Retail Banking On The Move-27May15-Vs

Retail banking on the move
May 28th, 2015

Agenda
New economics require more than progressive adjustment of cost bases
Bold moves needed to reinvent the retail banking model
Copyright © 2015 by The Boston Consulting Group, Inc. All rights reserved.
Lessons from competitors: a few directions to build a digital bank?
Retail banking on the move-27May15.pptx Draft—for discussion only 2

A burning platform: An increasing pressure on European
banks economics, expected to stay
Increasing pressure
on European banks A burning platform
Low GDP growth and interest New economics for European banks
rates in European countries • High C/I ratios due to lower interest margins and
growing costs, not offset by efficiency gains
"Perfect storm" of onerous • Higher bar on capital, liquidity, funding, and
regulatory tightening expectations of self-sufficiency of domestic
• Greater compliance burdens operations
(client interest protection, ring
fencing) Need to fight for share as European banks cannot
• Reduced fungibility of capital rely on just riding economic growth
and liquidity across countries
Simplification needed to restore profitability: New
Overdue shift towards fairer business model required
business conduct • Step-change in efficiency enabled by new
technologies

Banks have not yet recovered from the financial crisis,
especially in Europe
Evolution of STOXX index

Index
300
269
5/28/21
200
177
5/28/21
100 84
Eurozone Banks (€)
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Retail banking accounting for ~60% of European Banks revenues and profit before tax
Source: www.stoxx.com
Since 2006, European banks' profitability has structurally
decreased
Large listed European banks (45) aggregated figures
Lower profitability Lower gross

Lower efficiency Lower leverage
explained by... margins
ROE = Net results / Revenues x Revenues / Avge assets x Avge assets / Avge Equity
30 30 28 3 30 28
2.8
25 2.8 26
2.4 24
2.2 2.2 2.2 2.3 2.3 5/28/21 5/28/21
20 18 20 21 21
16 20
5/28/21 19
14 2 20
9
10 7 10 7 6
5
4 4
2 3
1 10
-1
0 5/28/21 0 5/28/21
5/28/21
-10 -10 0 0
2006 2008 2010 2012 2014 2006 2008 2010 2012 2014 2006 2008 2010 2012 2014 2006 2008 2010 2012 2014
Average P/B down from 1.7x in 2007 to 0.9 in 2014
Source: DB Research, BCG analyses

Significant efforts to reduce costs have only partially offset
gross margin decrease and higher cost of risk
Decreasing operating margins Falling RoE as capital requirements are rising

P&L / Average assets (%) Tier 1 ratio and RoE (%)
Large listed banks aggregated figures (45) Large listed banks aggregated figures (45)
5/28/21 17.0%
0.94% 5/28/21 Revenues (-51 bp)

13.4%
0.35% 5/28/21 (-58 bp)
0.24% 0.41% 5/28/21 (+17 bp)
7.9%
1.59% 1.49% 5/28/21 (-10 bp) 3.4%
5/28/21 5/28/21 5/28/21 5/28/21
Operating ratios
• CoR/I 9% 18% 5/28/21
5/28/21
• C/I 58% 66%
Source: DB Research, BCG analyses

Agenda

The fundamentals that "ringfenced" retail banking margins
are under attack
Regulators push for Trust in banks Low interest rates,
>80% of contacts through more transparency severely damaged decreasing margins
automatic or distant channels
Internet reduces
switching barrier
Balance makes the money

Tight regulation
trust
king
s
ct
ip
du
h
ns
Implicit
t
h is
ro
tac
io
wth
p
n
at
co o
Ca s
ex
r
l
g
re
a in ve ng
chi
pl
ri
y
m
sd w it
m
ar
= e s
ch
Co
im
an n ch Low
Bra
Pr
B r
Customer advocacy Transaction functionality Emergence of multiple Uneven playing field in

drives growth faces disintermediation online/mobile payment some areas (eg PSD)
Tight regulation and legacy business have prevented a full

disruption in retail banking so far
A model to reinvent - Time for bold moves
• Rising expectations and engagement of clients: simplification, transparency,

Customer customization of product and services, expertise
A expecta-
tions • More willingness to spread business across several institutions
• Push for simplification supported by regulators for protection of client interests
• Demand for greater flexibility and digital access, requiring turnaround of IT

Digital
B revolution • Steep decrease in branch usage, which still represent ~50% of costs
• Pools of data which could better inform bank decisions remain untapped
• Lower trust in the banking industry, making it more vulnerable to new players
New
C competition • Digital attackers trying to leapfrog banks by leveraging agile technology as
well as large and established customer bases
• Additional pressure on already weakened European banks: heavy cost bases

progressively misaligned with revenue potential
• A transformation journey ahead of all banks, with significant investment and
bold moves required for players often lacking innovation skills

A Customer expectations: Digital innovators are setting high
customer expectations for retail banks
Excellence in Speed and real time tracking

delivery Customized response to complaints
Simple, intuitive & Simple and seamless

Short innovation cycles
integrated access integrated channel experience
Data-driven
Tailored advice / offer through Big Data
expertise
Trading up /
Clear differentiation of service levels
trading down
Customer empowerment;
Interactive
gamification, simple tools for
relationship
interactive advice and offer design
Dynamic Real time customized interactions / offers
customization based on customer's dynamic profile

B Digital revolution: Digital channel gaining share for both
interactions as well as sales
Branch visits are sharply decreasing: Strong increase of mobile share
Illustration with France in client interactions
5/28/21 5/28/21 5/28/21 5%

