Delivery Redirect

2014 Momentum Webinar Series:
Delivery Redirect
Mapping Your Business to Changing Consumer Behavior
Cornerstone Advisors, Inc.
Digital Insight
October 22, 2014

• Introduction
• Q/A
• Social Media: (#Diwebinar & @Digital_Insight)
• Post-webinar materials
Welcome

Introductions
Russell Lester - Senior Director, Strategy & Business Analytics, NCR Financial Services -
Russell has over 15 years of experience in the financial services industry and presently leads the Analytics
center of excellence for NCR Financial Services. In this role, Russell is responsible for managing a team of
seasoned analysts that provide timely, accurate, relevant and pro-actively persuasive insights to internal
stakeholders and customers. This team helps customers navigate the complex landscape of their diverse
data assets to identify, quantify and prioritize areas of opportunity. Russell has spent much of his career
interacting with financial institutions to understand their business challenges and identify ways in which
insights can help inform their strategic plans. Prior to joining NCR, Russell was Vice President of Financial
Planning and Analysis at Harland Clarke.
Dave Potterton - Research Director, Cornerstone Advisors - Dave is responsible for the
strategic direction of Cornerstone Advisor’s research and thought leadership efforts while building on the
firm’s reputation and success. Previous to Cornerstone, Dave held thought leadership positions within a
variety of financial services firms including Salesforce.com, IDC and JPMorgan. In addition to his
experience as a practitioner, market researcher and consultant, David has been a speaker and facilitator
at many financial services and technology conferences and authored numerous articles on technology in
financial services. His Twitter handle is dpotterton.
Tim Daley - Senior Consultant, Cornerstone Advisors - Tim has more than a decade of
financial services experience in technology, business process analysis, project management, compliance
and various information technology solutions. At Cornerstone, Tim focuses his efforts in the Strategic
Technology Planning, Technology Assessments and Information Technology Organizational Assessments
practice areas. Before joining Cornerstone, Tim led the integration of two online banking systems
associated with the largest credit union merger in history. He also held key technology related positions
at First Horizon National Corporation in Memphis, Tenn.

PRESENTED TO:
crnrstone.com gonzobanker.com480.423.2030
PRESENTED BY:
October 2014
Delivery Redirect – Mapping Your Business to
Changing Consumer Behavior
David Potterton, Research Director
Tim Daley, Senior Consultant
Digital Insight Momentum Webinar

4
AboutCornerstoneAdvisors
Cornerstone at a Glance
National financial
services management
consulting firm
founded in 2002 Specializing in mid-size
financial institutions with
$1-40 billion in assets
7 key
service
offerings
• Strategic Solutions
• Performance Solutions
• Technology Solutions
• Contract and Vendor Management Solutions
• Payment Solutions
• Channel Solutions
• Research and Knowledge Sharing

5
MappingYourBusinesstoChangingConsumerBehavior
Delivery Redirect
AGENDA
● What’s Happening With My Customers and the Marketplace?
● Delivery Redirect and Potential Strategies
● Examples
● How to Begin the Journey
● Final Thoughts

6
Delivery Redirect
It used to be all so simple
● Customers had a financial service need based on some life event -
college, getting a job, getting married, or needing a car or house
● Research would begin for a bank or credit union – more than likely
based on branch proximity and/or ads seen in traditional media such
as newspapers or television
● Ultimately they would decide if they wanted to accepted the terms,
fees, etc. to become a customer

7
Delivery Redirect
The model is beginning to change
● Retail and commercial customers are adopting technology at an
increasing rate - especially mobile and social
● The rules of engagement have changed – especially around search –
which now encompasses social media inputs of communities, reviews,
blogs, and financial institution alternatives
● While physical branch location and traditional media still play a part in
decision making, the real question is for how much longer?

8
Delivery Redirect
Discovery
● Begins when a customer starts their
“search” for data and information
before making a financial decision
● Provides a limited window to engage
with this prospect and make them
your own
● Traditionally takes place in the
branch and reinforced through
traditional media; TV, newspapers,
brochures
● Increasingly will take place over new
media channels including mobile,
web, and social

9
Delivery Redirect
Onboarding
● A critical interaction between the customer and financial institution
● Customers looking for fast fulfillment, timeliness, simplicity, and
convenience
● Unfortunately, the onboarding process is less than optimal at many
institutions creating a poor initial customer experience
● Essential information may also be overlooked which could generate
additional value for the customer and the organization

10
Delivery Redirect
Experience
● Is the process of customers using the financial products, services and
channels
● Includes customer service which is a key component in either a positive
or negative way
● Financial institutions need to measure and track satisfaction to
understand if they are providing the right level of products and
services for their customers
● This will help provide a consistent experience as well as relevant and
timely offers of additional services

