Comparative analysis of adoption of online & mobile banking by swiss banks by Sutherland Global Services

Comparative Analysis of Adoption of Online & Mobile Banking by Swiss Banks January 14, 2012

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Swiss retail banking business is poised to grow at 2.0% annually over 2010-15 to reach CHF19.4 billion in 2015 Swiss Retail Banking Market Size • In 2010, retail banking segment produced revenues of CHF 17.4 billion – The retail banking business is expected to grow at 2% to reach CHF 19.4 billion in 2015 • Interest spreads are the main source of revenues in the Swiss retail banking industry • The retail banking in Switzerland is saturated, highly competitive and characterized by low growth • In this business, higher earnings can be obtained only either by increasing the sales volume or by reducing costs

Retail banking is the traditional business of cantonal banks • A large number of Swiss banks operate exclusively in retail banking • Retail banking has been the traditional business for most of cantonal banks – Cantonal banks operate mainly in their own region – They generate half of their revenue from interest spread • Revenues of Raiffeisen and regional banks is based almost exclusively on retail business • The large banks – UBS and Credit Suisse- are also strongly committed to domestic retail business

Source: BCG Analysis, Swiss National Bank

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Financial crisis has resulted in a low trust level in big banks, and indirectly helped regional banks to win new businesses •

Decreasing customer trust on big banks

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Multi-Channel Mix

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Cost- Saving through Outsourcing

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Regulations

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The financial crisis led an erosion on trust in big banks in Switzerland as UBS and, to some degree, Credit Suisse suffered huge losses This resulted an influx of new deposits to cantonal and regional banks The challenge for these regional banks is to retain their new-found financial strength by holding on to their clients

Reinforcing multi-channel capabilities will enable banks to address client needs that have not yet been fully addressed This sort of cross-selling can generate extra revenues

In highly competitive retail banking industry, retail banks would segregate the value chain of retail operations, and then the individual components of the value chain can be outsourced Infrastructure units (e.g. payments) are usually the first to be outsourced, followed by application units (e.g. securities administration), and then other processes

The banking regulatory frameworks are changing at a very fast rate on the back of on-going crisis in Europe Adopting Basel III will require additional increased equity • Expected level of capital backing needed for systemically important institutions is 19% (tier one plus tier two capital)

Source: KPMG, BCG, Swiss Banking Association

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Globally, banks are at an inflection point, experiencing a sea of changes at consumer, technology and other levels Consumer Behavior

Regulations

Catalysts of Change

Key Observations • Consumers (esp. affluent group) are becoming time-poor • More connected than ever through social media • More aware of financial products, not willing to pay extra for standard products (e.g. checking accounts) and less loyal • Tech-savvy, smartphones are ubiquitous • No longer willing to accept hidden charges • More mobile - not limited to domestic travels • Regulators across the world tightening bank regulations (Dodd Frank Act, Card Act, Basel III, etc.) which are resulting in – Cap on debit card business revenue – Revenue loss because of ban on proprietary trading banks – Higher cost of capital – Additional cost of compliance

New Competition

Technology

• General purpose prepaid cards are becoming a viable substitute of bank accounts • Non traditional players like Wal-mart are increasing focusing on financial services • Many mono-line financial institutions like Green Dots (prepaid card provider) buying banks to increase product portfolio • New technologies by non-banks such as Twitter, Google, ISIS etc. are empowering all stakeholders – Square (Twitter) empowering merchants – Google Wallets is improving customer experience – Service-oriented-architecture, cloud-banking and IP-based operating system helping banks to minimize costs

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These changes entail banks to drastically improve customer analytics and traditional processes to remain in the business

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Consumer Analytics –

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What do customers need? (e.g. instant checking account, contactless payments, customized view of cash-flow on net-banking portal etc.) What are behavioral drivers ? (e.g. they trust Facebook-friends for a banking product than a TV ad) Channel preference? (They perceive branches as time-consuming) Media preference? (E.g. They are 24/7 connected on social media, making TV ads futile)

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Process Improvement – Breaking information silos – Off-loading redundant IT infrastructure – Adopting new channels (mobile and contactless payments) – Outsourcing non-critical activities required for regulatory compliance

Better Customer Experience results in – Higher Loyalty – Up-selling – Cross-selling Avoiding litigations and penalties from consumers & regulators

