2020 COMMERCIAL BANKING KEY DIGITAL TRENDS 2020 COMMERCIAL BANKING KEY DIGITAL TRENDS “From the front office to onboarding and loan origination, some thought they’d automatically realize end-to-end digital transformation this way.” For at least five years, commercial banks have placed big bets on major technology investments. From the front office to onboarding and loan origination, some thought they’d automatically realize end-to-end digital transformation this way. Investments in platforms like Salesforce, Dynamics, nCino and Fenergo have been deemed once-in-a-career game changers that will move the commercial banks beyond woefully complex, manual processes that clients have suffered with since the dawn of banking. 2 COMMERCIAL BANKING TRENDS 2020 While banks have made tremendous progress in digitizing their foundations, the best is yet to come. We see 2020 as the year commercial banks move from digitized to digital by building on these investments and unleashing the power of rich data. Whether it’s placing AI- and analytics-driven insights at RMs’ fingertips to improve customer interactions and increase CRM adoption, or digital decoupling and choosing the right fintech partners, in 2020 banks will build on these investments to CONTENTS Commercial banking: Beyond the digital foundation....... 4 A new breed: The empowered banker............................... 5 Intelligent automation for commercial banking............... 6 Relevant AI in a post-digital world..................................... 7 leverage the power of digital. Unloading legacy baggage................................................ 8 If that’s not enough, banks are still solving for the LIBOR transition Integration with the digital ecosystem.............................. 9 and many are on the cusp of a loan servicing transformation related to the AFS Level III mandate—all during a potential wave of M&A activity. 2020 will be an exciting year, and while five years ago I was right in saying the next five years would be the most exciting for commercial banks, the same holds true for the next five. Here’s to the Roaring ‘20s in commercial banking. JARED RORRER Managing Director — Global Commercial Banking Lead jared.rorrer@accenture.com 3 COMMERCIAL BANKING TRENDS 2020 1 Commercial banking: Beyond the digital foundation This is where transformation really gets going THE TREND THE EVIDENCE Commercial banks have invested significantly in operational and CRM platforms, in the hope that their digital transformations would happen by default. In fact, the transformation is just beginning. By digitizing their analog processes across sales and credit functions, they can access dark data and build on those platforms to become truly digital commercial banks. Truly digital environments experience transformational, not incremental, change. Winners enable full digital capability, which means decoupling data from the IT stack and driving pervasive connectivity. It combines the strengths of platforms like Salesforce, nCino, Fenergo, Bitvore, Precision Lender and Zafin, connecting them and creating additional value from existing business while unlocking new revenue streams. Nobody is emerging as a clear winner yet, but those that don’t lead, or follow very quickly, will lag the commercial banking pack. Accenture research reveals that $27bn has been invested in North American fintechs offering SME services since 2010 and more than $1.3bn invested in European fintechs offering services to SMEs in 2018 alone. THE BENEFITS Emotionally, the end of the arduous and expensive digitization process feels like the end of the transformation journey—but the next level involves much lower investment for much higher returns. Industries like retail should be viewed as omens of what is to come for commercial banking. As fintechs, AI and all digital capabilities continue to mature, the imminent threat of new competitors will grow, and banks that don’t transform to digital in the next decade will find themselves left behind by default. Unlocking digital capability is both easier and less expensive than building digital foundations, but it’s a crucial hurdle—spending a bit more to get a lot more value. A relatively small investment can realize auto-decisioning and augmented credit decisions along with real data and new insights for RMs that precipitate deeper client relationships, ultimately improving efficiency and sales. Additional data will improve credit quality and allow for returns to be quantified. RMs will leverage technology to derive value beyond simple management reporting. EXAMPLE A large Thai banking group is implementing a transformational digital strategy that will set the pace among its rivals. While the strategy has started on the retail banking side, the commercial banking transformation will go far beyond incremental change and cost-cutting and include deep process transformation that involves digital customer interfaces and an entirely different business model. THE FUTURE A connected ecosystem of supporting technologies also makes the whole greater than the sum of the parts. The more data collected and effectively analyzed, the more banks can provide better and more specific client insights to drive cross-sell opportunities and value-add client discussions. 