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Percival Charles
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1 Welcome to Today s Web Seminar SPONSOR BY CONTENT FROM HOSTED BY

Moderator: Michael Sisk Contributing Editor, American Banker Michael Sisk is a New York-based journalist who has covered business and the financial markets for 20+ years, including stints as the

2 Moderator: Michael Sisk Contributing Editor, American Banker Michael Sisk is a New York-based journalist who has covered business and the financial markets for 20+ years, including stints as the investor editor at Red Herring, editor-at-large at US Banker, and contributing editor at Bank Technology News. His articles have appeared in numerous publications, including American Banker, Barron's, Crain's New York Business, Inc., Institutional Investor, strategy + business and Worth. Michael has co-written and edited three books; the most recent was Merge Ahead: Mastering the Five Enduring Trends of Artful M&A (McGraw-Hill 2009).

3 Nicole Sturgill Principal Executive Advisor, Retail Banking, CEB Nicole Sturgill, an executive advisor at CEB, has a global perspective on the financial services industry. From armored currency carriers in Eastern Europe to local bank branches in South Africa, and everything in between, she has seen it all. Nicole specializes in delivery channels and is the research lead for projects related to ATMs, branches, contact centers, online banking and mobile banking. With expertise spanning a broad range of industry issues including ATM strategy and processing, cash supply chain management, operational analysis, vendor management and regulatory compliance Nicole provides clients with valuable solutions-based management advice.

4 Katy Gibson VP Product Management, Envestnet Yodlee Katy Gibson is the vice president of product applications at Envestnet Yodlee. She has over 20 years of experience in developing technologies that support financial institutions, focused on products and services that help users better manage their finances and improve their financial wellness.

5 Creating a Personalized and Predictive Digital Banking Experience CEB Retail Banking Leadership Council 5

6 Customers increasingly prefer to conduct their banking activities in digital channels. As of 2015, 57% of customers in the United States and Canada prefer multichannel and digital channels for their banking activities. PAST THE POINT OF NO RETURN Channel Preference Typology Percentage of Customers, United States and Canada, % Live Channel Preference Multichannel Preference 58% 51% 43% Digital Channel Preference 50% 16 % 17% 22% 41% 25% 27% 0% 2010 n = 1,370 (2010); 2,098 (2013); 1,653 (2015). Source: CEB 2010, 2013, and 2015 Customer Experience Surveys. digital technologies. Note: Channel preference typology is based on a customer s preferences for conducting key banking activities using

7 At first glance, the shift toward digital channels may seem to be good news as digital customers historically tended to be more profitable. DIGITAL CUSTOMERS SEEM MORE LUCRATIVE Balances at Primary Institution a Median Checking and Savings Balances (in US$), United States, 2013 Products at Primary Institution a Median Number of Financial Products at Primary Institution, United States, 2013 The median digital customer has greater assets than the median non-digital customer. $3,500 $3, $1,750 $1, $0 Digital Customers b Non-Digital Customers n = 3,900. Source: Federal Reserve Board, Survey of Consumer Finances, 2013, CEB analysis. a Primary institution is defined as the financial provider with which the customer has the majority of their deposit and lending products. b Digital customers are defined as customers who learn about financial products and interact with their banks using digital channels. Note: Calculations do not include individuals with investable assets over US$1 million. 0 Digital Customers b Non-Digital Customers n = 4,168. Source: Federal Reserve Board, Survey of Consumer Finances, 2013, CEB analysis. a Primary institution is defined as the financial provider with which the customer has the majority of their deposit and lending products. b Digital customers are defined as customers who learn about financial products and interact with their banks using digital channels. Note: Calculations do not include individuals with investable assets over US$1 million. 7

8 Despite having greater assets, digital customers are actually giving their primary financial institution a lower proportion of their total business. DIGITAL CUSTOMERS SPREAD BALANCES Financial Consolidation at Primary Institution a Percentage of Customers, United States, 2013 Digital customers are much more likely to spread their balances across multiple providers. 70% 66% Digital Customers b Non-Digital Customers 49% 35% 37% 15 % 0% n = 3,900. Source: Federal Reserve Board 2013 Survey of Consumer Finances. Note: Calculations do not include individuals with investable assets over US $1 million. a Primary institution is defined as the financial provider with which the customer has the majority of their deposit and lending products. b Digital customers are defined as customers who learn about financial products and interact with their financial providers using digital channels. All Products at Primary Institution All Checking and Savings Balances at Primary Institution 8

