Understanding Performance Against Customer Expectations (PACE)

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1 Understanding Performance Against Customer Expectations (PACE)

2 THE FIS PACE GLOBAL SURVEY 2016 COUNTRY REPORT GERMANY For primary banks, prime service means keeping a step ahead of consumer expectations.

3 UP TO Up to two-thirds of banked German consumers will turn FIRST to their primary financial institution for financial advice and lending to support their life events. Up to 17% of German consumers are undecided where they will turn for help, which indicates an even greater opportunity to support these financial needs. There are real opportunities for those primary financial institutions to become or remain FIRST in the minds of their customers.

4 Big challenges. Bigger opportunities. At 87, Germany s PACE Index leads the global average by 8 points this year, down 2 points from 2015 but above all other countries indices. Helping customers achieve their financial Aspirations gained 8 points in importance this year and rose from thirteenth to eighth rank. Getting help to achieve financial goals (Aspirations) and gain control over their finances (Control) matters more to millennials than to older customers. About half of banked Germans foresee a life event in the next 36 months that will significantly impact their finances. of Germany s banked consumers currently have no form of financial advisor far higher than the global average of 74%. NEARLY of respondents engage in mobile banking and/or transacting. But, banked Germans are far less likely to use a mobile PFM app than banked consumers globally. of smartphone/tablet owners today identify at least one personal financial management benefit they would like their bank to provide via mobile PFM app. Millennials make 50% more mobile transactions and more than twice the number of mobile payments than the average. Accessing information to source a better deal on loans is the biggest single pain point experienced by banked consumers who have attempted to borrow money from their primary banking provider. of banked consumers currently prefer in-person meetings with a traditional financial advisor, but digital is on the horizon. About one-fifth of millennials are receptive to sharing financial advice through social media with investors like themselves. Primary financial institutions remain first choice for funding the majority of banked consumer life events. Banks need to clear away obstacles to fulfilling increasing consumer demand for financial help.

5 What s changed in a year? Welcome to our second annual FIS Performance Against Customer Expectations (PACE) Index survey and report, which includes results and analysis of how German financial institutions measure against their customers expectations. The PACE survey polls consumers around the globe about their expectations of their financial institutions, how they rank the importance of those items, and then asks consumers how well their financial institutions meet those expectations. The PACE survey asks consumers to rank the importance of, and financial institutions performance against, 18 attributes. The results are compiled into a mathematical score, the PACE Index, that allows us to evaluate how financial institutions perform, as compared to their peers. More details on the survey s methodology can be found at the PACE Survey website. Part 1. What s changed in a year? The 2016 German PACE Index s lead over the global average declined slightly from 10 points in 2015 to 8 points this year. Importance scores, performance scores or both changed for all attributes but one. Foundational basics are still on top. German consumers still believe the foundational attributes of banking are the most important. Gaps between consumers expectations and financial institution performance for the five most important attributes Safety, Fairness, Security, Reliability and Transparency narrowed slightly, mostly as a result of consumers lowering their expectations. German financial institutions continue to fall well short of expectations for Fairness, Reliability and Transparency. German institutions ranked first among the 10 countries. Simplicity moved ahead of Connected, showing that consumers are scrutinizing the ease of their relationships with their financial institutions. remained sixth in importance rank, and Leading-edge products moved up a notch to sixteenth rank as a result of gaining 7 points in importance. Although German financial institutions meet current expectations for Simplicity and product innovation, twelfth-ranked Customisation of products and services remains an area where banking providers need to better their performance. This year, German consumers are more open to financial institutions becoming part of their financial lives. Helping consumers achieve their financial Aspirations gained 8 points in importance and rose from thirteenth to eighth rank. Banking providers fell even shorter this year of meeting consumers expectations for helping them achieve their financial Aspirations. Innovation gained importance, but Aspirations increased the most in rank. German consumers still value Simplicity in product use and Customisation far above offering the latest innovation in banking products and services. Simplicity Rewarding German consumers for their business It s still not working. Last year, a significant gap existed between consumer expectations and bank performance for Recognition, rewarding consumers for their business. In 2016 that gap remains. Rewarding customers for their loyalty continues to be a prime opportunity for institutions to make inroads.

