relationship banking 2.0: sustained profitability in a time of turmoil

Research, Thought Leadership and Strategic Insight on Banking & Payments OCTOBER 2011

©2011 Fidelity National Information Services, Inc. and its subsidiaries.

EnterpriseStrategy

Relationship Banking 2.0:Sustained Profitability in a Time of Turmoil

A N F I S S T R A T E G I C R E P O R T

FIS EntErprISE StratEgy Volume 1 • July 2011


2Relationship Banking 2.0: Sustained Profitability in a Time of Turmoil PAGE

Contents

Banking Industry Evolution

Restoring Healthy and Profitable Customer Relationships

Evolution While the Landscape Shakes

Banking in the 20-teens

Solutions for Financial Institutions in the 20-teens

Your Advantage in a Changing World

About FIS

3

7

10

12

14

17

19




Banking Industry Evolution

The retail banking industry is undergoing a dramatic transformation. Originally built on a business model valuing proximity, rigid product selection and face-to-face interactions, it is rapidly evolving to a customer-centric model in which consumers can get personalized information and services on demand with a few clicks of a mouse or, increasingly, a few taps on a smartphone screen.

This represents a major break from the past. Historically, banks and credit unions operated mostly within a presence-driven model, anchored by brick-and-mortar branch networks built on local presence and face-to-face relationships. As leading banks became regional or national in scope, offering a broader solution suite became the norm. Financial institutions competed based on an expanded range of mostly mass-marketed products, relying on what may be called a portfolio-driven model. Product management and direct marketing capabilities emerged in areas such as credit card, mortgage and home equity lending, and high-yield savings products — while banks continued to aggressively promote free checking. And in most cases, the product capabilities resided within lines of business (monolines) and institutions managed product portfolios, not customer relationships.

More recently, institutions funded the expansion of their product portfolios and presence (i.e., rapid branch expansion) by tapping into the seemingly endless pools of revenue from mortgage origination and securitization fees, overdraft and insufficient funds fees, and card interchange. Today, these revenue sources have diminished due to the economic downturn and regulatory changes. But even after economic conditions in the U.S. improve, the retail banking business model will have permanently changed. As a result, institutions are now looking to new sources of revenue and profitability, most of which will be captured from within their existing customer bases.

To accomplish this, financial institutions need to recognize that how consumers and businesses buy, save and communicate — driven by forces largely outside banking — has forever changed the path to profitability for retail banking. Successful banks in the 20-teens will understand that in order to thrive, they must acknowledge that consumers and businesses have graduated to Relationship Banking 2.0. This calls for more than a shift in strategy. It requires a change in philosophy ultimately beneficial to both banks and the customers they serve.

In Relationship Banking 2.0, financial institutions will achieve differentiation by understanding their customers’ unique needs in a way no competitor could — by gaining rich analytic insights into customers’ habits and preferences and then crafting tailored offerings that forge more personal and more profitable relationships. The shift to this consumer-centric perspective is the cornerstone of the profitable relationship-driven model.

Relationship Banking 2.0

requires a change in

philosophy ultimately

beneficial to financial

institutions and the

customers they serve.




Banks’ Perceptions of Their Positioning

A recent FIS™ Enterprise Strategy survey of U.S. senior banking and credit union executives underscores their desire to cultivate profitable customer relationships. When asked to describe the primary value proposition their institution represents, 91 percent of the mostly “C-level” respondents indicated it’s based on being a relationship or service quality leader (Figure 2).

PRESENCE• Brick and mortar locations• Local presence• In-person service

PORTFOLIO• Product features & benefits• Product management• Mass marketing

PROFITABLE RELATIONSHIP• Advanced analytics• Tailored banking services• Precise segmentation• Optimized pricing

Figure 1: The Banking Industry Is Rapidly Evolving

Source: FIS Enterprise Strategy, 2011




Senior executives believe that while a financial institution must operate at competitive parity in terms of advisory services, convenience, product performance and price, these factors are merely table stakes. Competitive differentiation is attained by understanding customer needs and delivering service quality that exceeds expectations.

Delivering on relationship and service quality value propositions has become increasingly more challenging due to the accelerating commoditization of the retail banking landscape over the past decade. Having trained customers to expect services such as free checking, debit rewards and teaser-rate credit card offers, financial institutions must revise their economic models to remain profitable and, in the process, wean some of their customers off the “free lunch” that many have enjoyed at other customers’ expense. The focus now is to convince customers to compensate their primary financial institution through one or a combination of: 1) paying higher fees, 2) bringing the provider greater financial wallet share, and 3) lowering delivery expenses by substantially shifting transactions to self-service channels.