9 Digital customers tendency to use multiple financial institutions cannot be attributed to any particular age segment. IT ISN T JUST MILLENNIALS Number of Financial Services Providers Used by Age Customers with Multiple Financial Products, Global, 2015 Across all age segments, only about 25% had only one financial provider. Number of Financial Providers 6% Five or More Number of Financial Providers 8% Five or More Number of Financial Providers 8% Five or More 7% Four 9% Four 9% Four 24% Three 24% Three 22% Three 37% Two 33% Two 35% Two 26% One 26% One 25% One 18 to to or Older n = 1,427. Source: CEB 2015 Customer Experience Survey. Note: Totals may not equal 100% due to rounding CEB. All rights reserved. RBLC PR 9

10 The evolution of mobile banking has contributed to the advancement of PFM tools that are more intuitive and user- friendly. GROWTH OF MOBILE OPENS OPPORTUNITIES FOR PFM Mobile Banking Usage Over the Past 12 Months by Age Segment Percentage of Retail Banking Customers Reporting, 2013 and 2015 The integration of PFM tools with bank mobile apps has led to the simplification and disaggregation of the tools. 40% = +17 percentage points 37% = +12 percentage points 24% 20% 20% 12% = +8 percentage points 14% 6% 0% n = 1,145 (2013); 1,290 (2015). Source: CEB 2013 and 2015 Customer Experience Surveys or Older CEB. All rights reserved. RBLC PR 10

Digital customers spread their wallets because technology makes it easy to manage different products across multiple financial institutions.

and access financial products and services from multiple providers, as well as link these services to each other.

11 Digital customers spread their wallets because technology makes it easy to manage different products across multiple financial institutions. EASIER TO MANAGE MULTIPLE PROVIDERS Managing Bank Relationships from a Single Mobile Screen From a single smartphone, tablet, or computer screen, customers can now very easily use and access financial products and services from multiple providers, as well as link these services to each other. As a result, there is less value for customers in consolidating their products and services with a single institution. Primary Bank Credit Card Provider Source: CEB analysis. Mortgage Provider Bank with Secondary Checking Account CEB. All rights reserved. RBLC PR 11

12 PIVOTAL STEPS TO ACHIEVING FINANCIAL GOALS Pivotal Steps Financial Planning Allocating funds for trusts or gifts Creating a budget Creating a savings plan Determining the total value of your assets Figuring out how much you will need to save Figuring out the best timeline for repayment Taking advantage of tax incentives Writing a will or other estate planning document Purchasing Products Applying for a mortgage or a home loan Applying for a personal loan Applying for a new financial product (other than a loan) Deciding whether to get a loan Finding the best loan for your needs Purchasing insurance to mitigate the financial impact of an emergency Staying on Track Ensuring that you do not overdraft on your account Ensuring that you save money on a regular basis Monitoring your finances consistently Putting your money in the right accounts or investments Reducing spending on unnecessary purchases Setting money aside to pay regular loan installments Tracking and paying bills on time Understanding your spending habits Source: CEB analysis CEB. All rights reserved. RBLC PR 12

13 As a result, digital customer loyalty is driven by their financial institution s ability to help them meet their financial goals. Of the actions that customers find most critical to accomplishing these goals, most must be taken on an ongoing basis. MOST CRITICAL STEPS INVOLVE STAYING ON TRACK Most Important Financial Steps Customers Were Asked to Select up to Two Steps That They Considered Most Critical to Their Ability to Accomplish Their Most Important Financial Goals, Global, 2015 Reducing Spending on Unnecessary Purchases Ensuring That You Save Money on a Regular Basis 32% 32% Staying on Track Financial Planning Putting Your Money in the Right Accounts or Investments 27% Creating a Savings Plan 26% Tracking and Paying Bills on Time 25% Monitoring Your Finances Consistently 20% Figuring Out How Much You Will Need to Save 19 % n = 5,383. Source: CEB 2015 Customer Experience Survey. 0% 20% 40% CEB. All rights reserved. RBLC PR 13

