optimizing your internet channel

Optimizing Your Internet Channel

Ron BergamescaEVP and General Manager

Community Bank & Credit Union Services

2© Copyright 2009 Online Resources Corporation – Proprietary & Confidential

Agenda

Consumer Update

Internet Channel Profitability

Where is the Revenue?

Integration—A Path to Optimization

Consumer Update


Consumer Update: Adoption Trends

Source: Javelin Strategy & Research

Adoption of Online Banking and Bill Pay Continues to Grow

Rate of Transaction Adoption is Unchanged


Consumer Update: Adoption Trends

Quarter Users (M) Sequential Growth

1Q07 45.4 3.7%

2Q07 47.3 4.4%

3Q07 46.9 -0.9%

4Q07 47.3 0.9%

1Q08 48.2 1.8%

2Q08 48.6 0.9%

3Q08 50.9 4.8%

4Q08 51.4 0.9%

Source: comScore

Adoption at Top 10 Banks Continues to Grow


SegmentIncome/Savings Attributes

% of OLPop.

Savvy Explorers

$75k/

$150k

Early AdoptersLow LoyaltyBest of Breed Shoppers

15%

Consolidators$60k/

$100k

Early AdoptersAverage LoyaltyMotivated by Convenience

8%

Time-Seekers$80k/

$175k

Multi-Channel UserResearches on InternetUses Traditional Online Services

12%

Inert Traditionalists

$60k/

$100k

ContentUnlikely to Research/Purchase OnlineRelatively Active Online Banking & Bill Pay

14%

Security Wary$60k/

$130k

Rarely Pay Bills, Shop, Research OnlineTrust Builds with Human ContactPerception is Reality

20%

Consumer Update: Segmentation is Maturing

Source: McKinsey & Company

Mobile

PFM

7x24 Member Care

Check Metaphor

Risk-Based BP Trans


Implications

One Size Fits All is Becoming a Liability

“Cohortization” of:

Information—Home Page is Key

Navigation—Quick Links Facilitate

Transactions: Simple or Complete—Give Choice

Increased Marketing Opportunities—Consumers are Self Segmenting

Consumer Update: Segmentation is Maturing


Immediacy – when you want it

Personalization – what works for you

Interpretation – meaning making - relevance

Authenticity – real deal or knockoff?

Accessibility – easily stored and found

Embodiment – real experiences

Findability – navigation help

Source: Kevin Kelly, The Technium: What technology wants from us. Compliments of Pew Internet and American Life Project

Consumer Update: Attributes of an Optimal Experience

Internet Channel Profitability


Source: Bank of America 2002 time series analysis compared offline customers with online customers. Groups matched with 40 ‘pre-online’ characteristics (e.g. age, income, account balance, transaction activity, VRU/CSR usage). Analysis spanned 31 months and included over 300,000 customers

0%

5%

10%

15%

20%

25%

30%

35%

After 9 months After 19 months After 31 months

Cost-to-serve reduction

Retention increase

Relationship deepening

Internet Channel Profitability: Bill Payers Are More Profitable

Profitability Increased 31%


Source: Bank of America 2002 time series analysis compared offline customers with online customers. Groups matched with 40 ‘pre-online’ characteristics (e.g. age, income, account balance, transaction activity, VRU/CSR usage). Analysis spanned 31 months and included over 300,000 customers

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Loan balance Number of loans Depositbalances

Number ofdeposit

accounts

After 9 months

After 19 months

After 31 months


Profitability Increased 31%


0

20

40

60

80

100

120

140

160

Base p

rofita

bility

12 m

onth

s later

Pre-o

nline

acti

vatio

n

12 m

onth

s later

Pre-b

ill pa

y acti

vatio

n

12 m

onth

s later

Ann

ual h

ouse

hold

pro

fitab

ility

(in

dex)

100 102 101

121

103

143

+2%

+20%

+40%

Offline Active Online Active Bill Pay

Source: Boston Consulting Group, 2003


Profitability

Increased 40%


Source: Aspen Analytics classified all customers of a Top 10 Financial Institution as of 11/30/07, and then measured their subsequent churn probability and profitability over the subsequent 6 months.

