EFMA 2011 Growing CRM Role

The Expanding Role
of E-Channels
in CRM
May 2011

Best practices in retail financial services
more information on www.efma.com

Contents
04 Executive Summary

07 E-Channel Availability and Use

16 E-Channels and CRM

24 E-Channels Strategy

24 Operation of E-Channels

35 Benchmarking of Services and Capabilities

38 About the Research

41 About Us

T H E E X PA N D I N G R O L E O F E - C H A N N E L S I N C R M

Preface
We are happy to present you this third study in a series jointly developed by Efma
and Atos Worldline. The first and second study focused exclusively on the subject of
CRM, but this year we have taken a wider spectrum on the development of electronic
channels, and the impact this is having on the management of customer relationships.
Since the launch of Internet Banking in the 1990’s, there has been a steady growth
in the usage of electronic channels, driving transactions and sales away from branches
and gradually changing the nature of the bank’s relationship with its customers.
However, the rate of change has accelerated recently:
• Smart phones with advanced features and 3G or 4G access are widely used now,
enabling more sophisticated applications and a better customer experience.
• Broadband access for Internet is growing rapidly making it possible to offer services
like video conferencing, and much richer, personalized Internet banking experiences.
There is clear evidence that banks across Europe, as they emerge from the financial
crisis, are developing new products and services in order to anticipate and take
advantage of these trends. The nature of communication between banks and their
customers is therefore starting to change quite rapidly and banks need to be able to
experiment and adapt themselves in nearly real time.
There are some banks who are clearly leading in the area of e-channel services
offered, CRM capabilities used within the e-channels, and the overall e-channel and
CRM integration. All banks are making progress in this area but not all have been
able (or chosen) to keep up with the leaders. One of the big challenges is where to
prioritise developments in a cost-constrained environment.
This study is still focused on retail banking and we have maintained the dual
methodology that formed the success of the first two reports. Hence, it is based on
desk research as well as a quantitative survey and a qualitative survey. The quantitative
survey was conducted using an online questionnaire to banks, which resulted in 47
complete responses from 8 countries: Belgium, France, Germany, Netherlands, Poland,
Spain, Turkey and the United Kingdom. The qualitative survey included 17 interviews
with senior managers responsible for e-channels or CRM within their institution.

Julie Noir de Chazournes Patrick Desmarès
Head of Markets Secretary General
Business Marketing & Strategy Efma
Atos Worldline

3

Executive Summary
The availability of electronic channel services from banks varies quite considerably, and
there are differing views on the role of SMS banking and video conferencing, but the trend
is for a rapid increase in the provision of all services within the next 3 years:
• SMS alerts are the most common service offered by banks with 79% already
providing the service, but SMS banking is much less common with just 32% of banks
offering the service.
• Mobile banking is now being offered by 64% of banks but this is expected to
increase to 90% of banks within 3 years, with Mobile Internet and iPhone being
the most common applications.
• Mobile P2P and contactless payments are offered by only 15% of banks. This
proportion will grow to 61% and 64% respectively within 3 years.
• Web meeting services like video conferencing and/or document or form sharing
are much less common; only 15% of banks offer this now and only 50% of banks
expect to offer this in the future.
• The use of social media (mainly Facebook and Twitter) is already relatively high,
being offered by 38% of banks, and the use of these channels is expected by 76%
of banks within 3 years.

The importance of electronic channels for marketing is expected to grow, but CRM
capabilities in electronic channels are still quite limited for many banks, hampered by the
lack of a single customer view and by the lack of customer contact details and marketing
permissions:
• Pre-planned marketing communications are expected to shift even further from Direct
Mail to Email and SMS – from 29% of communications now to 53% of
communications in 5 years.
• Only 53% of banks have a single customer view across channels, so 47% of banks
do not have this capability yet. One consequence is that customer based pricing is
used by only 52% of banks.
• Banks hold on average only approximately 35-40% of their customers email or
mobile details, and have marketing permission on average for only approximately
30-35%.
• The use of event-based marketing on the Internet has become very common, with
78% of banks doing this, but only 39% of banks are using event-based marketing
in the SMS channel.
• Similarly, the Internet is being used to get immediate customer feedback on
interactions by 63% of banks but only 20% of banks use SMS for feedback.
• Electronic channel use provides banks with even more, trackable information on
customers (e.g. web-browsing behavior) but there is little evidence yet of banks
putting this information to optimum use.

4


The development of new electronic channels has been haphazard for many banks and built
on to inflexible legacy systems, which means that integration is often quite low, but
investment in e-channels and integration of e-channels is likely to grow:
• Full integration of the front and back offices for electronic channels has been
achieved by only around 50% of banks; most of the other banks are focused on
incremental evolution and not renewal.
• However, the IT budget for electronic channels is expected to increase at 76% of
banks, and at 17% of banks it will strongly increase.
• In the current environment, costs are a big concern and most banks have optimized
electronic channel costs with an internal cost review. There has been some
externalization of development and one fifth of banks considered externalization of
hosting or use of software-as-a-service. Their primary reasons for considering
externalization of hosting would be to achieve a faster time to market with new
developments, to access up-to-date external know-how, and for cost efficiency relative
to internal costs.

Investment decisions have been relatively defensive for many banks and measuring return
on investment has been a major problem, but some banks have clearly taken a lead and
new innovation priorities are emerging:
• Our survey and interviews show that defensive factors are the most significant when
considering electronic channel investments, in particular retaining customers and
reducing costs. Of course, this is not a universal view and there are “challengers”
in each market who want to use electronic channels to attract customers away from
more established competitors.
• The priorities for innovation in electronic channels are personalization of the customer
experience, payments services and money management or financial advice related
tools. Perhaps surprisingly, community features do not appear to be a high priority,
and video conferencing is generating very mixed views.
• There is a very big difference between the leaders and the laggards in terms of
services and capabilities. Some of this is to do with deliberate strategic positioning,
but some is due to lack of investment or lack of vision for what can be achieved with
e-channels and customer relationship management.

