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“How Firm a Foundation:”The Basis for Building a Growth‐Oriented

Digital Credit Process

2018 RMA Annual Risk Management ConferenceNovember 5, 2018

©2018 Automated Financial Systems, Inc. All Rights Reserved. AFS and all AFS product trademarks Are registered trademarks of Automated Financial Systems, Inc. The content of this document represents confidential and proprietary information of AFS. This information may not be disclosed to any third party, other than the direct addressee and its employees, agents, and representatives. The infringement of this prohibition may violate AFS proprietary and trade secret rights with resulting irreparable damage to AFS. Your cooperation is requested and appreciated. Thank you for your help in this matter. AFS 123 Summit Drive, Exton, Pennsylvania 19341. Telephone (610) 524‐9300 Fax (610) 524‐7977

©2018 Automated Financial Systems, Inc. All Rights Reserved. Confidential & Proprietary. 22018Achieving Success through Execution

Agenda

Digital banking – why now?

Digital commercial lending – why not now?

Digital, technology, data and the customer: a common bond?

Five foundations for a successful digital credit transformation

AFS and Greenwich: where are banks in the commercial lending digital evolution?


“Digital Transformation:” What are We Really Talking About?


Evolution of Digital Banking: Why the Excitement Now?

“Digital” technologies and capabilities have long been in banks

Several factors have combined to accelerate digital uptake:

Near total process automation now possible

“Digital natives”

Mushrooming growth of fintechs

Post‐financial crisis banking environment

“Analog” falling farther behind


Is Digital Commercial Lending Imperative? Inevitable?

Commercial/corporate banks have lagged retail segments in uptake of digital

Several factors and circumstances have caused the slow uptake of digital in commercial lending

Multiple potential impacts of digital create opportunities in commercial lending

But doubt, confusion and hesitation remain

Digital must convincingly meet business objectives

Credit Processes Provide Major Digital Opportunities for Banks in Several Functional Areas

6


Gaps Between Banks and Customer Expectations

There is a Clear Link Between Digital Banking and Customer Support, but Banks are Behind

8

Banks that have begun to digitize their credit processes are improving the ease of doing business…

But few banks now offer more than basic online capabilities to their commercial customers…

0% 20% 40% 60% 80% 100%

Change company…Access to real-time data

Mobile access to loan…Automated self-service

Initiate advanceInitiate payment

Basic loan inquiry

0%14%

26%48%48%

62%81%

Sources: Greenwich Associates Market Pulse, AFS Survey

9Greenwich Associates

Customer Satisfaction, Loyalty and Profitability are Most Influenced by Ease of Doing Business with a Provider (in 2017)

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But Now, Digital Channels Surpass the Banker as the Primary Driver of “Ease of Doing Business” Among Commercial Executives

Bankers remain a critically important element of the equation despite now ranking second to digital channels as the go‐to channel for commercial customers.

Greenwich and AFS are Partnering to Help Banks Understand and Leverage Digital Lending

Need to Meet Heightened Customer Expectations for Ease of Use and Speed of

Decision

Continuous Pressure to Reduce Costs by

Minimizing / Accelerating Process Steps: Sales through

Servicing

Urgency to Improve Accuracy of Data for

Servicing and Portfolio Management

A “New Normal” of Credit Operations is Emerging:

Greenwich Associates and AFS Have Partnered to Help Banks Understand Why, Where and How to Deploy Digitization in

Their Credit Process

Digitization Will Be Critical to MeetingAll Three Challenges… But Where to Begin?

• What do customers expect?• How have other banks deployed digital

solutions, and how do you compare?• What specific benefits should banks

expect by digitizing processes?• What are the risks of not digitizing?

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#1: Align Digital Strategy with Business Strategic Goals

Growth, customer experience, efficiency

Line of business leads, technology follows

Incremental results in pursuit of longer‐term goals prove value, create capital and confidence

“That’s what it’s all about”


Shiny Object Syndrome and Other Distractions

Adhere to business strategy

Don’t be distracted by “shiny objects”

Think outside the traditional box – peas or carrots may not be the only or best options

Make digital the solution to a problem, not a solution in search of a problem


#2: Know What Your Customers Want, Need and Actually Use

“Customer‐centric” finally becoming real

No longer “selling products,” but now “fulfilling customer needs”

What will differentiate from competitors?

