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eFinancials - Radboud Vlaar - McKinsey


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eFinancials - Radboud Vlaar - McKinsey

  1. 1. Digital life: The ultimate Customer Experience and play field for Banks…and Non-Financial Institutions Radboud Vlaar
  2. 2. Contents Key Implications for Financial Institutions The starting point The digital consumer Summary
  3. 3. Innovations in banking in the last five decades have been limited, and mainly centered around “faster” and “cheaper”… Age of the mainframe Proliferation of cards Deployment of ATMs and telebanking Boom of the Internet 1950’s/1960’s 1960’s/1970’s 1980’s/1990’s 2000’s SOURCE: Team analysis From: Paper-based processing of transactions To: Managing and balancing transactions on digital platforms From: An industry limited to only banking players To: A new payment structure with the entry of card companies From: Planning bank visit each week To: Convenient, spontaneous 24/7 visits to the ATM and telebanking for all banking services From: Visit to bank or ATM to perform transactions To: Taking care of banking needs from the living room couch
  4. 4. … with customers adopting to tech enabled innovation faster than ever before … SOURCE: Bank 2.0; team analysis Internet (1974) Radio (1902) TV (1928) Twitter (2006) iPod (2001) Facebook (2004) Groupon (2008) iPad (2010) Years until 50 mln units/users Years
  5. 5. … Non – Banks demonstrate innovations create opportunities… Apple worth more than top 30 Banks … non Banks lead banking innovation Apple Top 30 Banks 2,782 Banks 72 20 80 Non Banks Market cap, September Financial Service Apps McKinsey & Company
  6. 6. … whereas in Banking it added cost rather than reduced! Cost to serve has gone up… … despite promising business cases Costs by banking channel USD Branch -98% Mobile Online ATM IVR Call centre McKinsey & Company
  7. 7. Contents Key Implications for Financial Institutions The starting point The digital consumer Summary
  8. 8. Global consumer trends that shape the digital future! Source: McKinsey Anywhere, anytime information and networking enabled by device adoption, new applications and cloud computing 1 Multichannel usage along all customer touchpoints 7 Increasing price transparency , e.g., through online or mobile search engines 3 Very “heterogeneous” classification of value of hardware and content and the willingness to pay (e.g., ringtones for € 1.99, quality journalism “for free”) 4 Personalization and participation, consumers demanding engagement and customization 6 Generation Y putting new demands on companies and determining the winners 2 Bi-polar behavior , the vanishing “middle” 5
  9. 9. Anywhere, anytime information and networking: consumer access digital content everywhere 1 <ul><li>400 million shipment per year </li></ul><ul><li>Tablets expected to surpass PC shipment by 2015, with 250M </li></ul><ul><li>Penetration in the US is expected to reach 80% by 2015. </li></ul><ul><li>45% of TV shipments in Germany is connected TV </li></ul><ul><li>Mainstream in North America and Europe, reaching 40% penetration in US and ~43% in UK </li></ul><ul><li><100EUR smartphone launched in Europe last summer </li></ul>Smartphone PC/ tablet Connected TVs
  10. 10. Increasing price transparency: Example – mobile price comparison and purchasing in real time via and Sources: Internet research; McKinsey 3 <ul><ul><li>Mobile payment services can be integrated into existing Web sites </li></ul></ul><ul><ul><li>One-time authorization of customers; thereafter, single sign-in and one-click shopping </li></ul></ul><ul><ul><li>Uses data stored at Amazon </li></ul></ul><ul><ul><li>User can read in product data with a barcode scanner in smartphones, e.g., by means of special applications or software </li></ul></ul><ul><ul><li>Output: Comparisons of product data at price comparison sites and real-time read-out of online prices at retailers </li></ul></ul>Purchasing in real time Mobile price comparison
  11. 11. After I visit the store While I am shopping at the store Before I go to the store When do consumers use mobile device to check prices? How use of mobile device in-store impacts customer behavior? Would not affect purchase or future decisions 14% Would buy item, but impact future decisions 48% Would delay purchase/buy elsewhere (for a lower price) 69% 14% 48% 69% SOURCE: Multichannel pricing survey, Sept. - Oct. 2010 Question 7.1, 7.7, 7.9 Increasing price transparency: price comparison tools are already shaping consumer choices today 3
  12. 12. Heterogeneous willingness to pay: Example – quality journalism ‘for free’ vs. willingness to pay for simple ringtones <ul><ul><li>Quality journalism, i.e., research, editing, page make-up, updates, etc., “for free” </li></ul></ul><ul><ul><li>Consumers refuse to pay </li></ul></ul>Sources: Internet research; McKinsey 4 <ul><ul><li>Prices of up to €4 per ringtone </li></ul></ul><ul><ul><li>Ringtones and ringbacks as downloads for mobile phones </li></ul></ul><ul><ul><li>Sound file content identical to normal mp3 </li></ul></ul>vs.