5

In conclusion, we have found that banks in general are making good progress in terms
of introducing new channels and services, and developing new ways of managing
customer relationships. However, there is still much greater potential to use electronic
channels for gathering and analyzing more information about customers and their
behaviors. If this information is managed well, it should lead to a better understanding
of customers, more sophisticated behavioral segmentation and targeting of relevant
offers, and provision of an appropriate customer experience. However, to achieve
this and to improve their sales and service performance, banks will need to ensure
they are learning from the best-in-class e-commerce companies and not just other banks.

6


E-Channel
Availability and Use
Countries across Europe are at different stages of development in terms of Internet
access and Internet banking use. Figure 1 highlights some key measures for the 8
countries included in our survey. For example, 91% of households have Internet access
in the Netherlands but only 59% of households have Internet access in Spain. The
divergence in Internet banking use is even higher – in the last 3 months of 2010, 77%
of adults used Internet banking in the Netherlands but only 27% in Spain.

Interestingly, the ownership pattern of mobile phones does not match the use of Internet
and Internet banking. In mobile phone use, the Netherlands and Spain are quite
comparable, whereas France has a relatively low number of subscriptions per 100
inhabitants. The high level of ownership of mobile phones, even in those countries at
an earlier stage of economic development, make it an attractive channel for banks to
reach more of their customers, and a convenient channel for more of their customers
to use.

However, mobile phone use for banking is still relatively low - according to comScore,
8% of mobile users in the 5 largest EU countries (France, Germany, Italy, Spain and
the UK) accessed their bank accounts from their mobile phones in December 20101.

Use of Internet and Mobile in Europe
Figure 1

Mobile Phones
Internet Access Internet Banking Use
Per 100 Inhabitants

Note 1 2 3
Belgium 73% 51% 108
France 74% 53% 95
Germany 82% 43% 132
Netherlands 91% 77% 122
Poland 63% 25% 118
Spain 59% 27% 111
Turkey 42% 6% 88
United Kingdom 80% 45% 130

1. Percentage of households who have Internet access at home at end of 2010
2. Percentage of individuals using Internet banking in last 3 months of 2010
3. Mobile phone subscriptions per 100 inhabitants at end of 2009
Source: Eurostat

1 The comScore 2010 Mobile Year in Review

7

The growth in use of Internet banking has been relatively slow in the last 15 years,
since the launch of most services in the mid 1990’s (see Figure 2). This pattern needs
to be considered when we look at the potential usage of new types of e-channel
services.

Internet Banking Use Over Time in the UK and Spain
Figure 2

% of individuals using Internet banking in last 3 months of the year
(development curve fitted from 1995 which is assumed as the starting point)

50%
United Kingdom
40%

30%

20%
Spain
10%

0%
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10

Source: Eurostat

We have assumed that 100% of banks now offer Internet banking, so we focused our
survey questions on the availability of other e-channels and services (see Figure 3).
We found that:

• SMS alerts and mobile banking are the most common services currently provided,
and planned within the next 3 years.
• SMS payments and mobile payments (P2P or contactless) are not very commonly
provided currently but within 3 years should be available from around 60% of banks.
• Secure email and social network features are expected to be offered as channels
by over 70% of banks within the next few years.

8


• The least common service is live web meeting, currently offered by only 15% of
banks and planned by a further 36% of banks.

In our interviews we found a divergence of views on the role for SMS banking. Some
of the banks we spoke to felt that, having not been early movers with SMS banking,
it was now sensible to focus investment on a full mobile banking service with much
greater functionality. Other banks have found that SMS banking has been extremely
popular with their customers.

Services Provided By Banks – Current and Planned
Figure 3

Current Plan < 1yr plan 1-3 yrs

SMS alerts 79% 6% 6%

SMS payments 26% 15% 17%

SMS banking 32% 19% 17%

Mobile P2P payments 15% 9% 37%

Mobile contactless payments 15% 21% 28%

Mobile banking 64% 15% 11%

Live web meeting 15% 19% 17%

Secure email 45% 15% 17%

Social network features 38% 21% 17%

Source: Efma/Atos Worldline Survey

Rabobank MiniTix – Mobile Payments
A successful example of an Internet and mobile payments service is the online wallet
from Rabobank called MiniTix. It is a payment method that allows users to make
purchases immediately and easily, with low charges that are suitable for small payments.
Consumers can use MiniTix to make small purchases quickly and conveniently via the
Internet or mobile phone. It enables them to purchase a broad spectrum of products
and services such as downloading music or ordering a research report.
(Source: Rabobank)

9

The development of mobile contactless payments is less of an individual bank strategy
issue and more of an industry issue within each country, though some banks are going
it alone with pilot testing. For example, in the Netherlands, the 3 largest banks and
the 3 major mobile telcos have announced co-ordinated plans to widely introduce
mobile contactless payments in 2012. In France, after several trials, a larger scale
commercial deployment is taking place in Nice involving banks, mobile telcos,
transport operators and local government. By contrast in the UK, there have been no
significant mobile contactless payments developments as yet, although the roll-out of
contactless cards is continuing.

We asked banks to estimate the percent of their customer base using different services
(where those services were offered by the bank), both currently and expected in 5
years (see Figure 4). The key observations are:

• Customer use of the Internet channel is unsurprisingly higher than other e-channels
but is still only around 40%. This is expected to grow to nearly 70% in 5 years.
• Use of the SMS channel by customers is relatively low although it is expected to
grow to over 30% in 5 years.
• The role of the IVR channel is not expected to change at all in the next 5 years, with
around 25% of customers using it.
• Use of the mobile banking channel is expected to increase significantly from less
than 15% today to over 40% in 5 years.
• Secure email use is also expected to grow significantly to over 50% in 5 years.