Figure 2: Value Propositions Supporting Relationships Dominate

Customer Relationship Positioning

60% *

2%

2%

2%

2%

1%

31%

Relationship leader that understands customers’unique needs, develops strong relationships and can

tailor solutions to customers’ particular needs

* Read as: 60 percent of respondents believe their financial institution is a relationship leader

Source: FIS Enterprise Strategy, July 2011; n=351

Customer service leader that offers top-notch servicequality, accuracy and problem resolution

Advice leader that offers expertise and informationenabling customers to receive objective advice

targeted to their financial needs

Convenience leader that offers 24/7, multi-channelaccess allowing customers to bank when and

where they want

Product performance leader that offers innovativeor best-of-breed products

Price leader that offers the best productprices/rates in your market

Other

Executives’ Perceptions of Their Financial Institutions’ Market Positioning




Senior executives recognize the urgent requirement to create value propositions that monetize relationship and service quality leadership. But they also acknowledge significant gaps between their desire to pursue these value propositions and their capabilities to actually fulfill them. For instance, 96 percent of the executive survey respondents scored “efficiently and affordably providing a high level of customer service” as being an important initiative to their institution. Yet only 57 percent indicated their institution currently had the capabilities to deliver customer service at this high level (Figure 3).

Figure 3: Institutions Are Closer to Achieving High Levels of Customer Service than Tailoring Solutions to Meet Unique Needs

100%

20% 25% 30% 35% 40% 45% 50% 55% 60%

95%

90%

85%

80%

75%

70%

(Top-2 Box on a 7-Point Scale)

Leve

l of

Imp

orta

nce

to F

inan

cial

Inst

itut

ion

(Top

-2 B

ox P

erce

nt)

Financial Institution Current Capabilities (Top-2 Box Percent)

* Read as: 96 percent of FI executives rated “efficiently and affordably providing a high level of customer service” as a highly important initiative. 57 percent of executives rated their FI as having strong capabilities to deliver on the initiative. Source: FIS Enterprise Strategy, July 2011; n=351

Executives’ Ratings of the Initiatives’ Importance to Their Institution and Their Current Capabilities to Successfully Address Them

Optimizing the delivery and communication of

our products andservices at all points of customer contact

Understanding customerpreferences and having the

ability to tailor bankingsolutions to meet their

unique needs

Efficiently and affordablyproviding a high level of

customer service*




An even wider gap between importance and capabilities surfaces in “understanding customer preferences and having the ability to tailor banking solutions to meet their unique needs.” Eighty-three percent of senior executives scored it as an important initiative, while only 38 percent said they currently have the capabilities to deliver on it. In other words, institutions do a better job of providing a high level of customer service as defined by the banks than understanding their customers’ preferences and targeting them effectively. This is probably acceptable for the time being since customers generally perceive high service quality as a precursor to relationship formation. But longer term, this gap must be closed.

Highlighting the difficulties involved in delivering multi-channel customer experiences, similar results were reported in “optimizing the delivery and communication of our products and services at all points of customer contact.” Seventy-eight percent of executives viewed the initiative as important, but only 30 percent believed they currently have the capability. Closing this gap will be essential to improving the relevance of targeted product and service offers.

Restoring Healthy and Profitable Customer Relationships

Though the vast majority of institutions are striving to differentiate themselves based on relationship and service quality, customers remain wary. In an era of constantly rising customer expectations, execution gaps in service quality and the inability to understand and honor customers’ preferences are taxing customer relationships. A recent FIS Enterprise Strategy survey of consumers with checking accounts on the topic of customer loyalty reveals that relationships between financial institutions and customers are not healthy long term and are at significant risk, especially for financial institutions, because: 1) financial institutions are overserving and undercharging a significant number of customers, and 2) financial institutions have not thoroughly leveraged opportunities to deepen relationships with customers.

• Forty-five percent of customers fit the profile of “loyal” based on loyalty metrics such as consolidation of assets or loans with the primary checking account provider, the belief that their provider has product and service expertise and the level of trust in their provider.

