Microsoft EFMA Report - Transforming Retail Banking To Reflect The New Ecomonic Environment

Transforming Retail Banking to Reflect the
New Economic Environment

The changing face of retail banking in the 21st century
A report by the EFMA Banking Advisory Council in partnership with Microsoft
Transforming Retail Banking to Reflect the New Economic Environment
Contents
Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Retail Banking Advisory Council: Directors Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Recent Developments in Multi-Channel Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Channel Innovation: Online Banking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Channel Innovation: Branch Network . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Other Channels and Strategies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Customer Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
The Impact of Technology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Case Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Efma and Microsoft would like to thank the following Retail Banking Advisory Council members
for their participation in this report:
Anubrata Biswas
Head of UK Retail and Private Banking
ICICI Bank
Daniel Knoll
Director, Retail and Business Banking
Barclays
Steve Reid
Director, Retail Banking
National Australia Group Europe
Antonio Bragh
Head of Direct Channels
Intesa Sanpaolo
Bertrand de Lachapelle
Managing Director, Commercial and
Marketing Division
Socit Gnrale
Theo-Jan Renkema
Senior Vice President Retail Banking
Rabobank
Markus Burret
Head of Banking Centre International
Allianz
Sanjeeb Chaudhuri
CEO Consumer and Commercial Banking
Central and Eastern Europe
Citi
Graham Lindsay
Managing Director, Customer Experience
Lloyds Banking Group
Paolo Lombardi
Head of Infinita Offering Line
Banca Monte dei Paschi di Siena
Enrico Conti
Head of Change Management, Retail Banking
BNP Paribas
Eric Mackor
Head of Channel Development
ABN Amro
Sven Eggefalk
Head of Sales and Development
SEB
Alexey Marey
Head of Retail Business
Alfa Bank Russia
Dominique Garnier
Directeur Coordination Commerciale
BPCE (Banque Populaires & Caisses dEpargne)
Jorge Martnez-Arroyo
Director de Canales, rea de Particulares
Divisin Banca Comercial
Santander
Carlo Giugovaz
Head of Multichannel Direct Bank Retail Area
UniCredit Group
Caspar van Haaften
Business Development Director
Aviva
Recep Haki
Retail Sales Division Head
Isbank
Anne Kyhl Hauskou
Afdelingschef, Privatafdelingen
Nykredit
Benny Higgins
Chief Executive Officer
Tesco Bank
Hans van der Horst
Managing Director
Retail Branch Banking Netherlands
ING
Graeme Hughes
Divisional Director Branch Network
Nationwide
Rainald Kirchberg
Managing Director Sales Network Management
Deutsche Bank
Jaroslaw Mastalerz
Head of Retail Banking
BRE Bank
Gkhan Mendi
Retail CEO
Fortis Turkey
Minos Moissis
General Manager, Retail Business Unit
National Bank of Greece
Chris Morson
Director of Distribution Strategy
& Development
RBS
Eskil Myrmo
Senior Vice President
Head of E-Channels and Front Systems
DnB NOR
Juan Carlos Reyes Garca-Admez

Managing Director Retail Marketing
Caja Madrid
Giovanni Rossi
Head of Branch Network
CheBanca!
Patrik Rylander
Head of Corporate Online Banking
Swedbank
Jacques Sainctavit
Head of Group Strategic Analysis
Crdit Agricole
Pedro de Sousa Cardoso
Head of Marketing and Electronic Banking
Banco Best
Rui Manuel Teixeira
Head of the Marketing Department
Millennium bcp
Claes Tell
Marketing Director
Nordea Bank
Robert Wagner
Managing Director, Head Advisory and Sales
Credit Suisse
Carlos Wanderley
Regional Head of PFS Latin America and
Global Head of Multichannel
HSBC Bank
Reto Wangler
Head of Marketing and Distribution
UBS
Joep Paemen
Business Development Mobile
Financial Services
BNP Paribas Fortis
Narciso Perales Dominique
Head of Business Development
Bankinter
Preface
Efma and Microsoft are pleased to present the

fifth edition of the Retail Banking Advisory Council
report. Since its formation by Efma and Microsoft in
2005, the Retail Banking Advisory Council has aimed
to establish an industry blueprint for the future of
retail banking delivery, particularly in the area of
channel management. The Council, which consists
of senior executives from major banks across
Europe, plays a pivotal role in providing guidance
and support for European banks.
Each year, the Council has focused on key topics
including: the future of multi-channel delivery; the
future role of the branch; and the use of customer
intelligence in developing a new advisory model.
Last year the Council discussions and report focused
on innovation in multi-channel management.
With the current turmoil in the global economy,
this report explores the issue of transforming
retail banking to reflect the changing economic
environment. There are three general areas on
which the Council has focused this year, although
many other related issues have been raised.
Creating a new operating model. Most banks
are involved in major initiatives to try and drive
costs down. There are different approaches
to this, which vary both within and between
countries. In many instances, technology will
play an important role in reducing costs whilst

maintaining efficiency and productivity
Creating a better online experience. Banks
across Europe are trying to increase their ability
to sell more products online. Many have made
progress in driving online transactions but
banks generally have been less successful than
other industries
Transforming the retail network. A number
of large banks already have major branch
transformation programmes in place. However,
some are increasing the number of branches in
the network whilst others are closing branches.
The Council therefore spent a significant amount
of time debating the future role of the branch
and the optimal level of coverage in a geography.
During the course of the year, the Council has met
in closed session and identified many challenges
facing European retail banks. These challenges
and issues included:
The pressing need for banks to regain customer
trust and increase customer satisfaction levels
Banks that are seeking to develop their multichannel capability want to know the most
effective way of achieving this
Although
there is concern about potential
competition from new market entrants, this

isnt seen as the main threat. Banks are more
concerned about the pace at which they can

change their own distribution approach with a
view to maximising cost and sales efficiencies
A third of Council members believed they would
have more branches (or physical points of
presence) within the next few years
It
isnt yet clear whether branches in the future
will differ radically in size and format from the
branches that exist today
There is a need to develop customers use of
the online channel, and to provide them with
more value from this channel
The different channels that are now available
need to be integrated more effectively
Banks need to look at new ways of reducing
the cost of serving customers; new migration
strategies; and the possibility of lower cost
channels.
The key issues covered in this report therefore

include:
The development of strong multi-channel
strategies
The current strengths and weaknesses involved
in online banking
The
use of online marketing
The future role, size and format of branches
The role of technology in a changing
environment.
Patrick Desmars
Secretary General
European financial marketing association
Tony Emerson
EMEA Banking Industry Director
Microsoft Corp.
It is with great pleasure that we publish this edition

of the Retail Banking Advisory Council report. We
trust its findings will help answer key questions
and stimulate debate. Most of all, we want to
provide a viewpoint that helps retail banks deal
with the difficult operational and strategic issues
they face in the post-crisis period.
Retail Banking Advisory Council:

Directors Summary
John Kirkbright, Director, Efma Retail Banking Advisory Council
It has been my privilege to be involved as the

Director and facilitator of the Efma Retail Banking
Advisory Council since its inception five years ago.
It has been interesting to see how the importance
of multi-channel banking has evolved as financial
services customers across Europe seek to use
an increasing variety of channels to meet their
banking needs.
Recent changes
The vision of most members of our Council is
to provide their customers with a seamless, fully
integrated and uniform experience across all
channels. Many banks are still years away from
achieving this. Of course, the severe impact of the
economic crisis has hindered progress in this area.
Our recent Council discussions have shown that
many banks have re-focused on the branch as
the main method of controlling and maintaining
customer relationships. This isnt easy when fewer
customers are visiting branches, so there has also
been a considerable emphasis on improving the
online banking experience.
Banks now need to take much more care in
ensuring that they sell the right products to their
customers. Needs-based selling is having a
radical effect on how banks operate. It requires
better systems and processes not only for a
clearer understanding of customer needs but also
for implementing the appropriate solutions.
Along with continuing European legislation
designed to ensure that customers get a better
deal, we are likely to see the potential emergence
of many new, customer-centric banks. These
factors put banks under considerable pressure to
provide higher levels of customer service and to
ensure that there is more dialogue with customers
through all channels.
Our Council members fully recognise the
importance of getting the multi-channel
proposition right: continuing to run channels

in silos is no longer an option. However, the
key issues that weve debated in recent Council
meetings have highlighted some difficult decisions
that need to be taken in the next few years.
These include:
Future customer relationships Banks
must decide the extent to which these will
be managed remotely rather than face-toface. Some Council members have already
demonstrated that its possible to develop
excellent customer relationships with few (if
any) face-to-face meetings. Unrelenting cost
pressures will undoubtedly force more banks to
develop relationships remotely, with only the most
profitable customers being sure of having their
own relationship manager. Banks will increasingly
focus on matching the level of service provided
with the profitability of the individual customer.
The future role of the branch Weve seen
the re-emergence of the branch, largely because
most banks have been unsuccessful in selling or
building relationships through remote channels.
In the short term, branches will continue to play
an important role in customer acquisition and the
sale of more complex products. However, with
further technology developments, why should
banks need large branch networks in the future?
The future role of the contact centre During
our Council meetings, there has been relatively
little discussion about contact centres. These seem
to be the forgotten channel, yet they play a vital
role in customer communication. Much needs to
be done in terms of re-inventing their role. Some
Council members are already leading the way
by using this channel to maintain dialogue, build
customer relationships and sell more complex
products. Its difficult to do this in isolation from
other channels. My vision is that we will see many
more developments such as Bankinters Videocall
service, where the telephone and Internet are
linked in a more integrated way. Why should I go

