PHYGITAL BANKING TRANSFORMATION - CREATING
NEW BUSINESS MODELS WHERE DIGITAL MEETS
PHYGITAL IN BUSINESS
The truth is that both the digital and the physical world are indispensable parts of life and business.
The real transformation taking place today isn’t the replacement of the one by the other, it’s the
marriage of the two into combinations that create wholly new sources of value. There is a great
reversal of roles that seems to have taken place: instead of the former digital adaptation and
appropriation of material things (think of the folders and the trash can on your laptop screen as a very
basic example), we see a new, physical manifestation of digital concepts and functions has
beginning to emerge. Cross your middle and index ﬁngers on both hands for instance, and you have
just signaled a Twitter hashtag, specifying the general topic you speak about. What is that, if not a
human gesture generated by lines of computer code? This is what Phygital is, and it is likely to
reshape not only the way people live, but the way companies operate.
Customer expectations have placed tremendous pressure on business leaders to change the way
they set their strategies and run their organizations. New requirements to incorporate information and
interactivity quickly drive up costs and complexity. Business leaders have long used information
technology to improve productivity and efﬁciency, reach new markets and optimize supply chains.
What’s new is that customer expectations have also changed. People everywhere are using social
networks to ﬁnd jobs and restaurants, lost friends and new partners – and, as citizens, to achieve
common political goals. How can businesses best respond to this shift? How can they take
advantage of the opportunity to innovate and grow? And how can they do all this cost efﬁciently?
Companies with a cohesive strategy for integrating digital and physical elements can successfully
transform their business models – and set new directions for entire industries. They do this by
focusing on two areas.
THE OPERATING MODEL & THE CUSTOMER VALUE PROPOSITION
The operating model can be realigned so that customer preferences and requirements inform every
activity in the buying and selling chain. Doing this requires integrating all business activities and
optimizing how data related to those activities is optimized. Up to now, most organizations have
focused on one of these areas at a time based on speciﬁc initiatives. Taking a more holistic and
integrated approach, a third path combines the two focus areas, simultaneously transforming the
customer value proposition and organizing operations for delivering that value. Determining the best
path to transformation requires a thorough understanding and evaluation of several factors:
•Where products and services are on the physical-to-digital continuum in the industry
•Mobility and social networking adoption levels and expectations of customers
•Strategic moves by other industry players
•The degree of integration at every stage of the transformation – between new digital processes and
legacy, physical ones.
HOW BANKS SHOULD APPROACH PHYGITAL
THE RIGHT FRAMEWORK
Successful phygital transformations do not happen bottom up. They must be driven from the top and
inspire all organizational levels as they focus on the “how” more than the “what.” The most
successful transformations focus as much on how to drive change as on the detailed content of the
change. Organizations that have successfully implemented digital transformation strategies and have
fully transformed their operations and business models, did not achieve that by building their
companies from the scratch, but from reshaping the organization to take advantage of valuable
existing strategic assets in new ways. Companies can do much more to gain value from investments
they have already made, even as they envision radically new ways of working so it is crucial for them
to build on their existing customer bases and reinvent their offerings by substantial added value.
Retail banking has already become a digital business, spurred by the rapid spread of broadband
access and affordable smart mobile devices. Globally, an average of more than half of consumers’
banking interactions took place through online or mobile channels, with an even greater share in
digitally advanced markets like the Nordic countries and Australia, according to Bain & Company’s
2013 customer survey, executed through Research Now. Add the use of ATMs, which increasingly
connect to the Internet, and the share of digital interactions exceeds 85% for the most advanced
countries today and is heading to more than 95% in the near future.
