DIGITALIZATION CHANGES PROCESS – AND BUSINESS MODELS OF BANKS | ALEXANDRA HIRJOABA

University of Applied Sciences

Campus Zweibrücken
Faculty FSM
Course of studies MASTER

Assignment - Management and Organisational Behaviour

Topic:
DIGITALIZATION CHANGES PROCESS- AND BUSINESS-MODELS OF BANKS

Student:
First name: ALEXANDRA BEATRIX
Last name: HIRJOABA
Matriculation no.: 876078

Proofreader:
Prof. Dr. Jürgen Bott

Date of submission:
08.08.2017

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DIGITALIZATION CHANGES PROCESS – AND BUSINESS MODELS OF BANKS | ALEXANDRA HIRJOABA

AT A GLANCE

“Technological innovations will be the heart and

blood of the banking industry for many years to
come and if big banks do not make the most of
it, the new players from FinTech and large
technology companies surely will”
-David Brear

• THEORTICAL - Overview about organization structure and culture

• DIGITALIZATION - Impact on the European Banks

• CASE - How digital banking is changing customer behavior

• CHALLENGE - Consumers are raising the bar on their expectations
• SOLUTION - Use of latest technology to enhance customer
experience

• RESULT - Attract and retain new costumers

• EXAMPLE - The enormous succes of Transilvania Bank - customer
focused and going DIGITAL

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DIGITALIZATION CHANGES PROCESS – AND BUSINESS MODELS OF BANKS | ALEXANDRA HIRJOABA

TH E O R TI C AL - O VE R VI EW ABO UT O R G A N I Z AT I O N ST RU CT UR E
AND CULTURE

The structure of an organization has three main features:

✓ SPECIALIZATION - shows the degree of division and homogeneity of work in
compartments;
✓ COORDINATION - refers to how to ensure co-operation between departments and
individuals;
✓ FORMALIZATION - marks the degree of precision in defining functions and
relationships.

An optimal organizational structure must meet the following conditions:

✓ Reflect the objectives and the action plan;
✓ To mirror the authority in charge of managing the enterprise;
✓ To highlight the framework of activities;
✓ Be made up of highly trained people.

The main components of the organizational structure found in any organization, whether
industrial or not, are:
- post, function, hierarchical share (control area), compartment, hierarchical level, and
organizational relationships.

In other authors' opinion, the components are: post, compartment, control area, and delegation
of authority.
THE INFLUENCE OF ORGANIZATIONAL CULTURE ON ORGANIZATION
PERFORMANCE

The organizational culture - Shared by the members of a team, is a powerful integrating and
motivational factor for the purpose and mission of the organization.
A poor culture – For example, an organization in which values and beliefs are not clear, there
is no consensus - will have no sustainable success. So, a universal theory of organizational
culture formation does not exist and the current theories highlight approaches that are
contingent in character.
It is necessary to form, develop and change the culture of the organization - Because
the organizations that succeed in culture contribute to their proper functioning and create a
sentiment of personal achievement, fostering the communication and the socialization of new
members.

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DIGITALIZATION CHANGES PROCESS – AND BUSINESS MODELS OF BANKS | ALEXANDRA HIRJOABA

D I G I T AL I Z ATI O N – I MP A CT O N T H E E U RO PE A N B AN KS

The disruptive impact of the digital universe will make the tomorrow's banker
unrecognizable.
According to EY, Global Banking Outlook 2016 - Transforming talent - The banker of the future.
Banks need to:
✓ Build an organizational culture that cultivates the diversity of thinking and assures the
acquisition of new capabilities to help bankers succeed.
✓ Develop a viable industry in which transforming of the people working in the banking
environment is as important as the transformation of banking products and
processes,

"Robots will not be able to replace investment bankers and financial analysts over the next few
years, but it can’t be denied that technology, including robotics, already has a transformational
impact. Banks will need an adaptable, "intangible" workforce characterized by diversity of
thought that promotes innovation. Currently, few banks have such a workforce, and most will
have to build it. " Bill Schlich, EY

Until 2025, the millennia will account for 72% of the global workforce
The aspirations and attitudes of this generation will shape the future jobs. If they want to thrive
in this context, banks will have to retain their talents and encourage a diverse culture.

