Ten North American Retail Banking Ebusiness And

March 17, 2011

Ten North American Retail
Banking eBusiness And Channel
Strategy Trends To Watch In 2011
by Brad Strothkamp
for eBusiness & Channel Strategy Professionals

Making Leaders Successful Every Day

For eBusiness & Channel Strategy Professionals

March 17, 2011
Ten North American Retail Banking eBusiness And
Channel Strategy Trends To Watch In 2011
Ten Areas of Focus For The Next 12 Months
by Brad Strothkamp
with Carrie Johnson, Emmett Higdon, Peter Wannemacher, and Beth Hoffman

ExECuT I v E S u M MA Ry
Expect 2011 to be an exciting year in financial services, driven for the most part by the increasingly
important role of eBusiness and channel strategy professionals. The rise of smartphones, the effects
of government regulations, and a morphing branch are driving strategic initiatives and innovation in
eBusiness as well as in other channels. At the end of 2011, we expect to look back at the year in financial
services eBusiness and channel strategy and see a more differentiated mobile offering, more robust
cross-selling efforts, and exciting new revenue streams for the industry.

TABl E o F Co N TE N TS N oT E S & RE S o u RCE S
2 Technologies And New Regulations Morph Forrester interviewed four vendor and user
Retail Banking Business Models companies: American Express, SNS Bank, uSAA,
3 2011 Will Be The Year Of Mobile And Website and Cardlytics.
Refinement
Related Research Documents
“uS Mobile Banking Forecast, 2010 To 2015”
January 31, 2011
“Case Study: How SNS Bank Put The Web At The
Heart of Its New Multichannel Strategy”
october 4, 2010
“Case Study: uSAA uses Social Media To Drive
Sales, Product, And Service Strategies”
March 12, 2010

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based on best available resources. Opinions reflect judgment at the time and are subject to change.

2 Ten North American Retail Banking eBusiness And Channel Strategy Trends To Watch In 2011

TechNOlOgieS AND NeW RegulATiONS MORph ReTAil BANkiNg BuSiNeSS MODelS
2010 was a rebuilding year for retail banking, credit cards, and lending, and 2011 promises to be a
robust year for the industry. The key drivers? An improving economy, a winding down of the mergers
of years past, and new technologies that are taking hold with consumers. Across channels, Forrester
believes that the following key consumer trends will drive change and innovation in the industry:

· The explosion of smartphones drives mobile adoption. At the end of 2009, 17% of US
mobile phone subscribers owned a smartphone, and that percentage is likely to grow with the
continued uptake of smartphone devices. The impact of this change is no more evident than in
the mobile banking arena, where one-quarter of mobile bankers are smartphone owners, which
is more than double the proportion of online US adults overall.1 As smartphone ownership and
use continues to grow, so, too, will the device’s impact on the industry.

· New regulations cause a rethinking of business models. The third of Isaac Newton’s laws of
motion states that every action is accompanied by a reaction of equal magnitude but opposite
direction. Newton would be happy to know this physics law is alive and well in financial services.
A major result of the rash of government regulations in 2010 was an inevitable response from
the industry to seek new revenue opportunities. One such response is a renewed focus on cross-
selling that is evident in the strategies of even the largest banks like Bank of America. Forrester
foretold this change in 2009, but the movement will continue to affect the industry in 2011 and
beyond.

· The face of branches is changing as digital channels grow. The rise of digital channels is
leading to a change in focus for the branch channel. US adults have twice as many interactions
with the online channel and 50% more interactions with the ATM than they do in person.2 But
the branch has an important role in financial services. Consumers still turn to the branch and
other offline channels to purchase a majority of products.3 The result is specifically a rethinking
of the role of the branch and a wave of “branch of the future” efforts. In 2010, Citibank, Bank of
America, and Royal Bank of Canada unveiled new branch concepts.4 The key themes among all
of them are greater use of technology, a focus on selling, and a diminished role for transactions
at the branch. SNS Bank in the Netherlands provides a glimpse of this future branch in practice,
where the branch focuses on sales and digital channels are at the heart of the design.5

· Trust issues plague the industry and hinder strategy. The last few years have done nothing but
exacerbate the mistrust that consumers have toward the financial service industry. That mistrust
shows up in customer advocacy scores that are mediocre at best for some of the biggest financial
service players. It rears its head in strategy and in the success or failure of key business objectives
including social strategy, cross-selling, and customer retention.6 USAA has been successful at the
development and rollout of its social strategy and at deepening relationships with its customers,
but at the center of its success is a customer base that for years has ranked the firm at or near the
top in customer advocacy.7 eBusiness and channel executives need to monitor customer
sentiment as the leading indicator of success or failure in key channel objectives.

