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D I SRUP T T HE DISRUP TOR S
Advancement of regtech, technology and innovation in CLM
03
© 2019 Fenergo Limited.
T he final installment in Fenergo’s three-part Client Lifecycle Management Trends report looks at how the technology driving
finance and regulation is pushing financial institutions toward digital client lifecycle management (CLM).
This report is based on findings from Fenergo’s CLM survey, which unpacks the sentiment of global decision-makers towards five key CLM areas: initial client onboarding and lifecycle compliance; data and document management; client and product onboarding; digitalization; and the evolution of the CLM ecosystem.
The survey collects the views of 250 C-suite executives across data, technology and compliance within the commercial, business, investment and corporate banking sectors. Respondents were based in banks ranging from less than 500 employees to more than 10,000, with their primary location of operation spanning the UK and Europe, the Middle East and North Africa, Asia Pacific, and North America.
TECH COLLABORATION IN A NEW ERA OF BANKINGThe rise of financial technology (fintech) and regulatory technology (regtech) startups has opened up the finance industry’s access to new technologies. In many cases, the ideas these newcomers propose are a step beyond banks’ traditional thinking and offer insight into the future shape of the industry.
The business model has transitioned from traditional competition to “co-opetition”, encouraging collaboration with vendors and providers that would traditionally have been seen as rivals. This co-opetition model has already yielded more innovative approaches to traditional banking challenges such as managing cross-border know-your-customer (KYC) processes and data privacy rules, while delivering excellent customer journeys.
REGULATION AND ENFORCEMENT While competition in a more collaborative form is taking place, the
rules are not necessarily equal for all. For firms on the fringes of finance, regulation may be light or non-existent. For financial institutions, however, the regulatory burden is ever-heavier. In the EU, countries have to toughen their laws by December 2020 as part of the Sixth Anti-Money Laundering Directive; in China the banking regulator is demanding banks take new measures on money laundering and terrorist financing; and we are seeing increasing action and regulation across wider APAC and the Middle East driven by the activities of the Financial Action Task Force. Globally, the banking regulatory agenda is focusing heavily on the issue of beneficial ownership and the need to know your customer, and your customer’s customer, more intimately.
Reporting to authorities has also increased, particularly in capital markets, but also for corporate and retail banks wishing to take advantage of sophisticated risk measures that can reduce the need to hold capital by providing a more nuanced view of risk. This requires them to have a single view of risk and their customers, based on robust data management.
It is a minefield where new mines are being concealed every day, and the punishment for stepping on one is severe. In September 2018, Fenergo reported that in the decade since the financial crisis $26 billion in fines had been levied for anti-money laundering (AML), KYC and sanctions failings—a figure that has increased by at least $5 billion following fines on major corporate and investment banks. Australia, Singapore, and Hong Kong are among the jurisdictions where enforcement is increasing.
DATA DELIVERING VALUEData is one weapon in financial institutions’ arsenal that can be wielded to transform customer experiences and compete effectively in an increasingly crowded market. It is the key to delivering personalized services that provide a smooth customer journey. And for once, financial institutions are ahead of the digital posse given the sheer
PARTNERSHIPS WITH FINTECH, REGTECH AND/OR DATATECH COMPANIES
17%
Yes, we are in a partnership
No, we are not partnered but have considered a partnership
15% 15% 10%
52% 48% 54%57%
No, we would not consider this
31%
37%
31% 33%
Com
mer
cial
ba
nkin
g
Busi
ness
ba
nkin
g
Inve
stm
ent
bank
ing
Corp
orat
e ba
nkin
g
© 2019 Fenergo Limited.
magnitude and volume of data they possess and process every day.
In the Fenergo study, however, we found that 74% of respondents believe that data management is overlooked strategically despite it being among the top three most critical business concerns. Unless this changes, it can limit the potential advantage that fintech and regtech partnerships can deliver.
By contrast, digital-first firms’ processes are completely built around the use of data to create opportunities and generate business ideas because they implicitly understand that this is the key to delivering personalized, streamlined and efficient customer experiences.
Data is not only valuable; it is also growing exponentially. Digital firms are structured to scale with their data. Banks and asset managers will need to be equally scalable.
Paradoxically, scale also needs to go hand-in-hand with personalization, an issue particularly relevant in wealth management, where technology allows a ‘personalized’ service to be offered with lower costs, opening up mass-
wealth markets that were traditionally uneconomic to serve.
To become more like these digital natives, to disrupt the disruptors and create stronger alignment with new fintech and regtech providers, financial institutions need to liberate their data, building CLM into their front office processes and piping that information flow into their broader data architecture.
DISRUPTIVE TECHNOLOGIES REDEFINING BANKINGAccording to the survey, the technology perceived to be most disruptive in delivering a straight-through digital CLM process is big data analytics, with 68% of respondents experimenting with this technology in their organization. Big data enables large and varied data sets to be mined for hidden patterns, unknown connections, new market trends, and customer preferences. The outcome helps financial institutions and other firms to make more informed business decisions and better tailor products and services to customer requirements.
15%of respondents have fully automated the collection of client data
© 2019 Fenergo Limited.
The disruptive technology getting the next-highest attention is artificial intelligence (AI) with 58% of respondents experimenting with AI to improve CLM. The term describes a range of different techniques that can identify patterns in large datasets and then find them again in other datasets without the linear restrictions of rule-based systems. In KYC, AI can speed processes through intelligent document scanning, sifting quickly through a vast array of external data sources, and then create a risk profile that it will keep current throughout the client life cycle. In AML, AI can not only reduce the slew of false positives; it can enhance alerts with additional data and potentially recommend next steps.
Further efficiencies may be possible by employing distributed ledger
technology, which could help breathe new life into the KYC utility model by resolving at least some of the issues around trust, security, and auditability.
