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Emerging technologies in retail banking Technology as a provider of business value 21 st Century Capital Markets Datamonitor Ed Blomquist, Lead Analyst FST Agenda Dramatic changes in retail banking Future front office technology Future middle ware technology

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21 st century capital markets l.jpg

  • Emerging technologies in retail banking

  • Technology as a provider of business value

21st Century Capital Markets

Datamonitor

Ed Blomquist, Lead Analyst FST


Agenda l.jpg

Agenda

  • Dramatic changes in retail banking

  • Future front office technology

  • Future middle ware technology

  • Future back office technology


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Industry vision

1. Rapidly changing regulatory demands

The next 5-10 years will be characterized by:


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Industry vision

The next 5-10 years will be characterized by:

2. More sophisticated consumers

  • Internet has forever changed:

    • Customer service model (internal – how banks view their customers)

    • Customer expectations (external) – real-time account management, origination, choice of electronic/face-to-face

  • Customers are more brand/ experiential focused

    • Branch renewal

    • Transactions give way to service-sales

“The maturity of transactional banking services in the twenty-first century will place downward pressure on interest income and transaction fees, driving the need to understand customer profitability and risk more accurately, as well as raise customer satisfaction and loyalty.”


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Industry vision

The next 5-10 years will be characterized by:

3.Accelerated expansion of traditional retail banks

Growth of “Allfinanz” or “supermarket” institutions

New Business Lines:

Direct banking

Brokerage

Cards/ Payments

New Markets

“Market deregulation will have the greatest impact on IT spending among Asian banks over the next five years.”


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Industry vision

The next 5-10 years will be characterized by:

4. Emergence of new competitors

  • Regulation in banking and customer demand for low–cost transaction services will increasingly driving retailers to acquire customer deposits and provide services

  • Postal services spreading to developing/third world as infrastructure costs relatively low

  • Deposit growth will continue, but shift to services

ICICI looks overseas with UK Internet bank launch

ICICI Bank, India's largest private bank, is launching an online account in the UK offering customers a 5.4% rate on savings.


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The future vision of banking technology

As banking technology begins undergoing another incarnation, banks are at last able to bridge the gap between business needs and IT delivery, rather than be subject to constraints due to the limitations of the technology.

With the advent of the service oriented architecture (SOA), banks need to understand how to take advantage of the benefits it can provide and how to make the transition from their existing architecture with the minimum disruption.

Digitalization

of data

Client/server

network

Internet/

Web services

SOA?

1960/70s

1980s

1990s

2000s

The future


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The future vision of banking technology

Banks are honing their future technology vision: operational excellence lies at the heart of ensuring future profitability


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Agenda

Future

  • Multi-channel delivery with employees focused on sales/ relationships, servicing/support through automated channels

  • Mobile and contactless payments

  • Access to payments 25/7 across all channels

  • 360 degree view of customer across all products

  • Profitability analysis and segmentation

  • Integrated

  • Customer-defined

  • Automated and dynamic taxonomy

  • Internal/Auto fraud/ claims, ID theft

  • Services Oriented Architecture

  • Reference/ Event driven (Underwriting)

  • Distributed/ grid computing

  • Establishment of an integrated back office and core systems, reusing data and processes

  • Dramatic changes in retail banking

  • Future front office technology

  • Future middle ware technology

  • Future back office technology


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Multi Channel integration

Single view of customer across the enterprise

Channel

presentation

Email

Branch

ATM

Phone

Internet

Channel-specific process customization

Change

of details

Statements

Loan origination

Bill

payment

Account opening

Compliance

Channel-agnostic processes

Process integration platform

Common channel services

Application server platform

Operational customer database


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Datamonitor – Global Banking Survey


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Banks progressing towards predictive customer approach

FULL INTEGRATION ACROSS CHANNELS AND PRODUCTS

Approximate position of visionaries

ANALYTICAL/ DATA DRIVEN CUSTOMER SERVICE

Retail Banking industry average

MULTIPLE CHANNELS, SOME BASIC INTEGRATION

PARALLEL CHANNELS

BRANCH

RENEWAL

Channel Sophistication

MULTIPLE,

SILOED CHANNELS

DIRECT

BANKING

TRADITIONAL/ TRANSACTIONAL BANKING

SINGLE CHANNEL BANKING

Bank to customer relationship

PREDICTIVE

REACTIVE

ACTIVE

1990s

FUTURE

2000s


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Branch renewal execution

A “component-based” approach to branch renewal will enable a tailored branch offering

Remote

advisors

Retail

services

(coffee

Shop)

Self-service

devices

\

Tailored branch

offering

Greeters

In-branch advisor

Teller positions

Product

specialize


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Thin Client or Hybrid Client

