THE FIVE PILLARS OF EXCELLENCE IN RETAIL … Five Pillars of Excellence in Retail Banking 2007 –...

THE FIVE PILLARS OF EXCELLENCE

IN RETAIL BANKING 2007

A GLOBAL BENCHMARK REV IEW

© Copyright 2007 SAP AG. All rights reserved.

For information on reprint authorization and follow up discussions,

please contact SAP UK at the following address:

SAP UK

Michael Mischker

Director Solutions Marketing - Banking

Email: [email protected]

Cooperation Partners:

The European Financial Management and Marketing Association

16, rue d’Aguessaeau

75008 Paris

France

The Five Pillars of Excellence in Retail Banking 2007 2

3 The Five Pillars of Excellence in Retail Banking 2007

Foreword . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Introduction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Research Methodology and Sample . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Business Intelligence and Controlling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Multichannel Customer Management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

- Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

- Advisory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

- Processing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

- Service . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

People and Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

IT and Application Alignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Conclusions and Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

CONTENTS

5

The SAP retail banking study, conducted since 2003 and sponsored by the

European Financial Management and Marketing Association (EFMA) since 2004,

is intended to provide a more complete understanding of the industry’s

IT challenges. The 2007 report has taken on a more global significance, with

a greater number of banks and countries taking part in the research.

In 2006 we reduced the number of questions in the study, while retaining the

overall topography. We also placed the questionnaire online and called it The

Global Retail Banking Tracker. The following report focuses on responses to the

Tracker from April 2006 through February 2007. These responses represent feed-

back from 366 bankers, and 180 banks in 44 countries. In addition to providing

a clear picture of both current conditions and where the industry would like

to be in 2010, the results point to challenges that may slow industry progress

toward its future goals.

Andrew Wigfield is the author of this study report. Our special thanks to

Richard Lowrie and Michael Mischker for their contribution.

Kind regards,

Thomas Balgheim Patrick Desmares

Senior Vice President Secretary General

SAP AG EMFA

FOREWORD

Over the last four years SAP has worked with the European Financial

Management and Marketing Association (EFMA) to provide benchmarks and

strategic insights that describe the current state of IT, customer management,

and related core-banking activities among retail financial institutions around

the world. The current report provides:

■ Insight into the prime business strategies of banks that participated from

April 2006 through February 2007

■ A view of what these banks currently provide in customer management and

core banking operations and what they expect to provide by 2010

■ A comparison with study results from 2004, the evaluation of existing business

gaps, and suggestions for industry improvements

The methodology for this research included use of a best-in-class, Web-based

tool for self-assessment by 180 banks across 44 countries. The retail banking

assessment model, in place since 2003 (see Figure 1), is built upon five foun-

dational pillars. Recent results in these areas include the following:

Strategy. In the past three years, the majority (84%) of banks have pursued

growth as their prime business strategy. The remainder have focused on cost

cutting.

Business intelligence and controlling. Although banks clearly want to become

more proficient in this area, they continue to lack critical abilities for creating

and using the business intelligence that their customers and staff expect.

Multichannel customer management. All banks continue to pursue a multi-

channel strategy with vigor. The latest research highlights business topics where

considerable progress is required to deliver what customers and employees

expect – such as automated tools and processes for account opening and han-

dling across all channels.

The Five Pillars of Excellence in Retail Banking 2007 – Executive Summary 6

EXECUT IVE SUMMARY

People and organization. The latest research for this crucial area of customer-

focused, multichannel retail banking shows that banks still expect to improve

the alignment of their employee policies and organizational structures with

their growth strategies. Progress seems painfully slow, however, and we believe

this is a key reason why so many other activities fall short of expectations.

Information technology and application systems. Today 46% of banks believe

that their IT systems either represent a strategic disadvantage or constrain their

ability to deliver on strategic promises. This compares with 36% in 2004.

