Client loyalty in the cyberfinance-world Forum Banca & seguros Lisbon, December CharlesGoldfingerwww.gefma.com

© Charles Goldfinger GEF 2 Presentation plan Digital tornado and financial hurricane Cyberfinance: lessons of experience No disintermediation Triumph of click and mortar Cyberfinance challenges From multi-channel to cross-channel Smart customer Capturing value

© Charles Goldfinger GEF 3 Digital tornado There is no Internet hype ! We tend to overestimate the speed of change in the short term and underestimate in the longer run - Unprecedented rate of growth Years to reach 50 MM users Radio - 38 years TV - 15 years Internet - 5 years Unprecedented scope of change Telecommunications realm Information Technology Realm Business realm

© Charles Goldfinger GEF 4 Digital tornado Three dimensions of Internet revolution Telecommunication protocol Infinite connectivity Information architecture Network – computer convergence Business model Abundance management

© Charles Goldfinger GEF 5 Digital tornado Information architecture From centralised Master - slave...to distributed Client - server..to ubiquitous Peer - to- peer Network is the computer Computer is a network and

© Charles Goldfinger GEF 6 Digital tornado Infrastructure - network dissociation From physical to virtual From dedicated to shared Before Network Infrastructure Now Network Infrastructure

© Charles Goldfinger GEF 7 Digital tornado Business Model impact No disintermediation Growing demand for intermediation Markets Systems Middleware Upheaval …but no disruption Unlimited connectivity Relations proliferation Functional confusion Infoglut Complexity Transaction costs fall Transactions volume explosion Markets proliferation Fragmen- tation Integra- tion

© Charles Goldfinger GEF 8 Financial hurricane From geofinance …to eurofinance …and cyberfinance

© Charles Goldfinger GEF 9 Financial hurricane Cyberfinance Financial services is the domain where Internet impact has been the strongest E-commerce market share (in % of total turnover)

© Charles Goldfinger GEF 10 Cyberfinance Ubiqutuous reach Retail Banking Financial markets Insurance Fund management Financial Data Wholesale banking

© Charles Goldfinger GEF 11 Cyberfinance New configuration E-Banking E-markets B2B banking Financial Portals Asset management Risk management

© Charles Goldfinger GEF 12 Cyberfinance Preliminary lessons of experience E-finance is only beginning Blurring boundaries Finance Technology Information Transaction Financial institutions Technology providers Key role of incumbents « Click and mortar » model dominant All finance is becoming cyberfinance

© Charles Goldfinger GEF 13Cyberfinance Lessons of experience: Internet banking Initial prophecies Low costs Ease of entry Revolutionary impact ChannelCost per transaction Full Service BranchUSD TelephoneUSD ATM Full ServiceUSD PC BankingUSD Internet WWWUSD BAH famous transaction cost diagram Killer application !

© Charles Goldfinger GEF 14 Cyberfinance Lessons of experience: Internet banking Iceberg costs Implementation complexity Client acquisition Difficult entry Obstacle course Not a Killer application ! No revolutionary impact

© Charles Goldfinger GEF 15 Cyberfinance Lessons of experience: Internet banking No salvation outside click and mortar Success stories Nordea Wells Fargo Bradesco Critical success factors Integration Technology Marketing Business models

© Charles Goldfinger GEF 16 Cyberfinance Key challenges Technology Not just another channel Customers End of asymmetry Smart customer Business model Capturing value

© Charles Goldfinger GEF 17 Cyberfinance Technology challenge From multi-channel architecture…. Branch ATM POS Bank Telephone banking On-line banking

© Charles Goldfinger GEF 18 Cyberfinance Technology challenge …to cross-channel architecture Branch ATM POS Smart Card TV Infoappliances Mobiles Extranets TCP/IP

© Charles Goldfinger GEF 19 Cyberfinance Technology challenges Integration imperative From e-finance to m-finance Mobile PC client Martini banking Anytime Anywhere Anyway Anytime Anywhere Anyway

© Charles Goldfinger GEF 20 Cyberfinance End of information and knowledge asymmetry Goldfingers law Customer is always smart DistributorProducer Consumer Customer challenge Three structural trends Lower transactions costs Market power shift

© Charles Goldfinger GEF 21 Cyberfinance Customer challenge Willingness to search Quality imperative Willingness to shop Willingness to pay Failure tolerance Loyalty

© Charles Goldfinger GEF 22 Cyberfinance Customer challenge Conflicting trends Time pressures Convenience One-stop shop Low search costs Better information Best of breed Financial supermarkets Specialised providers

© Charles Goldfinger GEF 23 Cyberfinance Customer challenge Mixed experience Financial supermarkets What synergies for customers ? Internal turf wars and co-ordination costs Cross-selling challenge Specialised providers Preserving talent Maintaining competitive advantage Avoiding mid-size trap Too small or too big

© Charles Goldfinger GEF 24Cyberfinance Customer challenge Aggregation Third way: Aggregation Best of both approaches Advantages Convenience Broad choice Capitalising on common standards Hurdles Permanent tension between aggregators and service providers Brand primacy Revenue sharing Privacy protection Customer trust

© Charles Goldfinger GEF 25 Cyberfinance Customer challenge Aggregation experience to date More developed in US than in Europe Tradition of vertical integration in Europe Challenge of cross-border integration Focus on Information consolidation Technology convergence Not so common standards No customer rush Yoodlee Less than 1 million clients

© Charles Goldfinger GEF 26 Cybefinance Business model challenge Great difficulty of catching value Willingness to pay Growing importance of indirect revenues Manchester United model paying ticketholders non-paying fans Retail banking model Float vs. service services = Purchase Consumption Consumption Purchase

© Charles Goldfinger GEF 27 Cyberfinance Business model challenge Proliferation of pricing systems and mechanisms Direct payments Third party payments Advertising Supplier rebates Services commissions Spread capture Catch value when and where you can

© Charles Goldfinger GEF 28 Cyberfinance Business model challenge From CRM to DTM DTM D ynamic T ransaction M anagement Control Multiple Revenue Streams Simulate & analyze dynamic pricing System Performance, Scalability and Real Time Capture, Benchmark and Share Transaction Value