4 COMMERCIAL BANKING TRENDS 2020 2 A new breed: The empowered banker Tomorrow’s RMs are engaging their clients with hugely enhanced insights THE TREND EXAMPLES A new breed of commercial banking relationship managers is poised to grow revenues and customer satisfaction for their employers, using vastly improved business insights that reveal the hottest cross- and up-selling opportunities and make the sales process far more efficient. Instead of being limited to accountability tools, RMs will seek out technology that provides rich, indispensable client discussion data. Whatever stage of the building process they’re in, and whether or not their teams use tools like Salesforce and nCino for CRM and loan origination, commercial and wholesale banks need to understand the profound advantage that true digital banking provides. It’s no surprise that the majority of NA banks are trying to define how to digitally enable their RMs. Accenture helped an APAC commercial bank acquire more SME customers using an analytics insight platform built on both the bank’s and third party data, to generate sales leads. The results? Growth of 46% in loan applications, 54% in loan disbursement and 40% in identified cross-sell opportunities. A multinational European bank recently deployed a smart insight platform to several hundred RMs and has seen significant growth in revenue and conversion rate with drastically reduced prospecting time. THE BENEFITS Client segmentation techniques enable banks to focus their energy on activities that generate the best returns by optimizing RM coverage and loading. Third party data providers and analytics insights can facilitate cross- and up-selling opportunities to enhance RM time allocation and sales generation efforts. THE FUTURE RMs won’t go away in 2020—their reality will be augmented by data and insights that fundamentally change the way they interact with clients and their tools. This has enormous workforce transformation implications and banks should prepare immediately. Banks will begin to organize and use data quickly, combining existing digital platforms with data and real-time collaboration. Digital toolsets will give them the ability to target and manage relationships at a whole new level, and integrate information from key platforms like Salesforce, nCino, Bitvore, Precision Lender, Greenwich, and more. Building on the digital foundation will give them access to a wealth of dynamic, interconnected commercial banking benefits. THE EVIDENCE Accenture research suggests that the vast majority of SME customers would not give up their RM for a digital-only offering, even if offered at a cheaper price*. RMs remain a vital channel for banks to build relationships with their SME customers, if leveraged correctly. “It’s no surprise that the majority of NA banks are trying to define how to digitally enable their RMs.” * Source: Accenture SME UK 2019 Survey 5 COMMERCIAL BANKING TRENDS 2020 3 Intelligent automation for commercial banking Partnering with machines: A key to unlocking value THE TREND EXAMPLES Innovators have long sought ways to use machines to lighten or eliminate human workloads. The digital revolution has intensified the process by combining data, analytics and machine learning/AI. Commercial banking has some interesting nuances in this respect. Complex operating models, products and processes make both entry and scalability difficult. Intelligent automation is one of the most important tools for any digital commercial bank platform, where machines can augment costly relationship management resources. Progressive banks are leveraging their proven business process outsourcing partners to unlock additional value as they automate and drive to a digital bank platform. A major US bank achieved a reduction of 38%+ in time-to-loan funding through simplified and standardized commercial lending origination processes. It embedded automation in each step of the process and leveraged global skills to further analyze the data accessible through automated processes. It continues to drive an enhanced borrower experience. THE BENEFITS Customer experiences are vastly improved with automation that provides faster answers, shorter turnaround times, and transaction transparency. A step change in decision making is possible, with data appropriately and promptly packaged for both customers and bank employees. THE EVIDENCE Cost and speed, improved by automation, remain key buying factors for SMEs and middle market/mid corps in relation to banking services. More than 20% of SMEs want a bank that delivers fully automated process. More than 60% of SMEs see advantages in AI over traditional human interactions*. Robotic process automation reduces average handling times by 40%, has 1.5X to 2.5X more productive availability and will reduce operating costs by 50-80%**. A large global bank unlocked the value of technology investments utilizing RPA, machine learning, and a BPO partner to triage exceptions and minimize relationship losses. Technology has enabled enhanced relationship management and reduced relationship attrition by 10%. A large UK bank has delivered an intelligent-automation-based CRM platform that provides a 66% reduction in customer waiting times, a 50% increase in lead conversion and a 10% reduction in resources. THE FUTURE New commercial banking entrants are focused on creating fully digital offerings. This market dynamic requires commercial banks to invest in transforming their operations. Commercial banks have a plethora of partners to help them drive intelligent automation across their enterprise. 