Hybrid

thin client

Thin client

Branch

Client server

Branch server/LAN

Browser

Browser

Interface

The internet / WAN

Common services

Application server platform

Operational customer database

Back

office

Credit

cards

Other

processing

Accounts

Loans

Product factory

Maintaining and managing software stored on a host of individual desktops will rapidly eat through IT budget. Thin-client / Hybrid client offers an alternative for any company looking to reduce total cost of ownership and offer bespoke branches

“I see thin client as one of the main disruptive technologies – in the future virtually all desktops will be thin client”

CIO Tier 1 Euro bank


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Launching mobile banking services

  • Device consolidation will drive a change in customer’s interaction with banks - The Internet and the mobile phone are converging leading to mobile data services

  • SMS / WAP / Java – Banks have not focused on one common technology but there are success and failure across all channels – UK experience with WAP

  • Rapid Banking: People demand efficient / cost effective solutions – readily accessible 24/7

    • SMS alerts

    • Payment ability

    • Balance checks

    • Portfolio aggregation

    • M Investing

    • M Marketing

  • Make banking cool: banks

    need to adopt

    a retail focus to make

    customers engage –

    Standard Bank in South Africa

    launches mobile bank with MTN

    “Most efficient banking service in SA”


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Security is the main concern

Which do you consider to be the most important inhibitors to implementing a mobility solution?

First Direct is launching full mobile banking solution,

Richard Kimber, chief of First Direct, said:

"It is as secure as we can make it and, yes, I will use it when it is launched. We have had text banking for a while and this is a logical extension."


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Fraud is on the rise

  • Losses from Web banking fraud - which are mainly the result of phishing scams where customers are duped into disclosing personal financial data - rose 90% to £23.2m in 2005, from £12.2m in 2004

  • The introduction of chip and PIN technology has helped cut credit and debit card fraud for the first time in a decade, but organised gangs of fraudsters are now increasingly targeting the Web.

    • “Phishing” emails continue to abound, and despite intense publicity and media coverage of the subject, a small number of consumers are still falling into the trap of responding to them;

    • “Pharming” scams, fraudsters hijack domains and secretly redirect users to fake sites to gain their log-on and password information;

    • Trojan horse downloads embedded into emails or websites, which then collect log-on and password details across websites from online banking to other accounts such as Amazon and Paypal.


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Banks embarking on anti-fraud initiatives

  • Lloyds TSB has declared pilot trials of a keyring-sized access code device for two stage authenticating Web banking customers an unqualified success;

  • Barclays in the UK is now offering discounted antivirus software in a bid to secure customers’ computers against spy-ware and to alert them to potential pharming websites;

  • Alliance & Leicester has set out plans to introduce two-factor authentication for all Internet banking users by 2007.

  • Dexia providing USB card readers – this is the future for online banking

  • Biometric technologies such as fingerprint or retina scans are still in their infancy, but present an interesting opportunity to reduce fraud to an extremely low level.


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Contactless card payments = now

MasterCard PayPass contactless payment

The key fob is equipped with a RFID chip and will enable customers to make purchases at participating merchants by tapping a PayPass-enabled terminal. The purchase is then automatically debited from the cardholder's chequeing account.

Wayne Malone, SVP of transaction innovation, Citibank, says: "With the Citibank MasterCard PayPass, there's no fishing around for your wallet or waiting for change. It's safe, fast and incredibly convenient."

  • This is already being used in the U.S. and in U.K.

  • Far faster than either cash or credit-card payments – think of those supermarket queues

  • Oyster card – used on the Tube network in the future accepted in shops and cafes – instantly creating one of the largest deposit banks – 10 million accounts.

  • Datamonitor expects this to be a significant development in banking payments.


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eWallet Payment Solutions = future

  • Key Features

    • Wallet deployed on the handset/phone/PDA

    • Over the air download of applications – Java seems favorable

    • RFID in device

  • Enablers

    • Handsets with phone memory & processing power

      • PDA & Smart Phones

      • J2ME phones

    • Software Download, storage & execution on the phone

    • Colourful display enabling icon based execution

    • IR/ Bluetooth – proximity capability

Issuer Server

Multiple services

eWallet payment

HTTPS over wireless

data

data

£


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Already in practice in Japan

DoCoMo has brought together online content and contactless payment functionalities into one handset

The key behind DoCoMo’s i-mode FeliCa proposition is the bringing together of its own Internet software with a contactless payment facility from Sony.


