Branch Renewal Execution Strategies in European Retail Banking

A Datamonitor report Branch Renewal Execution Strategies in European Retail Banking Delivering Profitable Business Models for the Branch Published: Dec-04 Product Code: Providing you with: Coverage of all the main Western European markets Use this report to... Understand the key drivers behind branch renewal initiatives in Europe over the next few years Market sizing forecasts to 2007, broken down by country, source and infrastructure /applications Analysis of the vendor market and critical success factors www.datamonitor.com/technology

Branch Renewal Execution Strategies in European Retail Banking Introduction Branches are now firmly back in the spotlight as the key business generation channel for European retail banks. But banks still face challenges in terms of transforming branches into genuine sales and profit centers. A drive for improved strategy execution and CRM-enablement, together with ongoing infrastructure renewal, will open up a $2bn market opportunity for vendors by 2007. With technology infrastructure investments well underway, banks need to focus on delivering the next step of the branch transformation vision. Branch renewal is as much about driving a fundamental behavioral change in customers' and staff's approach to branch-based distribution as it is about leveraging more reliable, modern technology infrastructure. In order to gain real value from technology investments banks need to develop a precise strategy a branch blueprint for their desired branch proposition and evaluate the impact this will have on branch capacity, staff skill levels and business processes in each branch. Key findings and highlights Reasons to buy Banks need to develop a precise strategy for aligning strategy, operations and technology in branches. Branches need to be considered as a set of branch components which can be combined to produce a tailored offering that is perfectly aligned to the needs of the customer base. Spend will grow at a CAGR of 9.1% from 2004-2007, equating to a $2bn market opportunity. External spending will drive growth, driven primarily by software investments although services growth will also be robust. UK, France and Germany are the major geographies, but Italy and Spain represent fast-growth opportunities. Understand the key drivers behind branch renewal initiatives in Europe over the next few years Size your addressable market to 2007 Understand the key success factors for technology Contact us... From Europe: tel: +44 20 7675 7258 fax: +44 20 7675 7016 email: tcmarketing@datamonitor.com From Germany: tel: +49 69 9750 3119 fax: +49 69 9750 3320 email: deinfo@datamonitor.com From the US: tel: +1 212 686 7400 fax: +1 212 686 2626 email: ustcmarketing@datamonitor.com From Asia Pacific: tel: +61 2 9006 1526 fax: +61 2 9006 1559 email: apinfo@datamonitor.com