• On average, customers have been with their primary checking account provider for about two-thirds of the time they’ve had a relationship with a bank. But, much of this high retention rate is attributable to the perceived hassle of switching to a new bank. Many consumers (43 percent) agree that “switching my primary checking account to a different financial institution is more hassle than it’s worth.”

• Even among the most loyal customers, primary checking account providers capture less than 50 percent of deposits and investable assets or loans/revolving debt.

Customer loyalty will not

improve until financial

institutions can authentically

demonstrate they are

acting with customers’ best

interests in mind.




While 45 percent of customers fit the definition of “loyal,” only 17 percent of current customers are both loyal and maintain a relationship that is profitable to their primary checking account provider (Figure 4). This is a real conundrum for banks charting a course for sustained profitability in the new era of banking. Another 18 percent of customers are loyal, but unprofitable. While these particular customers are currently unprofitable to their primary checking account provider, they are potentially profitable based on their ability to move more assets or loans to their primary bank. Meanwhile, 9 percent of customers are loyal but will remain unprofitable for the foreseeable future. These customers are the heaviest users of channels, pay the lowest fees and have limited resources to service their debt. The only way to get them to a “break-even” point is to charge them fees based on product and channel usage.

Figure 4: Six Segments of Banking Customers Based on Loyalty and Profitability

LOW

LOW

HIGH

HIGH

Profitability to Primary Financial Institution

Loyalty toPrimaryFinancial

Institution

* Read as: 10 percent of consumers are in the “Unprofitable Non-Loyals” segment. Source: FIS Enterprise Strategy, August 2011; n = 3,000

UnprofitableLoyals

Potentially Profitable Loyals

ProfitableLoyals

UnprofitableNon-loyals

Potentially Profitable Non-loyals

ProfitableNon-loyals

9 %

10 %* 24 % 21 %

18 % 17 %




In the same survey, FIS asked a series of tradeoff questions to find out what would most motivate customers to move assets or loans to their current primary checking account provider. Results show that 51 percent of consumers would not easily be motivated to move assets or loans. But the remainder could be motivated based on differential appeals. For example:

• The largest percentages of profitable customers — both “loyals” and “non-loyals” — are most likely to move assets or loans if offered preferred interest rates based on total balances with the financial institution.

• “Non-loyals” are more motivated by being charged lower fees for using self-service than “loyals.”

• Loyalty programs that allow customers to customize their own rewards from a menu of options are attractive to the “potentially profitable” segments.

Notably, the survey’s tradeoff questions also explored customer motivation to move assets by having access to banking branch staff who recognize and know them. It turns out that knowing branch bank staff is a weak motivator for customers to increase their share of wallet with their primary checking account provider (only 5 percent expressed interest). Instead, customers desire rewards, better interest rates or lower fees for using self-service — and having these incentives tailored by their financial institution (Figure 5).

Figure 5: Actions to Improve Segment Loyalty and Profitability

Source: FIS Enterprise Strategy, August 2011; n = 3,000

CUSTOMER SEGMENT ACTIONSGOAL

Unprofitable Non-loyals

Unprofitable Loyals

Get to at least break even • Fees to drive usage of lower cost channels and limit channel usage• Increase requirements for fee waivers

Potentially Profitable Non-loyals

Potentially Profitable Loyals

Profitable Non-loyals

Profitable Loyals Retain and deepen relationship

Increase loyalty to deepen relationship

Increase loyalty and profitability

Increase profitability • Incentivize moving loans to reduce fees• Screen for basic credit card loyalty qualification• Fees to drive usage of lower cost channels• Increase requirements for fee waivers

• Offer preferred interest rates based on moving loans or deposits (especially mortgage refinancing)• Customized credit card loyalty program

• Offer preferred interest rates based on moving loans or deposits• Customized credit card loyalty program• Assist with financial management

• Incentivize moving loans to reduce fees• Screen for basic credit card loyalty qualification• Fees to drive usage of lower cost channels or limit channel usage• Increase requirements for fee waivers




These FIS research results highlighting the vast differences in customer profitability and loyalty underscore the dilemma facing financial institutions. Actions designed to develop relationships with one segment of customers will not necessarily appeal to the rest of the customer base. Some customers desire and value high-touch relationship banking services. Others are self-directed and manage their finances on their own terms with the latest self-service technologies. Some find dealing with their finances to be confusing and simply want to avoid penalty fees.

