T HE C O S T O F P O O R C X

Poor customer experience (CX) is costing banks US$10 billion in revenue per annum

01

© 2019 Fenergo Limited.

In an increasingly digital world, banks are forever looking for ways to deliver value to their customers and differentiate themselves from competitors. The exponential

growth of data, new and ever-changing regulations, coupled with the inefficiency and growing irrelevance of legacy systems has created a compliance and onboarding headache. The proliferation of digital technology provides the cure but has subsequently fueled digital competition between banks – and by extension, the necessary refinement and optimization of their customer experiences, in the fight for competitive advantage. This first part of Fenergo's three part CLM Trends Report series unpacks the sentiment of global decision makers towards five key areas of client lifecycle management (CLM) – initial and lifecycle compliance, data and document management, client and product onboarding, digitalization and the evolution of the CLM ecosystem.

The survey spoke to 250 C-suite executives across data, technology and compliance, within commercial, business, investment and corporate banks. Respondents were based in banks of varying sizes, from 0-500 employees, to those boasting 10,000+ employees, with their primary location of operation spanning UK and Europe, Middle East and North Africa, Asia Pacific and North America.

CHALLENGEThe financial services mindset is changing. Where once C-suite agendas were dominated by regulatory compliance, a new battleground is emerging and focus has switched to the premise of excellent customer experience (CX).

And yet despite this, Fenergo’s research into CLM – the end-to-end process of managing a client relationship – suggests that the customer experience of traditional banking institutions is poor. The end result is hitting the banks where it hurts most, their bottom line, to the tune of approximately US$10 billion per year (see Box 1).

42%

37%

37%

Commercial banking

Business banking

Investmentbanking

30%Corporate

banking

COMMERCIAL BANKS HAVE MORE OFTEN LOST A CLIENT/PROSPECT DUE TO INEFFICIENT ONBOARDING

On average, over one-third (36%) of banks surveyed claim to have lost customers and prospective customers due to inefficient or slow onboarding procedures, with 84% believing that client experience during the onboarding process seriously impacts the lifetime value of a client.

Specifically, our study found that, of the 250 respondents within banks that provide complex corporate, business, commercial and institutional clients with banking services globally, some 83 had lost one business client in the last 12 months due to poor CX during the onboarding and client lifecycle process. This is exacerbated for commercial banks, of which 42% state they have lost a client/prospect due to inefficient onboarding processes. Business banking and investment banking came in at 37% respectively, while 30% of corporate banks claim the same to be true.

In the current climate banks are in no position to squander $10 billion, particularly when they are returning ever diminishing revenue results each quarter. This not only affects immediate revenues but also jeopardizes future market share and profitability, particularly given the lifetime impact to client value.

SO, WHAT’S CAUSING THIS?There is a myriad of reasons why this is happening right now.

THE DIGITALIZATION AGENDA TAKEOVERIn the context of the banking client journey, most non-retail banks are coming late to the digitalization agenda compared to newer, digital pure play challenger banks, which come to market completely unencumbered by a legacy landscape of overly complex technologies and repositories. As a result, there is a huge disconnect in banks, both internally and externally. This prohibits the creation of a single client view, producing fragmented, error-prone and labor-intensive manual processes and significantly

© 2019 Fenergo Limited.

contributing to the delivery of poor customer experiences.

There are many reasons for this. Given their history, banks across the world have been grappling with an ever-evolving and rapidly-changing regulatory environment since the onset of the global financial crisis. Subsequently, the industry has witnessed the introduction of new regulations year-on-year, as well as the enhancement, strengthening and enforcement of existing regulations. In other research conducted by Fenergo, banks across the world have been fined a whopping US$27 billion for anti-money laundering (AML), know your customer (KYC) and sanctions-related compliance violations since 2008.

This has meant that regulatory compliance has very much controlled and dominated the banking agenda for many years. However, over the last year or so, this mandate has changed radically. Banks are beginning to manage regulatory change in a business as usual (BAU) manner, while placing a greater focus on the customer experience. By putting the customer at the center of the entire client lifecycle process banks can provide the most optimized, efficient and experiential end-to-end client journey possible.

In this model, clients can digitally and seamlessly move from touchpoint to touchpoint, from the moment they request to be onboarded, to being expeditiously onboarded, progressing through every client event and product onboarding request throughout the lifecycle, to offboarding if necessary.

CHANGING COMPETITIVE LANDSCAPEThe financial services industry has traditionally been built on trust, favoring traditional, incumbent banks over newer entrants to the market. However, this is changing rapidly. Europe, in particular, is experiencing a massive shift in competitive positions with the introduction of Open Banking in the UK and the Payments Services Directive 2 (PSD2) in Europe, which encourages consumers to research and switch banking providers for a better deal. While this is more reflective in retail banking at present, investment banking has seen non-bank electronic liquidity providers pick up business. It is only a matter of time before this seeps into the consciousness of the commercial, business, corporate and institutional banking mindset and operational model.

