The Virtual Branch

1
The Virtual Branch

• Revolutionizing Caribbean Banking

David J. McConney, President, V2R Financial
Services Inc.
2
Online Banking Present Status

• "Almost overnight, the Internet's gone from a
  technical wonder to a business must".
• -Bill Schrader, CEO of PSINet

3
Online Banking is a competitive necessity
Operations
Employees
Customers
Increase employee productivity
Reduce operation costs
Improve Customer Service

• Value
• Self Service
• Convenience
• Quicker turnaround

• Fewer customers to serve in the branch
• Can become more solutions oriented

• It costs 50 more to
• serve a customer in
• the branch

4
as evidenced by the growth in Online banking
Percentage of Banks that offer Informational
and Transactional sites
Source Gartner Group
5
and Online Banking adoption
Online banking adoption
31 Penetration
(U.S. households in millions)
We are more than 6 years behind in the
Caribbean
Source Online Banking Report, January 2005
6
Online Bill Pay Adoption is also quite high.
(U.S. households in millions)
28 Penetration
Source Online Banking Report, January 2005
7
How do we stack up?

• Survey of Online Banking performance among
  Caribbean Banks.

8
We are embracing the need to go online
Caribbean Banks Online Offering, 2005
Source V2R FS, 2005
9
and are enthusiastic about it
Survey Question How enthusiastic is your bank
about online products? (Administered in October,
2005)
29.2
70.8
Source V2R FS, 2005
10
but we are having a problem with penetration
Most Caribbean banks that have online banking
have not even achieved the minimum acceptable 10
diversion rate.
Penetration lt10 10-20
gt20 Not tracked N/A
Source V2R FS, 2005
11
and we are not measuring up in key areas

• Waiting for a homepage to
• download is the equivalent
• of waiting in a long teller
• line. A page should not take
• more than 20 seconds
• to download.

• Banks should never take more than 24-48 hrs to
  respond to online communication.Automated
  responses should indicate bank service standard.

optimal
Percent of banks
Seconds

• In the bricks mortar world this would equate
  to
• Poor customer service
• Long teller lines
• No value for customers privacy security
• Lumping all types of customers together

Industry standard
1. Days to respond to queries 2. Homepage
Download time

• Security is the biggest concern among customers
  and therefore the biggest barrier to customer
  acceptance of internet banking. Show
  yourcustomer that you care.

Just as you would not offeryour commercial
branchcustomer a personal ccard, you should
not offer all your online customers the same
exact basket of goods.
Yes No 44
66
No Yes 77
23
Source V2R FS, 2005
3. Privacy Security Statement 4. Segmentation
of online customers
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not measuring up in key areas (contd)
Source V2R FS, 2005
13
but we are attempting to diversify our offering
Number of regional banks that allowcustomers
to login to online banking via their homepage
1
Limited use transaction technologies are
often met with limited use.
14
But we are lacking customer service skills
CUSTOMER
BANK
Customers Service Expectations
GAP 5
Customers Service Perceptions

• With regards to
• Online questions
• Online transactions
• Registration

15
and we need to reallocate our resources.
Allocation of space, time and resources across
three types of Banks. Source Genesis Estimates
Most Caribbean banks fall into the
traditional banking model.
16
Critical Online Success Factors

• How to achieve your goals for your electronic
  delivery channels.

17
Critical Success Factors Balanced Scorecard

• Extensive portfolio of online services
• Ability to engage in online transactions (not
  just view information)
• Bill payment ability
• Application centre
• Incentive pricing rather than charging for
  online service

• Strategic Planning
• Creation of online financial supply chains
• Simplify the sign-up process
• Low-cost interactive access network
• Cross sell
• Segment customers
• High value on privacy security
• Fast, friendly attractive

Products
Practices
People

• Training in online supply chains and customer
  service
• Engendering a supportive corporate culture

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Effective Implementation is key
PLAN
DEPLOY
MANAGE

• Research Strategy

• Implementation

• Investment Protection

• Strategic Planning
• Determine resources required
• Decide on Vendor

• Implement
• Reengineer processes
• Implement Service Standards
• Train
• Launch

• Manage sign-up
• Measure penetration
• Manage customer service
• Upgrade

19
But Remember- Old Channels dont die
US Annual Transaction Volume (billions)
Source TowerGroup
20
So seek To offer a multi-channel approach
Focus on shifting low value transactions from
branches toward innovative channels Re-focusing
of branch activities toward sales and advisory
Other
Branch
Internet
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and Segment your online customers

• Ways of segmenting customers

Aligned with Bank Offerings
Small business
Individual
Corporate
Banking Behavior
Transactors
Savers/Investors
Borrowers
Product Ownership
Lending
Checking
Investment
Source Wachovia
22
Know your market
Financial attitude toward channels
Profile
Channel usage

• Self employed and high level employees
• High financial and IT culture
• Autonomous in financial choices
• Innovation driven

