2012 Financial Breakthroughs

Impact of Hyper-Connectivityon Retail Banking

28 January 2012Paris

176.6.68.33

2012 Financial Breakthroughs

WHAT ARE FINANCIAL BREAKTHROUGHS?

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2012 Financial Breakthroughs

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2012 Financial Breakthroughs

10 YEARS ON AFTER INTERNET BANKING “BIG BANG”

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2012 Financial Breakthroughs

The continuing success of universal banking• Definition: universal bank here as a bank trying to offer all

type of services to its customers (not necessarily to all type of customers)• Sitting on a network of branches and ATMs• Offering an online access

• And a mobile access, even if reluctantly• Always wondering if a customer does not cost more than the

revenue they generate• Terrible understanding of average and marginal costs

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2012 Financial Breakthroughs

Where is online today in Europe?• In Europe, use of online banking varies by region:• 62%-77% of banking users use online banking in Northern Europe• 35-54% in the core of Europe (France, UK, Germany)• But less than 32% in Southern Europe

• But these online users are on a majority users of the online interface of their branch bank

• And they are mildly interested by what they are offered:• Only half of the online users are interested or very interested by

online banking in Germany

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2012 Financial Breakthroughs

WHAT IS CRITICAL IN THIS GAME?

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2012 Financial Breakthroughs

Daily Banking• Deposits, payments, management of balance• First Bank & Second Bank• First Bank is the hub of client’s financial life• Second Bank is a bank account specialized for specific services

(savings, investments, credits)• Average cost is much higher than marginal cost, bringing a

constant pressure downward• even if competition pressure is particularly low

• Barriers to entry (legal and capital requirements)• Low interest of customers to use their bargaining power• Complexity of the field

• Only downright collusion can avoid this economic structural imbalance pushing prices downwards 8

2012 Financial Breakthroughs

Why this relationship is difficult:• Banks always trying to bring back daily banking revenue back

to average cost• Hold-up fees• Illogical fees

• Customers not perceiving the value of the service• Why should I pay since you use my money for other things?• Why should I pay since other banks would be happy to have me

as a customer?• Why do you have to read evey fine print lines?

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2012 Financial Breakthroughs

Banking Business Models• Universal banking• Propose every type of banking services to their customers• Offer daily banking for a low cost (free for “good” customers),

because they cover the cost with the other services • Specialized banking• Propose a selection of banking services (e.g. savings, invesments,

credits)• Offer a usually limited version of daily banking to increase value

of their proposition

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2012 Financial Breakthroughs

WHAT HYPER-CONNECTIVITY BRINGS TO THE TABLE?

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2012 Financial Breakthroughs

What is hyper-connectivity?• 70% of EU-27 users have an Internet access• 19.7% of mobile users access Internet at least once a month in

EU-5 (UK, France, Germany, Spain, Italy).

• It’s no longer information when you need it, but as soon it is relevant.

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2012 Financial Breakthroughs

Why does it mean a very different relationship?• Customers sees value in information coming from the

provider, it’s part of the service• Customer is not in an “infrequent – high value per encounter”

relationship, but in a “constant – small value per items, but large value in total” relationship

• Customer is no longer dedicating a fixed portion of their time to a specialized activity, but is executing a series of micro-tasks, consuming information, reacting to new elements, initiating new actions

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2012 Financial Breakthroughs

IMPACT AND STRATEGIES

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2012 Financial Breakthroughs

What is impacted?• User category• Cash flow neutral user constantly need

to monitor their position

• Daily banking• It is a recurrent and relatively frequent

relationship• It is the highest value banking service• It badly needs to rebuild its relationship

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2012 Financial Breakthroughs

What strategies for whom?

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Are you an universal bank

Yes No

Create a new line of business for selected segments with high proportion of hyper-connected customers

Are you satisfied being a 2nd bank for your customers

Yes No

Target a selected segment and create a completely new banking relationship

Improve your banking relationship with your hyper-connected customers

2012 Financial Breakthroughs

TO GO FURTHER

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2012 Financial Breakthroughs

Read our whitepaper

If you want to get more information, you can download our new whitepaper:

Impact of Hyper-connectivity on Retail Banking

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2012 Financial Breakthroughs

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Financial BreakthroughsWeb : http://www.finthru.comTwitter : http://twitter.com/FinThru

Frédéric Baud+33 6 4369 3724frederic.baud@finthru.com

Nicolas Guillaume+33 6 1998 5765nicolas.guillaume@finthru.com

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