technology trends in 2004 wednesday, october 1 mark condon, svp research & advice

Technology Trends in 2004Wednesday, October 1

Mark Condon, SVPResearch & Advice

Technology & Delivery Channels

The Cloudy Crystal BallThe Cloudy Crystal Ball

“Never make forecasts, especially about the future.”

“I think there is a world market for maybe 5 computers.”

“640K of memory ought to be enough for anyone.”

“I never worry about the future. It comes soon enough.”

“The best thing about the future is that it only comes one day at a time.”

--Samuel Goldwyn

--Thomas Watson, 1943

--Albert Einstein

--Abraham Lincoln

--Bill Gates, 1981

Take AwaysTake Aways

Technology is of tactical value.Strategic value is understanding what members value and why.Convenience and trust are value drivers.Risk management is critical.Electronic payment volume will grow.Authentication and verification eases fears.9/11 accelerated desire for greater security.Your value proposition supports lifestyles, choices, goals, aspirations and dreams.

What, me worry?What, me worry?

Today’s AgendaToday’s Agenda

Current Trends

The Changing Value Proposition

The Need to Localize

The Reality of Technology TodayThe Reality of Technology Today

It’s the muscle behind member service.

It shapes a credit union’s interaction with members.

It’s tactical, not strategic.

It drives product and service development and delivery.

Industry TrendsIndustry Trends

Focus shift from products to consumers

Rapid technology developmentExpanding communication channelsGeographically dispersed marketsLimited resources

Members’ ExpectationsMembers’ Expectations

Consistent experience across touch points

Anytime, anywhere convenience

Personalized and seamless service

Accurate information

Focus on security and privacy

Credit UnionCredit Union Technology Offerings Technology Offerings

2%

2%

5%

7%

7%

8%

9%

16%

30%

45%

0% 10% 20% 30% 40% 50%

Account aggregation

Bill presentment

Automated online loan application & approval

E-Newsletters

E-Statements

Internet access

Permission-based emails to members

eBill payment

Internet banking

Web site

Source: CUNA’s 2002/2003 Technology/E-Commerce Survey

Top Three TechnologiesTop Three Technologies

Multi-channel delivery

Source: TowerGroup

Customer relationship management

Security and privacy

Multi-Channel DeliveryMulti-Channel Delivery

Number of channels used:

One – 17%Two – 21%Three – 22%Four – 20%Five – 14%

Source: TowerGroup Primary Market Research

Channel IntegrationChannel Integration

US Annual “Customer Interaction” Volume (in Billions)

0

10

20

30

40

50

2001 2002 2003 2004 2005

Online Banking Call Center Branch ATM

Online Activities, 2000-2002Online Activities, 2000-2002

2000 2002Growth (millions of (millions of2002 rate Americans) Americans) (%)

Bank online 164% 14M 37M 32%Buy/make a reservation for travel 90% 31M 59M 50%Buy a product 78% 41M 73M 62%Participate in online auction 69% 13M 22M 20%Play a game 45% 29M 42M 37%Buy or sell stocks 40% 10M 14M 12%Get hobby information 38% 65M 90M 77%Get financial information 32% 37M 49M 42%

Banking has outpaced other activities when it comes to rate of growth among Internet users.

Source: Pew Internet & American Life Project Surveys, March 2000, January 2002, May-June 2002, June-July 2002, September 2002

Projected Use of Online BankingProjected Use of Online Banking

21.5%23.5%

26.2%28.6%

31.2%

0%

5%

10%

15%

20%

25%

30%

35%

2002 2003 2004 2005 2006

Source: TowerGroup Primary Market Research

US Households

Average Percentage of Members Average Percentage of Members That Are Active Users* of That Are Active Users* of

EBP (by asset size)EBP (by asset size)

3.0%

2.3%

2.2%

1.5%

1.3%

1.3%

0.9%

1.2%

1.7%

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5%

$500M+

$300M-$500M

$200M-$300M

$100M-$200M

$50M-$100M

$20M-$50M

$10M-$20M

$5M-$10M

All CUs

Note: Limited to credit unions that offer PC-based electronic bill payment (EBP) services. Source: CUNA’s 2002 National Member Survey

