The Magnificent 7 Cs of Change in U.S. Financial Services. Mark Sievewright President, Fiserv Credit Union Solutions October 25, 2013

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1 The Magnificent 7 Cs of Change in U.S. Financial Services Mark Sievewright President, Fiserv Credit Union Solutions October 25, 2013

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4 Game Changers The 7Cs: Consolidation Convergence Customer (Member) Focus Competition Channels Compliance Cost Management Macroeconomic & Geopolitical Risks Interest rates/inflation Unemployment U.S. housing market Sovereign Debt/EU instability Energy and commodity prices 4

5 In the Future..we will see a major shift in the established way of doing business; it will be replaced with a radically different way of doing business. 5

6 6 Market Dynamics

7 Summary of Credit Union Market Dynamics 1 Continued consolidation of the credit union system 4 Gains being made by CUs in terms of new members and asset growth Expected to accelerate Expected to continue 2 Heavy burden of regulation Expected to increase 5 Increasing levels of focus on digital transformation and payments Deep concerns about future impact of CFPB, Dodd-Frank and the NCUA Significant implications for member experience and relationship management 3 Overall financial performance of the CU system is much-improved Expected to continue but improvement is concentrated among larger CUs Importance of Mobiliti is obvious but not affordable for all CUs Concerns about disintermediation/ relevance (especially in payments) NCUA Special Assessments trending down to zero (pre-recession levels) Fiserv, Inc. or its affiliates.

8 Strategic Concerns: Financial Services Short Term Concerns Long Term Concerns Economic Environment The Great (and ongoing) De-Leveraging Government Finances Real Estate Markets Interest Rates and Inflation Regulatory Environment The Operating Environment CFPB Qualified Taxation Mortgages OD/ NSF Durbin/Interchange Restrictions Margin Compression Declining Non- Interest Income Continued Industry Consolidation Indirect Lending Exposure Managing Growing Compliance Costs Default Risk Morphing into Interest Rate Risk Competitive Environment The Mobile Platform Alternative Providers of Financial Services New Payments Paradigm The Role of the Branch in an Electronic Environment

9 Credit Unions Reduction in Provision Expense is Driving Earnings Operating Expense Net Interest Income Non-Interest Income Mortgage refinance and gain on sale Source: NCUA Quarterly Data; 2013 is 1 st quarter annualized 2012 Fiserv, Inc. or its affiliates.

10 Key Metrics Net Interest Margin vs. Operating Expense Without Non-Interest Income, the CU System would at best be a Break-Even business bps Sources: NCUA; CUNA Research Fiserv, Inc. or its affiliates.

11 Lack of Scale and Investment Capacity Matters Impacting the Performance/Competitiveness of Smaller CUs % Growth Growth Rates by CU Asset Segments Sources: NCUA; CUNA Research Fiserv, Inc. or its affiliates.

12 Lack of Scale and Investment Capacity Matters Impacting the Performance/Competitiveness of Smaller CUs % Percent of CUs with Positive ROA by Segment Sources: NCUA; CUNA Research Fiserv, Inc. or its affiliates.

13 In the Future..we should worry much less about becoming insolvent and much more about becoming irrelevant

14 14 Technology will be the catalyst for a paradigm shift in financial services delivery, service and information management

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18 Mobile Has Impacted Consumers Daily Habits More Deeply and More Quickly Than Most Expected SMS/Alerts Voice Organizer Budgets Banking Payment Commerce /MMS Communicate Control Ticketing IM/chat Social Create Consume Maps Transit Blogs Search Mobile web Pictures Video TV Music Games News 18

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22 The Evolution of Netflix

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24 reshaping life

25 2012 Fiserv, Inc. or its affiliates.

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29 29 Fast Forward to the Future Augmented Reality

30 reshaping life

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32 Top 5 Disruptive Technologies in 2025 (Measured in terms of Maximum Economic Impact)

33 3 3 Re-imagine Your World - No-Touch Interfaces: The Next Paradigm Shift?