BANKS NEED TO BE
Intuitive: 54% of consumers are interested
in banks locating discounts
Intelligent: 53% of consumers want
proactive bill pay services
Individual: 52% of consumers want
proactive product recommendation
UP UNTIL NOW BANKS USE DIGITAL TO IMPROVE SIMPLE TRANSACTIONS BUT
NOT CUSTOMERS LIVES
To date, most banks have focused their digital investments on simply improving simple transactions
through online or mobile channels, thereby reducing brick-and-mortar branch costs. They haven’t
devoted as much time to making customers’ banking lives more convenient, easy and engaging, by
creating a differentiated customer experience featuring truly innovative, useful digital applications
and a seamless integration of all channels. Customers often cite certain digital interactions as “wow”
experiences that exceed their expectations—moments like remote deposit capture, remote bill pay or
even well-delivered basic transactions through a mobile app. Winning in the digital realm, therefore,
is critical for improving the overall customer experience.
THE PHYGITAL BANKING CUSTOMER MANIFESTO
These 2 visual guides put the phygital consumer on the epicenter of the phygital transformation
strategies and they apply to all organisations no matter the industry they belong. Customer
expectations have changed because customers have changed themselves. For the last decade,
marketers were trying to decode and behaviorally analyse the digital consumer but right now we
should talk about phygital consumers. Consumers who expect services that not only cover both their
online and ofﬂine needs but also combine them in a way that the consumer experience improves in
each interaction and touchpoint.
• You look out for me and recognize me as a valued customer both online and ofﬂine.
• I can easily ﬁnd simple, clear product and service information both online and ofﬂine.
• I can apply for a product or service through one channel and seamlessly ﬁnish the transaction on
• I can buy the same products at the same price, regardless of how or where I go.
• I can access all my accounts on any device.
• I can do most of my day-to-day banking through digital channels.
• I can make purchases, payments and transfers quickly through my smartphone.
• My interactions are efﬁcient, secure and fast—“one and done” with minimal paper.
• I can easily share feedback, including on social media platforms, and my bank will resolve the
THE 3 PHYGITAL BANKING TRANSFORMATION
DISCOVER PHYGITAL CONSUMER SEGMENTS AND CREATE A DIFFERENTIATED
CUSTOMER EXPERIENCE WHERE YOU CAN WIN
Take a step back. Think for a while what kind of needs banks served up until now, how these needs
have evolved during the years and whether these needs are being served not by traditional banking
competitors but by new entrants in the ﬁnancial
industry. How could someone deﬁne the retail
banking industry? Its about serving consumers
needs that have to do with money or is it about
maximizing their revenues? Someone could say
that banks are mostly for facilitating peer to
peer money exchange and as a result they should focus on the social network industries. Or what if
the banking industry was a 100% focused consulting business that sells ﬁnancial consulting sessions
and has open access to our accounts to manage our money as they think its best?
Banks should innovate like they are the hottest start-up incubator out there trying to ﬁnd the next
thing that will redeﬁne the whole banking industry and not only their organizations. They should
follow the banking operations of companies like Paypal, Uber, Ubisoft, Whatsapp, telcos and even
Facebook that allows money exchange via messaging.
Banks have long deployed technology to support and automate internal processes and to replicate
functionalities online, mostly in the service of reducing costs. But now, they need to move a step
forward being transformed into truly
customer-centered banks fusing digital and
physical assets to make customers’ banking
lives easier, more convenient and more
engaging. But some banks have innovated not
only on creating added value to their existing
customer segments but on identifying new
consumer proﬁle groups, especially of below
25 years old, which behave on a completely
different way than traditional banking
35% of market share that full-service banks
in NA could lose to new digital competitors
Consumers perception of their banking
relationship as transactional not advice-
driven is growing at a rapid pace. 79% of
consumers consider their banking
relationship to be transactional -up nearly
10% since 2014. Banks should evolve and
not being viewed like a utility.
These case study end-to-end experiences
create platforms for adding value in new ways.
Other banks are replicating the approach and
applying it to customers’ needs such as buying
a car or managing cash ﬂow. In Malaysia, for
example, RHB Banking Group, the nation’s
fourth-largest ﬁnancial services provider, has
launched a technology-empowered branch
network called Easy. This simple, agile and
transparent delivery model, designed to attract
the less afﬂuent, is 15 percent cheaper to build
and operate than traditional RHB branches.