www.datamonitor.com/technology Sample pages from the report Market Context Branch renewal in 2004 key pain points Bank branches have undoubtedly come a long way over the last twelve months. However, despite widespread investments in infrastructure renewal and cosmetic changes, banks are still encountering several significant pain points. Suboptimal customer experience. Customers remain frustrated by the level of service available to them in branches. In many cases, queue times remain unacceptably long, staff lack Market sufficient Context product knowledge to provide customers with sufficient guidance, and lack of a single customer view means that customers are frequently offered products that do not meet their immediate needs. managers is set to change dramatically. It will no longer be sufficient to demonstrate a Customers are resistant to change. Despite banks best efforts to re-invent strong knowledge of a bank s products, which has traditionally been their primary branches as profit centers, it is still the case that banks are struggling to extract area of expertise. Going forward, it will also be essential for them to foster an maximum value from key customer segments due to long-established branch entrepreneurial culture in branches and deliver the attention to detail required for usage habits on the part of customers. effective execution on a tailored branch strategy. o Mass market customers are more likely to use branch staff for conducting transactions or Customer ongoing account segmentation servicing challenges requirements than higher value interactions, such as financial consultations Market with Context an advisor. Banks are keen to target the affluent, but footfall remains low o Affluent customers the There prime has target been for much banks discussion in terms in of the marketing past about how the branch is set to emerge and selling higher-value products as a key vehicle tend to for be selling more comfortable to the affluent using market. This has been based on the Figure 6: At what stage are you in the following components of branch remote channels on a day-to-day premisebasis that and higher-value rarely visit products the branch. are more appropriate for customers with higher renewal / refresh? incomes, and that these need to be sold accompanied by face-to-face advice. Lack of sales effectiveness and a strong retailing culture. Banks are 100% now making a concerted effort to cross-sell But the products challenge in branches. for banks is In that addition, the most manyaffluent 12% customers 14% also tend 27% to be the 40% 38% Not a component 90% have made major investments in most branch financially staff, particularly knowledgeable. the big As UK such, banks. 80% they 15% require less 13% hand-holding than However, this is still not being done customers in an optimal in lower fashion, income with groups staff and not fully 70% prefer 3% to purchase products 6% and conduct skilled up and incentivized to sell higher-value ongoing product products servicing effectively. online or via the 60% call center, visiting the branch only as a 19% 11% 17% Future Priority last resort. 50% 7% Lack of effective capacity utilization. Determining optimal branch staffing 9% 6% Immediate Priority 40% levels remains a significant challenge This for is problematic European banks. for banks, Although which banks are keen needto focus on selling high-value products 30% to ensure that sufficient staff are to always the cash-rich on hand affluent to serve segment. customers To when ensure 46% they generate 51% ROI from 33% branch 33% 33% In Progress 20% required, at the same time it is essential investments, to avoid it is the clearly cost of essential having advisory that they staff invest in offering a proposition that tempts 10% sitting in branches unoccupied due the to the affluent walk into in the nature branch, of many for example branches. via: 23% 16% 13% 6% 6% Completed 0% Upgrade telco/ Platform Teller servicing Advisor/ Product Lack of technology tools to sell new Actively products promoting and complex services products effectively. which networking require servicing refresh and automation/ advice, e.g. seller origination re-engineering CRM/ sales automation/ CRM-enabling the branch is still at specialist an early shares; stage, particularly in terms of (excl. check support STP image capture) systems Source: Datamonitor European Retail Banking Technology Decision-Maker Panel, Delivering credible advice; 100 interviews, Q4 04 D A T A M O N I T O R Branch renewal execution strategies in European retail banking Datamonitor (Published 12/2004) A product proposition that is clearly different Page 9 from that offered via other channels This report is a licensed product and is not to be photocopied for example product bundles as offered by Danske Bank and Banca Intesa; Banks are likely to maintain a hybrid environment, rather than move to pure Proactively marketing financial health thin-client check sessions in branches, at a time convenient for the customer, as a relationship-building tool, as Handelsbanken in Although banks are attracted by the potential cost savings offered by migrating to an Sweden is doing. entirely distributed, browser-based environment in branches, Datamonitor believes However, overall, Datamonitor believes that that most there banks are will likely opt to for be a hybrid, very few or purely co-existence-based model in the short term. affluent-focused branches set up by European Key drivers retail are banks as follows: in the foreseeable future. Teller application migration paths favor the client-server model. A large number of banks are planning to maintain client-server-based teller applications, Branch renewal execution strategies in European retail banking choosing to maintain their existing platform or upgrade with a newer version of Datamonitor (Published 12/2004) Windows rather than migrate to a Page thin-client 14 environment. Datamonitor believes This report is a licensed product and is not to be photocopied that this is also likely to be the case with banks migrating from OS/2. With teller investments less of a long-term strategic priority for banks as the focus shifts towards advisor applications, a thin client-based migration path is likely to be seen by many banks, especially smaller ones, as lacking a sufficiently strong business case. Advisor applications will drive thin-client deployment, with J2EE as the preferred development environment. Advisor applications are more likely than Branch renewal execution strategies in European retail banking Datamonitor (Published 12/2004) Page 23 This report is a licensed product and is not to be photocopied Request more sample pages...for FREE! From Europe: tel: +44 20 7675 7258 fax: +44 20 7675 7016 email: tcmarketing@datamonitor.com From Germany: tel: +49 69 9750 3119 fax: +49 69 9750 3320 email: deinfo@datamonitor.com From the US: tel: +1 212 686 7400 fax: +1 212 686 2626 email: ustcmarketing@datamonitor.com From Asia Pacific: tel: +61 2 9006 1526 fax: +61 2 9006 1559 email: apinfo@datamonitor.com