Overall, there seems to be little change in the latest responses versus those

in 2004. While banks have made progress toward their goals, this progress falls

short of what banks had hoped to accomplish by this time. Banks continue

to focus their business strategies on growth based on a shift to more flexible,

customer-focused activities.

It is clear from their goals for 2010 that individual banks place different empha-

ses on each of the five pillars described above. For example, 66% of banks

recognize that regular and consistent analysis and data mining is important and

that they must achieve regular and consistent processing of customer data in

the next three years. However, only 42% believe that having a fully automated

process for account handling will be critical by that time.

Although the financial services industry has realized some stunning achieve-

ments in recent years, retail banking continues to manifest the most challenges.

With strong evidence from this latest report that most banks still wish to grow

their retail customer base, it is obvious not everyone can or will win.

7 The Five Pillars of Excellence in Retail Banking 2007 – Executive Summary

We believe that the rewards are great for banks who have adopted a sustain-

able culture of customer-centric strategies. This is evidenced in Forrester’s

annual Q2 European Consumer Technology Adoption Study of 2006, which

shows that Europe’s top 10 banks, by technology adoption have:

1. Customers who are 2.1 times more likely to consider them for their

next purchase

2. Captured 61% of their customers’ financial purchases in the past 12 months

3. Customers who hold an average of 3.9 products, compared with the industry

average of 2.4

These institutions are manifesting what we describe as the next generation of

successful banks that will continue to differentiate themselves in this dynamic

financial services marketplace and achieve their retail banking growth targets.

Our latest study suggests that banks should revisit the considerable investments

they have made to support customer-oriented strategies and determine why

their results have fallen short of their expectations. The latest study suggests

that banks might now implement coordinated, holistic projects that address all

the areas covered in the research. Without such a view, pressures on market

share and financial growth will increase as institutions with the stamina for

change continue to succeed and new entrants with different business models

make ever-larger inroads into the business of traditional players.

The Five Pillars of Excellence in Retail Banking 2007 – Executive Summary 8

The retail banking industry has recently emerged from a period of headcount

reduction and, in many countries, the consolidation of branch networks, while

adopting low-touch business models that have reduced face-to-face customer

contact. Yet customer relationships have become increasingly important given

the complex mix of sales channels, new industry entrants, and an increasingly

sophisticated and mobile public that banks must address today. Banks need a

thorough understanding of their customers to offer the right products and help

customers appreciate the added value of their offerings. To leverage the poten-

tial of a customer management approach effectively, a bank’s IT systems and

organizational structure must be able to handle information across the enterprise.

This study analyzes the link between a bank’s business strategy and the ability

of its staff and core systems to implement a customer-centric organization. To

achieve a comprehensive picture of the relationship between an institution’s

customer management and core-banking capabilities, we created an experience-

based study model (see Figure 1). Expertise from both external sources and the

SAP® Consulting organization was incorporated to build a topography for

ongoing benchmark research.

9 The Five Pillars of Excellence in Retail Banking 2007 – Introduction

INTRODUCT ION

Multichannel customer management

Product and service

develop mentAcquisition Advisory Processing

Business intelligence and controlling

Strategy

People and organization

Information technology and application systems

Service

Figure 1: Retail Banking Assessment Model

The retail banking assessment model, in place since 2003, includes five pillars

that serve as the foundation for this research:

■ Strategy

■ Business intelligence and controlling

■ Multichannel customer management

■ People and organization

■ Information technology and application systems

Strategy. A bank’s approach toward customer management must reflect its

overall business strategy. In this report, the section on strategy covers the

primary business strategies banks have planned for the next three years and

the value that IT can provide in supporting those goals.

Business intelligence and controlling. Once a bank defines its customer man-

agement approach, it must analyze market and customer data and develop a

target-oriented action plan. The current study assesses how well banks under-

stand the behavior, attitudes, and values of different customer segments. It

also addresses how banks derive this understanding from internal and external

sources and use it to drive business planning.

