused their efforts industries like Amazon and Google. These companies areon improving sales functionality in the Internet channel also at the forefront of mobile commerce and are learningrather than introducing new channels or investing in more fast about the potential from this new channel. Mix of Marketing Communications Figure 14 Current and in 5 Years Current In 5 years 38% 35% 33% 27% 21% 20% 18% 9% Direct Mail Direct Mail Email SMS Statement Inserts Other Source: Efma/Atos Worldline Survey According to our survey results, event-based marketing on the Internet is already being used by 78% of banks (see Figure 15), although some of the functionality and personalization of this is quite basic. Event-based marketing is expected to increase on SMS and mobile but it is still only likely to be in place for about two-thirds of banks within 3 years. As an example of the potential from event-based marketing, RBS in the UK has reported that its first stage development of Internet prompts resulted in 14,000 incremental online sales in the first few months4. 4 UK Retail Investor Round Table, RBS, November 2010 21
  22. 22. Turkish Economy Bank Personalised Marketing At the Efma Congress in 2010, Deniz Devrim Cengiz of Turkish Economy Bank described how the bank had successfully used a personalized outbound Email and SMS campaign to promote the use of Internet banking for paying vehicle tax, with the offer of a free vehicle check-up as an incentive. (Source: Turkish Economy Bank) It is worth noting that some banks have focused their efforts on improving sales functionality in the Internet channel rather than introducing new channels or investing in more sophisticated customer relationship management. Ultimately, more sophisticated event-based marketing will not be effective without good online sales processes. One bank we spoke to also highlighted the need to better understand the reasons for customers abandoning purchases when using the Internet. In general, banks emphasized the challenge of managing and using all of the online data that can now be collected. To do this well, banks need to learn from leaders in other industries like Amazon and Google. These companies are also at the forefront of mobile commerce and are learning fast about the potential from this new channel. Current and Planned Use ofFigure 15 E-Channels for Event-Based Marketing Current Plan < 1 yr Plan 1-3 yrs Internet 78% 11% 9% SMS 39% 13% 11% Mobile 27% 20% 18% Source: Efma/Atos Worldline Survey 22
  23. 23. T H E E X PA N D I N G R O L E O F E - C H A N N E L S I N C R M The use of e-channels for customer service feedback is also likely to grow significantly in the next 3 years according to our survey (see Figure 16) - 95% of banks will be using the Internet for immediate service feedback and 67% of banks will be using mobile for service feedback. Current and Planned Use ofFigure 16 E-Channels for Immediate Customer Feedback Current Plan < 1 yr Plan 1-3 yrs Internet 60% 21% 14% Email 60% 16% 9% SMS 19% 14% 16% Mobile 23% 23% 21% Source: Efma/Atos Worldline Survey SNS Bank – Integrated CRM SNS Bank’s award-winning, centralized marketing platform uses customer records, transaction and interaction data from all channels, and data from recent Web site visits to create personalized inbound and outbound offers. This information is combined to make personalized product and service offers online based on business rules and predictive analytics. Customers also receive consistent and personalized product offers via traditional outbound channels like direct mail and during calls to the call center.5 5 How SNS Bank Put The Web At The Heart Of Its New Multichannel Strategy, Forrester, October 2010 23
  24. 24. E-Channels Strategy Our interviews with banks identified a range of different strategic approaches to e- channels based on the bank’s country of operation, market position and a range of other factors such as whether the bank is part of a larger pan-European group. What makes sense for one bank does not necessarily make sense for another. As we have already noted, different countries are at different stages of development in terms of Internet and Internet banking use, and in some countries there is still much more relevance for the branch network in day-to-day banking. Mobile phone use is more common in all European countries than Internet use, but mobile banking is still not being widely used. We interviewed banks in 6 countries and broadly speaking we can say that they fall into 2 groups, with the first being more advanced and the second being less advanced: • Most advanced: France, Netherlands, Spain • Least advanced: Belgium, Germany, United Kingdom This situation becomes self-reinforcing in the short-term because once a few banks in each country have introduced new services, other banks have to follow. Even so, within each of these markets, there are clearly some banks that see themselves as leaders and others who are content to be fast followers. There is no evidence to suggest that a fast follower strategy puts the bank at a long term disadvantage. Most banks, even fast followers, are aiming to differentiate from competitors with their e-channel strategy but a significant minority of 32% is simply aiming to maintain parity (see Figure 17). Competitive ObjectivesFigure 17 of E-Channel Strategy 68% 32% Differentiate Maintain parity Source: Efma/Atos Worldline Survey 24
