IBM Omni Channel Banking

Point of View PaperIBM Sales and Distribution September 2013

The omni-channel banking evolutionArchitectural trends in multi-channel retail banking

2 The omni-channel banking evolution

Executive summaryIt should no longer be disputed that now, in 2013, the consumer has been empowered by 20 years of the World Wide Web and the proliferation of powerful computing devices. In UK retail banking, there are many innovative services that are being offered to customers because of this. However, there are many elements of traditional banking that still remain in the UK market.

Retail banks are evolving their business models and technology infrastructures to adopt the powerful channel opportunities that are emerging. Yet they are mindful of their resource constraints; they are still emerging from the financial crisis, stabilising their financial positions and facing increased regulation and compliance.

The demographic of banking customers is now shifting towards those who expect services based on technology. Traditional multi-channel strategies that enterprises have pursued will be replaced by omni-channel expectations. Research is showing that a large proportion of consumers want to conduct business through a combination of channels and devices.

It is no longer enough to have consistent brand presence and servicing in each channel: consumers are interacting and engaging on social media sites about companies and their products, with or without the companies knowledge or input. Organisations need to be aware of and track customer interaction, not only in the channels they control (branches, ATMs, websites, mobile apps) but in the ones they dont (Facebook, Twitter, Pinterest, etc.).

Contents

2 Executive summary

3 Channel trends

3 Omni-channel banking

4 Retailing and the role of the branch

4 Mobile, social and video

5 Non-traditional ecosystems

6 Evolution of banking channels

6 Mobile first

7 Single view of the bank

8 The influence of social media

8 Data exploitation

9 Omni-channel architecture

9 Conclusion

10 Authors

11 References

IBM Sales and Distribution 3

These are the four pillars of moving to omni-channel banking:

The new branch Mobile Social Video

There has been a lot of focus on the rapid rise of mobile and social in recent years, and these markets remain extremely fluid and dynamic. The role of the traditional UK bank branch is slowly changing to satisfy the needs of the tech-savvy, and video is ripe for exploitation considering the mobility of customers and the future generations of digital TV. There is still a need for banks to provide complex product advice, and consumers have concerns about privacy and how their information is shared.

A number of technology- and delivery-enabling themes are shaping new channel architectures, including the following:

A consistent and current view of customer information Management of multiple process states Convergence on front-end development technologies

Agility and control of the business process functions and IT delivery also continue to be crucial.

Channel trends

Omni-channel bankingMost banks have a multi-channel capability of people, systems and processes engaging customers at different human or digital touchpoints. The prevalence of channels now available means that banks not only have to provide a channel, but they also need to provide a seamless single view of the bank to meet the heightened expectations of todays consumers. Banks must not be just multi-channel in terms of access; they need to be able to deliver the required outcome by interaction in whatever combination of channels the consumer chooses to use. This is a change from the traditional approach of an individual channel and processes being set in its own context. This omni-channel1 behaviour and consumer expectation both influence new channel architecture thinking; customers are performing multiple tasks using different channels and media simultaneously. Cisco has identified the evolution of omni-channel banking.2 The impact for banks is keeping track of the customer context ensuring all channels have a consistent view of the data in transit, whether for the concrete transaction or customer sentiment.

Omni-channel banks embrace the digital world and its disruptive business model technologies. The role of the branch is evolving and technologies such as mobile, analytics, social media and cloud computing give new opportunities for the customer to interact with the retail bank.


Retailing and the role of the branchCustomer behaviour in the retail industry is influencing customer behaviour in the retail banking industry, and this in turn will shape channel architectures. Retailers have large branch networks and a large and disparate tech-savvy customer base, combined with their own online stores and web-only competitors. The key trends they see include the following:

Mirror the online experience Portability Relevance Social integration Personal clienteling3

The retail industry is seeing consumers using their mobile devices as part of the shopping experience, such as reading product reviews or accessing discount vouchers. The brand, services and content need to be consistent across channels. Although not all transactions are possible in all channels (particularly mobile), customers will expect them to be.