5%
7% Number of contacts (%)
5/28/21 7%
24
48
58 5/28/21
Once a month 30%
 once a year NL
38% 73
49 5/28/21
39
5/28/21
5/28/21 5/28/21 5/28/21
70%
5/28/ 5/28/ 5/28/
21 21 21
Number of active digital customers
5/28/21
5/28/21 63% 5/28/21
52% 5/28/21 4.3 5/28/21
2.4
1.3
Spain
18% 4.9 5.1 4.9 5/28/21
5/28/ 5/28/ 5/28/ 5/28/ 5/28/ 5/28/

21 21 21 21 21 21
Over 30% of all retail product sales already performed
Source: FBF, Companies,
BCG analysis
online by best omnichannel banks
C New competition: Fintech ecosystem trying to leverage agile
technology or existing client base
Fintech investment has Fintech is not only payments, but it is

tripled in 2014 covering a wide range of customer needs
FinTech investments (e), $Bn % of Fintech investments by topic

x3 5/28/21 5/28/21
5/28/21 Personal Finance
12.2 14%
Management
28% 5/28/21
70%
19% Data
Analytics
4.1 10% Capital Markets

6%
10% 29% 5/28/21
~1
10%
5/28/ 5/28/ 5/28/ 5/28/ 5/28/

21 21 21 21 21
New entrants trying to leverage agile technology or existing client base – e.g. Alibaba
• Leveraged user base to grow money market funds from 0 to over $100B in 15 months
Source: Accenture Report: "The Future of Fintech and Banking". Global scope (US, Europe, APAC, other), CB insights, BCG analysis
Digital transformation is more than multi-channel
Applies to all industries – including financial services
24/7
24/7 availability
availability Real
Real time
time Contextual
Contextual
Better
services
Mass
Mass customization
customization Long
Long tail
tail Extended
Extended value
value chain
chain
New
offering
Smart
Smart data
data Augmented
Augmented reality
reality Gamification
Gamification
New
services
Peer
Peer to
to peer
peer Open
Open source
source Disintermediation
Disintermediation
Interaction (cut
(cut out
out the
the middle
middle man)
man)
patterns
Automation
Automation of
of brainwork
brainwork Sensor
Sensor technology
technology Ecosystems
Ecosystems
Operating
model
Acceptance depending on additional user value

(solve for unmet need, pain points, etc.)
Uber is transforming a traditional proximity service through
customer focus and digital technologies
Large user base: Targets leisure and
Differentiating offering: business travelers with easy to use app
• Segmented offer: Thigh- Innovative and
end car vs. new low-cost transparent pricing
offering (Uber X) model
• Best-in-class ergonomics • Fixed airport rates,
• Seamless integration traditional fee/ mile,
and dynamic pricing
Value proposition • Electronic payments
Product / service Target Revenue enabled
offering segment(s) model
Business model
Value-chain deconstruction: Agility and cost efficiency:
contracts with drivers but does Value chain Organization Cost model Limits costs by contracting
not own any of the vehicles with drivers rather than
• Uber connects drivers to
Operating model owning vehicles
passengers
• Take 25% of driver's fare
Small, fast-growing,
entrepreneurial organization
In 6 years: 300 cities, 58 countries, 1mi daily rides, $50B value

Agenda

Competition has engaged digital-powered transformations
Who? What? When?

Comprehensive transformation journey to restore client trust Initiated as early as 2003
and deliver best-in-class operational performance
1
Core banking modernization (digital edge, flexible
architecture, integrated systems and data)
Reinvention and streamlining of its operational model and Initiated from 2010 and now entering
branch footprint: "Digital first, advice when needed" new "digital & omni-channel" phase
2 Systematic digital-led simplification program 2010 – 2014
Comprehensive streamlining of operating model Rationalization ongoing from 2007
3 • Drastic rationalization of branch footprint
• e.g. specific business line for smaller non profitable clients • New Banca 5 BL set up in 2014
Best in class operating model Progressive implementation over

• Differentiation of service models last few years
4 • Leading-edge data integration: individualized pricing
Roll-out of new disruptive digital-driven operating model New model rolled out in 2012
5
Operating model reinvention: Objective to transform into a New platforms from 2006
"pure digital house"
6 Strong level of techno from 2011

Transforming banks have significantly improved their
operational efficiency
Gross income Operating expenses C/I Annual jaws

(Bn,
(Bn, accounting
accounting currency)
currency) (Bn,
(Bn, accounting
accounting currency)
currency) (2014)
(2014) (2011-2014)
(2011-2014)
7.8 5/28/21
7.6 5/28/215/28/21
8.3 5/28/21 35% +3.7%
5/28/21
Retail Banking 9.3 5/28/21
10.9 5/28/21
9.0 5/28/21 5/28/21
10.2 5/28/21 59% +1.7%
5/28/21
9.6 5/28/21
10.8 5/28/21
5/28/21 48% +7.9%
Banca dei Territori 11.1 5/28/215/28/21
11.2 5/28/21
10.0 5/28/21
10.1 5/28/215/28/21
Retail Banking 9.6 5/28/21 5/28/21 50% +1.7%
Continental Europe 10.1 5/28/21
N.M.1 N.M.1
2.1 5/28/21
2.3 5/28/21 5/28/21 5/28/21 43% +4.4%2
6.2 5/28/21
6.7 5/28/215/28/21
6.1 5/28/21 5/28/21 43% +1.9%
Retail Banking Spain 6.6 5/28/21
15.8 5/28/21
15.7 5/28/21 5/28/21
15.5 5/28/21 5/28/21 64% +0.4%
Domestic Markets3 15.7 5/28/21
5/28/21 5/28/21 5/28/21 5/28/21