6 Where are the opportunities? Part 2. Where are the opportunities? Face-to-face faces competition Traditional advice could give way to digital. Moving from banking to living. It s what German consumers are doing. About one half of respondents anticipate at least one life event with financial implications in the next 36 months. Millennials promise to be busiest: Nearly two-thirds of them anticipate such an event. Prominent are school tuition fees and house and car purchases, with some 17 per cent of millennials looking at buying a house and 30 per cent a car. Nearly a quarter of millennials also are contemplating investment for the future. clearly defined markets to engage and persuade through targeted communication and personally customised offers. Digital switchover German consumers are changing the channel for financial control. Mobile banking habits in Germany reflect an older population that is less savvy about banking technology. Millennials are far more digitally engaged, and diffusion of digital habits across older age groups may take time. 15% 15% 21% 60% 55% 48% Share ideas through a social media group for investors like yourself for little to no cost for the advice Meet in-person with a traditional financial advisor who provides personalised service for a traditional fee 91% of German banked consumers have no form of financial advisor. Competing for FIRST in consumers key life events is tougher than ever. PACE analysis of the key life events most likely to be experienced by respondents clearly shows primary financial institutions still have first place in the set of choices that consumers have for financing these events. There are three standout trends. First, about half of total surveyed bank consumers place their primary institution first for help with buying a house, updating a house, investing in their future or planning for retirement. Second, nearly one in five plans to turn to a different institution for a mortgage or car purchase. Third, substantial numbers of banked consumers haven t yet decided where to source help in many response categories, such as buying a car, planning for retirement and investing for the future. These are Of those with smartphones and/or tablets, 86 per cent do not currently use any personal financial management (PFM) app to help them manage their finances. However, 54 per cent of banked consumers and 74 per cent of banked millennials with smartphones and/or tablets respond positively to at least one personal financial control tool, such as warnings when funds run low, savings maximisation, budget planning and discipline, timely bill payment and most popular a spending tracker. Most German banked consumers receive NO financial advice. The vast majority 91 per cent of German banked consumers currently have no form of financial advisor. Among those who do have an advisor, the share held by the primary bank provider declines outside the millennial demographic. This is a paradox: a large and unsupported market that has expressed a clear appetite for their bank to support them in achieving their important financial and life goals. This creates a prime opportunity to become FIRST in the minds of customers. Baby Boomers (51 to 69 years old) 14% 19% 18% 10% 11% 13% Gen X (36 to 50 years old) Use an automated investment service that recommends investments according to your income, goals and comfort with risk and rebalances your portfolio automatically at a much lower service fee than human advisors charge Get online financial coaching based on knowledge of my current financial status for a lower service fee than traditional advisors charge Millennials (18 to 35 years old) Financial advisor type preference (base = banked German consumers) More than half of respondents want to meet in person with an advisor, but with age-related variations. Millennials are much more open to sharing ideas through social media, and both millennials and Gen Xers are more interested than baby boomers in robo-advisors. The opportunity, and the challenge, to German banks is familiar to mature markets: Attract younger consumers with online financial advisory services and engagement in social media and keep them as they develop into more profitable customers desiring face-to-face advice.

