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The finance industry, especially, is going through radical changes. The Internet has changed the relationship between consumers and physical money and whittled down the importance of trading with physical money. In fact, customers prefer to conduct transactions on their mobile devices, given that technology companies can provide more convenient financial services using the mobile Internet. However, the lack of investment in technology innovation and limitations imposed by regulation provide new entrants an opportunity to compete in the financial markets.

In general, client behaviors, business operation models, and the rate of Internet expansion are all changing significantly with the advance of information and communications technology. At the company level, smartphones are enabling the use of new channels, technologies, and concepts that are reshaping their business models. From the industry perspective, with the advancement of Big Data and cloud computing technology, the Internet is expanding rapidly into traditional industries, driving the integration of those industries. Banks are facing the challenges from both new customer expectations and new entrants.

Figure 2. Customer loyalty is getting harder and harder to maintain while customer requests are more demand-driven. Furthermore, customers are asking to connect with their financial institutions anytime, anywhere, and are proactively seeking information themselves. On the other hand, new entrants are disaggregating the traditional banking value chain in terms of assets, liability, and intermediary revenue. Various Internet financial service providers lowered the entrance of mass-market wealth management, and overshadowed the attractiveness of banking deposit products.

More and more customers prefer mobile banking services especially transactions. Therefore, banks urgently need to develop a customer-centric, omni-channel business model. In terms of transactions and sales, in particular, the traditional branch-centric model is shifting gradually towards mobile-centric. The traditional physical branch model also is gradually moving into the omni-channel model. Customers are seeking electronic, intelligent, and personalized experience, convenient and tailored service, omni-channel interaction, and transparent terms and pricing.

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Meanwhile, customers can acquire information via multiple channels. They expect to get simple and transparent product information through various price-comparison websites and social media platforms. One of the key success factors of direct banking is transparent product pricing. Banks find it as an effective response to customer needs and a means to greatly improve customer experience. Banking Transaction Volume by Channel Billion 9. In order to improve customer experience, banks need to forge a customer-centric, omni-channel business model that gives customers control over channel selection and simplifies the previous fussy process by avoiding repeated information requests.

Banks need to apply Big Data technology to profile customer needs, then offer personalized service accordingly. Technology companies, on the other hand, with their customer- centric service culture, have provided more personalized and differentiated customer experience that, in turn, indirectly raises the bar for customer expectations. Therefore, in order to provide better service, banks need to review how they use their data resources.

For example, there is an abundance of long-tail customers underserved by the traditional banking model. However, the financial needs of the long-tail market have long been depressed due to the low return on savings products, poor service quality, and limited product offerings.

In recent years, technology advancement has lowered service costs and improved the operational efficiency of financial institutions, so the long-tail market is gradually becoming the new battleground for banks. The emerging FinTech start-ups such as Kickstarter, Square, Simple, and Prosper have disaggregated the traditional banking value chain and instead have focused on a niche segment of the banking service by providing specialized, yet differentiated, services. On the other hand, technology innovation has brought in new entrants who are intensifying the competition: Internet lending has taken some market share from the banking asset business.

Quasi-saving products offered by technology companies are, in fact, causing banks to lose customer deposits. This creates cross- and up-selling opportunities for other financial products. As a result, these products have successfully attracted a huge amount of spare savings.


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Many technology companies are good at bundling their core services with financial services by providing integrated solutions with a unique value proposition that has not been copied by banks. This has significantly challenged the liability business for banks. In , the share of money market funds as a percentage of total deposits climbed to 0.

In terms of loans and investments, P2P companies have encroached continuously on the traditional banking business. Data shows that the total loans of major P2P institutions in the U. In China, the lack of investment channels for small- to mid-sized investors and the dissatisfaction of SMEs with responses to their financing needs also have inspired the development of P2P businesses. The P2P business has grown from 10 platforms in to 1, platforms in Meanwhile, P2P transactions and loan balances have reached In combination with other Internet financial services, it helps the market to actively build a gateway to broader financial product offerings.

Between and , the number of mobile transactions shot up more than 5 times, helping non-banking transactions reap a CAGR of In China, for example, Internet third-party payments have exceeded that of banks. In , third-party transactions over the Internet reached 8 billion yuan with an average CAGR of Figure 3.

Physical channel transformation Banks should realize the importance of transforming the function of physical channels from transaction-centered to socially centered.

By building a long-term relationship with customers, banks will be able to better understand customer needs and improve customer loyalty. Banks also need to migrate low value-added transaction services gradually to digital channels e. In the meantime, a well-planned physical network encompassing different types of branches is needed to lower operational costs. Establish long-term relationship with customers to improve customer loyalty and stickiness. Improve customer experience and comply with regulatory requirements.