  13. 13. Bi-polar consumer tastes: High end and low value growing fast Net sales growth (compound annual growth rate, or CAGR) 1998-2005; % * 1998-2003 data were used, because 2005 data could not be identified for Miele ** 1998-2004 CAGR for Cisco Sources: Global Vantage; Bloomberg Global industry average Premium/ higher-end opportunities No-frills/ lower-end opportunities Automotive Apparel Computer hardware Acer White goods* Miele Gorenje Retail Tiffany & Co. Wal- Mart Cisco** Gucci H&M Porsche Hyundai 5
  14. 14. Multi-channel usage: Customers ’ multichannel behavior regarding information and purchases is evident in many industries 7 Food Mobile phones Health and wellness products Cars Financial products Travel Elec- tronics Customers who changed their minds about the brand they preferred for their next purchase after getting information online Source: EIAA Mediascope Europe EXAMPLE EUROPE
  15. 15. Contents Key Implications for Financial Institutions The starting point The digital consumer Summary
  16. 16. Implications for Financial Institutions <ul><li>Value proposition for clients </li></ul><ul><ul><li>Product offering </li></ul></ul><ul><ul><ul><li>Bread and depth </li></ul></ul></ul><ul><ul><ul><li>Pricing </li></ul></ul></ul><ul><ul><ul><li>Speed </li></ul></ul></ul><ul><ul><li>Marketing and Branding </li></ul></ul><ul><ul><li>Distribution model </li></ul></ul><ul><li>Operating model </li></ul><ul><ul><li>Process excellence </li></ul></ul><ul><ul><li>Operations </li></ul></ul><ul><ul><li>IT </li></ul></ul><ul><ul><li>Risk management </li></ul></ul> <ul><li>Risk of disintermediation </li></ul><ul><li>24/7 banking </li></ul><ul><li>Mobile always on </li></ul><ul><li>Social Media </li></ul><ul><li>Price polarization: Excellence vs. cheap banking </li></ul><ul><li>Convergence between Banking, Insurance and Wealth Management </li></ul><ul><li>Industrialisation </li></ul><ul><li>Full digitalisation of E2E </li></ul><ul><li>Cloud </li></ul><ul><li>Big data </li></ul>Key elements Key trends
  17. 17. Disintermediation – New concepts such as bank simple and &quot;Mint&quot; could begin a process of marginalizing banks Retail banking offering Banks WORST CASE SCENARIO 1 1 Many of these companies have not yet earned profits; rough potential likelihood ~10% 2 Most aggregators earn revenues through some form of referrals/ fees/ revenue sharing with banks, while Geezeo, Meniga are white label Personal Finance mgmt products Aggregators 2 Payments Savings, investments, mortgages Consumer finance
  18. 18. AppStore data shows big demand for non-bank financial applications that threaten to put more distance between banks and customers Top 200 iPhone financial applications As of Aug, 2011 (subject to fast change) SOURCE: Press search; Apple AppStore; team analysis 46 100% = Bank Non-Bank Paid 200 0 Free 200 Sample non-bank entrants Description of activity <ul><ul><li>Square allows anyone to accept card payments using their smart phones </li></ul></ul><ul><ul><li>TxtLoan provides a quick way to get a £100 loan for a week via your mobile phone </li></ul></ul><ul><ul><li>Moneyzoom provides an easy-to-use personal financial management tool </li></ul></ul><ul><ul><li>Lending Club is a peer-to-peer lending platform for credit worthy borrowers & affluent lenders </li></ul></ul>HTML 5 , a new standard for presenting rich online content independent of device, will require apps to do more than just stream content , but will not kill the app store
  19. 19. Innovators like BankSimple and MovenBank are already trying to re-imagine the whole banking value chain Source: Press search; company website; team analysis BankSimple Concept Consumer obtains a bank account, checking, and debit card from Bank Simple No ATM or other charges Other banks? BankSimple intermediates banking relationships, managing the relationship and using banks ’ back-office processing Interest spread and card fees Movenbank Concept ? Consumer uses Mobile contactless (NFC) for core banking and P2P functions No cards or paper in account “ 3 rd gen User Interface” “ Gamification for viral and social risk model” Apply points-based gamification to retain customers and use trust-based risk rating system for loans Banking designed for the mobile channel Both companies are in the early Beta phases, and will undoubtedly change
