Developing Alternative Distribution Channels in the Bulgarian Banking

Developing Alternative Distribution Channels in the Bulgarian Banking Sector Create an integrated, customer focused, alternative way of customer servicing and business development October 2013

Alternative Distribution Channels: Definition New Integrated Services BRANCH KIOSK - Automated Integration - e-Applications - e-Payments - Deposits - Withdraws - Automated banking - e-Applications - Information - Sales - Remote assistance - Promotions PHONE BANKING MOBILE BANING - Transfers - Information - Sales - Alerts ATM - Withdraws - Deposits - Transfers - Information - Sales - Utility Payments e-B 2 B - Distributed Electronic Services - Multilink Transfers - Business Network Services - Customer Programmes INTERNET BANKING - Remote Transfers - Multiple Accounts - Information - Sales - Alerts - e-Applications - IVR - Call Canter - Information - Transfers - Sales - Banking Support 2

The importance of Alternative Distribution Channel (ADC) services Role The role of ADC is to create and maintain a friendly, convenient and engaging banking experience ü 24 hr, Online, real-time access to the Bank ü Access through the majority of “touch-points” customers use (PC, ATM, Mobile, Tablets, phone, social media, etc. ) ü Adding value added services to contribute to customer satisfaction & retention (e. g. SMS alerts, location based services, B 2 B etc. ) For the client ADC services are a strategic asset from a customer perspective as Bank customers are becoming more demanding from their overall banking experience ü The majority is banking with more than one institution ü They demand more “power”, control, transparency & quality of service ü The new generation is used to instant and free services For the bank ADC services are a strategic asset for the Bank, in order to implement a common multichannel strategy aiming to enable the delivery of an integrated set of services to customers while at the same time achieve cost efficiencies and increased revenue streams. 3

ADC in Bulgarian Banks / Service Offering Services Comparison Bank E-Banking M-Banking Phone Banking ATM Postbank √ ~ √ √ Unicredit Bulbank √ √ DSK √ √ Reiffeisen √ ~ UBB √ ~ √ √ FIB √ √ ~ M-banking partial services √ √ 4

ADC in Bulgarian Banks / Organization Services Comparison Bank ADC Combined Business & Operations UBB √ FIB √ Reiffeisen √ ADC Business Part ADC Operations Part Unicredit Bulbank √ √ DSK √ √ Postbank Fragmented √ 5

Proposed Model Overview: Centralization of Services and Coordination Alternative Distribution Channel unit, should be responsible for all channels and electronic services offered by the Bank (e/m-Banking, Phone Banking, ATMs Coordination channels as well as B 2 B services) across customer segments (Retail, SBB, Corporate etc. ) The centralized unit should be responsible for driving the design of innovative electronic services and solutions and also for the: • Design, Business Development and Support of electronic products and Centralisation services (banking and non-banking) • Management of the Bank’ online presence and digital marketing actions • Promotion of electronic products and services of the Bank across available media 6

Proposed Model Overview: Centralization of Services and Coordination Centralization of the ownership and accountability across electronic channels and services will: • control in a seamless manner a common multichannel strategy aiming to enable the delivery of an integrated set of services to customers while at the same time achieve cost efficiencies and increased revenue streams for the Bank. • ensure the proper adaptation of internet service capabilities, providing customers integrated management of their bank relationships and transactions. Centralisation Principles • facilitate the offering of combined packages of products and services (bundling) • aggregate the monitoring of technological and operational developments and electronic behavior trends aiming to adopt effective solutions which improve service quality and reduce transaction costs • create value by providing B 2 B services (i. e. e-payments, floorplan schema, e-marketplace, e-catalogue, e-auctions and e-invoicing bundling) • establish an in-house expert center benefiting from economies of scale created in both resources and operations management 7

Towards an Integrated Approach Alternative Channels Integration Ø Integrate all existing alternative channels under a unique business unit Ø ATMs, APSs, e-banking, m-banking, Phone-banking/Call Center to be integrated into a new Alternative Distribution Channels business unit How Ø The new unit to define & implement the ADC business strategy targeting the increase of the customers’ transactions through the bank’s alternative channels and the reduction of the transactions costs to the bank’s benefit Ø The new unit to share a common already existing infrastructure, which will evolve in sync for all channels following the “develop once, use many” approach, hence achieving economies of scale. 8