to a branch if I can do everything through other
channels? is the question that senior banking
executives need to address in the next few years.
In conclusion, our Council members are already
doing much to build a better multi-channel
experience. Many customers are already seeing
the impact of this in terms of more flexible and
innovative developments in mobile banking
and Internet offerings, which are linked more
effectively to other channels.
So, what are likely to be the main developments
over the next few years? Here are a few thoughts:
Channel changes
Significant improvements in the online buying
experience for all financial service products will
make it much easier for customers to buy more
complex products online
Branch
formats are likely to change significantly,
with many variations aimed at different types of

customers in increasingly diverse locations. (One
bank in South America already has a branch on
a boat!) Overall, branch numbers will fall.
Technology
Many banks have under-invested in the
technology required for effective channel
integration. However, many Council members
agree on the need to focus on the more
effective use of existing technology. This will
be achieved through better staff training and
greater customer education on the use of selfhelp technology
Banking
services will become more
personalised, through low-cost technology that

can be used with all channels. This is already
happening with ATMs, but the greatest scope is
probably online
Technology
will be used to provide a quicker
and better service through all channels (e.g. to

boost the speed of account opening).
Culture
The many new entrants to banking will have
a major impact on customer expectations of
the service and products that financial services
companies should be delivering. This will
force many traditional banks to respond more
rapidly than they would like
There will be significant changes in bank
personnel and the training and skills
required for each channel. This will involve
major investment, but above all an attitude
and culture change: for banks to become
customer-centric, all staff will need to be fully
engaged.
The customer experience
Dialogue with customers will improve through
the increasing use of social media channels,
rather than the one-way communication
methods of the past
Differences
are likely to arise in the capability
of different banks to provide an integrated

customer experience, which customers and
bank analysts/commentators will notice
Some large pan-European banks will establish
a core set of customer values, delivered in a
consistent way across different countries
There will be more effective ways of tracking
and understanding customer needs and
then implementing appropriate process and
channel changes to meet changes in consumer
behaviour in a cost-effective way. One example
will be major improvements in customer
complaint procedures and in the speed of
resolution of complaints
The delivery of an integrated customer
experience will meet the needs of increasingly
different types of customers at the right cost.
This will be the strategic battleground in the
new economic environment.
This final point will be the main subject of our next
round of Council meetings, which I am eagerly
anticipating.
Recent Developments in
Multi-Channel Management
The difficult economic climate of the past two
years has posed many challenges to the banking
community. However, members of the Retail
Banking Advisory Council continue to believe that a
strong channel management capability and strategy
is critical to the future success of retail banking.
Two of the main obstacles that need to be
overcome are regulation and cost. Many Council
members still find it difficult to create a viable
business case for some of the investments
needed to make a significant difference in
channel management performance. These include
changes in people, technology and processes.
There has been a continuing focus on enhancing
the connectivity between channels and on
increasing the effectiveness of multi-channel
modes of operation. The highest priority for
many members seems to lie in improving the
connectivity between the physical branch and
online channels. However, strengthening the links
between branches and contact centres is also
seen as important.
Full channel integration will still take a long time
(perhaps five to ten years) for most banks to fully
implement. However, large differences will emerge
in the progress that each bank is making which
will become increasingly noticeable to customers
and the general public.
Improving the efficiency of different channels
ultimately comes down to servicing demand and
supply, and meeting the needs of the customer
within a particular segment. Some customers are
happy to go online to buy a particular product
which services the demand raised by that
particular customer.
However, the level of servicing in relation to the
supply of online products has fallen. It may take
another generation to build all the right kinds of
systems and propositions needed. At the same
time, customers needs are also changing.
Non-branch channels versus the branch

Financial institutions in Scandinavia originally led
the way in terms of getting people to use nonbranch channels. However, it appears that some of
them now want to get people back into branches
because they arent selling so successfully through
online channels.
In contrast, one member whose bank has been
developing its non-branch channels questioned
the use of branches. Usage varies greatly: some
customers never go to a branch, whereas others
go every year, every month, every week or even
every day. In Finland, the average bank customer
only visits the branch once in every seven years!
So, for banks that have a direct online banking
operation, what is the relevance of branches?
Customers search for travel online, they search for
tickets online and they search for banking online.
As they are already so busy online, are banks
taking advantage of that by opening branches?
One bank no longer calls them branches: it regards
them more as investment centres which are there
primarily for branding purposes as they evolve
from providing service to investment advice.
At last years meetings, the Council concluded that
banks find it far easier to sell to people face-to-face:
its much more difficult to do this online. If someone
visits a doctor for the first time, he usually spends
more time with that person than on subsequent visits
because he wants to build the persons confidence
in him. Similarly, the first visit to a branch sometimes
helps to build confidence, so that in future the client
might contact the bank through the direct channels.
It may be possible to achieve a similar experience
online or via the telephone, but this depends
upon the profile of the client. Many potential
clients feel comfortable with just a phone call but
that doesnt apply to everybody. The bank needs
to understand which clients should be given the
chance to communicate online or via the phone.
However, cross-selling is always easier at the
branch and the vast majority of people would

rather go to the branch for the first time rather
than talk on the phone.
More affluent customers tend to be different.
For instance, they could be served by financial
advisers who effectively act as a mobile sales
force and are independent from the branches.
There needs to be a physical presence for those
customers who are looking for private advice.
They want to talk to someone and sometimes
they dont want to do it over the phone or
Internet; they want someone to visit them.
Each bank therefore needs to choose the kind
of customer it wants to acquire and decide
how to acquire them. This may involve having a
whole range of models which can be adapted to
different customers and markets.
There seemed to be a large consensus that for
daily banking, the channel doesnt really matter.
Most banks are now pushing a range of different
channels, such as mobile banking, ATM and online
banking. For help with this, they also need to
focus on pre-sales and after-sales counselling.
WHAT THE COUNCIL SAID:

e need to step back and think what we
W
are going to do with each channel and how
they are going to complement each other.
You need a clear definition between the
channels.
y issues relate to multi-channel
M
management: setting up a new MBO
system that is much more integrated for
managing different operators between
different channels.
Delivering something that appears simple to
the customer is actually quite complicated!
Changing strategies
Perhaps the key to an effective approach is not
the point of presence that is used, but how the
bank strategically positions itself. Is it a selling
machine from a service point of view, or does it
focus more on the customer relationship? And if a
bank focuses on customer relationships, does this
mean that the customer has to be assigned to a
relationship manager or portfolio manager? This
could be someone who is in a physical location or
it could be a remote advisor.
However, a remote relationship isnt always a
popular approach. So, what is the limiting factor
that stops people from buying more products and
dealing with their bank more remotely? Is it that
the whole process needs to be made easier, or is
it more a matter of trust? People may need to see
advisors face-to-face because unless there is a
physical presence, they dont feel comfortable.
Although its possible to have a relationship

without having a branch for certain types
of customers, this depends on the life cycle.
For example, for first-time house buyers, the
mortgage is a strategic product for the branch
network. However, for mortgages based on
transaction payments by mutual funds, the
customer might be more likely to use the Internet
although this depends partly on the age and
maturity of the customer.
However, the balance also depends on the

marketing mix, the pricing and the type of
products being offered. All of these things can
change the distribution mix.
One Council member felt that there is an issue of

trust: in the end, its good for a bank to have a
presence somewhere within the local community.
However, even this is likely to change over time,
which will cause more people to move towards
conducting their banking business online.
Overall, a multi-channel approach can be a source

of significant competitive advantage. If the rest of
the variables stay the same, an integrated multichannel approach is often the best strategy for a
retail bank. Despite this, one member commented
that although most banks are giving priority to
multi-channels as the incremental returns are
good, this doesnt necessarily mean that this
approach is the best investment.
Although there has recently been an increased

emphasis on the personal relationship in banking,
there has also been an increasing focus on digital
channels and sales outside branches. However,
its difficult to track the value of sales from the
different channels accurately and the influence
of non-branch channels is therefore probably
being underestimated.
Banks must invest in the future environment, and

portfolio management is an important aspect of this,
with a need to assign all customers to portfolios
not just the affluent ones. They also need to explore
the optimum mix of the present service model in
terms of the use of a relationship manager and the
multi-channel approach. They particularly need to
consider the optimum mix for their customers.
Some banks acknowledge that they have too

many branches and could probably serve their
customers equally well with fewer. However, banks
are in a position to help the customer to change
their mind and to make things more cost-effective
for them (from the customers point of view rather
than the banks). Some Council members felt that
overall, there has perhaps been a move away from
a branch-based model to a multi-channel based
model, although the situation varies considerably.
Customer choice and channel migration

