Opportunity to Transform Retail Bank

Distribution Network to connect, transact and

engage customers.

Aamir Janjua

GLOBAL BUSINESS TRANSFORMATION LEADER

NCR CORPORATION

APRIL 2017

Houston, we have an opportunity…

Background to this paper

The fun started when I called my bank to make some changes to one of the products I have with them. It took them three transfers and two authentications before they could help me, which I thought might have been a one off thing with one bank only but I was surprised to see a repeat of the same experience with another bank a few days later. I simply wanted to move some money around and realised that it’s not as simple as I thought. It took them a few re-takes before they could answer my simple query and it was extremely frustrating to hear “actually it’s a different team who deals with this” and then I got transferred to another team and then another. Just to be clear, I am talking about the two biggest banks in the UK and I’ll leave it to your imagination on what kind of customer satisfaction feedback they both received from me.

I assumed it was only the big retail banks who still haven’t sorted their Omni-Channel strategy and customer experience yet to my surprise, some of the other industries are in the same predicament as well. I recently bought a home service cover from one of the UKs biggest utility companies; the great thing was that this cover came with a freebie, which I had to claim using a specific promotional code. The code given to me didn’t work and it took me four phone calls to various numbers and teams to finally receive a new code before getting my hands on to this freebie. Quite ironic but this is quite a common state of play in various industries even in some of the most mature markets.

I have been working in the Omni-Channel strategy space for some time now and as you can expect, I thought it would be great to document some of my thoughts and share them with my industry colleagues to fuel further conversations which might help us to close some of the Omni-Channel strategy gaps.

Content

1. Executive Summary

2. Distribution Channel Strategy

3. Customer

4. Operating Model Assessment

5. Digitisation

6. Data Connectivity

7. Organisational Culture

8. Conclusion

1. Executive Summary

“Adding digital channels requires major efforts, yet payoffs can disappoint. Integrating digital and traditional channels into a truly omnichannel offering is even harder—but multiplies the rewards.” [More than digital plus traditional: A truly omnichannel customer experience – Mckinsey]

Retail banks have been talking about an “Omni-Channel Strategy” to drive anytime, anywhere banking to re-shape customer interaction intensity and expectations and to create an exceptional customer experience in order to maximise the value delivered to all stakeholders. However, that dream hasn’t yet become a reality and I believe there is a long way to go before we can realise this dream. While, it would be desirable for every retail bank to be cutting edge on technology and innovation but I believe we need to strike the right balance between experimenting and implementing new ideas and fixing gaps in the existing operating model. It’s critical to ensure that we “Fix the Basics” in our operating model while we aspire to WOW our customers with new product, service or technology.

“Ease makes customers stay, effort makes customers leave. An effortless customer experience creates business value” [96% of customers who abandon a company cite effort as a key reason for leaving, CEB Inc., The effortless Experience 2013]

Retail banks are facing quite a few internal and external challenges to realise their Omni-Channel strategy, things like:

- Ambiguity on the future direction - Internal silos, legacy infrastructure, inconsistent decision making process and cumbersome

governance processes - Rapidly changing customer behaviours, needs and their impacts on Financial Services Eco System - Ambiguity on the role of physical channels and their alignment with the digital channels - Ever changing technology landscape, AI, automation, innovation etc. - Lack of clarity, adaption, alignment and mastering the business digitisation journey - Frequent regulatory changes and its impacts on the distribution network especially operational

and conduct risk - Legacy Culture - leadership styles, skills, behaviours, capabilities and compensation model - Declined revenue, increasing cost, falling margins (especially European banks)

“The European banking industry suffered a significant setback in 2016. Revenues declined across the board, cost reductions were unable to keep pace and loan loss provisions rose. As a result, net income fell by almost half. Banks resorted to aggressive de-risking, but a shrinking equity base meant that capital and leverage ratios stagnated for the first time since the financial crisis. By contrast, US banks continued to grow and set a new record in terms of nominal profits, widening the gap to their European peers.” [European Banks in 2016: A Year to Forget – Deutsche Bank Research]

It’s vital to overcome all of these challenges by building a holistic “Omni-Channel” transformation strategy which focuses on all the key elements and responds effectively to the customer needs in order to deliver a frictionless customer experience, optimise business and build an engine, which enables business growth.

According to Accenture research, customers are becoming more complex in a number of dimensions i.e. more knowledgeable, more demanding, more empowered, more collaborative, more diverse, more interactive, and increasingly on the move [The New Omni-Channel Approach to Serving Customers –

Accenture] hence a comprehensive Omni-Channel strategy is required to respond to changing customer behaviour and market conditions.

Lately, there has been lots of activity around Fintech & technology (r)evolution, which requires retail banks to respond to a very different threat however we will start seeing the true impact of this (r)evolution in the next 5 years or so. However, the intention of this paper is to focus on the next 2-3 years’ journey and to provide a blue-print to enable true “Omni-Channel Strategy” for retail banks, so we can make this dream a reality, where everyone can live happily ever after (at least we can try).

