The future of corporate banking: digital strategy · Leveraging data to drive results and enhance customer relationships The future of corporate banking: digital strategy April 2017

www.simon-kucher.com

Leveraging data to drive results and enhance customer relationships

The future of corporate banking: digital strategy

April 2017

Gianluca CorradiDirector

London office

1 Plough PlaceFetter Lane, London

EC4A 1DETel. +44 20 7832 6700 [email protected]

Agenda

What are the current trends in Corporate Banking?

Given those trends, what are the needs of the main stakeholders (Central functions, RMs and Clients)?

How to address those needs through a comprehensive approach?

FS Forum - The future of corporate banking - Digital strategy - April 2017 2

Current trends in Corporate Banking

Corporate trends Banking trends

Globalisation

Value chain fragmentation

Regulation

Competition

Increased complexity to serve clients

Increased pressure on profit margins


1 Source: OECD2 Source: Economist Intelligence Unit (2012)

Globalisation: despite the crisis, international trade has increased its relevance in the world’s economy

15

17

19

21

23

25

27

29

31

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

Exports Imports

Share of Exports and Imports as % of GDP1 Firms’ expectations on international operations2

89%81% 78% 77%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Number ofclients located

abroad

Number ofsuppliers

located abroad

Size of cross-border teams in

yourorganization

Number ofcountries withan operational

presence

Increase in the next 3 years No change Decrease

Firms are building global value chains and are expecting to do more in the future

The financial needs of an international corporation are much more complex than a domestic one


Fragmentation: corporations are fragmenting their value chain in search of efficiency and lower costs

Technological developments and the continuous strive for lowering fixed costs have created fragmented value chains with multiple players involved

The organisational and financial needs cover the entire value chain, now more than in the past


Regulation: the current framework imposes increased costs and reduced revenues for financial institutions

MIFID II

EMIR

BASELIII

OthersDODD-FRANK

PSD I and II

...

Regulators’ objectives

Short-term consequences for banks

Increasing transparency

Fostering greater competition

Ensuring the stability of the financial system

Increased costs (capital, liquidity, risk, operative)

Loss of revenue streams (derivatives, payments, etc.)


Source: European Central Bank. Euro Area bank Lending Survey April 2016

Competition: FIs are competing with each other for the best assets and new entrants are attacking fee revenues

Main drivers of eased credit standards to companies

Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016

Banks' risk tolerance Risk perceptions Competition Cost of funds and BS constraints

Fintech

Traditional competitors New entrants

According to corporate bankers, the main driver of eased credit standards is competition

In the future, FIs should expect more direct competition from Fintech on specialised products


Agenda





Source: Simon-Kucher project, client data have been anonymized to preserve confidentiality

Central Functions lack proper tools to analyse clients’ relationships and extract the untapped revenue potential

0%

20%

40%

60%

80%

100%

120%

0% 12.5% 25.0% 37.5% 50.0% 62.5% 75.0% 87.5% 100.0%

Lending Cash Management Trade Finance Structured Finance IB & CM

Irrelevant revenue contribution in every product

% clients

% r

eve

nu

e

FS Forum - The future of corporate banking - Digital strategy - April 2017

Revenue concentration among corporate banking products

9

“The tools weren’t thought for supporting the RM but for controlling purposes only”

“We have to input the same information in multiple tools”

“The tools are not user friendly, we can’t find the functions we really need”

“The tools have been developed years ago and they have never been integrated in the systems”

“The information shown on the interface is not updated”

Source: Simon-Kucher projects

Digital tools are perceived by RMs as unsupportive, non user friendly and non integrated

1

2

3

4

5

90%

85%

85%

80%

60%

Top-5 RM complaints about digital tools


54%

46%

Extremely important Other

31%

69%

Extremely likely Other

Source: Greenwich Associates

Corporates are looking for partners to go with them on their digital journey by providing integrated support tools

0

10

20

30

40

50

60

70

80

Branch RM outsidebranch

Online Mobile

Importance of digital channel when selecting a lead FI

Likelihood to switch lead FI due to strength in digital capabilities

Channel use by corporates Use per product

0

5

10

15

20

25

30

35

40

Lending Trade Payments /Receivables

FX


Agenda





“Digital strategy” is all about using big data to provide online advisory services to all stakeholders

Big data

Data analytics

Strategic directions

Central digital suite

RMdigital suite

Clientdigital suite

What we know about our client...

...needs to be transformed into actionable information...

...in order to decide business priorities...

...and provide online advisory to all stakeholders

Digital strategy


Banks are sitting on a gold mine of information, but what do we mean when we talk about “big data”?