In the omni-channel world, the customer needs a single view of the bank a view of content, services and transactions that is relevant to them. Face-to-face interaction is much more personalised and can be enhanced through technology. Branch greeters, advisors and service staff could use an application on tablet devices or traditional desktops to access valuable data about the customer in order to serve them best.

The channels need to be designed to handle interruptions in customer transactional activities and track the shifting context and content consumption across different channel end points.

In the UK there is still strong cross-demographic usage of the retail bank branch network.4 In the UK and USA, IBM is seeing a focus on operational efficiency with investment in technology and processing re-engineering. Futures should incorporate self-service5 and interactive facilities built around technologies familiar to tech-savvy consumers, combined with relevant and contextual information for the customer.

Citibank are rolling out future branches based on Apple Store innovations.6 It focuses on paperless process and an overall bank-anywhere style. Large interactive tables and informational visual feeds are prominent. Royal Bank of Canada is also modelling its new branches around life events.7 The interaction with the branch is now about I want to buy a house as opposed to I need a mortgage. As with other industries, consumers are expecting a shift from product/transaction interactions to those based around product/service.

Mobile, social and videoThere is explosive growth in mobile and the use of a variety of form factors. Consumers expect these devices and capabilities to be part of their daily lives, and consequently there will be increased levels of transactions against the banks core systems. The shift from the web to mobile as the first priority is at the heart of digital banking and appropriate channel architecture is needed to support it.

Despite a low signal-to-noise ratio, social media is increasingly a place where transactions can be performed and insight gained. Facebook and Twitter are the strongest brands for dialogue, along with a number of other social media sites. Facebook has a simple and maturing web application ecosystem that enterprises can build into (the bank as a Facebook app), or out from (bank web applications posting to Facebook).

Social media adoption starts with marketing and advertising. Banks are now beginning to embed their transactional capability into the social sites, and use their rich interactivity to drive customer engagement.


Video consumption and interaction is popular across many demographics, and presents opportunities for video-conferencing. The use of video-conferencing to bring experts into places such as branches or through web and mobile apps is more readily accepted in emerging markets. In developed markets, 23 percent of consumers already see video as having a role in doing business, including Gen X and the usual early technology adopters. The capability of video-conferencing technologies is becoming more sophisticated; consumer-led familiarisation (such as through Google Hangouts) include not just the video exchange, but also simultaneous content exchange. A mortgage application discussion in a branch held over video-conference to a mortgage consultant can now also incorporate document sharing and signing.

Digital television is maturing, but is still a nascent technology platform for interaction and app-based transactions. The current focus for TV business models is advertising and subscription-based.8 Open standards on TV platforms needs to improve so that opportunities from other industries, such as payments, can integrate effectively.9 For example, PayPal is continuing to develop its payment capabilities and integration options: a natural fit to work with the next generation of TV platforms.

Non-traditional ecosystemsDisruptive innovations10 help create new markets that eventually disrupt existing markets and business models. The car, for example, was not a disruptive innovation; it was the mass produced and low price Model T Ford that diverted the transport market away from horse-drawn carriages.

Traditionally, companies focus on sustaining innovation, using technology to keep pace with or get ahead of their competition. Many businesses recognise and see innovations in their industry; successful companies align finances and resources to progress their innovations.11

After the success of the iPod, Apple disrupted the music business by connecting the distributors directly to the consumers via iTunes. They disrupted it again with the iPhone, creating apps and revolutionising how people consume information and run their lives. This is a key example of not following the traditional listen to your customer approach to growing a business.

Notable disruptive banking innovations include PayPal12 and its re-invention of payment services; and Square13, which allows businesses to take advantage of card services using their technology.

Disruptive business platforms allow organisations to be accessed by partners and customers. They often rely on open standardised interfaces seeking new ecosystems to integrate and consume the core services. The opportunity for charging models and new revenue streams follows.

Companies are codifying their services so that end users are not just people, but other platforms too. The application programming interface (API) is exposed and is part of the brand offering, and it can be linked to either a charging model or other related financial services. Whilst APIs are relatively well-known as a technological approach, providing an API has now become a key enabler for business innovation, and organisations will be expected to provide them.

Channel architectures that are enabled with the right technologies and an information partnering capability are best placed to capitalise on disruptive opportunities.