We expect this dilemma to lead financial institutions down two potential paths. First, some institutions will decide to specialize. Instead of reaching out to all customers in a standardized way they will specialize and reach out to targeted customers in a more customized way, at either the high end or low end of the market. This will require tailored products, pricing and packaging. Second, some institutions will continue with a generalist approach of serving all customer segments, at both the high end and low end of the market. This will require modular product design so that standardized (yet competitive) banking services can be flexibly and economically delivered based on customer need. Multi-product packages may be offered to higher-end customers while lower-end customers are served with a general purpose reloadable prepaid card with checking-like features, for example.

What’s exceedingly clear in either case is the traditional relationship banking model that’s been deployed in the industry during the past decade will no longer suffice. Yes, in both the specialist and generalist approaches refinements to technologies, operations, products and processes are required to complete the migration to a profitable relationship-driven model and access to new layers of profitability. But the first and most important change required is one of philosophy.

When the banking industry purports to discuss “customer relationships,” it’s usually a smoke screen for discussing benefits to the institution. Customers are not oblivious to this disparity and realize they are being treated as a means to a bank’s ends. This is why only 17 percent of current customers have both loyal and profitable relationships with their primary checking account provider. This will not change until financial institutions can authentically demonstrate that they are acting with customers’ best interests in mind. Only when this philosophical change is embraced will an institution be able to succeed at understanding how to make it easy for customers to do business with them, earn customers’ trust and provide solid value on customers’ terms. The strategic decision to specialize or generalize will naturally follow.

In order to get there, institutions must also apply a level of analytical rigor and insight into customer segments that has rarely been seen. This can be accomplished through the use of robust data analytics solutions and creating a culture committed to acting upon the analytical insights.

Evolution While the Landscape Shakes

Financial institutions are challenged make these strategic decisions during an extremely dynamic and unpredictable time. In addition to the changing regulatory environment, financial institutions will be evolving their business models in the midst of: 1) increasing industry consolidation, and 2) rapidly changing consumer preferences in forming and maintaining relationships with all types of institutions, including financial institutions. But while these challenges are daunting, they will open opportunities for institutions that are flexible, embrace change, and are committed to providing lasting value in an individualized fashion to customers on their terms.




First, consolidation in the financial industry has led to massive concentration of deposit and loan share within the largest financial institutions. Twenty years ago, commercial banks with deposits of $10 billion or more held about one-third of commercial bank deposits in the U.S. Today, banks of that size hold nearly 75 percent of all deposits. And due to several high-profile mergers of huge institutions during the recent recession, four banks now control more than a trillion dollars in assets each. These “mega” financial institutions have enormous resources and will be the market-makers, setting the standards for the entire financial institution industry.

While the mega institutions will be the first movers on many fronts, in most cases community-based institutions can be fast followers and obtain product, marketing and delivery capabilities that are competitive with those of the large banks. Community institutions can also leverage superior local-market knowledge to increase their share of loyal and profitable customer relationships.

Second, consumer preferences and habits are changing rapidly in the wake of technology adoption. Five big shifts that will have a large impact on customers’ relationships with their financial institutions include:

• The distinct change in customer banking channel preference that has occurred during the past 20 years or so. More specifically, there has been a declining reliance on branches as both consumers and businesses have shifted a greater share of their service and sales interactions toward self-service banking channels such as online, mobile and the call center.

• The shift in customer preference for non-face-to-face communications with their financial institutions. In a recent survey conducted by FIS Enterprise Strategy, 51 percent of consumers indicated a preference for receiving information about new bank offers via e-mail, while 49 percent said they preferred “snail mail” and 41 percent preferred their institutions’ online banking site for information. Only 28 percent preferred an interaction with a bank representative at a branch; even fewer desired being contacted by phone.

• The influence of social media on how consumers spend their time and make decisions. Social media consumes 23 percent of all time that Americans spend online, according to research by The Nielsen Company. The social media phenomenon has empowered customers to take control of their own experience and get the information they need from a community of like-minded people rather than solely from the financial institution. Yet only 18 percent of financial institution executives in a recent FIS Enterprise Strategy survey viewed social media as an important channel for communicating and delivering banking services.