  25. 25. T H E E X PA N D I N G R O L E O F E - C H A N N E L S I N C R M In each market, there are typically a handful of banks (anything from say 3 to 5) that are long established and have significant branch networks. These banks are generally trying to hold on to customers rather than acquire new customers and may be slightly less aggressive than some of the medium size challengers in their market. At the other end of the scale there will be several smaller, niche banks which might be independent or might have a foreign parent. These smaller banks in general appear not to be leaders in the development of e-channels. For example, one bank we spoke to in this category felt that there was no demand for at least the next few years from its customers for mobile banking services, so did not see the need to invest. Management of e-channels For the management of e-channels, most banks have either an independent department or use the marketing department as the central point of coordination (see Figure 18). In some cases responsibility is shared between the marketing department and a delivery department. In less than 10% of banks, e-channels are managed by the IT department. A critical issue is how best to avoid the conflict between channels, particularly in terms of sales targets for branches, call centers and Internet banking. An example of one successful approach comes from La Caixa in Spain which set up an independent department to manage e-channels several years ago with its own P&L account. eLa Caixa has successfully developed a range of online and mobile services and consequently is the leader in terms of e-channels use in Spain. Which Department is Responsible forFigure 18 Management of E-Channels? 45% 45% 9% 2% Independent Marketing IT Other Source: Efma/Atos Worldline Survey 25
  26. 26. The survey respondents were split approximately 50/50 between those with a parent company and those with no parent company. So for example, BNP Paribas Fortis in Belgium has BNP Paribas in France as a parent company, whereas ABN Amro Bank in the Netherlands does not have a parent. We found that for banks with parent companies, only 22% have their e-channel strategy and supplier contracts dictated by the parent, whereas 78% are free to make their own decisions (see Figure 19). We believe this is likely to change because there is a clear trend towards larger pan- European groups, and also a trend for these groups to centralize some aspects of their IT and operations in order to gain the benefits of economies of scale. Does the Parent CompanyFigure 19 Dictate E-Channel Strategy? 78% 22% Yes No Source: Efma/Atos Worldline Survey Investment criteria for e-channels In trying to understand the most important factors driving investment decisions in e- channels we have identified 2 different types of criteria or metrics: • Financial-related: increasing return on investment, increasing revenues and reducing costs • Customer-related: acquiring new customers, customer retention and cross-selling Figure 20 illustrates that the most important factor being considered for the investment in e-channels is customer retention, and the least important factor is return on investment. This may seem quite surprising but many of the banks we spoke to acknowledged that measuring the return on investment in new channels was extremely difficult, and in general there was no choice but to make the investment in order to meet customer expectations. Another metric that was mentioned in our interviews was customer satisfaction, which would then reflect in customer retention and cross-sales. 26
  27. 27. T H E E X PA N D I N G R O L E O F E - C H A N N E L S I N C R M One major bank we interviewed which is a leader in developing new channels, admitted that the “fear of losing customers” was a key driver of their strategy. Another bank said that “multi-accessibility, anytime to customers is a vital condition for more satisfied and more loyal clients, to whom more products can be more easily sold”. A growth oriented factor such as attracting new customers is generally believed to be relatively less important, whereas cost reduction is the second most important factor. Again this emphasizes the bias towards e-channel investment being somewhat defensive rather than offensive in nature, although attracting new customers was more important for some of the “challengers” in the market who were starting with a relatively low market share. Importance of Various FactorsFigure 20 in E-Channel Investment Decisions Average scores on a scale of 1 to 10, where 10 is extremely important Financial Related - Customer Related - 8.00 8.09 7.57 7.57 6.68 6.85 Increase Increase Reduce Attract new Retain Cross-sell return on revenues costs customers customers or up-sell investment Source: Efma/Atos Worldline Survey The migration of transactions from branches to e-channels is a long term trend which is already very well developed in many countries. Banks will normally have some sort of target for channel migration. RBS in the UK has recently reported publicly the contribution of channel migration to the reduction in branch workload in the 12 months to August 20106. Of the total 17% reduction in branch workload in that period, channel migration accounted for 20%. However, the largest contributor was the 6 UK Retail Investor Round Table, RBS, November 2010 27
