Corporate Onboarding: Starting the Relationship Off on the Right Foot or Putting Your Foot In It?

Just for a moment, imagine that you are a corporate treasurer, forced to find a new lead transaction banking provider because one of your incumbents is either getting out of the business, prefers to work with companies that are smaller/bigger/borrow more money or has closed down its operations in several countries where you do business. You have gone through the effort of creating a complex RFP and sent it to 3 or more banks and after an exhaustive search and extensive contract negotiations, you have made your decision and it's time to start the onboarding process.  You are excited to move your banking activity to a new provider that has done such a masterful job of convincing you of their superior products and solutions, their investments in leading edge technology and their world-class customer service.  And then reality hits….the onboarding process kicks into high gear.  You understand that banks are facing increasing regulatory scrutiny in the areas of KYC and AML because even your current providers are looking for regular updates for compliance purposes.  But you hope that the process has been streamlined since the last time you established a new primary transaction banking relationship.  After filling out reams of paper documents, fielding multiple calls from different areas of the bank asking for the same information you have already provided, pinging your bank relationship manager for status updates on a weekly basis, and wondering out loud more than a few times…. "why did I choose this bank?"….the onboarding process is finally complete ((except for some of those more complicated host-to-host integration pieces) and it only took twelve weeks from start to finish.

As described in a recent Celent report titled Onboarding in Corporate Transaction Banking: Prioritizing Investments for Reducing Friction, transaction banking providers have lots of room for improvement when it comes to starting the relationship off on the right foot. Our thesis is that improving the onboarding process from a client-centric perspective should be one of the most important priorities for transaction banking. Whether establishing a new relationship or assisting a client in expanding an existing one, implementing transaction banking services in an efficient, timely, and transparent manner can be a key demonstration of a bank’s commitment to client-centric innovation.

Even with significant technology investments over the past decade by banks to improve components of the onboarding process, it is common to hear frustration on the part of corporate clients about its manual nature, the increase in the amount paperwork being requested by banks, the length of time it takes to be able to use the account or services, and the lack of visibility into the process. It's easy to blame the regulators but the bottom line is that most banks are investing in components of onboarding to check off the compliance box and in some cases, are actually adding friction to the onboarding experience for clients rather than removing it.

20160801-Onboarding Report slides_WORD-READY

But there is hope.  The current generation of KYC industry utilities, document management technology, business process management platforms, and digital channels presents an opportunity for banks to reduce friction in customer onboarding.  The fundamental question is with so many opportunities for improvement, how should banks prioritize?  Well, let's get back to our imaginary corporate treasurer.  How would she prioritize?  What would she say if we asked how the onboarding process could be improved so that instead of frustration at the start of the relationship, there is a sense of confidence that she's chosen the right bank?  Clients have experience working with several or many different transaction banks, and just as they compare the different digital channels and service quality of the banking solutions they use, they also can offer a view of how a bank’s onboarding capabilities stack up against its competitors. Corporate treasurers indicate that more self-service capability, shortened timeframes, better coordination across the bank, and enhanced visibility are all high priorities for clients.

We think that banks need to have two guiding principles for enhancing the onboarding process: 

  • enabling both internal and external visibility to eliminate the onboarding “black hole,” to reinforce accountability of all parties, and to allow for more effective collaboration
  • focusing on improvements with direct client impact, for example, reduced number of interactions, reduced requests for information already on file, digitization, consistency across geographies wherever possible, clear and concise documentation, and aggressive SLAs for onboarding

There are a few banks that get it:  they not only ask for client feedback about onboarding but they listen and adapt.  They make it a high priority because they recognize that the "digital journey" isn't just about retail banking anymore. If anything, the digital experience is even more critical for corporate clients who look to their transaction banking partners to enhance the efficiency of their treasury operations through digitization.  If you can't demonstrate your commitment to innovation by offering a client-centric digital experience during the onboarding process, then your are selling your investments in digital banking solutions short. And that's putting your foot in it for sure!





Increasing headwinds in corporate banking?

This week I’m in Singapore, which provides a beautiful backdrop for Sibos 2015, the annual conference that brings together thousands of business leaders, decision makers and topic experts from a range of financial institutions, market infrastructures, multinational corporations and technology partners.


