Why the Branch of the Future is a Key Industry Initiative Monique Gibelli Vice President

(c) 2005, Financial Insights, an IDC company, All rights reserved. 2 Agenda What have we learned? Customer Care and Channel Requirements Branch of the Future: Vision and Reality Looking ahead

(c) 2005, Financial Insights, an IDC company, All rights reserved. 3 What Have We Learned…. Surveyed executives at 91 financial institutions using a global and cross-segment sample methodology Survey focused on business initiatives driving IT choices and IT spending Participants selected from the top 1000 institutions: –Banks ranked by assets –Capital markets ranked by capital or assets under management –Insurance ranked by premiums written

(c) 2005, Financial Insights, an IDC company, All rights reserved. 4 Technology Driven Selective Investments Worthwhile Indifferent to Technology Technology not Strategically Valuable 0%20%40%60%80%100% Asia Pacific Europe North America All Banks % of Respondents N: All Banks=45; NA= 27; Europe =11; APAC = 7 CEO Perceptions of Technology Source: Financial Insights 2004 IT Spending Survey

(c) 2005, Financial Insights, an IDC company, All rights reserved. 5 Impact of Initiatives Varies by Industry Segment Source: Financial Insights 2004 IT Spending Survey 0%10%20%30%40%50%60%70%80%90% Regulatory Compliance Financial Reporting Operational Risk Front Office Centralized Customer Mgmt Core Accounting Back Office Infrastructure % of Respondents Ranking Initiative as Important or Very Important Banks Capital Markets Insurance N=91

(c) 2005, Financial Insights, an IDC company, All rights reserved. 6 Source: Financial Insights 2004 IT Spending Survey Drivers for Change at Banks 0%10%20%30%40%50%60%70%80%90% Regulatory Compliance Financial Reporting Operational Risk Front Office Centralized Customer Mgmt. Core Accounting Back Office Infrastructure % of Respondents Acquisition Regulation Market Cost N=45

(c) 2005, Financial Insights, an IDC company, All rights reserved. 7 Source: Financial Insights 2004 IT Spending Survey Annual Technology Impact by Business Priority at Banks Regulatory Compliance Financial Reporting Operational Risk Front Office Centralized Customer Mgmt Core Accounting Back Office Infrastructure 0%10%20%30%40%50%60% % of Respondents <$1M $2–5 M >$5M N=45

(c) 2005, Financial Insights, an IDC company, All rights reserved. 8 Channel Preferences of All Respondents by Age This is Figure L from Consumer Channel Utilization: A Demographic Analysis of Preferences in the US document #FIN1500, August 2004 Source: Financial Insights, Federal Reserve Board Survey of Consumer Finance

(c) 2005, Financial Insights, an IDC company, All rights reserved. 9 Channel Preferences of All Respondents by Income Source: Financial Insights, Federal Reserve Board Survey of Consumer Finance This is Figure P from Consumer Channel Utilization: A Demographic Analysis of Preferences in the US document #FIN1500, August 2004

(c) 2005, Financial Insights, an IDC company, All rights reserved Top Two Ranking of Business Priorities – Brazil Banks in Increase credit operations 2 Increase number of clients 3 Increase number of products offering 4 Increase banking operational efficiency 5 Increase number of branches 6 Bacen/Basel II e Sarbanex Oxley requirements 7 Increase number of channels to achieve C/D/E 8 Integrate databases (unique client view) 9 Modernize their branches

(c) 2005, Financial Insights, an IDC company, All rights reserved How Can Institutions Sustain Competitive Advantage? Product leadership Price leadership Superior service and customer relationships Service is the only sustainable advantage for the vast majority of institutions

(c) 2005, Financial Insights, an IDC company, All rights reserved Service Is Service isnt the contact center or the branch … It is a business strategy that pervades the institution Delivery Support Helping AcrossChannelsProducts

(c) 2005, Financial Insights, an IDC company, All rights reserved Customer Care Overview Where does customer care fit… –in the customer management framework? –in the organization? Where is customer care going?

(c) 2005, Financial Insights, an IDC company, All rights reserved Customer Management Evolution 1990 mid-90s late-90s Point solutions - Low adoption - Fragmented DOS/mid-range Windows Web Services/ Data Management - Usability improves - Adoption increases - Silo mentality prevails Web-Gen #1 Unix/J2EE - Multichannel begins - Hype cycle starts & almost kills CRM - Collaborative infrastructure, data- base virtualization - Customer hub born Mass Customization Dynamic Marketing eCare & Self Service Customer Profitability & Risk Sales force automation Integrated sales & service begins Wider deployment/ access (Web tech) CRM & care begin to be part of channel framework

(c) 2005, Financial Insights, an IDC company, All rights reserved Where Does Customer Care Fit? Employee Portal Customer Portal Service Channels Data/Resource Virtualization (Hub) Product Sales/Pipeline Collaboration Middle Office Back Office Front Office Process Automation Profitability Risk Customer Care SystemOperation LOB Silos Implementation

(c) 2005, Financial Insights, an IDC company, All rights reserved But, ….. Channels Are Saturated Institutions cant afford more channels Customer adoption slow or low Who needs more channels? Integration is complex Source: Meridien Research Agency & Branch ATMs Videotex Dial-in DOS PC banking Kiosks SMS Mobile Phones Video Conferencing WebTV Internet Interactive TV In-Store Branches Dial-in Windows PC banking IP Telephony Call Centers ??? Growth in number of financial service delivery channels Simple Proliferation Complex, saturated