11
Delivery Redirect
Advocacy
● Is the state that all financial institutions
should aspire to with their customers
● Customers become “advocates” of the
financial institution and its services within the
community (both social and physical)
● This can increase the visibility of the
organization’s brand and lead to other
potential customers

12
Delivery Redirect
There is an increasing willingness to do business with non-bank
providers
Source: Accenture 2014 North America Consumer Digital Banking Survey

13
Delivery Redirect
That cuts across demographics and geography
2014 North America Consumer Digital Banking Survey

14
Delivery Redirect
Gather Deposits Lending
Expensive Branch Network and Overhead (NIE)
Noninterest
Income
Deposits fund loans
Returns for
Shareholders
/Members
Earn spread between loans
and deposits
Leverage deposit accounts
for cross selling opportunities
to generate fee income.
Use noninterest income to
offset overhead costs.
Funds to
Reinvest in
the Business
The Traditional Banking
Model is being Disrupted

15
Delivery Redirect
Delivery Redirect is about
facing up to the tough choices
concerning resources, the sales
force, and new organizational
capabilities that financial
institutions must address in
order to be viable in 2020 and
beyond

16
Delivery Redirect
Delivery Redirect is not about
just migrating transactions but
REVENUE PRODUCTION –
the optimal mix of channels and
resources to successfully
influence the buying behavior
of current and future members
to drive new and cross
sell/upsell revenue

17
Delivery Redirect
Delivery Redirect Spectrum

18
Delivery Redirect
Physical Focus
● Institutions that operate in less technical, cash heavy markets such as
under banked segments, rural markets, etc.
Demographic
● Customers are generally not technology savvy and depend on
traditional physical channels – branches and ATMs
● Heavy check cashing volume, particularly at on certain days of the
week/month
● Small business and commercial accounts, especially for proximity
businesses. Limited/no social media interest
Strategy
● Focus on physical channels – specifically branches – in areas of highest
concentration of customers
● Offer digital (mobile, Web) for those who want but not a leader as far
as digital service offerings. Limited/no social media presence

19
Delivery Redirect
Trusted Advisor
● More sophisticated commercial and wealth-focused banks that drive
revenue from high valued relationships
Demographic
● Similar to Physical Focus customers but more technology knowledge
and use including social media
● Physical channels still important but less so
● Mix of small business and commercial accounts
Strategy
● Keep focus on physical channels and proximity, but less so
● Look to differentiate service offering and marketing within branches
● Offer digital services with increased functionality and create minimal
social media presence

20
Delivery Redirect
Balanced Value
● Large national players and progressive community and regional
institutions
Demographic
● Even mix between retail and commercial customers with full range of
tech and non-tech sophistication
● Use of both physical and digital channels. Social media usage
medium/high
Strategy
● More balanced customer mix necessitates broader channel support
depending on who is utilizing the channel
● Technology solutions available for those customers who want
● Present broad and deep functionality across all channels and maintain
good social media presence and outreach

21
Delivery Redirect
Digital Mainstream
● Players that blend digital focus with a limited office presence, similar to
major mutual funds/brokerage houses nationwide
Demographic
● Higher level of technology sophistication and usage for customers
whose preference runs to digital channels
● Retail versus commercial concentration
● High reliance on self-service. Social media usage very high
Strategy
● Lead with technology and capabilities but still maintain a
representative physical presence which makes use of smaller footprints
and innovative technology
● Be very active in social media

22
Delivery Redirect
Digital Forte
● Category killers who leverage digital and contact center channels
Demographic
● Customer preference runs to digital channels
● High level of technology knowledge and usage
● Retail versus commercial concentration
● High reliance on self-service. Social media usage very high
Strategy
● Very limited to no physical presence – predominately remote and
mobile
● Lead with technology capabilities and innovation. Extremely active in
social media

23
Delivery Redirect
Digital Forte Example - USAA
● $59 billion in deposits and more than 10 million
customers
● One physical branch for many years
● On average, members utilize four USAA products
● Deposit growth of 21% for latest quarter
● From the beginning have focused on alternate, online
and mobile channels
● They are one of the few retail financial institutions
allowing people to rate and review products online
● Have approximately 28,000 followers on Twitter and
232,440 ‘Likes’ on Facebook leading all other financial
institutions in social channels

