Strategic Insights is a newsletter published by FIS that provides research, throught leadership and strategic insights on banking and payments.

1. FIS ENTERPRISE STRATEGY VOLUME 3 • OCTOBER 2011
The “Digital” Trends in IN THIS ISSUE
the Big, Global and Digital • The “Digital” Trends in
Banking Marketplace the Big, Global and Digital
Banking Marketplace
• Can You Be a “Relation-
ship Bank” When Most
By Fred Brothers Other Banks Are, Too?
EXECUTIVE VICE PRESIDENT, ENTERPRISE STRATEGY
• Mobile Remote Deposit
Capture: Capturing Early
In recent articles, I’ve talked about four trends related Adopters
to how the concept of “big” is dominating banking and
how banking has become “global” [Insert hypertext • What’s in Store for Paper
link to last month’s article]. These four trends — 1) Checks? Ask a Small Busi-
competing in the land of the giants, 2) customer ness Owner
expectations being defined outside of banking, 3)
operating in a global banking system, and 4) building
personal relationships with customers from anywhere —
are among eight trends highlighted in a presentation I delivered at FIS™ Client
Conference and FIS InfoShare entitled “Competing in a Banking Market that is Big, Global and Digital.”
This month’s article addresses four digital trends that are shaping the future of banking: 1) mobile is the new web; 2)
privacy is being surrendered voluntarily; 3) relationships can be remote, virtual and personal; and 4) social media is
evolving fast. These are key trends that are increasingly affecting the way your customers communicate and do business.
Mobile Is the New Web
First, let’s talk about the convergence of smartphones, web and mobile, and how it’s affecting our industry. Smartphones,
mobile web and mobile banking are exploding. That’s not news. By 2015, Forrester predicts that one in five U.S. adults
will be using mobile banking.1 That’s 48 million adults.2 Personally, I think that’s conservative.
Mobile banking and payments enable new interactions and transactions that didn’t exist before, such as remote deposit
capture. It’s convenient to deposit a check by taking a picture of it, making a deposit and getting your confirmation
of the deposit in less time than it takes to go through the drive-through window at the bank, especially on a Friday
afternoon. But current applications only scratch the surface of how people will use mobile in the future.
FIS STRATEGIC INSIGHTS • V3 OCTOBER 2011 ©2011 Fidelity National Information Services, Inc. and its subsidiaries.
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2. When I was young, my mother bought my sisters and me a set of Collier’s Encyclopedias. She bought them so we would
have information at home for our school reports without having to go to the library or multiple libraries to get the same
information. She made monthly payments on them and they were probably obsolete by the time she was done paying
for them.
I think about my kids, growing up in a post-web world. They’ve never known anything except a world where most of the
FIS ENTERPRISE STRATEGY VOLUME 1 • JULY 2011
knowledge of mankind is available at their fingertips, any time of the day or night, for free. Now, we can access most of
the knowledge of mankind on devices we carry in our pockets.
Apple sold more than 20 million iPhones in the fiscal third quarter this year — up from about 8 million last year for the
comparable quarter — plus it tripled sales of the iPad to more than 9 million during the same time period.3 Microsoft has
invested huge money in their mobile operating system and other web-enabled devices like the X-Box. Android-powered
phones are taking huge market share — 39% of the U.S. market according to a July study conducted by Nielsen.4
The voluntary surrender of privacy
Are any of you amazed at what people will post on the web for the world to see? We’ve all heard the stories of college
kids who didn’t get a job because a human resource manager saw their party pictures on Facebook. They’ll post anything
for the whole world to see and gladly trade privacy for a good search engine like Google — the company that gives
everything away for “free” but manages to post $29 billion in FY2010 revenue and double-digit growth. As we know,
nothing is free. “Free” come at the expense of privacy. But younger generations really don’t care about the cost of
“free” even though security risks are at an all-time high.
Not only does “free” cost you your privacy, but so do discounts. For example, Progressive Insurance’s Flo will chat with
you online and tell you about how you can get a discount on your car insurance if you install their SnapshotSM tracking
device in your car. It tracks how fast you drive, the number of trips you make, your “hard” brakes and how long you drive.