Use of E-Channels by Customers
Figure 4

Current and Expected
Average % of Customer Base Using the Channel for Banking
(for those banks currently offering the channel)
66%
Current In 5 Years
56%

42% 44%

32%
27% 26% 29%

15% 14%

Internet SMS IVR Mobile Email

10


The growth in mobile banking services is linked to the growth in the use of smartphones
and phones with web browsing capability. According to comScore, in December
2010 in the 5 largest EU countries, 31% of handsets in use were smartphones (around
73m) and 61% of handsets in use had a web browsing capability2.

For the provision of mobile banking services, iPhone applications and Mobile Internet
applications are clearly the most important, and will continue to be so, although
Android applications in particular are expected to catch up (see Figure 5). Blackberry
and Mobile Windows 7 are likely to be offered by fewer banks, and will be less
commonly used by customers (see Figure 6).

Sociéte Génerale
Mobile Development
Société Générale has been developing its multi-channel strategy for
the last 20 years by implementing innovative projects. Concerning
the mobile strategy it decided to offer a comprehensive mobile
banking application to its customers consisting of eight functions
including account checking, stock market access, geo-location of
branches and budget management. Launched mid 2010 on iPhone
and iPod Touch, the "Appli" now also supports Android devices.

A few of the banks we interviewed have made mobile a key feature of their strategy
– for example Rabobank in the Netherlands and La Caixa in Spain – and these banks
already offer mobile banking services on all applications and platforms. Several banks
are also quite advanced in their strategy and development of services for tablet devices
(such as the iPad), which opens up a new type of user interface for banking services.

The potential from mobile is a lot greater than just mobile payments and mobile
banking. In Spain, Banco Sabadell has recently launched a mobile application for
remote deposit capture by the scanning of cheques. Also in Spain, Bankinter has
developed an augmented reality application for identifying real estate for sale and
rent as the user moves down a street, and then providing supporting information as
required. In Turkey, Turkish Economy Bank is using mobile phones for its non-branch
sales force to take and complete credit card applications from new customers.

2 The comScore 2010 Mobile Year in Review

11

Current or Planned Provision
Figure 5

of Different Mobile Banking Applications

Current Plan < 1 yr Plan 1-3 yrs

iPhone 52% 20% 20%

Android 22% 36% 24%

Blackberry 24% 29% 20%

Mobile Windows 7 18% 27% 16%

Mobile Internet 66% 13% 15%


Expected Customer Use of
Figure 6

Different Mobile Banking Applications
Average Rank from 1 to 5
Where 1 is the Most Commonly Used

Mobile internet .............................. 2.3

iPhone application ......................... 2.3

Android application ........................ 3.1

Blackberry application ................... 3.6

Mobile Windows 7 application ........ 3.7


12


We have already noted that live web meeting is currently offered by only 15% of
banks and planned by a further 36% of banks over the next 3 years. There are strong
differences in opinion about video conferencing with some banks seeing this as key
to the future of relationship management, and others finding it ineffective and not
attractive to customers.

Looking at other interactive e-channels (see Figure 7), we can see that document push
and form sharing are expected to be used by around 50% of banks, but VoIP and
chat are less likely to be offered. The low interest in chat is quite surprising when you
consider that one bank we spoke to achieved a significant increase in web sales when
chat was introduced.

Current or Planned Provision of Different
Figure 7

Web Meeting Applications by Banks
Yes No

Video conferencing 54% 46%

Voice over IP 39% 61%

Chat 38% 62%

Form sharing 50% 50%

Document push 53% 47%


There is huge interest in social media from banks and the results of our survey reflect
this - 76% of banks are currently or intend to be present on Facebook, and 62% of
banks are currently or intend to use Twitter (see Figure 8). Garanti Bank in Turkey is
a good example of a bank which has actively used Facebook to promote its brand
and services – as of April 2011 there were 75,000 followers. It is expected that
professional networks like LinkedIn and Viadeo will be much less important.

13

Many banks are also now actively using social media to identify customer feedback
and service issues. Banco Sabadell is the first bank in Spain to use Twitter as a service
channel, promptly responding to any customer service issues. One large bank in the
UK told us it monitors Twitter to quickly find out if there are availability problems with
its Internet or mobile banking services.

YouTube is another “channel” which is being actively used by some banks. Again
Banco Sabadell is a leader in this context using YouTube to display a short video of
the making of an ad with Barcelona coach Pep Guardiola. This video has generated
90,000 views as of April 2011, and provided valuable brand promotion for the bank.
Some banks in the US are using YouTube to display customer testimonials, advice
videos, or copies of their TV ads.

However, there is still considerable uncertainty as to how banks should make the most
of social media. One banker we spoke to had the view that social networks will be
increasingly used for “customer self-care” and “customers advising customers”. Banks
need to be careful in this new area according to Philippe Wallez of ING Belgium who
pointed out that “social network users communicate peer-to-peer and push advertising
or promotion of the bank’s services may produce a negative reaction”.

Current or Planned Use
Figure 8

of Different Social Networks by Banks
Yes No

Facebook 76% 24%

Twitter 62% 38%

Viadeo 5% 95%

LinkedIn 20% 80%


14


First Direct –
Social Media and Marketing
First Direct ran a campaign to harvest all comments on the bank from
forums and blogs and stream these live on a First Direct microsite,
showing the positive versus negative balance at any time. Outdoor
media and online banner ads were used to promote this campaign,
and it was all linked to a “call to action” to switch to First Direct. They
achieved 64,000 visits to the microsite and measured an increase
in their differentiation from competitors and an increase in purchase
interest. Functionality to respond to customer comments has been
introduced on a 24/7 basis.
(Source: First Direct)

15

E-Channels and CRM
The development of e-channels has presented new opportunities for banks to improve
their customer relationship management but at the same time has created significant
new integration and co-ordination challenges. As we will explore later in the report,
some banks who are leaders in e-channel services offered, are not quite so advanced
in their customer relationship management capabilities and vice versa.

