Transformation and reconstruction of banks in the digital era

Transformation and Reconstruction
of Banks in the Digital Era
— Agile IT Boosts Banking Digitization
July 2015

Table of Contents
Preface 01
Background 02
Challenges in the Internet Era 04
Business Digitization Strategies 12
Information Technology 20
Regional Analysis 33
Conclusion 38

1Transformation and Reconstruction of Banks in the Digital Era
Preface
The proliferation of mobile devices and information technology in the Internet era has changed the entire landscape of
corporations — customers are seeking electronic, virtual, and mobile experiences; the Internet is expanding rapidly into all
industries; and corporations are radically reshaping their traditional business models.
The banking industry, in this context, is challenged in two major ways. First, “Anytime, Anywhere” presumes that customers know
what they need, and banks’ are thriving from their tailor-made services targeted at customers’ new behaviors and expectations.
Second, new entrants in the finance industry are disaggregating the traditional banking value chain, impacting banks’ assets,
liabilities, and intermediary businesses.
In this digital era, banks need digitization and the support of information technology to transform channels, products/services,
and the ways they serve customers. New strategies include omni-channel, full-dimensional platform, and smart banks. Agile IT
capability is the foundation of digitization. Therefore, banks need to build flexible, accurate, innovative, communicative, and
secure information technology, and to improve their cloud computing, Big Data technology, and channels.

2 Transformation and Reconstruction of Banks in the Digital Era
Background
During the last decade, the Internet has become a huge hit all around the globe and a crucial component of people’s daily life.
Between 2000 and 2014, the global Internet penetration rate grew significantly from 6.7% in 2000 to 40.4% in 2014, with a
CAGR of 17%. The population of Internet users around world was expected to reach approximately 30 billion by the end of 2014.
Figure 1.1: Global Internet User Penetration Rate (2000-2014E)
The proliferation of mobile devices catalyzed the explosive growth of the mobile Internet. We expect to see smartphones replace
other mobile devices and become the primary mobile connection terminals in the next five years. Smartphones with Internet
connections should grow continuously from 18 billion in 2013 to 52.32 billion in 2019, with a CAGR of 19%. By comparison,
usage of other devices will drop from 50 billion in 2013 to 38.31 billion in 2019, with a CAGR of -4%. Meanwhile, global
monthly data usage should grow from 1.5 EB in 2013 to 24.3 EB in 2019, with a CAGR of 57%.
Figure 1.2: Mobile Subscription and Monthly Mobile Data Traffic (2000 to 2019E)
910
779
663
501413
29.4
23.1
20.6
17.6
15.8
14.1
12.2
10.6
8.1
6.7
0
500
1,000
1,500
2,000
2,500
3,000
0
5
10
15
20
25
30
35
40
45
1,562
2007
32.5
2010
2,034
2009
1,752
40.4
CAGR=17%
2014E
2,925
2013
2,712
1,373
20042003200220012000
25.6
2008
37.9
2012
2,512
35.5
2011
2,272
2006
1,158
2005
1,030
User (Left Axis, Million) Penetration Rate (Right Axis, %)
2014
7,100
2017E
8,220
6,800
2018E2013
7,455
2019E
9,063
2016E
7,828
2015E
8,631
24.3
15.4
9.8
6.2
3.9
2.5
1.5
2018E2017E2015E2014 2016E2013 2019E
Smartphone Other Devices
Monthly Mobile Data Traffic (EB)Mobile Subscription (Million)
CAGR=57%CARG=5%
CAGR=
-4%
CAGR=
19%
4,500 4,265
3,831
5,000
4,465 4,389 4,082
5,232
(58%)2,600
(37%)
1,800
(26%)
3,955
(48%)
3,439
(44%)
2,990
(40%)
4,549
(53%)
Information Source: Internet Live Stats, Deloitte Analysis
Information Source: Deloitte Analysis

Mobile devices (e.g., smartphones, tablets) have become an important part of people’s lives. According to the Consumer Mobile
Device Usage Survey 2014, more than 50% of consumers use their mobile devices at least once an hour; 35% of consumers
constantly use or check their phones; 16% of consumers check their phones once an hour; and 26% of consumers check their
phones many times every day.
Meanwhile, the Internet has made its way into traditional industries with the unprecedented depth and breadth of its expansion.
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. From clients’ perspectives, their personal behavior is being virtualized
and mobilized by smartphones. 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.

Challenges in the Internet Era
Mobile Internet is reshaping social behaviors and business models. Banks are facing the challenges from both new
customer expectations and new entrants.
Figure 2.1: Bank Challenges
On the one hand, consumer behavior has been changed significantly. 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. Internet finance connects borrower and lender directly, weakening the banks’ intermediary role.
Various Internet financial service providers lowered the entrance of mass-market wealth management, and overshadowed the
attractiveness of banking deposit products. In addition, the third-party payment platform is also gradually replacing the banks’
role as a payment channel.
Emerging Needs of Customers
Bank
Penetration of Newcomers
New features of customer
behavioral pattern
Loyalty is more difficult to maintain.••
Be oriented by individual needs.••
Requires connectivity anytime••
anywhere.
Requires more control over access••
to information.
New requirements of customers
on banks
Connectivity anytime anywhere••
Predicative service••
Tailor-made service••
Asset business of banks
The loan and financing markets of banks••
are being snatched by Internet lenders.
Liability business of banks
Bank deposits are diverted by various••
wealth management products sold
over the Internet.
Intermediary business of banks
The emergence of third-party payment••
platforms has changed the traditional
payment channels, weakening the role
of banks as a settlement agency, and
resulting in disintermediation.

2.1.2 New Customer Needs
With the shift of customer behaviors and expectations, customers’ demands for “Anytime, Anywhere” accessibility,
knowing their needs, and providing tailor-made services challenge the traditional banking business model.
“Anytime, Anywhere”
The digital lifestyle has changed customers’ expectations of financial products and services. More and more customers prefer
mobile banking services (especially transactions). Banks’ traditional service models — based on physical branches —no
longer can meet customers’ demands. Therefore, banks urgently need to develop a customer-centric, omni-channel
business model.
With the development of information technology, the role of physical branches has been redefined as well, while the importance
of Internet/mobile/phones is growing. In terms of transactions and sales, in particular, the traditional branch-centric model is
shifting gradually towards mobile-centric. About 80% of retail banking customers expect real-time processing status of their
banking requests and more convenient contact with banking staff. The traditional physical branch model also is gradually moving
into the omni-channel model.
2.1 Customer Challenges
2.1.1 New Customer Behaviors and Expectations
In the Internet era, new customer expectations have strongly impacted the banking industry. Customers are seeking electronic,
intelligent, and personalized experience, convenient and tailored service, omni-channel interaction, and transparent terms and pricing.
At the same time, customers are showing four different new behaviors:
Not as loyal
90% of customers are easily influenced by others, and only 44% of customers fully trust their financial service providers.
Expect personalized products
44% of customers use social media platforms as their main channel in sharing their banking experiences and expressing their
needs and wants for customized service.
Expect “Anytime, Anywhere” accessibility
84% of customers carry phones with them all the time, and this group of customers is asking for more convenient transaction
methods, hoping to reach their transaction goals with a much more simplified process.
More self-informed
55% of retailers believe that their customers are better informed than their customer service representatives. 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.