Imagine if we took the same approach to lending — discounts for monitoring DDA and credit and debit card activities
to ensure customers are paying their bills on time and managing their money responsibly. Banks already have the data.
We’re just not using it.
Relationships that Are Remote, Virtual and Personal
There are many examples of how companies are using remote and virtual communication to launch and maintain
personal relationships with their customers. For example, I love online footwear retailer Zappos even though they are a
full-price merchant. Last year I ordered seven different pairs of black dress shoes on Zappos to find just one comfortable
and stylish pair. I opened the boxes, tried them all on in the comfort of my home, kept one pair and shipped the other
six back to Zappos at their cost. They sent me a thank-you note for buying one out of seven pair of shoes. And now
Zappos knows my size and style preference, and has formed a more personalized relationship with me by recommending
other shoes that interest me.
Financial institutions have the potential to develop remote and virtual relationships with their customers by analyzing and
applying the information they already have in their databases and customizing the delivery of the information in the way
their customers prefer.
FIS STRATEGIC INSIGHTS • V3 OCTOBER 2011 ©2011 Fidelity National Information Services, Inc. and its subsidiaries.
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3. Social Media Is Evolving Fast
Figure 1: In-person Contact vs. Mobile Phone as Preferred Way
According to the 2011 Pew Internet and to Communicate with Primary Financial Institution
American Life Project, nearly two-thirds of
the U. S. adult population uses social network Conversation with a representative at my local bank branch
sites.5 That statistic is consistent with results
Email or text message sent to my mobile phone
from FIS’ study conducted last February of
FIS ENTERPRISE STRATEGY VOLUME 1 • JULY 2011
33% 33%
4,002 mobile phone owners. Among our 31%
sample of mobile phone owners, seventy
26%*
percent use Facebook, more than one-quarter 23% 24%
use YouTube and fourteen percent are on
18%
Twitter.
11%
Social media is changing how we 6% 6%
communicate not just in the U.S. but
globally. Although political experts disagree
about how much social media has contributed
Gen Y Gen X Younger Older Boomers Matures
to the recent overthrow of Middle Eastern Boomers
dictatorships, social media facilitates
communications for collective actions — from * Read as: 26% of Gen Y members selected conversation with representative at my local bank
flash mobs to revolutions. branch as a preferred way to communicate with the financial institution where they have their
primary checking account
Jeffrey Ghannan, the author of a recent report Source: FIS™ Enterprise Strategy, August 2011; n = 3,000
on social media in the Arab world, points out
that the under-25 generation makes up at least half the population in six Arab countries. Social media is the currency of
communication of younger generations. It’s too powerful to ignore.
So, get ready to compete in a world that is Big, Global and Digital. The pace of change isn’t going to slow. At FIS, we’ll
do everything we can to help you compete more effectively by winning more customers, retaining the customers you
already have, and selling them more products…all on their terms.
1 Forrester Research, “U.S. Mobile Banking Forecast, 2010 to 2015,” January 31, 2011.
2 Population Projections Program, Population Division, U.S. Census Bureau, 2011.
3 Wall Street Journal Earnings, “iPhone Powers Apple Sales,” July 20, 2011.
4 Nielsen, July 2011.
5 Pew Research Center, “2011 Pew Internet and American Life Project,” June 2011.
FIS STRATEGIC INSIGHTS • V3 OCTOBER 2011 ©2011 Fidelity National Information Services, Inc. and its subsidiaries.
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4. Can You Be a “Relationship Bank” When
Most Other Banks Are Too?
FIS ENTERPRISE STRATEGY VOLUME 1 • JULY 2011
By Paul McAdam
SENIOR VICE PRESIDENT, RESEARCH & THOUGHT LEADERSHIP
A recent FIS™ Enterprise Strategy survey of 351 U.S. banking and credit union executives
underscores the industry’s desire to cultivate customer relationships. When asked to describe
the primary value proposition their institution represents, 60 percent of the mostly “C level”
respondents indicated it’s based on being a “relationship leader.” Nearly a third (31 percent)
believed their value proposition is based on being a “customer service leader” (Figure 1).