• High propensity to use virtual channels

Innovators
Target Market

• Private and small entrepreneurs
• Medium financial and technological culture
• Limited autonomy in financial choices
• Medium interests in innovation

• Channels mix
• Predominant use of traditional channels

Traditionalists

• Private old men, retired people and housewives
• Poor interests in financial and technological
  issues

• Exclusive use of traditional channels

Not-interested
Source Accenture
23
Couple Online Bill Payments with Online Banking

• By 2007, majority of online payments expected to
  be through bank Web services
• Banks need to improve service
• More customers will want to pay all bills from
  one site

Source "Bank Share of Web Bill Pay Seen Staying
Small, "American Banker, August 25, 2003
More than half of consumerswho pay bills online
would prefer to use the bill payment services of
their financial institutions.
Source Tower Group
24
The benefits of successful implementation
Gain a competitive advantage by providing
multi-channel access to your clients.
25
With ROI derived from the following areas.
Source Celent Communications
26
The Future of Online Banking

• A revolution is in progress

27
Our infrastructure is growing rapidly
Percentage of population with an internet
connection
Source International Telecommunications Union
Statistical Reports 2002, 2004
28
with an increasing dependence on mobile
technology
Percentage Distribution of Technology Usage, 2004
Source International Telecommunications Union
Statistical Reports, 2004 (in thousands)
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Enabling the Convergence of Wireless Internet
1.3 Billion Mobile Internet Subscribers
2.0 Billion Subscribers
700 M Mobile Internet Subscribers
1.5 Billion Subscribers
WIRELESS Internet
1.5 Billion Users
300 M Subscribers
1.3 Billion Users
Market Size
WIRELESS
Internet
200 M Users
2005
1998
2010
30
Mobile Banking is Cost Effective
Average cost of a retail bank transaction by
delivery channel
1.07
1.20
1.00
Mobile commerce is a cheaper channel for
delivering banking services than are most
alternatives.
0.80
0.54
0.60
0.27
0.40
0.26
0.16
0.13
0.20
Booz Allen Hamilton
0.00
Logica Estimate
PC
IVR
Mobile
Branch
Internet
Telephone
31
Thus leading to the next big thing- mpayments
the use of a wireless device for the payment
for any kind of goods or services (Gartner)
Phone reads bar codes
POS scanner reads phone screen
Phone becomes payment card
32
Another trend Multi-channel banking
Shared Infrastructure and Legacy Systems
Full-service Branch Inquiry Transfer Deposit Withd
rawal Account Opening Loan Origination Trading Fin
l Planning Seminars Training
Online Inquiry Transfer Bill pay Account
Opening Loan Origination Trading Finl
Planning Webinars
Call Center Inquiry Transfer Deposit Withdrawal Ac
count Opening Loan Origination Trading Finl
Planning
Source Financial Insights
33
The road to a multichannel approach
Multichannel model development the journey
Area where most Caribbean players are positioned
4. Boosting channels profitability
3. Integrating all channels
2. Promoting innovative channels usage
1. Developing new channels
Strategy

• Commercial and technological integration among
  channels
• Branches as the leading channel
• Provide a consistent customer experience
• Integrated technological platform
• Customer channels behaviour indicators

• Adding new channels (phone, Internet, mobile) to
  traditional branch network
• Enhance contact opportunities with customers
• Technological capabilities
• Innovative channels services subscriptions

• Motivate customers to use innovative channels
• Branches with an educational role
• Switch transactions from traditional to
  innovative channels
• Customers education
• Bank staff education and incentive system
  definition
• New channels transactions

• Review of channels role and definition of
  specialized commercial/ service offering for each
  channel
• Improve overall multi-channel distribution
  profitability
• Product/ Service offering differentiation across
  channels
• Pricing
• Channels PL
• Overall distribution PL

Goal
Levers
Evaluation
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But lets not get ahead of ourselves- We have a
lot of catching up to do
1st-PhaseOnline ServicesTele-transactions
2nd-PhaseOnline ServicesInternet banking
3rd-PhaseOnline ServicesFull-service, always
online personal finance
We are here
Electronic money
Electronic Bill Presentment
Interactive Services (yahoo! finance)
Electronic transactions
volume of online financial and trust services

• PC-banking

Mobile Payments
Retail payments
Call-centres Phone banking
Time
Source Arthur D. Little, IDC
35
The future of online banking services in the
Caribbean
We still have a lot of catching up to do

• Late adopters will come on board
• Electronic bill presentation and payment as the
  norm
• Integration across all delivery channels
• Customer information will all be in the same
  place.
• Same processes will be used for transactions
  across all delivery channels
• Enhanced bandwidth for media-rich customer
  interaction
• Account aggregation online
• Mbanking

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In Conclusion
When the smoke clears, the banks that are still
standing will be the ones that have figured out
what the customer wanted and gave it to them
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Want to find out more?

• Purchase the CAIB-V2R FS report on online banking
  in the Caribbean.