Channel Strategy for Corporate Banking: Is Your Bank Paying Enough Attention?

According to the GTNews 2016 Transaction Banking Survey Report, 91% of North American corporates are evaluating their cash management partners. Of those, 27% indicated that improving availability of online and mobile banking tools were a major reason for reviewing their bank relationships, and 55% cited the need for an improved customer experience. Clearly, these responses are evidence that large numbers of corporate clients are less than satisfied with the channel tools and the overall digital client experience being offered.  Most of the banks we interviewed for recent research on this topic are hearing loud and clear that clients are looking for more streamlined, convenient, and faster access to banking services and information.  Our recent report, Strategies for Enhancing Corporate Client Experience: The Future of Attended Channels looks at strategies that leading North American and global banks are adopting to achieve the following goals:
  • Build out integrated portals to make invisible the organizational and product silos inherent in corporate banking.
  • Simplify the user experience.
  • Establish an omnichannel approach to providing consistent data and access to transactions across channels.
  • Enhance authentication options, including biometrics.
  • Expand self-service, including the ability to securely exchange documents and open accounts and new services.
While we found broad agreement on importance of the themes described above, we identified other aspects of digital channel strategy that varied widely from bank to bank.  The graphic below summarizes those opportunities for differentiation. Celent recommends that banks take the following steps to optimizing their future investments in attended channels:
  1. Define the Digital Strategy for Corporate Banking, Not Just the Digital Channel Strategy.  In the current environment, attempting to implement a successful strategy for digital channels in the absence of an overall digital transformation strategy for corporate banking is short-sighted.
  2. Understand How Attended Digital Channels Fit into Clients’ Daily Workflow.  Product management and strategy executives at many institutions are driving prioritization in channels based on a set of assumptions about client preferences that may not be valid. Mapping those client digital journeys from onboarding to servicing to managing exception situations for each client persona is critical.
  3. Reexamine the Role of Partners.  In reality, the delivery of services through attended channels has always involved multiple partners, whether the bank has developed an “in-house” solution or offers one or more off–the-shelf vendor solutions. As demands for “non-core” banking functionality grows and technology evolves to enable easier integration with multiple partners, the importance of the bank maintaining control of the user experience layer that is seen and touched by the client becomes even more critical.
The decisions being made today about attended digital channels — whether as a part of a larger digital transformation initiative, enhancing the channel user experience, or establishing a corporate banking portal — will have a significant impact on the ability of corporate banks to attract and retain clients.

Model Bank 2017: Some First Impressions

Growing up, a family Christmas tradition was that my mother would ritualistically proclaim, “That’s the most beautiful tree ever.” It seems that way with Celent’s Model Bank awards, too. In our tenth year we’ve just been through more than 150 submissions, and just like my mother, I can say that this was the best crop yet. The quantity emphatically broke records, and the quality was outstanding. Ongoing innovation in banking technology is clearly beginning to pay off, and we’ve been privileged to learn an immense amount from all of the financial institutions that took the time to tell us about their how they’ve been using technology and innovation to serve customers better, become more efficient, and mitigate risk.

Those who’ve followed the Model Bank Awards closely will note that our awards format has evolved to follow the market over the years. As the imperative to be more customer-centric has become more pressing, it has in turn begun to blur the lines between one of the oldest ways to divide banking: channels. And lines elsewhere begin to blur, too – for instance, should a mobile payments initiative be in mobile, or in payments, or in its own category? We’ve addressed this conundrum with five categories chosen to provide a broad cross-section of the banking landscape.
  • Customer Experience
  • Products
  • Operations and Risk
  • Legacy Transformation / IT Platform Innovations
  • Emerging Innovation
The entries were exceedingly diverse, and came from repeat submitters and new participants. EMEA led the pack quantitatively, with APAC and North America roughly the same, and the strongest showing yet from Latin America. We expected to see nominations around digital banking, branch and core transformation, and payments, to name a few, and we weren’t disappointed. We were also pleasantly surprised to see intriguing initiatives involving employee productivity, cross-selling, AI, Biometrics, and Blockchain.

Inevitably some will be disappointed; there were so many worthy initiatives that the judging was the most difficult by far. It’s certain, though, that Celent analysts will have a full plate for the next two months as we reach out to our Model Banks and complete the work of distilling their rich stories into pithy case studies that illustrate the incredible innovations banks are undertaking today.

As for what you can expect between now and April 4 in Boston, look for a series of articles from the Celent analyst team highlighting some of the many insights that we’ve gleaned along the way. We’d recommend that you check back in; as we notify the winners and begin to develop our case studies, we’ll keep you posted with a series of articles like this one that detail some of the insights.