March 17, 2011 © 2011, Forrester Research, Inc. Reproduction Prohibited

Ten North American Retail Banking eBusiness And Channel Strategy Trends To Watch In 2011 3

· The return of the lending business drives potential shoppers. The Federal Reserve recently
updated its economic forecast and GDP for 2011.8 This increase in GDP, coupled with a reduced
unemployment rate and continued recovery of the banking sector, will lead to increases in lending.
This increase is already evident in areas like credit cards, where direct mail offers were up 96% in
2010 over 2009.9 An increase in lending will have an impact on eBusiness specifically since a large
proportion of online US adults who purchase financial products research them online. In 2010,
50% of online US adults who applied for a credit card researched that card online.10

2011 Will Be The YeAR Of MOBile AND WeBSiTe RefiNeMeNT
2010 involved a lot of merger-related activity, the launch of mobile services for dozens of banks, and
the continued push into new web functionalities like personal financial management (PFM). In
2011, a reduction in merger integration activity, further investments in the eBusiness channel, and
new technologies will continue to elevate the role of eBusiness and channel strategy professionals
within retail banking organizations. To keep on top of what is happening, eBusiness and channel
professionals should track the following strategic trends in 2011:

1. Social continues to weave its way into eBusiness strategy. In 2010, social tactics stepped out
of the marketing realm and began playing a role in several facets of eBusiness, including online
sales, product development, customer service, and account management. As social continues
to leak outside of marketing, eBusiness and channel strategy professionals will increasingly face
the challenge of defining strategies that leverage socially connected consumers. The question
that eBusiness executives should ask themselves is where the voice of the customer can play a
role in aiding a business problem or the consumers they serve. American Express’ OPEN online
community is an example of this: American Express has run small business networking events
for years based on small business owners’ desire to learn from each other. Adding an online
community component to that offering was a natural extension of the strategy.11

2. The evolution of mobile banking continues. 2010 was primarily about launching the basics
in mobile services. From a consumer’s perspective, this is not enough to drive the adoption, as
redundancy with web-based channels is an obstacle to usage.12 2011 promises to be the year
in which eBusiness professionals create separate and differentiated mobile applications from
similar web-based services. For example, expect to see a dozen financial services firms follow
the lead of USAA and Chase in launching mobile remote deposit. In addition, firms will add
key online services not already offered via mobile devices like bill payment. Finally, we will
see the emergence of person-to-person payment services and a decoupling of mobile banking
enrollment from online banking. This enrollment decoupling will open up the possibility of
offering mobile services to consumers who don’t currently bank online.

3. Merchant-related mobile payments sit on the starting blocks. Mobile payments were a hot
media topic in 2010, but not all mobile payments are created equal. In 2011, bill payment
and transfers via mobile devices will undoubtedly increase as availability and utilization of

© 2011, Forrester Research, Inc. Reproduction Prohibited March 17, 2011


mobile services grow. Contactless payments will not have the same success. Contactless mobile
payments are being tested through numerous pilot programs in the industry, including Wells
Fargo and its recent announcement with Visa.13 But these types of mobile payments have major
impediments to success, including technology, merchant, consumer, and issuer issues. Lack
of clear standards, a solid business case, and unclear consumer benefits will keep this whole
segment of mobile payments on the back burner for 2011.

4. Bank- and card-sponsored PFM solutions explode. Standalone PFM solutions proved not to
be the answer that consumers were looking for. Intuit purchased Mint in 2009, Wesabe closed
its PFM doors, and several other standalone PFM tools ceased to exist. 2011 will be the year of
financial-firm-sponsored PFM. This year will bring a litany of better-integrated PFM solutions
that will take the next step toward online account management, where tools help transform
online banking from simply an information and transaction hub into solutions that help
consumers make better financial decisions. To get a glimpse of the future, eBusiness managers
need only look at Discover’s implementation of its Spend Analyzer tool, where account
information and online personal financial management are integrated and flow seamlessly
together to the benefit of the consumer (see Figure 1).

5. A litany of website redesigns go live. In 2010, Forrester ranked the public and secured sites
of almost 20 of the largest financial providers in North America. Results showed that only a
handful were achieving best practices sitewide. 2011 will bring a barrage of website redesign,
driven and likely funded by the eBusiness group. Redesigns that focus only on aesthetics and
fail to consider merchandising, application and fulfillment abandonment, feature integration,
and nomenclature will fall short of best-practice financial service websites like Geico, Discover,
and Royal Bank of Canada. On the flip side, expect to see best-practice firms follow the lead
of innovators like Quicken Loans in considering aspects of sales like purchase purpose and
customer segmentation in site strategies and designs (see Figure 2).