The main technological investments?

✓ Automating manual processes - to increase efficiency to reduce the costs and
improve the speed and accuracy of processes.
✓ Endowing financial counselors with tablets - to reduce the risks associated with
errors in the process of selling products, reduce the time spent by counselors to
complete paper forms, and provide customers with advice and access to a wider
range of products.

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DIGITALIZATION CHANGES PROCESS – AND BUSINESS MODELS OF BANKS | ALEXANDRA HIRJOABA

C AS E – HOW DI G IT A L B A NKI NG I S CH A NG I NG C UST O ME R

BEHAVIOUR

Radical change in the client-bank relationship

Analysts say that in fact we are dealing with a radical change in the client-bank relationship,
as clients want another type of relationship with their bank based on new technologies, so for
many banks this is a unique opportunity to differentiate from competitors.

According to US FICO financial consulting and analysis company SURVEY:

✓ Smartphone users in several countries want mobile banking applications to have far
more features than they currently offer.
✓ 59% want to receive notifications of possible fraud and 53% want to make payments
with the mobile phone.
✓ The lowest interest rate was found to be receiving information on new banking
services and products, estimated by only 39% of respondents. The interest in new
information decreases with age, so only 6.5% of those over 55 years of age want to
receive news.

How does the bank customers' behavior is changed by the technology?

✓ More and more people are using digital channels more and more
✓ The possibility to look at the opinions of other consumers online increases
✓ The search / receive recommendations from other clients on social networks change
✓ They are becoming more and more mobile, thanks to the smartphones
✓ They want an ever-increasing quality of service

How can social and smarter banks profit from it:

✓ They get more responses from customers, who can contact them more easily and
quickly
✓ It helps them launch and promote products and services
✓ They can form groups and communities for certain projects
✓ They can integrate e-commerce and customer consultation platforms
✓ They can segment their customers in more detail by tracking finance and shopping
preferences, facilitated by mobile applications
✓ They can offer customers a higher quality of service, through various applications that
help manage their finances and follow through payouts

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DIGITALIZATION CHANGES PROCESS – AND BUSINESS MODELS OF BANKS | ALEXANDRA HIRJOABA

C H AL L E NG E – CO N S U ME R S AR E RI S I NG T H E BA R O N T H EI R
EXPECTATIONS

Consumers are raising the bar on their expectations. And, according to the study
by CGI, they are willing to leave where they currently bank if their needs are not met.
A new Mastercard study demonstrates that clients' loyalty to their current bank is relatively low.
Consumers in Europe are waiting to switch to a digital bank
According to the study, "European Digital Banking", conducted in 11 European countries:
✓ Six out of 10 consumers welcome digital solutions and believe that the digitization of
the banking industry makes their lives easier and safer.

The study, conducted among European bank customers, shows that convenience is by far the
most representative advantage of digital banking solutions, followed by time savings (70%)
and ease of use (59%).

The Mastercard study also demonstrates that clients' loyalty to their current bank is
relatively low:
✓ Almost half of Europe's consumers (49%) say they will consider switching to a digital
bank at some point.
✓ In Germany, consumers show low loyalty: 27% of them plan to leave their current
bank in the next 12 months, which is by far the highest rate in Europe.

The digitization process in the financial sector will affect banks' branches
In addition, European consumers believe that the digitization process in the financial sector
will affect banks' branches. Two thirds believe that branches of banking institutions will
continue to exist for the next ten years, but their number will drop, while 6% are convinced that
they will cease to exist within ten years.

The study, commissioned by Mastercard and conducted by Innofact AG, was conducted on a
sample of 11,915 respondents from 11 European countries: Italy, Germany, Spain, France,
Great Britain, Poland, the Netherlands, Switzerland, Hungary and Russia. The research
method chosen was through online interviews

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DIGITALIZATION CHANGES PROCESS – AND BUSINESS MODELS OF BANKS | ALEXANDRA HIRJOABA

SOLUTION – USE OF LATEST TECHNO LOGY TO ENHANCE

CONSUMER EXPERIENCE

Why get closer to customers?