In a commoditized environment, “information about money is more important than money itself”

Involve customers in pre‐ and post‐implementation research


A Comprehensive Approach to the Customer ExperienceBusiness Performance through the Entire Credit Lifecycle

The customer experience is an end‐to‐end journey, not a series of touchpoints

Data should be captured and integrated to enable analysis of turnarounds, transitions, delays and consequences

Convenience, channel handoff, responsiveness and status notifications are all part of the journey


#3: Digital Needs to Fit into the Technology Architecture

The “digital ecosystem”

Commercial lending in many respects is the centerpiece of commercial/corporate banking ecosystem

All participants in the ecosystem need to connect and integrate seamlessly for the customer

Remove complexity


Prepare for Future Moving Targets

Plan for the future, especially with growth objectives

Moving targets – “nice to have” today becomes “must have” tomorrow

Current fixes may generate future problems

Look out for the “Butterfly Effect”

©2018 Automated Financial Systems, Inc. All Rights Reserved. Confidential & Proprietary. 18April 26, 2018Achieving Success through Execution

The Digital Corporate Banking EcosystemThe Customer Experience is Central, but will Demand Integration and Data Integrity

Digital transformation must be focused on the customer experience

This will require an integrated ecosystem of applications and delivery channels

Its ultimate growth and success will depend critically on a firm foundation of data integrity

Data integrity draws from straight‐through processing, automated controls and “one version of the truth”


#4: Develop Efficient Processes and Operations

Evaluate the entire credit process—digital can address chronic problems

Aim for double or triple value: Efficiency ratio Turnaround times RM productivity Straight‐through processing

Disruption is necessary and normal


Inefficiency, Delay and Leakage in the Credit Process

A poorly performing credit process has serious impacts

Unnecessary and inefficient expense Loss of business and customer retention risk Decreased loan yields Lost revenue opportunities Increased compliance cost Unreliable regulatory reports Increased capital requirements and limitations Failed stress tests on qualitative grounds Adverse press/reputational risk


Measure What Matters in Credit Delivery

Source: AFS/McKinsey CDM Survey 2012

Median days per step, total = 11 banks

Sum

Top quartile 4 2 2 4 1

Bottom quartile 7 5 7 17 4

Median

All banks

Day 1 to writeup

Writeup to initial decision

Initial decision to final

decisionFinal decision to closing Closing to

booking

5 3 6 13 2 29

Duration (in days) of credit delivery activities

13

40

The capability to maintain and track process‐related data can affect not only customer satisfaction, but also revenue opportunity, if the “right” data is kept. For example, numerical volumes of “work packages” in the credit pipeline can be translated instead to dollar volumes and measured as lost revenue resulting from process delays.


#5: Deliver Without Compromising Risk Management

“The revolutionary idea that defines the boundary between modern times and the past is the mastery of risk.”

— Peter L. Bernstein, Against the Gods: The Remarkable Story of Risk, 1998

Risk can be understood, measured, to some extent predicted, and thereby protected against

Rules‐based risk management (preventive)

Strategic risk management (reductive/mitigative)

The strategic value of data

“Data integrity must be built in, not inspected in.”


Data Integrity in the Credit Process

Data Integrity Data integrity in the credit process is what ensures data quality in reporting

“Integrity” refers to the collective nexus of capabilities, safeguards, policies and controls that form the backbone of the credit process and ensure higher quality output

Its framework of protection and higher standards is what delivers a near guarantee of data quality


The Critical Role of Data Integrity: “One Version of the Truth”

An integrated straight‐through processing loop ensures that data maintains integrity from first point of entry to data warehouse for use in analytics, management reporting and regulatory compliance

Through online and mobile digital channels, customers have direct access to receive notifications, access loan data, and initiate self‐directed transactions


The credit delivery model of the future will be digital, in a cloud‐based “virtual bank.” Lenders, customers, administrators, risk managers and all other participants in the CDM can theoretically be anywhere in the world, accessing, monitoring and analyzing credit information from any device, at any time of day; and it will always be up to date and consistent across any channel, governed by an integrated network of policies, procedures and exception controls.

Enabling the Digital Commercial Lending Model


For Further Information

Chris McDonnellManaging DirectorGreenwich [email protected]

Lee [email protected]

“how firm a foundation:” · 11/5/2018 · “how firm a foundation:” ... partnered to help...

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