The Power of Digital in Commercial Banking

Banks are digitizing rapidly, usually with a focus on mass-market retail banking. But lines of business where customers deal with a relationship manager (RM), such as commercial banking, are also amenable to digitization. This is an area where Asian banks are pushing ahead of their North American and European peers. One bank taking the lead is Siam Commercial Bank (SCB). Tjun Tang, a BCG senior partner and the leader of Asia-Pacific operations for the firm’s Financial Institutions practice, recently spoke to SCB’s Head of New Business and Operating Models, Vish Jain, to find out just what SCB is doing to digitize commercial banking.

Before we get to the details, please give us a little background. Why is SCB digitizing its RM-mediated businesses?

At most banks, about 70% of digital investment is going into retail. This makes sense given the size of the retail customer base and the high cost of physical channels like branches and ATMs. Less attention has been paid to digitizing businesses that use relationship managers. There is an almost religious belief in the power of relationships and, therefore, less belief in technology. But we think this is a mistake.

Can you explain why?

Consistency is part of the answer. RMs spend most of their time, and generate most of their profits, from 20% of their clients. While these clients get great advice, the other 80% are often neglected. The expertise of RMs also varies, with the result that customers get a variable quality of advice. Digital can help ensure consistent engagement and a high quality of advice for all the bank’s commercial clients.

What are some of the other core benefits of digital?

It can also help us provide a more tailored offering. Commercial banking encompasses a wide range of clients—from multinational corporations to SMEs— with different needs. These clients are hard to serve effectively if we rely entirely on people and manual processes. Digital can be used to provide services that are better tailored to fit the needs of different commercial client segments.

Of course, digital can also streamline boring processes like onboarding, account opening, switching, and servicing. The pain of these processes when done manually can have a serious effect on net promoter scores. Today, a manufacturing company CFO might be investing her personal money through a smartphone using a robo-advisor, but when it comes to business transactions for her company, she has to sign a paper form in triplicate!

Can you give us more detail on how you’ve already started to use digital technology in wholesale banking?

To start, we’ve divided our customer journey into five stages—prospecting, advice and sales, onboarding, transactions, and administration—and we are digitizing all of them to varying degrees.

Let’s take prospecting. What kind of tools are you using there to improve RM performance?

RMs used to rely on their personal networks to prospect for new business. Some did well, but others struggled. We’re now using social media, external data integration, and advanced analytics. We have more leads, better leads, and higher conversion rates.

Let me give you an example: for small businesses with fewer than 20 employees, we launched an ecosystem called Businesslinx, which brings together digital business apps, educational content, and merchant-funded deals. You don’t have to be an SCB customer to join it. In fact, the whole point is to get noncustomers in so that we can understand their behavior before selling to them. The soft launch was only eight weeks ago, but we’ve already signed up 30,000 businesses, almost 40% of which are new to the bank.

And this isn’t the only way we’re using digital to identify prospects. We use payment network analysis to identify noncustomers who are strongly linked to customers we already have. We can make a compelling offer to join us because being on the same platform reduces their costs and speeds up processes for all companies in the cluster. We’re also using reverse lookup—profiling our best, most engaged customers, and then looking for businesses with similar profiles both inside and outside our current customer base.

It sounds like your digital prospecting initiatives are focused on the smaller end of the commercial client spectrum.

Actually, for bigger commercial companies where there is sufficient publicly available data, we regularly run our strategic filters, KYC, and credit scoring models. This allows us to prequalify credit for high-value potential customers. RMs can approach them with a concrete offer on the first meeting. RMs are still responsible for converting the leads, but they now get better leads and have better tools for converting them.

Okay, let’s move on to the second stage of your customer journey. How can digital technology automate the provision of advice?

We rely on a structured advisory process called SCB Sherlock, which was designed with BCG’s help. We divide Sherlock into “understand,” “analyze,” “recommend,” and “sell” steps, after which the journey proceeds into onboarding.

Exactly how does this work?

Since clients seek industry expertise in their advisors, we want to make sure all of our RMs have a consistent level of industry understanding. So we ask industry experts to create digital “learning capsules” that combine industry facts, trends, value drivers, and key financial ratios. With these tools, even a junior or generalist RM can develop expertise quickly and speak intelligently with clients about their business and how we can help them.