* Pay at least one bill per month

Consumers use PFIs forConsumers use PFIs forDeposit ProductsDeposit Products

76%

80%

86%

86%

95%

96%

99%

0% 20% 40% 60% 80% 100% 120%

Certificate of deposit

Safe Deposit Box

Phone/Online Bill Pay

Savings Account

Online Banking

Debit/ATM/Check Card

Checking Account

Source: TowerGroup—Primary Market Research

……but Not Their Investment Dollarsbut Not Their Investment Dollars

2%

11%

3%

4%

9%

16%

18%

36%

0% 5% 10% 15% 20% 25% 30% 35% 40%

No response

Other

Insurance Company

Credit Union

Discount Brokerage Firm

Bank

Mutual Fund Company

Full-service Brokerage Firm

Source: TowerGroup—Primary Market Research

Institution Type Holding Majority of Investment Dollars

……Nor Their Loan ProductsNor Their Loan Products

20%

21%

25%

30%

31%

31%

33%

38%

0% 5% 10% 15% 20% 25% 30% 35% 40%

Individual Stock

Mutual Funds

Annuity

Mortgage

Investment Management Account

Asset Management Account

Individual Retirement Account

Automobile Loan

Source: TowerGroup—Primary Market Research

Products Least Commonly Owned at Primary Institution(Percentage of Owners Owning at Primary Institution)

Payment Trends & Check Payment Trends & Check Electronification Impact Electronification Impact

on Transaction Processingon Transaction Processing

0

20

40

60

80

100

120

2002 2007

Transactions (Billions)

Sources: Federal Reserve System; TowerGroup estimates

Check ElectronificationElectronicCheck

E-Transactions are Steadily E-Transactions are Steadily Reducing Paper VolumesReducing Paper Volumes

41.2

10.1

16

0.76.3 1.1

32.8

35

25.6

8

11.52.1

200175.4 billion

2007115 billion

U.S. Non-Cash RetailTransaction Volumes

Checks

Debit Card

Credit Card

Emerging POS*

Retail ACH

Stored Value (Swipe) *Contactless and Mobile ($5 and up only)

Source: TowerGroup

Loyalty MetricsLoyalty Metrics

53%

41%48%

21%

14%18%

0%

10%

20%

30%

40%

50%

60%

Grocery Casual Apparel

Enrolled in a Loyalty Program (Any Retailer in Category)

Enrolled in a Loyalty Program (Favorite Retailer in Category)

Spending More As a Result of Loyalty Program

Source: McKinsey, TowerGroup

% of U.S. Retail Consumers Who Are…

0

500

1,000

1,500

2,000

2,500

1997 1999 2001 2003 2005 2007

By 2004, total mobile subscriptions surpass cards issued by any individual brand

Source: TowerGroup estimates

Total American Express Cards

Total MasterCard Cards

Total Visa Cards

Total Mobile Subscribers

Mobile Cellular Devices vs. Plastic Payment Cards (1997–2007)

# of customers(millions)

““I feel it is currently unsafe to perform I feel it is currently unsafe to perform any kind of Online transacting any kind of Online transacting

involving my money”involving my money”

0%

10%

20%

30%

40%

50%

60%

70%

StronglyAgree/Somewhat

Agree

Neither Agree NorDisagree

StronglyDisagree/Somewhat

Disagree

No Response

All Households Online Households Online Banking Households

Source: TowerGroup—Primary Market Research

% of US Households

Costs Incurred by U.S. Financial Costs Incurred by U.S. Financial Institutions Due to Identity Institutions Due to Identity

Theft, 2001-2006Theft, 2001-2006

$3.68

$3.33

$2.78

$2.15

$1.36

$1.04

2006

2005

2004

2003

2002

2001

in billions

Source: Celent Communications, August 2002

Credit Union Use of NetworkCredit Union Use of NetworkSecurity MeasuresSecurity Measures

5%

2%

19%

20%

29%

48%

58%

86%

89%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Other

Biometrics

Dual-firewall systems (DMZ)

Virtual private network (VPN)

Intrusion-detection system

Network components in secured area

Encryption

Firewall

Anti-virus protection

Note: Limited to credit unions with a Web site that have some network security measures in place. Multiple responses were allowed.

Source: CUNA’s 2002/2003 Technology & E-Commerce Survey

The Value PropositionThe Value Proposition

ConvenienceAccessFlexibility

TrustSecurityPolicy

Determine Your Value PropositionDetermine Your Value Proposition

Understand Members’ Needs and GoalsObservationsQuantifiable

Channel PreferencesCurrent3 to 5 Years

Payment MethodsFee ImpactCore Processor

Security & PrivacyPoliciesProceduresAuthenticationVerification

2003/2004 Credit Union Environmental Scan Resources

Report PowerPoint Presentation Video

Order by phone: 800/356-8010, ext. 4157

Order online: http://advice.cuna.org and click on “Reports”

#20583 #23507 #30006

2003/2004 Credit Union Environmental Scan Resources

Order these reports by phone: 800/356-8010, ext. 4157

Order online: http://advice.cuna.organd click on “Reports”

Register for the CUNA Future Forum:http://training.cuna.org

Oct. 24 – Oct. 28Honolulu, Hawaii