Intention for this paper is not to provide a solution but to highlight areas which need to be considered in order to deliver the right configuration of the distribution network for a retail bank. This paper discusses “Why” and “What” of the Omni-Channel strategy however there will be a follow up paper to focus more on the “How” part to enable delivery of the Omni-Channel transformation strategy.

There are quite a few areas which require focus within a retail bank in order to deliver true Omni-Channel strategy however I would highlight 6 areas which can deliver the most value. I call it “Omni-Channel Wheel of Fortune”. If retail banks focus on these areas holistically to design and deliver their Omni-Channel strategy, they can radically improve cost structures, customer outcomes and fuel growth.

Following are the top 6 areas of focus to enable true Omni-Channel experience for your customers.

2. DISTRIBUTION CHANNEL STRATEGY

This section is all about strategic thinking, some of the questions I get asked are; What should our future distribution network look like? Which customer segments to serve (current & future)? How to deliver the right brand value and expected customer outcomes? What kind of mix shall we use e.g. use of a channel as a sales or service channel? What are the key changes forcing market to rethink? How the market is expected to change in the next 2-3 years and how to shape up the right target channel mix in order to become the best bank for the customer? How can we respond better to both rational and emotional side of customer’s brain? How to re-think our physical channels i.e. branch and self-service? Why, when and how can we introduce alternative channels to our channel mix e.g. video, chat, social media etc.

Answering the above questions will require a deep understanding of customer segmentation, products & services to offer, markets, competition and their AS-IS state and expected target operating model to build and agree on a comprehensive distribution channel strategy. One of the most important factors in building a strategy is to understand the performance measure e.g. understand the current performance and set some stretching goals / KPIs to ensure that the whole organisation is behind the transformational journey and is well aware of the required changes in order to move the needle in the right directions.

Unfortunately, most of the times, the strategic planning process is dominated by budget and financial forecasts but it should also consider other areas as well. The leadership team should work closely with senior management to identify key strategic challenges and opportunities and then align them with the financial forecast. The best solution would be the combination of “top down” and “bottom up” approach. In other words, putting personal experience, challenges, gut feel combined with the real data analysis to identify the top strategic priorities for the next 2-3 years.

Also understanding the AS-IS business state really helps the leadership team to focus on the right areas and can align the right team behind the strategic Omni-Channel transformation. One of the most important parameters in this whole planning process is “Customer”, never forget your customer, they should be at the heart of anything and everything you do and strategic planning must be based on

achieving real customer benefits / outcomes. The key thing is to have a clear direction and the right team behind it to ensure that we get the right results for the bank and its customers.

“Focus your energy on the key choices that influence revenue decision makers—that is, customers.” [Harvard Business Review – The Big Lie of Strategic Planning]

2.1 DEFINE OPERATING PRINCIPLE

Operating principles are a key tool to help the business to articulate and execute its strategy using certain parameters or constraints to ensure that target operating model always aligns to a specific scope. They provide guidance, direction, and consistency to every day decision making process and work as a first line of defence to ensure continuous strategy alignment, they also help to ensure that future change remains aligned to the strategy and help us to leverage learning and experience from past changes. These principles must be developed keeping the business, its products and services, distribution network and its customer in mind and success should be measured by customer outcomes.

These operating principles help organisations to decode their strategy and convert them into more tangible, high priority business requirements, which delivers change in a more effective way. The key thing is that all the functions and teams must be fully aligned with these operating principles, there must be a sponsor for every category / set of principles and there must be a formal governance process which ensures that these principles get fully enforced. Few of the customers I worked with use “Design Authorities” to ensure that these principles get embedded into the target operating model.

These operating principles will be a great tool to build the next generation of distribution networks for a retail bank, for example, these days almost every retail bank is targeting to become the best bank for the customer and building an Omni-Channel customer experience. This type of change requires a structured approach and to have specific controls in place to manage change in a more streamlined way, operating principles can provide that first line of defence in the Omni-Channel transformation.

It would make perfect sense to have these principles for every area of the business, for example, target customers, customer data, customer services, pricing, payments, compliance, conduct risk, organisation culture etc. however the following figure only shows a few principles relating to the distribution network:

3. CUSTOMER

The most important factor in Omni-Channel transformation is the “Customer”. There are two key components in delivering an exceptional, frictionless customer experience (i) Inside Out (ii) Outside In. It is important to understand both perspectives in order to deliver a true differentiator in the market.

Inside-Out: It’s all about what kind of customer experience you as an organisation would like to create, and how you see your brand interacting with your customers and what kind of customer experience you would strive to create for your customers. What kind of products and services you would like to offer to your customers, through which channel and how do you identify, engage and personalise each and every transaction with your customer and how do you deliver a value to the customer which they are not able to receive from your competitors?

Outside-In: This view provides you an opportunity to test, validate and improve how you deliver products and services to the customer. This enables true customer feedback not only the emotional side but also rationale side of customer feedback as well. This is how customers perceive your brand, products and services and shows the gaps between the “Perceived” value vs the “Real” value to the customer. There are various means to measure these for e.g. Net Promoter Score (NPS) / surveys, customer interviews, mystery shopping, outcome testing etc.

