The Bank of the Future

The bank of the future

Kiev, June 4, 2013 Georges Massoud, Managing Partner McKinsey Ukraine

CONFIDENTIAL AND PROPRIETARY Any use of this material without specific permission of McKinsey & Company is strictly prohibited

2nd International Banking Conference & Exhibition

McKinsey & Company |

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1

Modern financial services revolution

SOURCE: Oracle; web search; McKinsey

The trend Primary financial industry implication Fact

Always online

▪  Smartphone becomes the integrated personal online multifunction device

▪  Mobile payment revolution in transaction industry

Global smart phone penetration will reach 50% by the end of 2019 and account for over 80% of banking relevant population

▪  Industry leaders get opportunity to make more and smarter data-based decisions

▪  Change in customer service model and data operations

“Every 48 hours in 2010, more data was created than in the past 30,000 years” /Eric Schmidt, Google/

Big data

“New” customers

▪  Customers are getting “over-informed” and finding new forms of emotional decision making

▪  Next generation PR, marketing and product customization

“Gen-Y customers demand exclusivity and personalized products. …[they] expect everything suited to their preferences”

Digital revolution

▪  Customers demanding increasingly faster and more convenient service

▪  The digital channel revolution

“Newest generation checks emails before breakfast and after going to bed” /Eric Schmidt, Google/


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2 SOURCE: Bank 2.0; McKinsey

Customers adopt tech enabled innovation faster than ever before

0.8

2.0

2.0

3.0

4.0

7.0

22.0

38.0

iPod (2001)

iPad (2010)

Groupon (2008)

Twitter (2006)

Facebook (2004)

Internet (1974)

TV (1928)

Radio (1902)

Years required to reach 50 mln units/users Years


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3

Death of the hour-glass – new generation customers simply do not want to wait

“Video on Demand consumption will increase to 9% of the TV viewing total by 2015 from 3% in 2008”

British Telecom to offer 300 Mbps fiber optic broadband 'on demand' in 2013 vs. the current average vs. the current UK broadband average of 7.6 Mbps

“And new job entrants are changing careers faster than college students change their majors, creating frustration for employers struggling to retain and recruit talented high-performers”

“On the average Web page, users have time to read at most 28% of the words during an average visit; 20% is more likely.”

SOURCE: bbc.com; USAToday; Enders Analysis; Harald Weinreich, Hartmut Obendorf, Eelco Herder, and Matthias Mayer: "Not Quite the Average: An Empirical Study of Web Use," in the ACM Transactions on the Web, vol. 2, no. 1 (February 2008), article #5.

Expected limit for waiting time for banking services are down from 15 minutes to 5 mintes in just 7 years


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4

Social media – important vehicle for information and advice

Social Media

Social networks

1

Micro- blogs

2

Media sharing

3

Social gaming

4

Discussion forums

5

Blogs

6

Reviews

7

▪  Register for communities to discuss specific topics, seek advice, and discuss mutual interests

▪  Evaluate and rate products and services based on personal experience

▪  Create individual blogs to discuss opinions and experiences based on daily life

▪  Sign up for a personal feed to broadcast activities and receive real-time updates (e.g., news, friends, celebrities)

▪  Upload, share, and comment on photos, videos, and audio to facilitate mass distribution of rich media

▪  Create personal profiles to facilitate keeping in touch, meeting new people, and sharing key interests

▪  Connect with friends and strangers to play and discuss popular games in the online space

SOURCE: McKinsey research


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5

Changing customer banking behavior – where is the bank?

Example of the day in a life of a mobile payments users

Tube ride Enable easy and convenient transit payment NFC (POS payment)

Purchase coffee Allow for quick purchase of coffee at local story through mobile prepaid card

Barcode (POS payment)

Pay pocket money Enable quick and paperless payment of a micro payment

Micro-payment

Transfer funds Enable secure and quick transfer of funds from an overseas account of a friend

Remittance

Pay a friend Quick and convenient way to make a micro payment to a friend after a meal

P2P payment

Account summary One-touch summary of account balances across all your accounts

Account aggregation

Pay plumber Convenience to pay plumber for fixing water pipe at home through portable card reader

SMB acceptance

Travel home Ability to pay easily for afterhours via mobile Authentication, micro-payment

Purchase gift online One click pay that is fast and secure via mobile for gift purchased online

1-click payment

Locate restaurant and pay bill

Allow for real-time location of a restaurant with ability to easily prepay the bill

Location, Coupon, Loyalty

Potential non-bank providers

SOURCE: McKinsey


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6 SOURCE: Forester; World Retail Banking Report survey of 41 banks, Finalta / EFMA Multichannel survey 2008, McKinsey analysis

Split of transactions by channel, Europe %

70

4230

19

29

28

25

1828

34

Branch ATM

5 4

2015F

2

2010F

34

5 2

Phone

Internet

Other

12

2005

2

9

2000

2

Over the next few years, mobile will become the predominant channel for banking services


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7

Top 200 iPhone financial applications As of Aug 2011 (subject to fast change)

SOURCE: Press search; Apple AppStore; McKinsey

Non-banks are clearly attacking banks in the smart phone space

54

100

100% =

Bank

Non-Bank

Paid

200

0

Free

200

46

Sample non-bank entrants Description of activity

▪  Square allows anyone to accept card payments using their smart phones

▪  TxtLoan provides a quick way to get a £100 loan for seven days via your mobile phone

▪  Moneyzoom provides an easy-to-use personal financial management tool

▪  Lending Club is a peer-to-peer lending platform for credit worthy borrowers & affluent lenders