Branch ATM PC
Smartphone Other Mobile Devices Mailbox
1980s Now Future
Low High
+
Sales
Transaction
Channels Importance to Customers
-
- +
35.6
(60%)
10.1
(17%)
2012
53.6
31.5
(59%)
8.5
(16%)
58.9
2014E
63.6
38.7
(61%)
12.3
(19%)
2013E2011
50.0
29.5
(59%)
5.7
(11%)
2010
45.2
27.3
(60%)
3.1
(7%)
2009
40.3
23.8
(59%)
1.4
(3%)
2008
32.2
18.6
(58%)
0.0
(0%)
Mobile Phone Internet Branch
54.4%
10.2%
-1.5%13.6
(25%)
12.6
(20%)
13.2
(22%)
14.8
(30%)
14.8
(33%)
15.1
(37%)
13.6
(42%)
CAGR=12%
Figure 2.2: Different Customer Channel Demands
Information Source: Tower Group, Deloitte Analysis
Even within banks’ current channel setup, customers prefer online services, relying more and more on e-channels. In 2008, the
Internet accounted for 58% of all transactions — at a time when the mobile Internet had not yet come into the picture. However,
in 2014, Internet transactions reached USD $38.7 billion (with a CAGR of 10.2%), and mobile-based transactions reached USD
$12.3 billion (with a CAGR of 54.4%), a 19% share of total transaction volume. In stark contrast, the branch transaction share
dropped drastically from 42% in 2008 to 20% in 2014 (with a CAGR of -1.5%).
Figure 2.3: U.S. Banking Transaction Volume by Channel (Billion)

Customer
Customer
Traditional Model
ATM
Branch
Omni-channel
Branch
Call
Center
Call
Center
Social
Media
Internet
Mobile
Device
Information Source: Tower Group, Deloitte Analysis
59%
20%
19%
20%
31%
28%
28%87%
Accurate
Marketing
9%
Personalized
Pricing
11%
Customized
Products
14%
Total
34%
Boosting
Deposits
Boosting
Product
Sale
Boosting
Payment
Figure 2.5: Performance
Therefore, the traditional branch-centric banking model accompanied by call centers, ATMs, and online banking can no longer
suit customers’ needs of “Anytime, Anywhere”. 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.
Figure 2.4: Traditional Banking Channel and Customer Omni-Channel Demands
Know what customers need
The level of data evaluation has significant headroom in which to improve. Banks need to apply Big Data technology to profile
customer needs, then offer personalized service accordingly.
Deloitte’s study shows that personalized services (customized products, personalized pricing, and targeted marketing) can
significantly improve deposit scale, product sales, and payment volume by 59%, 87%, and 34%, respectively.
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. Personalized customer needs
require banks to dig further into data value, analyze customer
behaviors, and identify different customer needs so that banks are
able to:
Offer customized products and services••
Tailor pricing terms••
Give recommendations based on customers’ real needs••
Though banks are sitting on a reservoir of customer data, 66%
of stored data has not been used to create real value. Of that
data, 21% is due to insufficient budget or incomplete customer
information, 12% is bad quality of data or restricted access to
the system, and 33% due to misunderstanding the end user.
Therefore, in order to provide better service, banks need to
review how they use their data resources.

-1.91
-2.63
0.35
2.95
0.43
2.81
3.90
3.423.66
2.112.35
2.94
2.151.96
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
-0.56
1.46
-3.61
-0.61
1.06
-1.63
Actual Rate One-year T-bill Rate
95%
100%
76%
24%
5%
Low Return
on Saving Products
Poor Service Quality
Limited Product
Offering
Very
Satisfied
Total
Assets
Non-
Financial
Financial InvestmentSavings
Efficiency
Cost
Problem
Solving
Satisfaction
Infrastructure
Not
Satisfied
Tailor-made services
Customers think more of their personal needs and service experience; they need banks to offer more targeted and
predictive service advice based on their own finance needs.
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. Deloitte’s study shows that, in China,
84% of customers are willing to own Internet financial products, with over half of this group willing to allocate at least 30% of
their assets to these products. Internet companies are providing customers with higher return, more variety, and more customer-
centric products/services that, in turn, meet the financial needs of underserved customers.
Figure 2.6: Banks Fail to Meet Long-Tail Market’s Financial Needs
Information Source: PBoC, Deloitte Analysis

2.2 Technology Drives Challenges
2.2.1 New Entrants are Disaggregating the Banking Value Chain
Technology companies are eagerly trying to tap into financial services. 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. They have cut off the connection between banks and
customers, weakened banks’ role of intermediary, and literally treated banks as their “back office.” Meanwhile, Internet giants
such as Amazon, Google, and Apple have extended and integrated their service value chain with financial services, enabling them
to provide comprehensive and unduplicated services to their customers.
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. For example, P2P and crowdfunding are••
occupying the long-tail market rapidly with their low transaction costs and high efficiency.
Many e-commerce retailers are also using their rich customer data depositories to carry out lending businesses in a more••
efficient way.
Quasi-saving products offered by technology companies are, in fact, causing banks to lose customer deposits.••
The third-party payment platform has radically shifted the payment landscape and technology companies are using it as a••
gateway to acquire customers. This creates cross- and up-selling opportunities for other financial products.
The emergence of online financial product portals has impacted the banks’ role of intermediary through convenience and••
accessibility.
Figure 2.7: New Entrants Encroaching the Banking Value Chain
Wealth
Management
Investment
Banking
E-Marketing
E-
commerce
Asset
Business
P2P
Platform
Third-Party
Payment
Liability
Business
Intermediary
Business
Crowd-
funding
Low High
Bank
Erosion
Maturity

2.2.2 Impact on the Liability Business
The recent emergence of various types of “Internet Wallet” have gained substantial popularity by offering convenient services
with excellent customer experience. As a result, these products have successfully attracted a huge amount of spare savings. 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 China, for example, the combination of money market funds and Internet channels have impacted banks’ deposit business and
increased banks’ funding costs. Between 2010 and 2013, the CAGR of money market funds reached 79%, exceeding deposit
growth rates by more than 13%. In 2013, the share of money market funds as a percentage of total deposits climbed to 0.82%,
a four-fold increase compared to 2010. Meanwhile, because money market funds mainly invested in deposit agreements, they
directly increased banks’ funding costs. In 2013, about 90% of the portfolio of money market funds were invested in deposit
agreements. As of April 2015, “Yu E Bao,” the most popular money-market-fund-linked, quasi-saving product has grown by more
than 700 billion yuan in less than 2 years.
Figure 2.8: Development of Yu E Bao (100 Million)
2.2.3 Impact on Asset Business
P2P institutions have been growing rapidly during the past five years due to their low operations costs and high efficiency. 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.S. and the U.K. boomed from 2010 to 2014 — growing from USD $0.2
billion in 2010 to USD $12 billion in 2014, with an average CAGR of 178%.
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. In 2007, the first Chinese P2P company, “Pai Pai
Dai,” was established, and the entire P2P industry grew significantly in the following 5 years. The P2P business has grown from
10 platforms in 2010 to 1,575 platforms in 2014. Meanwhile, P2P transactions and loan balances have reached 252.8 billion
yuan and 103.6 billion yuan, respectively.
1H2013 1H20151H2014 2H20142H2013
7,000
5,7895,742
2,000
100

2.2.4 Impact on Intermediary Businesses
The third-party payment market is also booming with its expanding scope of services. In combination with other Internet financial
services, it helps the market to actively build a gateway to broader financial product offerings. Between 2010 and 2014, the
number of mobile transactions shot up more than 5 times, helping non-banking transactions reap a CAGR of 88.7%, well above
that of banks (55.6%).
In China, for example, Internet third-party payments have exceeded that of banks. In 2014, third-party transactions over the
Internet reached 8 billion yuan with an average CAGR of 82.4% since 2009. Internet companies are the leaders of the third-party
payment market; Internet platforms such as Payment Bao and Ten Pay take up to 70% of the market. By comparison, banking
third-party payment platforms such as Union Pay take only 11% of the market.
For example, one bank wants to achieve an “intelligent customer experience” by improving customer experience throughout the
customer’s banking life cycle.
Figure 2.9: Mobile Payment Transactions (Billion USD) Figure 2.10: Third-Party Payment Market Share
6
4
10
16
25
2014
29
4
(13%)
2013
18
2012
11
2011
7
2010
5
BankNon-bank
88.7%
55.6%
CAGR
(10-14)
2
(12%)
1
(10%)
1
(9%)0
(7%)
19%
Other
11%
50%
20%
Total Payment
Bao
Ten
Pay
100%
Union
Pay
Third-Party
Payment over 70%
Information Source: iResearch, Deloitte Analysis Information Source: Capgemini, Deloitte Analysis