Evolution of banking channels

Mobile firstThe promise of mobile banking services has been a topic of conversation within the industry since the late 1990s. The rise of consumer IT, in particular smartphones and tablets, in the last three to five years has not only brought a rich technology platform to exploit, but critically driven demand and expectation from an increasingly tech-savvy customer base and corporate users. The mobile device has become part of society, both as a practical tool and as a fashion accessory.

From a channel provider perspective, the traditional mobile challenges of coping with cross-vendor form factor and platform variety remain, however consumer demand has driven a sharpening of focus around a smaller number of user friendly technologies, most notably Apples iOS devices and Googles Android platform. This has put the provider onto a more practical footing than in previous times, which has also contributed to the rise of mobile apps.

It is likely that the increased empowerment of connected consumers, coupled with the loss of trust in banking post-crisis, will be a critical factor in deciding which mobile services succeed and which fail. Human factors such as ease of use and convenience are now important, in addition to traditional values such as competitive products, trust and security.

Mobile paymentsMobile payment is widely known as a crucial service, reflecting the growing importance of the mobile device among consumers. The UK market for payment via mobile technologies is very active and also very disparate. New offerings from agile new market entrants join a marketplace where established financial institutions are, in some cases, backing multiple solutions.

Technologies such as near field communication (NFC) bring the promise of added convenience, but require widespread adoption of shared standards, as well as hardware changes with the merchants to be successful.

There is also growing innovation in consumer payment models with, for example, a number of retailers processing payments online via mobile devices, with store collection via a coupon. This is highly disruptive to the traditional models upon which much of the existing consumer payments ecosystem is founded, since it increases the possibility for increased disintermediation of banks and card schemes in the process.

Coping with the dynamics of mobile transactionsAs well as introducing new technology into the banking infrastructure, mobile devices also bring different dynamics in terms of the traffic that banks can expect to deal with. Mobile access to banking means that consumers can expect service any time and in any place: a far less predictable model than even internet banking.

Similarly, while institutions hope ease of access means that frequency of contact with consumers will increase, this will create an added burden on the supporting infrastructure. Strategies such as leveraging push notification services offer both a helpful banking service, plus offer the bank greater control over when contact is instigated.


Security in the consumer IT worldMobile banking services stand to create tension between the need to be secure yet at the same time sufficiently easy to use to be an attractive option to the consumer.

There is a growing recognition that authentication via repeated entry of lengthy passwords, PINs and so on for all interactions is intrusive to the user experience and adds friction to the process. An objective of successful mobile banking is to provide an experience that delivers service with the least friction possible.

Frictionless solutions are still emerging, but the sophistication of consumer devices means that combinations of background factors (e.g. location, connectivity) all potentially have a role to play in more flexible, low friction authentication schemes. Using such factors to derive a risk profile enables the provider to select an authentication mechanism that fits that risk with lower risk requiring a lower (or no) friction authentication.

Bring your own device (BYOD)BYOD is the corporate manifestation of the rise of consumer IT, with banking users looking for access to services via devices of their own choosing in an increasingly flexible model. This presents significant challenges to the organisation, ranging from security to end user support and application compatibility and availability. A by-product of BYOD is an eventual reduction in capital expenditure for end-user computing.

The opportunity, however, is that BYOD will enable greater efficiency in general, both through device familiarity and increased flexibility in working practices for both the bank and its employees. This flexibility manifests itself both in terms of working time and location of employees, and also in terms of the future options for servicing consumers. For example, the ability to service customers outside of traditional branch models.

Single view of the bankDigital technologies are enabling customers to multitask across different banking-related channels. This could be transaction banking (checking online balances and statements or asking a call centre agent to perform a service transaction) and/or opinion banking (commenting positively or negatively about the bank on social media).

Many enterprises have sought to create the single view of the customer using a record of all interactions with the bank: physical or digital. The need for channel data processing systems to capture those interactions has not gone away, and one trend IBM is seeing is a subtle shift to the single view of the bank.