The Council felt that, in principle, customers should
be given the choice of the type of channel and the
type of communication they prefer. The information
that can be gained from the various channels can
then be used to formulate decisions about the type
of campaigns that should be launched.
In the current climate, it may be much easier for

new banks to adapt themselves to the changing
economic situation than for those that already
have a huge, established customer base. For these
established banks, transformation isnt something
that can happen in a year: it takes time.
Changing the channel mix
Promotions can change the balance between
channels. A promotion tends to work well on the
Internet and increases interest in this channel. In
contrast, for banks that prefer to use their branches
for customer acquisition, eliminating promotions

can give an added advantage to the branch.
For instance, campaigns might be promoted via

the branch, account office, tellers, call centres,
SMS or e-mail. The channels used will also vary
from country to country: one member said that
his bank wasnt allowed to make any sales from
Internet banking as everything has to be signed at
the branch for legal purposes.
Ultimately, if a bank can measure the effectiveness
of different channels, they can invest in those
channels that are more successful in terms
of acquisitions. But there is a need to better
understand the relative strengths of each channel,
and better track campaigns in those channels,
before investing too heavily in any of them.
One member questioned whether banks feel that

they are really giving the customer freedom of
choice across the different channels or are they
actually directing them towards those channels
that are most beneficial to the bank? In previous
meetings, members had also talked about giving
the customer more choice or more flexibility but
in practice, most dont really have the means of
providing this at the moment.
On the one hand, retail banks want to give their
customers more choice; on the other hand, they
have to balance this with their pricing models. For
example, if a branch offers a physical transfer via
the telephone, this will cost it money, whereas if
this is carried out via the Internet, it is effectively
free. So from a pricing point of view, a bank wants
to direct its customers to use the channels that it
regards as most cost-effective.
So should customers be allowed to use whatever
channel they want to use? One bank differentiates
according to the level of service required. If the
customer needs a premium service, they have to
go the branch.
decide to use other channels. Ultimately, however,

its a matter of willingness and culture at the
moment, many people dont believe in the
potential of new channels sufficiently to migrate.
Indeed, some customers still prefer to carry out

all of their main activities through the branch.
This can be very costly for the bank, so customers
can often be enticed to use other channels (such
as ATMs and the Internet) by offering discounts
or loyalty points. The relative cost of a loyalty
scheme can be kept very low.
For most banks, the level of individual customer
profitability will determine the type of service each
customer will receive. It is therefore important
to have a deeper understanding of the relative
profitability of different customers.
Channel migration is still considered very
important by most Council members, particularly
those with large branch networks. The main focus
centres on getting mass market customers to
migrate to less costly channels. Many member
banks are using an increasing range of techniques
to achieve this aim.
Some banks have been trying to define the
tipping point, beyond which customers will
Overall, therefore, the multi-channel approach is

likely to stay but it will probably develop more in
certain areas in relation to specific products or to
different customer segments.

We are seeing how the customer acts: more
and more through the Internet and call
centres and less traffic activity in branches.
We started to measure the journey of
customers. After one and a half years, we
were able to move them to other channels
without causing any churn.
We have created some new roles in the
branches that help the customer to learn
how to use the channels so you can help
the customer to change their mind.
10
Channel Innovation:
Online Banking
The Council recognises that investment in this
channel over recent years has been relatively
low compared to other sectors even when it is
effectively the banks largest branch. However,
Council members reported that they are now
increasing investment in the online buying
experience in a drive to accelerate sales and at the
same time reduce the costs involved.
Online sales
Most Council members feel strongly that banks
need to carry out more sales online. The Internet
provides a great way of acquiring new customers.
While some Council members have been more
successful with the online channel than others,
there was general agreement that the online
buying process needs to become less complex
and easier to use. A number of financial institutions
are therefore involved in major projects that
focus on how to create a better online purchasing
experience. However, the changes needed are very
expensive and this is likely to slow down progress.
Overall, Council members felt that, potentially,

anything can be sold online but redesigning
the processes to make this possible is very costly.
Some products can easily be pulled, whereas
others are designed to be pushed.
Banks also need to distinguish between online
sales to existing customers and online sales to
new customers. Some of the services available
online today are more sophisticated than the
customer could get in a branch two years ago.
They will soon be able to obtain items online
that they cant get in a branch. The reason that
customers go online is often not cost, but control.
They feel more in control because if they dont like
something, they can just log out.
At the moment, there is often a restriction in the

number of products that can be sold online. For
those that cant be sold easily over the Internet,
banks still need to use branches, call centres and
branch advisors to complete the sale (although
some Council members are more optimistic than
others about the future for online sales).
Its important to distinguish between the public

(or open) side of a banks online presence and its
secure (or closed) side. These are effectively two
different channels. On the public side, banks are
mainly dealing with new prospects. As mentioned
previously, selling to a new customer is more
difficult than selling to an existing customer.
For instance, members in some countries felt that

selling a mortgage online is almost impossible due
to legal constraints and the amount of paperwork
involved. However, those in other countries found
it easier and pointed out that even if the full sales
process cant be completed online, mortgages can
be promoted and initial application stages executed
online, before being completed in person.
One member said that any talk of selling a product

should involve some level of advice. He thought
that online sales are more like transactions than
actual sales. Often people dont buy because they
want a face-to-face experience. They want to see
who is selling and what they are selling.
Products that can usually be sold successfully online

include deposit accounts, credit accounts, mutual
funds and stocks. One member commented that
consumer credit is more difficult to sell online
because internal processes are often designed to
11
be driven face-to-face via the branch (yet in Turkey

they are able to accomplish this often through
ATMs). However, the problem with deposit accounts
and savings accounts is that there are no real
margins more profitable products are needed.
Its all a question of degree. Five years ago, people

were saying that savings accounts could never be
sold online. Theyve now changed their minds and
have realised that its an evolutionary process. One
bank has developed a programme to increase its
online sales of simple products (including personal
loans, accounts and insurance) to 50 per cent of its
total sales by 2012. The bank doesnt include more

complex products, such as mortgages, which are
dealt with at the branches. Ultimately, this strategy
of increasing online sales is likely to lead to an
eventual reduction in the number of branches.
The investment side of banking is a much more
difficult proposition online. Banks need to know
more about the client before they can provide
strong investment advice and there are certain
levels of regulation that cant be circumvented.
The Council concluded that, ultimately, the issue
is not about whether to use an online or an
offline approach the key lies in how to mix them
effectively. They also agreed that while there is a
great future for online sales, at the moment things
are moving slowly.

Many more people access the Internet than
ever before at home and work and yet we
still have problems in selling and getting
people happy with the channel.
ne of the hardest things in terms of the
O
online buying experience is making the
processes less complex.
Take it step by step: firstly, improve the
processes around the products that clients
can subscribe to easily, putting the priority
on what the customer needs.
Online marketing
Approximately half of consumers in Western
Europe now bank online, and this figure is
continuing to increase. In some banks, it has
reached 60 per cent or even 80 per cent. Its not
just that there are more Internet users: those that
are there are also using it more often once they
become familiar with it. If they make a purchase on
the Internet, they can give a rating that helps other
customers to make a decision, which will influence
the future purchase of financial products.
In tandem with this, there are now new tools
and concepts for developing and managing
online marketing. One example is social influence
marketing, which measures the effect of various
actions by a business and also the consumer
perception of its brand. Another important
influence is how often the brand is mentioned
whether the comments are positive, negative or
neutral.
Another increasingly important area is the use of
social networks. There is little doubt that banks
need to develop a better understanding of social
and other online media and a presence on
these sites. This can be a risky strategy at first, but
it's a matter of timing: they need to know when
to start exploring a specific method and how to
develop a positive presence there.
Even customers who come from the branch

use the Internet a lot of the time.
There was a discussion about whether financial

institutions should take the trouble to track
what is happening in terms of their brand on
social websites. Most of those who do so carry
out manual searches rather than using spiders.
However, because the data grows so rapidly, its
almost impossible to do this successfully for long.
Some banks already host social websites on their
sites. For many companies that sell consumer
products, this is how they see the future of their
marketing strategy.
You need to build the internal capabilities

to support the online banking organisation.
New approaches such as the increasing use of

video, TV and digital marketing are also becoming
e have 25 categories of needs and for 15