In the face of challenges raised by new customer expectations and behaviors, banks should formulate a holistic
digitization strategy encompassing clear strategies that address channels, products, and customers supported by an
agile, efficient IT infrastructure.
Figure 3.1: Overview of Digitization Strategy
3.1 Omni-channel Strategy
Omni-channel strategy aims to build a multi-dimensional service delivery network through the transformation of physical
branches as well as the improvement of digital channels, ensuring seamless and consistent service delivery to customers and
enhancing their experience.
Physical channel transformation
Banks should realize the importance of transforming the function of physical channels from transaction-centered to
socially centered. Banks should make use of the concept from leading retailers (such as Apple and Starbucks) by positioning the
branch as the “3rd point” between home and office, encouraging customers to treat branches as part of their daily social life. 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.g., mobile banking,
online banking, and ATMs), and reinforce the significance of the physical branch as the point-of-sale and service for customers
who would like to have face-to-face communication with bank personnel. In the meantime, a well-planned physical network
encompassing different types of branches is needed to lower operational costs.
Business Digitization Strategies
Flexible
Architecture
Accurate
Analysis
Collaboration
Communication
Channel
Innovation
Security
Management
Multi-dimensional
Delivery Channel
Scenario-based
Products and Service
Intellignet
Customer Management
Omni-channel
Physical channel••
transformation
Digital channel improvement••
Multi-channel integration••
for consistent service and
seamless operations
Full-dimensional platform
Build a comprehensive••
financial platform via cross-
industry operation and
collaboration
Build a one-stop financial••
service platform, extending
the financial service chain
Smart Bank
Attract new customers••
Improve digitization and build••
positive customer relationship
Build a muti-dimensional••
customer stratification system
Cloud Technology
Cost saving••
Improved operation integrity••
Improved operation••
sensitivity and attention
Channel Innovation
Digitalization••
Channel building••
Omni-channel client••
experience
Big Data Technology
From data analysis to••
value creating
Create data value through••
banks'action
Technology
Strategy
Tactics
Support
IT
Capabilities
Digitization Strategies

Deloitte believes there will be three major trends in physical channel transformation:
Tailored advice:•• traditional branch functions (teller services and limited financial advice) will significantly weaken, and more
emphasis will be placed on providing tailored financial advice based on customers’ personalized needs.
Branch services:•• highlight branches' role as service providers and evolve branches into social sites. Establish long-term
relationship with customers to improve customer loyalty and stickiness.
Online-to-Offline (O2O) collaboration:•• use branches’ physical presence to improve the Know-Your-Client (KYC) and client
onboarding processes. Improve customer experience and comply with regulatory requirements.
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. Provide direct banking by experimenting with convenient,••
simple, and transparent financial products designed purposely for the digital generation
Build application-based gateways linking customers’ daily life to financial services in order to increase banks’ ability to gain••
new customers
Explore mobile banking
Promote mobile banking with built-in features such as branch locator, P2P remittance, transaction alert, purchasing wealth••
management products, and non-card cash withdrawal
Collaborate with technology companies to build a mobile financial ecosystem by developing mobile financial apps that••
incorporate both parties’ products and services
Co-operate with mobile operators to develop mobile money/payment solutions••
Leverage social media platforms
Enrich and improve the efficacy of branding channels and launching marketing campaigns••
Listen to customers through social media platforms, identify customer expectations, identify the headroom for product/service••
improvement, and enhance overall customer experience
Multi-channel Integration
Banks should focus on integrated services, making sure that customers in different channels have a consistent
experience and a single customer view. 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.

Minimized use of the BoB's
physical branch network
Only for the WMP's risk••
assessment or account opening
while avoiding over-reliance
Social Media
Mobile
PC Internet
Physical BranchContact Center
Social Media
Customer acquisition••
Marketing campaign••
Feedback gathering••
Key channel for supporting
service
key supporting channel••
providing 24/7, 360-assistance
Core channel
deliver “anytime and••
anywhere” services including
account opening, product
sales, after-sales support
PC internet Channel
Supporting channel providing••
a access of the services at
bigger screen and with more
loaded information regarding
products and services
Figure 3.3: Beijing Bank Direct Bank Channel Project
Recently, leading Chinese commercial banks have started to explore the use of digital channels. About 95% of the listed banks
have created official Weibo social media accounts as a public relations tool to promote their brands and listen to their customers.
Some 50% of listed banks have introduced direct banking as a tryout for the transformation to digital retail banking.
Figure 3.2: Chinese Public Banks’ Internet Financing Channels
100%
100%
95%
85%
50%
mBank
eBank
Weibo
WeChat
Direct Bank

3.2 Full-dimensional Platform
The full-dimensional platform integrates the products/services of banks and third parties to enrich product and service
offerings. 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 service platform would open up different service channels, and form an O2O service advantage distinct from the Internet••
companies.
The product platform would focus on developing products tailored for the Internet channel, offering one-stop financial services.••
The function platform would be based on customer insights and integrate both up- and down-stream businesses in building a••
fully-fledged platform that encompasses products, life style, consumption, and investment.
Figure 3.4: Comprehensive Financial Ecosystem
Comprehensive
Financial Ecosystem
Healthcare
Life Insurance
Car Insurance
Transportation
Electronics
Phone Internet
Food Beverage
Study Abroad
Newspaper Magazine
Training
Sports
Restaurant Bar
Leisure
Performance
Flight Hotel
Household Safety
Furniture
Maintenance
Real Estate
Electricity Gas
Service
Customer
Product Function
Financial Service Ecology
Cross-industry Collaboration
Healthcare
Consumption
Education
Entertainment
Accom
m
odation
Bank of Beijing, for example, by building an O2O channel network, is able to satisfy customers’ experience in opening accounts
and its own risk assessment for regulatory compliance. From a global perspective, direct banking (e.g., ING, First Direct)
emphasizes building a mobile-centric, omni-channel model. This model would give customers control over choosing their
preferred channels.

Banks also need to take full advantage of their strengths to improve customer experience to facilitate cross-industry collaboration.
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.g., for third-party payments), banks
could provide professional cross-sector financing services with superior customer experience. They could also co-operate with travel
agencies, property developers, shopping malls, and social media to integrate banking products into customers’ daily lives. 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. Other banks outside China also have expanded their financial service chain on the
foundation of the four platforms, serving customers’ needs for capital and information providing other financial services based
upon various applications.
Figure 3.5: One-Stop Financial Service Platform
3.3 Smart Bank
The smart bank strategy profiles customer needs in order to create value for them by applying Big Data technology and
cloud computing. 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.
My Public Business
My Transportation
Demand Deposit
My Finance
My Daily Life
Fixed Deposit
Insurance
Investment
MortgageLoan
Payment
Credit CardsMy Entertainment
My
Choice
My Shopping
My Travel
Intelligent
Machine
ATM Internet Cellphone
Digital Platform Physical Channel
Pad Virtualized
RM
RM/Agent Branch
My Health My Pension Fund
My Children’s Education
My House
My Wedding
My Car
My Education
One-stepFinancingPlatform

3.3.1 Three Ways to Attract Customers
The smart bank strategy could proactively attract customers; build active customer relationship management systems; and identify
customer needs in a better way. This could be done in three ways: by understanding customers’ lifestyles, enhancing digitization,
and building multi-dimensional customer classifications.
Understand customers’ lifestyles
Focus on basic financial service needs: convenient payment, transaction management, savings financing, etc.••
Based on customers’ consumption patterns: provide consumer loans, car loans, and foreign financing••
Through social media platforms: attract new customers, deepen the customer connection, and enhance brand popularity••
Enhance digitization
Increase the use of digital technology
Establish a well-knit data gathering and updating system••
Take control of the whole picture of customer data and ensure consistency••
Establish a useful, digitized “single customer view”••
Proactive customer relationship management
Identify different customer needs in different phases of the life cycle of their banking relationship••
Design products that suit customers’ behavior patterns••
Build multi-dimensional customer segmentation
From a one-dimensional segment (e.g., the size of financial assets) to a multi-dimensional segmentation system
Make full use of data analytical tools, understand and classify customer segments based on the output of data mining••
Take customers’ demographic, behavioral, and risk preferences into consideration••
3.3.2 Customer Experience
As technology advances, smart banks want to provide superior customer experience through multiple touch-points and a deep
understanding of customer behaviors. In particular, with the transformation of the “brick + mortar” model (i.e., branch
+ relation manager) into the omni-channel model, banks’ interaction with customers has been trending from single to
multiple touch-points. By implementing Big Data technology, banks also are able to move from the originally narrow
customer understanding to multi-dimensional, deep insights.