36%of financial institutions have lost a client or prospective client due to inefficient onboarding processes

© 2019 Fenergo Limited.

81%believe poor data management lengthens onboarding and negatively affects customer experience

REGULATION AND DATA MANAGEMENTWhile the regulatory compliance mandate has slipped from top of the agenda for most banks, it is no less important. The industry is currently contending with the introduction of new regulations (MiFID II, GDPR and SFTR for example) and the enhancement of existing regulations. FinCEN Final Rule (CDD) was only launched in 2018 and the Fifth EU Money Laundering Directive has only recently been passed, with the sixth iteration already on the horizon.

For most banks surveyed, a tension exists between the need to gather data for KYC compliance and the speed of onboarding. Amongst respondents, 26% thought that KYC regulations would have the greatest impact on the management of the client lifecycle over the next 18 months. Other data privacy rules were a close second in the expected impact on CLM.

Specifically, data management is a huge issue for banks and the main culprit behind time-consuming regulatory compliance and onboarding processes. In our survey, 81% of respondents said that poor data management increases the time taken to onboard clients, and that this negatively affects customer experience. This corresponds with research undertaken by Fenergo and Forrester in 2015, which identified data (mis)management as being the number one bugbear for customers.

Given their predominantly legacy IT infrastructures, most banks have to reach out to existing customers to request information they may have previously submitted multiple times. This can create delays and frustration, while negatively impacting the customer experience.

Regionally, we are seeing key trends across different parts of the world in terms of the critical issues facing their businesses. For example, banks in more regulatory mature markets such as the US, UK and Europe are more concerned about improving data and document capture. This is the same for the Middle East and North Africa. Meanwhile, banks in the less regulatory mature markets of Asia Pacific are more focused on complying with a rising number of regulatory requirements. As APAC regulatory frameworks mature, we’ll see banks there focusing more on solving data and document capture challenges.

CONVINCING SENIOR STAKEHOLDERSA major hurdle in changing internal systems for banks is securing buy-in from senior management, with 87% describing it as often highly challenging. Moreover, while technology is key to improving CX and realizing the advantages that it brings, the digitalization of a bank requires a philosophical change at board level. The key to change is building a customer and not product-led approach.

© 2019 Fenergo Limited.

PLACING THE CUSTOMER AT THE CENTER OF THE CLIENT LIFECYCLE To combat losses such as those highlighted in this report, banks are fighting to retain and increase the lifetime value for their existing client base by overhauling their approaches to CLM operational processes, complemented with the right digitalization technologies and tools. Quite simply, to become a truly digital service provider, incumbent banks with legacy infrastructures will need to undergo major digital transformation. For banks, the very tip of the digital spear is in the onboarding process.

Customers expect and demand a faster, more efficient account opening process that allows them to interact and transact through a digital channel of their choice. Not just in retail banking but across every form of banking they do professionally or personally.

To achieve this, commercial, business, corporate and institutional banks need to learn directly from their digital challenger peers. This will involve designing a new client onboarding and lifecycle process around their clients that guides them from a channel of their choice (mobile, online, web, call centre,

branch) and complete the entire client onboarding journey digitally, quickly and efficiently. This will include using advanced tools such as electronic identity and verification (ID&V) and eSignature capabilities.

Operationally from the inside, this will involve the client application being expertly shepherded from the banking channel of choice through the myriad of stakeholders involved in the onboarding process – sales, client onboarding, compliance, legal, credit, technology, operations etc – forming a steel thread of tight orchestration around the client journey to achieve true straight through processing. A solution that is integrated with external data providers and customer relationship management (CRM) technologies such as Salesforce, will allow banks to blend front and back office processes for advanced onboarding capabilities. This frictionless digital customer journey is the key to transforming banking client experiences.

GREAT DATA MANAGEMENT – FUEL FOR TRANSFORMATIVE EXPERIENCESWe’ve all heard the mantra, data is the new oil. For banks undergoing digital transformation initiatives, never a

D I G I TA L I Z I N G T H E C L I EN T L I FEC YC L E TO C R E AT E E XC EP T I O N A L C U S TO M ER E X PER I EN C E S

84%think a client’s experience during the onboarding process impacts lifetime value

© 2019 Fenergo Limited.

truer word was said. To truly create superior client experiences, banks need to redesign how they collect, store, process, route, use and push client data through the bank and its wider ecosystem. This is a fundamental part of digital transformation that simply can’t be ignored.

Managing the change process into this new data revolution requires financial services providers to have a clear strategy, allowing them to carefully monitor the impact on their customer base. Improving data and document capture is the number one critical business issue and pain point reported by respondents.