1. Not meaningful – transformation with creation of M bank SA started in 2012, with renaming in 2013
2. 2012-2014 3. Incl. 100% of private banking results in France, Belgium, Italy ; excl. PEL / CEL impacts in France
Source: annual reports & results presentations
1 Commonwealth Bank spent >10 years on a journey towards
efficiency &customer satisfaction through technology leverage
2003: CBA embarks 2003 Today

on road to customer 'Which New Bank' Core banking Transformations deliver
centricity transformation modernization improved experience
CBA lagging behind on 3-year transformation Core Banking Modernization

customer satisfaction improved sales and service provided platform for Accessible, fast, easy and
experience differentiation pleasant banking
• Revamp online + branch • While other banks
5/28/21 5/28/21 • Investments in training, focused on service
leadership and rewards experience
for satisfaction
Satisfaction 25%1
• Enable front line through
5/28/21 5/28/21
customer view and CRM
• Improve critical
processes CBM helped transform
5/28/21 5/28/21 business model and brand
Afterwards, focus shifted to Products per
promise 20%2
underlying platforms customer
• Hard to take full
5/28/21 5/28/21
relationship into account
for decisions
50 55 60 65 70 • Slow and error-prone C/I 8 pp3
% process execution
• Complex systems that
are expensive to change
• Lack of automation in
processes
1. 7 years after program launch 2. 2006-2010 3. 2006 – 2014

Source: CBA presentations and press releases, BCG analysis
1 Commonwealth Bank has completely transformed its IT to
deliver an integrated, customer-centric platform
Digital technology adoption Flexible architecture Integrated systems & data
• Continuous release of innovative • Service Oriented • Single, 360 view of the customer
digital products Architecture – Customer Information File (CIF) acts as
– Online: – Allows fast a single repository of customer related
– Banking portal with implementation of new data from six separate product systems
personalised interface for applications, accessible – All servicing platforms, across all
each customer from one front-end by channels access CIF
both FO and BO staff
– Near real-time loan – Enables analytics-driven cross-sales
approval (15 min vs.14 • Software as a Service via
• Replacement of legacy systems by an
days) private cloud
integrated core banking system
– Mobile: – Enables quick testing and
– Banking solutions accessed via single
development of new
– Award-winning property business process platform
applications
guide application combines • Integration of 3rd-party data with bank data
augmented reality with – Ability to transfer
applications on-demand – Property values combined with mortgage
information on house prices
and mortgages across bank's infra. information in bank's mobile property
guide application
– Smartphone payments
application
"Our systems are significantly more customer friendly, have much greater functionality and are materially more
reliable than they were four years ago. Investment in our back-office processing has yielded significant
improvements in productivity levels and customer service rates." Ralph Norris, CEO
Source: CBA presentations and press releases, BCG analysis
2 ING has engaged the transformation and streamlining of its
operational model and footprint – ING NL example
2007- 2010 2010- 2014 2015- 2017
Phase 2: Operational Phase 3: Digital and

Phase 1: PMI
excellence omni-channel
• Merger of ING and • Daily banking: simple, • Optimize distribution to
Postbank (8M clients) easy, uniform experience meet expectations raised
• One bank with one brand • Advice: personal, by digital innovators
Objectives
customized – Digital excellence
– Switch btw. channels
• Improve multi-channel • Standardize "direct first" • Design distinctive omni-
service and leverage service model channel experience
economies of scale • Optimize processes: >85% • Develop agile ways of
Actions • Migrate clients to one IT of processes redesigned working for more than 280
platform • Rationalize product teams
offering
• 2 500 FTE savings • 4 400 FTE savings • 1 700 internal and 1 075
Cost
external FTE savings
efficiency
• €M 280 savings by 2011 • €M 460 savings by 2015 • €M 270 savings by 2018
IT • €M 500 • €M 200 • €M 200

investments
Source: ING company presentations, BCG analysis
2
ING has launched a massive simplification effort
Based on 10 transformation principles
10 principles driving transformation Impact of ING transformation

(with a strong leverage of digital technologies) (2010-2014)
i • Personal service: Customer experiences personal service from the
beginning to end of each process 1,800  200
Fewer processes main processes
ii • Satisfaction: Customer satisfaction is measured for all processes
iii• Informed in advance: Customer is informed in advance if we cannot

deliver on our promise Fewer drop-outs 50%
iv• 1 Page: All customer communication fits on one page
v• Digital output: Customer receives the output digitally
Fewer status queries / calls 50%
vi• Never ask twice: Customer is not asked for information we already
have
vii• Authentication: Channels are responsible for customer Less paper (reduction of
90%
authentication / identification system letters)
viii• Uniform processes: Processes are uniform across all channels

Best NPS
ix• Digitally delivered: Delivery by channels is digital and 100% straight More satisfied customers amongst Dutch
through processed (STP) banks
x• Always confirmation: Customer always receives a confirmation,

including a delivery guarantee
Source: ING company presentations, BCG analysis
2 ING is extending its digital transformation to corporate clients
Roll-out of a cross-country digital portal Internet + app

for corporate clients: InsideBusiness integrated interface
• Global platform across products

Illustration:
– Cash management and
reporting
payments
interface
– Lending
(multi-
– Trade finance
currency)
– Markets
What?
• Clients provided with single view
across countries and products
– Real-time info
– Transaction monitoring
– Liquidity and MTM positions
– Ability to transfer FX products Illustration:
Payment
dashboard
• Roll-out in May 2015 in NL and in
When?
June in Belgium
Source: ING company presentations and press releases