24
Delivery Redirect
The Situation
● BECU has spent 15 years architecting a delivery system that is
aligned with changes in technology and consumer behavior
and can drive strong value for members
– The credit union experimented with cashless branches very early
– A bold entry into Safeway stores dramatically increased their
footprint and brand awareness
– Investments in online and call center channels have leveraged a
tech-friendly Puget Sound area population base
– More than 500,000 checking accounts serviced by less than 100
tellers drives incredible delivery efficiency
Delivery channels can’t just be
additive. Credit unions need to
make bold and deliberate plans
to redirect their investments
and capabilities.
The Lesson

25
Delivery Redirect
The Situation
● Wright Patt is a strong and growing credit union with one of
the highest Net Promoter scores in the country (73% Relational)
● The credit union recently expanded into the Columbus market,
but decided to try something new
● Columbus will be used as the living lab for technology driven
branches (NCR uGenius) with more universal associate
positions
● Direct marketing and branding experiments will also be done in
this new market
Use a weakness to create a future
strength. A new market is a great
place to take new risks without
alienating your core member base.
Test and learn!
The Lesson

26
Delivery Redirect
What Do I Do Now?
First understand your organizations business strategy; long-term vision,
business model, brand, objectives and priorities, in order to realize the
impact to your channels

27
Delivery Redirect
● Align Your Delivery Channel Strategy with Your Corporate Strategy
● Develop a formal Delivery Channel Road Map
● Transform Marketing and Relationship Management
● Enhance Fraud and Security
● Upgrade the Organization to Meet New Competitive Realities

28
Delivery Redirect
In developing your specific redirect action plans for each channel, keep
the following in mind:
● How Much Do Customers Value The Channel? – Your transaction
data, channel usage metrics, and available survey metrics should help
you answer this question
● How Cost Effective Is The Channel? – Compare your direct cost (staff,
facility, other unallocated) to your deposits as well as your direct cost
to non-interest income plus funding credit
● How Is The Channel Contributing To Sales? – Understand your
open/close ratios, number of new accounts overall and by type (e.g.
checking), value of direct consumer/small business loan production as
well as investment and mortgage referrals

29
Delivery Redirect
Final Thoughts
● Drive customer experience management from the top – Customer
experience is a C- level accountability and therefore executive
leadership and channel management needs to be aligned and
supported
● Don’t let legacy systems spell doom – All institutions have them, but
look beyond the systems and don’t let them be your anchor
● Remember, today’s shareholder value means nothing– Take a look
at the disrupters in financial services – how many more of them will
there be in 2020? Do people really need financial institutions?
● We’ve met the enemy and it is us. Don’t let the past dictate how
your institution will respond to the changing financial services
landscape and don’t be lolled into a false sense of security

30
Delivery Redirect
START NOW … RIGHT NOW (WE MEAN IT)!

With increasingly diverse interaction—it’s
critical to think holistically
• The market often views channels in silos.
• In reality, there’s a consumer at the end of
each channel, and most consumers use
multiple channels.
• It’s more important than ever to maximize
the value of every touch point: Branch, ATM,
Online, Mobile . . .
The result is experiences that your end users love—and your
revenue reflects.

As interactions change, it’s important to keep
the economics of these changes in mind
Examine the primary moving parts of profit optimization potential:
• Evaluate current channel footprint
• Capabilities? Consistency across channels? Gaps?
• Demand? Transaction volumes? Throughput?
• Costs to support? (Include opportunity costs.)
• Existing levels of: account ownership, retention, balances and fee income
• Likely future direction – What is your demographic shifting towards? What are
their expectations? What technology will it require?

Here’s an approach we’ve found successful
• Use real data, observing the behavior of account holders before
and after channel and product or service adoption.
• Benchmark the impact to retention, balance build, cross-sell
results, fee income potential, and total cost to serve.
• Develop a strategic plan based upon those results.
Imagine translating on a per branch or per user basis—that’s the
vision that you should aim for and we can help you achieve.

And results we found compelling
• Are highly engaged end users more highly engaged across all channels?
Our data says yes, which is a case for viewing channels not in silos but as
part of a cohesive strategy.
As engagement increases, so do balances and loan penetration.1
1 2014 Digital Insight Analysis of 190,000 checking account holders.
2 2014 Digital Insight analysis of 40 DI customers (13 high transaction and 27 low transaction) with Mobile RDC live for at least 12 months.
Average savings per branch, per year of RDC adoption is $11,000 (low transaction base) to $24,000
(high transaction base). That’s nearly $1 MM for a high-transaction base 40-branch network! 2
87%
Total = 190,000

www.digitalinsight.com
Thank you!
Visit Digital Insight:
We value your feedback. Take the survey
after today’s call and let us know:
1. How we did
2. If you would like follow-up information
Join the conversation: #DIwebinar
Visit Cornerstone Advisors: www.crnrstone.com

Delivery Redirect

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