In banking, service quality and relationship formation are closely related. My interpretation of
this data is the vast majority (91 percent) of financial institutions want to differentiate based on customer intimacy, which
essentially boils down to knowing and serving customers better than any competitor could. That’s great, but it’s a tall order
when nine out of 10 competitors in the market are doing the same thing.
Figure 1: Value propositions supporting customer intimacy dominate
Executives’ perceptions of their financial institutions’ market positioning
Relationship leader 60%*
Customer
intimacy
Customer service leader 31% positioning
Advice leader 2%
Convenience leader 2%
Product performance leader 2%
Price leader 1%
Other 2%
* Read as: 60% of respondents believe relationship banking is the primary value proposition their financial institution
communicates to the marketplace.
Source: FIS Enterprise Strategy, July 2011; n=351
FIS STRATEGIC INSIGHTS • V3 OCTOBER 2011 ©2011 Fidelity National Information Services, Inc. and its subsidiaries.
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5. Delivering on relationship and service quality value propositions has become increasingly more challenging due to the
accelerating commoditization of the retail banking landscape over the past decade. Senior executives recognize the
need to move up the value chain and monetize the value of relationship and service quality, but they also acknowledge
significant gaps between the desire to pursue these value propositions and their ability to actually fulfill them. For
instance, in the same survey, 96 percent of executives scored “efficiently and affordably providing a high level of
customer service” as being an important initiative to their institution. Yet only 57 percent indicated their institution
FIS ENTERPRISE STRATEGY
currently had the capabilities to deliver customer service at this high level (Figure 2). VOLUME 1 • JULY 2011
Figure 2: Large gaps between the importance of initiatives and the capabilities
to support them
Executives’ ratings of the initiatives’ importance to their institution and their
current capabilities to successfully address them
(Top-2 box on a 7-point scale)
96%*
Efficiently and affordably providing a high level Gap = 39
of customer service pct. points
57%*
Understanding customer preferences and 83%
Gap = 45
having the ability to tailor banking solutions to
pct. points
meet their unique needs 38%
Level of Importance Current Capabilities
*Read as: 96% of respondents scored “efficiently and affordably providing a high level of customer service” in the
top 2 box as being important. 57% of respondents gave their current capabilities a top 2 box rating.
Source: FIS Enterprise Strategy, July 2011; n=351
An even wider gap between importance and capabilities surfaced in “understanding customer preferences and having
the ability to tailor banking solutions to meet their unique needs.” Eighty-three percent of senior executives scored it as
an important initiative, while only 38 percent said they currently have the capabilities to deliver on it.
In other words, institutions do a better job of providing a high level of customer service, as defined by the banks, than
understanding their customers’ preferences and targeting them effectively. This is probably acceptable short term since
customers generally perceive high service quality as a precursor to relationship formation. But longer term, this gap
must be closed.
FIS STRATEGIC INSIGHTS • V3 OCTOBER 2011 ©2011 Fidelity National Information Services, Inc. and its subsidiaries.
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6. Restoring Healthy and Profitable Customer Relationships
Though the vast majority of institutions are striving to differentiate based on relationship and service quality, customers
remain wary. An August 2011 FIS Enterprise Strategy survey of 3,000 consumers with checking accounts found that 45
percent of customers fit the profile of “loyal” based on loyalty metrics such as consolidation of assets or loans with the
primary checking account provider, belief that their provider has product and service expertise, level of trust in their
FIS ENTERPRISE STRATEGYto refer their provider to friends and family members.
provider, and willingness VOLUME 1 • JULY 2011
But the disturbing research finding is while 45 percent of customers fit the definition of “loyal,” only 17 percent of
current customers are both loyal and maintain a relationship that is profitable to their primary checking account provider.