3 Intesa SanPaolo has engaged in an ambitious streamlining of
its operating model
Intesa pursued revenue growth while massively Geographic footprint optimization included in
rationalizing its geographic footprint comprehensive business model reinvention
# of branches, Italy
5/28/21
Distribution • Extended branch model roll-out
5/28/21
5/28/21 model • Process digitization: 400 FTE savings
5/28/21 digitization and
5/28/21 • New Banca 5 business line for non
5/28/21 segmentation profitable clients
5/28/21
• Massive simplification effort: ~2,300
Organization people “freed-up” and reallocated to
simplification commercial activities
• Rationalization of legal structure
• Reduction of underwriting time

Dynamic credit • Proactive credit management
and risk • Integrated management of sub-
5/28/2 5/28/2 5/28/2 5/28/2 5/28/21 management
1 1 1 1 standards / restructured loans
Banca dei
Territori 9.6 10.8 11.1 11.2
NBI (€ B)
+16 %
Source: Intesa San Paolo company presentations

3 Intesa SanPaolo has set up a dedicated business line for its 5
million non-profitable retail clients – Banca 5
Banca 5: Dedicated business line with ad hoc

distribution model for non-profitable clients Expected impact for Intesa
• Commercial value chain fully dedicated to

Dedicated revamping 5M non-profitable clients
commercial – Average revenue per customer: €70
Reallocation and training of ~3000
value chain FTE capacity freed up by commercial
• Reallocation of people from footprint
footprint optimization FTEs
optimization to Banca 5 commercial activities
• Objective of 5 key products per customer:

Payment card, credit card, investments, P&C € 70  140
Doubling of revenue per
insurance, personal financing, investments between 2013
Custom product customer and 2017
offering
• "New jobs": Non banking services (e.g.
ticketing)
€M 347  737
Increase of Banca 5
• New multi-channel integrated platform to between 2013
overall revenue and 2017
exploit all contact opportunities with clients
– High leverage of remote / digital
Tailored • Personalized incentives and objectives for

commercial Banca 5 commercials
processes
• Dedicated "delivery unit" in planning and
control to accelerate adoption of new
commercial behaviors
Source: Intesa San Paolo company presentations

4 Santander further differentiating its service model by segment,
with greater role of remote and digital channels
Branch Remote Digital

Retail
Young and university
Young / Showroom of new Mobile phone as key
customers that will
product / services and communication channel
university new online capabilities never go to the branch
Commercial unit to
A place to complete provide branches with Online channel offering
Mass market transactions service by phone complete functionalities
Space for customers and process for
interested in discussing activation, transaction,
Mid market high-value services sales and services
Personal Segmented branch with
dedicated space with a Remote advisor (always
banking multi-channel approach with the same agent) Special inbound
attention
Business Web and apps adapted

Dedicated relationship to products and
manager services specific to
these segments
Private
Branches revamped Massive reallocation of Technological push for increased digital

and converted to customer portfolios to usage and seamless integration
representative remote units • New customer tools: e.g. Digital Manager,
Source: Santander company presentations
boutiques M-wallet, push notifications...
5 mBank changing the "rules of the game"
Successful in beating the "s curve" - low cost deposit share significantly higher than branch share
Simple, convenient & low cost Almost 4 million customers
5/28/21
5/28/21
5/28/21
5/28/21
mBank 5/28/21
5/28/21
Range of free-tools High functionality
online, including and social media 45% line for
payments, budget integration 5/28/21 proportional share
5/28/21
tools, analysis
Customer value management 5/28/21
• All products and services available to single customer account 5/28/21
and view
Distribution 5/28/21 5/28/21

• Channels work together in concert 5/28/21 5/28/21
• Customer service guided to Digital channels and merchant
partners 5/28/21
5/28/21 5/28/21 5/28/21 5/28/21 5/28/21
Operations
• Designed for low-cost 5/28/21
No of C/As
• Today's mBank close to a start-up in size, cost profile and
agility
Source: mBank company presentations, banks annual reports, BCG analysis
5 mBank success based on select, but consistent principles
Key success factors Description

Well defined, attractive • Focused in segment selection; did not try to pursue all segments
target segment – ~20-35 years, students - High potential: educated, open for novelty
• (Such) customers grow in professional life/ wealth – currently mBank with
probably the most attractive, mass affluent customer base in Poland
Consistent, differentiated • Distancing from "traditional banks" (like Apple vs. IBM)
positioning and marketing • "Do not pay for "bricks" of traditional banks, get better offer"
• Large above the line advertising supported by precise on-line and non-
standard marketing
Broad (like traditional bank) • By leveraging scale/ power on suppliers (funds, insurance), analytical
offer & always better deal advantage (one-to-one pricing), process convenience (loans)
• Often beyond banking: e.g. insurance, experimented mobile operators, etc.
Best-in-class "feel & look" • Customer transact daily - this is how they build satisfaction, advocacy and
transactional (core) banking stickiness
products • Transactions as great source of Information and touch points allowing best
offer (e.g. preapprovals, discounts, real time/ relevant offer)
Driven by internal lean / low cost ("online, not expensive

branch based bank") and open, challenging culture
Source: mBank company presentations and press releases, BCG analysis
6 BBVA is aiming at transforming into a pure digital house
BBVA has adapted its organization

2-step transformation to accelerate its digital transformation
Set-up a new business line responsible for the