• The voluntary surrender of privacy. Today’s young consumers will gladly trade privacy for a good search engine such as Google — the company that gives everything away for “free” but managed to post $29 billion in FY2010 revenue and double-digit growth. As we know, nothing is free. “Free” comes at the expense of privacy. Banks could take an approach to lending that included offering discounts for monitoring DDA and credit and debit card activities to ensure customers pay their bills on time and manage money responsibly as part of a value-added financial management offering. Banks already have the data. They’re just beginning to use it.




• The intersection between banking, social media and mobile phones, which will drive mobile payment adoption and diffusion. More than two-thirds of banking consumers who own a mobile phone use Facebook and one-quarter use YouTube, according to a recent FIS Enterprise Strategy consumer survey. And it’s not just younger segments that are using social media. The majority of mobile phone-owning Baby Boomer and mature consumers use Facebook. The research also found that social media users are the first to adopt mobile banking services and have the highest receptivity toward adopting mobile payment services. Clearly, institutions need to embrace this powerful medium and harness its vast potential for deepening banking relationships.

These shifts are daunting, but it’s essential for industry executives to constantly investigate them and develop business plans to capitalize on changing consumer preferences. It’s also important to monitor entities outside the banking industry that are playing critical roles in shaping customer experience expectations. Companies such as Apple, Google, Amazon, YouTube and Facebook are forging irreversible impressions of elegant user-centric design combined with advanced personalization. This has a lasting influence on customers in setting a new standard for their interaction preferences with their bank or credit union through the online and mobile channels.

Banking in the 20-teens

While it’s extraordinarily difficult to conduct long-term planning in today’s challenging market environment, it is crucial for financial institutions to consider how these shifts in consumer preferences and habits may play out over the next several years (Figure 6). The strategic decisions and capital investments made in the current two- to three-year strategic planning horizon will have tremendous bearing on an institution’s competiveness in the year 2020.

As this decade unfolds, the 20-teens will probably be the most transformative period in our industry (yes, even more transformative than the dot-com era). We will most likely bear witness to:

• Financial services providers that operate purely via social media technologies

• Mass-market adoption of mobile banking and payments

• A functional disappearance of paper checks

• Payments networks that enable real-time funds transfers anywhere in the world

• Thousands fewer community-based banks and credit unions

• Tens of thousands fewer staffed branches, many replaced by virtual branches with highly-functioning video conferencing kiosks and ATMs.




The greatest exposure lies within community financial institutions, as they generally have less operating scale and run a less diversified set of business lines and financial products than the large banks. However, all tiers of institutions are being forced to cope with the overall transformation of the legacy banking model.

In short, the world is changing at an astronomical speed. Financial institutions that ultimately survive and thrive in this environment will be the ones that migrate from the “banking” business to a “financial information and technology” business. The high performers of the future will be committed to deepening customer relationships and can translate that from transactional, product-based relationships to tailored offerings via adaptive multi-channel delivery in ways that genuinely resonate with specific segments. The result will the realization of long-term, profitable relationships forged across multiple customer segments.

Figure 6: Profitable Relationship-driven Banking Will Be the Dominant Competitive Theme of the 20-teens


PRESENCE & PRODUCT-DRIVEN PROFITABLE RELATIONSHIP-DRIVEN

Business Model

Sales Model

The “banking” business A “financial information and technology” business

Fee Generation Sometimes punitive, based on product design Transparent, based on customer demand

Remote Banking ATM, IVR and PC-based Greater emphasis on mobile-based

Customer Experience Varied due to siloed channels with static look and feel

Unique user experiences tailored to customer affinity

In-person, branch-centric sales model Online, anytime sales model

Payments Business Make money processing transactions Make money by monetizing information

Customer Purchase Process

Customer originated search for information Preference-based real-time push of information

Marketing Mass market, delivered through offline channels Targeted one-to-one, delivered through real-time interactive channels




Solutions for Financial Institutions in the 20-teens

The ability of financial institutions to build profitable customer relationships is predicated on closing the current gap between importance and capability of understanding customer preferences and having the ability to tailor banking solutions to meet their unique needs. More than any other capability, the intelligent use of customer information will be the defining factor among those institutions that thrive in the transition to profitable relationship-driven banking.