The remaining 28 percent are loyal, but unprofitable. This leaves a majority (55 percent) of customers who are not loyal
to their primary financial institution.
These results suggest the traditional relationship banking model that’s been deployed in the industry during the past
decade will no longer suffice. Execution gaps in service quality and the inability to understand and honor customer
relationships are taxing customer relationships. Plus, institutions are no longer able to afford having such low portions of
retail customers that are both loyal and profitable.
These problems exist, in part, because when the banking industry purports to discuss “customer relationships,” it’s
usually oriented around benefits to the institution. Customers are not oblivious to this disparity and realize that in many
cases: 1) the “relationship” benefits they receive are not particularly valuable, and 2) they are being treated as a means
to a financial institution’s ends. This is why banks only have both loyal and profitable relationships with 17 percent of
their customers.
Investments in technology, data analytics, sales and marketing programs and the like will surely help, but the
loyalty/profitability gap will not really start to close unless financial institutions can authentically demonstrate that they
are acting with customers’ best interests in mind. Given the level of financial uncertainty that many U.S. consumers are
currently experiencing, I have to believe this customer-centric philosophy will ultimately be beneficial to both financial
institutions and the customers they serve.
As mentioned above, FIS Enterprise Strategy just recently completed the research that generated the loyalty/profitability
customer segmentation. In the coming weeks we will further analyze the research results and will address specific
opportunities to improve customer loyalty and profitability in future newsletter issues.
In the meantime, I’d like to know what you think. Feel free to e-mail me at paul.mcadam@fisglobal.com to let me know.
FIS STRATEGIC INSIGHTS • V3 OCTOBER 2011 ©2011 Fidelity National Information Services, Inc. and its subsidiaries.
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7. Mobile Remote Deposit Capture:
Capturing Early Adopters
FIS ENTERPRISE STRATEGY VOLUME 1 • JULY 2011
By Mandy Putnam
DIRECTOR, RESEARCH & THOUGHT LEADERSHIP
A couple of days ago, I received a rebate check from Purina™ for $5.99 — a nice gesture in
exchange for my paying a little more than that for a small bag of prescription dog treats that my
Bandit ultimately boycotted in gustatory protest. That evening, I pulled out my Droid, found a
dark piece of paper that Chase recommends using as a photo backdrop, took my equipment
to where the lighting is best, opened the app, took a picture of the front and back of the check
while holding my breath and making sure I didn’t cast a shadow on the check, retook a picture of
the front and back of the check because the first attempt failed, and deposited my $5.99 check. I
received e-mail confirmation of the deposit about an hour later. Even with its challenges, mobile
RDC still beats a trip to the ATM at night in the rain.
Mobile remote deposit apps (Mobile RDC) had penetrated only 3 percent of the general mobile phone owner population
as of February 2011 according to our FIS™ Enterprise Strategy survey (Figure 1). However, that 3 percent represented about
12 percent of smartphone owners and nearly 60 percent of smartphone owners who were active mobile bankers. There’s a
lot of trial going on among early adopters of banking technologies.
Figure 1: Penetration of Mobile Remote Deposit Capture
I don't have a Awareness Utilization
primary checking
account
5%
No
22%
Yes and it is
Don't use Use RDC
available for my
RDC 3%
mobile phone
I don’t know 4%
7%*
60%
Yes, but it is
not available for
my mobile phone
6%
Read as: 7% of mobile phone owners bank where mobile RDC is offered and available for their mobile phones.
Source: FIS™ Enterprise Strategy, February 2011; n = 4,002
FIS STRATEGIC INSIGHTS • V3 OCTOBER 2011 ©2011 Fidelity National Information Services, Inc. and its subsidiaries.
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8. In order for Mobile RDC adoption to accelerate, challenges of both limited supply and limited demand must be
addressed. Limited demand reflects lack of awareness of Mobile RDC among the general mobile phone population and
a variety of reasons for not trying it among those who are aware of RDC availability but do not use it.
