Personal Financial Management

Industry Insights Focused Thought Leadership for the UK Financial Services Industry Personal Financial Management The Next Wave of Change in Mobile Banking

Industry Insights Focused Thought Leadership for the UK Financial Service Industry The financial services landscape is undergoing a fundamental change. Timely insight and clear focus has never been more critical. With this in mind the Financial Services practice in Accenture is producing a series of Industry Insights to help the industry address the challenges it faces. The series will focus on the five key issues facing the industry in the UK and Ireland: The regulatory challenge Innovating for the changing customer Globalisation Restructuring for growth Rebuilding trust and reputation This point of view explores how UK banks can address the changing customer challenge by using innovative mobile personal financial management to enable high performance. What s next in the Industry Insights publication series? Over the course of the next several months, we will be issuing points of view addressing different aspects of each of the five key themes identified above. Below are the upcoming and recently released publications in the series. What s next? The UKI Customer Service Survey 2011 The Digital Insurer Financial Reporting Challenges in Investment Banking Preparing for the Foreign Account Tax Compliance Act (FATCA) Recently published Top Ten Challenges for Investment Banks 2012 Spotlight on Solvency II for Insurers Managing Regulatory Change in Banking and Capital Markets A New Dawn? Reactions to the ICB The High Performing Investment Bank Next Generation SME Banking Contact Us To know more about the Industry Insights Research, Upcoming Events or Future Publications please contact: James Sproule Financial Services, Research +44 20 7844 3387 james.sproule@accenture.com Geetika Rai Financial Services, Marketing +44 20 7844 5982 geetika.rai@accenture.com 2

Personal Financial Management: the next wave of change in mobile banking The mobile life of consumers is increasingly redefining the way enterprises reach out to the market. Consumers want and expect access to products, services, search facilities, news and much more wherever they are, whenever they want and in a format they want. This changing consumer behaviour is best reflected in the explosive growth of mobile applications to meet the demand for customized solutions as well as the growing enthusiasm of enterprises to offer more compelling customer experiences. Banks are also increasingly adding the mobile platform to their mix of distribution channels to meet the growing demand for mobility. As customers seek control and choice over how they manage their finances through various channels, mobile banking itself has evolved since the days of simple text messages for banking queries. Now banks will need to cater to this demand for personal financial management (PFM) services on the go. Mobile apps can best address these needs. PFM can do more than simply offer a new channel to engage your customers with; it offers a new way of engaging customers that can specifically address their needs. For example, an online account statement cannot provide immediate insights in the customer s spending. An opportunity therefore exists to develop an app that can help a customer get insights on their spending patterns as well as tools for PFM. Online PFM tools have been around for some time now. These address various aspects of personal finance from tracking stock market investments to receipts and payments, from commodity prices to grocery shopping to repayment plans for credit card debt. Take the case of Mint this online tool helps manage a subscriber s bank accounts, loans and investments on daily and monthly basis, is over four years old. But the rise of mobile devices and explosion of the app market give PFM tools a new applicability, a guaranteed audience and the potential to transform the banking experience. The US and Canada are already advanced in creating PFM solutions both online and for mobile devices. In the UK only one bank has created a solution for online only. However, the growth trajectory of online banking too is moving toward personalized solutions. As younger and more tech-savvy consumers enter the market, they will want more interactivity, more mobile applications and a social media component. In many ways, apps are an extension of the online banking experience, but have the capability to be more customized, more personal, more mobile and more accessible. So a basic banking app is fast becoming a hygiene factor in addressing changing consumer expectations. However, the financial sector has been slow to warm up to the potential in using mobile apps for PFM. For example, finance applications totalled less than 40 out of a total of a hundred thousand ipad apps created in 2010. Most banks still have only their usual online format available on the mobile phone. Many others consider mobile apps to be in the realm of innovation and prefer to stay with online banking. Our interactions with clients in China and West Europe have shown that major investments are being committed to innovations. But while many of these innovations relate to loans, wealth management, payments and security using SMS, e-mail and online banking platforms, convergence to the truly mobile devices such as smart phone and Tablet banking technology still has a long way to go. While PFM tools basically tap into the fundamental financial need to balance personal finances, PFM apps on mobile devices address the mobility needs of customers while also empowering them to make their own financial decisions. PFM apps, therefore, are the next logical step from the basic level of mobile apps used by banks in the UK today. But amidst a healthy demand for mobile applications, are banks in the UK ready to take advantage of this opportunity? This Point of View examines how banks in the UK can respond to the changing needs of their customers more effectively through the use of mobile apps for personal financial management. This need to create deeper connections with customers comes at a time when banks relationships with customers are strained. Our global Customer 2012 study found that emerging customer behaviour was having a direct negative impact on customer profitability, with almost half of banks having seen customer profitability drop by between 5 percent and 15 percent. In the post financial crisis scenario of reduced trust in banks, customers are more open to offers from new providers. Accenture believes that banks need to quickly step into the space to seize the first mover advantage. Banks need to leverage convergence and collaboration technologies, including cloud, to develop innovative mobile PFM tools to be a critical part of their customer s mobile life. 3