Progressive financial institutions are investing in marketing and data analytics solutions to help close this gap. Sixty-three percent of financial institutions in a recent FIS Enterprise Strategy survey indicated they plan to invest in new or upgraded data analytics capabilities within the next few years. Four of the five top objectives these executives seek to achieve through investments in data analytics programs are directly related to gaining greater knowledge of customer preferences to deepen relationships and improve profitability (Figure 7):

• Improve customer profitability

• Improve customer and account retention

• Cross-sell additional products to existing customers

• Increase the deposit or loan balances of existing customers

Figure 7: Primary Objectives of Financial Institutions’ Investments in Data Analytics

83% *

79%

73%

80%

77%

Improve Customer Profitability

Profitably Acquire New Customers

Improve Customer and Account Retention

Increase the Deposit or Loan Balancesof Existing Customers

Cross-sell Additional Productsto Existing Customers

* Read as: 83 percent of FI executives rated “improve customer profitability” as a very or extremely important objective of investments in data analytics. Source: FIS Enterprise Strategy, March 2011. n = 270

Percent of Executives’ Rating These as Important Objectives(Top-2 Box Scored on 7-Point Scale)




Leveraging data analytics in banking to develop profitable customer relationships is similar to trends unfolding in other industries. The savviest users of analytics in retail have been companies with the most data to mine — historically-catalog-turned-online and pure-play-online retailers such as L.L. Bean and Amazon.com. Consumers appreciate how companies like these are recommending other products based on their purchases and telling them what similar shoppers are also buying. This doesn’t happen in banking, but it should.

Grocery retailers are perhaps a more parallel example of how data analytics are used to forge profitable and “sticky” relationships with consumers. Many of the table stakes that grocers bring to the game are the same for banks — convenient location, a fairly commoditized product mix, at- or near-price parity, reasonable wait times. Yet, Kroger has one of the best models in the grocery business, in part due to its ability to direct customized coupons to specific customers based on their individual buying patterns. The company also designs where products are displayed to promote high-velocity sell-through based on a specific store’s customer mix. Kroger is not known for having the superior personal service such as Publix, but Kroger’s use of data analytics allows the company to: 1) maintain personalized relationships with customers, 2) better serve individual customer’s needs, and 3) reduce costs. In Kroger’s case, this means keeping less-productive inventory off shelves and increasing the efficiency of its advertising spend.

In banking, larger institutions are emphasizing consumer or market segment-based relationship strategies for both marketing and product development. According to a survey of 500 bankers conducted by BAI in the second quarter of 2011, “relationship packaging and pricing is the current emphasis for banks when it comes to marketing and managing their portfolio of products/services.” Fifty-seven percent of banks with $50 billion or more in assets cited this as a priority of near-term investment. Other key investments for large banks include: 1) technology integration and platforms (52 percent), and 2) relationship packaging and pricing (48 percent). Having been identified as a roadblock, investment in technology integration and platforms to free data previously trapped in silos is needed to implement relationship packaging/pricing.1

While large financial institutions are leading the way, the same cannot be said for the banking industry as a whole. Research conducted by FIS Enterprise Strategy revealed that financial institutions can be categorized into four different stages of analytics capability, with approximately 10 percent of institutions attaining the stage of truly operating as analytic companies (Figure 8).

The intelligent use of

customer information will be

the defining factor among

those institutions that thrive

in the transition to profitable

relationship-driven banking.




The most sophisticated players have strong existing data analytic capabilities and are 10 years or more into their analytics journey. These analytic companies are establishing best practices in the integrated use of predictive modeling, lead generation and management, and targeted campaign management to support new customer generation and relationship expansion. They have also started to integrate campaigns with multiple delivery channels, providing the ability to optimize the delivery and communication of products and services at all customer touchpoints. In addition to having well-functioning analytics capabilities in areas such as marketing, risk and finance, they are developing an enterprise analytics strategy.

US Bank, for example, mines thousands of transactions nightly to ensure that its branch and call center staff members are armed with fresh information about their customers to support marketing, sales and customer retention. It uses its system to identify opportunities to improve retention, deepen relationships and evaluate the effectiveness of marketing campaigns.2

BMO Financial Group has positioned itself as the bank that provides advice-based, customer-centric service — Making Money Make Sense. Lines of business access a robust set of customer data from across the enterprise to identify leads and opportunities for marketing products to “best prospects” and to develop its customer rewards program. As a result of its enterprise approach to analytics, BMO also has seen its customer satisfaction levels increase significantly.3

Figure 8: Four Stages of Analytics Capability in Retail Banking

Four stages of analytic capability obtained from “Competing on Analytics: The New Science of Winning,” by Thomas Davenport and Jeanne Harris, Harvard Business School Press, 2007. Interpretation of bank characteristics by FIS Enterprise Strategy based on survey of 271 FI executives and 48 telephone interviews with FI executives in March 2011.