There has to be a really good alignment between both views in order to continuously improve Omni-Channel experience as they both go hand in hand. The key to success is to build a comprehensive model to know your customer and to link it back to your operations, some of the key areas are:

- Customer Segmentation: Turn over / income, deposits, asset value, age, gender, demographic, cultural background, interaction preferences etc.

- Customer engagement with the bank: Trust share (wallet share), products view, credit worthiness, shadow credit limits, customer communication preferences, existing products they have, interaction behaviours (channel, time, location, transaction, services etc.), interaction with other retailers, family circle and situation (partner, kids, change of job / income etc.)

- Customer Life Style: Dinning out, holidays, hobbies, spending behaviour, saving behaviour etc. - Channel Operations: How to ensure that we streamline operations

The differentiator is to understand your customer well so the right product or service can be offered at the right time for the right reasons to deliver the right value/s to the customer and in return increase the life time value of the customer for the bank.

As an example, EY grouped more than 32,000 customers into 8 segments so segmentation can be used for actionable insight. [Winning Through Customer Experience, EY Global Consumer Banking Survey]

When we talk about Omni-Channel strategy, it is incomplete without talking about “Personalisation”. Personalisation plays an important role in delivering an exceptional customer experience. Personalisation is all about increasing relevance with targeted and dynamic content and the only way to be targeted is to build a capability to understand your customer better, analyse their behaviours, review their actions and activities whilst focusing more on enabling a meaningful 2-way dialogue rather than just selling them the next product.

According to McKinsey, banks need to increase the level of personalisation over time. This capability can go through various stages of maturity levels i.e. (i) Broadcast (ii) Macro-Segmentation (iii) Micro-Segmentation (iv) 1-to-1 (v) Dynamic Personalisation. [The New Rules for Growth through Customer Engagement – Mckinsey]

“Only in later years, when the cost of serving loyal customers falls and the volume of their purchases rises, do relationships generate big returns. The bottom line: increasing customer retention rates by 5% increases profits by 25% to 95%. Those numbers startled many executives, and the article set off a rush to craft retention strategies, many of which continue to pay large dividends”. [The Economics of E-Loyalty – Harvard Business School]

4. OPERATING MODEL ASSESSMENT

4.1 BUSINESS CAPABILITY It’s important to understand business capability model as it defines the organisation’s capacity to successfully perform a unique business activity. These capabilities allow an organisation to view their business in a more holistic manner and assessment of these business capabilities can highlight strengths and weaknesses of the business and also can provide a view on strategy alignment. Business capabilities should cut across various functions and teams and would provide a very strong mechanism to decode organisational complexity and provides a more holistic view on the maturity level of a business.

Changing internal and external environment means retail banks need to respond quickly and building a capability map can allow leadership teams to understand the impacts of the change on the operating model, and provides them a mechanism to make faster decisions. Capability maps would also help organisations to conduct investment prioritisation, understand current and proposed change agenda, and to identify any dependencies, challenges and opportunities within the planned change agenda in order to maximise the ROI and to better align with the retail and distribution channel strategy.

Following provides an example of level zero capability model for the retail bank distribution network:

Once we define and understand the high level capability model, we then move in deeper investigation and documentation of the capability model and maps. These maps allow the retail bank to take each capability and dissect it into more granular level for further analysis. It requires a lot of interaction with senior and mid-level leadership team and also interacting with SMEs to understand the maturity of each capability. One of the key elements of capability mapping is to compare business capabilities against the industry benchmarking data to ensure that the business is always ahead of the competition not only at the strategic level but also at the operational level. The following diagram illustrates level one capability

definition, it is important to build the correct and comprehensive picture of all the capabilities in scope in order to achieve the right business and customer outcomes.

After having all the capabilities assessed, it would add great value to establish standard reporting capability e.g. executive dashboards etc. This capability would ensure that all stakeholders are aware of the progress and maturity level of these capabilities and understand hot-spots and opportunities within the operating model. These capabilities can be used to measure many different things, for example it would help to find out which capabilities are changing a lot, and which capabilities are getting most investment. In other words, resource utilisation and the ROI can be assessed more accurately. These dashboards will also help senior and middle tier leadership team to plan and prioritise future investment options to ensure that any key hotspots and opportunities are addressed in the future planning and the desired target operating model state can be achieved.

These dashboards need to be dynamic as the various change initiatives keep delivering their scope and keep changing the capability maturity level, all the key stakeholders need to review the impacts and make decisions on the next level of changes to be delivered in order to stay ahead of the competition. Following is an example of an executive reporting dashboard.

Typically, level zero capability model remains the same for most retail banks however as they say “the devil is in the detail”, so as soon you go to level one and level 2 capability details and start exploring capability mappings, things start to change and we find very unique sets of attributes for each capability. For each bank for example, if a retail bank doesn’t provide services through intermediaries then it might be a different type of capability model for that bank or if it’s a digital bank only then it would require a very different set of capabilities to respond to a very different type of business question. So it’s all relative, perhaps level zero might be similar for most of the retails banks, however level one capabilities will have a very unique set of requirements.

