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Impact of Hyper-Connectivity
           176.6.68.33
     on Retail Banking
              28 January 2012
                    Paris



      2012 Financial Breakthroughs
WHAT ARE FINANCIAL
BREAKTHROUGHS?



                                       2

        2012 Financial Breakthroughs
3

2012 Financial Breakthroughs
10 YEARS ON AFTER INTERNET
BANKING “BIG BANG”



                                       4

        2012 Financial Breakthroughs
The continuing success of
universal banking
• Definition: universal bank here as a bank trying to offer all
  type of services to its customers (not necessarily to all type of
  customers)
  • Sitting on a network of branches and ATMs
  • Offering an online access
      • And a mobile access, even if reluctantly
  • Always wondering if a customer does not cost more than the
    revenue they generate
      • Terrible understanding of average and marginal costs




                                                                      5

                     2012 Financial Breakthroughs
Where is online today in
Europe?
• In Europe, use of online banking varies by region:
  • 62%-77% of banking users use online banking in Northern Europe
  • 35-54% in the core of Europe (France, UK, Germany)
  • But less than 32% in Southern Europe
• But these online users are on a majority users of the online
  interface of their branch bank
• And they are mildly interested by what they are offered:
  • Only half of the online users are interested or very interested by
    online banking in Germany



                                                                         6

                    2012 Financial Breakthroughs
WHAT IS CRITICAL IN THIS GAME?




                                        7

         2012 Financial Breakthroughs
Daily Banking
• Deposits, payments, management of balance
• First Bank & Second Bank
  • First Bank is the hub of client’s financial life
  • Second Bank is a bank account specialized for specific services
    (savings, investments, credits)
• Average cost is much higher than marginal cost, bringing a
  constant pressure downward
  • even if competition pressure is particularly low
     • Barriers to entry (legal and capital requirements)
     • Low interest of customers to use their bargaining power
     • Complexity of the field
  • Only downright collusion can avoid this economic structural       8
    imbalance pushing prices downwards
                    2012 Financial Breakthroughs
Why this relationship is
difficult:
• Banks always trying to bring back daily banking revenue back
  to average cost
  • Hold-up fees
  • Illogical fees
• Customers not perceiving the value of the service
  • Why should I pay since you use my money for other things?
  • Why should I pay since other banks would be happy to have me
    as a customer?
  • Why do you have to read evey fine print lines?



                                                                   9

                     2012 Financial Breakthroughs
Banking Business Models
• Universal banking
  • Propose every type of banking services to their customers
  • Offer daily banking for a low cost (free for “good” customers),
    because they cover the cost with the other services
• Specialized banking
  • Propose a selection of banking services (e.g. savings, invesments,
    credits)
  • Offer a usually limited version of daily banking to increase value
    of their proposition



                                                                         10

                    2012 Financial Breakthroughs
WHAT HYPER-CONNECTIVITY BRINGS
TO THE TABLE?



                                       11

        2012 Financial Breakthroughs
What is hyper-connectivity?
• 70% of EU-27 users have an Internet access
• 19.7% of mobile users access Internet at least once a month in
  EU-5 (UK, France, Germany, Spain, Italy).

• It’s no longer information when you need it, but as soon it is
  relevant.




                                                                   12

                   2012 Financial Breakthroughs
Why does it mean a very
different relationship?
• Customers sees value in information coming from the
  provider, it’s part of the service
• Customer is not in an “infrequent – high value per encounter”
  relationship, but in a “constant – small value per items, but
  large value in total” relationship
• Customer is no longer dedicating a fixed portion of their time
  to a specialized activity, but is executing a series of micro-
  tasks, consuming information, reacting to new elements,
  initiating new actions



                                                                   13

                   2012 Financial Breakthroughs
IMPACT AND STRATEGIES




                                       14

        2012 Financial Breakthroughs
What is impacted?
• User category
  • Cash flow neutral user constantly need
    to monitor their position




• Daily banking
  • It is a recurrent and relatively frequent
    relationship
  • It is the highest value banking service
  • It badly needs to rebuild its relationship
    model
                                                   15

                    2012 Financial Breakthroughs
What strategies for whom?
                   Are you an universal bank


                 Yes                                 No



  Create a new line of                             Are you satisfied being a 2nd
  business for selected                            bank for your customers
  segments with high                                                    No
  proportion of hyper-                        Yes
  connected customers
                          Improve your banking      Target a selected
                          relationship with your    segment and create a
                          hyper-connected customers completely new banking
                                                    relationship
                                                                                   16

                    2012 Financial Breakthroughs
TO GO FURTHER




                                       17

        2012 Financial Breakthroughs
Read our whitepaper
If you want to get more information, you can download our new
whitepaper:


Impact of Hyper-connectivity on Retail Banking




                                                                18

                 2012 Financial Breakthroughs
Or contact us
Financial Breakthroughs
Web : http://www.finthru.com
Twitter : http://twitter.com/FinThru