New ADC structure enabling unified Commercial, Operational and Support approach Functions Unified Services Commercial Operational Support 9

Desired ADC model The three core functions 10

The target operating model should be based on centralization and consolidation of business and support functions, across channels New Structure Integrated on one line level Coordinated functions 11

Steps to achieve ADC integration Potential Options for an effective ADC unit Option 1: ADC under OTO Headed by an experienced executive having experience and overall responsibility of the ADC section • Strategy definition and implementation emanating from the unit itself; development of ADC is the main reason of its existence, not a side-show • Close and effective cooperation with Network Division and the branches but also “healthy competition” in place • Vertical integration of the unit’s functions in the sense that business development, customers support and daily operations are provided by the ADC own resources • Revenues of the ADC unit calculated at VBM level they practically impact branches’ P&L • Improvement of Operational efficiency trough close cooperation with the rests of OTO units will ensure improved customer experience Option 2: ADC under Network Division • Headed by an experienced executive having experience and overall responsibility of the ADC section • The ADC section acts complementary to the branches and supports branches targets; branches constitute a major part of the ADC strategy. • Revenues of the ADC services calculated at VBM level they practically impact branches’ P&L Option 3: ADC Unit as another Division • Headed by an experienced executive participating at Ex. Co level • Strategy definition and implementation emanating from the unit itself; development of ADC is the main reason of its existence, not a side-show • Close and effective cooperation with Network Division and the branches but also “healthy competition” in place • Vertical integration of the unit’s functions in the sense that business development, customers support and daily operations are provided by the ADC own resources • Revenues of the ADC unit calculated at VBM level they practically impact branches’ P&L 12

Benefits of the ADC integration Key Opportunities 1. Exploit sales potential of online channels Considerations - start to build capabilities to drive sales and leads from online banking, including: • Reviewing public website to ensure all product pages have a clear call-to-action, with multi-channel options • Consider building promotional capabilities within online banking to drive leads • Implement simple information gathering / online ‘application’ forms to track demand • For high propensity products, consider developing more functional application processes • For those products where a signature is required, optimize the online / offline completion model 2. Creation of an Integrated Business Model for increasing payments through the use of ADC (i. e. Utility Payments, Transfers, etc. ) 3. ATM profitability improvement through increasing the services provided and improving the location setup and management 4. Improve Sales of products by using new techniques of presenting sales opportunities while the customer performs specific transactions within the Bank in ADC (for example Finalta Case Study – please see next page) 13

Benefits of the ADC integration Finalta Case Study 14

e-Services Branding bank’s Branding Proposals: Digital Banking bank Direct bank Digital bank Dynamic bank 24/7 bank Online bank. Net bank Everywhere bank #1 Prime. Banking Bank 2 Bank. Mall i. Bank i. Transact All-In-One-Bank 4 U My. Bank. Non. Stop Univerasal. Bank Universal. Banking e-Banker e-Prime e-Touch e-Standard e-Dynamic e-International e-Personal. Banking e-Everywhere bank’s Distinctive & New Integrated e-Services Image Other Banks’ Branding Examples: | DSK - DSK Direct | FIB - My Fibank & Virtual Branch | Bulbank - Bulbank Online | Raiffeisen - Raiffeisen ONLINE | | UBB - UBB Internet Banking | CITY Bank - Bank online | VTB - VTB 24 | ING - ING Online | 15

Key Success Factors • Top management commitment in order to support the effort and facilitate to overcome resistance to change. Integrated Alternative Distribution Channels • New organizational structure that will support the integration and business development and increase the bank’s penetration rates to the individual, SB and Corporate customers segments. • Staffing with an adequate number of experienced employees. Aiming centralized and coordinated efforts in a eservice for clients • Clear Alternative Channels strategy definition and implementation. • Effective cooperation of the involved BUs; Network, Consumer and IT Divisions contribution towards the integration of the Alternative Channels is considered important. • ADC revenues and cost allocation to the service recipients (bank’s BUs) through an allocation model that will support sales efforts, improve productivity and increase customer service levels 16

THANK YOU! p 17