The best practice of leading retail banks is to continuously improve the “intelligent customer experience.” This strategy consists
of experience, delivery, and management, plus these additional measures: broadening the customer base, omni-channel and
differentiated positioning and, eventually, integration with a full-dimensional platform via omni-channel and differentiated pricing
to forge a cross-sector ecosystem.
Figure 3.7: Smart Bank Throughout Customer’s Lifecycle
Solving
Problems
Opening
Account
Mobile Marketing
Customers can••
access banks'
products and
services more
easily
Convenient Account
Management
Customers can learn••
about their account
information and
transaction histories
at any time
Accurate Marketing
Provide acccurate••
services to customers
based on their needs
Customized Service
Have a financing manager••
for each customer once
they open an account,and
provide highly customized
services
24/7 Service
Customers could get••
help and support
form various channels
in a timely manner
Retrieve Customers
Collect customer••
feedbacks, show
appreciation to
customers, and try
to retrieve them in
the future
Additional
Service
Closing
Account
Using
Account
Initiation
Figure 3.6: Smart Bank Strategy
Customer Knowledge
Smart Bank
Simple
Single
Client Manager
Branch
Call Center POS E-Banking Direct
Banking
Omni-channel
(Digital + Physical)
Multiple
Customer
Interaction
Cloud
Computing
Data
Analysis
Preference
Analysis
Transaction
Habit
Size of
Capital
Technology-
driven
BigData
Intended Customer Experience
(Right to Choose)
Basic Customer Experience
(Safe, Fast, and Easy)
Channel Technology
Superior Customer Experience
(Personalized, Single View)
Thorough

3.4 Case Study — ICBC
The Industrial and Commercial Bank of China (ICBC) sees Internet technology more as an opportunity than a threat. 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 2015, 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.
From product-centric to customer-centric
ICBC emphasizes developing products from the customer’s point of view. 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. Its exclusive online products permit it to incorporate
its financial services into customers’ daily lives.
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.
Generally speaking, ICBC has transformed payments to multi-dimensional delivery through the intentional change from channel
to platform; integrated banking products and services into customers’ lives through the change from products to customers; and
developed a smart banking strategy by changing from functions to response to specific situations. Together with the change from
process-driven to digital-driven, ICBC is ready to fully implement its digitization strategy.

Information Technology
In the digital era, banks are facing the challenge of business transformation and rebuilding. 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 4.1: Infrastructure and Business Application
Based on the analysis of technology risk, implementation difficulty, and impact on potential business, we believe that cloud
services, Big Data, and channel innovation are necessary short-term focuses for banks.
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. 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.
1 1
2 2
3
3
4
4
5
5
6
6
7
7
8
8
9
9
10
10
11
11
12
12
13
Infrastructure Business Application
Cloud computing
Parallel distributed computing
X86 open platform
In-memory computing
Bring your own device
Virtual desktop infrastructure
Software-defined networks
Horizontal clustering architecture
Enhanced metadata management
Open source software
Agile application development
Enterprise collaboration tools
Preventing reacting to cyber attacks
Mobile banking/remote app services
New generation payment, e.g. NFC,
mobile, P2P
Geolocation
Social channels and digital marketing
Big data
Innovative credit scoring
Enhanced decision making support
Omni-channel integration
New generation user interface
Digital identity
STP digitalized process
Advanced self-services
Architecture
Data
analytics
Cyber Security
Advanced
automation
Infra-
structure
Mobility
Social
Channel
Capabilities
Customer
experience
Omni-
Channel
Intelligent
Bank
Cross-
Sector
Platform
12
6
1
11
9
8
2
4 7
5
13 11
3
12
10
2
7
5
6
8
9
4
1
10
3
Potential
Business
Impact
High
Financial
Cloud
Implementation
Priority
Short-term)
Implementation
(Mid-term)
Omni-
Channel
Big Data
Non-prioritized
Worth to
Explore
(Long-term)
Implementation
Difficulty/Tech
Risk
Low High
Figure 4.2: Two-Dimensional Analysis

4.1 Cloud Computing and Open Platform Technology Supporting
Full-dimensional Platfrom
Recently, senior bank managers, under the pressure of banking capital and costs, have recognized that despite the high availability
of systems, the sustainable development of IT operations needs high resource utilization, improvement of business delivery
efficiency, flexible service offerings, and IT costs optimization. Banks’ centralized and closed IT platforms can no longer adapt to the
growing business trend in the industry. Instead, IT companies have become very successful with their cloud computing and open
platform, offering a brand new path for solving the problems of banks’ business systems. The open source software and distributed
platform would extend banks’ processing capacity. Meanwhile improvement of other standard infrastructures (such as using x86
servers) has created a reliable operating environment for application systems. Financial institutions and their software and hardware
vendors have all noticed that an open platform IT system would support banks’ real-time deals with secure, reliable, flexible, agile,
extendible, and continuous operating ability. 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.
4.1.1 Cloud Service Categories
Cloud technology is a shared, use-by-demand, flexible, scalable service. Major service types include Software-as-a-Service (SaaS),
Platform-as-a-Service (PaaS), and Infrastructure-as-a-Service (IaaS):
SaaS:•• customers can run finished applications directly from the cloud service provider without local installation. Services are
applied to various applications such as Customer Relations Management, Human Resources and Payroll Management, Treasury
and Operational software, etc. Banks can reduce costs for desktop system management, customer and product management
by using SaaS in software applications.
PaaS:•• a business model that provides server 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.
IaaS:•• customers access services thorough the computer infrastructure on a cloud platform. 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.
Clouds can be classified as public, private, or hybrid:
Public cloud
A public cloud is external to a client’s premises. It is subscription-based and shared by multiple tenants. Public clouds are scalable
and elastic, and can be accessed via the Internet.
Private cloud
A private cloud is excusive and controllable, and mostly managed internally. It is scalable, with elasticity constraints, and mainly
accessed via private links.
In building the omni-channel, banks should focus on developing mobile banking/remote software and services, social
channels and digital marketing, omni-channel integration and a new generation of user interfaces. Implementation of
these applications will be relatively easy and have a medium impact on business.