7 What German banked consumers told us in 2016 Part 3. What German banked consumers told us in 2016 The FIS PACE Index offers invaluable insight into the views of consumers of financial services: the perceived importance of 18 attributes of financial institutions along with consumers ratings of their primary financial provider s performance against those attributes. The attributes are presented in the chart in order of decreasing importance to consumers. The gaps (highlighted in red) between consumer expectations and financial institutions represent the opportunities for financial institutions to remain FIRST in the minds of their customers. PACE 2016: Importance and performance scores for 18 attributes Safety (trust to protect my money) Fairness (no hidden charges/fees) Importance Performance Security (protect personal identity) Reliable (follows through on promises) Gap = Performance score - Importance score Transparent (easy to understand pricing/terms) Simplicity (easy to understand/use products) Connected (anytime anywhere access through online/mobile) Aspirations (helps me achieve financial goals important to my life) Control (helps me gain control over finances) Advice (trusted advice to manage money) In-person service (face-to-face personalised service) Customised (tailors products to my needs) Omnichannel (consistent information at points of contact) Digital payments (digital transaction options) Recognition (rewards for my business) Leading-edge products (more innovative products than other banks) Immediate (systems that respond fast enough for me) Anticipates (anticipates my future needs)

8 What are the big messages for German banks? To help financial institutions make sense of consumers rankings, we organize the attributes into three groups: RUN, CONNECT, and GROW. These groups align related survey attributes with three key areas of bank operations, detailed below. These areas of bank operation follow the course of a customer s relationship with a financial institution, starting with the beginning keeping money safe and secure moving to how customers stay connected to and control their finances and finally into how the relationships between institutions and their customers can grow. RUN Fairness Operate the bank reliably, safely, fairly and efficiently. Safety Simplicity Transparency Security Reliability CONNECT Connect consumers with their finances. GROW Grow the bank by investing in capability that enables consumers to grow. Omnichannel Digital payments Leading-edge products Connected Immediate Recognition Advice Aspirations Customised Control In-person service Anticipates The top-ranked attributes in order of importance are Safety, Security, Fairness, Reliability, Transparency and Simplicity. These attributes represent the foundation of how to RUN a financial institution in 2016: Keep customers money and identity safe, set transparent pricing and terms with no hidden costs, stay true to promises made to customers and offer products and services that customers can easily understand. Banks narrowed the negative gap between the importance score and the performance score for all top-ranked attributes. This year, consumers ranked Safety, Security, Reliability and Transparency as slightly less important, but they remained with Fairness and Simplicity at the top. In 2016, German consumers ranked Connected, Digital Payments and Leading-edge Products more important, although relative rankings changed little. Connected, Omnichannel, Digital payments, Recognition, Leading-edge products and Immediate ranked seventh, thirteenth, fourteenth, fifteenth, sixteenth and seventeenth place connect customers to their accounts, connect their accounts across the institution, connect their accounts to their relationship with the institution and connect them quickly and with the latest technology. The next set of attributes deal with growing customer wealth and achieving their financial goals and ultimately growing the relationship between the customer and the institution. Consumers ranked Aspirations, Control, Advice, In-person service, Customized and Anticipates eighth, ninth, tenth, eleventh, twelfth and last place in terms of importance.

9 Conclusion lasting relationships mean putting the customer first Part 4. Conclusion lasting relationships mean putting the customer first. When consumers do engage, where are the problems? Overall, German consumers experience fewer issues and obstacles when they attempt to engage with their bank. Finding time to visit the bank and accessing knowledgeable responses from staff are not the pronounced problems they are in many other countries. However, nearly one-fifth of millennials attempting to engage have experienced both issues in the past year. Most common are issues with accessing information relevant to obtaining a better deal on bank loans. Banked consumers continue to place their primary financial provider FIRST. Financial institutions will need to function at digital speed to support that potentially most valuable demographic. To be their bank for life, become their bank for living. A substantial proportion of banked consumers continue, for now, to place their primary financial provider FIRST in the consideration set for help with major life events with a financial requirement. Yet the digital age has already impacted their lifestyles, driving expectations of swift responses as well as easy and instant information access with controls to make financial life simple. In a context of multiple banking provider options, competition is clear and present. Noteworthy percentages of Germans believe they will turn to a financial institution other than their primary for financing car purchases and home mortgages. To remain FIRST, first get it right with service. German primary financial providers must encourage and enable fast and easy uptake of their products and services. In particular, they must respond to the demands of the millennials. These entail a shift in the digital channel landscape, from computer use to mobile devices and tablets in particular. of millennials have difficulty accessing information to obtain a better deal on bank loans when they try. The millennials are a potential powerhouse of opportunity, with nearly 60 per cent more anticipating life events on average than the baby boomers. At the same time, German national demographic makeup demands that banks retain their older consumers. At every key financial life stage in Germany, there is primary financial institution loyalty as well as difficulties and dissatisfactions. For banks, the opportunity now is to tip the balance in their own favour. The challenges are big. The opportunities are BIGGER.