2020 will see a further acceleration of this trend as balance sheets feel the strain of the economic cycle, and executives continue to strive for enhanced customer experiences. * Accenture SME UK Survey 2019 ** Accenture Research on European Commission data (Digital Scoreboard key indicators) and CB Insights Global Fintech Report 2Q 2018 6 COMMERCIAL BANKING TRENDS 2020 4 Relevant AI in a post-digital world Opportunities expanding faster than banks’ adoption THE TREND THE EVIDENCE Almost all commercial banks have implemented a pilot or focused solution utilizing predictive analytics across specific areas of their lifecycle. With these focused solutions, many banks have formed their analytic capability foundations across governance, skill set development and value assessment. Unfortunately, banks are not keeping up with the demands of the post-digital world—for two main reasons. Firstly, widespread use to enable an end-to-end customer experience and accelerated or even real-time decisioning has been limited to the most sophisticated banks, or pockets, across the globe (APAC, Eastern Europe). Secondly, fintechs are expanding their presence with focused solutions within specific micro-segments and real-time decisions, resulting in higher returns. A large majority (83%) of C-suite executives believe they must leverage AI to achieve their growth objectives, yet 71% report they struggle with how to scale*. Three out of four believe that if they don’t scale AI in the next five years, they risk going out of business entirely. THE BENEFITS By leveraging the treasure trove (five zettabytes) of data currently available worldwide, AI enables personalized interactions and relevant, timely and convenient banking. Cloud and API innovation is happening at an unprecedented pace, enabling financial institutions (with help from strategic service providers) to significantly reduce their cost structures. Open source tools, education and technology, and AI and ML analytic methodologies have made digital adoption much easier. EXAMPLES A major Asian bank redesigned and deployed an integrated customer experience across all digital/mobile channels, powered by AI/ML. It enabled near-real-time decisions in marketing, spreading, risking, multi-offer and KYC/AML, with 70% success rates across its SME and commercial portfolios. A leading US bank redesigned its end-to-end customer workflow including AI/ML to spread financials and drive real-time analytics to make decisions about 75% of its under-$25m portfolio in less than a day. THE FUTURE Banks must figure out effective strategies to remain viable players in a changing landscape. Options will include ecosystem partnerships, mergers and acquisitions and expansion or upskilling of talent. Four fundamental trends will accelerate the introduction and adoption of new toolsets in the market: the explosion of customer risk and behavioral data; differentiated feature engineering; the power of intelligent data; and technology advances with cloud and 5G mobile channels. All of these will enable more tailored, real-time customer solutions. * Source: Accenture AI: Built to Scale study, November 2019. 7 COMMERCIAL BANKING TRENDS 2020 5 Unloading legacy baggage Digital decoupling and microservices allow innovation to take flight THE TREND Digital decoupling strategies in commercial banking are leveraging microservices to move banks to flexible, scalable cloud-based data platforms for legacy-free innovation. While legacy banking systems are often resilient, reliable and cost-effective, they also hamstring change efforts. Specifically, there are challenges with aging infrastructure, data availability and quality, skill set deficiencies and risk aversion. THE BENEFITS Digital decoupling is the answer to these challenges. It provides an opportunity to capitalize on digital investments through efficient digital engagement, more agile and cost-effective change and innovation—and optimized customer experiences unaffected by outdated data structures and overnight batch runs. THE EVIDENCE Ninety-two of the Top 100 banks globally still rely on their legacy mainframe and systems.* Though front-office IT spend is growing at a slightly faster pace than back-office support in wholesale banking, the amount spent on the back-office is nearly double the investment in direct customer (frontoffice) interaction.** EXAMPLES A major Thai commercial bank now uses its legacy platform as a system of record with synchronous data replication to a data lake. Salesforce and Pega are used to drive mobile personal loan origination workflow, instant decision making and an intelligent digital signals-to-sales marketing engine. A well-known Spanish bank brought retail bank digital architecture to commercial banking operations while overhauling its technology platforms. The bank uses credit card transaction data to help Spanish retailers take informed decisions, understand customer buying patterns and compare their sales with those of competitors. The bank also serves US entrepreneurs via digital accounts: enabling national and international payments, bill payments and e-commerce/point-of-sale integration. A leading Danish bank built a digital client-centric