And while space is filling up fast, there’s still time to register for 2017 Innovation & Insight Day, April 4, 2017 in Boston, Massachusetts. Find out more about last year’s event here.

Megavendors and transaction banking: reinvesting in digital corporate banking

Earlier this month, Fiserv announced that it is acquiring Online Banking Solutions (OBS), a privately held provider of niche treasury management capabilities. OBS has seen a great deal of success in enabling community banks, credit unions and some regional banks with the digital capabilities needed to meet the emerging needs of more sophisticated business and corporate clients for treasury management services.  As a long-time observer and participant in this space, I think it is fair to say that most of the largest providers of financial services technology (megavendors) have underinvested in corporate banking, especially in modern, digital treasury solutions.  From a back-office processing perspective, Fiserv has a key collection of assets (e.g. PEP+, ARP/SMS) on which large banks in the US heavily depend to deliver their treasury management services.  The acquisition brings a suite of first-class front-office digital channel solutions to Fiserv that should allow it to be competitive in offering omnichannel solutions specifically designed for corporate treasury users and that consider the multitude of ways that corporates consume bank information and generate transactions. Celent believes that the winners in this space will have a broad transaction banking strategy that includes international services (cross border payments, foreign exchange, trade finance) bringing all commercial banking assets into a coherent go-forward strategy, if not a single organizational unit.  Partnerships to extend transaction banking functionality is a great step toward that end but they need to be well-defined and well-executed to benefit the providers’ clients.  In 2017, we think that other technology providers will follow suit and broaden their transaction banking solutions.  FIS has certainly made a mark with its 2015 acquisitions of SunGard and Clear2Pay.  Bringing these assets together and delivering on a next generation digital platform will be critical for FIS to meet the growing needs of corporate clients for global banking services.  Other providers of digital channel solutions such as ACI Worldwide, Bottomline Technologies, D+H, Q2 Software and others will be looking at these developments closely to understand the impact on their competitive positions. With the acquisition of OBS, there are no more niche providers of corporate digital channels left in North America.  Almost ten years after the great financial crisis when income from fee-based solutions was the salvation of the industry, reinvestment in the transaction banking business is finally happening.  

Thoughts on Branch Transformation 2016

Last week, I had the pleasure of attending and presenting at Branch Transformation 2016, sponsored by RBR. The event was held in London on 6th-7th December. Unlike one once stalwart retail banking industry event in the US, RBR’s attendance has been on a multi-year growth trajectory. This year, attendance was up 20% over 2015 and included delegate representatives of 116 banks from 53 countries. It was time well-spent. [Read more…]

Goodbye PFM, Hello PFE (Personal Financial Experiences)

Personal Financial Management – PFM – has been a worthy goal pursued by many providers, yet consumers continue to ignore its possibilities. Rather than trying to incrementally expand the share of 10-12% of PFM users, banks should instead focus on the next stage in the evolution of personal finance: Personal Financial Experiences, or PFE.

We’re big fans of PFM (Personal Financial Management)…conceptually. We think that it has the potential to help people better control their finances and live happier, less-stressed lives. And yet, despite numerous efforts over the years, traditional PFM has not gained significant marketplace traction. It’s too cumbersome and inconvenient, while crucially often serving up bad news – and who wants that? At the same time, banks have recently begun to focus wholeheartedly on the customer experience of their clients, seeking to improve and coordinate the various interactions that consumers have across multiple and diverse touchpoints.

The convergence of these two trends is PFE, defined as A coordinated set of customer interactions that pushes and provides customers relevant, timely information and advice to enable them to live more informed and proactive financial lives. PFE gives customers the ability to access whatever level of financial detail they want, but focuses primarily on context and appropriate accessibility.

A variety of companies – both banks building their own, and vendors focused on developing white-labeled software – have created a wide range of PFM approaches. Most have historically required a fair degree of intentionality on the user’s part, and treat PFM as a discrete activity – a separate tab or a standalone app, for example. PFE changes that. Users will experience PFE without ever having to call it up; it will just happen to them via an alert on their mobile, an idea from a branch representative, or an unexpected landing page on their laptop. The “E” stands for Experiences, plural. PFE isn’t just one touchpoint; it encompasses the wide variety of interactions that a consumer has with her financial institution. Today’s Digital banking will, in fact, become PFE. When banks move to the end-state of PFE, customers will no longer have to choose to manage their financial lives (or by not choosing, default to unmanaged ad-hocracy); instead, financial management will happen in the background, facilitated and orchestrated by the bank, as part of the overall relationship.