W
of these, its possible to sell online. We need
to simplify the process, though.
12
more common, along with various applications

that help to build the banks brand. Integrated
campaigns are much more efficient and viral
marketing is very effective. So, there are a lot of
options but banks need to decide which ones
should be given priority. Some banks use both
traditional and modern approaches but they
often fail to coordinate these properly.
Different online marketing methods are required
for different purposes for example, online
banners are good for raising awareness, whereas
social networks may be better for customer
retention. Videos are useful for explaining the
benefits of a simple product, whereas more
complex solutions may need a different approach.
There is a need to constantly measure the
effectiveness of these different approaches,
and then to learn and improve. For instance,
how many new clients arrive through banners,
telephone, word-of-mouth etc? Where do they
go from there? A good grasp of the underlying
trends and issues might require an analysis of
customer behaviour; a clearer understanding of
the different channels used by customers; and a
view of the different profiles of the users. Banks
13
should be ready to experiment with innovations

such as new media and behavioural targeting.
The consumer products sector is leading the
use of different online marketing approaches.
These companies often don't sell products online,
but benefit from links with the products. In the
financial services sector, some firms have deeply
invested in this type of marketing but arent yet
getting the full results. The questions for anyone
embarking on this course are: how do you reach
more customers; how do you retain them once
youve reached them; and then how do you
monetise the relationship (cross-sell) to those you
retained? Everyone wants Internet customers, but
there is still a need to understand how to capture
them, and how to build the brand.
In the insurance industry, the vast majority of
the marketing budget is still usually spent on
traditional media but more is now increasingly
being spent on new media as well. Some
insurance and bancassurance companies
deliberately avoid online comparison sites, as this
approach isnt always regarded as being the most
honest and devalues the services relationship in
favour of price.
However, the success of an online operation

doesnt just depend upon the level of marketing
used. Some of the key potential barriers to success
include the quality of services provided, and
compliance with all of the legal aspects of online
sales. Banks therefore need to be aware of the
various regulations that are currently in operation.
They also need to know how these are likely to
change in the future, and they should be ready to
respond to any change.
Other uses of online banking
The Internet may not always be a successful
channel for direct sales but it can be very
successful for transactions. There are also a lot of
opportunities to cross-sell online with consumer
finance, insurance etc.
For some financial institutions, the Internet is used
more as a tool for making a brand statement,
rather than for customer acquisition and business.
It also plays an important role in building the
relationship with the customer in terms of
information gathering. For these organisations, its
not the best channel for obtaining new clients
its more about providing convenient services.
Although there are many opportunities in the
Internet, there are also some threats to the
organisation. Its important not to separate it
from other channels and start treating customers
differently; to remember that the customer is still
the banks customer.
Limitations of online banking
Regulations continue to act as a constraint that
can affect the viability of the online sales of
financial services products, although there are
considerable regional variations in regulations
across Europe. One of the largest limitations
comes from regulators demands for a customers
physical signature.
In Scandinavia, the use of identification cards
has made it far easier to sell deposit products
online than it has in other areas. In contrast, banks
in Greece have reported some difficulties in
making progress in online sales due to stringent
regulations and banks in Portugal face new
regulations almost every month.
The process used can also limit the success of an

online venture. Developing and transforming online
processes is a very expensive business. It needs to
be taken one step at a time. Initially, banks need
to focus on improving the processes relating to
products that are easy for clients to subscribe to
(for example, different types of debit cards).
Most banks develop their online facilities by
putting an extra layer on top of their existing
processes. If a layer is then added for mobile
processes as well, the operation becomes even
more complicated!
Overall, there is a need to understand what the
customer is doing on the website before an online
product is proposed. Sometimes its a case of
using trial and error in order to develop a clearer
understanding of the customers activities. If a
bank could generate, say, 20 per cent of its sales
online, this would provide the funds needed to
change the processes.
Another potential limitation is the need to address
customer concerns online. However, because
customers are managed by financial advisors
as well, they can usually send a message to the
website or meet their financial advisor if they have
a concern.
Lessons from the retail sector
Council members referenced Amazon as an
example of a company that sells very effectively
online. Banks could possibly learn some valuable
lessons from the retailer. Fulfilment is a major
issue for the financial sector. Amazon has a
huge customer base from which it can gain
information about customer behaviour and it
is constantly innovating. It gains trust from the
recommendations made by other customers.
The risk management model is also different for
Amazon. The company is willing to risk a certain
amount of fraud, so the payments are not as
secure as they would be for a bank. Perhaps
banks need to go back to the days of cooperative
banking and use social network techniques to
make sure that the products they sell are more
appropriate. This could go a long way beyond the
collaborative filtering found on Amazon.
14
Channel Innovation:
The Branch Network
Some of the current issues facing banks include:
the tension between a perceived need for
branches and the slowdown of new branch
openings; the signs of major growth in sales in
non-branch channels, and; major costs being
taken out of distribution.
In the past, banks emphasised the need for
a personal banking approach. Although this
emphasis has returned to some extent, there
is also an increasing focus on digital channels
and sales outside branches. When asked if there
will be less reliance on branches in the future,
one bank said that it now starts engaging new
customers on the Internet first. However, another
disagreed with this approach on the basis that
if the customer comes to the bank through the
Internet, there is no cross-fertilisation in the
acquisition process.
There was a feeling that customer behaviour has
changed as a result of the economic climate. One
member felt that it would be useful to know more
about opportunities for monitoring consumer
behaviour, as this links perfectly with the topics of
digital marketing tools and monitoring platforms.
The size of the branch network
None of the Council members felt they needed
to make significant reductions in their physical
branch networks in the immediate future. Indeed,
some banks are continuing to make a significant
investment in new branches. However, opening
branches can be very expensive which can
cause conflict at a time when banks are seeking to
reduce costs. Despite this, one member queried if
this really was a high cost model, compared with
a bank conducting most of its activities remotely
online. In terms of the business case, its a matter
of balancing costs and revenues. Ultimately, banks
have learnt that the branch approach can work
and can generate a profit.
Some banks have been opening branches
primarily to attract new business deposits. There
15
was a feeling among some Council members

that branches are more effective for attracting
customers than for managing them. One bank
that had very few branches found that it needed
a physical point of presence for providing help
and advice to its customers. One possibility it was
exploring was the use of satellite branches.
The overall picture in relation to branches varies
considerably from country to country. For
instance, in Belgium and Spain the overall number
of branches is decreasing. In contrast, some banks
in Italy, Portugal and France are opening new
branches. In some countries, the new branches
are very small, with a maximum of six employees,
and they only service the retail sector. Meanwhile,
one bank in the UK closed 120 branches without
losing customers, as it communicated other
alternative channels well in advance.
Many members made the point that for a bank to
compete effectively, there is a critical number of
branches needed within a specific region. Once
this optimum number has been reached, banks
can consider closing branches. If the optimum
hasnt been reached, the bank will benefit from
increasing the number of branches.
But what is the magical optimum number for
branches? It will obviously vary tremendously, due
to different banking philosophies and different
situations in different countries. On a greenfield
basis, the branch has a brand impact on the
product. At a local level, a certain minimum
density of branches is essential for creating brand
impact and trust.
Some banks naturally need fewer branches.
For instance, the population of the Netherlands
is much more Internet-orientated with people
not being as reliant on the branch. Meanwhile,
other banks place a priority on increasing
their coverage and are intent on buying new
branches to raise their market share. Yet again,
others will have overlaps in their branches due
to mergers and may need to close some. The

optimal size of coverage for the branch network
will vary from country to country. It will depend
upon the number of branches needed in that
country or region in order for the bank to be
able to operate effectively. There are very
different opinions about the magic numbers
involved.
One member said that the reason why some
banks are still opening a lot of branches
was because 8090 per cent of a banks
relationships with its customers are developed
from face-to-face meetings. He said that his
bank hadnt had much success in forming
relationships through other channels. It saw
other channels as being useful for cross-selling,
servicing and retention. However, in terms of
new acquisition a physical presence is needed
(although it can take many different shapes and
the associated costs can vary considerably).
Because this bank believes it is important to
have a minimum physical presence, it has
opened nearly 2,000 branches over the last
two years and has followed a strategy of
concentrating branches in key locations to win
back important regions.
Another Council member reported that their
bank had also invested significantly in branches.
In the Nordic countries where the bank operates,
there are a lot of Internet customers, but banks
need to take sales to the next level. The online
experience needs to be complimented with
personal advice.
One member stated that to make a branch
worthwhile, it would need 15,000 customers.
Several others thought that this figure was too
high. However, the average figure from Council
members was approximately 3,000 customers.
One suggestion for a possible transition route
from the past to the future would be to adopt a
franchise or agency approach. A few banks are
already starting to follow this route.