4.1.2 Superiority from Cloud Computing
Cloud technology brings four major competitive advantages to the financial industry:
Cost Reduction
Cloud technology transfers enormous capital expenditures into small-scale operational expenses, is paid by use, and provides
higher-quality storage and backup services with lower costs compared with traditional plans. Meanwhile, in order to construct
a private cloud platform, banks can adopt more open-ended and standardized x86 servers in place of expensive, legacy
mainframes. By rebuilding the traditional data warehouse and offering distributed services via a centralized resource pool, banks
are able to integrate their application systems, significantly lower the IT development and operating costs, and improve the
utilization rate of servers.
Business Continuity
Cloud technology delivers advanced data protection, repair, and disaster recovery.
Low cost: usage-by-need significantly reduces disaster recovery expenses••
No self-constructed data center needed: reduces the inconvenience of hardware purchase, application, and maintenance••
Efficiency: the fault-tolerant cloud architecture shortens recovery time and speeds recovery objectives••
Business Elasticity and Concerns
Many leading banks have migrated their infrastructures onto the cloud, realizing a mixed model of both IaaS and SaaS, as well
as a green and modernized information structure and data process center. Cloud technology delivers higher service quality with
lower cost, allowing banks to quickly construct and test its technology capacity. Cloud technology also shortens the development
cycle for new products, reacts more quickly and effectively to clients’ requests, and saves time on infrastructure construction. In
addition, cloud technology has also made services more available, more easy to use, and more personalized. For example, banks
can use Web 2.0 technology such as RIA, RSS, and Widget to re-develop user interface and explain financing businesses via video,
offering a more direct service than text messages anytime a client wants.
Business Innovation
Cloud technology can be used for channel integration and management, realizing the interaction and complement of different
channels, integrating both on- and off-line businesses and supporting banks’ rebuilding of branch businesses. Cloud technology
demonstrates the methodology of consumer-centric services, encourages service innovation and channel extension, and helps
banks provide consistent customer experience. This customer-centric, interactive service approach can offer customer service and
sales through mobile devices, social networking, online portal, call center, and physical branch which, in turn, can update business
operations. Business intelligence supported by cloud computing would bring in interactive intelligent analytics, such as detecting
if a client is logging in illegally from their commonly used addresses and securing online transactions. The cloud technology has
satisfied banks technological needs in terms of innovation and has unlocked the restrictions stemming from the long time gap
and lack of flexibility in the traditional model. With cloud technology, banks are also able to connect their businesses with their IT
technology, supporting the decision-making process and concentrating on potential business opportunities.
Hybrid cloud
A hybrid cloud is a mix of private and public cloud environments (e.g., data is stored in private premises but other infrastructure
is shared in the public cloud). Due to regulatory, technological, and security reasons, the core business and core sensitive data
of many banks should not be processed on the public cloud. Therefore, the private cloud will be the main focus for banks’
construction of cloud platforms.

4.1.3 Banks’ Use of Cloud Technology
Deloitte believes that IaaS could be an entry point for banks to build private cloud platforms. Banks can structure an IT resource
pool that serves the entire bank through virtualization and subsequent “migration to the cloud.” The resource pool details the
service units of the IT infrastructure and turns all departments into its “tenants,” satisfying different IT needs on a broader platform:
Figure 4.3: Bank Private Cloud Framework
Banks should categorize their businesses and functions, and make different operational plans accordingly. For
instance, banks can integrate front-end information network and business information sources based on SaaS into the Industry
Information Management module; and integrate mobile terminals, Internet, call centers, channel management, market and
financial consulting for mid- to large-size enterprises into the Customer Information Communication (CIM) module. The industry
information management module enables banks to access quick, accurate information about markets, clients, regulations, and
supervisory control through intensified communication with other banks and external institutions. The CIM module enables banks
to communicate more with customers and improve banks’ service skills along with customers’ self-service skills.
Banks should integrate middle- and back-office HR data management and performance evaluations into the HR Management
module. HR management could help banks manage and update staff information and performance evaluations. Daily book
entries and supervisory control reports for back-end businesses, product development, and product risk management should be
put into the Supervision Management module and Product Management module, respectively. Banks could use these modules to
deliver automated operating reports to regulators and assess risk for new products.
Moreover, banks should integrate the back-end features of IT management and security control into the IT Management and
Security Control modules. These modules could help banks construct and maintain the IT infrastructure and protect sensitive data.
IT management works well with IaaS based on the public cloud, and security control works with PaaS based on a private cloud.
Cloud Service
Management Platform
Cloud Service
Operation Platform
Cloud Service Portal
Service Financial
Management
Enhanced Supervision on Virtual
Environment
Service Request
Management
Cloud Service Capacity Analysis Tool
Service Catalog Design
Dependency Under Virtual
Environment
Service Catalog
Managemetn
Service Instance
Configuration Database
Cloud Security Management Tool
Parameter Management
Service layout and
implementation
Cloud Service Availability
Analysis Tool
Interface with External
System
Virtual IT Resource Pool
Computation - use different
virtualized software for
different virtual machines
Internet - flattened
structure with core layers
and embedded layers
Storage
FCSAN••
IP SAN/Fco E••
Distributed••
objectives
Offline backup/••
high-capacity
SATA raid
Current Operation Platform
Service
Instance
Catalog
Issuance
Service
Request
Monitor
Data
Configuration
Data
IT Service Platform
Uniform Monitoring Platform
Account Management
Modification Management
Configuration Management
Platform

4.1.5 Considerations for Cloud Implementation
Connecting Business and IT Strategies
Banks must connect their business strategy with IT strategy in order to maximize return on investment in cloud technology.
Therefore, Deloitte suggests that banks take both business and IT strategies into consideration while implementing their cloud
technology.
In terms of business strategy, banks first need to consider the product, channel, and customer (i.e., how to use cloud technology
to mobilize product development, expand banking channels, and improve customer service). Banks need to choose the most
suitable cloud technology based on their own market position (product innovation, operational optimization, and customer
experience). They also need to define their goals — which ones are long-term, cost-efficient, unrealized goals, and which ones
are short-term, realized goals that can be further improved. Banks then need to consider risk and compliance. Banks should pay
attention to regulation compliance, (including internal standards and control), classify the rights of different categories of users,
and separate the responsibilities of security administrators.
In terms of IT strategy, banks first need to consider their business information in combination with cloud technology, and provide
management standards and guidance to data warehouses, information sources, and customer information. Banks also need to
make sure cloud technology is compatible with business practices, and define the planned system structure. Banks need to be
able to adjust the structure based on the progress of the project, and choose powerful suppliers as partners. Banks also need to
consider the operational model of IT, set a clear route for transformation and a maintenance plan for the cloud, and prioritize
conflict resolution.
4.1.4. Leading Practices of Cloud Applications
The banking industry in Australia leads Cloud technology applications around the world and serves as a great reference and
inspiration to the banking industry in China. Take Westpac Banking Corporation in Australia as an example. The Westpac Banking
Corporation has been developing test clouds since 2009. In 2011, Westpac, together with Fujitsu, developed MaaS, CaaS, and
UCaaS, migrating the entire email system and administration onto the cloud. This migration realized the fast and safe transfer
of electronic information, fast read and safe storage of electronic files, effective communication between staff and significantly
lower operation and maintenance costs.
In 2014, Westpac became one of the leading digital banks in the New Zealand market. By collaborating with IBM, Westpac
was able to migrate some of its crucial IT systems onto the IBM private cloud, deploying fast online and mobile banking service
systems for different platforms and equipment and improving Internet security (such as enhancing the client identity and account
management ability). Private cloud technology can also provide a personalized and convenient banking service model, helping
banks to construct a more cost-efficient and agile IT system.
After years of experience, Westpac decided this year to actively expand its IT transformation, including cloud platform
construction. In its semi-annual report, Westpac revealed that its CTI ratio had grown to 42.5 per cent from 41.6 per cent,
whereas CBA was at a position of 42.2 per cent, surpassing Westpac in terms of operational efficiency. Therefore, improving the
operational efficiency of banks, lowering costs, and stimulating business growth have become more urgent. In order to reach this
goal, Westpac plans to rebuild its technical operation platform by migrating its platform and system onto a hybrid cloud platform
(PaaS) with non-sensitive businesses on the public cloud and other businesses on the private cloud. The infrastructure is provided
by leading cloud service vendors and PaaS allows banks to pay-by-usage, avoiding extra expenses from the system being idle.
This type of hybrid architecture will help the bank to significantly lower its IT infrastructure costs, and pass the operation and
maintenance over to the leading cloud service suppliers. In addition, this infrastructure enhances bank’s efficiency in operational
problem-solving and improves Westpac’s competitiveness.