10 Conclusion lasting relationships mean putting the customer first The attribute scores contributing to the overall PACE index are clustered below according to our RUN. CONNECT. GROW model. RUN. CONNECT. GROW. Financial institutions must work to close the gaps and complete the virtuous circle. RUN CONNECT GROW Advice In-person service Customised Anticipates Safety Fairness Security Reliability Transparency the bank remains fundamental to satisfying demands for a safe, secure, reliable, fair and transparent service. Significant gaps remain between financial institution performance and consumer expectations. Some gaps for example, Fairness are huge, and financial institutions must close these gaps through improved performance, not merely lowered expectations. covers everything from the basics of digital banking to the depth of the long-term customer relationship and the institution s customer wallet share. Performance is better here. The mechanics are in fair shape, especially with Digital payments, Connected and Omnichannel. But German financial institutions need to fix Recognition and monitor Immediate for further performance decline to make sure consumers stay with their primary financial institution as their financial lives and needs mature. is where getting it right on foundational issues and connected convenience yields significant returns in customer loyalty and sales of highvalue products and services. German financial institutions can realise the potential here by fixing Advice, Aspirations and Customisation by giving more consumers the trusted support they want to pursue their financial life goals. Control Simplicity Aspirations Connected Immediate Omnichannel Importance Performance Leading-edge products Recognition Digital payments RUN. CONNECT. GROW. forms a virtuous circle of financial institution strategy and operational practice excellence. Every improvement is advantageous. Every underperformance demands focus and fixing. The fundamental message remains: You can t GROW sustainably until you can RUN predictably.

11 A year in German retail banking Trends and changes at a glance At 87, the 2016 German PACE score is 8 points above the global average. Down 2 points from last year, it remains the highest of the 10 surveyed countries. FIS PACE Index 2015 and 2016 market scores POSITIVE Germany = Ideal United States United Kingdom Germany United States Canada, France Switzerland Canada, United Kingdom Australia, Poland Global average (and Netherlands) Global average Philippines Germany United States Switzerland Canada, United Kingdom India India Brazil Australia, Poland Global Average Philippines NEGATIVE Brazil Thailand India Brazil Methodology The FIS Performance Against Customer Expectations (PACE) survey was conducted in October and November The online survey was conducted by TNS with 10,030 banked consumers ages 18 to 75 in 10 countries. Respondents were qualified on the basis of having a banking relationship and financial decision-making authority in the household. Six of the 10 countries were repeated from the previous year: Brazil, Canada, Germany, India, the United Kingdom and the United States. Four new countries were added this year: Australia, the Philippines, Poland and Switzerland. Approximately 1,000 surveys were completed in each country. Questionnaires were translated into local languages; banking providers, bank account types, alternative financial services and currencies were localised. In the recent PACE Survey, two attribute statements were modified slightly. This modification likely contributed to some of the elevation in their ranking. The attribute statements that were changed include Aspirations, changed from helps me achieve the goals that are important to my life to helps me achieve the financial goals that are important to my life and Leading edge products, changed from offers more innovative products than other financial institutions to offers more innovative products/services than other financial institutions.

12 Contact us Contact us For more information about the FIS PACE Index, please contact us. Richard Cooper Vice President, International Marketing Strategy Kim Snider Senior Vice President Corporate Communications