For the customer who is accessing the bank through a variety of devices and locations, there is an increasing desire to carry out transactions beyond the traditional channels (for example, branch, phone, desktop or web). The customer will therefore use applications (for example smartphones or kiosks) that need a consistent and up-to-date view of their banking activity, such as viewing their balance and making payments, as well as what the bank has done to them, such as applying charges or marketing new products.

The single view of the bank is having a consistent data record of its clients both interaction and opinion. Assembling this information and keeping it up-to-date, is fundamental to underlying applications bank colleagues will use for marketing, sales and servicing, plus those applications that ensure corporate regulation or support information sharing with partners. This is a foundational capability of a truly omni-channel bank.


The influence of social mediaAs with smartphones, social media has become an increasingly pervasive element of everyday life for consumers. Social channels such as Twitter have become a powerful platform for consumers to voice experiences of consumer care, both good and bad: a far more public and hard-to-manage consumer forum than banks were once used to.

However, the social channel does create an opportunity for new services and models of interaction with customers. The social dimension provides the opportunity for much more personalised and longer-lived dialogue than the transaction-orientated traditional online banking model. For a truly differentiated experience, simply porting existing online banking presence and services into a Facebook page is unlikely to drive huge success on its own. Embracing the social models of interaction will elevate online banking to new levels.

In terms of understanding customers better, social media also provides an unprecedented public well of information to assess consumer sentiment, wants and needs and influential communities. This enables development of more relevant and targeted products and incentives, and refined customer service revenue growth, market differentiation and more effective product development.

Data exploitationThe emergence of big data technologies means that banks not only have the potential of richer data sets upon which to work, but also an agile platform for data-driven innovation. Big data is still emerging as a trend, but looks likely to become an increasingly integral aspect of how all organisations will approach data and analytics in the future.

Big data is a complementary part of an overall data management platform. It augments the well-established data warehouse capability with the ability to ingest and process previously complex, fast-moving or simply unused data in a cost-effective way. Call centre traffic, web logs and unused fields in existing data warehouses become potential sources of value instead of a costly inconvenience.

For omni-channel banks, big data provides an effective mechanism for developing cross-channel insights, even in a legacy technology environment. The ability to consume the raw output of an incumbent technology means that management information or new services can be developed without the cost and risk of intrusive integration works.

A recent IBM Institute for Business Value (IBV) study determined that in the financial services organisations surveyed, 50 percent of the overall big data activity was focused on customer-centric initiatives.14 This indicates both where the industry is recognising value in big data today and also that it is likely that organisations who best harness big data will provide the best customer care.


Omni-channel architectureOmni-channel behaviour and the consumerism of enterprise IT is leading to a need for a new generation of IT systems. Systems of engagement are designed for real-time collaboration and empowering end users across a variety of devices. They deliver a context-rich interactive experience and are built on the technologies of mobile devices, data analytics, social media integration and cloud computing platforms. Systems of engagement add a layer of consumer effectiveness on top of the technological rigour, robustness and efficiencies of the traditional established systems of record.

The next generation of multi-channel architecture that banks will evolve to is just as much about exploitation of the interaction as well as enabling the multi-device, channel shifting interaction.

Omni-channel architecture has a number of characteristics. It has the capability to track the context of the end user access to great levels of detail for example their location, who they are and their preferences. Technology has now advanced so that just as much insight can be gleaned about the transaction a customer is trying to achieve as from the core data of the transaction.

The challenge for banks in their evolution to these new architectures is the need to build a change-ready infrastructure that can cope with the omni-channel scale. There will continue to be an increase in the number of device form factors and contexts in which they access the bank. The volume of interactions is largely becoming unpredictable, yet the brand and service excellence that a bank aspires to must be maintained.

ConclusionMobile device technology is maturing rapidly, with the growing prevalence of powerful smartphones and the emergence of enterprise-class software to support the development and runtime infrastructure needs of mobile solutions. Banks now have viable technologies at their disposal to scale out their new channel architecture effectively.

Banks are adapting to support omni-channel behaviour and presenting a single view of the bank to the customer. In todays digital world, the need for an agile change capability is becoming more important. This extends across the whole change lifecycle potentially daily process and decision rule changes, flexible end user interface content and function, and the ability to consistently support industrial-strength operations behind the change.