Agenda22 l.jpg

Agenda

Future

  • Multi-channel delivery with employees focused on sales/ relationships, servicing/support through automated channels

  • Mobile and contactless payments

  • Access to payments 25/7 across all channels

  • 360 degree view of customer across all products

  • Profitability analysis and segmentation

  • Integrated

  • Customer-defined

  • Automated and dynamic taxonomy

  • Internal/Auto fraud/ claims, ID theft

  • Services Oriented Architecture

  • Reference/ Event driven (Underwriting)

  • Distributed/ grid computing

  • Establishment of an integrated back office and core systems, reusing data and processes

  • Dramatic changes in retail banking

  • Future front office technology

  • Future middleware technology

  • Future back office technology


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Business intelligence continuum

Gathering, analysing and utilising data should be an automatic and continuous exercise


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Intelligence flows through the bank

Email

Branch

Wireless

Phone

Internet

Intelligence Channel Server (XML portal – J2EE)

BI Tools

(Reporting,

Data analytics)

BPM Dashboard

Customer Relationship Analytics

Operations Analytics

(HR, Finance, Risk)

Supply Chain Analytics

BI Application Development Platform

Analysis Server and Rules Engine

Data Warehouse

Data Integration Server

Channel

presentation

Email

Branch

Wireless

Phone

Internet

Channel-specific process customization

Change of details

Loan origination

Bill payment

Statements

Account opening

Compliance

Channel-agnostic processes

Process integration platform

Application server platform

Process monitoring

Process orchestration

Process analysis

Operational customer database

Middle office product-agnostic processes

Product

definition

Pricing

Doc mgmt

Commissions

Workflow

GL

Process integration platform

Process integration platform

Product-specific processes with reusability

potential

Processing

Loans

Credit cards

Accounts


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Banks know BI is key to success

In which of the following areas of your business will IT be most critical in 2010?

Customer relationships: channel intelligence and sales and marketing are the areas where banks feel IT will make the most impact over the next five years.

Customer Lifecycle: Tracking and recording every customer interaction to develop a lifecycle profile – this then facilitates intuitive marketing –right product to right customer at right time

Command of information: The importance of accurate, timely and appropriate information is huge. Improving customer retention depends on it, maximising sales potential and customer satisfaction rely on it.

Banks are sitting on a wealth of information about their customers, especially current account holders, yet most do little with this data.


Agenda26 l.jpg

Agenda

Future

  • Multi-channel delivery with employees focused on sales/ relationships, servicing/support through automated channels

  • Mobile and contactless payments

  • Access to payments 25/7 across all channels

  • 360 degree view of customer across all products

  • Profitability analysis and segmentation

  • Integrated

  • Customer-defined

  • Automated and dynamic taxonomy

  • Internal/Auto fraud/ claims, ID theft

  • Services Oriented Architecture

  • Reference/ Event driven (Underwriting)

  • Distributed/ grid computing

  • Establishment of an integrated back office and core systems, reusing data and processes

  • Dramatic changes in retail banking

  • Future front office technology

  • Future middleware technology

  • Future back office technology


Slide27 l.jpg

Replace some legacy

core systems where

required

Re-engineering core

systems for greater

componentization

No plans to upgrade

existing systems

Wrapping core systems

for greater openness /

integration

Replace all existing

coresystems with

a vendorsolution

Core systems

Upper tier banks are beginning to consider core systems replacement over the next five years, although due to their size and complexity, they will be approaching replacement incrementally. Many lower tier banks are not seeing any need to upgrade their existing systems at the moment.

Which of the following best describes your approach to core systems strategy for the next five years?

Upper tier

Lower tier

45%

40%

35%

30%

25%

20%

Percentage of respondents

15%

10%

5%

0%


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Core systems – real time core system

  • Banks must start moving towards real-time processing to meet customer demands and business requirements. This is being triggered by competitive pressures as a number of top-tier banks start to modernize their systems to realtime.

  • Regulatory demands around operational risk from batch failures will provide a decisive medium term kick-start to modernization.

  • Core system costs (platform and application maintenance) are the top technology drivers for core system renewal in top-tier banks, but real-time processing is a key enabler to meet top business drivers for renewal


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Business

intelligence

technologies

IT architecture

The majority of upper tier banks are expecting SOA to impact their business next three years. However, they see web services as having the most significant impact. Lower tier banks see intelligence technologies as most significant.

Which of the following technologies will have the most significant impact on your business in the next three years?

Upper tier

Lower tier

80%

70%

60%

50%

40%

30%

20%

10%

0%

SOA

Web Services

BPM

ECM


Architecture of the future soa l.jpg

Architecture of the future - SOA

Branch

ATM

Call center

Internet

Intermediary

Distribution channel applications

application

application

application

application

application

Common channel services

Common channel services

STP

Pricing

Account

opening

Doc mgmt /

Product

Compliance

Workflow

imaging

definition

Commissions

Product agnostic processes

Application server

platform

Rules

Mgmt

Infrastructure

Services

BPM

EAI

Business information integration layer

General

Reporting

Business integration platform

ledger

Product specific processes with reusability potential

Deposits

Deposits

Processing applications

Product specific processes

Accounts

Loans

Mortgages

Other

Product

Product

Product

Product

processing

processing

processing

processing

ODS

Product factory

Product factory

By defining enterprise services banks can align business processes across the banking landscapes, creating consistency / reuse / visibility / adaptability

I see the future of servers being Intel or AMD – as servers become more and more a commodity – CIO Tier 1 bank


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