The Future Role of the “Bank Store” and

its Interconnectivity with Other Channels

Tony Emerson,

Microsoft Banking Director - EMEAPresenting on behalf of:

John Kirkbright

Chief Executive K-Strat International

Senior Retail Banking Adviser to EFMA

Chairman EFMA Banking Advisory CouncilLisbon. May 20,2008

Background to EFMA

Banking Advisory Council

EFMA Banking Advisory Council established in 2005 with the support of Microsoft

Senior Executives from leading European Banks meeting 4 times a year to discuss trends and create a blueprint for future financial services delivery

Members include ABN Amro, Millenium BCP, Unicredit, LloydsTSB, Caja Madrid, Citibank, BNP Paribas, Nordea, Fortis, Rabobank, Bankinter, ErsteBank etc

First report on the Future of Multi-channel Delivery published in 2006

The Future of Multi- Channel

Delivery 2006 Report Conclusions

Need for a much more customer centric approach to financial services

Move towards providing a truly integrated channel and customer experience -progress has been slow to date

Process excellence will be an increasing requirement to provide the

superior customer experience

Desire to provide a simpler set of product and service propositions

Bankers admit to not using technology and CRM systems to maximum effect

Matrix management of product, channel and customer has proved difficult – need a simpler model

Developing the right people skills and support is an increasing problem

Channels – some key facts

In most retail banks distribution accounts for

70% or more of the total costs of the bank

New branches need to become profitable much

quicker – the norm for many banks has been 3-5

years – best practice is now 18 months

In the past twenty years the number of bank

branches in the USA has almost doubled and in

Western Europe it has increased by a third

Sales – Some key facts

“A resounding vote for the Branch”

Leading Worldwide Retail Bank – “80% of new sales are

to existing customers “

“70% of all our profitable customers visit the branch at

least once a week”

80%- 90% of financial product sales still come through

branches

Most banks sell less than 10% of their product sales

through non- branch channels

Branches are seen by many as the “ cornerstone of

delivering financial service products”

Quote from Chief Executive of Leading

European Bank

“The available potential in the retail

banking business segment will only be

successfully exploited in the long run if a

more integrated customer approach is

combined with better and intelligent

distribution channel integration”

People and Management Issues

Branch staff quality is a key determinant of future success

Pressure on staff to sell more but also spend more time

with customers

New skills required - recruiting for aptitude and attitude rather than traditional banking skills

Need new types of staff with more interpersonal skills and customer care focus

The increasing importance of the meeter/greeter or concierge role in the branch

Devote more resource and time to staff training

What bankers say about their People

“Our branch sales advisers spend 30 per cent of their

working day calling customers.”

“Give me someone good in customer service – I can teach

them to be a banker in 6 months

“The performance of the branch depends on the quality of the people working in them. You can have a marvellous technology system and physical lay-out, but at the end of the day the people are the most important thing. We need to give the branch staff

better support tools to do a better job.”

“We are currently finding it a challenge to find people with the right skills to

work in our branches.”

Bank Staff Revolution –Key roles in Banks

in need of Transformation

Branch or Local Retail Outlet Manager

Teller or Customer service representative

in branch or call centre

Relationship Manager or product sales

representative

Branch Manager

Key challenges

- Branch profit performance

- Sales growth

- Cost control

- Manage compliance and regulation

- Staff development and skills

- Create a more welcoming attractive environment

- Customer retention and acquisition

- Provide leadership and strategy to achieve branch goals

Teller or Customer Service Manager

Key challenges:

- Under pressure to serve more customers faster

- Better understanding of individual customer needs

- Meet compliance and regulatory needs

- Better communication tools to serve customers better

- Increasing need to spot sales opportunities for other staff to follow

up on

- Work more effectively with other channels to deliver an integrated

customer experience

- Front line in handling initial customer complaints

- Simpler quicker processes to reduce delivery time and improve

quality of service

Sales representative or account manager

Key challenges

- Sell more product quicker and faster

- Better identification of customer needs and specific sales

opportunities

- Quicker application and delivery process

- Meet compliance and regulatory requirements

- Develop good product knowledge of all existing and new products

- Understand how to get the best use of personal skills and technology

to achieve the above.