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Digital channel improvement Banks should actively promote online banking upgrades by integrating online digital channels with social media and mobile technology. The interactive communication channels established by social media can bring customers and banks closer. Meanwhile, mobile banking also can provide convenient customer service and improve customer experience. Banks could improve their digital channels by upgrading online banking, exploring mobile banking, and leveraging social media platforms.

Upgrade online banking Simplify the process and improve customer service convenience.

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The future omni-channel should be focused on the mobile Internet with support from branches, ATMs, call centers, and the PC Internet, giving customers control in channel selection. It is a comprehensive financial service platform with applications involving cross-industry co-operation and expansion of the financial service chain. Banks should develop full-dimensional platforms that include customer-centric, service, product, and function platforms.

The customer platform would effectively integrate all customer resources to promote customer acquisition. The product platform would focus on developing products tailored for the Internet channel, offering one-stop financial services. From a global perspective, direct banking e. This model would give customers control over choosing their preferred channels. For example, banks could focus on their core financial services while expanding into e-commerce, supply chains, corporate management, etc.

Furthermore, through their collaboration with technology companies e. This full- dimension platform is built upon four fundamental platforms — customers, services, products, and functions. The goal is to build an integrated financial service ecosystem covering healthcare, consumption, education, entertainment, accommodation, etc. Development Bank of Singapore DBS , a leading regional bank, has built a one-stop financial service platform that provides the services customers want anytime, anywhere.

With the advancement of information technology, banks now are able to conduct in-depth analysis of customer behavior patterns that helps banks proactively manage customer relationships and gain a multi-dimensional understanding of their customers. Ultimately, banks will be able to offer superior customer experience with in-depth customer contact and insights. By implementing Big Data technology, banks also are able to move from the originally narrow customer understanding to multi-dimensional, deep insights. It enables ICBC to see a new, broader vision of business models. ICBC is integrating logistics, information, and capital flow into a 3-in-1 risk management system offering online finance, transforming relation-based to transaction-based financing, and expanding its customer base and service model via an e-commerce platform.

In March , ICBC unveiled its Internet finance strategy: transforming its focus 1 from product to customer; 2 from function to application; 3 from channel to platform; and 4 from process-driven to digitization. For example, by integrating separate functions originally built for online banking and mobile banking, ICBC can acquire new customers while holding on to current customers with frequent transactions. From function-driven to application-oriented ICBC has integrated customer behaviors and needs into building an improved platform that accommodates both online and offline functions.

It also has covered the whole payment value chain, designed products around applications in order to guarantee safe payments, while attracting young customers and keeping core customers. From building a channel to building a platform ICBC has focused on e-commerce, social media, and basic financing services.

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From process-driven to digital-driven ICBC has built a data warehouse for collecting and analyzing customer data. The bank is making full use of this massive amount of data to form a data culture that will enable it to gain better knowledge of its customers, and then provide better services.

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Together with the change from process-driven to digital-driven, ICBC is ready to fully implement its digitization strategy. Agile IT capability will help digital banking succeed. Meanwhile, IT applications in the banking industry have progressed in the areas of infrastructure and business applications. In the long run, applications are moving toward the areas of infrastructure, architecture, capability, and cyber-security: Figure 4. Currently, banks face the challenges of high server-purchasing frequency, long processing time to update new business and applications, low server efficiency, high total cost of ownership, low availablity of servers, etc.

Therefore, in building the financial cloud, banks should focus on infrastructures such as cloud computing and storage, virtualized desktop, open source software, and flexible application development.

The New, Digitally Conscious Customer

By utilizing online resources and combining distributed technology and high availability, the business substainability and response speed will be elevated. Implementing these infrastructures will require a relatively low difficulty level but bring substantial benefits to business. In building the Big Data technology, banks should focus on applications such as contact center efficiency optimization, customer churn analysis, customer experience analytics, risk management, fraud detection, and enhanced decision-making support.

Therefore, banks should include Big Data development in their short- to mid-term planning. Meanwhile improvement of other standard infrastructures such as using x86 servers has created a reliable operating environment for application systems. Thus, cloud computing, with its scalable and agile architecture, flexible resource pools, and enhanced customer service features, has become an optimal solution for commercial banks. Banks can reduce costs for desktop system management, customer and product management by using SaaS in software applications.

Customers are able to use or develop platforms via the Internet without installing local software. Uses mainly include customized software development such as Java, Ruby, etc. Banks can apply PaaS to internal safety controls to protect the security and integrity of data at low cost. Main uses include environment exploitation and tests, high-performance computing and page services. Banks can use IaaS as an agent to implement private cloud platforms.

It is subscription-based and shared by multiple tenants. Public clouds are scalable and elastic, and can be accessed via the Internet.