The single customer view

One of the critical problems in customer relationship management is how to get a
single customer view when the customer is using many different channels to interact
with the bank. Our survey results show that just over half of banks now have a single
view across all their channels including branches (see Figure 9).

For those banks without a comprehensive single customer view, we found that 70%
at least have a single customer view across branches and the Internet, which are
typically the most significant and most actively used channels. It is newer channels like
email, SMS and mobile which are less likely to be included.

Hence we can conclude that almost all banks do have some ability to look at the
customer from a broader (if not entirely complete) relationship perspective, but we
also should note that there is a difference between banks in terms of whether this is
updated in real time, overnight (which is quite common), or even more slowly. There
are also differences in the richness of the information which is being collected – the
latest challenge being the collection of data on web site usage including information
on which web sites customers have arrived from and which they leave to.

% of Banks with
Figure 9

a Single Customer View

53%
47%

Yes No

16


Our discussions with banks suggest that there is not a unanimous opinion that a single
customer view is critical but many banks have made it central to their customer
relationship management strategy. For example, in the Netherlands, SNS Bank has
taken a strategic approach in the last few years to deliver a single customer view
which now provides the platform for improved customer relationship management,
making it better able to provide relevant offers to customers.

Metro Bank is a recent start-up in the UK with a customer-centric business model.
According to a case study by Temenos, a key criterion for selecting a core banking
system at Metro Bank was “the proven ability to provide the bank with a real-time,
single view of the customer across all channels, which would permit employees to deal
with customer requests seamlessly and efficiently – without asking the customer, for
example, to provide the same information again and empowering employees to be
able to answer questions about all the products and services taken”3.

Customer and channel pricing

A single customer view makes it possible to offer customers pricing based on their
overall relationship with the bank, or based on profitability. Our survey found that
52% of banks were using some form of customer-based pricing (see Figure 10). It may
be that for some banks this is only offered to groups of customers, or only for asset
products (loans and mortgages) where pricing is based on risk rather than customer
relationship. However, there are a growing number of examples of banks offering
customer relationship based pricing such as LCL in France (see box) and Caixa Geral
de Depositos in Portugal.

% of Banks using
Figure 10

Customer-Based Pricing

52%
48%

Yes No

3 Breaking the Mould but Breaking the Malaise? Temenos, March 2011

17

LCL – Personalised Pricing
With “LCL a la Carte" a new customer composes a day-to-day
banking cart, by the user-friendly simulation on the Internet or with
his bank adviser in a branch, and benefits from permanent discounts
on the standard rate of each product. These discounts increase
according to the number of products and paying services subscribed
for and can represent up to a 20% saving on their total cost. If the
customer domiciles his income at LCL, he will benefit from a further
10% discount. The customer sees in real time, thanks to the simulator,
the cumulated cost of the services he selected. This new approach is
aligned with the LCL development strategy based on customer
knowledge, the quality of customer advice and the price transparency
that is now expected by all customers.
(Source: LCL)

There are widely varying approaches to charging for the use of different e-channels
and no particular patterns emerge (see Figure 11). The main observations from the
survey are:

• By far the majority of banks provide Internet banking and mobile banking services
for free.
• Charging for SMS alerts, which are offered by nearly 80% of banks, is split relatively
evenly between a flat fee, transaction fee, or not charged for at all. SMS banking
has a similar charging profile.
• In contrast, when charged for, SMS payments and mobile P2P payments are typically
charged for on a transaction fee basis. Mobile contactless payments (not offered
by many banks yet) are mostly free.
• Use of IVR is free for 52% of banks in the survey but the other 48% do charge, either
with a flat fee or with a transaction fee.

18


Method of Charging for E-Channel Use
Figure 11

Free Flat fee Transaction fee

Internet 71% 16% 13%

SMS alerts 34% 41% 24%

SMS payments 25% 13% 63%

SMS banking 36% 36% 27%

Mobile P2P payments 50% 0% 50%

Mobile contactless payments 71% 14% 14%

Mobile banking 89% 4% 7%

IVR 52% 19% 30%


The fact that mobile banking is generally a free service, similar to Internet, is actually
slowing down its development by some banks who are concerned about the business
case. The challenge for all banks is that more e-channels are being added, increasing
costs and complexity, but without clear revenue benefits. We will return to this issue
later in the report.

Use of e-channels for marketing and feedback

The big prize in customer relationship management is to be able to personalize the
customer offer or customer service, based on information held about the customer.
However, unless the customer visits the bank’s web site, it can be a challenge to contact
them with relevant offers.

According to the survey, approximately 50% of banks have email or mobile contact
details for less than 40% of their customers (see Figure 12). Once a bank has those
details, it is still necessary to have marketing permission from the customer. The survey
shows that more than 60% of banks have marketing permissions from less than 40%
of their customers (see Figure 13).