Although a majority of current mobile banking users (57%) without Mobile RDC are interested in it, very few banks offer
mobile bankingSTRATEGY enable their customers to “point, shoot and deposit” with their smartphones. The majority
FIS ENTERPRISE apps that VOLUME 1 • JULY 2011
of mobile phone owners — 60 percent — do not know if their primary checking account provider offers a mobile RDC
app. This is no surprise since a very small percentage of banks offer a Mobile RDC solution. It wasn’t until July 2010 that
a mega bank — Chase — introduced Mobile RDC. A review of the top-20 banks’ Web sites indicated that only four —
Charles Schwab, Chase, PNC and U.S. Bank, which charges 50 cents for each RDC deposit— offer Mobile RDC, though
Bank of America is reported to be launching its solution in 2012 and some banks other than the top-20 have already
launched apps.
Among the small group — 4 percent — of mobile phone owners who are aware that they have Mobile RDC available
from their bank but do not use it, security concerns (31 percent) slightly outweigh lack of sufficient check deposits to
warrant use (29 percent) and inertia regarding downloading the app (26 percent) as obstacles to trial.
As is often the case with new technology,
satisfaction with Mobile RDC among users Figure 2: Satisfaction with Mobile Remote Deposit Capture
is lower than satisfaction with the more-
established mobile banking technology
among mobile banking users — 54 percent 7%
as opposed to 68 percent for comparable Dissatisfied
top-three box scores on an 11-point scale (bottom 3-
(Figure 2). Despite having some technical and box)
39%
user-error challenges — similar to ones I’ve
experienced — with the app, Mobile RDC
users report a high usage level — 5.2 checks Neutral Average number
within the past 30-day period on average. (mid 4-box) of times used in
last 30 days = 5.2
So what is the business case for offering
Mobile RDC? The answer is: nearly six out of 54%*
10 current mobile banking users want their Satisfied
apps to include Mobile RDC. And, today’s (top-3 box)
young innovator population, which is excited
about Mobile RDC and represents two-thirds
of current users, are members of Gen Y and
will serve as bellwethers for their generation
— a population segment of a size rivaling the Read as: 54% of users rated their satisfaction with RDC as 8 or higher on a 0- to 10-point
scale with 10 equal to “very satisfied”;
Boomer segment. Assuming the supply of
mobile RDC apps expands, consumers will Source: FIS™ Enterprise Strategy, February 2011; n = 117
ramp up their adoption of Mobile RDC as
a desirable feature of their mobile banking
experience.
This article is derived from a research brief entitled, “Mobile Remote Deposit Capture: Capturing Early Adopters.”
FIS STRATEGIC INSIGHTS • V3 OCTOBER 2011 ©2011 Fidelity National Information Services, Inc. and its subsidiaries.
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9. What’s in Store for Paper Checks? Ask a
Small Business Owner
FIS ENTERPRISE STRATEGY VOLUME 1 • JULY 2011
By Jim Gamble
DIRECTOR, RESEARCH & THOUGHT LEADERSHIP
As check usage in the U.S. dwindles, many wonder if and when checks will become a thing of the
past. Small businesses will provide a large part of the answer. Despite their industry or size, small
businesses still pay and get paid primarily with checks.
Nearly half of the U.S. workforce is either self-employed or employed by a firm with annual revenue
of less than $20 million. Nearly one-half of the checks used involve a small business in some way
(Figure 1). The largest percentage of checks (24 percent) involving a small business is represented
by B2B transactions. Small business payroll accounts for 12 percent of checks written, and
consumer payments to small businesses constitute another 10 percent. The infrequency of all these transactions and often
high dollar value of these payments require a universally-accepted payment method — currently, checks.
Different industries experience customer preferences for Figure 1: Where checks are used
payment methods in different ways. Small businesses
in retail, accommodations (restaurants) and personal
care industries accept more payment types than small
businesses in other industries. About 90 percent of
small businesses in consumer-facing sectors accept P2P
checks, cash, and credit and debit cards as forms of 11%
payment. Credit and debit cards are convenient, B2B among
Small Business
inexpensive, and often offer rewards. Retail customers
24%*
also slightly favor paying with cash versus using checks.
