Transforming Financial Services. January 23, 2013

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1 Top Trends Transforming Financial Services in 2013 January 23,

2 Financial Success: Its all about the Win Win And the formula keeps changing! CUSTOMER TRAN$ACTION ROI INSIGHTS

3 4 of 10 Trends for Financial Services in Deliver Personal Financial Services Without Being Creepy 2. Omnichannel is the Next Evolution of Banking 3. Retailers Will Take Greater Control of the Payments Business 4. Distributed Denial of Service (DDoS) will go Mobile 3

4 Moderator Jim Van Dyke CEO Panelists Mark Schwanhausser Director, Multichannel Financial Services Mary Monahan EVP and Research Director, Mobile Beth Robertson Director of Payments Research Al Pascual Senior Analyst, Security Risk and Fraud

5 Deliver Personal Financial Services Without Being Creepy Mark Schwanhausser Director, Multichannel Financial Services 5

6 Success in the Era of Big Data Will Hinge on Building and Retaining Trust Trend Interactive finance will rely on developing an intimate knowledge of customers without being creepy. Implications FI s trust advantage is eroding among tech savvy consumers. Consumers worry their FI will know too much about them. Coveted consumers are willing to look elsewhere for personal finance help Javelin Strategy & Research 6

7 Mobile Disclosures are Evolving But Still Fall Short Financial and non financial players alike face pressure from regulators, consumer activists, and the public to be more transparent than 42 page T&Cs Javelin Strategy & Research 7

8 Privacy is Fragile and Being Exploited and Government Stands Ready to Play a Role 2011 FTC privacy report Make privacy the default setting. Government will protect individual privacy if you don t t California attorney general s policy recommendations for the mobile ecosystem If the feds move too slowly, California will pick up the pace Javelin Strategy & Research 8

9 Challengers for Trust are Proliferating and the Gang of Four Isn tt Even on This List and the Gang of Four Isn Even on This List Money monitoring Money monitoring Paying bills Paying bills Digital archives g Bank alternatives 2013 Javelin Strategy & Research 9

10 Young Adults Are Most Likely to Use PFM Tools From Non FIs Source of PFM Services Consumers Are Most Likely to Use (Age 25 34) 2013 Javelin Strategy & Research 10

11 Action Step No. 1: Build Trust with Daily Actsof Helpfulness Today and Tomorrow: The Future of Interactive Finance Today How can I help you? Tomorrow Did you know that? 2013 Javelin Strategy & Research 11

12 Action Step No. 2: Build Trust Through Deeper Engagement Focus onboarding on engagement, not crossselling. Develop and satisfy the Moneyhawk mentality. Demonstrate reliability and Click to edit Master practicality. title style 2013 Javelin Strategy & Research 12

13 Action Step No. 3: Build Trust by Showing Customers How TheyWill Benefit Point out why you need intimate data to provide better customer services. Speak in plain English. Satisfy customers, not just the lawyers Javelin Strategy & Research 13

14 Omnichannel is the Next Evolution of Banking Mary Monahan EVP & Research Director, Mobile 14

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16 Omnichannel is the Next Evolution of Banking Spanning the Gaps Between Mobile, Online, Phone, ATM, and Branch Banking Only 4 in 10 consumers are very satisfied with their primary bank.

17 Mobile is the First Channel to Connect Online and Physical Banking Spanning the Gaps Between Mobile, Online, Phone, ATM, and Branch Banking Mobile creates an urgency to unify experiences between channels Key connection point now exists as consumers move throughout their day Siloed, separate channels will not satisfy for long

18 Implication: Any Channel + Any Device = Secure, Convenient and Familiar Experience

19 Provide a Consistent, Branded Experience No Matter Which Channel the Customer Chooses Most consumers use online banking to check balances, but branches for deposits Checking account balances 66% 5% 7% 6% 7% 10% Transferring money 51% 2% 4% 4% 10% 28% Paying bills 42% 2% 3% 2% 40% 12% Customer service questions 17% 1% 26% 1% 13% 42% Depositing funds 11% 1%2% 21% 11% 53% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percent of Consumers Q23 When you transact at your primary financial institution, what is your most preferred method for performing each of the following activities? Online banking using bank/credit union's website bi Mobile banking By phoning a call center ATM Another method In person at a physical branch December 2011, n = 5,332 Base: All consumers Javelin Strategy & Research

20 Invest now to increase competitive positioning Provide lower cost, self service channel to maintain ROI in times of shrinking margins and increasing expectations. Turn branches into info centers for high value activities. Mobile is rapidly emerging as a real time banking channel train younger consumers from the start to use the virtual world. Focus on securing an integrated architecture in core systems and data access. 20