Multichannel customer management. Given the variety of customer access chan-

nels today, every step in the customer management process must address the

challenges of integration. This study investigates the performance of each pro-

cess step, including:

■ Product and service development

■ Acquisition

■ Advisory

■ Processing

■ Service

The Five Pillars of Excellence in Retail Banking 2007 – Introduction 10

People and organization. The process chain in multichannel customer

management spans a variety of organizational units within a bank that

must work together efficiently. The people and organization section in this

study assesses the degree to which good customer management and core-

banking practices are supported by the structure, policies, training, and leader-

ship within an organization. Experience shows that the results of this section

have the highest correlation with the overall business performance of individual

banks.

IT and application systems. Today, retail banking requires an architecture and

platform landscape that are both comprehensive and powerful. This part of the

study explores the current and expected capabilities that banks have identified

for handling data. In addition, it examines whether banks have a preference for

standard software for their core-banking landscapes, versus software developed

in-house.

11 The Five Pillars of Excellence in Retail Banking 2007 – Introduction

Research for The Five Pillars of Excellence in Retail Banking 2007 was conducted

using an online questionnaire that banks completed themselves. It reflects

responses collected from April 2006 through February 2007. Each question was

weighted according to its relationship to certain elements in customer manage-

ment and core banking that have typically had the greatest affect on overall

business performance. The results and conclusions presented in this report are

based on input from 180 separate retail-banking organizations operating in 44

countries. (See Figure 2.) The respondents represent a complete cross-section of

financial institutions around the world.

The Five Pillars of Excellence in Retail Banking 2007 – Research Methodology and Sample 12

RESEARCH METHODOLOGY AND SAMPLE

Figure 2: Study Participation by Country

Country No. ofBanks

No. ofBankers

Andorra 1 2

Austria 4 12

Belgium 11 39

Bosnia & Herzegovina 1 1

Bulgaria 2 2

Canada 1 1

China 1 1

Croatia 2 2

Czech Republic 8 14

Denmark 1 1

Estonia 1 4

Finland 2 2

France 22 36

Gabon 1 1

Germany 2 2

Greece 1 2

Hong Kong 1 1

Hungary 1 3

Iceland 1 2

India 1 1

Israel 1 3

Italy 22 36

Kosovo 1 2

Country No. ofBanks

No. ofBankers

Lativa 3 3

Lithuania 2 4

Luxemburg 6 8

Morocco 1 1

Netherlands 4 33

Norway 2 3

Poland 6 7

Portugal 11 34

Romania 5 10

Russia 3 5

Serbia 3 3

Singapore 1 1

Slovakia 7 11

Slovenia 2 5

South Africa 3 9

Spain 11 23

Sweden 4 9

Switzerland 1 4

Turkey 9 11

UK 4 8

Ukraine 3 3

TOTAL 180 366

13 The Five Pillars of Excellence in Retail Banking 2007 – Results

Figure 3 ranks individual banks in the study according to their overall scores for

current capabilities (dark blue area) and future expectations (light blue area).

This presentation shows the still startling desire of banks to improve their capa-

bilities significantly in a relatively short (three-year) time frame. Interestingly,

this picture has changed little in each of the annual studies since 2003.

Although banks participating in the study definitely have the tools to achieve

their goals, it is less clear that they will embrace the transformational changes

necessary to achieve those goals. The ranking of results shows a flatter curve

(from highest to lowest score) for what the banks hope to achieve in the next

three years than the curve indicating what banks have accomplished already.

Survey participants thus seem to be moving toward a more uniform future

score. This should increase competition over time and require individual institu-

tions to be ever more creative.