  28. 28. adoption of lean processing techniques which accounted for around 60% of thereduction.The challenge for banks is how to prioritize investment that inevitably will need to bemade at some point. This should start with a clear understanding of the target customersegments, and the changing customer behavior and expectations in those segments.A baseline prediction of trends for the next 10 years should be made but these trendsalso need to be monitored closely because there is still a lot of uncertainty in howcustomer behavior is changing.The full range of potential channels and services then needs to be articulated andsome sense of relative customer demand for these services developed. The strategiesof the primary competitors with respect to these services needs to be predicted, asdoes the potential impact on customer retention and cross-sell from not being a firstmover.A road map needs to be created to work out what core infrastructure developmentwill be required in the next 5-10 years, and what services should be phased in andwhen. The bank also needs to consider how much to invest in different customersegments – for example mass market, affluent market and small business – and howmuch to invest in sales processes and how much to invest in service processes.This whole exercise is extremely complex and difficult but without a clear vision, it isunlikely that a successful strategy will be implemented. Ultimately, online sales andonline transaction migration will be key drivers of the cost benefits and hence thereturn on investment, but the benefits from retaining customers who might otherwisehave been lost will be a key factor and difficult to measure accurately.Innovation in e-channelsIncreasing the number of channels and migrating transactions from branches and callcentres are clearly basic objectives in any e-channel strategy, but where is theinnovation taking place? We asked banks to rate the importance of different aspectsof innovation and found that personalization of the customer experience was the mostimportant area of focus (see Figure 21).Payment services are the second most likely area for innovation reflecting the potentialfor new mobile contactless and P2P payments. This is followed closely by tools whichcan enhance the customer relationship such as money management, automatedfinancial advice and account aggregation. Perhaps surprisingly, the areas of leastimportance for innovation are community features and video conferencing. 28
  29. 29. T H E E X PA N D I N G R O L E O F E - C H A N N E L S I N C R M Relative Importance of Future Innovations in E-ChannelsFigure 21 Average scores on scale of 1 to 10, where 10 is the most important Personalisation of the customer experience 8.0 Payments services 7.7 Money management tools 6.8 Automated financial advice 6.4 Account aggregation 6.3 Add-on non-financial applications 5.6 Community features 5.4 Video conferencing 5.1 Source: Efma/Atos Worldline Survey Innovations in the areas of money management tools, account aggregation and automated financial advice are to some extent related and several examples are emerging in Europe, including: • Banco Sabadell is extending its online banking with a free service that lets customers make a detailed analysis of their expenses and income at any time, broken down by categories and comparing them with other months, or with the same period of the previous year. According to Manuel Tresánchez, Director for Personal Banking at Banco Sabadell, “with this new service we are taking a giant step forward in our strategy of rewarding customer loyalty by offering useful, value-added services that make it easier and more convenient for customers to manage their transactions with our bank”. 29
  30. 30. • BBVA’s tú cuentas service aggregates financial information, not just from BBVA, and also non-financial information such as electricity and phone bills. Information is categorised and presented more visually, providing customers with an instant snapshot of all their finances to better understand what they are spending their money on. The service also then offers the user personalised advice based on knowledge of their tastes and preferences. This can include more sophisticated options which use artificial intelligence to help find opportunities tailored to the customer’s preferences and needs.Several banks talked about the continued “digitization of the customer relationship”as the critical future trend and one of the leading European banks spoke of the needto keep investing in pilots of new services because it is unclear what the future “cashcow” will be for banks. 30
  31. 31. T H E E X PA N D I N G R O L E O F E - C H A N N E L S I N C R M Operation of E-Channels The effective operation of e-channels is critical given the increasing complexity they add to the bank’s business and the impact on customer service when things go wrong. Since the introduction of Internet banking in the 1990’s, for many banks there has been a haphazard approach to development by adding more and more pieces onto existing legacy core banking systems. In contrast, newer start-up banks, have been able to build their multi-channel capabilities from scratch and have achieved better integration. According to our survey, only around one half of banks have fully integrated their e- channel back and front offices. Around one fifth of banks have not even achieved partial integration (see Figure 22). There is no particular pattern in these results other than to observe that many of the banks in Germany and the UK have not achieved full integration yet. Stage of Integration of Back OfficesFigure 22 and Front Offices for E-Channels Back Office Front Office 52% 45% 34% 30% 21% 17% Yes No Partially Yes No Partially Source: Efma/Atos Worldline Survey For those banks who do not have fully integrated front and back offices, we looked more closely at their stage of development (see Figure 23). This suggests that about two-thirds of banks are in the process of incremental evolution (either study or development) and one-third of banks are working on a complete renewal of their e- channels infrastructure. A very small proportion of banks have no current development plans. 31
