BBVAs 7 Steps to Digital

Transformation
FEBRUARY 5, 2015 BY JJ HORNBLASS

One theme from the current earnings seasons

is that digital transformation for financial institutions does not come cheap.
That makes it all the more important for banks going down the path of digital to do so
smartly. Angel Cano Fernandez, BBVAs president, chief operating officer and executive
director, yesterday described the banks steps to digital transformation this week, and
they deserve consideration, particularly considering that BBVA has drunk the digital
Cool-Aide in hefty portions.
Fernandez highlighted the following seven steps to the banks digital transformation:
1. Develop a strategic roadmap
2. Revise your distribution model
3. Deeply transform the customer experience
4. Reduce servicing costs for the bank
5. Align IT process, branches and commercial activities all in the same digital way.
6. Roll out cultural organizational changes to simplify structure
7. Look to create value in this new digital environment by pursuing cornerstone
digital transactions
At the end of last year, BBVA had 9 million digital customers, which it defines as
customers that interact with the bank via the internet or mobile phone. Of those, 4.2
million are mobile banking customers, according to the bank.

Fernandez pointed out that, as part of its cornerstone digital transactions, in addition
to acquiring Simple last year, BBVA invested in Coinbase, a bitcoin platform, and
acquired Madiva Soluciones, a Spanish company that specializes in big data.
What kind of cost savings might digital transformation provide? Fernandez emphasized
some impressive numbers:
The results of just these two lines of transformation in 2014 are already starting to
deliver significant cost efficiencies, with costs coming down in Spain in the corporate
center area by 340 million or minus 8%, and if we exclude amortizations by 9% or
357 million reduction.
By region, I need to highlight the substantial cost savings achieved in Spain, where as a
result of our digital transformation plan costs went down by 340 million, also taking
into account as well the corporate center.
Those cost savings certainly appear to be a salve to BBVAs IT spending in recent years.
The bank, which had $745 billion of assets at the end of last year, spent $951 million on
IT last year, a 3.8% increase.

Capital Ones Fairbank Gets Passionate About Digital

OCTOBER 17, 2014 BY PHILIP RYAN
Capital One founder and CEO Richard Fairbank got passionate about digital in the banks
earnings call yesterday. The subject came up repeatedly during the call.
We are also making significant investments in digital and technology, banking
inherently is a digital product and digital will transform banking over time. The
momentum around digital is building across financial services. Consumers increasingly
expect elegant and robust digital experiences from all companies, including banks.
Software is a predominant way consumers interact with their banks even today and that
engagement will only go up. Activity in the payment space from financial services
companies and non-banks is accelerating.
The ability to efficiently store and use vast amounts of data will unlock new
opportunities. Capital One is well positioned to succeed in a digital world and we are
investing in the foundational infrastructure and capabilities to be a digital leader. We are
continuing to expand Capital One 360 as a national digital banking platform. We are
bringing in significant native digital talent, engineers, product developers, designers
and data scientists. We are very active in mobile and in payment. For example we are

one of only a handful of banks, included in Apples launch of Apple pay in September and
shortly thereafter launched our Capital One digital wallet.
He later referred to the above as his spit-flying, little passionate speech about digital.
Fairbank has spoken passionately about digital before, saying last December that
digital is who we are and how we do business. He elaborated on his comments more
in yesterdays call:
At Capital One, were embedding technology, data and software development deeply
into our business model and how we work. For example were focused on building
reusable plug and play middleware using RESTful APIs, modern software development
and design, integrating our platforms and making them scalable in real time and
building a powerful and flexible data infrastructure.
He also touted the cost-savings benefit of digital, saying the marginal cost of a digital
transaction is virtually zero. But beyond cost savings, Fairbank said, is being able to
be faster, more efficient, a better customer experience, better controlled in an intense
regulatory environment, much more able to innovate a better associate experience.
An analyst asked about P2P lending as a potential disruptor and Fairbank agreed, saying
that at Capital One, they pretty obsessively study financial startups, including lending
startups. One way they do this is to invite entrepreneurs to do guest stints at Capital
One Labs.
Fairbank wrapped up the digital discussion, which took up a large proportion of the call,
with an intriguing comment about digital going beyond just mobile banking:
One thing I want to say is the way digital is transforming banking goes far beyond what I
think the thing people mostly think about, which is, today there are branches and
tomorrow there is a branch in peoples pocket. And look, that is [a] very important
component of that whole thing.
And by having bought ING Direct, by having before that already built a digital bank of
our own, and having a big commitment to digital innovation and having a heritage of
20-some years being a direct marketing company, Im very interested in the
opportunities there. But the bulk of our digital investment itself and capabilities is really
for things that kind of extend beyond some of the narrowest view about just moving to a
bank in your pocket kind of thing.