Moreover, branches built on the Easy model
break even in one-quarter of the time of
traditional branches, and generate operating
proﬁts equal to the initial investment more than
twice as fast.
THE CASE STUDY OF CBA
Commonwealth Bank of Australia (CBA), for
example, took a core banking product,
mortgages, and innovated Digical capabilities to help customers buy their homes.
Partnering with multiple listing database Domain.com.au, CBA developed a mobile
app to search any house in Domain’s database for visual and written details, which
engage customers from the start of their home-buying experience. Customers can
click through to get advice, then start the mortgage application online or book an
appointment with a mortgage adviser in a nearby branch. After completing the
application, a rapid “straight-through” decision process and e-alerts keep
customers updated on their application status. The bank’s mobile payments
capability allows customers to transfer funds to the vendor on the go and manage
their mortgage balance through any channel, including mobile, online and ATM.
This easy, convenient and engaging experience has helped CBA to reinforce its
THE CASE STUDY OF WESTPAC
Among the innovations by Westpac, another
bank in Australia, is the way it built its position
in superannuation, the compulsory pension
scheme, with its “BT
Super for Life.” Westpac
allows customers to
aggregate and manage
all of their
in one place, whether that’s through the Web, a
mobile device or in the branch. Once they enter
their personal information, the platform behind
the product does the rest, including ﬁnding the
customers’ “Supers,” moving them to target-
date funds and then letting customers see and
manage these accounts alongside their bank
accounts online or through a mobile device. The
low cost of this innovation stems from cutting
out the investment adviser and has allowed
Westpac to price the product at 75 basis points,
roughly 40% less than the market average.
Delivering a simpler, low-cost platform has also
helped Westpac to achieve fast growth in the
superannuation market and improve cross-
In many countries, particularly those where infrastructure challenges loom large, banking by mobile
phone is making rapid headway. Just consider the success of Safaricom’s M-PESA mobile payment
service in Kenya, which now boasts more than 17 million users—more than half the East African
country’s adult population.
Right now, telecom providers, with their vast distribution networks, dominate such services. But
some innovative banks have opted to partner with them for a piece of the action. For example, ICICI
Bank, a leading provider of mobile banking services in India, has forged a network of partnerships
with telecoms including Chennai-based Aircel and the United Kingdom’s Vodafone Group to reach
rural and unbanked customers.
THE CASE STUDY OF HELLO BANK
Hello bank! is the 100% mobile digital bank successfully
launched a few months ago by the BNP Paribas Group in
France, Belgium and Germany. The addition of Italy will
expand its European dimension, increasing its number of
operations in the Group's "domestic markets", which are
increasingly integrated and where the aim is to promote a
new way not only of "doing" banking but of "being" a bank, in
line with the innovations that digital technology is introducing into international
Hello bank! is a new approach aimed at the digital generation, customers with
"digital DNA", the early adopters with a passion for technological innovation, who
prefer to use mobile devices, such as smartphones and tablets for many of their
everyday activities: from news to weather, from sport to nutrition, from learning to
reading, from choosing a ﬁlm to booking a ﬂight or hotel, and so on. Hello bank!
customers want to interact with their bank using dedicated apps, and for more
complex needs, such as advisory services, look for extended-hours access to their
account manager by video call, online chat or phone.