19

Customer Contact Details Held by Banks
Figure 12

Shown as % of banks holding different % levels of customer contact details
For example, 5% of banks have email and mobile contact details for 80-100% of their customers

% of
Banks
Email Mobile
40%
33%

30% 26% 27% 27%
22% 21%
20%
20%
14%

10%
5% 5%

0%
0-20% 20-40% 40-60% 60-80% 80-100%
% of Customers With Details Held by Bank

Marketing Permissions Obtained by Banks
Figure 13

Shown as % of banks holding different % levels of marketing permissions
For example, 13% of banks have email marketing permissions for 80-100% of their customers

% of
Banks
60% Email SMS
56%
50%
43%
40%
30%
18% 20% 21%
20%
12% 13%
10% 8% 6% 6%
0%
0-20% 20-40% 40-60% 60-80% 80-100%
% of Customers With Marketing Permission Given to Bank

20


It is very clear that banks expect marketing communications sophisticated customer relationship management. Ultimately,
to make a significant shift from direct mail to email and SMS more sophisticated event-based marketing will not be
in the next 5 years (see Figure 14). Within 5 years, 35% effective without good online sales processes. One bank
of communication is expected to be by email and 18% by we spoke to also highlighted the need to better understand
SMS. However, as we have already pointed out, banks the reasons for customers abandoning purchases when
currently hold a relatively low proportion of email and using the Internet.
mobile contact details for customers so achieving this will
be a challenge.It is worth noting that some banks have In general, banks emphasized the challenge of managing
focused their efforts on improving sales functionality in the and using all of the online data that can now be collected.
Internet channel rather than introducing new channels or To do this well, banks need to learn from leaders in other
investing in more sophisticated customer relationship industries like Amazon and Google. These companies are
management. Ultimately, more sophisticated event-based also at the forefront of mobile commerce and are learning
marketing will not be effective without good online sales fast about the potential from this new channel.
processes. One bank we spoke to also highlighted the need In general, banks emphasized the challenge of managing
to better understand the reasons for customers abandoning and using all of the online data that can now be collected.
purchases when using the Internet. To do this well, banks need to learn from leaders in other
It is worth noting that some banks have focused their efforts industries like Amazon and Google. These companies are
on improving sales functionality in the Internet channel also at the forefront of mobile commerce and are learning
rather than introducing new channels or investing in more fast about the potential from this new channel.

Mix of Marketing Communications
Figure 14

Current and in 5 Years
Current In 5 years
38%
35%
33%
27%

21% 20%
18%

9%

Direct Mail Direct Mail Email SMS
Statement Inserts Other


According to our survey results, event-based marketing on the Internet is already being
used by 78% of banks (see Figure 15), although some of the functionality and
personalization of this is quite basic. Event-based marketing is expected to increase
on SMS and mobile but it is still only likely to be in place for about two-thirds of banks
within 3 years. As an example of the potential from event-based marketing, RBS in
the UK has reported that its first stage development of Internet prompts resulted in
14,000 incremental online sales in the first few months4.
4 UK Retail Investor Round Table, RBS, November 2010

21

Turkish Economy Bank
Personalised Marketing
At the Efma Congress in 2010, Deniz Devrim Cengiz of Turkish
Economy Bank described how the bank had successfully used a
personalized outbound Email and SMS campaign to promote the use
of Internet banking for paying vehicle tax, with the offer of a free
vehicle check-up as an incentive.
(Source: Turkish Economy Bank)

It is worth noting that some banks have focused their efforts on improving sales
functionality in the Internet channel rather than introducing new channels or investing
in more sophisticated customer relationship management. Ultimately, more
sophisticated event-based marketing will not be effective without good online sales
processes. One bank we spoke to also highlighted the need to better understand the
reasons for customers abandoning purchases when using the Internet.
In general, banks emphasized the challenge of managing and using all of the online
data that can now be collected. To do this well, banks need to learn from leaders in
other industries like Amazon and Google. These companies are also at the forefront
of mobile commerce and are learning fast about the potential from this new channel.

Current and Planned Use of
Figure 15

E-Channels for Event-Based Marketing


Internet 78% 11% 9%

SMS 39% 13% 11%

Mobile 27% 20% 18%


22


The use of e-channels for customer service feedback is also likely to grow significantly
in the next 3 years according to our survey (see Figure 16) - 95% of banks will be
using the Internet for immediate service feedback and 67% of banks will be using
mobile for service feedback.

Current and Planned Use of
Figure 16

E-Channels for Immediate Customer Feedback


Internet 60% 21% 14%

Email 60% 16% 9%

SMS 19% 14% 16%

Mobile 23% 23% 21%


SNS Bank – Integrated CRM
SNS Bank’s award-winning, centralized marketing platform uses
customer records, transaction and interaction data from all channels,
and data from recent Web site visits to create personalized inbound
and outbound offers. This information is combined to make
personalized product and service offers online based on business
rules and predictive analytics. Customers also receive consistent and
personalized product offers via traditional outbound channels like
direct mail and during calls to the call center.5

5 How SNS Bank Put The Web At The Heart Of Its New Multichannel Strategy,
Forrester, October 2010

23

E-Channels Strategy
Our interviews with banks identified a range of different strategic approaches to e-
channels based on the bank’s country of operation, market position and a range of
other factors such as whether the bank is part of a larger pan-European group. What
makes sense for one bank does not necessarily make sense for another.

As we have already noted, different countries are at different stages of development
in terms of Internet and Internet banking use, and in some countries there is still much
more relevance for the branch network in day-to-day banking. Mobile phone use is
more common in all European countries than Internet use, but mobile banking is still
not being widely used. We interviewed banks in 6 countries and broadly speaking
we can say that they fall into 2 groups, with the first being more advanced and the
second being less advanced:
• Most advanced: France, Netherlands, Spain
• Least advanced: Belgium, Germany, United Kingdom

This situation becomes self-reinforcing in the short-term because once a few banks in
each country have introduced new services, other banks have to follow. Even so, within
each of these markets, there are clearly some banks that see themselves as leaders
and others who are content to be fast followers. There is no evidence to suggest that
a fast follower strategy puts the bank at a long term disadvantage. Most banks, even
fast followers, are aiming to differentiate from competitors with their e-channel strategy
but a significant minority of 32% is simply aiming to maintain parity (see Figure 17).