Big Data

Client behaviourdata

Client interactiondata

Payments to suppliers

Payments from clients

Import/Export countries

Rotation of working capital

Payments to employees

...

Won and lost deals

Motivations of the lost deal

Negotiation techniques used by the client

Value arguments used by RMs to win the deal

Client relationshipdata

Client perceptiondata

Revenues

Volumes

Prices

Product mix

Risk

...

Perceived importance for the client of certain value drivers

Perceived performance of the bank on such value drivers

Perceived performance of competitors


Raw data is useless unless we analyse it to derive actionable information on our clients

Data analytics

There are risks in the client’s value chain, it might need supply chain financing

The client has a scattered client-base, it might need a factoring solution

The client is exposed to multi currency risk, it might need a sophisticated FX strategy

What can the bank learn from past negotiations?

Who is enjoying a better position in the negotiation?

Which are the concessions that the bank should grant first?

Does the bank have a fair share of revenues on this client?

What are the main cross-selling leads?

Which are the underperforming products vs. industry average or peers?

Does the bank compete more on pricing or on value with this client?

Which parts of the value proposition does the bank need to improve?

How price-sensitive is the client?

From behaviour data to client needs

From interaction data to client balance of power

From relationship data to client potential

From perception data to client positioning


Analytical information needs to be gathered into a concrete framework for taking strategic decisions

Strategic directions

Financial solutions tailored to each client’s peculiar situation

Approach that goes beyond the client and looks at the entire value chain

Suggestions to reach the optimal product-mix

Value-selling approach suggested to all RMs

Silver bullets to defend the price and the main covenants of the deal

List of negotiation techniques used by the client and related defensive strategies

Targeted commercial actions to improve profitability in the short term

Improved budgeting and planning

Pricing models that account for the entire relationship with the client

Tactical pricing actions and reactions based on the client’s perspective on the competitors

Mid-term interventions to improve the value proposition of the bank with respect to competitors

From client needs to offering strategy

From client balance of power to selling strategy

From client potential to commercial strategy

From client positioning to competitive strategy


The “Central digital suite” enhances monitoring capabilities and supports RMs with relevant business leads

Things you can do with the suite:

Identify profit-improvement opportunities

Define personalised budgets

Launch targeted commercial actions to improve cross-selling

Run portfolio simulations on repricing actions

Monitor RMs’ commercial performance


The “RM digital suite” actively supports the client handling phase and embeds the centrally defined strategies

Offering strategy

Competitive strategy

Commercial strategy

Selling strategy

Client view

Overview of the client’s relationship profitability recent transactions industry trends network analysis of the

value chain

Commercial initiatives, pricing, budgets

Suggestions to reach the optimal product-mix

Tracking of client promises

Pricing model that accounts for the overall relationship with the client

Set of rules to follow to handle competitors

Likelihood to engage in a price war on this client

How much discount to grant in case of competitors’ price cuts

Checklist of client needs and solutions

primary needs and risks in the client’s value chain

financial solutions chosen by clients with similar needs

Toolkit for handling negotiations

best practices

list of critical situations the client managed thanks to the bank


The “Client digital suite” offers advisory services to clients based on their specific business needs

Alerts on commodity prices

Information on tariffs, shipments and legal environment

1

Tracking of machineries’ depreciation schedules

Online leasing quotations

2

Online risk assessments

Booking of business roadshows led by the bank in specific Countries

3

Real-time FX risk management strategies to minimise the cost and optimise the potential yield

Periodic reports of the risks involved in the value-chain, both client and supplier side

4 Robo-advisors that suggest tailored profit

maximisation investment strategies

Suggestion of cost-saving financial products to optimise working capital (factoring vs. ST loan, etc.)

5


Key success factors

Clean and reliable data

Analytical competences together with business experience, just the first one is not enough

“Put yourself in the shoes of your stakeholders”

Organisational structure that emphasizes industry specialisation

Change management attitude of Sales

Commitment of Executives


AmsterdamAtlantaBeijing

BonnBoston

BrusselsCologne

CopenhagenDubai

FrankfurtGeneva

HamburgIstanbul

LondonLuxembourg

MadridMilan

Mountain ViewMunich

New YorkParis

San FranciscoSantiago de Chile

São PauloSingapore

SydneyTokyo

TorontoVienna

WarsawZurich

www.simon-kucher.com

1 Plough PlaceFetter Lane, London

EC4A 1DETel. +44 20 7832 6700

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The future of corporate banking: digital strategy · Leveraging data to drive results and enhance customer relationships The future of corporate banking: digital strategy April 2017