The retail banking environment today is about money. Banks want to save money, customers
want to save money and lost in all that is the human element. The consumer focus offers
banks the opportunity to change the situation.
Currently, banks are concerned about keeping and growing the customer base. As mobile and
online technology improves, customers easily replace many of the services offered with
smartphone affiliates and tablets. What does it mean? This means that banks need to adapt
and grow, otherwise they can be left behind.
In the chart below there are three ways in which a Bank can improve the client satisfaction by
using the latest technology. There are numerous stats in which Banks invested in one or more
of these 3 ideas and which had a very positive impact financially in the long run, which will be
explained more in details below.

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DIGITALIZATION CHANGES PROCESS – AND BUSINESS MODELS OF BANKS | ALEXANDRA HIRJOABA

O MNI C H AN N E L BAN K I N G

Each client needs a unique banking experience

Today's customers are more tech savvy, and to meet their specific needs, each client needs a
unique banking experience. They want companies to understand their unbridled needs as well
as their wishes. Therefore, we should not be surprised that these customers expect a similar
response from similar banking institutions as well.
From researching new services, opening an account, checking your balance, making
transactions, loans, loans, wealth management, customer support, providing an Omni-channel
experience has become the key to success in this competitive place Omni-canal banking is a
prospect of getting bottom-line on the higher note by getting information from customers
channels, behavior and preferences
The purpose of omnichannel banking:
Provide customers with a consistent picture of the bank and vice versa, regardless of time or
place. Major banking needs of most customers are managed by branches, ATMs and online
banking. In fact, almost half (46%) of customers have used all three channels over the past six
months.
As the adoption of mobile and online services continues to grow, omnichannel customers will
likely grow in parallel. These include:
✓ Smarter ATMs that integrate with mobile devices
✓ Video links to remote staff from affiliates
✓ Contact centers that sell as efficiently as the service

Omni-channel is not the replacement of multi-channel channels, it’s the enrichment

WHY?
✓ 73% of traders consider customer centric as essential for business success and their
role in the company. (OCP Council, 2014 Adaptive Employment Master)
✓ 70% of the buying experience is based on how the customer feels that they are being
treated. (McKinsey)
✓ A 2% increase in customer retention has the same effect as a 10% cost reduction.
(Leading on the Edge of Chaos, Emmet Murphy and Mark Murphy)
✓ In the retail banking sector, clients who are fully employed bring 37% more annual
income to their primary bank than clients who are actively de-committed. (US
Consumer Gallup State 2014)
✓ 26% of consumers say they will leave the current bank if counselors and personal
advice are removed from the bank branch

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DIGITALIZATION CHANGES PROCESS – AND BUSINESS MODELS OF BANKS | ALEXANDRA HIRJOABA

Channels: What are the top 3 things to do?

✓ Develop new skills

Banks should redefine more first-line roles to accentuate cross-behavior and will have to
hire, train, and compensate differently. For example, contact centers become a hub where
customers go when other channels do not meet their needs. But a contact center agent
who is responsible for advising clients on wealth planning will probably need different
expertise, development opportunities and incentives from another agent who is responsible
for helping customers solve technical chat difficulties.
✓ Reorganize according to customer needs

To plan what customers want while reducing their inconveniences, banks will probably
have to organize their channels, products and services around customer segments defined
by needs, not just demographics. For example, a client who just graduated from college
might shop for a car loan, while a couple with young children is more likely to need help to
understand life insurance needs. By grouping team members based on the knowledge and
abilities these customer segments have, banks are better equipped to help customers
navigate their financial questions - perhaps even before they appear.
✓ Build processes on channels

Channel owners are usually good at optimizing their own activities. Guides tend to happen
when customers move between channels. Almost everyone can refer to the discomfort a
customer feels when he is asked to authenticate his identity every time he is transferred to
a different department. What if a bank could authenticate a customer through the biometric
fingerprint reader on his smartphone and call it to create a secure session during the call?
Channel owners must begin to understand how customers involve them in the bank and
then collaborate to create natural transitions that can help customers to switch between
channels