14 The most effective way for banks to help customers stay on track is by driving action on key financial activities, rather than by providing information or reducing complexity. There are two main reasons for this: First, unlike financial planning and purchasing, there is much less urgency around small daily decisions because they seem insignificant compared to long-term goals (e.g., purchasing a single cup of coffee is unlikely to push someone too far off track on their retirement plan). Second, daily habits are very difficult to change, requiring customers to make a short-term sacrifice (e.g., giving up a cup of coffee to save for retirement is a painful trade-off, particularly when that choice must be made every day). DRIVING ACTION HELPS CUSTOMERS STAY ON TRACK Relative Impacts of Key Drivers on Bank Effectiveness at Helping Customers Stay on Track Percentage of Total Impact Explained by Each Driver, Global, % 50% 0% 13 % Providing Information The bank provides materials to help me with my financial steps. n = 3,943. Source: CEB 2015 Customer Experience Survey. Note: We calculated how bank helpfulness at staying on track changed as a result of the bank being effective at each of the three drivers. The numbers represent the share of impact that was explained by each individual driver. Total does not equal 100% due to rounding. 24% Reducing Complexity The bank reduces the complexity of managing my finances. 64% Driving Action The bank motivates me to take action on financial issues that I would have otherwise ignored CEB. All rights reserved. RBLC PR 14

15 Helping with pivotal steps is a way for financial institutions to really add value to customers financial lives, and those that are effective at this build customer loyalty and prevent disloyalty. Customers whose banks are effective at helping with pivotal steps are 50% more likely to be loyal and 30% less likely to be disloyal. HELPING WITH PIVOTAL STEPS BUILDS LOYALTY Loyalty Impact of Bank Helpfulness in Completing Pivotal Steps Percentage of Customers, Global, % 41% = 1.5x 62% Disloyalty Impact of Bank Helpfulness in Completing Pivotal Steps Percentage of Customers, Global, % 35 % 35 % 20% = 0.7x 13% 0% Bank Is Not Effective at Helping Customers with Steps Bank Is Effective at Helping Customers with Steps n = 4,208. n = 4,208. Source: CEB 2015 Customer Experience Survey. Source: CEB 2015 Customer Experience Survey. Note: We used a multinomial regression model to compute the probability that a customer would fall into a given loyalty category given bank helpfulness in enabling financial steps and controlling for other mitigating factors. 0% Bank Is Not Effective at Helping Customers with Steps Bank Is Effective at Helping Customers with Steps CEB. All rights reserved. RBLC PR 15

16 A VALUE PROPOSITION TURNED ON ITS HEAD Traditional Bank Value Model Digital Bank Value Model Commoditized Distribution Easy to learn about new offers and manage multiple providers Mobile makes all banks accessible Differentiated Distribution Differentiated Products Commoditized Products Traditional banking products provide little opportunity for differentiation Ease of banking at a single location drives consolidation Convenience of bank locations and accessibility drives value Source: CEB analysis. Access to customers data and availability to embed in their daily lives through digital creates opportunity for a new kind of support Value driven by products designed to address customer needs Source: CEB analysis CEB. All rights reserved. RBLC PR 16

RETHINKING CUSTOMER FINANCIAL NEEDS Customer Steps for Goal of Increasing Overall Savings Steps for Which Traditional Products Are Responsible Steps for Which Customers Are Largely

Monitoring your finances consistently Setting money aside on a regular basis Reducing spending on unnecessary purchases Tracking and paying bills on time Putting your money in the

17 RETHINKING CUSTOMER FINANCIAL NEEDS Customer Steps for Goal of Increasing Overall Savings Steps for Which Traditional Products Are Responsible Steps for Which Customers Are Largely Responsible Keeping money safe Savings Account Increasing returns relative to risk Investment Products Creating a savings plan Understanding your spending habits Creating a budget Monitoring your finances consistently Setting money aside on a regular basis Reducing spending on unnecessary purchases Tracking and paying bills on time Putting your money in the right accounts or investments Applying for new financial products and services Taking advantage of tax incentives Source: CEB analysis CEB. All rights reserved. RBLC PR 17

Financial institutions can embed in customers lives to help them stay on track by automating key behaviors to remove the burden of constant monitoring and adjustment.