This year’s conference theme is connect, debate and collaborate and takes place at a time of increasing headwinds from a slowing global economy, higher compliance costs, increasingly global corporates, and competition from both banks and nonbanks alike. I spent the past few months taking a deep dive into corporate banking performance over the past 10 years–a period of both tremendous growth and unprecedented upheaval. As expected, corporate banking operating income and customer deposit balances have experienced healthy growth rates over the past 10 years. But surprisingly, despite increases in customer deposits, corporate banking income was largely stagnant over the past few years.

Corporate Banking Income and Deposits

Corporate banking plays a dominant role for the largest global banks. In 2014, corporate banking was responsible for 33% of overall operating income and 38% of customer deposits across the 20 banks included in this analysis.

As outlined in the new Celent report, Corporate Banking: Driving Growth in the Face of Increasing Headwinds, this critical banking sector is shaped by four external forces: economic conditions, the regulatory environment, business demographics, and financial technology. These same factors are slowing corporate banking growth and creating an environment in which banks are overhauling client offerings in the face of regulatory pressure, re-evaluating geographic footprints in response to shifting trade flows, and investing in technologies to ensure a consistent, integrated customer experience.

Much of the discussion at Sibos is on exploring transformation in the face of disruption. As they look to an unsettled future, corporate banks that are flexible, adaptable, and creative will be the ones that succeed. Changing time-tested ways of doing business is painful, but critical for future success.

Corporate banking in China: my crystal ball grows cloudy

I’m in the midst of writing a Celent research report on how corporate banking is faring amid increasing economic, regulatory, competitive, and technology headwinds. Part of my research includes looking at the performance of 20 of the top global banks over the past 10 years. Four of these banks are headquartered in China, a country currently struggling with a government-directed transition to a “new normal” characterized by a shift to a “real economy.” Perusing Chinese banks’ 2014 annual reports, in early 2015 the banks were looking forward to continued acceleration of growth in a stable and healthy environment. What a difference a few months make! China’s economy traditionally depended on expanding exports and massive infrastructure spending. But China’s move to a services-based economy, built on an expanding middle class and private entrepreneurship, is proving challenging. Looking back at the past ten years, China grew to be the largest exporting nation with $2.3 trillion in exports and a CAGR of 15%, the fastest growth rate among top exporting countries. China also weathered the global financial crisis dramatically better than the rest of the world, with its GDP growth rate only dipping to 9% at the same time as world output contracted by 0.5%. China GDP growth China’s growth into a global economic powerhouse and its resilience during the financial crisis contributed to a nearly 20% CAGR for corporate banking operating income across the top four banks from 2004 to 2014. Similarly, these banks enjoyed a 17% CAGR for corporate banking customer deposits. Chinese Banking Income and Deposit Growth Even as China’s economic growth decelerates, the IMF estimates that it will continue to outperform advanced economies. For the corporate banking sector, small-to-medium enterprises are expanding, increasing their need for more sophisticated trade and treasury banking products. This presents an opportunity for global and regional banks to expand transaction services, broadening the options available to corporations doing business in the region. What remains to be seen in my cloudy crystal ball is how China’s corporate banking sector (and its client base) weathers the current stock market shocks. Will China be able to grow its “real economy” into a “new normal”? Or will China finally experience its own financial crisis with a severely contracting GDP and bursting economic bubble?

Corporate banking: serving the needs of business clients

Last week I joined Celent’s banking practice as a Senior Analyst covering Corporate Banking. I join fellow corporate banking analysts, Gareth Lodge and Jim O’Neill. Gareth covers payments back office, payments infrastructures, and payments connectivity. Jim covers core systems modernization, the impact of cloud computing, and treasury management technology. My coverage will be focused on the technology impacts of meeting the financial management needs of business customers, ranging from global multinational corporates to small businesses. This includes global transaction services, small business services, commercial and small business lending, and the changing role of corporate treasury and its impact on meeting the needs of corporate banking clients. It’s an exciting time to return to the Corporate Banking analyst ranks. In the face of an uneven global economic recovery, evolving regulatory imperatives, and unpredictable supply chain disruptions, corporate treasury and finance teams have expanded roles and responsibilities. These developments are putting increased pressure on financial services providers in the areas of working capital management, liquidity management, external financing, payables and receivables, international trade, supply chain finance, merchant services and delivery channels. For the large global banks serving corporate and institutional clients, transaction banking revenues and deposits are holding up due to strong transaction volumes, despite a low interest rate environment. Looking across the largest global banks, transaction banking’s share of total bank revenue averages 13%, with its share of deposits averaging 36%.
Transaction Banking Revenue and Deposits