THE IMPORTANCE OF OMNICHANNEL STRATEGIES
Omni-channel customer experience took a hit last year. Performance fell across four key metrics:
ability to build long-lasting customer relations, design and deliver branded customer experiences,
use multiple channels strategically and leverage digital channels. Whether high-growth or lowgrowth
company, B2B, B2C or B2B2C, marketers also report that the importance of offering an omni-channel
experience declined as well. One set of numbers tells the story in sharp relief. CMOs report that their
ability to use multiple channels strategically and in an integrated and consistent way fell seven points
in 2014 from 2012 (from 53% to 46%), but the importance of mastering the multi-channel customer
experience fell even more—by 14 points (from 71% to 57%). Omnichannel is now a brand
differentiator, according to a recent Forrester study. Achieving the goal of “anything, anytime,
anywhere” banking has major implications for the role of the branch. With teller-assisted transactions
declining at an annual rate of 10% to 15% for many banks, migrating to lower-cost, automated
formats is essential. Moreover, innovations in smart ATMs and video teller machines have made self-
service easier and more engaging.
Optimizing the footprint is one aspect of how the branch network will evolve for an omnichannel
world. To start, many existing branches in the Americas and Europe will close. Recent studies show
that 75% to 80% plan to reshape or close their networks, with some banks shrinking as much as
30% of their networks over time. This will be expensive for banks that have been slow to move.
To raise the overall effectiveness of the network, leading banks are developing new branch formats
that consist of lighter but sturdier
alternatives to the traditional
branch. As noted earlier, the
most common new model
consists of hub-and-spoke
conﬁgurations of advisory
ofﬁces, light-retail consumer
shops and self-service kiosks arrayed around the full-service ﬂagship store. All of the new formats
incorporate digital technologies to enhance the customer experience and provide self-service
capabilities that customers increasingly expect. Some spoke formats have removed bank tellers
An advantage of the hub-and-spoke model is that it can be built in one local market (a city
neighborhood or rural district) and then optimized while rolling out more broadly. Forward-thinking
banks have been using sophisticated modeling techniques, geodemographic data and geomapping
software to dramatically improve decisions about the network. First, they identify key local markets,
building a picture of potential revenues and proﬁts to determine where branches can be most
proﬁtable. Then they identify which factors have the greatest inﬂuence on branch performance—
Consumers’ perceptions about bank branches are
changing: 81% of consumers would NOT switch
banks if their local branch closed. Branches must be
a relationship hub, not a transaction processor.
being close to a shopping center or train station, for instance. Finally, they apply behavioral science
to lay out and design the store.
In aggregate, the branch network will undergo substantial change. While many banks are cutting the
number of branch tellers and assistant managers, between 50% and 75% are expanding specialist
and relationship adviser roles. They’re also plowing money into technology to promote a more
seamless experience across channels; depending on the technology, 40% to 60% are adding in-
branch tablets, video teller
machines, smart ATMs and
In a few places like
Singapore, more versatile
ATMs make customers’ lives
easier by allowing them to
buy airline tickets or pay
parking ﬁnes. . Customers
will increasingly expect transactions on their smartphones or tablets to ﬂow directly to the branch
and interactions with the bank to be easy and engaging, whether online or in person.
Millennials also have distinct preferences for how
banking services should be delivered. Two-thirds (67%)
of them said that the traditional and digital banking
experience they receive at their current bank is only
somewhat or not at all seamless, and nearly half (47%)
said they would like their bank to provide tools and
services to help them create and monitor their budget.
THE CASE STUDY OF UMPQUA BANK
Consider the story of Umpqua Bank’s ﬂagship store in San Francisco,
winner of a 2014 EFMA- Accenture Distribution & Marketing Innovation
Award in the physical distribution category. Note that the use of the word
“store” over “branch” is not an oversight. I’ve seen many banks use this
word over the last decade, but it has often been used in the wrong
connotation as a place to amass products instead of as a place to shop
for the product they need.
What is Umqua doing differently? To connect with and welcome customers and the broader
community, Umqua designed this store, which opened in August 2013, to envelop customers like
the best retail stores do—and then some.
In addition to its strong design sensibility steeped in local and regional inﬂuences, the San
Francisco store includes breakthrough features and services not typically found at a bank branch,
- External screens with community information.
- Public access to tablets.