(c) 2005, Financial Insights, an IDC company, All rights reserved Source: Financial Insights Full-service Branch Inquiry Transfer Deposit Withdrawal Account Opening Loan Origination Trading Finl Planning Seminars Training ATM Inquiry Transfer Deposit Withdrawal Shared Infrastructure and Legacy Systems Online Inquiry Transfer Bill pay Account Opening Loan Origination Trading Finl Planning Webinars Automated Phone Inquiry Transfer Bill pay Integrated, Multichannel Vision Is Necessary For Full Service Banks Call Center Inquiry Transfer Deposit Withdrawal Account Opening Loan Origination Trading Finl Planning

(c) 2005, Financial Insights, an IDC company, All rights reserved Traditional branch activities Operational excellence Customer focused Expanded product set Branch Servers Platform Web platform IP Telephony Web teller Web kiosk Web ATM Web video conference Multichannel Web Application Servers External ATM & Bank Networks Voice Network Product Specialists Enterprise Network Contact Center Core Application s Business Partner Extranet Data Warehouse CIF/CIS Customer Analytics … Intranet Extranet IP Wan Branch of the Future

(c) 2005, Financial Insights, an IDC company, All rights reserved Retail Bank Branch of the Future 30 years in the making Marketplace changes More channels –90% of customers use branch –70% use > 1 channel Continuous competitive pressure Undifferentiated products Technology changes Moores law : power, cost Bandwidth explosion Multichannel delivery Internet & Web technologies Traditional branch activities Operational excellence Customer focused Expanded product set Market Vision Technology Vision IP Telephony Web branch … platform & teller Common IP voice & data backbone Now Web ATMs & Kiosk Wireless LAN Near Term Video Future

(c) 2005, Financial Insights, an IDC company, All rights reserved Architecture for the Future Branch Servers Platform Web platform IP Telephony Web teller Web kiosk Web ATM Web video conference Multichannel Web Application Servers External ATM & Bank Networks Voice Network Product Specialists Enterprise Network Contact Center Core Applications Business Partner Extranet Data Warehouse CIF/CIS Customer Analytics … Intranet Extranet IP WAN

(c) 2005, Financial Insights, an IDC company, All rights reserved Competitive Advantages Improve efficiency ratio Increase customer satisfaction Increase retention Improved lead generation Increased market share Increased wallet share Lower Cost Improved Service Branch of the Future Business Case Future Benefits Shorter time to market M & A consolidation Speeds business process deployment Sustains existing investments

(c) 2005, Financial Insights, an IDC company, All rights reserved Product Complexity Affects Interaction Product/Service Complexity Product or Customer Profitability Online Banking Call Center Agent Branch Teller/Platform Branch Video Meetings with Expert ATM High Low Source: Financial Insights, 2005.

(c) 2005, Financial Insights, an IDC company, All rights reserved Employee Comfort Level High Low Customer Appreciation High Low Amount of Business Process Change High Low Source: Financial Insights, High Value Interactions High Value Interactions Technology Must Solve Multiple Needs

(c) 2005, Financial Insights, an IDC company, All rights reserved Case Study: NECU (Australia) Cooperative Bank in New South Wales, Australia –Competes with the Big 4 (CBA, NAB, ANZ, Westpac) –Customer base of 45,000 consumers –$320M in assets, 22 branches (ranging from 2-23 staff) –20% market share in rural NSW –Products: insurance, investments, lending, and deposits –Branch network spans 1,500 km Post Year 2000 strategic analysis –Executives recognized branch network was most valuable asset –Key requirement: effectively control and simultaneously improve customer service across the branch network –Conclusion: invest in centralized communication technologies with high bandwidth network

(c) 2005, Financial Insights, an IDC company, All rights reserved NECU Leveraged IPT and Video to Focus on Five Objectives 1. Create and enhance contact center experience by efficiently using resources 2. Training across the network –Centralize Specialists in Sydney then train rest using video 3. Expand wealth management reach –Financial service regulation change –Real-time service w/ certified adviser 4. Offer instant service on key products –Higher margin loans & investments –Extends coverage for staff absence 5. Conduct management meetings Back Office Systems Core Systems Core Systems Core Systems Core Systems Core Systems Core Systems Core Systems Core Systems Core Systems Knowledge Interaction Customer Knowledge Factories Shared Delivery Infrastructure Presentation Content Transactions Business Rules Business Objects Mess aging Connectivity PFM Management Metrics

(c) 2005, Financial Insights, an IDC company, All rights reserved NECU Business Benefits (2005 vs. 2002) Productivity up, internal travel down Optimized HR across the branch network Increased sales per branch Delivering higher quality customer service

(c) 2005, Financial Insights, an IDC company, All rights reserved Source: BCP Investor Presentations. Cross-Sell at Banco Comercial Portugues 78% Video Close rate 78% Video Close rate Focused on small businesses and self-employed customers about high-value services (including retirement products)

(c) 2005, Financial Insights, an IDC company, All rights reserved Attrition Rates at Key Bank and Wachovia Source: Wachovia and Key Bank Annual Reports, Financial Insights estimates.

(c) 2005, Financial Insights, an IDC company, All rights reserved Success Factors Project execution is critical –Getting something of value is better than having nothing now Leverage current investments –You dont have the money to start again –Build toward the future with each decision Invest for the long term…but with short-term return to the business –Senior management cant/wont wait for results –BUT, you should not be shortsighted

(c) 2005, Financial Insights, an IDC company, All rights reserved Looking ahead Channel convergence around customer is key Real-time data access for customers required Leaders will leverage in multiple directions –Value-added services for customers will distinguish winners from losers –Across employers to their employees –Partner with complementary product companies –Open and secure architecture for flexibility and scalability –Aura of leadership position adds to momentum

(c) 2005, Financial Insights, an IDC company, All rights reserved Questions? Monique Gibelli Vice President IDC Latin America 8200 NW 41 ST Miami, FL USA