Three key principles provide the foundation of a robust set of Personal Financial Experiences.
1 Automatic: Users don’t have to put much conscious thought or effort into entering the data or even asking for guidance. The system gathers that information and proactively provides nuggets of advice and discrete, concrete calls to action.
2 Intuitive: There is no learning curve. Just as kids can start using a new mobile phone out of the box without reading any sort of manual, PFE will be intuitive and user-friendly. PFE becomes normal digital banking.
3 Relevant: PFE will deliver only the information needed at the appropriate time. No longer will a user be confronted with a huge dashboard of charts and dials confusingly presented. Relevance and contextuality will rule.

The iPod wasn’t the first MP3 player; it built on and refined pioneering work done by others. So, too, is PFM the first step in the journey to PFE; we’re not there yet, but we’re well on our way, helped by advances in technology and the incremental changes that FI tinkerers continue to make. We’ll be exploring this concept in greater depth over at celent.com; please check back in, or reply to this post, if you’d like to learn more.

Banking Third Party Risk Management Requirements are a Big and Expensive Ask

Celent, through its work with Oliver Wyman, estimates the cost to US financial institutions of undertaking due diligence and assessment of new third party engagements to be ~ $750 million per year. Institutions are paying three times as much as their third party to complete on this exercise. The average cost to an institution to carry out due diligence and an assessment of a new critical third party engagement is $15,000 and takes the institution approximately 16 weeks to complete.

The top ten US banks average between 20,000 and 50,000 third party relationships. Of course, not all of these relationships are active or need extensive monitoring. But the slew of banking regulatory requirements for third party risk management is proving to be complex, all-consuming and expensive for both institutions and the third parties involved. In a nutshell, institutions are liable for risk events of their third and extended parties and ecosystems. The FDIC expresses best the sentiment of worldwide regulators:

“A bank’s use of third parties does not relinquish responsibility… but holds it to the same extent as if the activity were handled within the institution." www.fdic.gov

If an institution doesn’t tighten its third party risk management, it is significantly increasing the odds of a third party data breach or other risk event and will suffer the reputational and financial fallout.

In the first report of a two-part series, just published by Celent, “A Banker’s guide to Third Party Risk Management: Part One Strategic, Complex and Liable”, I show how institutions can take advantage of their established risk management practices such as the Three Lines of Defense governance model, and operational risk management processes to identify, monitor and manage the lifecycle of critical and high-risk third party engagements across functions and levels. It describes the components required for a best-practice program and shows examples of two strong operating risk models being used by the industry that incorporates third party risk management into the enterprisewide risk management program.

Unfortunately, there are few institutions that have successfully implemented strategic third party risk management programs. Most institutions fall between stage 1 and 2 of the four stages of Celent’s Third Party Risk Management Maturity Curve. But continuing to operate without a strategic third party risk management practice will leave your institution in the hands of cyber fate and the regulators.

Chat Bots: Savior or Disintermediator?

AI is becoming increasingly interesting to bankers.  Last year I wrote a blog about “Assistant as an App”, looking at how concierge apps like MaiKai and Penny are offering up AI-driven financial management services.  My colleague Dan Latimore also recently posted a blog on  AI and its impact.

The emergence of chat bots within popular messaging apps like Facebook Messenger, Slack, Kik, and WeChat similarly has the potential to shift how customers interact with financial institutions. Chat bots offer incredible scale at a pretty cheap price, making adoption potentially explosive. Facebook messenger, for example, has almost one billion active users per month. WhatsApp (soon to launch chat bots) has about the same.  These apps offer some extremely high engagement, and with app downloads decreasing, users are spending more time on fewer apps. According to Tech Crunch, 80% of the time spent on a mobile device is typically split between 3 to 5 apps

Chat bots give the bank the ability to automatically appear in almost all of the most used apps in the world.  The opportunity with digital assistants is immense, and given the nature of bank transactions, it’s not hard to imagine chat bots becoming a widely used engagement method.  Most of banking is heavily rules-based, so the processes are often standard.  Frequent banking requests are pretty straightforward (e.g. ‘send this person X amount of money’ or ‘transfer x amount from savings to checking’).  Bank-owned chat bots are also more built for purpose than some of the multi-purpose third-party products on the market, making the functional scope targetted. While chat bots are still very early days, it won't be long before these kinds of interactions are accessible and the norm. Bank of America already has one; many others have plans or pilots.