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Robust online banking platform has become a must-have for prepaid card companies including NetSpend Personalized online platform • Today, online platform is not just for providing an additional servicing channel, but it also has become an analytical tool for consumers to manage their personal finance • Consumers prefer holistic view of their financial status to help them analyze their expenditures more efficiently, meaning they need personal finance management services on an issuer’s portal • Prepaid card program managers can earn reasonable fees by offering this service

Mobile an enhanced service channel • Today mobile has become a mature channel, and also a powerful location-based marketing platform that can not to be taken for granted anymore • Role-based transactional functionalities and loyalty programs have started getting fraction • Prepaid cards issuers have to be very agile; if they fail to monetize the opportunity then others players like telecom companies (like ISIS) or technology companies such as Square would fast grab the business

Contactless Payment • Contactless technology is fast becoming acceptable among all stakeholders • NFC enable credit/debit cards, mobile wallets and NFC-chip embedded fashion accessories such as watch are increasingly becoming popular • Card issuers are adopting this technology as it helping them to improve customer retention and get additional transaction-based revenue where as merchants are accepting it as it reduces the time at the cash counters

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In all initiatives, the theme is same – improving customer experience

Pillars of Superior Customer Experience

Integrated Banking Operations • The traditional product-silo based model prevents banks from understanding which products and services their customers have purchased across the enterprise, thus struggling to stay profitable on a standalone basis • Banks are integrating information systems to unlock consumer data lying in product silos to make effective use of customer analytics

Analytics-Led- Marketing • Banks will be required to develop strategies to target customers with offers only relevant to their needs • Retail banks will constantly optimize customer propositions through segmental analysis, behavioral analytics, just-in-time manufacturing products and permission-based marketing

Same Interface and Content Across Channels • In future, a bank’s performance will not only be measured by the experience it gives in branch but by the experience provided across all channels • Banks will adopt customer dashboards to aggregate all credit and services related information • The dashboards which will be updated on a real-time basis can be accessed by branch, call centers and by relationship managers to pitch right product at right time

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Banks will enrich customer experience by simplifying various existing Call Center processes •

Talking Avatars

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Banks will increasingly install the voice recognition systems within their existing IVR systems Voice recognition capability help banks to understand the most dominant enquiries and to optimize around this channel

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Banks will optimize IVR for each customer – Currently an IVR sounds to customer, as if he is going through bank’s organization chart (Press 1 for Retail Banking, Press 2 for Credit Cards and so on) – Going forward a bank can ask what its customer wants or the bank can present only those options which are regularly chosen by him in previous interactions or the ones which are applicable to the customer

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Banks will adopt new contact management software that will enable its customer care representatives to see if there is any outstanding issues of the customer for any products/ services across any channel The software will enable banks to monitor and proactively respond to these issues before customer gets annoyed or makes repeated calls

Voice Recognition Systems

Customization of IVR

Contact Management Software

Avatars are virtual characters with realistic facial expressions that communicates with customer in various applications such as customer care and self-service apps These avatars guide bank customers visiting its website to the product or services required or assists in making payments, etc.

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Though BCGE offers basic online banking services but lacks personalization capabilities Internet Banking Services Banks

Fund Transfer

Bill Payment

Merchant Payments

P2P Payments

Remittance

Securities Trading

Market News & Quotes

Service Request

Notification Services

Information Service

Customer Service (Chat)

Large banks UBS

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Credit Suisse

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Regional Banks BCGE

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B-K-B Bank AG

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Migros

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• Through innovative Internet services for the self-directed customer, banks can improve transparency, reestablish customer trust, and increase customer loyalty. • The increasing demand for simplicity and self-control by banking customers can be addressed by innovative Internet banking services

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BCGE is yet to leverage the full potential mobile banking platform Application Platform

Banks

WAP/ browser

Apps

NFC

Mobile Banking Services Fund Transfer

Bill Payment

Merchant Payments

P2P Payments

Remittance

Securities Trading

Market News & Quotes

Service Request

Notification Services

Information Service

Customer Service (Chat)

Large banks UBS

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Credit Suisse

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Regional Banks BCGE

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B-K-B Bank AG

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Migros

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• In Switzerland, mobile e-banking has been reduced to mere SMS (Mobile Banking 1.0) services • Swiss banks exercise caution and monitor developments that might affect security, business risk etc. very closely particularly due to the (compared to other jurisdictions) very strict banking secrecy and data protection rule that Swiss law provides

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