21 Retailers Will Take Greater Control of the Payments Business Beth Robertson Director of Payments Research 21

22 Trend: Retailers Continue Actions to Increase Control of Payment Choices and Related Costs Trend Judicial Actions Include Challenging: Implementation of the Durbin Amendment Credit card litigation settlement Consortiums and Individual Merchants Lobby and Develop New Offerings NRF MCX Starbucks ebay/paypal 2013 Javelin Strategy & Research 22

23 Implications: Continued Focus on Controlling Costs and Improving Margins Implications U.S. District Court Challenges and Appeals Lobbying Activity Merchant Supported Payments Initiatives 2013 Javelin Strategy & Research 23

24 The MCX Initiative Illustrates Advantages of Merchant Controlled Payments Models SWOT Analysis of Merchant Customer Exchange, 2012 Strengths Merchants directly control costs Merchants control the POS terminal and experience Merchants influence consumer adoption of payment options and technologies The program is well suited for closed loop payment offerings Weaknesses The consortium model is based on participation of multiple merchants with competing interests Merchants have limited experience in financial services No clear strategy is apparent Opportunities Threats Merchant acceptance ofmobile payments at the POS could increase Merchants can push the market toward a technology standard Merchants can combine loyalty and rewards programs with mobile payment offerings Merchant model may threaten issuer income Merchants may use their clout to block new POS technologies unless terms are favorable Poor staff training could slow adoption 2012 Javelin Strategy & Research 24

25 Action Steps: Monitor Merchants Payments Presence Action Steps Maintain detailed metrics to justify positions and solidify competitive pricing initiatives Review pricing structures and offer competitive pricing to merchants Identify new ways to support merchant needs Form partnerships with merchants or leverage merchant offerings in pioneering ways 2013 Javelin Strategy & Research 25

26 Make Commercial Payments Capabilities a Key Differentiator Almost two thirds (63%) of SMBs say commercial payments capabilities are an important criterion in selecting a banking partner. Make payments a central component of your bank s commercial business development efforts. Capitalize on Market Momentum The electronic payments migration is underway. Large middle market companies lead the way with 48% expecting to increase their use of e invoicing and 56% expecting to increase the number of electronic payments made in Simplify, test, and refine what s working for these companies and deploy down market. Complement the Wow with the Why Aside from security, the most commonly mentioned barrier to the adoption of mobile for commercial payments is the lack of interest or need. Continue to use the sizzle to get attention, but don t forget to provide the steak by communicating a more compelling business case for mobile payments adoption. Introducing the Greenwich Commercial Payments Research Program for Wholesale Banking and Treasury Professionals 26

27 Distributed Denial of Service Goes Mobile Al Pascual Senior Analyst, Security Risk and Fraud 27

28 Trends Convergence of Two Major Security Trends FI Focused DDoS Attacks and Mobile Focused Malware Hacktivism/Nation State Cyberwarfare affecting private enterprise. Bandwidth of attacks generated by content servers beyond the capacity to manage. Mobile devices becoming targets for malware and APT style attacks. Mobile device security software use is low. Older Android iddevices likely l to be running previous OS versions with known vulnerabilities. Comprehensive security software unavailable for ios devices. 28

29 Hacktivism + Poor Mobile Security Awareness = Mobile DDoS Negative Effect on Consumer Confidence and FIs Bottom Line Implications Compromised mobile devices used in botnets of potentially massive scale to commit DDoS attacks. Decreased consumer confidence in the security of their FI and their mobile device, as DDoS attacks continue. Irritation and confusion on the part of legitimate consumers as their devices are blocked from accessing sites due overly restrictive DDoS mitigation efforts, and ineffective device fingerprinting. 29

30 The Keys to Scenario Avoidance All Parties with a Vested Interest NEED to be Involved Cooperation Between Industries Bridging the Consumer Securing The Mobile Perception Gap Click to edit Master title Channel style 30

31 Moderator Jim Van Dyke CEO Panelists Mark Schwanhausser Director, Multichannel Financial Services Mary Monahan EVP and Research Director, Mobile Beth Robertson Director of Payments Research Al Pascual Senior Analyst, Security Risk and Fraud

32 Top Trends Transforming Financial Services in 2013 QUESTIONS? More Trends are found in companion report: 10 TRENDS FOR FINANCIAL SERVICES IN 2013: Forging a New Frontier for Banking, Payments, Mobile and Security For questions regarding how to become a Member of Javelin, or how to access Javelin s research, please contact: inquiry@javelinstrategy.com 2013 Javelin Strategy & Research. All rights reserved. This data was provided to accompany a report which was licensed for use by the original subscribing client only. The data and report is protected by copyright and other intellectual property laws. Licensors may display or print the content for their use only, and may not sell, publish, distribute, re-transmit or otherwise provide access to the content of this report without permission. 32