Also, as we all know, change is the only thing which is constant therefore it’s a continuous journey of change, there is no stopping and looking back, every set of investment planning, change roadmap development and strategy execution plan requires a fresh look at the business and the competition. Continuous change in macro and micro industry trends, customer behaviours, competition and technology advancement would keep pushing us to look at the business in a very different way, hence we need to constantly review these capabilities and keep comparing them to the industry best practices and against the benchmarking data in order to keep building the right bank for the customers.

4.2 PROCESS ARCHITECTURE

As a retail bank, the focus is always to deliver faster and consistent value to the customer while keeping business compliant in a multi-tiered regulatory environment. Process plays a vital role to ensure the right value is generated and delivered to the business and its customer.

What is a process? You can find various definitions depending on the type of industry you are in but in terms of financial services, the key is to have a specific objective for each process, which utilises specific types of inputs and deliver desired outcomes to the organisation and its customers while using a minimum set of resources. Data is the most important part of any business process, hence must be the key driving force to manage, change and streamline any process.

Retail banks have been responding to fast changing customer, market and regulatory requirements over the last decade and due to stretched investment and resources, have been introducing manual processes throughout their operating model. Today, the biggest challenge for retail banks is manual operational processes and due to continuously evolving customer and market requirements, there is not enough time and resources to play “Catch Up” therefore it drives inefficiency, lack of customer satisfaction, increased risk of human error and increase the risk of compliance failure, hence banks need to understand and prioritise their process architecture to bring some stability back to their operating model and to deliver consistent value to the end customer while keeping compliant.

There are various ways of slicing and dicing these processes but it would make sense to group them into various buckets in order to reduce complexity and to identify the high priority areas to focus or improve. We can use capability model to identify relevant processes and to group them in logical buckets or we can group them using front-end and back-end operational segmentation or we can group them into sales vs service processes and create sub categories to break them down into manageable chunk. The key thing is to group them in logical buckets to ensure that everyone in the organisation understands this breakdown and is agreed on the one version of truth across the organisation. That would be a really good place to start addressing the process architecture challenge.

In a customer centric operating model, it’s vital to design these processes keeping customer outcomes and benefits in mind, which means breaking internal functional silos and to identify an end to end value stream which delivers the right value to the end customer. There are various metrics we can use to measure the performance of these processes for example, % of STP (straight through processing) Vs manual processes, TAT (turn-around time), number of variations and defects, number of internal and external complains, NPS to understand customer experience and satisfaction with the outcome. We can also use methods like mystery shopping or outcome testing to verify and validate customer outcomes. These measures would allow a continuous feedback loop and would be very or extremely useful to integrate a “Continuous Improvement” mind set into the organisational culture.

There are various methodologies which can be used to optimise and streamline the process architecture for example, Lean Six Sigma would be one of the methodologies which can use to continuously improve process outcomes i.e. more customer focused, reduced waste, reduced variance, enhanced compliance and generate greater value for the customer. However, the key thing is to ensure that we look at the holistic process architecture so that we are not breaking another thing whilst fixing one at hand.

To deliver true customer centric operating model it’s important to look at these processes from an outside-in perspective as well, that’s where customer journey comes into the picture. According to “The Financial Brand” number one trend and prediction for 2017 is to remove friction from the customer journey. There are various ways of creating and documenting customer journeys however it must capture the customer segment, customer objective, high level activities customer needs to do in order to achieve the desired outcome and time it takes them to do it and most importantly it should connect back to your operations. Following is an example of a customer experience journey:

According to “The Financial brand” (i) Most financial institutions can’t open a new account entirely online or on a mobile device (ii) Multi-Channel digital account opening (save & resume) is not supported at most financial institutions (iii) Only 55% of banks and credit unions have a “structured” on-boarding process (iv) Only 22% of financial institutions on-board new customers with the “Optimal” amount of communication.

One thing we know for sure, in process transformation “Slow & Steady Never Wins”, therefore more automation and straight through processing is the answer for better process and customer experience journey management and also to increase compliance levels as well.

4.3 PRODUCTS

Customer products play an important role in reshaping the Omni-Channel customer experience. Essentially it’s the type of products and associated services along with the customer segments which dictates the required shape of the distribution network for any retail bank. The more products and services you provide via your distribution network, the more complex it becomes to manage and to dispense the right service for the right customer at the right time using the right channel.

Over the period of time, legacy products keep adding complexity from people, process, technology, compliance, conduct, operations and distribution perspective. It typically increases cost and risk over the period of time to manage legacy products.

It would make sense to apply 80 / 20 rule to rationalise the product landscape. Retail banks make the majority of their revenues and profit from a small number of high value products hence retail banks need to review their product landscape and identify opportunities to simplify product portfolio in order to maintain a robust and agile operating model. Not only that, product rationalisations would also reduce the regulatory complexity and minimise the operational and conduct risk challenges as well.

2017 Google Search Trends

in Banking and Marketing –

What Consumers and

Marketing Execs are

looking for & when – The

Financial Brand.

It is critical to understand a customer’s “Moment of Truth” and to re-design these

end to end customer journeys in order to remove friction and to create a

seamless customer experience which is personalised and contextualised in real

time. This would also help retail banks to meet their compliance requirements,

whether its AML, Fraud or customer conduct risk.