platform that enables RMs to support clients by providing flexible cross-silo product bundles to solve client problems rather than leaving clients to figure out which products best combine to meet their needs. THE FUTURE The digital bank requires data quality and completeness, as well as compliance and residency solutions—depending on geography. But people also matter. Finding talent can be a challenge, but extending the aging workforce and motivating millennials to learn decades-old technology is even worse. The answer lies in strategic sourcing—a small team with core competencies partnering with skilled providers to manage new technologies. Cloud-based technologies further decrease the need for in-house IT staff. Finally, there’s risk associated with replacing core platforms. Your career is on the line but in truth, the risk is to your whole business. Effective risk management requires clear goals, knowledge of proven, available tools and access to a strong implementation partner to share in risk and vision, not just deliver a project. * Financial News, Banks face spiraling costs from 50-year-old IT, October 2, 2017 ** Ovum (TMT Intelligence / Informa), January 2018 8 COMMERCIAL BANKING TRENDS 2020 6 Integration with the digital ecosystem Banks that spurn partnerships struggle to maintain the pace THE TREND EXAMPLES Commercial banks that are not using the power of technology ecosystem partnerships are already at a disadvantage. Leaders like nCino and Salesforce are already on the fintech trail. The question for commercial banks is: which commoditized parts of the technology stack should be outsourced? This has to happen while maintaining an internal ecosystem sufficiently agile to compete with fintechs and retaining a competitive advantage. In many geographies, Open Banking is at full throttle and 2020 will be about further differentiating products and providing services that are rooted in what the customer truly needs. The plethora of data availability and integration options that Open Banking provides enables a rich ecosystem that includes vendor-partners (SaaS models), data providers, or other banks—all partners that potentially enable an optimized customer experience. A large German bank has partnered with online accountancy software suppliers to provide analytics and insight on future cash flow patterns and improved treasury management propositions for its commercial customers. A major US bank streamlines data exchange and messaging processes that can be integrated through APIs with corporate ERP platforms, providing a single channel for automated payments, FX services and account information. A large UK SME lender that uses customer and account data from other UK banks via API connectivity recently overtook an international competitor to grab a large share of the SME lending market in the UK. THE BENEFITS By creating and operating in open-platform-driven digital ecosystems, banks can offer optimized services addressing imminent customer needs to retain loyalty and grow revenues. THE FUTURE In 2020, banks will expand their ecosystems and expose more data. The rise of fintechs and neo-banks using external data through Open Banking to provide credit decisions, account aggregation services and truly unique propositions for commercial customers will accelerate. More traditional commercial banks should find ways to monetize their data or risk becoming commodities for more innovative players. Banks in Europe (77%), NA (72%) and Asia (61%) plan to invest up to $20m each to undertake Open Banking initiatives for commercial customers.** THE EVIDENCE More than $1.3bn has been invested in European fintechs offering services to SMEs in 2018—mainly SME lending and merchant acquisition. European Open Banking initiatives leading up to 2020 will result in increased corporate banking revenues of nearly €7bn.* “More traditional commercial banks should find ways to monetize their data or risk becoming commodities for more innovative players.” * Accenture Research analysis on CB Insights data ** Accenture 2018 Open Banking Survey 9 COMMERCIAL BANKING TRENDS 2020 For more information CONTACT JARED RORRER Managing Director — Global Commercial Banking Lead jared.rorrer@accenture.com accenture.com/CommercialBanking SOURCES 1. Accenture SME UK 2019 Survey 2. Accenture Research on European Commission data (Digital Scoreboard key indicators) 3. CB Insights Global Fintech Report 2Q 2018 4. Accenture AI: Built to Scale study, November 2019 5. Financial News, Banks face spiraling costs from 50-year-old IT 6. Ovum (TMT Intelligence / Informa), January 2018 7. Accenture Research analysis on CB Insights data 8. Accenture 2018 Open Banking Survey This document makes descriptive reference to trademarks that may be owned by others. The use of such trademarks herein is not an assertion of ownership of such trademarks by Accenture and is not intended to represent or imply the existence of an association between Accenture and the lawful owners of such trademarks. Copyright © 2020 Accenture. All rights reserved. Accenture, its logo, and New Applied Now are trademarks of Accenture. About Accenture Accenture is a leading global professional services company, providing a broad range of services and solutions in strategy, consulting, digital, technology and operations. 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