RESULTS

Figure 3: Current and Future Rankings for Individual Banks

Overall score per bank

Current state Expected state (+3 years) Order of banks (N = 180)

100 %

90 %

80 %

70 %

60 %

50 %

40 %

30 %

20 %

10 %

0 %1 10 18020 30 40 50 60 70 80 90 100 110 120 130 140 150 160 170

As Figure 4 shows, banks plan significant improvements for all areas addressed

in the study. However, the respondents in 2007 seem to position themselves

more conservatively than those in 2004. Banks expect to make the strongest

improvements in business intelligence and controlling. The big “loser,” surpris-

ingly, is service – the section for which banks had the highest expectations in

2003. Both the current emphasis on service and future expectations for this area

declined significantly between 2004 and 2007. However, expected improve-

ments exceed those from three years ago for both strategy and IT and applica-

tion systems.

The Five Pillars of Excellence in Retail Banking 2007 – Results 14

Figure 4: Overall Results by Study Section

Strategy

Business intelligence and controlling

Acquisition

Advisory

Processing

Service

People and organization

Information technology and application systems

Current banking average 2007 Expected future banking average 2010

100%

80%

60%

40%

2 0 %

N = 366

Strategy

A bank’s strategic goals are the key drivers of its customer management activity.

Asked for their primary business strategies, 84% of banks in the current study

favored growth over cost cutting – a similar percentage to three years ago.

However, the number of banks that preferred cross-selling as the key approach

for growth has declined from 43% to 38%. New customer acquisition was the

primary approach to growth for 37% of banks in the latest survey. (See Figure 5.)

Of banks that favor cost-cutting strategies, the shift toward eliminating unprof-

itable customers continues. Three years ago, reducing headcount was by far the

favored option. The current study also shows wide variation in the proportion

of both current and future retail banking costs devoted to IT. The question is

whether banks can improve efficiency and effectiveness in other areas – without

spending a greater share on IT.

Just 54% of recent respondents believe their IT systems are supporting or

advancing their strategies (see Figure 6), versus 64% in 2004. Banks that expect

to turn their systems into a competitive advantage within the next three years

have increased significantly, however, from 31% to 59%.


Figure 5 : Primary Business Strategy

What is your bank‘s primary business strategy?

90%

80%

70%

60 %

50 %

40 %

30 %

20 %

10 %

0 %

Primarily

driven by

growth

strategy

External

growth by

merger and

acquisition

New

customer

acquisition

Cross-selling

products

and services

to existing

customers

Primarily

driven by

cost-cutting

strategy

Incremental

process

improve-

ment

Broader

large-scale

business

process

reengineering

Headcount

reductions

Outsourcing/

shared services

Elimination of

unprofitable

customers

N = 366

84%

9%

37%38%

16%

3% 3% 3% 2%5%

Growth strategy Cost-cutting strategy

Although the proportion of banks that feel they are constrained by their cur-

rent IT systems increased between 2004 and 2007, the percentage of banks that

managed to turn their IT systems into competitive advantage increased, too. In

our view, banks that focus on IT investment that supports delivery will have the

competitive differentiation. However, those investments will have to be made

within the increasingly tough ROI disciplines that many banks are implementing.

Business Intelligence and Controlling

Retaining and leveraging an existing customer asset base can be difficult today –

especially in mature markets like western Europe. Banks must know more about

their customers and find efficient ways to use that information. Effective use of the

various IT systems that handle customer data requires careful strategic planning.


Figure 6: Strategic Value Added by IT Systems

What is the strategic value added by your current IT systems?

60 %

50 %

40 %

30 %

20 %

10 %

0 %

% of Respondents

Strategic disadvantage

Constrains our ability to deliver on our strategic

promise

Sufficiently supports our

business strategy

Strategic competitive advantage

Current state Expected state (+3 years) N = 366

7%

1%

39%

5%

37%34%

17%

59%


Among banks in the latest survey, 81% intend to use customer value as the basis

for customer segmentation within the next three years. As Figure 7 shows, however,

implementation of the concept is not uniform and has much room for improvement.

The number of banks making full use of customer segmentation has doubled over

the last three years. However, the trends in the chart have not changed significantly,

indicating that banks are still planning the implementation of this strategy.