“A move to a customer-driven approach will require banks to rationalize and simplify their product sets. By breaking products into their component parts, banks will enable customers to tailor-make products to suit their needs. Banks that achieve this will be able to provide customers with truly differentiated offerings. EY’s Global Consumer Banking Survey 2014 suggests that banks that can achieve it will be able to win an increased share of wallet. They will also be able to reduce the cost of their operations and better satisfy regulators that they are treating customers fairly.” [Defining the New Core of a Bank – EY]

4.4 LOCATION

Another very important part of the retail bank’s operating model is the physical location of their operational hubs and physical distribution network. It is critical to understand strengths and weaknesses of the physical presence of operational hubs and physical distribution network as it would allow to improve the business bottom line and to enhance customer experience.

4.4.1 OPERATIONAL HUBS

Typically, these hubs are based across the country and support various activities to support various business functions. Some of these operational teams support internal or corporate requirements however the majority of these operational teams support sales and service colleagues to deliver value to the customer therefore they play a very important role in moving the business baseline and to transform customer experience. Usually, things like real estate cost, human resource availability, proximity to the various offices e.g. head office etc. determines the location of these operational hubs however it is important to review all of these factors on a regular basis and ensure that these operational hubs are still relevant to meet business and customer needs. We have seen “Contact Centres” being part of these operational hubs in order to streamline operations however these operational hubs need to be very clearly defined as part of the distribution channel strategy conversations.

4.4.2 PHYSICAL DISTRIBUTION NETWORK

Primarily branch and ATM channels make up the physical distribution network for the retail bank and even after all the shift towards digital network in the recent years’ branch and ATM still play a crucial role in the success of a retail bank.

Branch plays an important role in providing a “Human Touch” to the customer. Human touch is the most important trust factor when buying a new product. However, Retail banks need to manage their distribution network holistically rather than just looking at branches in isolation. As part of the transformation journey, they are currently quite focused on optimisation and transformation of their branch network. Most retail banking executives feel that branch is still a big asset as it delivers the most value, however foot fall is declining 10 percent CAGR and

Why Branches Matter in Digital Age

one of the top priorities of retail banking executives is to have the right number of branches in the right format to serve the right customer segment and to have a branch network which aligns to rest of the channels in order to have a right distribution channel mix which delivers the right value to business and the customer.

In order to streamline branch network, it’s important that we understand business and customer value of each branch and based on that value we segment and prioritise the branch network, also at the same time we should understand the capability and capacity of the branch network before we start pulling branch transformation strategies together including re-design of the entire branch network.

Our experience suggests that branch network is the most impacted network in terms of change, as most of our retail bank customers are introducing additional channels into their channel mix e.g. mobile, video, chat, social media etc. to respond to changing customer behaviours and market needs, but also to support optimisation of their branch network in order to improve their cost to income ratio.

No doubt, branch network is the most expensive channel to run therefore with the introduction of new low cost channels, branch network becomes one of the hot topics and questions like, what the new branch network should look like? How many branches do we need? Where they should be? What format they should be in? How big or small they should be? What are the key objectives of our branch network? How do we ensure alignment between physical and digital channels? And how can we maximise the value of our branch network?

All of these questions require retail banks to take a step back from individual channel management and to move towards managing their entire distribution network to ensure that the entire distribution network works like an organised “Orchestra” to deliver the maximum value to the bank and its customers.

Unfortunately, in our experience we have seen lots of retails banks making these decisions based on partial assessment of their branch network, for example, we have seen again and again retail banks making decisions to cut down branch numbers and locations just by putting some financials together which might not be the right approach, hence we believe that there has to be a structured and methodological approach to ensure that we analyse all the right data, review the distribution network

holistically, understand customer segmentation and behaviours and understand the capability and capacity of the whole distribution network in order to enable retails banks to make right decisions.

According to Mckinsey “Human Interactions remain important in a multi-channel world” and “Transforming distribution and go-to-market strategies can improve efficiency ratio by up to 7 percentage points” [The Future of U.S. Retail Banking Distribution – Mckinsey]

This paper does not intend to provide any solutions however branch network transformation is the most common conversation we have with our retail bank customers hence we are providing a quick snapshot of possible re-configuration of a branch network however to get to these outcomes we recommend going through a structured and holistic transformation approach.

Another physical channel which doesn’t get mentioned very often is the ATM network, in the last few years the ATM network has rapidly evolved from being a cash dispensing network to a very strong contributor towards the Omni-Channel strategy. There are many markets which have very cleverly transformed this network into enhanced self-service, assisted service and in some cases fully interactive service channel.

Our experience suggests that most of the retail banks are not really focused on their ATM network as compared to digital channel, which grabs the maximum attention and investment due to the market pressure and transformational nature of the digital channel, followed by branch network, due to the associated cost and big share of sales and relationship management. However, ATM is still the most seen and interacted channel and can be utilised as full sales and, or service channel and is a consistently growing channel across the globe.

