Whitepaper on Current And Future Threats Toward The Retail Banking

1. Executive Summary August 2012
Current and future threats
toward the retail banking
industry
Research Analyst: Shai Ben-Moshe

2. August 2012
Keeping up with our tradition of sharing,
we bring you our analysis on current and future
threats in the world of traditional and retail
banking.
We hope this will put things into order and,
perhaps, provide you with new insights.
Any thoughts and comments on the matter, are
most welcomed.
Assaf Binstock | VP Customers
Head of Banking and Finance Division
Assaf.b@adkit.co.il | +972-54-8822001
Ben Fonarov Shai Ben-Moshe Dorel Blitz Assaf Binstock
Research Research Head of
Manager Manager Research

3. Banks Show Increased Concerns Over New Threats
 Nowadays, the global banking and financial system faces many challenges:
proliferation of regulation, international economic crises, rapid technological
developments and social protests
A survey by EFMA shows that 54% of Growing concerns – the existing concerns
banks surveyed expressed concern augment the threat posed by the introduction of
over disruptive innovation new players and changes in the business model
Source : EFMA, Innovation in Retail Banking, the survey included 106 banks from the EU, Us Africa and the Middle East
The Result – Most banks reviewed show investment in innovation,
however, only half can indicate the existence of a thought out, detailed
2 strategy, encompassing clear targets and measurable indicators

4. Threat Circles of Disruptive Innovation
 External Pressures Influencing the Banking System
Economic Pressures: Political Pressures:
- European Debt Crisis - Proliferation of
- Apprehension over Regulation
Another Recession
Social Pressures: Technological
- Social Protests Pressures:
- Changes in Habits of - Mobile &Tablet
Consumption - Big Data
Source: Adkit, 2012 - NFC
The Threats: From the Inner Circle and the most immediate to the
Outer and more long term and strategic
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5. Innermost Circle – The New Format
Definition Traditional Banks Differentiated by a Customer Centric approach
 Customer recruitment through a unique and differentiated
customer experience
 Clear and simple financial products
 Technically advanced direct channel communication which
allows for higher utilization
 Excellent customer service – often 24/7
 Retail over Banking – especially in branch design
Case in Point
In 2010, the European banking group Raiffeisen established Zuno, a direct bank whose
business model is based on the fact that most of its customers consider visiting the
branch, a burden. The bank employs 250 workers (age avg. under 30). The Result: A
total deposits sum of 0.8 billion Euros in Slovakia and the Czech republic by the end of
2011.
The threat is not technological in nature, but rather in
raising customer expectations and the superior position
4 gained by it

6. Second Circle – The “Supermarket Bank"
Definition Retail Giants Expand Their Operations into the Financial Sector
 Based on retail activity model – Branches and target
audience
 Brand differentiation based on customer experience “40
Years of Better” (Virgin)
 Simple financial products which provides solution to 80% of
the customers
 Physical branches are used for customer acquisition,
whereas the online channel is used to expand the product
portfolio (62% of Tesco’s financial products are sold online
after customer acquisition)
Case in Point
Virgin Money was founded in 1995 and is the financial arm of the Virgin corporation. In
the past couple of years the company has increased its presence in the British market,
since its acquisition of Northern Rock bank and its 75 branches. In an interview
conducted by us with a company executive it seems that there is synergy within the
Virgin Group, with cross sell orientation and a coordinated strategy.
The threat here is the creation of a retail “one-stop-shop”,
which combines different value offers
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7. Third Circle – The “One Product Bank”
Disintegration of Banking Services to Specialized Single
Definition
Product Agents
 Technological changes and the dissemination of the internet
have allowed a considerable portion of the banking services
to be offered by external agents at competitive prices
 Services such as: Deposits and Checking accounts – Ally
Bank, Payments – Paypal, Credit – Zopa, Investments –
eTrade and Wealth Management– Personal Capital
 Others are offering to become the mediator between the
bank and the customer and control all points of interaction –
e.g. Simple or Movenbank
Case in Point
Simple was founded in 2010 by American high tech entrepreneurs, with the purpose of
making a better bank. It aspires to become the front end to all customer – bank interaction
(mobile, phone and online - with no physical branches). The purpose of which is to create
a better and more intuitive customer experience. Simple cooperates with financial
institutions, but isn’t a bank in itself – though it certainly aspires to “replace” it.
Third party financial services providers are becoming more
accessible while banks lose their advantage of credibility
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8. Outer circle – Game Changers
Dot.Com and Mobile Companies Posses a High Potential of
Definition
Disruptive Innovation in the Financial Sector
 Companies described in previous circles are not expected to
become “classic disruptors” by creating a new market or
turning the business model on its head
 However, looking into the not so far future, technological
companies within this circle (Google, Apple, Facebook) and
mobile companies may do so. Either by themselves, or
through collaboration/merger with a financial institution
 Their main strength: abundance of touch points with the
customer can become their “stepping stone”
Case in Point
Isis was establishedd in 2010, and is a joint venture of three of the four biggest mobile
operators in the US. It is active in the field of mobile payments, and is built on a potential
customer base of 200M people. Last year Isis signed agreements with most payment
networks and with leading issuers in the US (Capital One, Chase). The Goal: Achieving a
substantial mobile foothold in the financial world in growing markets, such as payments.
It is hard to guess how and when these companies enter
the banking world. But when they will, they’ll leverage
7 their accumulated knowledge – the “New Currency”

9. “It is not the strongest of the species that survives, nor the
most intelligent, but the one most responsive to change”
Charles Darwin
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10. Adkit – Knowledge That Empowers You to Succeed
Contact us to receive some of Our Methodology
our previous researches
 Adkit specializes in international research that is used
• Customer segmentation in Retail Banking by managers and decision makers to reduce uncertainty
and improve their chances of success.
• Banking branch staffing models
• Loyalty Programs worldwide  Companies and organizations worldwide see Adkit’s
• The RTB/CTB ratio and processes for changing it research as a crucial part of their work process when
launching a new business endeavor.
• Growth and Profitability Drivers in Credit Card
Companies  Adkit has an inter-disciplinary methodology for the
• Trends & Product Innovation in Europe’s Short collection and analysis of information, based on
secondary information sources and on Adkit’s unique
Term Savings Market
ability to reach professionals and managers from all
• Boosting Sales in Retail Bank Branches
industries in order to incorporate their knowledge and
Worldwide insight into Adkit’s research.
For more information:
Assaf Binstock, VP Customers
+972-54-8822001 assaf.b@adkit.co.il
www.Adkit.com
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