Since the customer/value approach differs completely from the product/silo

approach that the industry still uses widely today, banks will need to make drastic

cultural changes to achieve this goal. The slow movement toward customer seg-

mentation between 2004 and 2007 shows that it could take significantly more time

for the customer/value approach to become standard in the banking industry.

Figure 7: Customer Segment Planning

Do you create plans that explicitly define strategies for the customer segments you wish to acquire, those you wish to retain, and those

you wish to develop based on their estimated value to the bank?

60 %

50 %

40 %

30 %

20 %

10 %

0 %

% of Respondents

Product-level plans only

Customer plans but value not considered

Partially Substantially Completely


14%

3%

12%

6%

33%

11%

29%

37%

14%

44%

Although most banks now regularly analyze customer data (see Figure 8), it

is clear that they are still aiming for a greater role for data mining. Moreover,

banks did not view the current status for customer analysis as positively as

they did in 2004, although the aim to improve that status within three years is

almost as high. These timescales, however, may simply not be long enough to

meet the banks’ expectations.


Figure 8: Customer Data Analysis

To what degree do you analyze or mine customer data?

60 %

50 %

40 %

30 %

20 %

10 %

0 %

% of Respondents

Customer data not analyzed

Ad hoc basic analysis

Regular, structured basic analysis

Regular basic analysis with

ad hoc data mining

Regular and consistent process of data mining


6%

1%

22%

2%

25%

10%

29%

22%20%

66%

Metrics for customer retention, efficiency, acquisition, and penetration (REAP)

must be coordinated between top management and individual bank depart-

ments and, where possible, with individual employees who are involved in cus-

tomer management. Over a third of banks in the 2007 survey either do not use

or are currently developing customer metrics. (See Figure 9.) Within three years,

however, the vast majority of the banks expect to have top-level metrics in place

or use REAP measures to drive the business. These expectations are probably not

realistic – unless there is a rapid breakthrough in this area, possibly driven by

gains in market share by specialized banks and non-banks.

A structured implementation of business intelligence and controlling measures

should be implemented by using strategic devices like customer segmentation and

the customer information plan. A bank’s IT infrastructure and organizational

alignment would also impact an effective rollout.

Multichannel Customer Management

Successful operations and information control are key to a successful customer

management strategy. Additional access channels for customers and a broader

product range have made monitoring operational processes more difficult over

the last two decades.

Acquisition

Today banks face a highly educated customer base that is increasingly aware

of the various offers available from mainstream banks and the non-traditional

financial services market. Consequently, a bank’s success has become more directly

related to how it manages prospect data and automates prospect targeting.


Figure 9: Customer Retention, Efficiency, Acquisition, and Penetration

Do you have a clear top-level set of measures that define customer-management performance for your organization in terms of retention, efficiency, acquisition, and penetration (REAP) that cascade

to form objectives for departments and individual employees?

60 %

50 %

40 %

30 %

20 %

10 %

0 %

% of Respondents

No customer measures exist

Development underway but no measures yet implemented

Top-level measures only

Top-level measures cascade to some

staff

REAP measures used to drive the business

Current state Expected state (+3 years)

14%

2%

21%

4%

25%

10%

28%25%

14%

58%

N = 366

Advisory

The quality of tools that a frontline employee has to complete across all of

the customer’s service and product areas will determine the relevance of the

employee’s advice and sales effectiveness. Employees benefit from automated

tools that easily link into core IT systems to drive personalized advice and

deliver visual presentations of product solutions. The good news is that in the

last three years, the portion of banks with fully automated tools has almost

doubled. (See Figure 11.)

Processing

High-quality relationships between customers and organizations outside the

financial services industry, such as online retail providers, have put pressure on

banks to provide similar levels of service. One third of banks in the 2006 survey


In the latest survey, 78% of banks say they have some capabilities for target-

ing prospects. (See Figure 10.) The proportion of banks with full capabilities

is expected to double within the next three years. The use of segmented data

should be particularly important to this increase.