Transaction Banking Revenue and Deposits

On the lending side, US commercial loan outstandings have more than fully recovered from the 2008-2009 financial crisis. US commercial and industrial loans, particularly hit hard during the crisis, have rebounded almost 45% since their lowest point in 2010. Commercial lending in the euro area is another story. Since their peak in 2008, loans to corporations have declined 9%. As discussed in this year’s Top Trends in Corporate Banking 2015 report, banks are facing a complex new reality with disruptive technology, the changing role of corporate treasury and regulatory imperatives shaping corporate banking strategies in new and unprecedented ways. In order to maintain (and hopefully grow) corporate banking revenue and market share, banks need to address the top trends outlined in the report in the context of Celent’s three overall financial services technology themes:

• Digital and Omnichannel • Innovation and Emerging Technologies • Legacy and Ecosystem Transformation

If you have feedback on additional top corporate banking trends we should be covering, I would love to hear your ideas.  

So…what do you do all day?

Stick with me on this – all will become clear! So, I suspect we all have the same conversations at parties when making small talk with people you’ve just met – “…and what do you do?” There’s the standard work answer: “We help banks make the right technology purchases for their business. We start with a business driver, articulate what the best strategic response might be, and how that translates into a technology initiative”. Sometimes I simply say that I get paid to think, talk and write. Friends and family still don’t quite understand what this means though. My youngest daughter, at about the age of 7, in a Pythonesque twist of sense of humour, decided actually it was easier and better to tell everyone that I helped people to stop being afraid of trees! All workers tend to be better defined or at least understood by what we actually do on a day to day basis. Whilst some of the patterns may be the same, no one day is quite the same, but it will give you a good sense. The morning starts with going to my office. The majority of analysts work at home, for historic and practical reasons. An analysts coverage is topic driven, rather than geographic, so work patterns require flexibility to talk to clients who can be – and are – anywhere in the world. The flip side is that we have a great work/life balance, and the company actively tells us to protect that. The first hour at least is spent responding to email. With clients and colleagues around the world (Celent has offices in 14 countries, and colleagues are more wide spread still), I get as much email overnight as I do through my working day. Some of the emails are press alerts that I’ve set up, following particular topics or companies. Keeping up to date with events is key. Equally, they may come from the press, asking for my insights. For me, I tend to try to spend the rest of the morning doing writing. At the moment, that’s a very varied task, and an important one – as analysts, one of the key measures on which we’re judged is how many reports we write. Today I was:
  • Juggling 5 case studies from banks in 4 different countries for our upcoming Model Bank awards, including the “container” that 4 of them will be published in a paper commissioned by a client, trying to incorporate the ideas that they’d like to explore, but whilst making sure that I’m truly independent.
  • Preparing two presentations for upcoming webinars with clients.
  • Writing this blog post.
  • And consulting at various stages – one answering last few questions from the deliverables, another designing the agenda for a strategy day, and handful of others at various stages of proposals. It’s very much consulting with a small “c” – we’re applying our expertise and experience, rather than throwing lots of “bright young things” at a project. In fact, most projects are usually a single analyst.
At some stage, I also need to do more admin type things – thanking a client for allowing me to attend their customer conference, booking travel for some upcoming events, etc. But its not all sit at home. An important part is meeting clients, and creating visibility for Celent. I’ll be at most of the major conferences this year, often presenting, right around the world. The afternoons are when I try to arrange the majority of my conference calls. Some days there are none, but others I can spend at least 5 hours on the phone straight. Some will be client calls, whilst others will be supporting salespeople or internal projects. So why am I boring you with this? We’re hiring. We’re looking for someone with corporate/transaction banking experience to join our team. That person should know the industry well, most likely from a bank or consulting background – we want someone with first hand experience. It needs someone who is comfortable working on their own, coping with the discipline needed to get reports written, yet at the same time, have the passion to share that knowledge, be it on the phone, on a webinar or in from of an audience of thousands. I’m hoping having shown you what a great, interesting and rewarding job an analyst has. We can offer a good salary, intellectual challenges, the opportunity to build work own personal brand, and all whilst having an excellent work life balance. We look forward to hearing from you soon!

Top priorities on a Transaction Banking COO’s agenda

Based on my research, Chief Operating Officers (COO) of Transaction Banks are focusing on: > Integrating cash and trade management functions. > Aligning business units on same performance targets (i.e., same P&L) to ensure integration of functions. > Educating sales reps to understand their clients’ business processes. > Consolidating IT systems to extract data and build through analytics “intelligent” (i.e., predictive) information. > Being prepared to offer some solutions as “cost of doing business” (e.g., applications for electronic invoicing) to keep customer loyalty. > Adopt technical standards (e.g., ISO20022; Swift messaging) to reduce complexity. > Integrating clients’ back-end systems (ERP) with bank’s applications (e.g., payments) to secure STP.