PFM tools to acquire and engage the self directed customer Accenture research and experience with global banking clients has shown that high performance banks focus on customer centric strategies while also balancing service costs and profitability. Indeed, customer centricity will continue to underpin competitive differentiation as a new generation of customers are emerging who are completely comfortable with adopting new technologies. These self-directed customers seek personalised and relevant experiences across multiple touch points and channels. Customer expectations are no longer centred on the convenience factor a need that is being addressed to some extent by online banking. Customers are seeking customized banking products and services available to them at a time, and in a format that best suits their individual needs. This behavioural change calls for a focus by banks on catering to personalized needs rather than on offering generic banking services. Realizing this potential to attract and retain customers, banks in the US have been offering innovative and engaging PFM tools that help customers manage their personal finances. For example, rather than a standard payments screen to transfer funds from one account to the other, some apps offer a slide bar to change proportion of funds in current account versus savings. Or, as in the case of one app, customers see their accounts in categories relevant to them such as cash, emergency savings, kids savings, etc., instead of their internal account names and last digits of account numbers. Mobile devices, especially tablets offer a great format for creating engaging apps. Tablet users get a truly personal, highquality content consumption experience, combining a rich Internet browsing experience with high-quality applications in a convenient form factor. Their rapidly rising popularity is reflected in industry forecasts that over 80 million tablets are likely to be sold by 2014 1. With the explosive growth of mobile apps and smart devices, therefore, banks face a huge opportunity to create a new kind of banking experience for their customers. The time couldn t have been more appropriate for banks in the UK to step up to the opportunity offered by the popularity of mobile apps. Over a quarter of the UK population own a smart phone with global usage of smartphones predicted to rise to 50 percent of market in the next three years. Our experience has shown that market leaders in banking are using PFM apps as a customer facing opportunity and not as a technical activity. Mobile banking is an intrinsic part of their strategy to create an engaging banking experience for the customer. Take the case of BBVA s personal finance app, Tu Cuentas ( You Count ) which offers user friendly analysis tools to help the customer better understand spending and saving. The app, available on iphone, Blackberry and Nokia phones, also enables the customer to compare financial status with a peer group and also includes alerts when predefined spending and risk limits are crossed. BBVA launched the app as part of its strategy to increase its customer base, retain customers and reduce cost-to-serve. Banc Sabadell, part of one of the largest commercial banking groups in Spain, was the first financial services company in 2010 to offer an ipad-specific mobile banking experience The app, dedicated to both consumer and business customers, lets users check up on accounts and cards, make transfers, deal shares and file signatures. The app also features ATM and branch locating technology, giving users a better quality of maps and greater accuracy than normal mobile banking services. PFM apps such as those from BBVA and Banc Sabadell combine elements of mobility, convenience and analysis. These apps demonstrate the potential to go beyond essentially basic transactions and provide a more consistent mobile life experience using the App platform. That means creating apps that not only offer mobile payment features but extends to a whole range of customer needs that can be satisfied through mobile devices. 1 Source: Analysys Amos, June 2010 4