Competitive Objectives
Figure 17

of E-Channel Strategy
68%

32%

Differentiate Maintain parity

24


In each market, there are typically a handful of banks (anything from say 3 to 5) that
are long established and have significant branch networks. These banks are generally
trying to hold on to customers rather than acquire new customers and may be slightly
less aggressive than some of the medium size challengers in their market.

At the other end of the scale there will be several smaller, niche banks which might
be independent or might have a foreign parent. These smaller banks in general appear
not to be leaders in the development of e-channels. For example, one bank we spoke
to in this category felt that there was no demand for at least the next few years from
its customers for mobile banking services, so did not see the need to invest.

Management of e-channels

For the management of e-channels, most banks have either an independent department
or use the marketing department as the central point of coordination (see Figure 18).
In some cases responsibility is shared between the marketing department and a
delivery department. In less than 10% of banks, e-channels are managed by the IT
department. A critical issue is how best to avoid the conflict between channels,
particularly in terms of sales targets for branches, call centers and Internet banking.

An example of one successful approach comes from La Caixa in Spain which set up
an independent department to manage e-channels several years ago with its own P&L
account. eLa Caixa has successfully developed a range of online and mobile services
and consequently is the leader in terms of e-channels use in Spain.

Which Department is Responsible for
Figure 18

Management of E-Channels?

45% 45%

9%
2%

Independent Marketing IT Other

25

The survey respondents were split approximately 50/50 between those with a parent
company and those with no parent company. So for example, BNP Paribas Fortis in
Belgium has BNP Paribas in France as a parent company, whereas ABN Amro Bank
in the Netherlands does not have a parent. We found that for banks with parent
companies, only 22% have their e-channel strategy and supplier contracts dictated
by the parent, whereas 78% are free to make their own decisions (see Figure 19).
We believe this is likely to change because there is a clear trend towards larger pan-
European groups, and also a trend for these groups to centralize some aspects of their
IT and operations in order to gain the benefits of economies of scale.

Does the Parent Company
Figure 19

Dictate E-Channel Strategy?
78%

22%

Yes No


Investment criteria for e-channels

In trying to understand the most important factors driving investment decisions in e-
channels we have identified 2 different types of criteria or metrics:
• Financial-related: increasing return on investment, increasing revenues and reducing
costs
• Customer-related: acquiring new customers, customer retention and cross-selling

Figure 20 illustrates that the most important factor being considered for the investment
in e-channels is customer retention, and the least important factor is return on
investment. This may seem quite surprising but many of the banks we spoke to
acknowledged that measuring the return on investment in new channels was extremely
difficult, and in general there was no choice but to make the investment in order to
meet customer expectations. Another metric that was mentioned in our interviews was
customer satisfaction, which would then reflect in customer retention and cross-sales.

26


One major bank we interviewed which is a leader in developing new channels,
admitted that the “fear of losing customers” was a key driver of their strategy. Another
bank said that “multi-accessibility, anytime to customers is a vital condition for more
satisfied and more loyal clients, to whom more products can be more easily sold”.

A growth oriented factor such as attracting new customers is generally believed to be
relatively less important, whereas cost reduction is the second most important factor.
Again this emphasizes the bias towards e-channel investment being somewhat
defensive rather than offensive in nature, although attracting new customers was more
important for some of the “challengers” in the market who were starting with a
relatively low market share.

Importance of Various Factors
Figure 20

in E-Channel Investment Decisions
Average scores on a scale of 1 to 10, where 10 is extremely important

Financial Related
- Customer Related
-

8.00 8.09
7.57 7.57
6.68 6.85

Increase Increase Reduce Attract new Retain Cross-sell
return on revenues costs customers customers or up-sell
investment


The migration of transactions from branches to e-channels is a long term trend which
is already very well developed in many countries. Banks will normally have some sort
of target for channel migration. RBS in the UK has recently reported publicly the
contribution of channel migration to the reduction in branch workload in the 12 months
to August 20106. Of the total 17% reduction in branch workload in that period,
channel migration accounted for 20%. However, the largest contributor was the
6 UK Retail Investor Round Table, RBS, November 2010

27

adoption of lean processing techniques which accounted for around 60% of the
reduction.

The challenge for banks is how to prioritize investment that inevitably will need to be
made at some point. This should start with a clear understanding of the target customer
segments, and the changing customer behavior and expectations in those segments.
A baseline prediction of trends for the next 10 years should be made but these trends
also need to be monitored closely because there is still a lot of uncertainty in how
customer behavior is changing.

The full range of potential channels and services then needs to be articulated and
some sense of relative customer demand for these services developed. The strategies
of the primary competitors with respect to these services needs to be predicted, as
does the potential impact on customer retention and cross-sell from not being a first
mover.

A road map needs to be created to work out what core infrastructure development
will be required in the next 5-10 years, and what services should be phased in and
when. The bank also needs to consider how much to invest in different customer
segments – for example mass market, affluent market and small business – and how
much to invest in sales processes and how much to invest in service processes.

This whole exercise is extremely complex and difficult but without a clear vision, it is
unlikely that a successful strategy will be implemented. Ultimately, online sales and
online transaction migration will be key drivers of the cost benefits and hence the
return on investment, but the benefits from retaining customers who might otherwise
have been lost will be a key factor and difficult to measure accurately.

Innovation in e-channels

Increasing the number of channels and migrating transactions from branches and call
centres are clearly basic objectives in any e-channel strategy, but where is the
innovation taking place? We asked banks to rate the importance of different aspects
of innovation and found that personalization of the customer experience was the most
important area of focus (see Figure 21).

Payment services are the second most likely area for innovation reflecting the potential
for new mobile contactless and P2P payments. This is followed closely by tools which
can enhance the customer relationship such as money management, automated
financial advice and account aggregation. Perhaps surprisingly, the areas of least
importance for innovation are community features and video conferencing.