Consumer technology is driving demand for digital banking services. They will challenge existing business models and test the scale of transactions that channels and core banking systems can handle. Adopting a technical architecture that can integrate with the wider ecosystems of e-commerce partners and social media platforms will open up opportunities for disruptive innovations and new value chains.

Strategies for the exploitation of new channel technologies such as video and digital TV should be developed. Flexible and well governed service-based architectures are necessary for future proofing.

The complexity of data both within and outside the bank that makes up everything known about the customer is expanding rapidly. New capabilities in big data analytics enhance current data architecture to enable deeper insight to help drive context and the next best course of action.


Omni-channel architecture for banking needs to be centered on supporting a digital application infrastructure that can cross- connect data for a consistent user experience; scale to handle the expansion of device interactions and data generation; and is assembled as a set of service-based components delivered using full lifecycle agile delivery methods.

In summary, there are demands as well as opportunities in channel architecture, including the following:

Ensure channel applications can scale effectively when deployed on modern cloud based infrastructures.

Design channel services to deliver consistent data that is a single view of the bank to the customer irrespective of access point.

Develop a channel delivery trajectory that is mindful of near term new advances such as digital TV and wearable computing.

Enrich data processing in the channels layer and use analytics to greater personalise the interaction with the customer.

Authors

Martin GaleMaster Inventor and industry architect

Martin is an IBM Master Inventor and architect, and acts as a technical advisor to clients in the financial services industry in the UK and Ireland.

Martins background is in the development of end user solutions, and his career has spanned a number of revolutionary periods for IT, from the dot com boom and the early days of e-business, through to Web 2.0, and, most recently, the rise of mobile platforms.

Martins experience within IBM has spanned a variety of disciplines, from software engineering and custom application development to consultancy and relationship management. He is a regular speaker on new technology, both to clients and academic institutions, as well as being a certified Chartered IT Professional of the British Computing Society and a Master Certified Architect in the Open Group.

Jeremy CaineClient technical advisor and Executive Architect

Jeremy is an IBM Executive Architect and technical advisor to UK and Ireland retail banking sector clients. He provides technology strategy leadership and architectural direction to support enterprise growth, and is a leader on digital transformation initiatives for IBMs clients. He is an advocate of business model innovation, ecosystems, platform architecture, disruptive technologies and the digital economy.

Jeremy is highly experienced in the design and delivery of business transformation and complex IT system integration programmes, and has worked in the financial services (banking, insurance and investments); public sector; and distribution industries.

Jeremy is a UK Chartered Engineer, Member of the Institute of Engineering and Technology, and Distinguished Certified IT Architect of The Open Group. He also serves as industry expert to the advisory board of New Economic Models in the Digital Economy.


References1 Omni-channel Marketing, eMarketer,

www.clickz.com/clickz/column/2199397/omnichannel-marketing-yournext-Challenge

2 Omni-channel Banking, Cisco Research, www.cisco.com/web/about/ac79/docs/Cisco-IBSG-Omnichannel-Study.pdf

3 http://merchandisingmatters.com/in-store-media/five-multi-channel-trends-that-impact-in-store-merchandising

4 www.bbc.co.uk/news/business-22152611

5 Kiosk deployment is growing progressively, despite negative growth in 2000. Souce: Frost and Sullivan.

6 American Banker, www.americanbanker.com/btn/23_8/citis-japanese-revolution-1023326-1.html

7 The Financial Brand, Feb 1, 2011, http://thefinancialbrand.com/16613/rbc-retail-store-branch-prototype-concept

8 http://blogs.gartner.com/allen_weiner/2012/09/27/the-tv-is-speaking-are-digital-marketers-listening

9 http://blogs.strategyanalytics.com/DMS/post/2012/10/03/Smart-TV-Apps-Business-Model-Barriers-Hinder-Revenue-Opportunities.aspx

10 http://en.wikipedia.org/wiki/Disruptive_innovation

11 IBM internal.

12 www.paypal.com

13 https://squareup.com

14 www14.software.ibm.com/webapp/iwm/web/signup.do?source=csuite-NA&S_PKG=Q412IBVBigData

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