Branch Renewal Execution Strategies in European Retail Banking Table of contents EXECUTIVE SUMMARY KEY FINDINGS Market Context Competitive Dynamics Market Opportunity - Teller investments a necessary evil? - Investments in the next-generation advisor desktop have commenced - Product origination, analytical CRM and activity management are priority areas - Self-service devices gaining ground MARKET CONTEXT Introduction Branch renewal in 2004 key pain points Developing a branch blueprint - Banks need to fuse branch strategy, operations and technology Critical success factors - The strategic vision aligning branch objectives with customer behavior - Channel optimization focusing on the differentiators of the branch within distribution channel strategy - No room for one size fits all - Excellence in the branch is about the right combination of branch components - Creating a retail environment in branches - Customer segmentation challenges - High-quality service is the key to sales and retention - The operational vision - Transforming staff behavior instituting a reward-based culture - Transforming customer behavior challenging perceptions of the branch - Processes must be transformed to adapt to changes in branch culture and efficiency requirements - The technology vision - Shifting from infrastructure to applications - Network infrastructure renewal is well underway - Banks are likely to maintain a hybrid environment, rather than move to pure thin-client COMPETITIVE DYNAMICS Introduction Convergence is the key dynamic - The branch represents a major opportunity for business transformation players Challenges and success factors for application providers Profiles of selected desktop application providers MARKET OPPORTUNITY Introduction Application investment is poised to overtake infrastructure spend by 2007 External spend dominates investment, driven by strong software growth France, Germany and the UK drive branch renewal IT spend APPENDIX TABLES Table 1: Table 2: Table 3: Branch renewal IT spending in Western Europe, 2004-2007, infrastructure vs. applications Branch renewal IT spending in Western Europe, 2004-2007, by source Branch renewal IT spending in Western Europe, 2004-2007, by country...banks can no longer afford to take a "one size fits all approach to branch-based distribution. When embarking on a branch renewal initiative, it is vital that banks consider the size, age, and income level of the target customer base, as well as any distinct cultural/regional factors... Branch Renewal Execution Strategies in European Retail Banking

www.datamonitor.com/technology FIGURES Figure 1: The branch blueprint Figure 2: Tailoring a branch strategy through a componentized approach Figure 3: Service is the key enabler for sales, but attracting affluent customers to branches will be more problematic Figure 4: What is your strategy for developing a stronger sales culture in your bank branches? Figure 4: The focus of branch investments is shifting from infrastructure to applications Figure 5: At what stage are you in the following components of branch renewal/refresh? Figure 5: Advisor workstation of the future required components will depend on the strategic focus of the bank Figure 6: The converging branch vendor ecosystem Figure 7: Branch renewal IT spending in Western Europe, 2004-2007, infrastructure vs. applications Figure 8: Branch renewal IT spending in Western Europe, 2004-2007, by source Figure 9: Branch renewal IT spending in Western Europe, 2004-2007, by country...datamonitor believes the market is currently at a point where infrastructure renewal investments are advanced. Now that initial upfront investments have been made, banks have the resources to focus more sharply on next-generation branch application investments... Branch Renewal Execution Strategies in European Retail Banking

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www.datamonitor.com/technology Interested in this topic? Datamonitor's Retail Banking Technology Strategic Planning Program (SPP) is a tailored, continuous advisory service combining a number of information sources. As opportunities for revenue growth remains weak, operational efficiency is dominating IT strategy in retail banking. This SPP provides analysis for both financial institutions and vendors by connecting business trends with IT strategy and expenditure. Specific areas of coverage include: core systems, payments technologies and distribution channels plus vendor dynamics and competitive positioning. Other reports available in this series TDP: European Retail Banking Technology Survey Published: Dec-04 Product code: DMTC1076 Coming soon! Branch Banking in Western Europe Analyzes branch trends and the most innovative branch banking practices in Western Europe Published: Oct-04 Product code: DMFS1684 Commission and Incentive Management in Financial Services Examines the latest trends in the global retail financial services space with respect to commission and incentives management Published: Sep-04 Product code: DMTC1042 Bancassurance technology strategies Assessment of the key strategic and technology issues in the European and US bancassurance markets Published: Jan-04 Product code: BFTC0938 Branch Renewal in European Retail Banking Provides in-depth analysis of how banks will seek to transform their branch networks from a transaction processing to an advisory environment and resulting technology implications Published: Mar-03 Product code: DMTC0893 For more information on reports and briefs go to: www.datamonitor.com/technology Subscribe to Monitor A monthly update of Datamonitor's new products, delivered to you by email. Email: monitor@datamonitor.com

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