28


Relative Importance of Future Innovations in E-Channels
Figure 21

Average scores on scale of 1 to 10, where 10 is the most important

Personalisation of the customer experience 8.0

Payments services 7.7

Money management tools 6.8

Automated financial advice 6.4

Account aggregation 6.3

Add-on non-financial applications 5.6

Community features 5.4

Video conferencing 5.1


Innovations in the areas of money management tools, account aggregation and
automated financial advice are to some extent related and several examples are
emerging in Europe, including:

• Banco Sabadell is extending its online banking with a free service that lets customers
make a detailed analysis of their expenses and income at any time, broken down
by categories and comparing them with other months, or with the same period of
the previous year. According to Manuel Tresánchez, Director for Personal Banking
at Banco Sabadell, “with this new service we are taking a giant step forward in our
strategy of rewarding customer loyalty by offering useful, value-added services that
make it easier and more convenient for customers to manage their transactions with
our bank”.

29

• BBVA’s tú cuentas service aggregates financial information, not just from BBVA, and
also non-financial information such as electricity and phone bills. Information is
categorised and presented more visually, providing customers with an instant
snapshot of all their finances to better understand what they are spending their money
on. The service also then offers the user personalised advice based on knowledge
of their tastes and preferences. This can include more sophisticated options which
use artificial intelligence to help find opportunities tailored to the customer’s
preferences and needs.

Several banks talked about the continued “digitization of the customer relationship”
as the critical future trend and one of the leading European banks spoke of the need
to keep investing in pilots of new services because it is unclear what the future “cash
cow” will be for banks.

30


Operation of E-Channels
The effective operation of e-channels is critical given the increasing complexity they
add to the bank’s business and the impact on customer service when things go wrong.
Since the introduction of Internet banking in the 1990’s, for many banks there has
been a haphazard approach to development by adding more and more pieces onto
existing legacy core banking systems. In contrast, newer start-up banks, have been
able to build their multi-channel capabilities from scratch and have achieved better
integration.

According to our survey, only around one half of banks have fully integrated their e-
channel back and front offices. Around one fifth of banks have not even achieved
partial integration (see Figure 22). There is no particular pattern in these results other
than to observe that many of the banks in Germany and the UK have not achieved
full integration yet.

Stage of Integration of Back Offices
Figure 22

and Front Offices for E-Channels
Back Office Front Office
52%
45%

34%
30%
21%
17%

Yes No Partially Yes No Partially

For those banks who do not have fully integrated front and back offices, we looked
more closely at their stage of development (see Figure 23). This suggests that about
two-thirds of banks are in the process of incremental evolution (either study or
development) and one-third of banks are working on a complete renewal of their e-
channels infrastructure. A very small proportion of banks have no current development
plans.

31

Stage of Development for Back Offices
Figure 23

and Front Offices E-Channels
Banks Without Full Integration Currently

Back Office

No development plans 6%

Incremental evolution 22%
- study

Incremental evolution
- development 38%

Renewal
9%
- study

Renewal
- Development 25%

Front Office

No development plans 9%

- study

- development

Renewal
13%
- study

Renewal - development 17%


32


Most banks spend less than 10% of their IT budget on e-channels, but a significant
minority of banks is spending more than 15% (see Figure 24). Interestingly, it is some
of the largest banks in the most mature markets in Europe who are spending the highest
proportion of their IT budget on e-channels – perhaps a reflection of the need to
address the lack of integration due to incremental development in the past. Not
surprising is the fact that 76% of banks expect the IT budget for e-channels to increase
or strongly increase in the next few years, and no banks expect the IT budget to
decrease (see Figure 25).

% of IT Budget Spent on E-Channels
Figure 24

33%

25% 25%

10%
8%

< 5% 5-10% 10-15% 15-20% > 20%


Expectations for the Change in the IT Budget
Figure 25

for E-Channels in Next 2-3 Years

59%

24%
17%

0% 0%
Strongly Increase No change Decrease Strongly
increase decrease


33

While the costs of developing and maintaining e-channels are clearly increasing,
there also needs to be a focus on optimizing those costs. The most common ap-
proaches taken to reduce costs in e-channels have been internal cost reviews and
externalization of developments (see Figure 26). Other effective approaches such
as externalization of hosting (outsourcing) and Software-as-a-Service (SaaS) have
been considered by only around one fifth of banks.

The primary reasons for considering externalization of hosting would be to achieve
a faster time to market with new developments, to access up-to-date external know-
how, and for cost efficiency relative to internal costs (see Figure 27).

% of Banks Taking Steps to Optimise E-Channel Costs
Figure 26

Internal cost review 71%

Externalise developments 53%

Externalise hosting 21%

SaaS opportunities 24%


Primary Reasons for Considering Externalisation
Figure 27

of E-Channel Hosting
Overall position on a forced ranking of importance

Most Important 1 Time to market with new developments
2 Up-to-date external know-how
3 Cost efficiency versus internal costs
4 Potential for new technology maturity
5 Better Service Level Agreement
6 Benefits from up to date compliancy
Least Important 7 Secured hosting know-how


34


Benchmarking of Services
and Capabilities
The results of the survey clearly show that some banks are much more advanced than
others in terms of their electronic channels and customer relationship management
services and capabilities. We have organized the key benchmarks in the survey into
3 categories and shown the results in Figure 28. For some of the benchmarks we have
shown the current position as well as the position taking into account short term plans
(less than 12 months) because in practice, once the study is published, many of these
services will be available.

• E-channel services offered
A total of 9 services were listed and the top quartile of banks had 7, 8 or 9 of these
services either currently or in plan for less than 12 months. The bottom quartile of
banks typically offered only 1 or 2 of the services.
Two examples of leading banks with all 9 services are Rabobank (Netherlands) and
Banco Sabadell (Spain).