BBVA’s Tres Cantos data processing centre
• "Real time" banking Group digital transformation in 2014: "Digital
Laying the
• Open API, enabling partnerships with start- Banking"
ground:
New ups / digital players
• 7-year effort, with €M 850 investment per Objective 1: Lead the digital transformation of all
platforms
year on average between 2011 and 2013 Group businesses in all regions
(from 2006)
• In charge of all commercial offerings, multi-channel
strategy, distribution model, design of operational
Distribution model transformation and commercial processes
• State of the art mobile banking • Local resources allocated to new business line
• Remote customer care: BBVA Contigo
• Revamped branches Objective 2: Develop new business activities
Leverage of • Internal developments: e.g. Wizzo app (mobile
techno. for wallet linked to prepaid account)
Data centricity: Big data initiative as part of
compre- • BBVA's investments: BBVA Ventures + acquisitions
BBVA Innovation center
hensive (e.g. Simple)
transfo.
Digital products and offering: e.g. BBVA wallet
(from 2011)
Digital culture anchoring
• Start-ups partnerships
• "Hackaton"
"We think we have a huge opportunity to become the first bank in the world to successfully transform into a pure digital house.
It’s not just about being a bank, it’s about being a knowledge-based information company." - F. Gonzalez, CEO
Source: BBVA company presentations and press releases, BCG analysis
What would mean a true digital transformation for BNPP?
Focus on client experience and advocacy as key indicator of performance

• Redesign customer experience on key interactions
• Create a sense of digital relationship (enhanced capabilities, warmer environment, frequent evolutions, ...)
Adopt digital-driven distribution model to improve efficiency and customer experience

• Further differentiate service models to align with customer contribution and expectations
• Move from digital as a channel to enhanced digital omni channel
• Aggressively redefine roles of branches and account managers
• Enhance relevant contact proactivity and reactivity by leveraging big data technologies and tools
• Maximize synergies with specialized businesses on innovative offerings, commercial support and tools
Design "cost to serve" to adjust to new environment and expectations
• Ensure consistency of costs with revenue evolutions and customers' willingness to pay for value added
• Engage in drastic simplification of offerings
• Accelerate digitization of select key processes
• Optimize branch footprint and real estate costs in line with customer behaviors – taking a long term view
• Massively decrease non-commercial costs and headcounts (subject to local social constraints)
Develop and generalize agile methods and technological capabilities to support digital innovation
Develop partnerships and cross-referrals with complementary players (retailers, OEM, telco,
technological players...) while ensuring direct relationships with customers

Appendix
Increasing pressure on European banks: Euro zone durably
impacted by low rates and low economic growth
Slow pace for economic growth Low interest rates Low inflation
Eurozone GDP ECB deposit & government Eurozone inflation (HICP1)

bonds long term rates
€Tn %
Pre-crisis Post-crisis % Pre-crisis Post-crisis Pre-crisis Post-crisis
5/28/21 3.5 5/28/21
7
+5/28/21 p.a.
+5/28/21 p.a. 3.0 5/28/21
6
5/28/21 +5/28/21
5/28/21
5/28/21
2.5 5/28/21
5
5/28/21
5/28/21 4 2.0 5/28/21
5/28/21 Ø 5/28/21
3
1.5
5/28/21
5/28/21
2
1.0
5/28/21
5/28/21 1 5/28/21
0.5
0
5/28/21
5/28/21 0.0
5/28/21
5/28/21
5/28/21
5/28/21
5/28/21
5/28/21
5/28/21
5/28/21
5/28/21
5/28/21
5/28/21
5/28/21
5/28/21
5/28/21
5/28/21
5/28/21
5/28/21
5/28/21
5/28/21
5/28/21
5/28/21
5/28/21
5/28/21
5/28/21
-1
5/2 5/2 5/2 5/2 5/2 5/2 5/28
8/2 8/2 8/2 8/2 8/2 8/2 /21
1 1 1 1 1 1
5/28/21
5/28/21
1. Harmonized consumer price index at April of each year
Source: ECB
Increasing pressure on European banks: Perfect storm of
onerous regulatory tightening
Financial MiFID II
impact CRR (cap.
requirements)
IFRS 9 1 Financial stability
SSM 2 Prudent operations
High
SRM DF Title I (Tarullo) Separation and

EU FTT2 BCBS 239 EMIR/ DF Title VII 3
resolution
Basel Risk (clearing)
Data aggregation SEPA Impl. High implem. costs
CRD IV Buffers Basel leve-
FATCA
(Nat. Impl.) rage ratio
Financial stability EBA Guidelines for sup. AMLD/ Basel on AML
Financial stability review and eval. process and terrorist financing
Fund. Trading Book Review CRR (LCR) DF Title VI
Medium
Basel securitization Deposit Guarantee

Liikanen/Barnier framework DF Title VII/ Scheme Directive MiFiR/DF Title (Volcker)
EMIR (margin) Basel large IFRS 10/13
VII (trading)
exposure review
Basel new Standardized IRRBBRecovery CRR (stress EMIR ESMA RTS
Approach for Counterparty and resol. testing)
MaRisk Review 2012
Credit Risk direct. Basel moni-
(bail-in CRD IV Ger-
NSFR (compliance) CRR (Exp. to CCP) debt) toring tools
liq mgmt man Impl. T2S3
IOSCO struct. MAD2/ FINREP/ EMIR/ DF Title VII
Regulation on Reporting PSD II
retail products MAR Italy/
COREP (reporting)
and transparency of Review France MiFIR Short-selling
Reg. on inter-
Prudent
Prudent Operations
Operations securities financing transparency FTT 1
(reporting) regulation
change card trans.
Low
transactions direct. UCITS CRD IV comp.restr. HFHG

FSB Haircuts Repo/Sec. Credit
Indices and Lending rating CRR (LevR, AIFMD/AIFMR
FSB guidance on risk
benchmarks regulation agency direct.LCR, NSFR rep.) Schäuble
culture LEI
MiFiD II (commodities) IMD II Schäuble (crim. liab.)1 (RRP/MaSan)
Basel Large Schäuble
MCD PRIIPs Basel on capi- CRR (prud.
MMF reg. Basel cap. reqs tal planning
exp rep. (separation)1 for equity inv in funds valuation)
Low Medium High Content