Processes, People, and Technology in Transaction Banking

The requirements of transaction services by corporate clients are all centered on the prerequisite of a strong relationship level. They expect their bank to play a partnership role by presenting strategic vision and commitment to the transaction services business. Building strong transaction services capabilities requires the ability to meet the requests of large corporate clients, even though it will be hard to banks to be consistent in all points. The foundation of a successful partnership with corporate customers is established on three pillars: Processes, that help understand the correlations between the physical and the financial chains. A process-centric approach allows a better segmentation of the bank’s customer base along criteria that go beyond basic demographic data. People, that engineer and deliver the transaction services through organized structures. More and more banks are consolidating their product and development efforts in Payments, Cash Management and Trade Finance into an overarching transaction banking group. Technology, that enables the execution of the transactions and builds intelligence from basic “raw” data, adding, hence, value to the relationship.

The convergence of cash and trade: a quick analysis

At Celent we are recording a constant trend among financial institutions to concentrate their cash management and trade finance offerings. This falls under the umbrella of Global Transaction Banking (GTB). That this interest is driven by a business imperative becomes immediately evident when we learn that, for instance, Deutsche Bank has experienced a 20% increase of its GTB market share in the last year. The need to build/ grow/ maintain the customer relationship is the main driver of this convergence, as identified by our factual analysis. From a bank’s strategic perspective, cash management services are offered to ensure customer “stickiness” (i.e., loyalty and retention). Market evidence shows that it costs 5 times as much to generate a new customer vs. maintaining an existing one. Therefore, customer stickiness is an imperative that can be secured through an appropriate relationship management. Cash management, therefore, is a strategic driver for a bank to properly govern its relationship management policy. Our analysis proves that also the provisioning of trade finance products and services leads to better manage the customer relationship strategy of a bank. Trade finance is typically considered a short-term funding exercise. Hence, it presents a very appealing low risk profile. Trade finance is purely based on transactions, since it is founded on the movement of physical goods, easily traceable and visible, especially with new technologies available (e.g. RFID- radio frequency IDentification). The financial value chain tied to transactions leads to transaction banking, a generally accepted stable revenue source for banks Market statistics show that the number one reason for a corporate to buy transaction banking services from a bank is intertwined with the level of relationship and confidence it has with that bank. And this, once again, closes the loop on the relationship management strategy of the bank. The process described is depicted in the figure below. Bottom line Cash management and trade finance are converging in the financial sector because they both support a bank’s customer relationship management strategy, a key competitive differentiator in the current business scenario. blog-picture

Corporate Banking in Asia is Heating Up

The press seems to focus a lot of its coverage on competition for retail banking business in Asia, but from where I sit it looks as though the corporate banking side is at least as hot, if not more so. One reason is that retail products and services are already fairly well developed in the region, leaving much of the action on the retail side to the marketing and branding of increasingly commoditized offerings. Corporate banking services, on the other hand, are still developing. There is a lot of room for improvement in the way banks in Asia are packaging and delivering their corporate banking services. This is particularly true for transaction banking services, including cash management, treasury, trade finance and supply chain management products and services. The large global banks have been investing heavily in developing comprehensive suites of services, often on a worldwide basis; many banks in Asia are now starting to see the value in developing a full range of transaction banking services for their corporate customers. I was recently invited to speak at an event in Hanoi, Vietnam for Asian banks organized by Citi, where this trend was readily observable. The venue was packed with managers from banks throughout Asia, large and small. They came to see what Citi had to offer in the way of web-based delivery, global payments solutions, trade finance and supply chain finance services, etc etc, and to think about how to offer these services to their corporate clients. Many banks in the region are likely to use the white labeled services of global banks such as Citi, ABN AMRO or HSBC, to name a few. Banks will be faced with choices in what mix of services, both outsourced and home grown, to offer in their particular market. I was struck by the number of banks I spoke with at the conference that were feeling challenged in developing their strategies for corporate banking services. Celent has followed developments and strategies in transaction banking for some years, and is now covering the market from the corporate side as well with our new corporate treasury research service. I look forward to working more closely with banks in Asia as they consider their options in this rapidly developing area.