Mobile banking in a digital eco system Accenture research has shown that the widespread use of comparison tools, social media, community portals and blogging has made consumers increasingly confident about making their own financial decisions. The high degree of connectedness and access to information offers a huge potential for banks to offer differentiated services that will build deeper relationships and long term value while also cutting cost-to-serve. The banking experience for the new selfdirected and hyper connected customer will therefore need to be set in the context of the customer s digital eco system. Online personal finance tools increasingly include social media concepts to create platforms or social forums for people to share tips and ideas on how to manage their money better and achieve their financial goals. For example, lovemoney. com, has online communities to discuss the hottest deals and discounts, and dispense advice on dealing with debt. Additionally, the next logical feature will be to show customers how their own spending patterns match those in their peer group. For example, a London-based woman with two children earning 40,000 to 60,000 per year may want to compare her spending to others to assess whether she is over spending in certain categories. Take the case of bundle.com, a U.S. startup backed by Morningstar and Citibank. Their PFM tool not only tracks and categorizes transactions from different bank accounts and sends alerts if the spending looks amiss, it also allows the customer to compare his or her spending habits to what the neighbour spends. The contrast and compare feature on their beta site filters data by age, income, household status and even zipcode. Such a mix of broad and granular features in PFM apps could give customers valuable insight into their spending habits by setting it in a social context which is larger and more relevant than just a view of individual income and expenses. Banks can easily provide such data from the insights they can gather using customer analytics. The mobile channel would be an effective way to leverage the analytics capabilities many banks are currently building as part of their customer-centric focus. 5

Building brand and engaging the customer through games An engaging banking experience built around a mobile app should not shy away from including the gaming element. One of the big growth areas for mobile apps, games frequently tops the most downloaded and highest revenue apps available. The best gaming apps have the most frequent and durable number of visits and often create a viral impact across the market. Banks could take a leaf out of the book of other industries that have used apps to gamify their customer experience. A games app helps to create refreshing, engaging and non corporate interactions and eventually greater customer loyalty/advocacy around the app. An example is PNC s VirtualWallet app from the US which includes a simple visual slide bar to change the amount of money in each account, or a Shake the Pig feature that enables users to transfer funds between accounts just by shaking their mobile device. The VirtualWallet app has shown how it is possible to incorporate gaming features in the serious business of finance while still retaining the integrity of the brand. The features in an effective PFM tool: Transaction Tagging - Automatic categorisation of transactions to understand spending breakdown, plus manual reallocation enabled with the ability to manually reallocate categories. Interactive Charts - Engaging display of spending patterns allowing interrogation of data to better understand allocation. Budgeting and Alerts - Ability to set a budget based upon categorisation, and enable alerts to help customer stick to budget plan. Goal Setting - Ability to enter financial goals, for example, Save for my child s education, get a new car and track progress against them. Financial Calendar View - Display of regular incoming and outgoing transactions to enable users to forecast spending more accurately. Additions to this basic functionality could include: Solution Recommendation - The opportunity to suggest solutions to customers based upon their needs and track responses. Money Transfer - Ability to easily transfer money between banks own accounts or external accounts. Account Aggregation The opportunity for the customer to aggregate financial and non financial accounts held with other providers. Social Analytics - Ability for customer to compare their own spending pattern against similar aggregated spending from others. Social Integration/Content The opportunity to include community content/integrate with major social media forum or include bank generated value added content. Help consumers manage their holistic financial position PFM tools provide the most value when they can be used to help customers manage their entire financial portfolio. A number of banks have trialled money manager tools which apply only to a customer s financial holdings with that particular organisation, and have not seen the uptake and business benefits that were originally anticipated. Consumers will want to manage their finances in one place which will drive a renewed interest and need for account aggregation tools. These tools were originally explored by banks in the late 1990 s and are now experiencing a new period of growth with tangible business cases based on customer acquisition and retention. 6