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DIGITALIZATION CHANGES PROCESS – AND BUSINESS MODELS OF BANKS | ALEXANDRA HIRJOABA

FINTECH:

WHY? - Traditional banking companies had to change and refine existing products and
therefore expand them to customer needs
Newly-established companies, Fintech, have begun to build their services and products by
focusing on the customer's point of view. Therefore, these products and services have been
created to work well in that exact and digital environment. Traditional banking companies had
to change and refine existing products and therefore expand them to customer needs

Between 2010 and 2015, global investment in financial technology (fintech) rose from $ 1.8
billion to $ 22.3 billion. In the same period, the number of fintech transactions is higher than
triple, from 269 to 896.

(Fig 2, Diagram by PwC Global FinTech Report 2016)

By improving customer experience. Banks now see Fintech as a threat, but they have to realize
that it is not about replacing them; Rather, it is about recognizing the opportunity to create an
intimate, social and personalized experience of our clients.

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DIGITALIZATION CHANGES PROCESS – AND BUSINESS MODELS OF BANKS | ALEXANDRA HIRJOABA

FinTech: What are the top 3 things to do?

✓ Integrate applications and people into an intimate customer experience:

An essential historical component of any customer experience is social interaction with

employees. There is an obvious comfort in knowing that banks have human capital at hand.
An employee can provide expert information in person and in person. Therefore, an
opportunity is presented in building the next phase of the digital banking sector.
Applications facilitate bank transactions by facilitating electronic transactions such as direct
deposits and mortgage payments. An application could also link the client with a 24/7
humanist professional to respond to any banking needs. Offering this connection is a key
factor in shaping customer experience with the help of auto-service technologies such as
a banking application.
Siri could check your account balances or pay their credit cards or facilitate the transfer of
funds from parent to child. Artificial intelligence enhancements allow applications to handle
natural language queries and connect a variety of services (Popper 2016). Essentially,
bank customers can have a conversation and build an intimate social experience, as if they
were talking to a banker or a financial consultant. Such an evolution would restore and
ultimately enhance the social aspect that is the core of the banking clients' experience
✓ Design a digital personalized digital experience:

Financial technology could keep information about a customer's personal interests and
combine it with purchase model data to create a personalized digital experience. If a client
wisely budgets and an application is aware of this, he could suggest tickets to the next
game of the customer's hockey team or a future concert as a reward for responsible
spending. Such an innovation could create an interesting partnership between finance and
fun, with the traditional role of the financial consultant being taken to familiar social heights.
✓ Get an automated customer experience:

Anticipating customer problems before they occur. Banks could proactively identify
opportunities for improvement throughout their customers' lifecycle, such as reducing
service fees in high trading times such as holidays or improving services that customers
want, such as E-mail transfers.
Fintech can and will revolutionize the banking industry. Financial institutions should be
keen to lead the industry in the next interesting stages. Siri could finance RRSP, contribute
to RESPs or pay a credit line.

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DIGITALIZATION CHANGES PROCESS – AND BUSINESS MODELS OF BANKS | ALEXANDRA HIRJOABA

TABLET BASED PRIVATE W EALTH MANAGEMENT ADVISORY APP

Launching new digital capabilities

Banks need to start developing innovative digital applications that they can deliver to their
customers - These could include services that they can charge or others that allow them to
acquire more customers so they can provide more capabilities.
Few examples would be:
✓ Ping's service developed by Barclays Bank - a person-to-person payment service that
not only targeted Barclays customers when it was released, but all UK customers
✓ An interesting example is a Taiwanese bank - that combined the table of reviews with
reviews as part of a new app that it launched on the market. It also received
widespread adoption and, as a result, the bank has supported meal payments at the
restaurant.