This video (skip to 7:30) shows what an advanced chat bot might be able to accomplish. The image below from the Chat Bot Magazine is another conceptual banking use case.  The possibilities are compelling. 

 

 

 

 

But while the opportunity with digital assistants is enormous, banks must be aware of how this affects their current ongoing digital strategy. For example, if chat bots overcome the hype and become a long lasting method for accessing financial services, then what effect will that have on traditional banking apps?  Will chat bots make it foolish to invest large sums of money in dedicated mobile apps? 

For all the promise this technology brings, banks need to be aware that this could be a step towards front-end disintermediation. The threat of tech companies (or other large retailers) stepping in to grab banking licenses and compete directly with incumbents was short lived.  The more realistic scenario was always relegating core banking functions to a utility on the backend of a slickly designed user interface created by a fintech startup.  The incumbents lose the engagement, even if they are facilitating the transactions.

Are chat bots a step towards front-end disintermediation, or are they an extension of the bank’s main app?  If you believe that chat bots are a stepping stone (or companion product) towards a world where the best UI is no UI, and where AI evolves to the point of offering significant functional value, then banks could be at risk.

This isn’t a call to hysteria by any means, nor am I calling chat bots wolves in sheep’s clothing, but banks need to be aware of the potential impact. As voice or message-based interactions become the norm, they will have an effect on a bank’s dedicated mobile app.  In this environment, the mobile app will need to evolve to become something different; non-transactional.

Chatbots will only further fragment the customer journey, requiring an even clearer understanding of how consumers are choosing to handle their finances and make transactions. Banks need to start thinking about how chat bots and AI fit into a long-term digital channels strategy, one that doesn’t handcuff the institution into a no-win proposition of competitive disadvantage versus wilful disruption.

Globalisation: External Forces Driving Corporate Growth and Expansion

Treasury management plays an important role in a corporation’s globalisation efforts especially in the areas of cash management, banking, foreign exchange risk, and investments. Treasury must address challenges with managing liquidity distributed across markets, currencies, and businesses, especially the need to keep up with regional liquidity nuances and regulatory issues.

As an outgrowth of globalisation, four key external forces impact opportunities and challenges for corporate growth and expansion: economic uncertainty, geopolitical climate, regulatory environment, and technology evolution.

Eight years on from the 2008–2009 financial crises, global economic growth remains sluggish, hovering between 3.1% and 3.4% since 2012. There are numerous examples of geopolitical events exacerbating volatility, uncertainty, and risks arising from the increasing interconnectedness of regions caused by globalization. New regulations impact treasury organizations in many ways, including in-house banking, intercompany transactions, and transfer pricing documentation.

Corporate treasury organizations continue to lean on technology to facilitate change and mitigate complexity arising from global expansion. Cloud-based treasury management systems (TMS) provide an opportunity to implement specific modules on a subscription pricing basis. Governmental agencies, banks, and fintechs are collaborating to evolve complex corporate treasury services.

As discussed in the new Celent report “Globalisation: External Forces Driving Corporate Growth and Expansion," although firms are in different stages of their globalisation journeys, they can benefit from working with their banking partners to adopt strategies and tactics that address the external factors affecting corporate growth and expansion. Universal banks understand geographic differences and nuances, and are in a unique position to advise firms seeking to expand their businesses globally. This report is the sixth in an ongoing series of reports commissioned by HSBC and written by Celent as part of the HSBC Corporate Insights program.

Leapfrogging the bank app to go straight to the electronic assistant

 

No one downloads a banking app from their store of choice for fun, nor do they open it up to amuse themselves. Instead, bank apps are used to accomplish specific tasks – check a balance, pay a bill, send money to a friend. Despite the undeniable utility of these apps, institutions struggle to persuade their customers to use them; adoption rates, depending on the specific measure, hover around 50% and have been stuck for a while at that plateau. Furthermore, while it’s undeniable that many customers want a better customer experience, and at least some of those customers would like more and better features, digital executives struggle to find the ROI of investment in their apps. Of course, there’s the argument that it’s analogous to malls that put up Christmas and other holiday decorations – consumers just expect it, and there’s not an explicit ROI – but that’s the subject of another post.

What if consumers could perform their basic banking tasks without ever having to open up their banking app? They could say, “Siri, what’s my bank balance?” or “Alexa, pay the water bill out of my main checking account.” While we’re not there yet, consumer desire for convenience (aka “seamlessness” or the “frictionless customer experience”) knows no bounds. My experimentation with Siri and Alexa, together with my preliminary research into Artificial Intelligence in banking, have led me to hypothesize that this scenario is a lot closer than many bankers might imagine. In the obligatory Uber example, the payment is invisible; what happens when the consumer makes this happen in all other sorts of interactions?