6. Onboarding enters the lexicon. Onboarding is a term that has been used for years at the branch
level, but a new breed of onboarding is brewing that uses the digital channel to make existing
strategies more robust. In 2011, eBusiness as well as other channels will consider their role in
onboarding, but with channel-specific implementations. To truly excel at onboarding, strategies
will need to be cross-channel in development and execution. Additionally, firms will need to
extend onboarding beyond welcome messages to include elements like first-time usage of online
services. Citi has extended onboarding to include elements like the initial login to the secured
site: A customer who recently applied for a deposit account and is signing in to his account
receives a message again thanking him for his recent purchase and encouraging him to enroll
for rewards (see Figure 3).

7. eBusiness becomes the focal point of cross-sell execution. Fee income pressure is driving the
need to deepen relationships and therefore profitability of existing customers. No other channel



has as many ongoing “touches” with the customer as the online and mobile channels. These
touches require the eBusiness executive to take the lead in cross-sell execution. In 2011, we
expect the eBusiness channel manager to get more pressure from the organization to provide
cross-sell execution options. It will be important for eBusiness professionals to think outside the
advertising banner box to find more innovative ways of leveraging the millions of customers
they are responsible for. On the flip side, eBusiness executives will look to their web analytics,
interactive agencies, and technology vendors to offer innovative sales solutions that think
beyond the “known” to maximize cross-selling.

8. Merchant-funded rewards provide a unique revenue opportunity. The secured site of financial
services companies has always been sacred ground, reserved only for cross-selling internal
products and services — but that is about to change. In 2010, a handful of companies, including
Cardlytics, BillShrink, and Segmint, were in development or pilots with a set of services that
promised revenue for financial services companies by leveraging their customers for merchant-
funded rewards. In 2011, new entrants will emerge, pilots will become launches, and business
models will be tweaked. The outcome is one of the most interesting revenue opportunities for
financial services companies in a while. eBusiness professionals will be at the forefront of this
effort, as online users and their transactions that drive the value of the solution are the same
online users that eBusiness deals with everyday.

9. The branch continues to digitize and specialize. In 2010, Citi opened its first “smart branch”
in New York City. The branch concept, which is an import from Asia, has a digital heart in
its center built around the Web, mobile, and video to woo a new generation of consumers.
eBusiness and channel strategy professionals will be key players in this bold new branch world,
where the branches combine the physical with digital elements and the focus shifts from service
to sales. SNS Bank in the Netherlands takes the “smart branch” to the next level by rethinking
the entire role of the branch as well as the measurements of success. Again, digital technologies
are at the heart of the branch, including connections to the website to research and purchase
products as well as PCs that are dedicated to setting up appointments with advisors.14

10. Tablet devices find their footing. Forrester projects tablets (as a share of total PC sales) to
nearly quadruple from 2010 to 2015.15 eBusiness professionals will not make strategic decisions
about tablets in 2011 because most financial services firms have yet to answer questions
around the role of the tablet, who should own it internally, and what it allows in terms of
enhancing digital experiences. In 2011, eBusiness and channel strategy professionals should
follow Forrester’s advice to retailers and ensure that website pages and page elements render
well for tablet users.16 At the same time, eBusiness teams should begin exploring the unique
benefits of the device but not lose sight that the website and PC will still be the primary access
method this year. They should not take focus away from offering the functionality and user
experience that customers expect online versus a killer iPad application.



figure 1 Discover’s Spend Analyzer Tool Is Completely Integrated Into The Secure Site

Discover’s Spend Analyzer
is integrated into the
account activity section of
the website and provides
access to transactions from
within the tool.

Source: Discover website
58754 Source: Forrester Research, Inc.



figure 2 Quicken loans’ Menu Structure Reflects A Multidimensional Customer view

Quicken Loans’ navigational
scheme navigates users by
purpose (i.e., buying a home)
and then by segment (i.e.,
rst-time homebuyer) within
the same menu structure.

Source: Quicken Loans website



figure 3 Citi Extends onboarding Into The Experience of The First-Time online user

Source: Citi website

eNDNOTeS
1
Owners of smartphones are more likely to use or be interested in virtually all mobile financial services
functionality. Twenty-five percent of smartphone owners are mobile bankers — more than double the
proportion among US online adults overall. See the July 12, 2010, “What Financial Functionality US
Consumers Want On Mobile Devices” report.
2
Online bankers use their bank’s website more than 40 times per year, making it by far the most frequently
used banking channel among those who use it. See the July 26, 2010, “How US Banking Customers Use
Different Channels” report.
3
Forrester data continues to indicate that across a range of financial products, direct sales are just one facet of
the role the Web plays in acquisition. A larger piece is the percentage of consumers who research online but
apply offline — a segment we call cross-channel shoppers. See the November 20, 2009, “Online-Influenced
Sales Exceed Direct Sales In Financial Services” report.
4
Source: Grant Robertson, “RBC Takes A Bite From Apple Stores,” The Globe and Mail, October 24, 2010.