0 20 40 60 80 100 120

Households inupper 1/3 of bill

pay volume

Bill pay

Online households(no bill pay)

All households

Customer Churn Index

Internet Channel Profitability: Lower Churn/Higher Profits

Churn Index

0 50 100 150 200 250 300 350 400

Households inupper 1/3 of bill

pay volume

Bill pay

Online households(no bill pay)

All households

Customer Profitability Index

Profitability Index

Where is the Revenue?


Where Is the Revenue: Acquiring New Accounts

What is Your Cost of Acquisition?

Source: Forrester Research, February 2008


Need To Be High Value

Expedited Payments

Next Day Transfers

Enhanced Mobile Experience (Downloaded Application)??

Security Tokens??

Quid Pro Quo Rewards—Twist on Relationship Pricing

High Yield Interest, if you pay 5 bills online

Three Next Day transfers, if you have 10 debit trans

And so on…

Where Is the Revenue: Fee Income Opportunities


Where Is the Revenue: Leveraging The Data

Type of Data Indicator Of… Action

Online Activity Overall Relationship

Aggregated Data Full Financial View

Transaction Data Lifestyle Attributes





IncreaseMovement toward PFIChannel Preference

Initiate Member Contact

Cross-sell/Upsell Opportunity

DecreasePotential AttritionDisappointment














Foreign Accounts Wallet Share

Targeted Cross-sell/Upsell Bill Presentment

Foreign LoansCredit Card Balances












Foreign Accounts Wallet Share

Targeted Cross-sell/Upsell Bill Presentment

Foreign LoansCredit Card Balances


Bill PaymentPurchase BehaviorForeign Loans Targeted Cross-sell/Upsell

3rd Party ProductsStatement Purchase Behavior



React To Bill Payments—Both Online and Offline



$ave

One Individual Line of Statement Has Value

Integration—A Path To Optimization


Integration: From The Member’s Perspective

Integrated Services A Much Richer (and Logical) Member Experience

Account Opening ►

Internet BankingImmediate Access to Accounts and Bill Pay

Internet Banking ►

Bill Payment

Robust Home PageScheduled Payments on Home PageQuick Links to Bill Payment Functionality

Seamless Navigation


Account Opening

Pre-filled FieldsSmart Account List


Online Lending

Pre-fill FieldsSmart Loan List

Account Opening►

Online Lending

Pre-filled FieldsCross-sell Loan to New Account

Mobile Banking ►

Bill Payment

One Payee ListComplete View of Transactions


Integration: From The Member’s Perspective


Integration: From Your Prospective

Aspect Benefits To Credit Union

Administration

Reduce/Simplify Number of ToolsReduce Redundant ProcessesConsistent CommunicationThe More You Have, The More You Influence

Security

One SAS 70Consistent Security Practices/SystemsAvoid Handoffs

Vendor Management

Co-terminus ContractsSimplify Contract ProcessLower Management CostsBetter SLAs

Technical Integration Somebody Has To Do It

RiskLimit Exposure to Financial StabilityReduce Risk of Conflicting Technologies

CostCredit Union Gains LeverageVendor Can Package and Bundle


Integration: Key Purchase Decision Factors

Type Of Provider Benefits Drawbacks

Point SolutionBest list of features

Nimble

You Need to Integrate with Other Services

Internet SuiteFull Channel Focus

Integration Skills

Not as Nimble as Point Provider

Core Processor Ultimate One Stop Shop Can’t Be Good at Everything

Balance Vendors’ Value Proposition vs. Your Needs


Integration: Key Purchase Decision Factors

Scale and Flexibility

Scale Drives Costs

Flexibility Drives Responsiveness and Innovation

Integration as a Skill Set

This Will Become Increasingly Important Because No Provider Can Do It All

Focus

Where Does the Vendor Invest Its R&D Dollars

Is the Vendor Too Broad/Narrow

Relationship with Your Core Processor

What You Need To Look For In Your Vendors


Summary

Consumer Adoption Continues at a Good Clip

Consumer Segmentation is Maturing

Causal Effect of Online Bill Pay on Profitability is Proven (again)

Leverage Your Online Activity and Transaction Data

Understand the Importance of Integration from

Your Members’ Perspective—Richer and More Seamless Experience

Your Perspective—Increased Control and Lower Costs

Optimizing Your Internet Channel

Ron Bergamesca, EVP/GM, Credit Union Services

Dave Benning, VP, Strategic Integration

optimizing your internet channel

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