  20. 20. 24/7 banking: A fact, now heading towards banking in one click, requires some legal and regulatory changes! 1 Footnote SOURCE: Source 80 ’s – 90’s 24/7 payments 90 ’s – 00’s: 24/7 transactions 00 ’s – 10’s: 24/7 banking and sales Key sales processes Path On boarding <ul><ul><li>Branch </li></ul></ul><ul><ul><li>Remote </li></ul></ul><ul><ul><li>8 min/8 min </li></ul></ul><ul><ul><li>5 min/1 day </li></ul></ul>Best practice time To complete/deliver Savings <ul><ul><li>Branch </li></ul></ul><ul><ul><li>Remote </li></ul></ul><ul><ul><li>5 min/5 min </li></ul></ul><ul><ul><li>5 min/5 min </li></ul></ul>Mortgage <ul><ul><li>Branch </li></ul></ul><ul><ul><li>Remote </li></ul></ul><ul><ul><li>15 min/5 days </li></ul></ul><ul><ul><li>10 min/5 days </li></ul></ul>Quick lending <ul><ul><li>Branch </li></ul></ul><ul><ul><li>Remote </li></ul></ul><ul><ul><li>10 min/2-3 hours </li></ul></ul><ul><ul><li>2 min/20 min </li></ul></ul>Investments <ul><ul><li>Branch </li></ul></ul><ul><ul><li>Remote </li></ul></ul><ul><ul><li>5 min/15 min </li></ul></ul><ul><ul><li>10 min/10 min </li></ul></ul>10 ’s – : 24/7 banking in one click
  21. 21. Social Media: Way to build you brand… Situation: Every year, Chase donates more than $100 million to non-profit organizations in local communities, nationally and abroad, and employees dedicate countless hours of their own time to helping those in need, The grassroots nature of Facebook would allow Chase to hear directly which local charities matter most to the community. Solution: Chase Community Giving is a program in which Facebook users vote for their favorite local charities to get a piece of Chase's charitable dollars. Facebook users are able to vote for local charities with yearly operating expenses of $1 million to $10 million through the Chase Community Giving page. Result: Chase Community Giving now has over 2.5 million Facebook fans who have selected over 300 winning charities; $150 million in donations were given in 2010 alone. JP Morgan Chase announced they commit to an additional $25 million to charities in 2011.
  22. 22. … and better service and understand your clients Situation: Wells Fargo wanted to move from listening to engaging online to humanize customer service. Solution: Wells Fargo created a Co-Tweet shared platform for customer engagement. By displaying hashtags and proper legal disclosures and denoting real employees with pictures and signatures (e.g. ^JC), created a personalized and friendly service experience. The team intervened on banking issues and negative feedback through their customer monitoring system and provided support across all product lines with key specialists where needed. Result: Personalized alternative to customer service e-mails and phone numbers, drove higher satisfaction levels according to Wells Fargo ’ s Net Promoter Score, and increased Twitter following from 90 to 6,911. Also created an integration between social media and CRM by tracking and weighting consumers ’ tweets. Wells Fargo is considered a social media pioneer in financial services.
  23. 23. We see 3 big sources of opportunities which require Financial Institutions to change the name of the game and address typical challenges Less leakage 1 New sources of revenues 2 New clients 3 What we have and how it helps <ul><li>What: Become the apple of Banking </li></ul><ul><li>Impact : Superior customer experience can result in less leakage </li></ul><ul><ul><li>30% cost reduction </li></ul></ul><ul><ul><li>50% higher conversion </li></ul></ul><ul><ul><li>50% higher customer satisfaction </li></ul></ul><ul><li>How : Eliminate all leakage from a client perspective </li></ul><ul><li>What: Launch new value added use cases at a premium </li></ul><ul><li>Impact : Superior customer experience and ~5% extra revenues </li></ul><ul><li>How : Develop value added use cases such as </li></ul><ul><ul><li>Pro-active info at moments of truth (fraud, card lost) </li></ul></ul><ul><ul><li>Higher speed (Instant credit, delayed payment, etc.) </li></ul></ul><ul><ul><li>Extra services (e.g. instant travel insurance, etc.) </li></ul></ul><ul><li>What: Master the digital marketing and customer experience </li></ul><ul><li>Impact : Gain 3-5% market share in 2-3 years </li></ul><ul><li>How : Attract new clients on the web </li></ul><ul><ul><li>Search engine optimisation </li></ul></ul><ul><ul><li>Social Media brand awareness </li></ul></ul><ul><ul><li>Event marketing </li></ul></ul>McKinsey & Company