Of course, RMs have to understand how clients compare with their peers. To make this easier, we’ve created benchmarking tools that use third-party data to diagnose key performance ratios—working capital, capital structure, FX exposures, and so on. We can improve this analysis if the client provides the company’s proprietary data. RMs can then let clients know how far they are from best practices and the value at stake from closing the gaps. Overall, using SCB Sherlock, we’ve acquired more commercial customers in one year than we did in this segment over the previous four years combined.

So Sherlock helps the RM understand the potential client. That will help make the sale. But do you take digital further in the sales process?

We’re currently building product pricing and bundling capabilities. An AI-based robo-assistant will use the benchmarking to recommend prebundled product solutions along with an estimated return on investment to clients—and an estimated RAROC to us. The RM and client can then interactively explore product assumptions and pricing. In the past, this would have taken days of back and forth.

Even once the bank and client have agreed on terms, new regulations make onboarding very laborious. This looks like an area where digital ought to be able to help.

Yes. KYC, onboarding, and switching are often neglected moments of truth for customers. Our old KYC process required manually tracing ultimate beneficial owners through company holding structures, and then checking every UBO against a variety of sanctions databases—a nightmare involving six disconnected systems, one of which was in the back of the branch! The process could easily take 90 minutes for a small customer, and days for complex ones.

The result was a terrible customer experience, often the first one the customer had with us after the sale. So we created a digital KYC. Today, all a teller needs to do is enter the company’s jurisdiction ID into the screen, and the system takes care of form filling, UBO tracing, sanctions checking, and KYC score calculation. This now takes three minutes and has better KYC compliance than the old manual process.

Three minutes! That might be a world-best time. It must make onboarding much less painful for your staff and clients.

It does, but we’ve gone further. The onboarding process used to involve lots of paperwork, with unique requirements for each product. We’ve taken the tedium out of it by introducing digital forms, third-party data integration for filling forms and fetching documents, unified terms and conditions across products, and reuse of archived documents. A customer can now get an account number within 15 minutes of meeting an RM in his office or a teller in a branch.

And the next frontier is the switching. A large company can have hundreds of suppliers, thousands of payroll employees, and dozens of accounts with different authorizers. Even a small company can have quite a few. These details can be on paper, Excel spreadsheets, accounting software, or on competitors’ banking portals. We’re designing a digital switching process to work with universal convertors that integrate with all sorts of formats and accounting software, screen scraping robots, etcetera, to take the tedium out of switching. We’re also creating self-switching tools so that smaller customers can serve themselves instead of waiting for operations.

How are you creating a seamless service and usage experience for customers, especially given the vast differences in needs and scale?

Jumbo corporations need an industrial-strength system that can handle dozens of group entities, hundreds of suppliers, customized payment schedules, host-to-hold integration, and the like. At the other end of the spectrum, the smallest SSMEs need only a little more than a retail app. Clients in the middle need significantly more than a retail app, but they can go cross-eyed when they see the complex system developed for jumbo corporations. So in the interest of customer centricity, but at the risk of complexity, we’ve created three digital banking platforms for our business.

Can you describe them?

Sure. The first is for small SMEs that don’t need complex multiuser access rights, and is built on our retail EASY platform. It takes all the features of retail but adds higher limits, bulk payments, and payroll. For now, it is integrated with our Businesslinx ecosystem with all its tools, content, and deals. We’ve just signed an MOU with a global trade business matching alliance, which will also become part of this.

For larger SMEs, we’re creating a multiproduct corporate portal that combines BCM, trade, FX, and credit servicing in one place with all-channel access. The full commercial launch will be in the middle of 2018, starting with business cash management, which is the most complex module but is the foundation for everything else. Then we’ll release new product capabilities every three months and complete the corporate portal within two years.

For the largest customers, we’ll continue with our legacy systems—given their stability and the level of customization and host-to-host connectivity already in place.

With all of this investment in digitization, how do you ensure that employees and customers adopt these innovations and get the full economic benefit from them?

The trick is to focus on innovations that improve the customer experience and the employee experience at the same time, and that also increase revenues and reduce costs. If you don’t have all four dimensions, the innovation will fail to stick.