  32. 32. Stage of Development for Back OfficesFigure 23 and Front Offices E-Channels Banks Without Full Integration Currently Back Office No development plans 6% Incremental evolution 22% - study Incremental evolution - development 38% Renewal 9% - study Renewal - Development 25% Front Office No development plans 9% Incremental evolution 30% - study Incremental evolution 30% - development Renewal 13% - study Renewal - development 17% Source: Efma/Atos Worldline Survey 32
  33. 33. T H E E X PA N D I N G R O L E O F E - C H A N N E L S I N C R M Most banks spend less than 10% of their IT budget on e-channels, but a significant minority of banks is spending more than 15% (see Figure 24). Interestingly, it is some of the largest banks in the most mature markets in Europe who are spending the highest proportion of their IT budget on e-channels – perhaps a reflection of the need to address the lack of integration due to incremental development in the past. Not surprising is the fact that 76% of banks expect the IT budget for e-channels to increase or strongly increase in the next few years, and no banks expect the IT budget to decrease (see Figure 25). % of IT Budget Spent on E-ChannelsFigure 24 33% 25% 25% 10% 8% < 5% 5-10% 10-15% 15-20% > 20% Source: Efma/Atos Worldline Survey Expectations for the Change in the IT BudgetFigure 25 for E-Channels in Next 2-3 Years 59% 24% 17% 0% 0% Strongly Increase No change Decrease Strongly increase decrease Source: Efma/Atos Worldline Survey 33
  34. 34. While the costs of developing and maintaining e-channels are clearly increasing, there also needs to be a focus on optimizing those costs. The most common ap- proaches taken to reduce costs in e-channels have been internal cost reviews and externalization of developments (see Figure 26). Other effective approaches such as externalization of hosting (outsourcing) and Software-as-a-Service (SaaS) have been considered by only around one fifth of banks. The primary reasons for considering externalization of hosting would be to achieve a faster time to market with new developments, to access up-to-date external know- how, and for cost efficiency relative to internal costs (see Figure 27). % of Banks Taking Steps to Optimise E-Channel CostsFigure 26 Internal cost review 71% Externalise developments 53% Externalise hosting 21% SaaS opportunities 24% Source: Efma/Atos Worldline Survey Primary Reasons for Considering ExternalisationFigure 27 of E-Channel Hosting Overall position on a forced ranking of importance Most Important 1 Time to market with new developments 2 Up-to-date external know-how 3 Cost efficiency versus internal costs 4 Potential for new technology maturity 5 Better Service Level Agreement 6 Benefits from up to date compliancy Least Important 7 Secured hosting know-how Source: Efma/Atos Worldline Survey 34
  35. 35. T H E E X PA N D I N G R O L E O F E - C H A N N E L S I N C R MBenchmarking of Servicesand CapabilitiesThe results of the survey clearly show that some banks are much more advanced thanothers in terms of their electronic channels and customer relationship managementservices and capabilities. We have organized the key benchmarks in the survey into3 categories and shown the results in Figure 28. For some of the benchmarks we haveshown the current position as well as the position taking into account short term plans(less than 12 months) because in practice, once the study is published, many of theseservices will be available.• E-channel services offeredA total of 9 services were listed and the top quartile of banks had 7, 8 or 9 of theseservices either currently or in plan for less than 12 months. The bottom quartile ofbanks typically offered only 1 or 2 of the services.Two examples of leading banks with all 9 services are Rabobank (Netherlands) andBanco Sabadell (Spain).•CRM marketing and feedback capabilitiesFor this section we looked at the average customer contact details and marketingpermissions held by banks, and the use of event-based marketing and event-basedfeedback for the Internet and SMS channels. Only 32 of the banks provided completeresponses for contact details and marketing permissions so it was not possible to createan aggregated score for all of the banks in the survey.Two examples of leading banks in each of these areas are Turkish Economy Bank(Turkey) and ABN Amro Bank (Netherlands).•E-channel and CRM level of integrationThere were 3 questions related to this issue: whether the bank has a single customerview and whether the front and back offices for electronic channels are fully integrated.Only 33% of banks gave a positive answer to all 3 of these questions, and 35% ofbanks could not give a positive answer to any of them.Two examples of leading banks on these integration criteria are La Caixa (Spain) andSociete Generale (France).Overall we found that there is a very big difference between the leaders and thelaggards across each of these 3 benchmark categories of services and capabilities.Some of this is to do with deliberate strategic positioning, but some is due to lack ofinvestment or lack of vision for what can be achieved with e-channels and customerrelationship management. Each bank needs to look at its own score on the benchmarksand decide if its positioning is appropriate, relative to the leaders in Europe andrelative to its immediate peers. 35
