2018 Conference

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Commercial Lending: The Good, the Bad and the Opportunity

Presented By:

Paula O'Reilly – Accenture

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Ever wondered what a "good" Commercial Lending Operating model looks like? In today's environment, key levers to pull to get to "good" include revenue growth, operational cost savings, and credit loss reduction. You'll learn how each of these key levers along with data and real time pricing will lead your bank to success.


So just to get us started, I want to start you off with a story. I had been a consultant my entire career. I've never been a commercial lender. My first assignment at Accenture, which at the time was [Anderson 00:00:14] Consulting, was in credit card processing. 

And then my second assignment was in commercial lending. And that assignment was we're going to help the bank consolidate 53 loan servicing sites into four regional processing centers. That was the goal. And there were a lot of components to that, as you can sure imagine. There was a process piece to that. 53 different places doing 53 different processes on how a loan went through the whole process and then was serviced on the back end. So for that process, we were looking at, okay, we need to consolidate down. We need to think about how the customer segmentation is going to work. 53 different ways of segmenting customers in between small business, business banking, middle market, large corporate. Different definitions. So we standardized on all of those models. 

Not surprisingly, there was a technology component. There's a lot of different technologies when you started to look at 53 different ways to process a loan. So we built out a technology blueprint. It wasn't 100% enabled, and it was certainly not 100% the same across segments, because technology was limiting. There were certain things things could do. We went with a best of breed approach, picked the best technologies, and implemented that as in standard of a way as possible.

There were a lot of people impacts. So we were moving from 53 sites to four sites. Some people were relocating, some people were not. There were layoffs. There were all sorts of training impacts. We needed people who were going to be in our new sites to have confidence in what they were going to do. And there was a lot of paper. Oh my gosh was there a lot of paper. Paper was everywhere, and we spent so much time figuring out how we were going to move the paper around to get into our consolidated model. 

But in 1996, when I put that model together, we were very proud of what that looked like. We had a standard segmentation model, and everybody moved into all of this. We got everything aligned, and we felt really good about it. 1996. I drew this model for customers at least 100 times about how we could standardize on process and technology and the people. Still move your paper around, but … drew this model a ton. But fast forward now to where we are today, and there's some constraints to this model. All that standardization that we put in place seems to have gone in different directions by our siloed line of business. Not because we're bad people, but because we're [inaudible 00:03:34] to do the right things for our customers. And some of those needs started to diverge.

Those processes, they got more and more customized, which led to inconsistent experiences. So what I felt as a customer here, I may not feel as a customer over there. It also added to the expense. So we duplicated process, and where things were the same we still did them separately. More money, less efficient. We had [inaudible 00:04:05] a lot of hand-offs in the processing, and in 1996 we didn't even have email. We might have just been starting to get some email. But the communication process was just not one that we thought anything else other than someone's going to pick up the phone and ask, "Hey, what's going on with this?"

This model also makes us susceptible to disintermediation and non-traditional entrance taking a piece of our business away. It's a small piece. Someone can carve it off, and off they go. And applications started to be duplicated all over the place. One application to do this. One application to do that. But different by each of those segments. Certainly not very efficient. So my brand new, beautiful shiny 1996 operating model, we're finally starting to say, yeah, maybe we need to think about that a little bit differently in the lending world. 

So just imagine for a minute, when you think about lending, there's a no touch model. There are things, there are loans, we don't need to touch them. Similar to [Joanne's 00:05:14] example, a low touch. Say it's a low dollar amount. Say it's under $100,000. We know the customer, and we can process that loan. We don't need to talk to you. We don't need anything from you. No touch. Maybe it's a low touch model. It's not a huge dollar amount loan. We know you as a customer. We know what your needs are. We move to a low touch model. And then we can focus our time on the high touch where it's a larger dollar amount. It's over $1 million. There's complexities where our RMs need to work with a customer in order to get them into the right solution.

What does good look like as we move forward? And what are these components here that we can talk about in order to how does a new operating model, this is my new model I can draw for clients, in no touch, low touch, high touch as an example. So I'm going to talk about each of these six components, and how are they going to fuel how we move forward, and what the good looks like.

Number one, we organize around the client. My commercial lenders are now commercial advisors. They're looking across the set of products not just can I get you into the right loan. But I know your whole business. I know what products are going to matter to you. There's still maybe segmentation. You still may define this is a business banking customer versus a commercial customer. But I'm organizing that as a group as to where they're going to fall into my no touch, low touch, high touch model.

Two, the automation of credit decisioning when it makes sense. There's going to be a lot of factors that play into that decision of when you're going to be able to do that. But, to Jim's point from the beginning, it's there. We have the data. We have the ability to do this when it makes sense. We also have the ability to automate and know when a second look is required based on factors of data that exist and we have at our fingertips. We can automate that decisioning process and know when to take a second look.