According to the latest report published by Global Market Insights, the ATM market is forecast to continue expanding by 2023 and should grow from $12.7 billion in 2015 to $26.1 billion in 2023, representing a CAGR of 9.9% [ATM market expected to grow strongly by 2023 – Cash Essentials].

Also, according to the World Bank (International Monetary Fund and Financial Access Survey), automated teller machines increased by 22.2% from 2012 to 2015. About 33 machines (per 100,000 adults) were deployed in 2012, which further increased to around 40 per 100,000 adults in 2015 worldwide. In 2015, Korea accounted for about 288 ATMs per 100,000 people followed by China and Canada [Global Market Insight Report – GMInsignts].

ATM is one of the most frequently used channels and can truly transform customer experience and can enhance the life time value of the customer if managed properly. Different markets are using this channel differently however our experience suggests that currently this channel is not utilised to its full potential. In some markets (e.g. Middle East) this channel is used as both sales and service channel but still far off in maximising its potential. The magic trick is to understand the business strategy, customer segments, transactions, services and operations and its alignment to the Omni-Channel customer experience to utilise the maximum potential of the ATM channel.

We must note that self-service channel is continuously evolving and we have recently seen, it has evolved into a fully interactive channel and some of the retail banks are using them as a “branch in a box” concept. This “branch in a box” capability provides all functionality of a branch and can be run on a fraction of a cost due to the distributed operational capacity and low real estate cost. These types of branches have already been deployed in various regions and many retail banks are trailing it as an additional channel into their channel mix. This capability can help retail banks to deliver anytime, anywhere sales and service model to their customers, create capacity in their branch network and help converting their physical branches into relationship management centres by focusing on the right customer and the value add transactions.

“Enhancing the customer experience can bring rich rewards. Across industries, satisfied customers spend more and stay more loyal over time. In banking, customers are seven times more likely to increase their deposits and twice as likely to open an additional account if they rate a bank as excellent (with a customer-satisfaction score of nine or ten out of ten) rather than average (six to eight out of ten). Similarly, pay-TV customers who rate their provider as excellent tend to stay with it for up to twice as long as they would a provider they rate as average or below” [Putting Customer Experience at the Heart of Next-Generation Operating Model – Mckinsey].

5 DIGITISATION

Without a doubt, the biggest disruptor in financial services industry today is “Digitisation” of a business. It is becoming a key differentiator for retail banks to optimise cost and to deliver exceptional customer experience. However, very few retail banks have taken full advantage of the digitisation of their business yet. Lack of a comprehensive business vision and strategy, existing organisational silos and legacy IT infrastructure proves to be the key challenges most retail banks face in terms of delivering fully digitised business today. On top of it, they have to keep up with a rapid increase in innovation intensity and product life cycles.

Currently, business digitisation is more focused on automation and improvements in organisational sales and servicing capabilities however it has got massive potential of transforming the whole business which is streamlined, agile and flexible to enable future growth and success. It’s all about thinking about the business holistically, understanding the business eco system and maximising the value generation using digital capabilities.

One thing we must remember, It’s not about technology, it’s about the business and customer outcomes. Key is to automate, enable quick decision making processes, particularly from Omni-Channel perspective, simplicity, consistency, agility, rapid response and ease of use is true digitisation. Digitisation needs to answer questions like, how can we sync all of our channels, how can we improve customer journeys, how can we allow customers to conduct a transaction or a service at their convenience and how can they experience a consistent journey and similar outcomes regardless of the channel of choice? How can we enable personalisation across channels?

In other words, to build a digital business, we need to consider all the core elements of a business, for example, people, process, technology, customer experience design and performance. We need to ensure that we look at the holistic picture and focus on building a business, which is responsive to the market, and customer needs. This would also require us to fundamentally change the organisational culture as well (we will discuss further on the organisational culture later in this paper).

Another fundamental part of business digitisation is technology infrastructure. We need to understand AS-IS technical capabilities and how can we transform them to align to the strategy and target operating model. How can we synchronise front, middle and back office platforms and how can we ensure a seamless handshake between these various technology platforms? We have noticed that there is a massive challenge for retail banks to shake off their legacy platforms e.g. core banking systems or front / back office information management systems and even the banks who are transforming these platforms sometimes don’t have a holistic view of the target operating model, hence might be falling back into the same trap again.

“A US retail bank & insurer fully rationalized their back-end, primarily to improve front-end customer experience. Quality defects went down by 80% and employees’ productivity went up by 40%. These results were achieved thanks to unified processes across all business lines, breaking silos and leveraging scale; re-engineering processes; implementing standard ways of doing things (training, user manuals, etc.), and tracking people performance on a daily basis. And these results were achieved with no incremental spend on IT.” [90% of an Iceberg is Under Water – Oliver Wyman]

The answer is to build flexible and agile technology capabilities, capabilities which are seamlessly integrated but loosely coupled, which means applying “Service Oriented Architecture” or “Product / Service Factory” type of concepts to shape up the target technology architecture which would provide retail banks “Plug n Play” capabilities in order to be future proof and would allow retail banks to be more responsive to the ever changing market needs, for example, supporting the next generation banking, PSD2, Open banking revolution etc. Not only that, we need to take advantage of technology innovation to further streamline the Omni-Channel customer experience. We need to consider upcoming and future technologies, for example, Artificial Intelligence, Chabot, Biometrics, Virtual Reality etc.

