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The Future of Banking: Innovating Beyond Today’s Barriers

The Future of Banking: Innovating Beyond Today’s Barriers. John White Americas Banking Leader, IBM Institute for Business Value November 2007. Part of IBM’s Global Business Services Focuses on vertical industries and horizontal processes Over 60 dedicated, experienced consultants

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The Future of Banking: Innovating Beyond Today’s Barriers

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  1. The Future of Banking: Innovating Beyond Today’s Barriers John White Americas Banking Leader, IBM Institute for Business Value November 2007

  2. Part of IBM’s Global Business Services Focuses on vertical industries and horizontal processes Over 60 dedicated, experienced consultants Primary offices in Boston & Amsterdam The Institute for Business Value is IBM’s global research group focused on issues critical to business executives Mission: The IBM Institute for Business Value (IBV) creates fact-based thought leadership and tools that help clients realize business value Banking Specialization & Innovation | 20-Dec-19

  3. Winning banks will specialize and innovate to meet the demands of savvy customers and intense competition • Customers take charge • Specialization is imperative • Innovation is the path to growth and differentiation Banking in 2015: Industry Snapshot Source: IBM Institute for Business Value Banking Specialization & Innovation | 20-Dec-19

  4. Competitive Spectrum Mass Targeted Banking customers will seek to optimize value from providersthat meet their needs at opposite ends of the spectrum Polarization in the Customer Marketplace Customer demand Banking Specialization & Innovation | 20-Dec-19

  5. SmallBanks Specialist FI’s Non-bank Banks Mid-tier Banks 2015 Competition and customer demands are driving the industry toward four business models with specialized capabilities Transformation of the Industry Marketplace Credit Unions / Community Banks LargeBanks Today Middle Squeeze Universal Banks Community Banks Industry Specialists Non-Bank Banks Source: IBM Institute for Business Value Banking Specialization & Innovation | 20-Dec-19

  6. As traditional banks specialize, they will both partner and compete with a growing number of industry specialists Specialists Participating in The Banking Ecosystem Today Representative Firms Suppliers to traditional banks Source: IBM Institute for Business Value Banking Specialization & Innovation | 20-Dec-19

  7. Distribution Service Administration Sales Risk Strategy & Planning Product Mfg Client & Trade Support Product Mgmt Insight Risk Manufacturing Fin Mgmt Common Governance Processing Compliance Specific Sales Data Facilities HR IT IT Infrastructure Specialization is requiring banks to make strategic decisions about their business models Illustrative Component View of Hypothetical Universal Bank, 2015 Business Component Decision Matrix Support Component Strategic Component Internal Specialization Manage to meet the needs of strategic components Invest in and expand to gain advantage Utility Component Partner Component ExternalSpecialization Use specialists to reduce costs and free up resources Develop alliances to meet critical business requirements Differentiating Non-Differentiating Source: IBM Institute for Business Value Executive Summary #10 Banking Specialization & Innovation | 20-Dec-19

  8. Whatever a bank’s specialization, innovation is the surest path to differentiation and generating sustainable growth Different Is the New Better • Differentiation is essential • Innovation is already reshaping the industry • Innovation doesn’t just happen 1 2 3 Innovation is the use of new ideas or current thinking applied in fundamentally different ways that result in significant change Source: IBM Institute for Business Value Banking Specialization & Innovation | 20-Dec-19

  9. Differentiation is essential 1 Past performance is not about to be repeated; declining P/E ratios suggest that the market is skeptical about future returns Operating Profit Margin, 1995-2005Percent Return on Assets, 1995-2005Percent Price-Earnings Ratio, 1995-2005 flattening declining declining Key A one point drop in P/E ratio for a bank with $350B in assets would result in $4B in lost market value1 Small (Assets < $5B)Medium (Assets $5B - $70B)Large (Assets > $70B) Note: Graphs show trend for the global average of all banks by asset size group;1Based on 2005 data and assuming no change in earnings Source: Thomson One Banker; IBM Institute for Business Value analysis Banking Specialization & Innovation | 20-Dec-19

  10. Bank CEO’s Top Innovation Priority (Survey responses) Sample size: 84 Differentiation is essential 1 Business model innovation has been most successful in creating sustainable value but banks’ focus remains on products Innovation Priorities by Performance ProfileOperating Margin CAGR Note: Under- and outperformers determined by comparing Revenue Growth, Operating Margin Growth and Average Operating Margin over the last five years for each listed participant to its ten closest peers in terms of revenue growth within its industry. Underperformers scored below the median on all three metrics, outperformers above the median on all three metrics. Source: IBM 2006 CEO Survey Banking Specialization & Innovation | 20-Dec-19

  11. “MobileMoney” Engine Room “My Spending Report” Insourcing Global Localization “Keep the Change” Innovation is reshaping the industry 2 Successful innovators are already reshaping the industry Products, Services & Markets Business & Enterprise Models Operations Refocus, restructure and extend the enterprise Develop new products and services, target new markets and audiences Improve effectiveness and efficiency of core functional areas Source: Company web sites; IBM Institute for Business Value analysis Banking Specialization & Innovation | 20-Dec-19

  12. Innovation is reshaping the industry 2 Customers are turning to innovators that use technology to deliver new forms of convenience, community and expertise Selected Innovative Industry Specialists and New Entrants Suruga Bank Deutsche Bank ABN AMRO Caja Madrid 28% of executives interviewed mentioned online or mobile specialists as threats to their organizations Source: Company web sites; IBM Institute for Business Value interviews and analysis Banking Specialization & Innovation | 20-Dec-19

  13. Innovation doesn’t just happen 3 Sustained innovation requires an infrastructure that brings opportunities and capabilities together with execution requirements Requirements for Developing and Sustaining Innovation Innovation Infrastructure • Maintain an innovation portfolio • Manage and reward innovation • Expand collaboration and partnering • Integrate business and technology Innovation Infrastructure Opportunity • Know customer needs • Build market intelligence • Look to adjacent spaces Opportunity Execution Capabilities Capabilities • Identify strategic needs • Assess current state • Harness new technologies Execution • Realign business model • Operationalize processes • Launch delivery channels Source: IBM Institute for Business Value Banking Specialization & Innovation | 20-Dec-19

  14. Thank you ibm.com/iibv Banking Specialization & Innovation | 20-Dec-19

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