Priority
Low High
maturity
1. Schäuble proposal is technically adopted but subject to change by future EU legislation (Liikanen). Same is valid for Italy/France FTT proposal.
2. Separation and resolution changes due to adjustments of booking model/legal entity setup 3. Target2Securities
Notes: Indicative analysis—not all regulations shown, FTT = Financial Transaction Tax, NSFR = Net stable funding ratio, IOSCO = International Organization of Securities Commissions, FSB =
Financial stability board, MMF = Money Market Funds, MiFID/MiFIR = Markets in Financial Instruments Directive/ Regulation, BCBS = Basel Committee of Banking Supervisors, CRD/CRR = Capital
Requirements Directive/Regulation, DF = Dodd Frank, EMIR = European Markets Infrastructure Regulation EBU = European Banking Union, UCITS = Undertakings for Collective Investments of
Transferable Securities, IMD = Insurance Mediation Directive, IFRS = International Financial Reporting Standards, MAD/MAR = Market abuse directive/regulation, LEI = Legal Entity Identifier,
Mortgage Credit Directive, PRIP = Packaged Retail Investment Products, LCR = Liquidity Coverage Ratio, FINREP/COREP = Financial Reporting/ Common Reporting Framework, FATCA = Foreign
Account Tax Compliance Act, AML = Anti Money Laundering, ESMA = European Securities and Markets Authority, T2S = Target 2 Securities, HFHG = Hochfrequenzhandelsgesetz, RRP = Recovery
and resolution planning, MaRisk = Minimum Requirements for Risk Management, MaSan = Minimum Requirements for Recovery Plans, Source: BCG analysis
Customer expectations: As of now, banks show limited
capability to meet these revised expectations
Banks
Banks without
without
capability
capability (%)
(%)1
1
5/28/21 5/28/21
Excellence in My bank should provide
delivery real-time info on the status of my 5/28/2143%
requests and alert me if it is delayed
Excellence in My bank should never ask me to

delivery complete the same form twice
5/28/21 54%
Integrated My bank should offer seamless

5/28/21 63%
access data transfer between channels
Dynamic My bank website user interface
should be customized based 5/28/21 74%
customization on my accounts/preferences
Customer My bank should offer tools/calculators

I can complete collaboratively with a 5/28/21 80%
sovereignty banker to develop a plan or solution
Excellence in I should be able to obtain a new product

5/28/21 69%
delivery with 2 or 3 clicks of my mouse
I should have easy on demand access

Integrated 77%
to videoconf/online chat with someone 5/28/21
access when on my bank's website
0 20 40 60 80
% customer respondents
1. As reported by banks; N=35
Source: BCG US consumer survey (2014), BCG EFMA survey (April 2014)
Digital revolution: Digital channels gaining momentum,
outpacing traditional – Global snapshot of channel mix
Sales & advice Service & transactions
On a 100 sales & advice contacts basis
Sales & advice contacts p.y. (100 index) Service contacts p.y. (100 index)
120 5/28/21
5/28/21 (+13%) ~ 3,700 (+40%)
5/28/21 5/28/21 5/28/21 Online

channels 5/28/21 5/28/21
90 5/28/21 5/28/21 Online
5/28/21 5/28/21 ~ 2,700
5/28/21 ~ 40% in 2020 channels
5/28/21
5/28/21 5/28/21
60 5/28/21 5/28/21 5/28/21 ~ 66% in 2020
5/28/21 5/28/21 Frontline 5/28/21
personal
5/28/21 contact
30 channels 5/28/21 5/28/21 5/28/21
5/28/21 5/28/21 5/28/21 5/28/21
5/28/21
~ 60% in 2020 5/28/21
5/28/21
5/28/21
0 5/28/21 5/28/21
5/28/ 5/28/ 5/28/ 5/28/

21 21 21 21
Note: CAGR for branch is -5% per year for Sales & Advice
Source: BCG model
Backup
Digital revolution: In most European markets, banks have
significantly reduced their number of branches
5/28/21 5/28/21 5/28/21
# of branches 5/28/21
5/28/21
5/28/21
5/28/21 5/28/21
5/28/21 5/28/21 5/28/21
5/28/21 5/28/21
5/28/21
5/28/21 5/28/21
5/28/21 5/28/21
5/28/21
5/28/21 5/28/21
5/28/21
5/28/21
5/28/2 5/2 5/2 5/28/21 5/28/21 5/28/ 5/28/21 5/28/21
1 8/2 8/2 21
1 1
Inhabitants / branch 1.7 5.6 1.9 2.2 3.0 1.4 4.5 7.8
(2013, thousands)
km2 / branch (2013) 14 22 9 10 8 15 180 19
Note : France 1998 pro-forma Banque Postale

Source: ECB, Population Reference Bureau, BCG analysis
Transforming banks' stock prices have outperformed almost
systematically average of European banks
∆ Jan 2010 –
Evolution of stock prices (Jan 2010 – May 2015) May 2015
%
280
260
240 5/28/21
x 2.4
220
5/28/21 x 2.1
200
180
160
5/28/21
x 1.6
140
120 5/28/21 x 1.2
100 5/28/21
x 1.0
80 5/28/21
x 0.8
5/28/21
60 x 0.8
40
20
0
5/28/21 5/28/21 5/28/21 5/28/21 5/28/21 5/28/21 5/28/21
Note: Adjusted for dividends