• Strong existing capabilities; 10-plus years into their analytics journey; industry best practices in many areas

• Extensive use of predictive modeling, lead generation and management and targeted campaign management

• Working on an enterprise analytics strategy

• Do the basics well (segmentation, customer profitability, generate leads, targeted campaigns)

• Started to work with sophisticated analytics in recent years

• Have a plan and aggressively investing in analytics

• Have a functioning customer/marketing database

• Limited ability to segment, generate leads and launch targeted campaigns

• Realize the importance of analytics, but don’t have a plan

• Poorly functioning customer/marketing database

• No ability to segment or use analytics

• Primary goal is to get accurate data to improve operations

Percent of Financial Institutions

Analytic Companies

AnalyticAspirations

Localized Analytics

Analytically Impaired

~10%

~20%

~30%

~40%




There are other examples of best practice analytics companies in banking, but the point is they are rapidly defining the capabilities required as competition shifts from products and physical presence to an emphasis on relationship and knowing something unique and actionable about customers that is unknown to the competition. For financial institutions of all sizes, the shift underscores:

1) The futility of competing purely based on product and delivery features, both of which can be largely matched by competitors

2) The requirement of being responsive to customer preferences and tailoring services to provide the most competitive solution to the customer.

Your Advantage in a Changing World

The evolution toward achieving Relationship Banking 2.0 is shaping the strategic direction of FIS, which is partnering with financial institutions to rebuild their customer relationships and achieve “relationship leader” and “customer service leader” status.

Like its financial institution customers, FIS’ strategic vision is rooted in deepening customer relationships — to understand and serve the unique needs of clients worldwide, so that they, in turn, can do the same. Given the current global economic environment and its direct impact on the financial services industry, FIS is focused on guiding institutions of all asset sizes — community, mid-tier, large and global 100 — to a competitive advantage and a stable and profitable future.

During the last decade, the company has amassed a vast banking and payments product portfolio of more than 350 solutions (core banking platforms, payment services and payment networks, value-added services and consulting) and has built out an expansive footprint with 33,000 associates spread across 109 countries. FIS now delivers the most comprehensive range of solutions (combining people, technology and processes) as flexible as each client requires.

FIS’ strategic vision focuses on combining the most complete banking and payments solutions and a client-centric service model to support the emerging profitable relationship business model. Specifically, FIS will lead the way in terms of investment and innovation in next-generation core banking solutions (including real-time core systems) and surrounding those core platforms with:

• A broad global payments portfolio

• Universal money movement solutions

• A full range of delivery channel solutions

• Rich data analytic and marketing analytic services

• Cloud servicing capabilities

FIS’ strategic vision is rooted in

deepening customer relationships.




These solutions are as flexible as each individual client requires and provide the option to run solutions in-house or outsource technology development and operations as well as obtain consulting and transformation services (Figure 9).

Key elements of FIS’ strategic vision are to help financial institutions of all sizes build upon these “anchor” core banking relationships and deliver integrated value-added services that help forge strong, more profitable customer relationships. As a result, any institution of any size in any geography can rely on FIS to help them tailor unique solutions, determine competitive pricing and package any of these assets to appeal to their most desirable customer segments.

Its range of solutions and sheer organizational scale enables FIS to improve its customers’ business performance. The company brings to even the smallest community financial institutions the advantages of innovations developed for the very largest institutions, which reduces risk and levels the playing field. Unlike the limited product portfolios of competitive financial technology companies, FIS’ approach incorporates flexible end-to-end solutions that reflect FIS’ global reach, enviable resources and expansive market knowledge.

Figure 9: FIS Provides a Comprehensive Range of Solutions to Make You More Competitive in a Changing, Global Marketplace


• FIS offers integrated consulting, technology and transformation services to FIs of all segments worldwide.

• Expanding our BPaaS capabilities, leveraging FIS’ 18,000 dedicated experts who manage outsourced technology development and operations

• Investing in global payments initiatives across multiple channels in key regions worldwide

• Launching new wave of data analytic services

• Invest in next generation core platform

• Leverage “anchor” relationships with new capabilities integrated into other layers

ConsultingServices

CloudServicing

Payments& Data

CoreBanking

People + Technology + Process = Improved Business Performance




FIS leads the way on many fronts and invests more than twice as much in capital expenditures as its closest competitor. Just this past year, FIS expanded its global consulting services to offer full strategic business transformation to financial institutions worldwide, including enterprise performance management, risk management and regulatory consideration.

