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The New Banking

Channel Network
Improving the Bottom Line
through Channel Optimization
Leading Research Paul Hyde
Ashish Jain
Kumar Kanagasabai
Javier Sepulveda-Navarro
Booz & Company
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Trends 20092015 Profitability
Gen Y
Gen Y and younger to grow from 26% to about 40%of the workforce by 2015
Rely heavily on new media (e.g., social networking, iPhone applications) in day-to-day activities
Mass
Future income stream hit by unemployment and flat/falling wages
Demand for lending products contracting as customers seek to de-lever and increase savings rate
Retirees
Population ages 65 and older to grow by 30% to almost 50 million by 2015
Demand increasing for investment products to supplement uncertain Social Security payments
Acceptance of online delivery methods is increasing
Small Business
Small businesses appetite for, and access to, debt will recover slowly, and banks and businesses
continue to de-lever
Small business profits to recover slowly, in line with the economy and consumer spending
Segment
Mass Affluent
Income and home assets hit, but recovering as earning power more resilient and wealth diversified
Debt servicing capacity recovering, with balance sheet and income leading to some lending growth
Strong preference for remote channels for day-to-day transactions
Current Trends across Market Segments Point to a Difficult Low-

Growth Environment for Banks
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Total Online/Mobile
5%
Call Center
10%
ATM
10%
Branch
75%
These Trends Are Creating New Pressures to Reduce Branch-Based
Costs and Reinvest in Alternative Low-Cost Channels
Channel Cost Structure -

Banks
Reduce
Costs
Increase Investments
Pressures on the Branch Network
Aggressive branch growth resulting in
oversupply in certain markets
Shifting of branch volume for servicing
and transactions to virtual channels
driving higher unit cost at branch
70% of the branch traffic is driven by the
least profitable customers (i.e., mass
market)
Limited branch channel usage by
younger, more affluent customers
Customer expectation for ubiquitous
connectivity and seamless integration
across all channels
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Previous Attempts to Develop a Coherent Multichannel Model
Proved Unsuccessful
Poor Channel
Alternatives
Customer Push
Rather Than Pull
Continued Channel
Conflict
Customer
Reluctance to
Migrate
Transactions
Limited functionalities offered by alternative channels for banking needs
Poor customer experience in using the alternative channels (e.g., onerous voice response menus,
fragmented and difficult-to-navigate online channels)
Introduction of penalty fees to drive customers toward the low-cost channels (i.e., stick instead
of carrot)
Lack of systematic education of customers on capabilities and benefits of alternative channels
Lack of channel role clarity to perform sales, servicing, and transactions
Competing capabilities built across channels with limited integration, driven by siloed approach to
channel management
Strong preference by most of the customer base to interact with banks through the branch
Reluctance to use alternative channels for banking needs because of lack of functionality,
perceived lack of comfort and security
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2
3
4
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Today, Customers Are Ready to Adopt Multichannel Access Points
to Transact with Banks
Credit Card 15% 85%
Savings
Account
39% 61%
Personal
Checking
Account
38% 62%
Might Obtain by Phone, Mail, or Internet Would Only Obtain Face-to-Face
Simple Product Origination
42% 58%
Mortgage 64% 36%
Investment
Management
Account
Personal Loan 61% 39%
Complex Product Origination
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ATM
With Significant Improvements in Alternative Channel
Capabilities, Integrated Multichannel Strategy Is a Reality
Evolution of the Channel Network
(19902010)
1990
2000
2010
Branch
ATM
Call Center
Poor channel alternatives
to the branch
Siloed delivery network
ATM
Bank
Website
Emergence of online channel
Basic functionality in non-
branch channels
Call
Center
Branch
Call Center
Proliferation of attractive alternative
channels (e.g., new media & mobile)
Increasing adoption of alternative
channels by customers
Push toward channel integration
Mobile
Branch
Customers
Bank
Website
Social Media
Online
Budgeting
2
Customers
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However, to Make the Switch, Customers Need to Be Educated
about Alternative Channel Capabilities
Aware of capability,
but do not use
Not aware of ATM cash
deposit capability
All Segments
55%
45%
Prefers to do cash
deposits in the
Branch
Prefers to do cash
deposits in the ATM
CASH DEPOSIT EXAMPLE
7%
Branch
ATM
Other
All Segments
75%
18%
75% of customers prefer the branch
to make a cash deposit
1
However, 45% of those customers are not aware
they could do this transaction at the ATM
2
3
1) Represents answer to question in survey -