By Different Bank Sizes
In addition, banks of different sizes need to consider factors such as data security, costs, and operational efficiency when they
apply cloud computing and open platform technologies.
Medium to large-sized banks enjoy a more mature IT system, especially in terms of security and efficiency. Considering
the needs to lower costs, these banks can more easily adopt the hybrid cloud platform to develop economies of scale,
where core applications would be processed on private cloud and the rest would be processed on public cloud.
Since small-sized banks tend to have weaker IT systems, they urgently need to improve their IT security and efficiency.
To build their cloud platform, these banks can integrate both an open infrastructure platform for key applications and
a public cloud for non-core applications. A bank management institution would most likely construct their platform,
only available to its member banks, so that they can utilize the open platform to handle core applications and use public
cloud to deal with non-core ones.
By Regulation
In this heavily regulated industry, regulators are expected to have a rigorous attitude toward financial institutions’ implementation
of cloud computing. But this doesn’t mean that cloud computing is not allowed. In fact, cloud technology is being accepted
globally. For example, regulators in Europe, the U.S., Canada, and Australia all agree that it will bring remarkable opportunities
and benefits to the financial industry. Despite differences in regulatory control, they all ensure that:
Customer data is well protected and banks have the ability to prevent unauthorized access to data••
Customers have the right to know about the management and analysis of their data due to the operation of cloud technology••
Banks have security control over clients’ data, and cloud technology providers must assess necessary security arrangements••

4.1.6 Open Platform Usage is in Top Gear
With the development of Internet finance, online distributed structures based on an open platform are constantly being utilized,
improved, and optimized. These structures demonstrate advantages with operational risk control, scalability, agile development,
A/B testing, and total cost of ownership savings when compared to a centralized mainframe structure. For example, the capacity
and sustainability of x86 open platform have been substantially improved — its stability is almost comparable to mini-computers.
Combining applications of cloud computing and cluster technology, the x86 platform has become an important technology to
reduce operating costs and elevate operational efficiency in the banking industry.
Today, most domestic commercial banks are using core business systems structured with mainframes and mini-computers. This
type of system is centralized, exclusive, and close-ended, with software and tools owned by a few manufacturers. Therefore,
Deloitte believes that, in terms of lowering costs and banks’ reliance on specific manufacturers, the key to building private cloud
platforms is to utilize an open-ended structure, virtualization, and cloud migration for building an open platform that meet the
various IT requirements.
To construct the open-ended platform, banks can use the following methods:
Reduce loads on mainframes
Gradually reduce business loads on mainframes by utilizing other systems.
Control usage of mini-computers
Replace mainframes with x86-based mini-computers, if high availability requirements can be satisfied, to save IT investment costs.
Core services migration from mainframe towards x86
Part of the mainframe and mini-computer business can be transferred to highly reliable x86 cluster systems to help clients
substantially reduce costs. Meanwhile, the futures banking industry can actively exploit core accounting services migration from
mainframe towards x86.
Business uninstalling
Internet technology enables banks to construct a massive distributed data processing structure and uninstalls vast data and highly
concurrent business systems from legacy mainframes and mini-computers. The system therefore moves from a centralized to a
distributed structure that supports future innovation for financial business and helps banks to face challenges and impacts from
Internet finance companies.
Overall, Banks can control the increase in mainframe MIPS and save IT investments with an open platform to adapt the
development of Internet finance. Meanwhile, the platform should be used to optimize IT structures from close-ended to open-
ended, realizing business innovation and lowering TTM. Under the current trend of concentrated processing model moving
towards distributed computation, the open platform framework has become an equally important model as a closed
mainframe model.

4.1.7 Promoting Financial Clouds and Open-ended Platforms
The original structure of a bank is challenged in this new era by information safety, scalable expansion and operation, and
maintenance management. First, the original structure cannot satisfy the innovative business model of customers converting
from “account needs” to “finance needs.” Second, the original structure is based on mainframes and mini-computers with single
sources and expensive costs.
Many banks are actively promoting cloud technology applications such as China Construction Bank’s (CCB) cloud data center,
China Industrial Bank’s (CIB) financial cloud service platform, and the Agricultural Bank of China’s (ABC) cloud desktop. At the
same time, many powerful suppliers are actively involved in cloud banking technology. Huawei, as an example, has plans to
employ cloud computing, business transformation from mainframes and minicomputers to x86, and open platform construction
with many major banks and financial institutions.
Credit systems plan adoption of open platforms
In the Internet era, banks have multiple requirements for a credit card institution:
An agile infrastructure for multiple products••
Improved processing capabilities with business expansion to the Internet••
Accurate and dynamic pricing and risk control for different customer groups••
Safe, reliable system structure••
Lower TCO to meet market challenges••
Figure 4.4: Huawei’s Co-operation with Some Credit Card Institution in Developing an Open-Platform Credit Card Solution
Information Source: Huawei, Deloitte Analysis
All Scenarios High Reliability Low TCO
Credit Card
Issuing
Debit Card
Issuing
Marketing and
Sales
Objective
Management
Strategic
Planning
Card Security
Card Transaction
Processing
Card Account
Management
Customer Interaction
Management
Data Mining and
Reporting
Compatible with
Visa®, MasterCard®, Amex®, JCB®, Union Pay International,and other private branded cards
Huawei X86 Open-Platform Infrastructure
Total Card Solution
Take Huawei as an example. Based on these needs, Huawei, together with its partner institution, introduced a new system for
issuing credit cards with its x86 open platform. With this new structure, the system could process 2,200 ISO8583 Transactions Per
Second (TPSs), with peak daily processing time for 60 million bills in less than 120 minutes. Within the peak performance hour,
the CPU of Huawei’s server can maintain 50 percent usage.

4.2 Big Data
In order to fully support a digitization strategy and transform into “intelligent” banks, they need to make full use of Big Data
technology to support full-dimensional platforms and omni-channels.
4.2.1 Evolution of Big Data
With the development of information technology, Big Data technology has been widely used by various industries, exceeding
the capability of distributive infrastructures and data analysis. Traditionally speaking, Big Data provides variety, velocity, and
volume (3V). Data “variety” exploded from structured and legacy data stored in enterprise repositories to unstructured, semi-
structured, audio, XML, and more. Meanwhile, streaming data, stock quotes, social media, machine-to-machine, and sensor data
all drive even more variety that needs to be processed and converted into information. Data “velocity” refers to the data flow
both inside and outside the corporation. The speed of data acquisition and processing has skyrocketed. Model-based business
intelligence typically takes a day for processing, compared to today’s almost-real-time analytic requirements that must process
incoming streams of high-velocity data. For example, eBay analyzes over 5 million real-time data transactions through PayPal to
prevent fraud. The “volume” of data stored in enterprise repositories has grown from megabytes and gigabytes to petabytes. The
volume of data processed by corporations grew significantly — the NYSE creates 1 terabyte of data per day vs. Twitter feeds that
generate 8 terabytes of data per day (or 88 MB per second).
Figure 4.5: Evolution of Big Data
External structured data is a logical
extension of the current analytics done
on enterprises' internal structured data
Enterprises understand their internal
structured data best, but they need to shift
focus to external and unstructured data
This quadrant represents the most
valuable sources of data for enterprises
to gain insights into customers
Internal unstructured data is a primary
learning ground for enterprises to
understand how to extract value from data
Travel History
Census Data
HR Records
Financial Data Asset Inventory
CRMSales Records
Resumes on Internet
Credit History
Data Collected by
External Sensors
Web Forums
Shared Data
Text Messages
UnstructuredStructured
Data Type
Web Articles
Data Collected by
Internal Sensors
BlogsReal Estate Records
Mobile Phone/GPS
Twitter
Pinterest Instagram
Google+ Facebook
DataSource
ExternalInternal
External Fragmented Data