A customer-centric data model which automates data and document capture and internally connects all data repositories will create a centralized, shared view of the customer. This will allow banks to achieve a 360° view of all commercial clients across all channels, functions, business lines and jurisdictions. A single real-time view of

the customer will not only eliminate the need for repeated requests for the same information, it will also enable the bank to comply with KYC and AML requirements, while achieving better customer engagement from a CLM perspective. A centralized data model also encourages the re-use of existing customer data and documentation for future onboarding, cross-sell, upsell and regulatory purposes.

To achieve a true straight-through process that doesn’t rely solely on banking customers to submit information repeatedly, banks need to consider creating a wider ecosystem of industry data providers and KYC utilities to automate the consumption of customer data and documentation. By deploying API integrations with these industry providers, banks can alleviate the pressure of constant and annoying outreach to customers to update their information.

Finally, once all internal and external information channels have been

MOST CRITICAL ISSUE FACING BANKS IN DIFFERENT REGIONS

Improving data and document capture

North America

UK and Europe Asia Pacific (APAC)

Middle East and North Africa (MENA)

Complying with rising number of regulatory requirements

The cost of bad CX for financial institutions is considerable - both financial and reputational

© 2019 Fenergo Limited.

exhausted, banks should perform outreach to customers to submit outstanding information. In a digital world, this will involve giving customers access to a secure, web-based portal where they can add or update their own KYC information in their own time. By connecting this to internal CLM systems, this new information will enhance the client KYC record, providing a clearer view of the client, and may trigger fresh compliance processes automatically (if materially significant).

CLM FOR THE GREATER GOODIn order to put a CLM strategy into full effect, banks will need to build CX into their offerings and their feedback processes. Firstly, CX must be effective in its capacity to deliver meaningful analytics, which will allow the bank to strengthen relationships and refine targeted offerings. Secondly, it must be efficient, both in its capacity to process data and in the value it generates relative to cost and effort.

The cost of bad CX for financial institutions is considerable - both financial and reputational. Improving it can be achieved via even small-scale digital transformation, focused on a CLM strategy around data capture and re-use. As a starting point, that helps senior leadership to find a way to not only improve CX, but over the longer term

to facilitate an enterprise-wide view of the client, while helping to manage counterparty risks.

Digitalization is fundamental to optimal client lifecycle management rollout. It breaks the tension between regulatory processes like KYC by bringing banks towards a data infrastructure that can support client engagement and minimize the duplication of effort and work.

A bank can digitally transform the entire customer journey, today, from the very first touch point to the rolling customer experience. The adoption of an integrated CLM strategy will be imperative in achieving this. By walking alongside the customer and optimizing every touch point, banks can simultaneously reduce their own inefficiency – such as rekeying information – and reflect this through better service by reducing time taken in non-profit-making business such as AML/KYC compliance. A wider digitalization process can be encouraged through profit generation – rather than cost cutting – by increasing the amount of business each customer does with the bank and tightening up the timeliness of cross-selling and product pushes. To compete with digital giants and challenger banks, traditional banks need to build their own digital programmes, and embrace the ‘customer first’ philosophy.

Box 1 USD $10 BILLION LIFETIME REVENUE LOSS MODEL

Formula: RL = (AR x Y) x (TAM x.3333)Calculation: USD $9,999m = (4 x 3) x (833.25)

Legend:AR = Single client revenue per annum = USD $4mY = 3 year average life spanTAM: Total addressable market 2500RL: Total revenue projected loss = USD $9,999m**Rounded off to $10bn

The single client revenue per annum and addressable market figures were defined by survey respondents and members of the

Fenergo community.

© 2019 Fenergo Limited.

Commercial banking

Business banking

Investment banking

Corporate banking

JOB TITLES TYPE OF BANK

PRIMARY LOCATION OF OPERATION

COMPANY SIZE

25%

20%26%

24%

24%

26%

20%

20% 20%

20% 20%

20% 20%

20% 20%

25%25%North

AmericaUK and Europe Asia Pacific (APAC)

0 – 500 employees Chief Operating Officer (COO)

Chief Data Officer (CDO)

Chief Compliance Officer (CCO)

Chief Digital Officer (CDO)

Chief Technology Officer (CTO)

5,000 – 10,000 employees

10,000 employees+

500 – 1,000 employees

1,000 – 5,000 employees

25%Middle East and North Africa (MENA)

This report is based on the findings of a bespoke piece of research carried out by Fenergo spanning 250 C-suite executives across data, technology and compliance, within commercial, business, investment and corporate banks. Respondents were based in banks of varying sizes across the world.

DEMOGR APHIC S

© 2019 Fenergo Limited.

© 2019 Fenergo Limited.

www.fenergo.cominfo@fenergo.com

© 2019 Fenergo Limited.