How are you prepared to offer your customers this new level of service? Do you have APIs that will let this happen? And is there a strategy to go beyond simply fulfilling a request and offering more insight, advice, or perspective than simply what being asked for? Like European banks facing the challenge of PSD2, all retail institutions can look at this as a moment where they’ll be relegated to the background or one where they can revamp their service models to build better, stronger, and deeper customer relationships.  

A Millennial’s Home-Buying (and Mortgage) Journey

At Celent we take a very customer-centric view of the banking experience. My husband and I recently relocated and bought a new house. As first-time home buyers, we were nervous about the biggest purchase of our lives. Where do we start? How much will it cost? How do we know what type of loan is right for us? Before I start, there a few things you should know about us.

  1. We’re millennials, for better or for worse.
  2. Like most millennials, we are fans of online/mobile banking and rarely step inside a branch. In the last few years, I’ve only been to a bank branch a handful of times.
  3. We both have very good credit (mid 700s) and had enough saved up to put 20% down to avoid PMI. Anyone else who has gone through this process knows that these factors can strongly impact which lenders will approve your loan. So even though this was our first major loan, we were considered relatively low-risk.
  4. We have a fee-only financial advisor who I’ve been using for the last 10 years.

One piece of advice from my financial advisor that stuck with me was, “As tempting as it is, don’t just go with the lowest advertised rate you see on the side pane of Zillow.” He warned me that interest rates are only one of several factors to consider when shopping for a mortgage and that those ads are only giving you one piece of the puzzle. This advice stuck with me because that’s exactly how I had been shopping for mortgages! Clearly, I had no idea what I was doing.

As I got further into my shopping experience I quickly learned that those low advertised rates obnoxiously flashing in a pop-up window were rarely the rates you were actually quoted. This is especially true if you are young and a first-time mortgage customer. In fact, some of the actual rates I was quoted were almost double the advertised rate. Many other lenders just simply never got back to me or made it difficult to reach a live representative.

One of the things I valued most was customer service, including the ability to talk to someone without going through a million different menu options only to be put on hold for 20 minutes. Like many others in my age group, I don’t like talking on the phone; I prefer communicating via email and text. This, though, felt different. I felt like I needed much more handholding and someone to explain all of the legal jargon in this daunting process.

My financial advisor suggested I reach out to Wells Fargo since many of his other clients have had pleasant experiences with them. I took his advice and requested an application for a Wells Fargo mortgage, and I received a phone call the next day from one of their home mortgage consultants. Right away, I noticed he had a kind and personable demeanor, and about 15 minutes later, I was preapproved for a loan. During our conversation, he explained how the mortgage process worked and introduced me to this handy online tool they call yourLoanTracker.  

Figure 1: yourLoanTracker Homepage

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Source: Wells Fargo

Basically, it tracks the loan’s progress and acts as a portal for everything related to the loan: documents, disclosures, contact information, due dates, etc. If there was something I needed to sign, I could digitally sign the document via the portal. The mobile app was another feature that I found somewhat helpful, but was mostly there just to provide an easy way of seeing the loan’s progress on the go. There was also the option to receive text and email alerts when I had a new “task” on my to-do list and to remind me of approaching due dates.

Figure 2: Mobile Alerts and Apps

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Source: Wells Fargo mobile app

A few “closing” remarks (no pun intended!):

  • We were not and still are not Wells Fargo banking customers, and aside from recommending a few products during our initial conversation, I appreciated that we were never aggressively cross-sold or pushed to open a checking account.
  • About 75% of the entire process was done digitally. We never visited a branch or talked to anyone in person; everything was done either digitally or over the phone. While some may prefer in-person visits, I found that phone conversations were more than sufficed.
  • After closing, our consultant called to ask how everything went and if we were happy with our experience (a nice personal touch).
  • Our actual interest rate was only two-tenths of a percent higher than what was advertised, and they were up front about all fees. In fact, we paid less in closing costs than what they initially quoted us.
  • We closed on time, just under eight weeks after being preapproved.

While Wells Fargo didn’t have the lowest rates, the combination of digital tools and customer service was worth the slightly higher rate. Yes, simple touches like customer service and communication are valued even among millennials, particularly when they’re going through something new and complicated! Shocking, right?