However, not all data with “3V” is Big Data. The essence of Big Data technology lies in the value created by the data. In fact,
corporations have the most in-depth analysis and application of internal structured data, while unstructured external data can
best express customers’ needs. Currently, Big Data applications are evolving towards value creation from data analysis, and
corporations are searching for business values and outcomes with Big Data.
4.2.2 Potential Applications of Big Data in the Banking Industry Face Challenges
from Big Data Value Creation
The banking business can be categorized into two business models — retail and public.
The retail business includes retail banking and wealth management. Big Data can help banks classify their customers and
develop pricing plans to achieve accurate sales. Moreover, Big Data can also help banks regulate customer flow, give
treasury suggestions, and improve channel management efficiency.
The public business includes corporate banking, transactional banking, and capital markets. Big Data not only helps
with customer classification, personalized pricing strategy, and customer loss flow, but also with advanced model/signal
detection and exploration of unstructured data.
Figure 4.6: Potential Big Data Applications in Banking
Retail
Retail Banking
Understand the customers, and make customized action plan
Customized pricing and cross-selling
Provide value-added services
and Increase Loyalty
Provide value-added services and
Increase Loyalty
Provide ample real-time business information
Customized pricing and cross-selling
Customer Classification
Risk Management
Major Strategies:
Expected Customer Loss Deep Insights
Advanced
Model/Signal
Identification
Unstructured
Data
Exploration
Expected Customer Loss
Effective Channel
Management
Deep Insights
Provide
Cost-effective
Treasury Advice
Customer Classification
Wealth Management Corporate Banking Transactional Banking Capital Markets
Pubilc Business
Omni-channel Full-dimensional Platform Smart Banks

4.2.4 Case Study — Big Data Application
With the impact of Internet methodology, mobile Internet, and Big Data development, banks face the need to change. Many
local banks have drafted Internet finance strategies, but legacy IT structures cannot satisfy the demand of large-volume,
real-time financial data processing and analysis. In one example, a joint-equity commercial bank, with the help of Huawei,
constructed a Big Data platform on the foundation of its original data warehouse. The goal was to create customer-facing
channels in order to meet new, large data application needs. This platform helped the bank with its goals of real-time feeds,
Web history records, capital forecasts, financial networks, and accurate marketing.
Figure 4.7: Example of Big Data Application
4.2.3 Big Data Implementation Challenges
Big Data implementation is facing challenges from cost and budget, knowledge and objective:
Business objective and knowledge gap
Banking CEOs and key stakeholders have very focused business objectives. Very often, these business objectives aren’t in
alignment with Big Data ideas, making this a top obstacle for financial services organizations. Meanwhile, IT strategies and
business processes for Big Data are very different. Gaps in data storage and processing strategies, plus lack of CIO know-how or
direction will cause banks to falter. Banking technology professionals also may still lack in knowledge of Big Data management
tools. Technical and end-user training also may prohibit banks from adopting Big Data.
Cost overruns and budget constraints
A vast majority of banks’ traditional data governance and data management practices aren’t capable of supporting Big Data
requirements and can lead to costly and delayed data analytics projects. On the other hand, developing a true cost-benefit model
may be difficult when significant upfront development costs, with tools like Hadoop, are common. New cloud-based, turnkey
analytical platforms for Big Data make setting up a platform and seeing a return on investment more achievable than ever before.
Data
Acquisition
Layer
Big Data
Management
Center
Big Data
Infrastructure
Data Service Package
Data Mining Perception:
feature management and modeling, algorithm parallelization
hadoop
FusionSphere FusionCube OceanStor 9000 x86 server
Spark Storm
Business User
User Channel
Exchange
Platform
Message
Queue
Data Integration Layer
Analysis
Application Layer
Bulk/
accurate/
real-time
Data
Decision Support
Analyze
Explore
Real-time
Decision
Information
Exchange
Real-time Feeds
Web History
Capital Forecast
Financial
Context
Accurate
Marketing
Logical Data Warehouse
Data Warehouse Platform
Big Data Platform
FusinInsight
Data
Analysis
Index
Data
Model

The bank’s Big Data platform, with its unique, enhanced components, is focused on situations such as counterfeit detection,
history records, real-time feeds, VIP customer acquisition, and periodic billing. It is supported by its streaming process platform,
real-time application acceleration, recommendation engine, decision engine, and offline exploration. It has achieved the following
business goals:
Intelligent customer management
Search for potential SME customers via SME analysis model
Customer recommendation conversion rate increased by six times••
Assisted customized, personalized marketing••
Contingent financial assets model accurately forecasted customers’ position
Contingent financial assets forecast error rate declined from 60% to 30%••
Improved intelligent customer management••
Accurate customer behavior analysis
Large-volume data storage for accurate analysis
Centralized data storage for five-year 20 TB records••
Real-time queries on five-year transactional records••
Accurate customer behavior analyses
Machine learning + multi-dimensional analysis••

4.3 Channel Innovation Creating Excellent User Experience
In order to implement a consistent, seamless omni-channel strategy, banks should consider regional and customer differences,
develop their plans accordingly, and construct business-product marketing channel systems. Banks could take maximum
advantage of O2O IT capability to help create diverse channels for consistent services.
4.3.1. From Multi-channel to Omni-channel
Banking channels are evolving from multi-channel to all-channel to omni-channel. The traditional e-banking or mobile banking
merely made the branch process more electronic, but was not designed for the convenience and needs of customers. However,
about 70% of retail banks’ customers wish to have a single access door to their e-banking without repeatedly inputting the
same information. In addition, in the multi-channel model, although customer multiple touch points are realized through the call
center, branch and the Internet, there are connection gaps between these touch points (for example, customers cannot open an
account through ATM, call center or online banking, but have to go to a branch for this service). Therefore, customer’s channel
choices are limited.
With the Internet, cloud and Big Data technology and multi-media interface, banks should employ the omni-channel
strategy, realizing a customer-centric, consistent, convenient, intelligent and seamless service channel for consumer’s
financial needs anytime, anywhere. Supported by cloud and Big Data computation technology, the banking industry is building
an intelligent omni-channel strategy Aided by cloud computing, banks can access a broader range of data for analysis; with the
help of Big Data computing, banks can make accurate and fast judgments of potential customer needs. Therefore, the omni-
channel strategy helps banks connect easily with multiple channels, and Big Data analysis helps banks recommend the most
suitable products. As expected, clients will get consistent service through omni-channels.
Figure 4.8: Multi-channel, All-channel, and Omni-channel
Multi-Channel
Customer Customer Customer
Orchestrated Referrals
Opportunities
Data Analysis Reporting
All-Channel Omni-Channel
Branch
Branch
CallCenter
CallCenter
Digitization
Digitization
ATM
ATM
Seamless customer interaction
My
bank/
financial
needs/
network
My smartphone
My computer
My branch
My ATM
My personal profile preference

4.3.2 Omni-channel Transformation Focus
Banks, in building a consistent and seamless omni-channel, need to fully consider the regional and customer differences and
customize the products accordingly. In addition, banks also need to make full use of the advanced IT technology both on
and offline, establish a cross-sector channel, draft a business/product marketing system, and offer consistent services across
different channels.
Banks should focus on the following areas in planning their digitization strategy:
Grasp the moment:•• with global digitization, every new client is born digital. Therefore, banks should make use of the current
digital trend and accelerate their own digital channel construction
Advantage offering:•• banks can use Big Data to create differentiated pricing strategies and provide digital services with
differentiated values
Promotion campaigns:•• banks should launch massive digital campaigns, taking advantage of O2O to promote and advertise
Incentive:•• banks should inspire employees to use digital channels
4.3.3 Advanced IT Supporting Omni-channel Transformation
Banks need to make use of advanced information technologies to integrate and transform their O2O channels.
Figure 4.9: Channel Capabilities
Internet technology••
Bio-application technology••
Media technology••
New payment technology••
Video monitor technology••
Reinforce the integration of customers and••
information (e.g., intelligent number-calling
system)
Improve the identification process (e.g.,••
palm-scanning ATM)
Push forward the development of••
interactive service (e.g., multimedia
interaction wall)
Encourage intelligent brahch payment (e.g.,••
QR code scanning payment)
Video, audio, multimedia technology••
Internet technology••
Mobile APP development technology••
Integrated terminal••
Video + audio for better customer service••
experience
eBank for interactive service and customer••
acquisition
mBank App for differentiated service at••
anytime, anywhere
Shared export resources, consistent service••
experience, fast response to customer
needs, and raise customer loyalty
Digital Channel Exploration
Technologies
in Detail
Channel
Service
Methods
Physical Channel Intelligence