Branches remain the driver for attracting
new customers.
Some consultants are predicting that large
banks will have to cut their networks by 20
to 30 per cent in the next five years.
It takes 20 months or more for a new
branch to become profitable. It may need
to be even quicker.
Were transforming the branch from
transactional to relational.
The change of format of the branch is
important: people have different visions.
What kind do you need, if you are trying to
drive more sales through the branch?
The role of the branch
Council members remarked that in the aftermath
of the financial crisis, it is essential that there should
be a closer exploration of the potential future role
of the branch, and where it should be located.
The questions that need to be asked include:
What is the ideal coverage of the branch? and
What is the right format? At the heart of all these
discussions, there should be the key question:
What can we do to serve the customer better?
One contributor mentioned that because margins
have been falling, banks either need to grow or to
cut their costs. Any new branches really need to
be profitable within 18 months.
But if branches are still going to be used, how can
banks reduce the cost of this channel or make it
more efficient? One way is to transform the role
of the branch so that it no longer primarily has a
transactional role but becomes more relationshiporientated. If this happens, the role of the branch
manager is also likely to change.
16
At the moment, the branch is still the primary way

of acquiring quality customers. But in light of the
new economic environment, what have been the
biggest changes? In many areas, there has been
a strengthening of resolve in terms of investing
in the branch. Banks are also pursuing the issue
of migration to other channels and the need
to improve the online buying experience and
the support tools available whether for online
marketing or for CRM etc.
One innovation that was mentioned was the
possibility of piloting branches in areas where
customers congregate or where there is a captive
audience such as on a long distance train. This is
the same principle as having a mobile branch.
The members then discussed the role of the
branch in relation to different processes. One
bank has a map of all the main processes it wants
to achieve with all of its clients, which shows how
the propositions are split between the different
channels. However, most banks dont really think
this subject through thoroughly. They perhaps
need to step back and think about what they
are going to do with each channel and how the
channels are going to complement each other.
One belief is that the branch is relevant for certain
advice-driven transactions, because the customer
wants to have a face-to-face meeting with the
adviser when making investments.
Another important reason for having branches
is for convenience: they are also valuable for
acquiring and retaining customers. There was a
feeling that one advantage of customers visiting
a branch is that cross-selling is much easier there,
but finding the right balance is difficult.
A further key area is the selling experience: this
is where a branch definitely helps. The customer
may be a regular online user but can still go into
a branch and see someone and be out in half an
hour without the trouble of spending a lot of time
online finding and selling, dealing, downloading etc.
Its in the banks interest to get the customer into
the branch so that it can sell to them. However,
this approach isnt a customer-driven model
17
because the customer isnt being given the

freedom of choice to decide which channel they
want to use and the way they want to use it. The
bank is directing the customer down a particular
path that suits it best.
Many banks still see branches as being at the core
of the relationship with the customer. The branch
owns the customer and the profitability of the
customer is attached to the branch. One Council
member commented that banks need both a
touch portal and a technical portal. The branches
represent the touch portal. Although there may not
be a need for so many branches in the future, there
will still be a need for the right number of branches.
The true issue is: what kind of branches will be
needed in the future? Even now, some branches
are only manned by one or two people. One
suggestion was that a minimum number of
branches is needed if a bank wants to have a
visible brand. Other members disagreed: one said
that all of his banks customers are now online
and that the bank cant really take full advantage
of this fact if it is busy opening new branches. The
bank only keeps a few branches open, primarily
for brand awareness and advice: transactions
arent carried out there.
The Council felt that arguably, the key underlying
issue isnt actually about whether a bank should
have branches or about its ability to sell via
the Internet its about whether the bank is
customer-centric or not.
One member asked about the role of agents and
intermediaries, and whether this would reduce
the need for branches. However, it was felt that
this is unlikely: the agent complements the role
of the branch by building a personal relationship
with the customer, which is used to sell banking
products. As far as the agent is concerned, there
is a need to improve loyalty. If the customer is
using a current account with the bank, it will be
more difficult for them to move accounts.
Overall, there doesnt seem to have been a massive
move towards agents opening accounts. The focus
has returned more to the branch relationship. There
is a need to persuade agents to do something
different: to sell banking products. The sales process

for insurance products is totally different from bank
products. The agent tells the client that its a good
product and the client signs the deal because the
product is complicated and they trust the agent.
Banking involves much more of an advisory process.
Banks also need to explore how the future role of
the branch will change in terms of its relationship
with the other channels. A lot of transactions
will be transferred to different channels. Banks
need to consider whether the role of the branch
will become more advisory; and they need to
explore the types of services that will enhance the
customer experience. What can banks do that is
special for customers? And if branches adopt a
more advisory role, how does that change their
coverage requirements?
Perhaps the starting point of any banks strategy
should be to decide what sort of bank it wants to
be. For instance, it might want to be a relationship
bank in which the personal interaction between
the bank and its customers is the main priority. This
relationship might be with the institution or with
the portfolio manager or relationship manager. The
latter probably has the most value and helps to tie
most people to the bank and grows the business.
Ultimately, this relationship will be determined by
what type of person the customer is; how much
help they need; and whether they need that help
by phone or a physical meeting. The bank needs to
be there as a support mechanism rather than just
leaving customers to do everything on their own.

Branches are relevant for certain types
of transactions and for advice, but other
activities can be performed elsewhere.

Will the role of the branch change and
why are people still opening branches when
its so important to have an online banking
experience?
The customer belongs to the whole bank,
not to a specific branch. The branch is not
a profit centre.
Branch personnel
A key element of branch performance depends
on the development and motivation of the senior
management and their staff. Important issues
that must be tackled range from training and
incentives through to recruitment. In terms of
incentives, one bank rewards each person in the
chain of the sale whereas most banks reward the
person who makes a sale rather than the group.
Other banks provide all the rewards to the branch.
There is also the more philosophical question of
how branch staff can be managed using different
performance management models. One change
that is needed to improve banking and to prepare
branches for their future role involves a greater
customer orientation by not just investing in the
bank, but in people.
There is also an opportunity to create a new
experience in banking by making the branch much
more attractive. Staff need to be trained more
comprehensively to give enhanced levels of service.
They also need to develop a new mindset. They
must learn to talk to new customers in a friendly
way, attracting their interest and asking them if they
need help. Basically, they need to adopt a similar
approach to that of staff in a retail store. Indeed
some Council members have recruited people from
other sectors or industries. One member said that
branch managers tend to be experienced bankers,
whereas the service managers tend to comes from
the hotel or hospitality industry. In Italy, some branch
managers are recruited from telecoms companies.
Customers often welcome a more informal
approach in which they can enter into a dialogue
with the bank. Innovative technology can also
help to ease the interaction with the customer. If
the customer is more at ease in the bank, they are
more likely to remain loyal.
At the operational level, one issue that needs to
be addressed is the management of the branch
sales team. How can sales people be motivated
and incentivised? Banks need to explore the
development of a sales plan, the best ways of
putting a sales team within a branch, measuring
their performance, and the role of the branch
manager.
18
In most markets, compliance requirements

(particularly when servicing the more affluent
customer base) mean that employees need either
a lot of training or a lot of experience in order to
take on the appropriate level of responsibility.
Age can be another factor. In some European
countries, the average client is getting older. This
raised the question of whether banks should be
seeking to keep their more mature tellers. This in
turn prompted a debate centring on the issue of
whether older clients really need an older teller.
Meanwhile, Internet penetration is increasing for
older customers (over 65 years old). With older
people tending to use the branch more often
than younger customers, this has led to the
introduction of programmes to educate them
on using the online channel. This even extends
to sending ambassadors to visit older customers
in their homes to conduct Internet banking
workshops.
Customer experience
One branch has instigated a new approach
by showing its staff how they should handle
customers. Employees are trained to look at the
branch as a place where customers are welcomed.
To formalise this approach, it has produced a
checklist, covering issues that range from the
interaction between the switchboard and the
customer through to how employees manage the
expectations of the customer after they leave the
branch. The bank is also monitoring how customers
perceive the service they receive in branches.
Part of this approach involved an exploration
of competitors, including a comparison of retail
outlets and the bank. Aspects that were covered
included the knowledge of the staff and the
accessibility of the retail store. These factors were
then compared with the branchs approach. The
concept was successfully received and was copied
to the banks branch managers.
As a follow-up to assess the effectiveness of this
approach, the bank carries out mystery shopping
and holds customer surveys four times a year. This
gives it very direct feedback on how the bank is
perceived by the customers.
19
Another bank has been experimenting

successfully with instant feedback at the branches
as customers leave. This has been very useful, as
the bank was able to feed the input back into the
branch very quickly. Another approach is to have
a portal that allows the manager to see customer
views online in real time.
One member said that he saw the role of the branch
as not just being about acquisition, but also about
acting on moments of truth. There could typically
be six or seven key moments of truth when dealing
with customers such as the point of acquisition, a
complaint, taking out a mortgage or saving money.
Even very basic processes can be moments of truth
as far as the customer is concerned such as the
ability of the bank to open a new account within a
short period of time (perhaps as little as 15 minutes).
One UK bank has recently published a charter in
which they have made a public commitment to
customers, covering a list of 14 key issues (such
as limiting the time that customers have to wait in
queues). This degree of commitment is important
to customers the charter itself was based on
customer feedback.
Although one or two Council members doubted
whether the bank would be able to meet all of
these commitments, this approach highlighted the
important question of how banks measure and
manage the customer experience.
Branch profitability
Unsurprisingly Council members were concerned
about the profitability of the branch network.
One approach is to explore how technology can
help to increase the level of income received
from customers.
This is an important issue. When discussing
the branch network, banks tend to talk about
decreasing costs which, indeed, is necessary
in the short term. However, in the medium to
long term, they need to look at increasing the
income from customers. This may come from the
development of other products and services, or
from different pricing combinations. Technology
can also help to stimulate sales and increase
profitability.
The role of relationship managers

