A Datamonitor report

Distribution Strategies in US Retail Banking

Integrating and optimizing channel technology to strengthen customer relationships
Published: Jul-05 Product Code: DMTC1100

Providing you with:

Coverage of the US retail banking sector, looking specifically at channels and multichannel integration Data from interviews with key decision-makers in 100 US retail banks IT spending forecasts to 2008

Use this report to... Understand the key drivers behind channel refresh initiatives in the US over the next few years

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Distribution Strategies in US Retail Banking Integrating and optimizing channel technology to strengthen customer relationships DMTC1100

Introduction
Multi-channel integration is set to become a key growth story in the US distribution channel technology market, as customers increasingly opt to use the full range of available channels. By investing in channel integration and gearing functionality towards channels strengths, US banks can offer seamless customer service, while improving cross-sell rates and leveraging process synergies.
Going forward, as banks cut back on aggressively targeting new customers and focus on retaining and cross-selling to more profitable existing customers, Datamonitor believes that moving towards a process-centric multi-channel architecture will be the most important area of technology investment for banks, which will in turn enable them to achieve straight through processing and leverage synergies across channels to improve both service and sales.

Key findings and highlights

Banks have a range of channels at their disposal with which to service customers, all of which are stronger in some areas than others. By identifying channels strengths, banks can ensure that each is fully leveraged in order to both improve service and increase sales opportunities. Spend will grow at a CAGR of 5.8% from 2004-8, equating to a $16.5bn market opportunity. External spending will drive growth, driven primarily by outsourcing and software investments although services growth will also be robust.

Reasons to buy
Size your addressable market to 2008 Understand the key drivers behind channel refresh initiatives in the US over the next few years

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Sample pages from the report

Competitive Dynamics

Spend by channel
Figure 10: US retail banking distribution technology spending, 2004-2008, by channel

Competitive Dynamics

money. Not only does this reduce money-handling costs for the banks, but it also allows customers to make deposits directly into their account without the need to fill out an envelope or stand in line for a teller.

Developing business intelligence and CRM analytic capabilities Competitive Dynamics

Figure 8: The Business Intelligence Continuum

Gathering, analysing and utilising data should be an automatic and continuous exercise
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Business strategies

Business drivers for banks channel strategies

Table 1: $m ATM Branch Call center eBanking Other Channel Total
Source: Datamonitor

Figure 2: US retail banking distribution technology spending, 2004-2008, by channel 2004 3,039 4,462 2,812 2,413 436 13,161 2005 3,135 4,691 2,981 2,627 462 13,896 2006 3,251 4,938 3,158 2,853 486 14,686 2007 3,417 5,232 3,350 3,090 518 15,607 2008 3,598 5,573 3,457 3,318 548 16,494 CAGR 4.3% 5.7% 5.3% 8.3% 5.9% 5.8%

The retail banking distribution environment

Source: Datamonitor

DATAMONITOR

DATAMONITOR

Distribution strategies in US retail banking Datamonitor (Published 05/2005)

Banks will differ in their approaches to business intelligence DMTC1100

Page 36 While US banks are focused on improving automation and integrating channels, one

This report is a licensed product and is not to be photocopied of the key objectives for banks is to enable branch staff to service and sell to

customers better. To this end, most US banks are seeking to increase functionality on the teller platform through the introduction of various CRM tools. The extent to which banks will incorporate CRM into their systems will vary: Small and mid-sized banks will opt for packaged teller solutions which incorporate basic customer management and sales automation tools.

Source: Datamonitor

DATAMONITOR

Distribution strategies in US retail banking Datamonitor (Published 05/2005)

DMTC1100

Page 31 Banks will This report is a licensed product and is not to be photocopied be addressing the following areas for their distribution strategies:

Service: as margins come under pressure, customer service is critical to retaining existing customers and can also be a differentiator for new business; Sales: banks must carefully manage their sales strategies to maximize revenue from customers, while maintaining customer satisfaction;

Distribution strategies in US retail banking Datamonitor (Published 05/2005) This report is a licensed product and is not to be photocopied

DMTC1100 Page 14

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Distribution Strategies in US Retail Banking Integrating and optimizing channel technology to strengthen customer relationships DMTC1100