5
A lean, cashless branch network forms a physical extension of the Web. See the October 4, 2010, “Case
Study: How SNS Bank Put The Web At The Heart Of Its New Multichannel Strategy” report.
6
The more positively consumers agree with the statement “I trust financial service companies to treat me
fairly and honestly,” the more likely they are to be open to engaging with those firms via social sites. See the
October 7, 2010, “How US Financial Firms Should Approach Interacting With Consumers On Social Web
Sites” report.
7
As in past years, USAA leads all firms in our 2010 rankings. Most of the other firms in the top quartile
are property and casualty (P&C) firms, as well, including perennial high performers State Farm Mutual
Automobile Insurance and Geico. See the January 29, 2010, “Customer Advocacy 2010: How Customers
Rate US Banks, Investment Firms, And Insurers” report.
8
At a recent Federal Open Market Committee meeting, participants also updated their economic forecasts.
They see a modest upgrade to GDP in 2011 to 3.3% to 3.6% from the 3% to 3.6% projected in November
2010; forecasts for 2012 and 2013 were little changed. Source: Jonathan Granby, “Fed Ups 2011 GDP
Forecast But Maintains Dovish Outlook on Inflation, Jobs,” DailyFX, February 17, 2011 (http://www.dailyfx.
com/forex/market_alert/2011/02/17/Fed_Ups_2011_GDP_Forecast.html).
9
One source, Synovate’s Mail Monitor, puts the total number of credit card solicitations worldwide at
2.73 billion — a 96% increase over 2009. Source: Mark Huffman, “Credit Card Offers On The Increase,”
ConsumerAffairs.com, January 27, 2011 (http://www.consumeraffairs.com/news04/2011/01/credit-card-
offers-on-the-increase.html).
10
Of online US adult credit card applicants who researched a credit card, 50% researched that credit card
online. Source: North American Technographics® Online Benchmark Survey, Q2 2010 (US).
11
In 2001, American Express OPEN began planning and hosting networking events for small business
owners across the country. These were offline, live events with two phases: a forum where small business
owners networked with each other, followed by speeches from experts and success stories from fellow
small business owners. In 2006, American Express began developing OPEN Forum, an online variation
on networking events for small businesses. See the March 11, 2011, “Case Study: American Express OPEN
Capitalizes On Small Businesses’ Craving For Community” report.
12
The vast majority of US mobile banking applications today offer customers a subset of the functionality
found on the bank’s online site. This simple repetition of functionality fails to differentiate the mobile
channel and results in customer apathy, with customers failing to see any value in mobile banking and
being content to wait until they can access the same features through another channel. See the January 31,
2011, “US Mobile Banking Forecast, 2010 To 2015” report.
13
Wells Fargo is rolling out its Visa microSD mobile payment pilot. This San Francisco-based pilot will
include 200 Wells Fargo team members who are also users of specific BlackBerry smartphones and
iPhone models. Source: “Wells Fargo To Rollout Mobile Payments Pilot; Visa Demonstrating Capability
At CARTES 2010,” Visa press release, December 7, 2010 (http://corporate.visa.com/media-center/press-
releases/press1084.jsp).



14
Every SNS shop provides kiosks with touchscreen interfaces where customers can research product
information. Customers who want to buy simple products like savings accounts directly in the shop can
do so on terminals that connect to SNS Bank’s website — but with the assistance of branch personnel if
required. See the October 4, 2010, “Case Study: How SNS Bank Put The Web At The Heart Of Its New
Multichannel Strategy” report.
15
Catalyzed by the introduction of the Apple iPad, the tablet market will kick off with a modest 3.5 million
units sold in the US in 2010 but will grow at a whopping 42% compound annual growth rate (CAGR)
between now and 2015. See the June 17, 2010, “The US Consumer PC Market In 2015” report.
16
To that end, retailers need to ensure that all pages, transaction forms, and form fields render as well from
tablet devices as they do from any other browser. Given the increasing profusion of browsers and closed-
end environments across PCs, tablets, and phones (driving what we call the Splinternet), simplicity in web
page development is essential to help simplify the QA process overall. See the January 31, 2011, “Five Retail
eCommerce Trends To Watch In 2011” report.


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