Backup
Customer experience excellence: Key efforts engaged by
competitors for seamless access and customized offers
What? Who?
• Simple, fast mobile customer acquisition at radically lower cost
Simple, • Investment in innovation prioritised around meeting basic needs and integrating
intuitive & information, as most customers are hybrid users (web, mobile, branch)
integrated
• Single ID and seamless communication among channels
access
• Human interactions in moments of truth through integrated relationships
• Data only entered once, then used to automatically pre-populate thereafter
• Differentiation of offerings
– Basic ‘vanilla’ offers at competitive rates
Context – Customised ‘premium’ offers and advice tailored to users' needs and
driven behaviour
advice, offers
and expertise • Use everyday banking data and context to give pro-active, customised advice
• Business services and advice offers business transaction accounts with web
functionality to improve finance function (book-keeping, reporting)
Source: company presentations and press releases, BCG analysis

Backup
Customer experience excellence: Development of interactive
relationships and end-to-end needs servicing
What Who?
• Easy 'Google-like' search for materials and online tutorials, tools & simulators
• Going beyond information – interactive and entertaining financial education
• Fully customisable money-management with social gameification, tracking
Interactive budgets/goals
relationship • Easy access to real and virtual experts on financial services products
• Developing social communities to provide advice and transparency
– e.g. crowd support
– Support on Twitter
• Targeted acquisition through behavioural segmentation

• Low cost, easy to access and use service for main acquisition and onboarding
Meeting processes
end-to-end
• Crowdsourcing monitoring of transactions especially for fraud assessment
needs
• Helping customers manage complexity by consolidating information to a single
platform

Backup
Data centricity: Some players put insights from systematic
data analysis at the core of decision making
Product Customer service and 3rd party offers /

Pricing personalisation cross-sell partnerships
Santander is moving CBA bank is using Big ING is increasing its BBVA allows 3rd parties
towards individualized Data technology to offer customer service level to create new value-
pricing personalized products, through data-driven added services based on
• Conjoint analysis used leading to an increase in customization BBVA data, anonymous
to determine price the overall cross selling • Customization of omni- and aggregated,
sensitivity of customers ratio channel experience combined with external
• Cross-sell ratio • Detection and data
increased from 9% to prevention of fraud • Partnerships with
60% of customers • Prevention of future retailers and cities
taking some form of defaults through early- • Big Data BBVA
Significant increase of action, and an eventual warning processes initiative part of their
retail margins since 38% choosing specific • Pre-approved overall Digital
adoption products suggested customized consumer transformation plan
loans
ING leverages data to

maximize retail
campaigns (digital
redesign and response
modelling)
Backup
Preemptive adaptation and strategic partnerships: Some
banks are positioning themselves behind select Fintech
Banks (mainly Anglo-Saxon) have launched

accelerators/ incubators Select examples of banks "behind" Fintech
Size Portfolio companies
HSBC $200M
Bought for $117M
SumUp, Freemonee, SaveUp,

BBVA Ventures $100M
Ribbit Capital, 500 Startups, ...
Partnership
SBT Venture
$100M1 Moven, Sequent, ...
.Capital
Partnership
Santander $100M iZettle2
Barclays Square2 , Air, Clausematch,

N/A
.Accelerator Crowdestate, DoPay, ...
Main Incubator N/A - Partnership
1. Possibly rising up to $700M until 2016 2. In a precedent fund

Source : Press releases, BCG analysis
Backup
1 Commonwealth Bank: Market-leading customer satisfaction
and sales productivity at CBA
End-to-end digital transformation ...delivering market leading results11
Productivity Market
• Focus on simplicity and convenience for customers growth11 momentum11
• Customer insights driven; deeper customer
relationships through personalised value offers Frontline
Customer Value Mortgages growth
• Simple, innovative products, e.g. transactions 4% 160bps above
Management – MyWealth hub for investments per FTE market
– Social / contactless payments
– Same day settlement for merchant customers
Sales / Business lending 5x
conversions 10% above market
• Single view of customer across channels per FTE average
• Specialist advisors available on the spot using video
conferencing
Distribution Loans Household deposits
• Best in class online and mobile banking platforms
funded 27% growth 120bps
• Dependable privacy and security same day above market
• End-to-end redesign of sales and service processes Transaction Transaction banking

Banking – growth 21% higher
• Paperless processes, straight through processing; client on- 30%
enables online contract acceptance for asset finance than market average
boarding time
Operations and business transactions
• CBS enabling real-time banking – e.g. real-time cash-
flow information for business customers Highest retail
Products per
6% customer
customer
satisfaction2
1. Movements shown are since inception of respective productivity initiatives

2. Relative to peers in Jun 2013; % customers 'Very Satisfied' or 'Fairly Satisfied'
Source: CBA company presentations, BCG analysis
Backup
2 ING has engaged in a rationalization effort of its IT landscape
IT: Convergence of landscape expected to

Ongoing cost programmes reach target in 2017
Share of IT applications, ING Bank (%)

Post integration phase, launch of 5%
cross-country cost savings 5% 15%
programme with ambition targets 5%

40% 5/28/21
• Programme on track to reach
savings of € 880 million by 2015
and € 955 million by 2017
20% 5/28/21
90%
80%
Further efficiency gains especially
in the areas of IT / Ops and
procurement currently investigated 40% 5/28/21
• Convergence of IT landscape
5/28/ 5/28/ 5/28/2