  24. 24. Less Leakage: Can be done without big investments and as experience shows there is plenty of opportunity! Information seeking 340,000 350,000 100% 200,000 1,000,000 Online non-captive Outbound call center Branch Online captive Customer seeks information pre-contact Customer submit request for product Bank communi-cates offer to customer Bank responds to customer contact Customer launches initial contact Bank handles request Customer accepts and bank processes request Follow up from bank CRM Inbound call center SOURCE: Team analysis 250,000 200,000 100,000 100,000 350,000 Customer visits branch Outbound rep calls customer to offer product Customer browses website Checks non-captive sources for alternatives Customer applies online Offers through email/online bank Offers made to customers contacting CS Outbound outreach to customer Appropriate products offered at visit to branch Customer mails signed papers Bank informs customer of offer Customer visits branch to sign papers Payout of loan Internal processing in bank Meeting in branch Request completed online Request completed in branch Immediate follow up after fulfillment of request 1. Customer satisfaction 2. Cross-sale and up-sale Request completed over phone Bank contacts customer re application Customer calls bank 200,000 80% 50,000 150,000 150,000 50% 50,000 50,000 75,000 50% 75,000 40,000 75,000 Leakage 10,000 10% 180,000 30,000 30,000 30% 150,000 150,000 100,000 20,000 20% 50,000 20% 250,000 CLIENT EXAMPLE McKinsey & Company Post-sale support Product purchasing Receive advise 300,000
  25. 25. New sources of Revenues: immediate access to credit at POS Provides small short-term instant loans of £50 to £200 through online-only application, paid into bank account in under 15 minutes SOURCE: Value proposition <ul><ul><li>Borrowers with good credit ratings receive loan money within 15 mins </li></ul></ul><ul><ul><li>Encourages quick repayment, rewarding good borrowers with good rates and increased flexibility on subsequent applications </li></ul></ul>Key features <ul><ul><li>On chosen date a single payment collected from the borrower debit card </li></ul></ul><ul><ul><li>Typical 2689% APR but a Wonga loan is only for between one day and a month </li></ul></ul><ul><ul><li>Missed payment fee of £7.50 </li></ul></ul><ul><ul><li>Failed collection fee of £17.50 </li></ul></ul><ul><ul><li>Alternative Lender of the Year 2010 by Credit Today Awards </li></ul></ul><ul><ul><li>Fastest Growing Business in Europe 2010 by Media Momentum Awards </li></ul></ul>
  26. 26. New revenues – “ Bollettini Postali ” (Post Payments) Case Study Premium price possible because of higher value <ul><li>COST PER TRANSACTION: 1,1€ </li></ul><ul><li>PERCEIVED VALUE: none </li></ul><ul><li>vs </li></ul><ul><li>Time spending 40-50 min. </li></ul><ul><li>(travel and queue) </li></ul><ul><li>COST PER TRANSACTION : 2,5 € </li></ul><ul><li>PERCEIVED COST: 1,4 € more expensive than ATM </li></ul><ul><li>PERCEIVED VALUE: payable from home or through own smartphone </li></ul><ul><li>vs </li></ul><ul><li>Time saving 40-50 min. </li></ul><ul><li>(immediate payment) </li></ul>POST OFFICE ON LINE BANKING (only customer) ATM (customer & not) <ul><li>COST PER TRANSACTION : 2 € </li></ul><ul><li>PERCEIVED COST : 0,90 € more expensive than Post </li></ul><ul><li>PERCEIVED VALUE: available 24/7 on ATM, </li></ul><ul><li>vs </li></ul><ul><li>Time saving 20-30 min. </li></ul><ul><li>(no queue, closer to home) </li></ul>Price tiering based on value for customers 10 months of “ Bollettini Postali ” payments on UC direct channels ATM 130.000 (20%) ONLINE BANKING 660.000 (80%) PAGO FACILE
  27. 27. Contents Key Implications for Financial Institutions The starting point The digital consumer Summary
  28. 28. Summary <ul><li>Digitalisation of Banking is a fact! </li></ul><ul><li>So far, Banks did not capture the opportunity and the innovation is being lead by non-banks leaving significant money on the table </li></ul><ul><li>Financial Institutions will need to change gears: </li></ul><ul><ul><li>Step up the pace of innovation to regain control </li></ul></ul><ul><ul><li>Fight the diffused perception of Digital = discount. </li></ul></ul><ul><ul><li>Use the momentum to innovate the operating model leveraging cloud, etc. </li></ul></ul><ul><li>Big Data, Cloud, Social Media and Mobile will enable achieving these goals faster, since these areas still are Greenfield territories </li></ul>