The type of relationship that develops between
a relationship manager and their client will vary
according to the customer. Any customer wants
to have a focal point. Some will prefer a face-toface meeting whilst others might be happy with a
more remote approach.
Banks also need a physical presence if they intend

to target the mass affluent markets. Although
most members agreed that branches are
very expensive, they still recognised that most
relationships with customers related to high value
products are conducted on a face-to-face basis.
To make these more cost-effective, they should
be focused on the more profitable customers.
Council members were asked what percentage of

their customers have relationship managers. One
bank gave a figure of 25 per cent, and said that
a video call can be used to communicate directly
with the relationship manager or the call centre.
Since introducing this system, the bank has had
80,000 calls but still sees this as being just one
point of contact with the customer.
Trust
The world of financial advice continues to become
increasingly complex. Consequently, customers
either have to be very skilled and secure in their
own knowledge and abilities or they need to be
able to fully trust advice provided by their bank.
What is the relationship between trust and
confidence and the development of new
channels? Do banks feel comfortable about
moving increasingly towards a more online route?
The criteria for having a relationship manager again

vary from bank to bank: one cited an account
balance of 50,000 as being the lower limit.
However, it shouldnt just be about the money a
customer has, but also their future potential.
When banks were closing branches four or five

years ago, this was often carried out without any
real analysis of the situation. It was based purely
on efficiency. If two branches were fairly close
to each other and therefore customers were
less likely to react negatively to a closure, such
a closure would go ahead. However, this didnt
address the underlying issues. Banks always need
to remember the importance of the customer
relationship, which is based on trust.
Trust is still a dominant issue for many financial
institutions, particularly in the current economic
climate. There is a pressing need to work out how
to regain customer trust where it has been lost.
This is one reason why the branch is often essential
because many different discussions take place
with customers at face-to-face branch meetings,
where they can feed back their concerns and
desires. The Council agreed that in the majority
of cases this needs to take place in the branch
because a one-to-one relationship is essential.
From the customers point of view, the issue of
trust is one of the most important factors in their
relationship with a bank, along with a greater
focus on convenience. Banks are now going back
to basics and part of this means a reliance on
their relationship managers.
The percentage of time an adviser spends in meeting

customers at their home or business (rather than
the branch) also varies. On the business side it tends
to be high, but on the consumer side it is typically
less than 10 per cent. Customers don't always
want a banker in their home and bankers prefer
appointments in the branch. So the branch still tends
to be the key place where many sales are completed.
The Council agreed that the customer has to feel
that they are dealing with just one organisation.
Therefore banks should place more reliance in the
judgment of their relationship managers, as they are
the people best placed to really know the customer.

Every time you meet a customer, you should
use this moment as a selling moment.
The real way to increase sales is word-ofmouth. Its where you make the difference.
I think the most important thing from the
customers point of view is to regain their
trust and focus on convenience.
20
Other Channels and Strategies

Contact centres
Council members agreed that the difficulty
facing banks lies in how to establish a relationship
between its remote customers and contact centre
staff. This isnt just an issue of technology its an
issue of organisation.
One bank uses localised call centres rather than
the centralised ones adopted by most financial
institutions, even though the localised centre is a
more expensive option. The aim is to give a more
personal service. However, as bank staff alternate
between the branch and the call centre its proved
difficult to keep track of which staff member has
completed a sale.
One member asked if call centres are a neglected
area of a multi-channel strategy. The focus seems
to be more on branches, online banking and
mobile banking. Call centres sometimes receive
bad press, including a lot of customer criticism
about the use of interactive voice response
telephony.
Another Council member said that in his bank,
contact centres are taking over the role of staff
in the branch, with many employees moving
physically to the call centre. Currently, there
can be an issue with transferring staff between
different channels, although in the future, there
will have to be more flexibility in this area. This
led to the question of whether contact centres
will have a much stronger role in relationship
management in the future. This could be partly
driven by cost as call centres traditionally drive
customers through in the most efficient way and
at the lowest cost.
Over the next two years or so, the main change
in contact centres is likely to involve integration
with the Web. For example, when customers
visit the banks website, they will be asked if they
want to be contacted by the call centre (either via
immediate text chat, audio conferencing or video).
Mobile
Todays mobile technologies provide a wide range
of new opportunities for banks to improve sales
21
productivity while offering customers greater

convenience. Council members believe that
extending basic banking functions and services to
customers via mobile devices can deliver a wide
range of new sales and services scenarios.
One of the key changes over the first half of
2010 was an increasing focus on mobile services
(including mobile payments from person to
person or from person to business) and more
advanced banking services. Some online services
both the customer and the product development

arms of banks.
In Russia, marketing campaigns are changing and
younger employees are joining banks. One bank
is therefore focusing increasingly on mobile and
Internet banking, with a quarter of its customers
using the Internet even though Russia doesnt
have such a strong dependence on the Internet as
Western Europe.
The bank has had a huge increase in new
customers in the consumer finance sector and is
trying to provide them with basic Internet access.
To manage its multi-channel approach, the bank
has special departments for Internet banking,
consumer finance etc.
Integrated communications
Another option is video conferencing. There is some
evidence that customers are better at keeping
appointments for an online video conference than at
turning up in person. Several Council members are
piloting this approach.
One bank has integrated communications with
their ATMs, so if there's a problem with the ATM,
the customer presses a button and an advisor
answers. They can usually see the customer, as
most ATMs have cameras. One or two other
financial institutions have also tried this but have
found problems with queues developing and with
issues relating to insufficient light.
have now been transferred to mobile applications.

Various banks are now pressing for more services
(such as small purchases) to be adapted for the
mobile market. This change is being driven by
The Council agreed that video conferencing

would be most effective when targeted at specific
clients, products and services. The products in
question would need to be very profitable and
video conferencing solutions need to be linked
to all channels in case the client wants to change
products.
Over the next two years or so, the main change in

contact centres is likely to involve integration
with the Web
22
Customer Acquisition
Customer acquisition and the strategic
approaches used by Council members have
changed significantly during the current economic
climate. If the bank is already well established,
it faces a choice of how to balance the mix of
growing through the acquisition of new clients or
increasing share of wallet from existing customers.
The majority of Council members are focusing on
the latter option which they believe has the added
benefit of increasing customer satisfaction.
that 20 per cent of customers account for 80

per cent of a banks business. However, that 20
per cent changes over time: and to maintain a
reasonable level of profitable customers, the bank
still has to keep serving the other 80 per cent.
Looking at the different market segments, banks
need to have different products and services for
low and high margin customers. But its difficult to
know where to draw the line and whether to have
complete segmentation of the different groups. It
is also becoming increasingly difficult to determine
which customers are likely to be profitable and
which wont which impacts acquisition and
cross-selling capabilities.
The cost of customer acquisition is critical, but tends

to vary considerably among Council members.
The issues revolve around how to get the most
out of expenditure on acquisition and how to
do this in the most effective way. One Council
member said that their bank tried to cherry pick
the best customers by combining advertising and
digital marketing strategies with opportunities to
meet the customers needs. The Council agreed
that the underlying key to reducing acquisition
costs is having the right mix of products, prices
and communications. This is more important than
concentrating on distribution alone. Banks need to
design products that the customer needs, at the
best possible price. If this is communicated in the
best way, it will keep the distribution costs down.
The Council also debated the case for focusing on

the key points in someones life: such as leaving
home, the first job, moving house etc. However,
in some cases, this doesnt always create a clear
advantage for instance, banks may go out of their
way to attract students but then they leave university
and possibly switch bank as well. Also, banks that
target specific age groups need to consider the
changing requirements of their customers as they
move through life stages which obviously has a
significant impact on growth opportunities.
Some financial institutions may opt for a multichannel approach to developing a lower cost base.
They can then push this to their customers, who
start to buy more through the Internet. In a way,
this is effectively a commodity banking approach,
with simple products that are competitively priced.
However, while some banking activities can be
based on price, others can't.
The Council agreed that, if price is used as a primary
differentiator, this can cause issues when using
promotions designed to attract new customers.
Price discrimination techniques can pose problems
when dealing with the rest of the existing customer
base. Loyal customers want better conditions than
new customers and are likely to be unhappy if they
see new customers being offered better deals.
So, what sort of prospective customers should a
bank be targeting? The Pareto principle suggests
23
A Council member commented that in the past

year or so, acquisition costs have been higher than
ever before and that acquisition has become more
difficult as many people are scared of changing
banks in the current economic climate. While
the branch is seen as a dominant way to acquire
and build relationships with customers in many
countries across Europe, the main difference from
the past is that it cannot do this in isolation but
needs interconnectivity with other channels to
achieve the ideal customer relationship model.