Of course, we also do some marketing. To create awareness of upcoming launches we take 5 to 10% of the target population and get them involved early in product design, review, and training. Then the chatter on corporate chat channels takes care of the rest! We use marketing videos to communicate more broadly, and for significant apps we do a big Silicon Valley-style launch event with fireworks and entertainers to make it stick in the memory.

That will certainly create awareness. But how do you make sure that employees and customers actually shift to the new way of doing things?

The important period is when the target group starts experimenting with the new technology. We have digitized all product documentation and FAQs, and heavily invested in e-learning so that employees can access information anytime, anywhere. We track the correlation between the number of people who take e-learning courses and the adoption of technology, and the correlation is nearly perfect! We are also creating an employee chatbot to answer the first line of queries from RMs, with a human-assisted chat as the second line. This will eliminate the need for an internal call center and expensive support infrastructure.

Of course, getting employees to convert to the new systems is mainly a matter of integrating them into daily operations. Business intelligence cascaded dashboards replace traditional MIS and become the basis on which team leaders coach RMs daily, weekly, and monthly. Since digital platforms track more intermediate steps than any traditional MIS, we can identify individual RMs’ learning needs and follow them up with e-learning recommendations. We can also reward intermediate steps and not just sales KPIs. For example, offering clients a free diagnostic is good practice, and we can now recognize that in our KPIs.

You seem to be making great progress. How far do you think digitization can take you in terms of efficiency gains?

The benefits come in several different ways. Primarily, we are looking to improve net promoter scores, share of wallet, and cross-sell. We are already seeing progress in the number of accounts opened since launch and the number of noncustomers on BusinessLinx.

Another set of benefits comes from getting a more complete picture of our customers when they engage with us across multiple digital platforms. For example, when we automated our ultimate beneficial owner tracking, we also created the ability to identify high-net-worth individuals for our wealth business.

In terms of direct efficiency gains, we should be able to do the same volume of business with 50 to 60% fewer FTEs in three years’ time. However, our ambition is to continue to improve on our already rapid growth, so the benefits will come in the form of improving operating margins.

You seem to have come a long way in 18 months. How? What allowed you to get so much done so quickly?

Perhaps the most important thing we did was to create a dedicated digital transformation group comprising former consultants and bankers. Many banks have created such structures, but as a “digital lab” or a “digital garage.” We’re set up to be an at-scale “digital factory.” Even though we’re primarily business experts, we’re unencumbered by day-to-day KPIs and schooled in “agile” ways of working, business analytics, and fintech. We act as the conduit between the business and the world of technology.

We were also lucky to dip into the bank’s talent program and get four of the brightest next-generation staff to steer the most complicated work. We also sought help wherever we could find it globally, with vendor teams from as far away as Brazil, Poland, and India working on things at the same time.

That covers the people aspect. What about process?

You need to be flexible. It’s impossible to design a perfect blueprint before starting work. We have integrated 60 underlying systems, digitized 1,200 user stories, and had over 300 full-time staff and even more external partners working on this. We relied on a shared vision, shared values, shared leadership, and a shared “agile at scale” methodology to let things come together. Spending a lot of time upfront designing the perfect end state would have been futile.

You also need to take some risks with technology, and we took several: packaged products instead of custom builds, cloud-based solutions, semiestablished fintech solutions. This allowed us to try fast, fail fast, learn fast—things that banks talk about but don’t typically do. For example, our proof-of-concept version of SCB Sherlock was a beautifully designed, custom-built solution, but it couldn’t scale. Within one year, our second iteration of Sherlock was a thin UX skin on top of four fintech solutions from different providers.

Thanks for these lessons, Vish. What’s next for your program?

The first thing we need to do is fill the gaps in our functionality for the products we’ve already digitized. Then we need to bring in the remaining products, including credit. We aim to complete the corporate portal, offering all products within two years. During this period, we expect AI, blockchain, and Internet of Things technologies to start maturing, and practical applications to come into use. So we must start incorporating them into our architecture.

By the end of this process, we will have transformed the way RMs work. They will no longer be quasi-independent entrepreneurs within the bank, but the human part of an integrated, efficient, and information-rich customer experience. We’re on an exciting journey.

Thanks very much for speaking with us.

My pleasure.