21 21 1
Source: ING company presentations and press releases

Backup
3 Intesa San Paolo has rolled out an "extended branch" model
Extended branch model Impacts
Opening hours
• Extended hours
• Mon-Fri 8am–8pm Customer satisfaction
• Saturday 9am–1pm1 • Substantial increase in customer
satisfaction surveys
Services and • Enhanced welcome services (meeter greeter) • Positive feedbacks and participation
expertise • Advanced advisory services (i.e., Affluent RM at the branch meeting modules
off-site, insurance expert, etc)
Meetings
• Proactive commercial approach by RMs • Large increase in the number of
Commercial including contacts and commercial meetings
approach – Remote advisory (+20%)
– Off-site advisory • Slight increase in commercial
• Integrated approach with contact unit (fixes successes
appointments in ext. hours, develop a
commercial plan in selected products/targets) Roll out
• ~500 branches activated in six
Marketing • Dedicated promotion plan/Marketing initiatives, months
with a focus on the extended hours and use of • About 10,000 FTEs involved
channels
Format • New format (Appointment in branches) to inform

consumers about specific
relevant topics
• Central content libraries, local schedule
Source: Intesa company presentations and press releases, BCG analysis
Backup
4 Santander is moving towards price individualization
What Santander is doing Impact: Increase of margins in Spain

Loan to deposit spread (%)
Santander is following the path from "one
price for all" to "one price for each customer"
• Using techniques like conjoint analysis to
+41 bp
identify sensitive customers
2.8% 2.8% 2.8% 2.8%
2.6%
In addition, product bundling is used for 2.5% 2.5%
5/28/21
dealing with very price sensitive customers
• Bundles suggested according to client profile
5/2 5/2 5/2 5/2 5/2 5/2 5/2 5/2

8/2 8/2 8/2 8/2 8/2 8/2 8/2 8/2
1 1 20131 1 1 1 2014
1 1
Source: Santander Company Presentation “Pricing Strategies for Customer Retention”

Backup
4 Santander Spain has defined a segmented sales strategy with
an increased role of digital
Mass market Middle market Select affluent

Net- Remo Net- Remo Net- Remo
Web Mobi. Tel ATM Web Mobi. Tel ATM Web Mobi. Tel ATM
work -te work -te work -te
Accounts
Debit card
Credit card
Preapproved
loan
Deposits
Funds
Retirements
plans
Insurance
Stock
exchange
An increasing contribution of remote channel (as % of total sales)

Mortgages Consumer loans Insurance Cards
Source: Santander company presentations
Thank you
bcg.com | bcgperspectives.com

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Retail banking on the move

May 28th, 2015

New economics require more than progressive adjustment of cost bases

Bold moves needed to reinvent the retail banking model

Retail banking on the move-27May15.pptx Draft—for discussion only 2

Retail banking on the move-27May15.pptx Draft—for discussion only 3

Evolution of STOXX index

Lower profitability Lower gross

Average P/B down from 1.7x in 2007 to 0.9 in 2014

Source: DB Research, BCG analyses

Decreasing operating margins Falling RoE as capital requirements are rising

0.94% 5/28/21 Revenues (-51 bp)

0.24% 0.41% 5/28/21 (+17 bp)

1.59% 1.49% 5/28/21 (-10 bp) 3.4%

5/28/21 5/28/21 5/28/21 5/28/21

Source: DB Research, BCG analyses

New economics require more than progressive adjustment of cost bases

Bold moves needed to reinvent the retail banking model

Retail banking on the move-27May15.pptx Draft—for discussion only 7

Balance makes the money

Customer advocacy Transaction functionality Emergence of multiple Uneven playing field in

Tight regulation and legacy business have prevented a full

• Rising expectations and engagement of clients: simplification, transparency,

• Demand for greater flexibility and digital access, requiring turnaround of IT

• Additional pressure on already weakened European banks: heavy cost bases

Retail banking on the move-27May15.pptx Draft—for discussion only 9

Excellence in Speed and real time tracking

Simple, intuitive & Simple and seamless

integrated access integrated channel experience

Retail banking on the move-27May15.pptx Draft—for discussion only 10

5/28/21 5/28/21 5/28/21 5%

5/28/ 5/28/ 5/28/ 5/28/ 5/28/ 5/28/

Fintech investment has Fintech is not only payments, but it is

FinTech investments (e), $Bn % of Fintech investments by topic

4.1 10% Capital Markets

5/28/ 5/28/ 5/28/ 5/28/ 5/28/

Acceptance depending on additional user value

In 6 years: 300 cities, 58 countries, 1mi daily rides, $50B value

New economics require more than progressive adjustment of cost bases

Bold moves needed to reinvent the retail banking model

Retail banking on the move-27May15.pptx Draft—for discussion only 15

Who? What? When?

Best in class operating model Progressive implementation over

Retail banking on the move-27May15.pptx Draft—for discussion only 16

Gross income Operating expenses C/I Annual jaws

5/28/21 5/28/21 5/28/21 5/28/21

2003: CBA embarks 2003 Today

CBA lagging behind on 3-year transformation Core Banking Modernization

1. 7 years after program launch 2. 2006-2010 3. 2006 – 2014

Digital technology adoption Flexible architecture Integrated systems & data

2007- 2010 2010- 2014 2015- 2017

Phase 2: Operational Phase 3: Digital and

IT • €M 500 • €M 200 • €M 200

10 principles driving transformation Impact of ING transformation

iii• Informed in advance: Customer is informed in advance if we cannot

iv• 1 Page: All customer communication fits on one page

viii• Uniform processes: Processes are uniform across all channels

x• Always confirmation: Customer always receives a confirmation,

Roll-out of a cross-country digital portal Internet + app

• Global platform across products

Source: ING company presentations and press releases

• Reduction of underwriting time

Source: Intesa San Paolo company presentations