- Comfortable chairs in inviting conversation nooks.
- A “demo bar” to showcase key products and services in an interactive manner.
Retail banks should use their local branches as a strategic advantage in keeping those non-bank
competitors at bay by making better use of their stores as true places to meet their needs.
OVERHAUL THE TECHNOLOGY PLATFORM TO SIMPLIFY CUSTOMERS’ LIVES
AND LAUNCH MORE OPERATIONALLY EFFICIENT BUSINESS MODELS
To deliver a differentiated, seamless experience to customers, most banks will need to make
substantial improvements to their IT infrastructure. CBA’s effort to build digital innovations around
home buying and other experiences, for instance, was premised on its long-term commitment to
investing in customer record migration and integration—infrastructure that allows a single view of the
customer from any
reconstruction of its core
IT platform for one-and-
Joined-up IT capabilities
are becoming a
competitive advantage for many banks that invest in technology. Fragmented infrastructure remains
a pervasive problem for the retail banks on our benchmarking panel. Standard services might be
available online and through mobile, but for even slightly more complex transactions like sending
funds abroad or prepaying a mortgage, customers still have to go to a branch. to endure a slow,
clunky, multistage experience.
The Phygital transformation entails a few essential characteristics of IT infrastructure:
• Joined-up customer data that creates a holistic data ﬁle for each customer
• A single view of the customer so frontline employees can see the entirety of a customer’s
• Technology that supports one-and-done processes and a real-time processing engine, rather than
batch processing, to speed up outcomes for customers
Building these kinds of capabilities usually involves a multiyear roadmap of changes to systems and
infrastructure that’s expensive and hard to deliver. A few banks have chosen to replace their core and
single-view systems all at once, but most are staging the transition. Others are exploring outsourcing
and cloud-based capabilities to achieve their IT goals at a lower cost; roughly one-quarter of our
benchmark banks have used the cloud, and 60% plan to expand their use of cloud computing in the
290% increase in customer conversion rate by a leading
european bank that used web analytics to personalise
PHYGITAL TRANSFORMATION BANKING TIPS
• Know your customers. Micro-segmentation allows ﬁnancial marketers to understand customers
better as groups, sub-segments and individuals. It guides banks to direct resources, develop
products and service customers through individual interaction models and as part of an omni-
• Re-imagine the experience. With analytics, banks and credit unions can create consumer-
centered journeys that go beyond conventional banking encounters. They can develop test-
and-learn approaches, using data insight to inform continuous improvement eﬀorts that reﬂect
customer behaviors and feedback.
• Change the distribution mix. Considering the changing role of the branch and the growing
importance of digital, ﬁnancial institutions need to rethink the distribution mix to make the most
of consumers’ changing patterns of channel usage.
• Deepen and sustain loyalty. Financial institutions can sustain customer loyalty by combining
implicit loyalty — advice, matching donations or services like merchant-funded oﬀers — with
explicit loyalty (points based systems), using the right data for an insight- driven, holistic loyalty
• Evolve into everyday banks. Banks and credit unions must bring multiple elements together—
channels, customer experience, analytics, partnerships, digital platforms and innovation among
them—to power a new Everyday Bank value proposition.
Vasileios Tziokas is a marketing professional with outstanding academic &
professional record in branding & strategy having worked with world-leading
brands like the Vodafone Group, Mondelez, Telefonica and Coca-Cola. He has
been featured in top publications like AdWeek, MediaPost and Venturebeat. He
has previously worked for BBC Worlwide and TBWA/London. A guest speaker at
Reload Greece, blogger at Huﬃngton Post & founder of The Phygital, the ﬁrst
ever thematic site about the convergence of physical and digital in business,
strategy and marketing.
1.Altimeter Group Digital Transformation Report
2.Accenture The Everyday Bank Report
3.Bain & Company: Leading A Digical Transformation Report
4.Capgemini Consulting: A Roadmap For Billion Dollar Organization