“In this period of digital disruption, businesses focused narrowly on value chains were at a disadvantage; they needed to think more broadly about their business ecosystems. Indeed, we found that companies that had 50% or more of their revenues from digital ecosystems and understood their end customers better than their average competitor had 32% higher revenue growth and 27% higher profit margins than their industry averages.”* Weil and Woerner, MIT Sloan Management Review

6 DATA CONNECTIVITY

We have discussed quite a few components of the operating model to enable true Omni-Channel transformation and data plays an integral part to pull everything together. It acts like a glue to truly transform the distribution network and to maximise the value delivery to the customer.

“Nine out of ten business leaders believe data is now the fourth factor of production, as fundamental to business as land, labour and capital. The study among over 600 C-level executives and senior management and IT leaders worldwide indicates that the use of Big Data has improved businesses’ performance, on average, by 26 per cent and that the impact will grow to 41 per cent over the next 3 years”. [Rising Impact of Big Data on Decision Making – Capgemini]

We have been talking about big data for the last couple of decades however due to the digital (r)evolution it is becoming critical to build a solid capability to not only store digital information but to retrieve, analyse and transform that into a value add insight. This insight would enable organisation to make informed, real time and fact based decisions.

Retail banks create and store large amount of personal, transactional and servicing data about their customers every day, they can also purchase relevant data from third parties and can cross reference this data with their own customers to identify certain customer segments. All of this data can be turned into customer insight to bring true differentiation to the business. This insight would be invaluable to understand customer interactions and behaviours in regards to the Omni-Channel strategy and how retail banks can provide seamless customer experience across various channels and how retails banks can build relationship with their customers which is based on mutual trust and respect.

The key is to break all silos and create a connected data environment across the organisation, an environment that provides a capability to store data in a common language across the organisation and provides connected data analytics capability, which turns key data into an “actionable asset”. In today’s competitive environment, retail banks not only need to analyse historical or current data set but also need

to build predictive analytical capabilities to identify future trends in order to build and deliver target operating model alignment. Advanced and connected data analytics capability allow organisations to make operational and strategic decisions based on facts and not only that, the right data analytics capability can also enable flawless execution of customer journey and interactions at every touch point to deliver personalised messaging and services to the target customer segment, and this becomes the true game changer in terms of delivering the Omni-Channel strategy.

We need to understand that the quality of these decisions are as good as their data set and analytical capabilities, hence it’s important to understand the key business drivers’ / business objectives, value-add Vs non value-add data sets and to ensure that right due-diligence and governance processes are in place to verify and validate the data to ensure that the right type of data is available to make the right type of decision at the right time.

According to EY, Big Data eliminates intuition – Decisions can be made with a structured approach through data-driven insight, including:

- Customer and product profitability - Customer acquisition and retention strategies - Customer satisfaction strategies - Market segmentation - Operations and performance management - Supply chain and delivery channel strategy

[Big Data – Changing the way business compete and operate – EY]

According to Bain & Company, only 4% of companies said that they had the right people, tools, data and intent to draw meaningful insights from that data – and to act on them.

Therefore, its critical to build the right kind of analytical capability, according to Bain & Company, leaders build up their analytics capabilities by investing in four things: data-savvy people, quality data, state-of-the-art tools and processes and incentives that support analytical decision making. [The value of Big Data: How analytics differentiate winners – Bain & Company]

“60% of financial institutions in North America believe that big data analytics offers a significant competitive advantage and 90% think that successful big data initiatives will define the winners in the future.” [Big Data: Profitability, Potential and Problems in Banking – The Financial Brand]

Retail banks need to master the Big Data science because size of their data is growing rapidly and with the Open Banking Revolution, it would add another layer of data and complexity to their existing data architecture, hence they need to build connected and mature data gathering and analytical capabilities to support their Omni-Channel strategy execution process.

“Global Internet traffic will surpass one zettabyte in 2016, after increasing fivefold over the past five years. That’s 1 billion terabytes worth of data, or 1 trillion gigabytes. The key factor driving this explosion of data usage is the increasing use of mobile devices that enable both consumers and enterprise employees to connect from anywhere at any time. According to Fortune, global mobile traffic will grow eightfold over the next four years, reaching 30.6 exabytes monthly by 2020”. [Samsung Insights]

7 ORGANISATIONAL CULTURE

Organisational culture is a philosophy, which enables a common understanding of how employees feel, behave, think and believe on how they work together as a team and deliver value to the business and its end customers. Organisational culture is the key differentiator between success and failure of any organisation. Organisational culture also determines how the organisation responds to the external needs and does have a direct impact on the quality of products, services and their operations. It also has a direct impact on customer engagement and experience as well. It’s all about building the right set of values, values which everyone can relate to and buy into for supporting the seamless Omni-Channel strategy execution for an organisation. Organisations that are successful in building the right culture reap the rewards by higher employee engagement levels, which can be directly linked back to the organisational performance.

