Apparently, the Internet has had no impact on retail banking. Branch banks, with a universal banking model, are still the dominant form, and online interfaces are predominantly used by customer of these banks. Pure online banks are only for a limited number of customers, those with multiple bank accounts, a way to access specialized services and are considered as second banks by them. With the advent of hyper-connectivity, the difficult relationship that retail banks have with their customers are about to experience a major change. Instead of being an infrequent (and often unpleasant) source of services, banks can become service providers of a constant, and positive interaction, engaging in a totally renewed relationship.

1. Impact of Hyper-Connectivity
176.6.68.33
on Retail Banking
28 January 2012
Paris
2012 Financial Breakthroughs

2. WHAT ARE FINANCIAL
BREAKTHROUGHS?
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3. 3
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4. 10 YEARS ON AFTER INTERNET
BANKING “BIG BANG”
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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
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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
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7. WHAT IS CRITICAL IN THIS GAME?
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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
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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?
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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
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11. WHAT HYPER-CONNECTIVITY BRINGS
TO THE TABLE?
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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.
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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
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14. IMPACT AND STRATEGIES
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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
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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
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17. TO GO FURTHER
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18. Read our whitepaper
If you want to get more information, you can download our new
whitepaper:
Impact of Hyper-connectivity on Retail Banking
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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
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