Consumer to
Large Business
Small businesses selling goods and services to 26% Consumer to
other businesses receive the most checks. In fact, Small Business
only about one-half of small businesses in 10%
non-consumer-facing industries accept cash or
credit and debit cards for payment. Transactions B2B Large Small Business
between these businesses often occur infrequently among Large Business Payroll
Business Payroll 12%
so there is little reason to use any form of electronic
8% 9%
payment.
* Read as: 24% of the number of checks written are B2B
payments involving a small business
Source: McKinsey U.S Payments Map, 2009 − 2014, Release
Q1 − 11 and FIS™ Enterprise Strategy 2011
FIS STRATEGIC INSIGHTS • V3 OCTOBER 2011 ©2011 Fidelity National Information Services, Inc. and its subsidiaries.
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10. Altogether, small businesses receive almost one- Figure 2: Distribution of payments made to small businesses
third (31 percent) of their payments in the form of
checks (Figure 2). Credit and debit cards are the
next-most-common form of payment at 28 percent,
followed by cash payments (19 percent). The
remaining 22 percent of payments received includes
FIS ENTERPRISE STRATEGY Cash
Other PaymentsVOLUME 1 • JULY 2011
a mix of prepaid, preauthorized, ACH credit and 19%*
22%
debit, and wire payments.
In contrast to payments they receive, small
businesses do have discretion over how they make
payments. And here again, checks dominate. Credit & Debit Checks
Cards 31%
Small businesses pay more of their own bills with
28%
checks than with all other payment types combined
(Figure 3). More than one-half (51 percent) of
small business payments made are in the form of
a check. Based on our survey data, payroll checks
are estimated to comprise 22 percent of payments
made by small businesses. Payment with a credit or
debit card is the next-most-common method at 16
percent followed by online payments (bank website, *Read as: 19% of the number of payments made to a small
biller’s website, etc.), which account for 9 percent of business are in the form of cash
payments made.
Source: FIS™ Enterprise Strategy
Many small businesses have little reason
Figure 3: Distribution of payments made by small businesses
to migrate away from paper checks to other
Cash
forms of payment. From the small business 4%
owner’s perspective, other payment
methods cost more than using a check, Internet
Pre-Authorized Wire 5%
and establishing other forms of making or
6% 5%
receiving payments is perceived as a hassle.
However, the added convenience, error
reduction, and time-savings benefits that
can be derived from using electronic forms Checks (Non-
of payment will eventually outweigh the Online Payroll)
9% 29%*
rising cost of using paper checks. Until then,
checks will remain the payment method of
choice for small business. Prepaid
4%
Checks (Payroll)
22%
This article is based on a survey of 2,249 Credit/Debit
16%
small businesses that was conducted as
a joint effort between FIS and NACHA in
November 2010. The survey captured
responses from small businesses with:
• More than one employee * Read as: 29% of the number of payments made by a small business are non-payroll checks
• Revenue less than $20 million Source: FIS™ Enterprise Strategy
FIS STRATEGIC INSIGHTS • V3 OCTOBER 2011 ©2011 Fidelity National Information Services, Inc. and its subsidiaries.
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11. FIS ENTERPRISE STRATEGY VOLUME 1 • JULY 2011
Strategic Insights is a monthly newsletter that provides research, thought leadership and strategic commentary on recent
events in banking and payments. The newsletter is produced by the Enterprise Strategy team at FIS. FIS is one of the
world’s top-ranked technology providers to the banking industry. With more than 30,000 experts in 100 countries, FIS
delivers the most comprehensive range of solutions for the broadest range of financial markets, all with a singular focus:
helping you succeed.
If you have questions or comments regarding Strategic Insights, please contact Paul McAdam, SVP, Research & Thought
Leadership at 708.449.7743 or paul.mcadam@fisglobal.com.
FIS STRATEGIC INSIGHTS • V3 OCTOBER 2011 ©2011 Fidelity National Information Services, Inc. and its subsidiaries.
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