In what way do you prefer to make a cash deposit?
2) Represents answer to question in survey -

Does your bank offer you the capability to make a cash deposit at the ATM?
Source: Booz & Company proprietary research
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An Integrated Channel Architecture Is Required to Deliver on
Segment Preferences, Economics, and Product Complexity
Deposits/
Withdraw-

als
Payments Transfers
Problem
Resolu-

tion
Inquiries Servicing
Cross-

Selling
Closing
Applica-

tion
Research
Transaction Origination Customer Service
Products
M
a
s
s
S
m
a
l
l

B
u
s
i
n
e
s
s
Simple
Complex
Online
ATM
Online
ATM Online/Call Center
Branch
A
l
l
C
h
a
n
n
e
l
s
Branch
Online/Call Center
Simple
Complex
ATM ATM/Online Branch
A
l
l
C
h
a
n
n
e
l
s
Branch/Call Center
Online/Call
Center
Branch
Online
Branch
Call
Center
Branch
4
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This Tailoring Will Result in a New Segment-Driven Branch
Model with a Greater Focus on Sales
Mass Affluent Branch
Market
Characteristics
Mortgage Tax IRA Treasury Merchant Services
Emerging Affluent
Branch
Model
Branch
Attributes


High-end branches exuding exclusivity


Personalized service


Support need for privacy


Extended hours


Dedicated service personnel for business clients


Integrated ATM capability
Small Business Segment
Small Business Branch
Remote Product Specialists Remote Product Specialists


High home ownership rate, with
accessible equity


High-income area


High business density


High proportion of business customers
Vault
Services
Business
Services
Business
Services
Wealth
RM
ATM
Imaging
ATMs
Business
RM
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Specific Capabilities Need to Be Developed to Support Each
Channels Mission
Required Channel Capabilities -

Examples
Single governing body managing investments across channels and ensuring alignment of
channel roles to client needs
Incentives for channel owners to cooperate, not compete, with each other
Training and ongoing education for client-facing employees to understand client needs,
enable collaboration and referrals across channels
Massive customer education campaigns to nurture better understanding of the capabilities in
alternative channels
Improved sales collaboration and warm handoff processes across channels
Increased consistency and standardization of processes and policies across channels
Standardized customer experience aligned to segment needs and value across channels
Access to single view of customer across channels to understand current relationships and
potential needs
Consistent information availability and customer data capture across channels
Integrated channels across origination, customer service, and transaction value chain
Channel
Governance
People
Process
Technology
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Implementing the New Channel Network Drives 10% to 15% Cost
Savings
75
45
Total Staff-Related
Technology
5
Staff
Support Services
25
Staff Reduction
Note: Based on a fully loaded RM salary of $100,000 per year.
Source: Booz & Company proprietary research
EXAMPLE:
Branch cost
base of $700M
Fully Loaded Branch Cost Savings
(US$, in millions)
Channel Network Benefits
5% to 7% cost savings from reduced branch
staff driven by transactional volume transfers
to alternative channels
3% to 5% cost savings from streamlined
branch support services - e.g., efficiencies in
the internal call center
2% to 3% cost savings from a reduction in
FTE-driven technology costs - e.g., software
licenses and equipment
ILLUSTRATIVE
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Contact Information
Chicago
Ashish Jain
Principal
+1-312-578-4753
ashish.jain@booz.com
New York

Paul Hyde
Partner
+1-212-551-6069
paul.hyde@booz.com
Kumar Kanagasabai
Principal
+1-212-551-6455
kumaresan.kanagasabai@booz.com
Javier Sepulveda-Navarro
Senior Associate
+1-212-551-6498
javier.sepulveda@booz.com
Booz & Company
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Booz & Company is a leading global management consulting
firm, helping the worlds top businesses, governments, and
organizations.
Our founder, Edwin Booz, defined the profession when he
established the first management consulting firm in 1914.
Today, with more than 3,300 people in 60 offices around the
world, we bring foresight and knowledge, deep functional
expertise, and a practical approach to building capabilities
and delivering real impact. We work closely with our clients
to create and deliver essential advantage.
For our management magazine strategy+business, visit
www.strategy-business.com.
Visit www.booz.com to learn more about Booz & Company.
2010 Booz & Company Inc.
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