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Opportunity is far bigger than just (mobile) payment

SOURCE: McKinsey; web search

Value-chain

Effect of mobile revolution

Examples

▪  Certain test applications support comparing local retailers

▪  Mobile phones are capable of contacting and navigating to retailers

▪  Mobile phones can compare prices, offers of different providers and also the opinions of other customers

▪  Purchase feedback can immediately be shared after transaction

▪  Experiences, opinions are shareable on social networks

Loyalty / returning customer

Purchase evaluation, feedback

Payment Purchase decision

Contacting / searching the deal

Price comparing sites

Map retailers

Search, evaluation of alternatives Decision making Transaction Post-evaluation

▪  Mobile phones are capable of real-time location based search

▪  Mobile payment

▪  Mobile phones are able to collect loyalty points and participate in other promotions

▪  Yelp helps to find the best retailer with evaluations

▪  Google Local collects information

▪  Google Maps plans routes

▪  RedLaser maps the best prices

▪  Foursquare is a place to share customer experience

▪  Swipely collects post sales discounts

▪  AroundM compares local stores and prices

▪  Tabbed-Out helps restaurant payment without waiting for the waiter

Generate demand

▪  Mobile phones are effective tools for image development and advertisement (location-based)

▪  Cellfire collects unique coupons and discounts

1 Considering commercial margin along the value chain

Bank penetration

Entire retail intermediary universe1

~$10bn

Transaction universe1

~$1bn


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9

Many innovations, but no winners yet

SOURCE: GKIenet; eMarketer; MRSZ; Pyramid research; websites; McKinsey

Overview: ▪  Main application: payments without a mobile operatior ▪  Company Citi (MasterCard PayPass) ▪  POS: 70,000+ ▪  NFC device: no ▪  TSM: No ▪  Security element: Passive vignette ▪  Other partners: Visa Europe, MasterCard Worldwide,

Oberthur Technologies (matrica), Infineon Technologies (chip)

▪  Passive vignette that can be attached to the mobile phone and can be used at all MasterCard PayPass terminal

▪  Citi did not wait for solutions integrating mobile phones for market entry, however opened towards the market e.g., as key partner for Google Wallet

▪  No information on additional services offered at the moment

MicroSD kártya

Passzív matrica

Customer benefit ▪  Safer than credit cards, because of contactless technology

Retailer benefit ▪  Can track shopping habits and trends for effective customer

targeting

Overview ▪  Mobile payment system for Android phones that can be swiped

against an electronic reader to make payment –  May also be used for other purposes, e.g., P2P transfers,

coupon subscriptions, link to noncommercial information (e.g., linking movie ticket purchase to reviews)

▪  Requires use of NFC-enabled phones ▪  Developed in conjunction with Citigroup and MasterCard, in

consultation with VeriFone Systems ▪  System still undergoing testing


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Banks will have to deal with big data explosion

Worldwide data generated Exabytes (= 1 Billion Gigabytes)

Worldwide data storage capacity Exabytes (= 1 Billion Gigabytes)

Nature of this growth in generated and available data

▪  Scale: massive, multi-petabyte (= 1 Million Gigabyte) data sets, designed to scale and collect more information

▪  Distribution: dispersed data sources from inside and outside the organization

▪  Diversity: semi-structured, unstructured, or a combination of different data types, especially from social media

▪  Timeliness: rapid and real-time capture of data, analytics, and decision making

SOURCE: IDC Digital universe study 2011 and 2010; Team Analysis, McKinsey Global Institute; Hilbert and López, “The world’s technological capacity to store, communicate, and compute information,” Science, 2011

ESTIMATE

85013055

2000 2005 2010 2015 2020

4,800

15,000

11050 1,300

2005 2000 2020

35,000

2015

7,900

2010

All information stored inside the US Library of Congress amounts to < 0.00025 Exabytes


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11

Banks are very well positioned to integrate the multiple “hot topics” of the puzzle…

Cash 20%

80% Transfers and transactions

SOURCE: McKinsey

Current marketing systems

GROUP BUYING

Spamming without personalized offers

LOYALTY PROGRAMS

Fragmented, minor share of wallet (2–5%)

ONLINE ADS

No connection with actual spending

BANKS

Building on current and

new clientele

MOBILE PAYMENT TECHNOLOGIES

Mobile banking/ payment apps

BIG DATA

Consolidated, but underutilized data

CUSTOMER RELATIONSHIP

Trusted partner (No random

“bargain hunters“)

LOCATION

Determine customers’ current position (POS

data, smartphone data)

SHOPPING BEHAVIOR

Full information about spending details

FINANCIAL STATUS

Purchasing power of customers is knowd Banks can

leverage their 360 degree view of the customer

Individual spending


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12 SOURCE: McKinsey Global Banking Pools

traditional banking products are likely to be increasingly attacked by non-banking players also in the EE region

Bank account and Transaction

Lending

Deposits and investments

Protection and Insurance

80 % of profit pool is under attack

Banking products

Specialty Lenders

Insurers

Postal Services Specialized Private Banking Players

Telecoms

Technology Companies

Retailers

Global retail revenue after risk cost


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Challenges to overcome in CIS

▪  Cash based economies in CIS ▪  Infrastructure, large investments

▪  Customer behavior & trust

▪  Regulations

▪  Banking new operating models

▪  Talent

How and how quickly to embrace the change

The Bank of the Future

Economy & Finance

Transcript of The Bank of the Future