4.3.4 Omni-channel Long-distance Banking Practices
Banking clients require consistent service anytime and anywhere. So banks need to provide three-dimensional, consistent
services with multiple touch-points. However, the construction and operational costs for bank branches to provide these is high,
while services and cross-selling efficiency is low; all of which lead to low efficiency in bank branches.
IT manufacturers should, therefore, focus on promoting remote banking system solutions in order to implement omni-channel
technology, accelerate bank branch transformation, and satisfy the following business needs:
Adapt media co-ordination technology; fuse different business types and methods; provide remote, fast, and timely service;••
and share top expert resources
Extend service to physically remote branches••
Build new branches quickly and share business among branches. IT can replace 90% of branch services, move standardized••
service to self-service, and reduce bank operational costs
Co-ordinate with other banks within the country, implement all-round self-service banking strategy, provide 24/7 “one stop”••
services, and significantly raise customer satisfaction
We noticed that Huawei, with its remote banking proposals, has helped many local banks extend their services to airport
waiting rooms, starred hotels, office buildings, residential areas, and even remote districts. These banks are able to offer various
banking services (e.g., opening accounts, remittances, loss registration, ordering checks, and financing), ultimately satisfying
customers’ needs for consistent service anytime, anywhere.

Regional Analysis
Different economic regions face different challenges, as does the focus of implementing digitization.
Figure 5.1: Regional Divisions
Low income (barely above poverty line)••
Inadequate financial infrastructure (e.g.••
low branch coverage and low bank
accessibility)
Basic financial service needs (secure••
way of storing cash, convenient
remittance and payment, microcredit)
Medium income (emerging economies)••
Basic/medium financial infrastructure••
(undergoing urbanization process,
most urban residents have proper
access to bands, rural areas are
underserved)
Diversified financial needs (banking,••
investment and insurance)
High income (developed countries)••
Adequate financial infrastructure••
(very few unbanked, high literacy
ratio. Sound regulation)
Personalized financial needs••
(millennium vs elderly, demand for
customizable products and services,
value excellent experience)
FinTech startups••
Non-bank financial institutions••
Unbundling/disaggregating banking••
value chain, core banking services
are added to non-Fis offerings
USA••
Big Data Cloud Computing••
Third party payment companies••
Mobile financial services providers••
Customer acquisition,data gathering••
for later conversion
Financial services delivered at lower••
margin
Positioned themselves to add-value••
China, Russia, India, Malaysia,••
Singapore
Big Data Computing••
Informal/formal financier (microfinance••
providers, private lenders)
Customer acquisition,banks lose••
market share
Channel Technology,••
espectally mobile services
South Africa, ASEAN••
Degree of
Challenges
Low Medium High
Socio-
economics
demographics
Major
Competitors
and challenges
imposed
Examples
Strategy Focus
IT Focus
Omni-channel Omni-channel Omni-channelFull-dimensional
Platform
Full-dimensional
Platform
Full-dimensional
Platform
Low High
Smart Banks Smart Banks Smart Banks

5.2 Case Study — Guangdong Development Bank
In emerging markets like China, banks face multiple challenges, and should employ the three strategies (i.e., omni-channel, smart
bank, and big platform) as needed.
Guangdong Development Bank’s asset, liability, and intermediary businesses have all been threatened by e-commerce, P2P
institutions, and e-Marketing companies. Therefore, the bank collaborated with Union Pay, and introduced a multi-channel
electronic payment strategy:
Universal payment
Its second-generation cross-bank transaction clearing system gives Union Pay the ability to support multiple payment terminal
connections, and provide convenient, effective, and safe financial services.
SME mBank
The financial service platform specially built for SMEs is centralized around the core values of efficiency, convenience, intelligence,
and safety. It is simple to use and can provide integrated (public and private) account management, mobile approval, online
financing, value-added information, intelligent alerts, and more.
Standardized products
The bank has developed many new products based specifically on SMEs’ financing needs. We can learn from this case that in
emerging markets, banks need:
Omni-channel as their key strategy••
Smart bank as an important supporting force — acquire/retain customers with excellent customer experience and accurate••
cross-selling
Big platform to assist the expansion of the service chain through cross-industry co-operation••
5.1 Case Study — South Africa Standard Bank
In less economically developed markets like South Africa, banks should focus on channel technology.
In the face of poor economic development and infrastructure challenges, South Africa has suffered from a low economic growth
rate ( 2%), low GDP per capita, and a high unemployment rate ( 20%) for years. Its unstable political and economic environment
has restricted banks’ growth.
South Africa Standard Bank (SASB) counteracts these challenges by focusing its service on customers, employing strategies of
execution, staff culture, and customer promise. Meanwhile, SASB also emphasizes mobile service development. It introduced
SnapScan, a software application providing mobile payments for SMEs; it is one of the pioneers of financial software for watches
and allows fingerprint identification for bank access.
We can learn from this case that in underdeveloped markets, banks need to:
Focus on an omni-channel strategy, especially mobile service development••
Further catalyze omni-channel development with the help of mobile payments••
Phase-in implementation of “big platform” and “smart bank” strategies with technology support••

5.3 Case Study — Wells Fargo (U.S.)
In developed markets like the U.S., banks face enormous challenges in every element on the value chain, and need to employ all
three strategies to positively meet the challenges.
For almost every single service Wells Fargo offers, there are many new entrants offering similar financial products. Wells Fargo is
under huge competitive pressure.
Wells Fargo positions itself as the daily bank for customers, providing superior services to its customers anytime, anywhere. We
can learn from this case that, in mature markets, banks face dynamic challenges in all areas. Therefore, they need to integrate the
three strategies:
Based on the omni-channel strategy, build solid customer touch-points••
Centralized around the big platform strategy, build a full-service financial ecosystem••
Supported by the smart bank strategy, provide excellent customer experience through active analysis and management••
Figure 5.2: The Wells Fargo Strategy
Information Source: CBInsight, Wells Fargo, Deloitte Analysis
Customer's Day Wells Fargo Action
Raj needs some cash for his trip••
Raj receives a recharge alert at the airport and••
makes a payment
The payment reminds Raj to set a travel alert••
Raj pays cab fare with his Wells Fargo card••
Personalized service quickly helps Raj manage••
expenses
Sent reminder of Raj's preferences; saves access••
information and supports payments through multiple
channels
Simple online/mobile connection••
Pays anyone with an American account via uploaded••
contact list or phone number/email address
Email Web Mobile Phone ATM Branch

Conclusion
In these times of development and technological change, human society is evolving towards a digital world. Traditional banks
also operate under the pressure of digital transformation. The proliferation of Internet and interactive models representing more
creativity and customer focus are increasingly changing customers’ behaviors and expectations. The constant development of
information technology from outside the banking industry (such as the emerging financial technology and retail industries), has
disaggregated banks’ value chain with their innovative financial service models, deeply impacting bank’s assets, liabilities, and
intermediary businesses.
In order to transform successfully, digital development will be one of the opportunities in future banking. To implement digital
strategies, banks focus on channels, product services, and clients by constructing powerful support systems and IT
capabilities that promote digital transformation: payment methods to reinforce an all-channel strategy, product services
to implement a big platform strategy, and managing a smart bank strategy.
Technology must be banks’ future core competence — not just applications at the front end but, more importantly, in
the middle and at the back end. They must be able to organize and construct IT infrastructures to supplement cloud
computation, Big Data, and channels. In short, banks will need to implement digital strategies, construct a digital ecosystem,
and promote digital transformation to become super powers in the Internet financial realm.

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