Digital Banking, part 3: How

banks can stay competitive today
and tomorrow
OCTOBER 29, 2013 BY CAPCO
By Eric Disend, Partner
What can banks do to improve their competitive position in todays evolving financial
services marketplace? To begin with, they should address these priorities related to
strategy, people, technology and data.
1. Start with the customer
In setting digital strategy, its essential to start from the customers viewpoint
and experience and work back to the bank. This is a departure from the
traditional approach of starting with siloed banking channels, working out to the
customer and trying to figure out how to unify the channels.Customer
segmentation is a core consideration in setting strategy. This involves looking at
the distinct experiences of customers and prospects as well as differing
expectations among various customer groups.
2. Change the internal culture
A major hurdle many banks face internally in implementing digital channels is
political. The people managing branches, sales and transactions may see digital
channels as a threat (when, in fact, digital is simply another channel that
complements traditional channels).To overcome this misconception, senior
management can create and champion a culture in which customer experience is
the focus. Establishing a chief customer experience officer role can be a key
step in overcoming organizational barriers to channel integration.
3. Deploy needed technology
First-generation digital banking applications are nearing the end of life and in
need of refreshing. Providing a seamless customer experience will require
redesign, reconfiguration and upgrading of bank IT from the customer interface
to back-end systems.Banks will need to decide how much to rely on internal
systems vs. service providers. Technology providers are approaching banks
needs in one of two ways, either a) offering a flexible user interface (UI) that
banks can customize to an extent for look and feel, or b) ceding ownership of the
full UI to the bank, which brings it in house and manages it.
4. Make the most of customer data
Banks may overlook valuable customer data sources in the day-to-day rush to
keep the institution running and keep up with competitors. As they rely on focus
groups, usability labs and one-on-one interviews to gather information on
customer needs and attitudes, they may be underutilizing online analytics to
track consumer behaviors and understand trends. Thats a missed opportunity,
as key insights from such data can provide the foundation for testing new
products, services and marketing programs.

Positioning for the future

Rising customer expectations, coupled with growing competition from traditional and
nontraditional rivals, are compelling banks to consider how they can create a seamless,
flexible customer experience both within the branch and in the digital world. By building
strategy based on the customers point of view, rallying people and resources around
the strategy, and making necessary upgrades in technology deployment and data
usage, banks can strengthen their position in what promises to be a demanding,
competitive industry future.
What other changes can banks make to improve their competitive position in todays
evolving financial services marketplace?

Digital Banking, Part 2: The hard reality of consumer-driven digital banking

OCTOBER 15, 2013 BY CAPCO
By Eric Disend, Partner
The situation facing a Capco client specializing in small-business banking demonstrates
the importance of customer experience, the shortcomings of many traditional bank
offerings and the disruptive impact of new market entrants.
Signing up for a digital service on the banks website required customers to spend
nearly 20 minutes just to find the page detailing service offerings. Then, after filling out
online forms, customers received a message that a bank representative would get back
to them within 48 hours to complete the application.
Contrast that experience with the ease of using Square Register, a device offered by
Square, Inc., that allows merchants to accept card payments through Apple iPhones and
iPads. The enablement process only takes a few minutes, and Square overnight ships
the device, allowing a merchant to be in business the next day.
Wanted: a consistent consumer experience
Consumers can take care of their banking requirements using an array of digital devices
and service offerings, but the experience is often anything but consistent. Whether
establishing a new account, paying bills online or filling out a loan application, bank
customers encounter different interfaces, different instructions and possibly different
data from one device to another.
This deficiency is not surprising given the segmented nature of bank technology today.
Mobile and online are often treated as two separate channels within the bank
infrastructure, each provided by a different vendor. In this piecemeal environment,
customers encounter quite different experiences and uniting the IT resources,
processes and people of each is extremely difficult.
Banks also run the risk of chasing the latest shiny object. They may become so focused
on the growing mobile channel that they neglect the Web-based online channel, which
remains a primary conduit for both transactions and information gathering. Even if