18 Financial institutions can embed in customers lives to help them stay on track by automating key behaviors to remove the burden of constant monitoring and adjustment. EXAMPLE: AUTOMATING KEY BEHAVIORS Automating Key Behaviors to Remove the Burden of Constant Adjustment Even Mobile App Even a mobile app by a financial technology company helps customers stay on track by automating the movement of money across accounts to ensure that customers with fluctuating paychecks are able to maintain a consistent cash flow from month to month. The app calculates average income for customers with fluctuating monthly pay. During high-income months, money is automatically set aside as savings When income is below average, money is replenished into the customer s account to even out cash flow. Source: Even; CEB analysis CEB. All rights reserved. RBLC PR 18

them the longterm consequences of the small, everyday spending decisions they likely ignore such as buying a cup of coffee. Customers create or select the sacrifice they are making.

19 Financial institutions can also drive customer action by increasing the urgency of small, seemingly insignificant decisions. EXAMPLE: SUPPORTING A LONG-TERM VIEW Driving Urgency to Influence Customers to Take Action Small Sacrifices, Tangerine Bank Tangerine, a Canadian direct bank, helps customers stay on track by showing them the longterm consequences of the small, everyday spending decisions they likely ignore such as buying a cup of coffee. Customers create or select the sacrifice they are making. They then choose the account they want to put their money into. They put in the amount and can add to their list of most common sacrifices. The app tracks these small acts of saving and projects possible future savings based on current practices. Source: Tangerine; CEB analysis CEB. All rights reserved. RBLC PR 19

20 ENGINEERED FOR CUSTOMERS DESIRED OUTCOMES Traditional Banking Product Outcome-Engineered Product What It Is: Provides traditional bank capabilities keeping money secure, creating easy access to money, providing access to credit, and increasing returns on savings Increases the likelihood that customers achieve their desired financial outcome Key Components: 1. Features, 2. Fees, and 3. Regulatory Requirements 1.An understanding of what a customer is trying to accomplish 2. A view into the customer challenge to achieving that outcome 3. A better way to accomplish that step than what the customer is currently doing Role in Helping Customer to Stay on Track: Low: some tools, like bill pay and PFM, provide information about how the customer currently manages his finances High: designed to support and even enact the right behaviors for achieving outcomes by embedding in the customer s financial management Source: CEB analysis CEB. All rights reserved. RBLC PR 20

22 Marketplace Evolution The marketplace is quickly moving from mobile-first to AI-first consumer-first IDENTIFYING FINANCIAL BEHAVIOR THROUGH FINANCIAL DATA 2017 Envestnet Yodlee. All rights reserved. Envestnet Yodlee Confidential 22

Creating Financial Personas Using Account and Transaction Data 2017

24 Evolution of Personalization Architecture Input from various financial end points Apply Data Intelligence Normalize, Enrich, Make Actionable Dynamic user profile Used at various end points 2017 Envestnet Yodlee. All rights reserved. Envestnet Yodlee Confidential 24 24

From Data Intelligence to Personalized Guidance USE CASE: I want to buy

Can I afford to spend $200 today? Should I spend $200 on shoes?

25 From Data Intelligence to Personalized Guidance USE CASE: I want to buy a fancy pair of shoes Today Predictive Diagnostic Prescriptive Traditional Banking My Projected Balance My Financial Profile Personalized Guidance What s my checking account balance? Can I afford to spend $200 today? Should I spend $200 on shoes? Help me optimize my shoe purchase 2017 Envestnet Yodlee. All rights reserved. Envestnet Yodlee Confidential 25

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A GUIDE TO BEST PRACTICES SMALL BUSINESS BASICS:

A GUIDE TO BEST PRACTICES SMALL BUSINESS BASICS: SMALL BUSINESS BASICS: A GUIDE TO BEST PRACTICES Starting Your Business Controlling Cash Flow Increasing Profitability Growing Your Business Protecting Your Assets Planning for Business Transition Similar