The potential gains from bringing these technologies together are enormous. The financial institution can have a flexible, scalable information-based endoskeleton, which will enable it to change and evolve, instead of being stuck inside a hard shell of legacy technology. It can integrate with new fintech and regtech offerings which can feed off and enrich the data flowing around the system—finding solutions that are beyond the capacity of older systems.
To build this ecosystem the most logical way of connecting systems is with a suite of powerful, secure and well-documented APIs.
By taking on the lightweight, adaptable and scalable technology that characterizes digital firms, financial institutions can transform their businesses
EXPERIMENTATION WITH DISRUPTIVE TECHNOLOGIES TO IMPROVE CLM
Commercial banking Business banking Investment banking Corporate banking
Natural language processing
Artificial intelligence
Robotic process automation
Blockchain
Big data analytics
Machine learning
None of the above
0% 10% 20% 30% 40% 50% 70%60% 80%
© 2019 Fenergo Limited.
To disrupt the disruptors and create stronger alignment with new fintech and regtech providers, banks need to liberate their data, building CLM into their front end
INVESTING IN THE CUSTOMER ECOSYSTEM The survey suggests that there is a lack of IT investment in CLM; 33% of banks in the CLM study have not invested in any technology to improve client onboarding, while only 15% of respondents have automated the collection of data.
Onboarding is the start of the customer journey and creates critical first impressions, so this lack of investment is a massive lost opportunity. It puts them at an immediate disadvantage when competing against both digital native firms and progressive financial institutions that can deliver cohesive, consistent and customer-centric services.
When the first point of contact with a customer is supported by automated data capture and aggregation, it becomes easier for the financial institution to build other processes and systems around this. This does not imply the creation of a vast new infrastructure; a rich data ecosystem can be built by simplifying the internal technology landscape and providing API connections to a host of internal and external systems. Almost one-third of C-suite executives in our survey agree that a client ecosystem is vital to achieving a true strategic digital transformation program.
What this creates is a smooth, efficient customer journey, akin to the ride on a modern subway system. Passengers can get on at each station but the train doesn’t deviate from its route – it is on a straight-through path to its destination and meets no obstacles or traffic along its way.
The principles of a customer ecosystem are the same. Every stop represents a data or system provider, allowing the onboarding of fresh information, data and documentation that will combine to create a single client view. The train continues, digitally, directing and navigating the customer through the entire journey.
By piping its data and those of its partnering regtech and fintech partners into this ecosystem, financial institutions can leverage the technologies to transform the data into actionable insights that will deliver the end-to-end customer experience.
Financial institutions’ abilities to enjoy the benefits of connecting to those systems hinges on two factors. First, can they connect at a technical level: can their rapidly-aging tech infrastructure, designed in the days before the API and open standards revolutions, seamlessly connect to these newer technology stacks? Second, can they connect at a cultural level: can they overcome the Not Invented Here syndrome and work with outsiders with a very different ethos?
Simply put, if they do not engage with change, they will find that both
THE NEED TO MANAGE DATA STRATEGICALLY HAS BEEN OVERLOOKED FOR MORE OBVIOUS FACETS OF ONBOARDING
Total respondents
UK and Europe
Middle East and North Africa (MENA)
Asia Pacific (APAC)
North America
To some or a huge extent This has been an issue in recent years but not now
This has not been an issue
Percentages do not equal 100 due to rounding
71 14%
13% 71%
74%
13%
13%
74%
16%
19%
65%
15%
11% 74%
6% 8%
85%
© 2019 Fenergo Limited.
INVESTMENT IN TECHNOLOGY TO IMPROVE ONBOARDING PROCESSES
33%
Tota
l res
pond
ents
Nor
th A
mer
ica
UK
and
Euro
pe
Mid
dle
East
and
Nor
th A
fric
a (M
ENA)
Asia
Pac
ific
(APA
C)
Those who have invested
Those who haven’t invested
20%45% 36% 34%
66%
81%
54%
65% 67%
Percentages do not equal 100 due to rounding
fintechs and large tech players such as Amazon, Google and Alibaba will bypass them, disintermediating them from their customers.
Alarmingly, 20% of respondents in our survey said that the maturity of their technology infrastructure is preventing them from investing in new technologies and 67% have not yet partnered with a fintech, regtech or datatech provider.
Those respondents are missing out on real benefits. Those that have created an ecosystem can quickly build a customer profile taking data from their customer-relationship management system, outside KYC partners and more. This 360-degree view provides the platform for an institution to become culturally customer-centric, building products or services that can be promoted when the time is right for the client. This will not only help to enhance what is on offer, but it will also make services more efficient.
Automating the flow of data using digital technology also removes the risk and latency associated with manual processes. Decisions can be taken more quickly and accurately, and feedback can be provided to the customer whenever needed. CLM ensures documentation and data associated with the client is
always accessible and current, reducing risk and errors further.
CLM’s importance is that it becomes a strategic goal for the entire firm, acting as a focal point for change and triggering wider benefits. Within our research, 26% of senior management said standardizing and simplifying processes is a crucial benefit of CLM, while 24% saw it as a way to reduce regulatory risk and 18% as a way to reduce operating costs.
Technology investment today increasingly requires a staged or modular approach, with ongoing testing to show its operational value and small-scale implementation to demonstrate the economic benefits. In this context, CLM is a proof-point for the need to capture and standardize data to grow revenues over every time horizon.
Other technologies require this first step to ensure high-quality data can be used to support better analytics and a new operational approach to the business.
By taking on the lightweight, adaptable and scalable technology that characterizes digital firms, financial institutions can transform their businesses, providing better services with a lower cost base and a more tailored client offering.
© 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.
© 2019 Fenergo Limited.