- Better communication and marketing material to facilitate product

sale

Key issues for Advisory Council members

The future role of the branch

Creating a truly integrated overall customer

experience

Increasing the sales efficiency of all channels

Distribution cost control

The role of technology

Recruiting and training the bank staff of the

future

Communicating with customers more effectively.

Key Council member questions

What products and services should a branch offer?

How many different types of branch format do we need?

How can we make sure we have the right staffing and people skills for each distribution channel?

How can we make sure the right types of customers are coming in to our branches?

How do we best communicate with our customers in the future?

Future role and function of the branch

differing views

“Any bank and any relationship should be based on trust. I do not think you need branches for that.”

“It is the people and functions you make available to customers that are essential”

“I do not believe that branches, as such are the future, but I believe the people in the branches are.”

“The biggest challenge is redesigning the role of the branch and redesigning the customer relationship.”

Making Segmentation work at a national

and local level

Specialisation and segmentation

The need for different branch formats in different

micro-markets

The investment and use of detailed micro-market

analysis

The importance of the right location for branch

formats

Learning from the experience of retailers.

Segmentation

“We can learn from the waysupermarkets operate on differentscales and with different formatsadapting their offering to the timeof the day and the specific marketsegments they are targeting.”

“I can certainly see us offering or promoting different products at different times of the day.”

“The main reasons for customers choosing a branch are influenced by the branch format.”

“We are moving towards offering a different range of products in different channels and branches.”

Future Look and Feel of the Branch

“It is important to create an atmosphere in branches that attracts people.”

“We will have to go through a couple of branch designs before we find the right one.”

“Branch opening hours are still a really big issue – we need to be a lot more flexible on this issue.”

“Over a third of our branches already have no teller function (cashless) and we expect that to increase considerably over the next few years.”

Branch closures

“We closed perhaps 10 per cent of our branch network due to the development of the Internet.

“It is possible to close branches [without any adverse effect].”

“There is a natural equilibrium you have to reach in each local market with regard to density of branch coverage per head of population.”

“Having the right location for the branch is absolutely essential.”

Creating Branch Traffic

“Artificially creating a lot of branch traffic is not going to be very helpful when they are not

the right type of customers visiting the branch.”

“We invite 30 per cent of our customers to come regularly to branches.”

“We invite customers in to our branches for a

meeting at least once a year.”

Creating Branch Traffic

“We need to encourage customers to come in to the branch and talk to us.”

“The people we want are not coming to the branch.”

“Our main problem is branch traffic generation.”

New Branch Concept Case Studies

ABN Amro

Deutsche Bank

Rabobank

Unicredit

BNP Paribas

ABN Amro Case Study

Teleportal Branch “ high tech bank” concept

Interactive technology

No need for staff in the branch

Can perform most of the functions of a traditional branch

Customer interacts with a camera and a 3D like projection screen – near live meeting experience created – very positive response from customers so far

ABN Amro vision is that within 5 years the internet will be the primary channel for customers

ABN Amro Teleportal Branch

ABN Amro Teleportal Branch

Rabobank Case Study

New customer experience retail stores being created by Rabobank with learnings from major retailers

Fresh modern in store image focusing on the quality of peoples lives

Use of video walls for broadcasting and LCD touch screens for narrowcasting. Use of video/photomail so customers can send messages by internet

Rabobank

Use of LCD interactive technology in new look branch

Deutsche Bank Case Study

New Q110 concept creates new type of branch experience more akin to visiting a high class department store

Barriers for customers to enter in to sales discussions lowered

Test lab for introducing new concepts and rolling them out to the retail network

Remove the prejudice that banking is boring

New technology in use -video-link, LCD screens and tablet screens for customer documentation

Deutsche Bank

Relaxed open

style format

Deutsche Bank

A relaxed “department store feel and look”

Deutsche Bank

Deutsche Bank

Unicredit Case Study

Unicredit has developed new range of branch formats servicing different market segments –affluent and sme two main segments

Use of micro-market analysis and approach to segment market and provide highly personalised approach tailored to local market

Reshaping almost every aspect of the traditional branch

Use of next generation atms and kiosks

New branches move in to profit much quicker than traditional branch

Unicredit

Segmented micro-market branch formats

BNP Paribas Case Study

Strong focus on automated branches and self service areas in new branch formats

Strong focus on reception and service areas with use of next generation ATMs

Minimise need for cash tellers through use of avanced ATMs with cash-in facilities etc

New branches producing higher levels of customer satisfaction, recruitment and retention

BNP Paribas

Automated branches with high self-service

Selling through non-branch channels

“We now have more online than branch customers, but most of our sales are still through our branches.”