  36. 36. Benchmarking of Services and CapabilitiesFigure 28 Current Current Plus Plan < 1yr E-Channel Services Offered % of banks with each service SMS alerts 79% 85% SMS payments 26% 41% SMS banking 32% 51% Mobile P2P payments 15% 24% Mobile contactless payments 15% 36% Mobile banking 64% 79% Live web meeting 15% 34% Secure email 45% 60% Social network features 38% 59% Number of services offered 0-1 26% 15% (from the list above) 2-3 28% 17% 4-5 32% 28% 6-7 11% 26% 8-9 4% 15% Total 100% 100% CRM Marketing and Feedback Contact details held Email 41% n/a (% of customers) SMS 34% n/a Marketing permissions held Email 34% n/a (% of customers) SMS 29% n/a Using event-based marketing Internet 78% 89% (% of banks) SMS 39% 50% Using event-based feedback Internet 60% 83% (% of banks) SMS 19% 33% E-channel and CRM Level of Integration % of banks Full e-channel integration Back office 45% n/a Front office 52% n/a Single customer view across all channels 53% n/a Number of integration questions answered "yes" 0 35% n/a 1 15% n/a 2 17% n/a 3 33% n/a Total 100% n/a Source: Efma/Atos Worldline Survey 36
  37. 37. About the ResearchThe survey was conducted between October and December 2010. We receivedcomplete responses from 47 banks from 8 different European countries – Belgium,France, Germany, Netherlands, Poland, Spain, Turkey, and the UK. The profile ofsurvey respondents is set out below. In addition, we carried out 17 face-to-face andtelephone interviews with banks between January and March 2011. Survey Respondents Figure 29 with a Parent Company 23 24 Yes No Survey Respondents Figure 30 by Number of Employees 20 15 12 1-5,000 5,001-10,000 >10,000 38
  38. 38. T H E E X PA N D I N G R O L E O F E - C H A N N E L S I N C R M Survey Respondents by Number of CustomersFigure 31 17 12 7 6 3 2 50,001 - 250,001 - 500,001 - 1m - 2m 2m - 5m >5m 250,000 500,000 1,000,000 Notes on the Analysis of the Quantitative Survey Results The question on current and expected use of e-channels by customers provided 5 response options: 0-20%, 20-40%, 40-60%, 60-80% and 80-100%. The average across banks has been calculated by taking the mid-point of these ranges, for example 0-20% would be 10%. The same approach has been used for calculating the average customer contact details and customer marketing permissions held, which is shown in the benchmarking table in Section 7. 39
  39. 39. T H E E X PA N D I N G R O L E O F E - C H A N N E L S I N C R MAbout Us European financial marketing association Efma promotes innovation in retail finance in Europe by fostering debate and discussion among the main players involved in change. Formed in 1971, Efma comprises 2,450 different brands in financial services worldwide today, including 80% of the largest European banking groups. Through regular events, publications, and its comprehensive website, the association provides retail financial service professionals with answers to their questions about the main issues at stake in their business: multiple distribution strategies, customer approach, CRM, product and service marketing and improving profitability. Efma is above all a dynamic association, providing a great opportunity for discussion and exchanges without any commercial constraints. It provides its members with a wide range of exclusive services as well as discount rates on non-gratuitous activities. The loyalty of its members as well as their permanent financial support are the best proof of its efficiency. www.efma.com Atos Worldline Atos Worldline brings together Atos Origins core expertise in hi-tech transactional services. A leader in end-to-end services for critical electronic transactions, Atos Worldline is specialised in electronic payment services (issuing, acquiring, terminals, card and non-card payment solutions & processing), eCS (eServices for customers, citizens and communities) as well as services for financial markets. Atos Worldine’s on-going commitments to research and innovation enable its customers to benefit from award-winning solutions in areas such as mobile payments, secure IPTV, online CRM and paperless solutions. Atos Worldline generates annual revenues of €867 million and employs over 5,400 people worldwide. www.atosworldline.com dircom-atosworldline@atosorigin.com About the Author Michael Pearson is a strategy and corporate development expert with 25 years’ experience working for and advising financial institutions worldwide, developing new ventures, and investing in start-ups. Michael founded Clarus Investments in 2006 to invest in early stage ventures, with a particular focus on financial services and then set up Clarus Insight to report on trends and developments in financial services and strategic management. Michael is also the author of the Efma report “Innovation in Retail Banking” and provides advice on strategy to entrepreneurs and financial services firms in developed and emerging markets. Michael has an MBA from Harvard Business School. 41
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  42. 42. THE EXPANDING ROLE OF E-CHANNELS IN CRMBest practices in retail financial services more information on www.efma.com