•CRM marketing and feedback capabilities
For this section we looked at the average customer contact details and marketing
permissions held by banks, and the use of event-based marketing and event-based
feedback for the Internet and SMS channels. Only 32 of the banks provided complete
responses for contact details and marketing permissions so it was not possible to create
an aggregated score for all of the banks in the survey.
Two examples of leading banks in each of these areas are Turkish Economy Bank
(Turkey) and ABN Amro Bank (Netherlands).

•E-channel and CRM level of integration
There were 3 questions related to this issue: whether the bank has a single customer
view and whether the front and back offices for electronic channels are fully integrated.
Only 33% of banks gave a positive answer to all 3 of these questions, and 35% of
banks could not give a positive answer to any of them.
Two examples of leading banks on these integration criteria are La Caixa (Spain) and
Societe Generale (France).

Overall we found that there is a very big difference between the leaders and the
laggards across each of these 3 benchmark categories of services and capabilities.
Some of this is to do with deliberate strategic positioning, but some is due to lack of
investment or lack of vision for what can be achieved with e-channels and customer
relationship management. Each bank needs to look at its own score on the benchmarks
and decide if its positioning is appropriate, relative to the leaders in Europe and
relative to its immediate peers.

35

Benchmarking of Services and Capabilities
Figure 28

Current
Current Plus
Plan < 1yr
E-Channel Services Offered
% of banks with each service
SMS alerts 79% 85%
SMS payments 26% 41%
SMS banking 32% 51%
Mobile P2P payments 15% 24%
Mobile contactless payments 15% 36%
Mobile banking 64% 79%
Live web meeting 15% 34%
Secure email 45% 60%
Social network features 38% 59%
Number of services offered 0-1 26% 15%
(from the list above) 2-3 28% 17%
4-5 32% 28%
6-7 11% 26%
8-9 4% 15%
Total 100% 100%
CRM Marketing and Feedback
Contact details held Email 41% n/a
(% of customers) SMS 34% n/a
Marketing permissions held Email 34% n/a
(% of customers) SMS 29% n/a
Using event-based marketing Internet 78% 89%
(% of banks) SMS 39% 50%
Using event-based feedback Internet 60% 83%
(% of banks) SMS 19% 33%
E-channel and CRM Level of Integration
% of banks
Full e-channel integration Back office 45% n/a
Front office 52% n/a
Single customer view across all channels 53% n/a
Number of integration questions answered "yes" 0 35% n/a
1 15% n/a
2 17% n/a
3 33% n/a
Total 100% n/a

36

About the Research
The survey was conducted between October and December 2010. We received
complete responses from 47 banks from 8 different European countries – Belgium,
France, Germany, Netherlands, Poland, Spain, Turkey, and the UK. The profile of
survey respondents is set out below. In addition, we carried out 17 face-to-face and
telephone interviews with banks between January and March 2011.

Survey Respondents
Figure 29

with a Parent Company
23 24

Yes No

Survey Respondents
Figure 30

by Number of Employees
20

15
12

1-5,000 5,001-10,000 >10,000

38


Survey Respondents by Number of Customers
Figure 31

17

12

7
6

3
2

50,001 - 250,001 - 500,001 - 1m - 2m 2m - 5m >5m
250,000 500,000 1,000,000

Notes on the Analysis of the Quantitative Survey Results

The question on current and expected use of e-channels by customers provided 5
response options: 0-20%, 20-40%, 40-60%, 60-80% and 80-100%. The average
across banks has been calculated by taking the mid-point of these ranges, for example
0-20% would be 10%.

The same approach has been used for calculating the average customer contact details
and customer marketing permissions held, which is shown in the benchmarking table
in Section 7.

39


About Us
European financial marketing association
Efma promotes innovation in retail finance in Europe by fostering debate and
discussion among the main players involved in change. Formed in 1971, Efma
comprises 2,450 different brands in financial services worldwide today, including
80% of the largest European banking groups. Through regular events, publications,
and its comprehensive website, the association provides retail financial service
professionals with answers to their questions about the main issues at stake in their
business: multiple distribution strategies, customer approach, CRM, product and service
marketing and improving profitability. Efma is above all a dynamic association,
providing a great opportunity for discussion and exchanges without any commercial
constraints. It provides its members with a wide range of exclusive services as well
as discount rates on non-gratuitous activities. The loyalty of its members as well as
their permanent financial support are the best proof of its efficiency.
www.efma.com

Atos Worldline

Atos Worldline brings together Atos Origin's core expertise in hi-tech transactional
services. A leader in end-to-end services for critical electronic transactions, Atos
Worldline is specialised in electronic payment services (issuing, acquiring, terminals,
card and non-card payment solutions & processing), eCS (eServices for customers,
citizens and communities) as well as services for financial markets. Atos Worldine’s
on-going commitments to research and innovation enable its customers to benefit from
award-winning solutions in areas such as mobile payments, secure IPTV, online CRM
and paperless solutions. Atos Worldline generates annual revenues of €867 million
and employs over 5,400 people worldwide.
www.atosworldline.com
dircom-atosworldline@atosorigin.com

About the Author
Michael Pearson is a strategy and corporate development expert with 25 years’
experience working for and advising financial institutions worldwide, developing new
ventures, and investing in start-ups. Michael founded Clarus Investments in 2006 to
invest in early stage ventures, with a particular focus on financial services and then
set up Clarus Insight to report on trends and developments in financial services and
strategic management. Michael is also the author of the Efma report “Innovation in
Retail Banking” and provides advice on strategy to entrepreneurs and financial
services firms in developed and emerging markets. Michael has an MBA from Harvard
Business School.

41

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This report should not be reproduced or redistributed,
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THE EXPANDING ROLE
OF E-CHANNELS IN CRM

Best practices in retail financial services
more information on www.efma.com

EFMA 2011 Growing CRM Role

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