Digital marketing tools will help us to
acquire customers more effectively.
The crisis we are experiencing is making it
more difficult to acquire customers.
The Impact of Technology

The Retail Banking Advisory Council agreed that
technology is a major enabler in transforming
retail banking to reflect the new economic
environment, but believes the industry needs
to better leverage existing investments in IT. At
the same time, the proliferation of new channels
has created major challenges. Council members
agreed they must adapt quickly to survive
and recognised the need for a new customer
relationship model. With transactions and
customer information generated across multiple
touch points, the reliance on siloed processes and
technology reduces sales productivity and leads
to an inconsistent customer experience. The heart
of the issue is disparate, disconnected systems
that have made it extremely complex to integrate
customer and transactional information.
Most banks have data silos wrapped by business
processes which limit the economic potential
of the business. For decades the industry has
focused on lowering the cost per transaction but
to be competitive in todays economy, banks need
to move from a transaction centric to a customer
centric architecture and business model. The key
to growth is unlocking the power of data in a
way that differentiates the customer experience
through delivering world class customer service,
and innovative products and services.
The following technology trends were identified
by the Council as having the greatest impact on
the industry over the coming years:
Cloud computing Leveraging existing
IT investments, reducing costs, delivering
innovative new products and services
Digital marketing Using adaptive online and
mobile technologies to more appropriately
target customers for new services and products
Business intelligence Driving business value

from data and managing enterprise risk
Social networking and communities Enhancing

and protecting customer loyalty
Ubiquitous high availability High availability
and low latency is now expected everywhere.
Technologies to support transformation

The following technologies were identified by the
Council as key to supporting retail banking in the
shift from a transaction centric business model to
a customer centric model:
For decades the industry has focused on lowering the

cost per transaction but to be competitive in todays
economy, banks need to move from a transaction centric
to a customer centric architecture and business model
24
Cloud computing
The way people consume technology is
changing. Banks are looking to the cloud,
both public and private, to help them leverage
existing IT investments, reduce costs and create
new business opportunities. In the financial
services industry the cloud provides a platform
to eliminate the need for large scale capital
investments and drive innovative new products
and services. Most modern applications have
been created on a services oriented architecture
(see next paragraph) to allow them to take
advantage of and be available in the cloud.
Services oriented architecture
Without a foundation to build loosely coupled
services, banks IT infrastructures are required to
communicate with other services in very specific
ways via each individual channel. This creates a
costly complex infrastructure with multiple silos
of information that are difficult to maintain and
adapt. Banks are implementing a services oriented
architecture to integrate disparate channels and
create an agile infrastructure where back end
systems can be exposed to new services and
channels as they emerge or evolve.
Business intelligence
Banks require business intelligence solutions
to integrate and analyse their customer data
and report on that information to make better
informed decisions. This will enable banks to
measure and learn from customer behaviour for
product development and marketing purposes
as well as performance management. Banks want
to access this business intelligence using a familiar
and easy to use interface.
Customer relationship management
CRM backed by strong business intelligence is
critical to better serve the customer and support
growth opportunities. CRM solutions should
be fully integrated with the day-to-day work
environment of front line staff and make it easy
to translate customer insight and centralised
marketing campaigns into successful customer
interactions. Many existing systems are viewed
as difficult to use with a high learning curve.
25
Ultimately systems should have a familiar user

interface and be designed to work the way front
line staff are used to working.
Unified communications
A significant factor in building lasting customer
relationships is the ability to communicate with
customers in the way they prefer and in a way that
is most appropriate to the stage of the sales cycle.
This means the whole range of communication
capabilities, including e-mail, telephone, SMS
text, instant messaging and video conferencing,
should be integrated and made available to front
line staff. This will also have a significant impact
on real-time collaboration between advisors
and product specialists or legal expertise within
the bank required to complete a proposal or
customer analysis.
Mobility
Increasingly, we can expect customer contact to
take place outside the branch in locations such
as the workplace or at the customers home. In this
context, mobile technologies will be an essential
tool for advisory staff who operate remotely
and need full access to customer and product
information in a secure and protected manner.
Remote advice
Shared access to specialist advisors is increasingly
important, given the ever-greater complexity of
products being sold through branches, not to
mention the greater use of collaboration across
multiple channels to expedite sales and ensure
efficient fulfillment. It is not economically feasible
to maintain the necessary level of expertise at
each branch and in each channel. As a result
banks are increasingly looking to technologies
that give customers access to remote advisors,
complementing the essential face-to-face contact
in the branch.
Virtual call centre
New telephony standards and technology make it
possible to construct virtual call centres which allow
people in the branch to become call centre agents
during certain periods of the day or when a complex
customer interaction requires this capability.
Conclusions
Retail banks face many challenges over the
coming years. There is the continuing question
of where they should be concentrating their
efforts and budget. Should they be investing in
the development of online banking and other
non-branch channels (such as mobile)? Or should
they be putting faith in new branches and greater
coverage? Or should they pursue both routes?
The answer will vary from bank to bank and from
country to country. Financial institutions have
recognised the need to focus more on the customer
experience. However, this has to be balanced by the
need to control costs more carefully.
Not every bank is pursuing a cost-cutting route,
some are focusing on the alternative increasing
their income. This isnt easy but it is possible, with
the right approach and the right products.
Overall, there are signs of a continuing and
major growth in the development and use of
non-branch channels but so far, this hasnt
meant that banks have lost faith with branches.
In fact, in many cases, quite the opposite is true.
There is some evidence of a strengthening of
determination to invest in branches.
Despite this trend, branches may start
disappearing in the future as other channels
increase in popularity but they will still have a
valuable role to play as part of a complete multichannel strategy. They perhaps (like the banks
themselves) need to be transformed so that they
can play that role more efficiently. Their success
will be measured by the quality of customers
they attract; their overall profitability; and by
the transfer of knowledge that can be used
throughout the network.
The key development recently has been the

growth of online banking. This now needs to be
matched by improvements in the online buying
experience. More and better support tools are
also needed whether for online marketing,
CRM or other purposes. These in turn can help
to capture more information: the lifeblood of any
growing business.
So, although the future is still uncertain, banks
are already learning how they can respond to
the economic environment ahead. As last years
report mentioned, there are still many challenges
ahead but with the right attitude, the right
resources and the right strategies, these can be
turned into opportunities.
ranches may start disappearing in the future as

B
other channels increase in popularity but they
will still have a valuable role to play as part of a
complete multi-channel strategy
26
CASE STUDY
Chebanca!
A new way of thinking; a new type of branch
Mediobanca, the Italian investment bank,

launched an exciting new retail bank in 2008
CheBanca! The bank started with just a few
employees and four product lines: transactional
accounts, mortgages, deposits and cards. It aims
to provide a full set of channels, including Internet
banking, call centres and branches with no price
differentiation.
One of the main differences about this new bank
is that it wasnt prepared to follow the traditional
mantras of established banks. It wanted to build
something fresh and dynamic.
A new look
One of the most dramatic changes from
traditional banks is the format and appearance
of the banks branches. Instead of following the
long-held belief that all branches should look
like offices, CheBanca! developed its own very
distinctive style. Conventional counters and desks
have been replaced by brightly coloured booths
around a banking square, where people are free
to browse, use self-service facilities or seek advice.
The main square includes waiting areas,
comfortable seating, refreshments and a childrens
play area. The central space can be used for
hosting events such as classical music matinees,
jazz evenings, book presentations or photo
exhibitions.
In the booths around the perimeter, customers
can sit next to the banks advisors, looking at
the same screen (instead of facing each other,
separated by a desk). This enables the customer to
watch the advisor as they access different Internet
services, and they begin to realise that they can
easily do this themselves at home.
The branch is the brand
The contemporary design of the branch and the
booths is complemented by the bright yellow
and white colours that are used throughout. This
highly visual format means that the branch has
effectively become the banks brand a uniform
27
brand that is used everywhere and is immediately

recognisable.
The power of this visual branding is reinforced
by mobile branches that mirror the look and
feel of the fixed branches. These are sited in
prominent positions in major shopping malls and
have three key aims: branding, acquisition and
lead generation. They also give the bank more
flexibility for covering a given local area. The fixed
branches act as the main hub, with the mobile
branches extending the coverage.
CheBanca! also adopted a new approach to
staffing, with many employees being sales
personnel hired from non-banking sectors. The
bank believes that its easier for people to learn the
technology than it is to learn sales skills especially
as the products it offers are fairly simple.
Another change was in the opening hours of the
branches. These open on Saturdays and until 7pm
on weekdays, so that they have similar hours to
shopping malls and retail outlets.
The new look branches arent just a pilot project:
their format will be used throughout the banks
branches. CheBanca! plans to have 220 fixed
branches by the end of its fifth year, all of them
reinforcing the brand with their unique style.
CASE STUDY
Isbank
Radical innovation in the branch: remote assistance
At Isbank in Turkey, the branch network is one of