Tablet-based private property management consulting technology application

Using tablets by consultants allows their customers a more intuitive and better digital
interaction that leads to a better customer experience. A tablet-based application would allow
to create easier browsing that leads to an enhanced browsing experience, unlike the legacy
desktop application. The consulting solution could also offer Peer to Peer (P2P)
communication that can enhance customer experience.
Tablets are increasingly seen as productivity tools. The tablet can be an agent driving
automation in the middle and back offices of a bank. It can play a huge role in:
✓ Direct processing (STP) transactions with minimal manual interventions
✓ Allowing counselors to respond more quickly to customer needs by processing
business requests even when away from the office.
✓ Assigning a portfolio from a list of model portfolios based on the investor's risk profile.

Customer experience can be enhanced by a variety of innovative features such as:

✓ Push alerts and client dashboard / key performance indicators (KPIs)
✓ Providing consultants with client elements that require priority attention.

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DIGITALIZATION CHANGES PROCESS – AND BUSINESS MODELS OF BANKS | ALEXANDRA HIRJOABA

RESULT – ATTRACT AND RETAIN NEW CONSUMERS

The concept of banking services is changing

As customers become more comfortable with technology, they interact with banks in a number
of ways. Unlike customers in the past, these enlightened and empowered consumers will not
accept cookie-cutter treatment. They are expected to be treated as individuals and according
to their preferences.
Having a solid multi-channel infrastructure and offering an omnichannel, fintech and launch of
new digital app, experience allows customers to enjoy personalized, trouble-free service at
each contact point. For banks, the time is now to take advantage of the wealth of customer
information available. As the world becomes even more digital, capitalizing on this digital
opportunity may be the difference between those banks that bloom in the coming years and
those that can no longer compete.

(Fig 3, Diagram by BCG Perspectives - Operational Excellence in Retail Banking 2015)

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DIGITALIZATION CHANGES PROCESS – AND BUSINESS MODELS OF BANKS | ALEXANDRA HIRJOABA

E X AM P L E – T H E SU C C ES O F T R AN SI L V ANI A BA N K –
CUSTOMER FOCUSED AND GOING DIGITAL

Transilvania Bank is a Romanian Bank in Romania that started the digitalization process since
2015, being way ahead of the other Romanian banks in the digital transformation.
According to Bankingnews, here are a few of the digital implementation done by the institution
during 2015-2017 and also the result of the investing that have been done:
✓ Development of a Digital Banking Hub as part of the strategy to grow and invest in
omni-channel banking. The Hub will launch and manage BT profile projects by linking
creative ideas to transform Transilvania's offer into digital solutions”
✓ Online CIP platform for payment incidents detection;
✓ Online transactions with BT card: single password authentication received via SMS;
✓ The contactless bracelet, which can replace the card with the payment of purchases,
through access to the current account opened in lei at BT, as well as the possibility to
pay contactless, regardless of the amount, in the country and abroad;
✓ BT24 Mobile Banking - digital fingerprint authentication, simplifying access to the
application the app has also been upgraded;
✓ The first integrated platform dedicated to business practitioners,
www.diviziapentrumedici.ro, with personalized information according to medical
specialization, online consulting, application for BT products and services;
✓ Continue to launch online shopping campaigns, the most recent being Banksylvania.

Here are some results of the bank during 2016-2017

✓ Transilvania Bank reported profit up 7.6% in Q1
✓ Banca Transilvania's net profit is 246 million lei,
✓ Banca Transilvania's Financial Group is 267 million lei;
✓ Banca Transilvania Group closed the first quarter of 2017 with assets of 52.1 billion
lei, of which 51.9 billion lei are related to the bank, net loans representing 54% of the
Group's assets;
✓ Growth rate of operating income: 11.1%; BT's operational efficiency is kept at a
comfortable level; Between January and March 2017, at gross level, before the off-
balance sheet entries were recorded, BT's credits increased by 3% on all business
lines;
✓ The Loans / Deposits ratio is 73% at the end of the first quarter of 2017.

Historical change in the top banks in Romania

Besides the positive Profit, the Bank was part of an historical change in the top banks in
Romania: exceeding BRD and climbing second in the ranking of the largest banks and being
called the most profitable bank of Romania for 2 consecutive years: 2016 and 2017

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B I B LI O G R AP H Y

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