34 member expectations >everywhere

35 35 Each new iteration of technology has required us to learn new skills to use it proficiently

36 Connected Devices Change How We Transact

37 Future: Untethered Interactions with Consumers 425,000 ATMs Billions of Devices Devices && Experiences People Love People Want 114,000 Branches Enterprise-Grade Solutions Organizations Need Enterprise-Grade Solutions 16,000 FIs

38 38 Smart Phones Outsell Basic Handsets

39 Mobile Banking Showing Rapid Adoption Branch Usage Declining Slightly Q22: Percent of Consumers Who Use Channel in Typical Month 90% 80% 70% 82% Any Lobby or Drive-Up Any Online Any Mobile 84% 79% 76% 67% From 2003 to 2010, between 80% and 84% of consumers indicated they use a branch lobby or driveup in a typical month. In the last three years, fewer than 80% of all consumers use a branch, with 76% indicating monthly branch usage in Spring % 50% 40% 35% Online banking continues its decade-long growth, with twothirds (67%) of all consumers now using this channel regularly. 30% 28% 20% 10% 0% Spring '03 Spring '04 Spring '05 Spring '06 Spring '07 Spring '08 Spring '09 Spring '10 10% Spring '11 20% Spring '12 Spring '13 Meanwhile, mobile banking is being adopted even more rapidly than online banking was. Mobile banking usage has more than tripled from 10% in 2011 to 35% today. Source: Fiserv-Raddon Financial Group National Consumer Research

40 Digital Channels Are Becoming the New Normal Preferred Channel Has Changed Explosive Mobile Banking Growth Telephone Mobile 3% 1% Mail 4X growth in last 5 years Households in millions ATM 6% 8% % 62% Branches Internet Banking Wells Fargo customers who use four channels are 1.8 times as profitable as customers who use one American Banker, March 18, 2013 Source: 2011 American Banker Association Survey and Jan 2012 Online Banking Report Source: Javelin Strategy & Research Report July

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42 Consumer Interactions with Financial Institutions Source: Tower Group

43 43 In the future, attitudes toward loyalty and service quality will be influenced largely by how much self-service is available

44 member expectations >ease

45 member expectations >immediate

46 Sales & Service Channels are Increasing Biometric Recognition? Branch Branch Call Center Branch Call Center ATM Branch Call Center ATM Web Branch Call Center ATM Web Mobile Branch Call Center ATM Web Mobile Tablet? NFC? TV? Social Networks? 46

47 The Payments Revolution

48 Shift to Electronic Payments Continues POS Payments Value, Share by Instrument Value in $T, share in % Other 1 Check Debit Credit Cash Other instruments include ACH, prepaid and book entry transfer Source: McKinsey U.S. payments map 48

49 49 Transforming How We Pay Bills..

50 Mobile BillPay Emerging Fast.

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52 52 The Future of the Plastic Card?

53 The Future of the Plastic Card?

54 Common Themes in Recent Payments Innovations New technology is the enabler Getting to scale has been remarkably fast FIs have not played a central role

55 55 The future of the plastic card may not involve plastic or a card.

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59 Bluebird: How Significant a Competitor?

60 60 Facebook to add Mobile Payment Feature

61 Powerful Non-FI Competitors

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65 65 The Future of the Plastic Card?

66 66 In the future, the information associated with a transaction could be more valuable than the transaction itself

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69 Data to insight

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71 The Power of Experience When people are inundated with indistinguishable choices, they perceive an experience - with a specific point of differentiation - to be superior. Scott McKain Collapse of Distinction

72 When our competition Zigs, we Zag..

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75 75 Avenues of Growth

76 Strategic View: Avenues of Growth Segmentation is a critical aspect for each of these growth approaches New Products Products that fit the competencies of the organization Segments that fit with competencies of the organization New Niches Growth Strategies New Geography Selective growth in new markets with new branching models Deepening relationships will be a key to growth for the foreseeable future Member Leverage

77 I. To Grow, Identify Key Segments and Offer Products and Programs Tailored to Their Needs Don t think of your member base as homogeneous in needs Utilize research to better understand various market niches Your markets and your core competencies will determine the appropriate niches

78 II. Relationship Development Is Vital to Organization Success Technology solutions (CRM and BI) are increasingly important Relationship pricing will deepen wallet share and help manage expenses Biggest hurdles: technology cost and staff development Loyalty and referrals are crucial for growth

79 III. Expanding the Share of Wallet is Crucial for Growth An important aspect of growth will come from acquiring existing loans held elsewhere Account acquisition costs for existing customers is a fraction of acquisition costs for new customers

80 IV. Diversify Income Sources: New Non-Interest Income Sources are Crucial Margin income and traditional sources of non-interest under increasing pressure Prime examples include investment and wealth management, insurance product sales, etc.

81 V. Transform the Branch Network with Upgrades in Both People and Technology Branch evolving into sales-and-service hub and away from transaction hub but remains essential as a channel Consistent experience across all delivery platforms becoming increasingly important Competency of staff magnified in importance: high-tech means hightouch

82 You can and should shape your own future; because if you don t, someone else surely will.

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84 The Magnificent 7 Cs of Change in U.S. Financial Services Mark Sievewright President, Fiserv Credit Union Solutions October 25, 2013