banks are diligent in maintaining their Web-based presence and services, the
disconnect between Web and mobile impedes delivery of a consistent customer
experience across the two channels, as well as between digital channels and physical
branches.
From a customer viewpoint, overcoming these barriers is essential. Customers want the
same capabilities, look and feel regardless of what type of access device they use. And
they want an integrated experience in which they can start something on one device,
continue it on another and perhaps complete it in a branch.
Dramatic changes abound
As banks work to deliver a loyalty-winning customer experience, they also contend with
dramatic changes in transaction fee structures. Eased regulation is paving the way for
increased use of price differentials between transaction channels. Transaction costs may
vary, perhaps dynamically, depending on whether a customer uses a deposit account,
credit card or loyalty points.
Retailers are also beginning to price products differently across payment channels.
Channels with an associated fee are likely to face added pressure as customers demand
more flexibility and lower costs, especially as digital wallets enable payment at point of
purchase based on the best immediately available deal.
How would you rate your banks digital service? Have you found any financial
institutions providing a seamless digital service for customers?
Coming in Part 3 of our Digital Banking series: How banks can stay competitive today
and tomorrow.
Eric Disend is a Partner and leader of the new Capco Digital group and Innovation lab
based in New York City

Digital banking, part 1: The

importance of customer
experience in the digital era
OCTOBER 1, 2013 BY CAPCO
By Eric Disend, Partner
Digital technology is dramatically changing how banks interact with their customers. In
just a few years, the financial services industry has evolved from traditional brick-andmortar operations to online bill payment and deposits to the emerging world of mobile
banking.

Two trends enabled by digital technology are at the heart of this transformation. One is
the growing incursion of new, non-bank players into the industry. With digital banking,
you dont need a giant vault to offer financial services.
The second trend is the emergence of customer experience as a central consideration
for banks as they create and execute their competitive strategies. Customers now
evaluate their banking experience in the context of their interactions and relationships
with retailers, travel companies and other service providers. They want digital banking
to be as easy and seamless as ordering an item online or booking a flight with a mobile
app.
Capitalizing on digital bankings emergence
The ability to deliver services the way customers want, including through digital
channels, is increasingly crucial to banks establishing and maintaining long-term
relationships. At the same time, banks must address growing regulatory requirements
and concerns over the security and privacy of information.
These trends point to a future of unprecedented convenience and exciting new services
for consumers. They also suggest a period of enormous challenge for traditional banks,
which must adapt to growing customer demands, new competitors and ceaseless
technology innovation.
Capco believes banks can best position themselves to capitalize on digital bankings
emergence by taking a customer-centric view of their business. They can make the
organizational and technology changes needed to execute a strategy focused on
customer experience. And by using the growing troves of customer data available to
them, they can identify and deliver the right products and services.
Growing expectations among consumers
Consumers are taking to the digital life with an enthusiasm that likely surprises even the
strongest technology proponents. People are going online to buy products and services,
conduct pre-purchase research, interact through social media, watch videos and listen
to music, and yes, do their banking.
Recent and still-to-come innovations in mobile communications and commerce are
further transforming how people live, work, play and shop, as anyone whos fallen under
the spell of a smartphone or tablet will testify.
Banks of nearly every size now offer customers online and mobile services, including
balance viewing, statement downloading, funds transfers, investment transactions and
bill payment. Online-only banks, while still only a small slice of the industry, have seen
deposits rise 32 percent since 2010.[1] And banking via mobile devices has experienced
explosive growth, with an estimated 530 million users globally in 2013, up from 300
million in 2011.[2]
Retailers of every stripe are providing mobile apps for customers to compare prices, get
deals and make purchases. Target, Walmart, Shell and a dozen other market giants have
joined forces to create the Merchant Customer Exchange (MCX), a new platform for
smartphone-based transactions. Google Wallet, Square Wallet and Isis Mobile Wallet

are competing for share in the mobile checkout market, offering payment solutions that
allow customers to complete transactions by pushing a smartphone button, swiping a
barcode or tapping a near-field-communication (NFC) reader.
These diverse initiatives have one thing in common: They all are taking place and
potentially taking share in the banking value chain.
For their part, traditional banks understand both the growing customer demand for
digital access and convenience along with the emergence of new competition within
and outside the banking industry. They also recognize the need to expand their own
digital services and capabilities, and many are innovating and investing heavily to do
so. But are they doing enough, and are they doing the right things?
Coming in Part 2 of our Digital Banking series: The hard reality of consumer-driven
digital banking.
Eric Disend is a Partner in Capcos Digital practice