“Strong employee engagement promotes a variety of outcomes that are good for employees and customers. For instance, highly engaged organizations have double the rate of success of lower engaged organizations. Comparing top-quartile companies to bottom-quartile companies, the engagement factor becomes very noticeable. For example, top-quartile firms have lower absenteeism and turnover. Specifically, high-turnover organizations report 25% lower turnover, and low-turnover organizations report 65% lower turnover. Engagement also improves quality of work and health. For example, higher scoring business units report 48% fewer safety incidents; 41% fewer patient safety incidents; and41%

2017 Google Search

Trends in Banking and

Marketing – What

Consumers and

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looking for & when –

The Financial Brand.

fewer quality incidents (defects).” [Employee Engagement Does more than Boost Productivity – Harvard Business Review]

Once we have a clear and shared vision and strategy in place, the next thing is to develop an organisational cultural which is aligned with the vision and strategy. In simple terms, employees are happy to come to work, fully understand their role (scope, responsibilities, what is expected of them & how it fits into the bigger picture), they can freely contribute to the organisation and feel that their voice is heard and that their ideas, efforts and outcomes are appreciated and rewarded and that environment is inclusive and they speak up without having a fear of being judged. Most importantly, organisation’s management framework and decision making processes must be always open, transparent, inclusive and aligned to the strategic vision.

After examining decades of research, management guru Dan Pink concluded that Mastery, Autonomy and Purpose are the real drivers of employee engagement and satisfaction. We believe that most important part is to believe why, why we are doing what we are doing. Simon Sinek teaches us the enormous importance of understanding “why” in everything we do, therefore organisations need to understand very clearly why they do what they do and this “why” should also be very clearly communicated to the employees to ensure that they understand and connect to the bigger picture and are able to deliver greater value to the organisation and its customers. Most organisations talk about outside-in but Simon Sinek talks about the value of driving organisations inside-out for enhanced employee engagement and maximum value delivery to the customer.

Retail banks are no different, they need to nurture a culture which aligns with their strategy, as most of the retail banks are targeting to be the “Best Bank for the Customer” therefore they need to cultivate a customer driven culture i.e. well defined strategy, strategy enablers and business KPI and then promoting and encouraging the right leadership behaviours and decision making processes and finally building the right skills and competencies to ensure seamless strategy execution. This would help retail banks to ensure smooth delivery of their Omni-Channel strategy. We have seen various organisations using “Employee Engagement Index”, “Performance Excellence Index” and “Line Management Index” to measure employee engagement however we have seen many organisations fail to take corrective measures to ensure that the core required behaviours are embedded into the organisational culture and that they communicate these messages loud and clear across the organisation.

© 2013 Simon Sinek. Inc.

Final thought is that organisational culture will further evolve when Artificial Intelligence will become more embedded into the retail bank’s operating model, as we need to define and set some advance level operational and performance rules and performance measurements to enable harmonised working environment between humans and machines.

A recent national study by Dale Carnegie Training placed the number of “fully engaged” employees at 29%, and “disengaged” employees at 26% - meaning nearly three-quarters of employees are not fully engaged (aka productive) also the Bureau of National Affairs estimates U.S. businesses lose $11 billion annually due to employee turnover. [Why Are So Many Employees Disengaged – FROBES]

Future is all about digitisation, retail banks need to build a digital culture to respond to future

challenges, hence they need to focus more in certain elements of their culture, key focus areas

would be to have a clear strategy, break any functional silos, reduce command and control

structures, define and communicate “WHY”, be more agile, transparent and create a greater

“Test & Learn” culture which would enable employees and customers to take more frequent risks

with innovative ideas.

This would also require banks to radically re-design their management framework, information

management systems, and decision making capabilities with a very rigorous feedback loop in

place – feedback from front office to back office and operations. It would also require banks to

build a real time performance management framework with real time internal and external

feedback mechanism.

8 CONCLUSION

Like any mission critical gadget in a James Bond movie, this paper is self-destructive in 2-3 years’ time due to the digital (r)evolution and rapidly changing customer behaviours. Business transformation is a continuous process and within the next 3-5 years, core elements of this paper would become a baseline for any smart business, therefore retail banks will embark on a very different type of transformation which would primarily be driven by Artificial Intelligence, real time decision making and risk management capabilities.

We know that there is no “Silver Bullet” and also “One Size” never fits all hence all of the above areas may not be relevant to each and every bank however the key thing is to evaluate what works and what doesn’t work and what the key focus areas are that a bank needs to focus on to deliver maximum value.

It is important to take a step back and look at your distribution network holistically, define a very clear distribution network vison and strategy, which must be aligned to your retail strategy to ensure that everyone is in sync on key hotspots, challenges and opportunities and the expected target operating model for your distribution network. Another critical element is to define specific Key Performance Indicators before starting any transformation journey, so the baseline and target operating model can be understood. This would also allow the organisation to measure its level of success and continuous alignment with the retail strategy.

*Quick Survey to assess impact of digital disruption to your business – higher the score, greater the threat [How digitisation is impacting a business – MIT Sloan Management Review ] Some of the images used in this paper are taken from Google Images