This investment commitment is critical. It’s what sets FIS apart from competitors unwilling to commit resources to clients trying to survive the current storm. And it allows FIS to be a bellwether in helping financial institutions of all sizes to “see around corners” and be confident and prepared for the profitable relationship-driven model of banking.

About FIS

FIS (NYSE: FIS) is the world’s largest global provider dedicated to banking and payments technologies. With a long history deeply rooted in the financial services sector, FIS serves more than 14,000 institutions in over 100 countries. Headquartered in Jacksonville, Fla., FIS employs more than 33,000 people worldwide and holds leadership positions in payment processing and banking solutions, providing software, services and outsourcing of the technology that drives financial institutions. FIS is ranked 426 on the Fortune 500, is a member of Standard & Poor’s 500® Index and consistently holds a leading ranking in the annual FinTech 100 list. For more information about FIS, visit www.fisglobal.com.

FIS holds leadership positions in payment processing, core banking solutions and risk management services in multiple markets and geographies. From this position of strength and leadership, FIS will continue to provide the innovation, ideas and expertise that drive the industry’s progress and enable its clients to meet the increasing pace of change in the global marketplace.

FIS’ Oct. 1, 2009 acquisition of Metavante Technologies, Inc. created a new company whose name has always been synonymous with game-changing innovation, breadth and depth of products, and service with a local sensibility on a global scale. In an industry of giant generalists and niche specialists, FIS offers the best of both — the breadth of products and depth of knowledge to solve problems of any complexity, and the scale and focus to provide solutions with expertise and outstanding customer service.

Markets Served

From large, global institutions to credit unions and community banks, FIS can deliver both the breadth of products and depth of knowledge to solve any client’s problem. The company’s significant scale and intellectual property enables FIS to handle the most complex problems with expertise and outstanding customer service in the areas of:

In addition, FIS leverages this expertise to support the burgeoning payments processing needs of the government and healthcare industries.

• Core processing • Debit & EFT processing • Credit & prepaid card solutions • Deposit automation • Multi-channel delivery

• Secure cash management • Enterprise fraud management• Data analytic & marketing services• Loyalty & rewards programs • Remittance processing

• Electronic bill pay & presentment • Item processing • Full-service output solutions • Right shoring & global sourcing




Citations1 BAI® Research, BAI Research Series for Solutions Providers, July 2011.

2 Penny Crosman, “US Bank Mines 17,000 Customer Transactions Each Night for Insights,” nojitter.com, Oct. 20, 2010.

3 SAS Institute Inc., BMO Banks on SAS to Support Its Customer-centric Approach, 2011.

About the Research

Relationship Banking 2.0: Sustained Profitability in a Time of Turmoil is the first report from an ongoing research series to help financial institutions develop more loyal and profitable customer relationships. The authors were: Mark Moore, SVP of Competitive Strategy; Paul McAdam, SVP of Research & Thought Leadership; and Mandy Putnam, Director of Research & Thought Leadership.

FIS Enterprise Strategy research results sourced in the report are derived from several research studies conducted by the FIS Enterprise Strategy group:

• An online survey conducted in August 2011 with a nationally-representative sample of 3,000 adults with checking accounts to determine strategies and tactics to support profitable consumer loyalty.• An online survey conducted in July 2011 with 351 executive-level decision makers who are FIS clients to determine clients’ needs.• An in-depth telephone interview with 48 FIS clients and follow-up online interview conducted with 271 FIS clients from January 2011 to March 2011 to understand the data analytic priorities, capabilities and needs of financial institutions.• An online survey conducted in February 2011 with a representative sample of 4,001 adults who own mobile phones to determine the impact of mobile devices on behaviors related to financial transactions.• On online survey conducted in September 2010 with a nationally-representative sample of 1,808 adults with checking accounts to understand relationships between banks and customers.

Contacts

If you have questions about the research or how the results apply to your financial institution please contact:

Mark Moore T: 770.209.8169 [email protected]

®

Paul McAdam T: 708.449.7743 [email protected]

relationship banking 2.0: sustained profitability in a time of turmoil

Economy & Finance