Figure 10: Targeting of Prospects

What ability does your bank have to generate campaigns and target these at the customers you wish to acquire?

60 %

50 %

40 %

30 %

20 %

10 %

0 %

% of Respondents

Little/no capability to target

non-customers

Capability being developed

Some capability exists

Comprehensive – but only sometimes

based on segmented profiles of

non-customers

Comprehensive –always based on segmented profiles of non-customers


10%

3%

14%

4%

37%

11%

27%

33%

14%

51%


Figure 11: Automated Tools for Personalized Service or Advice

To what extent do your frontline employees have the automated tools to provide personalized service or advice across all retail banking products?

60 %

50 %

40 %

30 %

20 %

10 %

0 %

% of Respondents

Not at all Insufficient automation

Inconsistent automation

Partially automated Fully automated


6%2%

15%

1%

20%

4%

48%

33%

12%

62%

N = 366

handled exceptions for current accounts using processing that was largely or totally

manual. This fell slightly to 29% in 2007. (See Figure 12.) The number of banks that

fully automate this area is expected to double from 34% to 77% within three years.

Figure 12: Automated Exception Handling

How automated is the process for handling exceptions for current accounts?

60 %

50 %

40 %

30 %

20 %

10 %

0 %

% of Respondents

Process totally manual

Largely manual intervention

Some automation and override capability

Fully automated but mixed usage

Fully automated and used consistently


7%

1%

22%

4%

37%

19%

23%

35%

11%

42%

N = 366


Service

After cost, service is the strongest marketing focus for banks today. Banks that

offer accessibility around the clock, as well as comprehensive self-service offer-

ings via the Internet, raise the bar for all players. Although the availability of

real-time, channel-independent views of customer portfolios has not increased

dramatically since 2004, nearly two thirds of banks in the 2007 survey recognize

the importance of having access to all products across all channels by 2010. (See

Figure 13.)

Figure 13: Real-Time Views of Customer Portfolios

To what degree can customers access a real-time, channel-independent view of their portfolios?

60 %

50 %

40 %

30 %

20 %

10 %

0 %

% of Respondents

No integrated account status

visible

Some products/services in some

channels

All products/services in some

channels

Some products/services in all channels

All products/services in all channels


5%2%

25%

4%

23%

14%

27%

20%21%

60%

N = 366

Current capabilities for product and service development, acquisition, and

advisory were adjusted downward between 2004 and 2007. However, the

level of future expectations for these areas was as high as in 2004. This

means that while banks continue to view the areas as important, the gap

between current and expected capabilities has become larger.

People and Organization

The customer management approach requires a holistic view of relevant

processes that often run across different enterprise silos and sales channels.

Although a new IT landscape is probably required to implement customer

management strategies successfully, the real challenge is encouraging a bank’s

organization to make its corporate culture more customer focused.

The latest survey shows there is clearly room for improving organizational sup-

port for banks’ customer management strategies. Slightly more than a third of

banks in the latest survey currently motivate cooperation across their organiza-

tions through shared objectives. (See Figure 14.) Within three years almost half

of the banks intend to establish cross-functional, middle management owners

of customer management strategies.


Figure 14: Organizational Support

60 %

50 %

40 %

30 %

20 %

10 %

0 %

% of Respondents

Known issues with functional silo structure

Relies on cooperation of functional heads

Cross-functional cooperation supported with shared objectives/

incentives

Cross-functional middle management owner of customer management

Cross-functional owner of customer management at board level


6%

2%

29%

6%

35%

22%

19%

46%

13%

34%

N = 366

To what degree does the organizational structure support the implementation of Customer Management strategy?