the most popular service channels, accounting
for nearly 30 per cent of total channel usage. The
bank felt that it was crucial to improve service in
the branches by reducing waiting time. It therefore
developed the Remote Assistance project.
This new system is used to manage queues in
branches from a central location during peak times,
whilst also introducing the concept of self service
banking to customers. Ultimately, it aims to increase
customer satisfaction by slashing waiting times
whilst optimising the availability of counter staff.
Another long-term benefit will be the increased
customer usage of alternative delivery channels.
The system in action
Remote Assistance has been piloted in selected
branches during peak periods. The system comprises
a videophone, a cash recycler, a smart (digital) pen,
a scanner and a printer. Customers in the queue
are served by a call centre agent a virtual teller.
The agent communicates via the videophone and
remotely manages the main hardware (printer,
scanner and cash recycler) at the counter.
Customers are invited to use Remote Assistance by
Q-mate, an electronic queuing system. They are
asked to scan their ID card and the system checks
their identity using the ID image. If necessary, the
customers signature can also be captured by the
smart pen and checked by Remote Assistance. The
system then performs the requested transaction
before printing out a slip for the customer.
Remote Assistance can be used for: cash
withdrawals and deposits; cash advances on credit
cards; electronic fund transfers and money order
payments; internal money transfers; consumer
loan payments and credit card debts; insurance
premium payments; university fees; safe deposit
box expenses; corporate bill payments; highway
tolls; and debit card applications.
Queues and waiting times at the counters are
monitored from the centre. To manage the branch
workload, customers can be served by tellers from

other branches instead of agents, when necessary.
One of the unique features of Remote Assistance
is that it creates a familiar customer experience at
bank counters and can be used by all customer
segments and for all types of transactions.
A good reception
The pilot project has been highly successful and
has been acclaimed by the banks employees.
A key reason for its success has been the close
collaboration between Isbanks Business Unit and
IT teams. The bank now aims to roll out Remote
Assistance devices to 100 selected branches by
the end of 2010.
A spokesperson for Isbank says: Our customers
have been extremely pleased with the system and
its ease of use. We carried out surveys before and
after its implementation which show that customer
satisfaction levels increased by 100 per cent.
In a highly competitive market in which customer
satisfaction is a key success factor and operating
costs can be a serious threat, creative thinking
has helped Isbank to turn a businesses challenge
into an opportunity. Developed with the aim
of enhancing customer service and optimising
resources, Remote Assistance is certainly an
innovative delivery channel.
28
CASE STUDY
Banco Best
An innovative approach to banking
Banco Best was formed in 2001 as part of Espirito

Santo Financial Group to increase market share
within the affluent, Internet-based sector, through a
value proposition based on savings and investments.
Since then, the bank has gained a 28 per cent market
share in distributing mutual funds and a 46 per cent
market share in futures and derivatives trading.
Banco Best started as a multi-channel,
technology-driven bank, offering online, phone,
mobile and personal banking solutions to meet
a range of needs. All of these channels are
integrated within a single platform.
The banks Personal Financial Advisors (PFAs)
help customers with investment decisions and
with processing transactions for more complex
products that arent easy to sell online (e.g.
structured products, portfolio management
services, Lombard loans and mortgages). By using
the e-channel sales force, PFAs are free to meet
customers wherever and whenever necessary.
The success of its strategy of focusing each
channel on specific customer needs is reflected
by access patterns: 73 per cent of customers use
several different channels. The website is the core
of the banks strategy. With several thousand
products (e.g. mutual funds, ETFs, certificates,
shares, warrants, savings and loans), it acts as a
one stop shop for financial services.
The bank has been the leading Portuguese
player in online wealth management for the last
four years. Nevertheless, in a bid to enhance
online sales, it deployed a new Web platform
for financial services in early 2010. This rapidly
proved very successful with average daily visits
increasing by 23 per cent; monthly orders placed
via the Web increasing by 14 per cent; ETF orders
placed monthly increasing by 22 per cent; and the
number of new customers growing by 29 per cent.
A history of innovation
Banco Best has a proven track record of innovation
and industry breakthroughs. These include:
29
Online auctions: instead of negotiating with the
bank for better interest rates, customers are

encouraged to bid for the best rates in daily
online auctions
Full
channel integration: customers can use the
website to access the PFAs agenda and can
schedule the time and place of meetings
iSavings: this is an automatic savings
programme when customers use their cards
to spend money, an amount is automatically
credited to their iSavings account. Banco Best
was the fifth player globally to develop this type
of system
SMS Guardian: this award-winning, automatic
anti-fraud service allows real-time control over
credit card entries via short text messages. For
every purchase, the card holder receives an
SMS alert within seconds, giving details of the
transaction
ZIB: Zona de Investidores de Bolsa (Stock
Traders Zone), is a new social media project
which measures traders recommendations in
relation to the real behaviour of the stock market
White label partnership: Banco Best is now
leveraging its extensive knowledge and range of
products and services to supply modular asset
management and trading solutions to corporate
customers. The bank has partners operating
in various developed markets, including South
America (Brazil) and Central Europe. It now plans
to partner with Saxo Bank, the leading online
trading bank, to create a joint online wealth
management approach to various markets.
About us
Founded in 1975, Microsoft (Nasdaq MSFT) is the
worldwide leader in software, services and solutions
that help people and businesses to realise their full
potential.
Microsoft and its partners offer technology
solutions to help financial services organisations
achieve competitive advantage through improving
sales and service, targeting new opportunities via
digital marketing, driving innovation, managing risk
and compliance, gaining deeper business insight,
and achieving operational excellence.
For more information on Microsoft, visit
www.microsoft.com/financialservices
The European financial marketing association

has been an unfailing observer of the numerous
transformations that the retail financial services
sector has experienced over the years and has
demonstrated its ongoing commitment to providing
a forum for professionals from the sector. Formed
in 1971 by bankers and insurers to encourage their
colleagues to share experiences, promote the best
practices of their institution and collaborate through
alliances and partnerships, today the non-profit
associations members include over 80 per cent of
Europes largest retail financial institutions.
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: multi-distribution strategies,
customer approaches, product and service
marketing, risk management or operational
excellence, to name but a few.
Efma is above all a dynamic association, providing
a great opportunity for discussion and exchanges
without any commercial constraints. For the past
40 years, the loyalty of its members as well as their
permanent financial support is the best proof of its
efficiency.
For more information on Efma, visit www.efma.com
2010 Microsoft Corporation. All rights reserved.

Microsoft and Windows are registered trademarks of Microsoft Corporation in the US and/or other countries.
This document is for informational purposes only. Microsoft and Efma make no warranties, express or implied, as
to the information in this document.

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Transforming Retail Banking to Reflect the

New Economic Environment

Transforming Retail Banking to Reflect the New Economic Environment

Juan Carlos Reyes Garca-Admez

Transforming Retail Banking to Reflect the New Economic Environment

Efma and Microsoft are pleased to present the

play an important role in reducing costs whilst

competition from new market entrants, this

concerned about the pace at which they can

The key issues covered in this report therefore

It is with great pleasure that we publish this edition

Transforming Retail Banking to Reflect the New Economic Environment

Retail Banking Advisory Council:

It has been my privilege to be involved as the

proposition right: continuing to run channels

linked in a more integrated way. Why should I go

with many variations aimed at different types of

personalised, through low-cost technology that

and better service through all channels (e.g. to

of different banks to provide an integrated

Transforming Retail Banking to Reflect the New Economic Environment

Non-branch channels versus the branch

branch and the vast majority of people would

WHAT THE COUNCIL SAID:

Transforming Retail Banking to Reflect the New Economic Environment

Although its possible to have a relationship

However, the balance also depends on the

One Council member felt that there is an issue of

Overall, a multi-channel approach can be a source

Although there has recently been an increased

Banks must invest in the future environment, and

Some banks acknowledge that they have too

Customer choice and channel migration

In the current climate, it may be much easier for

for customer acquisition, eliminating promotions

For instance, campaigns might be promoted via

One member questioned whether banks feel that

decide to use other channels. Ultimately, however,

Indeed, some customers still prefer to carry out

Overall, therefore, the multi-channel approach is

WHAT THE COUNCIL SAID:

Transforming Retail Banking to Reflect the New Economic Environment

Overall, Council members felt that, potentially,

At the moment, there is often a restriction in the

Its important to distinguish between the public

For instance, members in some countries felt that

One member said that any talk of selling a product

Products that can usually be sold successfully online

be driven face-to-face via the branch (yet in Turkey

Its all a question of degree. Five years ago, people

total sales by 2012. The bank doesnt include more

WHAT THE COUNCIL SAID:

Even customers who come from the branch

There was a discussion about whether financial

You need to build the internal capabilities

New approaches such as the increasing use of

 e have 25 categories of needs and for 15

Transforming Retail Banking to Reflect the New Economic Environment

more common, along with various applications

should be ready to experiment with innovations

However, the success of an online operation

The process used can also limit the success of an

Transforming Retail Banking to Reflect the New Economic Environment

e have 25 categories of needs and for 15

ranches may start disappearing in the future as