Frédéric Baud                                  Nicolas Guillaume
+33 6 4369 3724                                +33 6 1998 5765
frederic.baud@finthru.com                      nicolas.guillaume@finthru.com



                                                                               19

                    2012 Financial Breakthroughs

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Impact of Hyperconnectivity on Retail Banking - BarCampBankParis7

  • 1. Impact of Hyper-Connectivity 176.6.68.33 on Retail Banking 28 January 2012 Paris 2012 Financial Breakthroughs
  • 2. WHAT ARE FINANCIAL BREAKTHROUGHS? 2 2012 Financial Breakthroughs
  • 4. 10 YEARS ON AFTER INTERNET BANKING “BIG BANG” 4 2012 Financial Breakthroughs
  • 5. The continuing success of universal banking • Definition: universal bank here as a bank trying to offer all type of services to its customers (not necessarily to all type of customers) • Sitting on a network of branches and ATMs • Offering an online access • And a mobile access, even if reluctantly • Always wondering if a customer does not cost more than the revenue they generate • Terrible understanding of average and marginal costs 5 2012 Financial Breakthroughs
  • 6. Where is online today in Europe? • In Europe, use of online banking varies by region: • 62%-77% of banking users use online banking in Northern Europe • 35-54% in the core of Europe (France, UK, Germany) • But less than 32% in Southern Europe • But these online users are on a majority users of the online interface of their branch bank • And they are mildly interested by what they are offered: • Only half of the online users are interested or very interested by online banking in Germany 6 2012 Financial Breakthroughs
  • 7. WHAT IS CRITICAL IN THIS GAME? 7 2012 Financial Breakthroughs
  • 8. Daily Banking • Deposits, payments, management of balance • First Bank & Second Bank • First Bank is the hub of client’s financial life • Second Bank is a bank account specialized for specific services (savings, investments, credits) • Average cost is much higher than marginal cost, bringing a constant pressure downward • even if competition pressure is particularly low • Barriers to entry (legal and capital requirements) • Low interest of customers to use their bargaining power • Complexity of the field • Only downright collusion can avoid this economic structural 8 imbalance pushing prices downwards 2012 Financial Breakthroughs
  • 9. Why this relationship is difficult: • Banks always trying to bring back daily banking revenue back to average cost • Hold-up fees • Illogical fees • Customers not perceiving the value of the service • Why should I pay since you use my money for other things? • Why should I pay since other banks would be happy to have me as a customer? • Why do you have to read evey fine print lines? 9 2012 Financial Breakthroughs
  • 10. Banking Business Models • Universal banking • Propose every type of banking services to their customers • Offer daily banking for a low cost (free for “good” customers), because they cover the cost with the other services • Specialized banking • Propose a selection of banking services (e.g. savings, invesments, credits) • Offer a usually limited version of daily banking to increase value of their proposition 10 2012 Financial Breakthroughs
  • 11. WHAT HYPER-CONNECTIVITY BRINGS TO THE TABLE? 11 2012 Financial Breakthroughs
  • 12. What is hyper-connectivity? • 70% of EU-27 users have an Internet access • 19.7% of mobile users access Internet at least once a month in EU-5 (UK, France, Germany, Spain, Italy). • It’s no longer information when you need it, but as soon it is relevant. 12 2012 Financial Breakthroughs
  • 13. Why does it mean a very different relationship? • Customers sees value in information coming from the provider, it’s part of the service • Customer is not in an “infrequent – high value per encounter” relationship, but in a “constant – small value per items, but large value in total” relationship • Customer is no longer dedicating a fixed portion of their time to a specialized activity, but is executing a series of micro- tasks, consuming information, reacting to new elements, initiating new actions 13 2012 Financial Breakthroughs
  • 14. IMPACT AND STRATEGIES 14 2012 Financial Breakthroughs
  • 15. What is impacted? • User category • Cash flow neutral user constantly need to monitor their position • Daily banking • It is a recurrent and relatively frequent relationship • It is the highest value banking service • It badly needs to rebuild its relationship model 15 2012 Financial Breakthroughs
  • 16. What strategies for whom? Are you an universal bank Yes No Create a new line of Are you satisfied being a 2nd business for selected bank for your customers segments with high No proportion of hyper- Yes connected customers Improve your banking Target a selected relationship with your segment and create a hyper-connected customers completely new banking relationship 16 2012 Financial Breakthroughs
  • 17. TO GO FURTHER 17 2012 Financial Breakthroughs
  • 18. Read our whitepaper If you want to get more information, you can download our new whitepaper: Impact of Hyper-connectivity on Retail Banking 18 2012 Financial Breakthroughs
  • 19. Or contact us Financial Breakthroughs Web : http://www.finthru.com Twitter : http://twitter.com/FinThru Frédéric Baud Nicolas Guillaume +33 6 4369 3724 +33 6 1998 5765 frederic.baud@finthru.com nicolas.guillaume@finthru.com 19 2012 Financial Breakthroughs