The identification, focus, and management of customer-based processes are

central to the whole customer management approach. The first step towards

this goal is identifying the relevant processes. The next steps involve incorporat-

ing those processes into the customer management strategy and using IT con-

structively for strategy support. This requires a bank’s business and IT divisions

to synchronize their efforts.

Only 6% of banks in the latest survey regularly measure all business processes

against the service-level agreements used to drive continual improvements. (See

Figure 15.) The other banks are on their way toward this goal, with the majority

having identified relevant processes and implementing those agreements.

Nevertheless, banks have recognized the importance of understanding and

managing processes. One third intends to measure all processes against service-

level agreements within the next three years. Significantly, the proportion of

banks that intend to use process measurement for continual improvements rose

from 15% to 28% between 2004 and 2007.


Figure 15: Identifying Customer-Based Processes

To what degree are customer-based processes identified and managed?60 %

50 %

40 %

30 %

20 %

10 %

0 %

% of Respondents

Only formally identified a few customer-

management processes

All processes identified/some service-level

agreements being implemented

Service-level agreements

implemented for all key processes

All processes measured against service-level agreements

Regular measure-ment of all

processes against service-level

agreements used to drive continual improvement


24%

4%

32%

10%

28%26%

13%

33%

6%

28%

N = 366

IT and Application Alignment

Like the organizational structure, IT systems must reflect a bank’s business and

technology processes. The bank must be able to handle information across system,

product, and channel boundaries.


Figure 16: IT Landscape

How would you characterize your current infrastructure for core banking?

60 %

50 %

40 %

30 %

20 %

10 %

0 %

% of Respondents

Completely developed in-house

Predominantly developed in-house

Mixed in-house development and standard software

Predominantly standard software

Completely standard software


13%

6%3%

31%

14%

43%40%

11%

27%

14%

N = 366

Although banks can differentiate themselves from the competition with in-house

system development, such a policy has the disadvantage of lower flexibility and

higher maintenance. While it looks likely that a majority of banks will continue

to use both in-house systems and standard software, the latest study shows that

the proportion of those using predominantly standard software will increase to

41% over the next three years. (See Figure 16.)

The recent study also suggests that there are significant opportunities for

improving infrastructure as a whole. Expectations for exploiting the potential

from such improvements are undoubtedly ambitious given the lengthy dura-

tions of IT projects today and the parallel need to improve privacy, security, and

risk management.

These improvements will be necessary to meet the banks’ long-term goals for

real-time, multichannel management of products and customer portfolios.

Improvements in infrastructure will also help banks build a base for expansion,

increase flexibility for business model changes, provide more uniform service,

enhance customer data, and calculate service costs more accurately. Such changes

will give banks a better gauge of customer profitability and provide relation-

ship pricing for all customer interactions.


While there has been incremental progress in individual areas, this progress

falls far short of what banks had expected for 2007. While banks continue to

stress growth as their primary business strategy, there must be a significant shift

to a more flexible, customer-focused approach for the industry to achieve the

growth it desires.

It is also clear that banks emphasize different aspects in each of the five pillars

for their future success. For example 66% recognize that regular analysis and

data mining is important and there is a need to achieve regular and consistent

processing of customer data in the next three years, while only 42% believe

that having a fully automated process for account handling is critical for 2010.

As this report goes to press, banks around the world have published their 2006

financial results. Banks continue to show some stunning achievements. However,

retail banking still faces the greatest challenges. Despite the findings in this

report that most banks wish to grow their retail customer asset, not everyone

can win. So where does this leave the rest of the marketplace?

As we have shown in this year’s study, retail banks are slowly moving toward

a more integrated, customer-focused strategy. There are examples within the

industry of institutions that are increasing market and wallet share. Pressure to

do the same will continue for other institutions as those with the stamina for

change continue to succeed.

27 The Five Pillars of Excellence in Retail Banking 2007 – Conclusions and Recommendations

CONCLUS IONS AND RECOMMENDATIONS

50 078 646 (07/04)

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