Table of contents
EXECUTIVE SUMMARY INTRODUCTION MARKET CONTEXT Introduction Industry dynamics - Front office trends and consumer behavior Deposit and home equity growth favor extensive branch networks and present cross-sell opportunities The branch remains the most important channel for business generation Customers are using a combination of channels to research and service financial products As the US retail banking market matures and consolidates, banks look to customer service to differentiate themselves and retain more profitable exisiting customers - Mergers and acquisitions Need for comprehensive geographic branch coverage is prompting both M&A activity and organic growth - Regulatory compliance and fraud Banks looking for synergies to alleviate regulatory burden Check 21 legislation gives banks the opportunity to benefit from teller platform upgrades The increasing threat of fraud is a concern for the online channel in particular - Implications/challenges of industry trends Business strategies - Business drivers for banks' channel strategies - Accessibility, convenience and strengths of channels dominate customer servicing strategies

- Banks must train and incentivise staff to maximise revenue without compromising customer satisfaction Training and incentivizing sales staff will be critical to effectiveness CRM analytics prompts to help improve staff productivity
Improve sales capabilities of other channels - As the primary business generation channel branch presence is still critical Automated branches free up staff for higher value/more complex transactions

Banks must optimize channel functionality towards their strengths Banks must improve customer service availability by making channels accessible

Adopting tactics from retailers Extending their remit and convenience encourages customers to use ATMs By providing education and additional facilities, banks can further enhance the customer branch experience - eBanking offers outstanding CRM opportunities for banks CRM analytics to enable personalised marketing Site functionality to tie customers into using website Add services to strengthen relationship with the bank - Contact center channels enable banks to offer personal service at a lower cost 24 hour access to the bank is critical for customer service and to stem fraud Access to CRM information for call center cross-sales Other channels provide low cost service options for banks Multichannel strategy - Banks must integrate channels to support CRM sales/service tools and capitalise on synergies Integration key to CRM-enabling channels, both to identify cross-sell opportunites and provide seamless customer service M&A impelling banks to think about channel strategies and integrating disparate systems

...Banks hoping to differentiate on seamless customer service must integrate channels to support CRM sales/service tools and capitalize on synergies...
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Some banks will view integration as more strategic than others Technology drivers/business execution strategies - Developing a multi-channel architecture for a single customer view - Channel refresh driven by legacy inflexibility Moving branch platforms to a centralised architecture facilitates flexibility and cost efficiencies Enabling real-time and account management at ATMs eBanking channel is due for a refresh regardless of channel integration - Automating processes to drive efficiency, STP and self-service

TABLES Table 1: Table 2: Table 3:

US retail banking distribution technology spending, 2004-2008, by channel External US retail banking distribution technology spending, by channel and source US retail banking distribution channel development and multi-channel integration technology spending

STP and process integration will be a major investment area over the long term Process automation will enable improved self-service functionality - Developing business intelligence and CRM analytic capabilities Banks will differ in their approaches to business intelligence - Leveraging channel integration for fraud detection and regulatory compliance Online security/fraud Regulatory compliance

FIGURES Figure 1: Figure 2: Figure 3: Figure 4: Figure 5: Figure 6: Figure 7: Figure 8: Figure 9: Figure 10: Figure 11: Figure 12:

THE FUTURE DECODED Introduction Key findings Spend by channel Spend on external technology Spend on channel development and multichannel integration Conclusions APPENDIX

Figure 13:

Executive summary The retail banking distribution environment Channel strengths Branch renewal strategy elements IT investment in distribution channels 2004-2005 Process-centric multi-channel architecture Channel investment in relation to multi-channel strategy The Business Intelligence Continuum Summary of banks' primary multi-channel strategy technology requirements US retail banking distribution technology spending, 2004-2008, by channel External US retail banking distribution technology spending, by channel US retail banking distribution channel development technology spending, by channel US retail banking distribution channel development and multi-channel integration technology spending

...Datamonitor believes that investment in multi-channel integration is set to be a key growth area in the US retail banking distribution channel technology market to 2008...
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Distribution Strategies in US Retail Banking Integrating and optimizing channel technology to strengthen customer relationships DMTC1100

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Interested in this topic?

Datamonitor's Retail Banking Technology Strategic Planning Program (SPP) is a tailored, continuous advisory service combining a number of information sources.
As opportunities for revenue growth remains weak, operational efficiency is dominating IT strategy in retail banking. This SPP provides analysis for both financial institutions and vendors by connecting business trends with IT strategy and expenditure. Specific areas of coverage include: core systems, payments technologies and distribution channels plus vendor dynamics and competitive positioning.

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