“The online customer experience at most banks is still very poor -a lot can still be done to improve the buying experience through non-branch channels.”

“Our biggest challenge is to be able to ensure bigger sales through our non-branch channels.”

“The cost of sales is likely to go up – not down – so it will become increasingly important to drive sales through cheaper direct channels.”

Technology

Technology is not seen as an inhibitor but best use is not being made of existing technology

Many banks still have problems with legacy systems and poor use or implementation of CRM systems which are limiting their ability to provide an integrated customer experience

The use of automated technology to remove routine transactions from the physical branch

Banks that replace their core banking systems may have a potential source of competitive advantage in personalisation, customisation and interconnectivity.

Technology

The increasing importance of technology in generating

the right leads for branch staff to pursue.

The main problem is not the quality of the technology but how it can be applied to real business problems and solutions bank executives are looking for

Interconnectivity technology needs to be applied where it will have the greatest impact

Finally

Summary points

The need for a new customer relationship model which is bank rather than branch centric

An increasing focus on better channel interconnectivity to provide a truly integrated customer experience

Continuing branch transformation to create retail branch stores that are smaller and more sales orientated

Increasing focus on customer personalisation and customisation – better use of technology to assist

Better selling and advice through non-branch channels and

mobile sales force

Summary Points 2

People and Management skills increasing importance –give the staff the tools to provide good service and develop new staff roles and capabilities

Give the customer more control and choice in the customer relationship model for the future

Avoid over reliance on branch for sales and advice

Decide on distribution model approach- distribution, product or cost led

Leading banks will control distribution costs carefully but be very customer centric

Conclusions – Council member quotes

“We are looking to learn from retail and hotel

businesses how to treat customers better.”

“We should be more concerned with behaviour and culture than with technology.”

“We do not need to dramatically change the

structure of the branch or the way we treat customers.”

Conclusions – Council member quotes

“As an industry we have to create new products, which we have not done well so far.”

“We need to employ more marketers in banking – the role of the marketer was not needed to push customers out of branches but attracting them back has proven beyond the ability of most bankers.”

Ideal Scenario – Customer perspective

Start a transaction in one channel, continue in another and finish in another

Receive timely informative communications from the bank

Be able to use the bank’s channels as and when I want to use them

Have the bank channel identify me on entry and treat me as an individual to understand my needs

Have one phone number and one person to speak to regarding complaints or problems

Deal face-to-face with the bank on more complex products.

Ideal scenario – Bank perspectives

“Be able to identify the customer personally when they enter the branch and offer the appropriate service and advice.”

“My dream is to take all the administration and service out of the branch and move it 100 per cent to remote channels, leaving the branch of the future to focus exclusively on a sales and advisory role”

“Whether the relationship is with the physical branch or online channel is not important.”

The Future – Bank Executive Quotes

“The challenge is how to provide advice at the right cost level. How can technology help a branch network provide a high

quality customer advisory service?”

“Branches are our best point of sale but in the future we need to focus more on our people and on segmentation and

personalisation. We also need to know how other channels can push branch sales. This is where future potential lies.”

“The majority of our branches in future will focus on selling no more than four

core products which we believe will meet the majority

of our customers’ needs.”

Future Focus

“THE BANK BRANCH IS NO LONGER AT THE

CENTRE OF THE BANK; THE BANK IS

EVERYWHERE”

“IN FUTURE, RELATIONSHIPS WITH

BANKS WILL BE CUSTOMER CENTRIC

RATHER THAN BRANCH-CENTRIC”