The business imperatives and benefits The possibilities of using social media, mobile games and advisory services for personal financial management could open up new avenues for customer intimacy and growth for retail banks, especially in the current post-financial crisis environment. Some studies have estimated that retail banks can increase revenues by 5 to 10 percent from an integrated value proposition that includes PFM services, video capabilities and communities of interest. Banks may well have to consider integrated service offerings to redefine the banking experience for their customers. Mobility will underscore these offerings. An Accenture study of banks in 2012 reveals that in the current scenario of uncertain economic recovery, high performance banks demonstrate a core set of five underlying performance factors that lift their performance above their peers. These factors include customer relationships, innovation, cost-to-serve, risk management and employee productivity. Significantly, there is a strong correlation between PFM and the first three factors. Share of wallet Take the case of customer relationships or the quality of service and relationship between the bank and its customers, reflected both in terms of share of wallet and cross-sell, and also the level of customer attrition. Here, PFM solutions offer the ability to create more targeted leads to cross-sell and up-sell products and more opportunity to promote leads to captive customers. Research based upon existing PFM solutions has shown users visit the tool twice as often as online banking (average of 18 visits per months versus nine visits), and have found users spend more than double the time on the tool than on online banking. When executed correctly with the use of customer analytics mobile banking also offers opportunities for incorporating social or goals-based functionality, resulting in better quality leads. Offering customers a practical and engaging way to manage their finances better and achieve their financial goals could be the foundation of long term relationships with customers. PFM users are also more valuable to the bank. Experience shows that a bank can expect between 30-40 percent take up of PFM among online banking users over time but that these users constitute 70 to 80 percent of revenue. Customer Acquisition Fundamentally, PFM apps are unique solutions which have the potential to create a buzz around the bank s brand, positive publicity, and help differentiate the brand as an innovator all the ingredients to acquire new customers. Added Services Additional value add services have the ability to also create new revenue streams as well as enhance the current customer proposition with added benefits, for example, through commercial partnerships using analytics. Innovative services such as an ipad app that can sync all transactions with the iphone and also store data in the cloud, could target small businesses, and maximize customer reach. The benefits of moving to the next phase of mobile banking with a focus on PFM apps are clearly based on increasing the value of customer relationships. An Accenture study has shown that successful banks have a clear view of who their customers are, and of the development and use of differentiated propositions and service models to meet different customer needs. Conclusion Banks in the UK today struggling to recover from the financial crisis of 2008, face the challenge of growth and sustainable profits. They need to focus on customer-centric business models to rebuild customer relationships and loyalty to pave the way for growth. Many have started moving in that direction and are investing in building customer analytics capabilities to make informed decisions about products, services and distribution channels. With the rising use of mobile devices, the time is ripe to develop PFM apps not just as a cost-saving distribution channel but as an opportunity to engage with self-directed mobile customers and create a larger customer base. Banks need to understand that the app market has created new competitors for customers with 3 out of 5 of the top finance apps being offered by non banking organizations. This is a significant development considering that for an increasing number of customers, online or mobile interfaces will be their only point of regular contact with the bank. Banks in the UK, therefore, have the opportunity to be at the forefront of this major change as there is a risk of new entrants occupying this space before banks can develop their own solutions. Talk to us To find out more about how Accenture can help your bank achieve and sustain high performance through leadership in PFM, please contact: Jonathan Gray Senior Executive CRM Financial Services +44 20 7844 2608 jonathan.m.gray@accenture.com Ami Encarnacion Manager Financial Services UK +44 20 3335 1022 ami.encarnacion@accenture.com 7