Number 3, that whole middle box there. Modularizing the product and the pricing. Today we may keep going in silos this way, supposed to thinking about it all the same. Whether that's done through technology or even just through how you think about the attributes of a loan, the terms and conditions, the pricing, all of the attributes associated with it, a loan is a loan is a loan. And using different words to describe different parts of a business banking loan versus a large corporate loan, is where we can start to break down those barriers and put ourselves into more of that lending factory in the back end. 

Number four, once I've put everything in the box I can make the box cheaper. That's where I have the opportunity to drive the efficiencies. I'm not doing all siloed processes. I have the opportunity to outsource if that makes sense. I have the ability to automate, because I get more bang for my buck in the automation that I'm going to do, because I'm doing it once and not 17 different times. Or I can outsource to somebody who can automate. But any which way I have the opportunity to drive efficiencies in that box. 

Number five, I have to embrace digital. Our first two speakers talked quite a bit about digital, and where digital is driving us. And not only your employees, but your clients, live in a new world as a consumer, and their expectations are changing. So yeah, we're talking about commercial lending. We're not talking about consumer lending. But nonetheless, your employees and your clients, they are consumers. Everything has changed. Your employees, they want to embrace digital. They want to be able to digitally know where things are in the process. They don't want to pick up the phone and call you. They want, at their fingertips, to know exactly what's going on. Your clients, they're already in their product, they know what's going on. They don't want to call. They want client portal that's going to tell them exactly where things are at, and what changes or what information is missing, et cetera. So you have to embrace the digital. And in a lending factory when we're doing it in a standardized way, you have an easier opportunity to do that. 

And then lastly, number six, moving to automated triggers. A manual, annual review process, it's one of my favorite things. Said no one ever. We want to review where our clients are at when it's important to do the review, and we have the data and the triggers that are going to allow us to do that. In a lending factory in this model helps do that. It's easy as that. I drew that picture up for you, right? Super. Great. Let's move to do that. 

My clients that I work with, so number one, there's a head of the commercial bank, and there's a head of business banking, and there's a head of commercial, and there's a head of large corporate, and they are interested in maximizing value in that space. So they're still there. Now we might be talking about all of these things, getting all of those people to talk together, I get it. It's hard. So sometimes some organizational changes are necessary in order to facilitate moving into a model that's really going to serve our customers. 

Number two … I get it. It's hard. We're working on the consumer bank and we're still struggling. And then moving that into the commercial bank? We get it. It's hard. My bank is still working on that. 

Number three, the technology is starting to catch up. I'd say the technology has caught up. Technology can now do for us what it could not do before. Technology was our limiting factor. That's why we diverged and went into all of our different directions and our different silos, because the technology wasn't there. Technology is there. It's no longer the limiting factor that gets us here. I do think most of you are embracing digital. Joanne, I liked your stat that they're moved to 60% adoption of the iPads when they were given, and several years ago it was … I forget what the number was. But it was 4%. It was very low. Our employees and our clients are demanding it. So we are seeing a lot of uptake in the digital. But doing it when you're in a factory model helps make it something that is affordable that you can do.

Okay, so I acknowledge that it is hard, but what I want to do is transition over to … well, okay, I get it. These things all make sense. I want to personalize in the front. Give my bankers what they need to do their job, work with their clients, and make that a personalized experience. And I want a standardize in the back. But really, why? 

I'm a consultant so I have a value tree. That's what we do. My value tree is no different than your value tree. I would like to increase my revenue. I would like to decrease my cost. And I would like to make sure I minimize my risk and my exposure. Pretty simple, right? Make more, spend less, make it all safe and secure and [inaudible 00:13:47]. But as we start to break it down into what are those value levers, that helps us defend and have reasons for why we want to move to that new operating model. We can add in some data that Joanne had to help us support all of that. But I want more revenue. I would like to increase the number of customers I have. I would like to decrease my customer attrition. I would like to increase the cross-sell of the products that I have for my customers. 

Increase customer retention, decrease customer attrition. I didn't say I would like to increase my product take up and decrease my products people get out of. I talked about the customer, and how do I move to customer and looking at the customer. So my operating model facilitates those things in moving towards the customer. The number one thing that we hear, and Joanne your data supported, is my Rms, they want to spend more time with their customers. So how do we facilitate that? We take out the stuff that's easy. We move to automated decisioning where it makes sense and they can do it. We focus on the higher value things, and we give our RMs the time that they need to focus on these revenue enhancement opportunities. 

Reducing cost. Brilliant. We want to reduce cost. Digital does that for me. Backing off from manual, annual reviews that don't make any sense, because I haven't … there's no event that's triggered it. And workforce. We've talked about the talent. Having our … perhaps I have less people that work in the back office that helps me facilitate more people in the front office with the tools that they need. I just wanted to throw up the value tree to make sure that we talked about there is reason for why we want to move to this sort of operating model, that we can tie back to to the value that we have. 

So easy enough, right? We're going to just whip out a new operating model. I just changed your commercial lenders into commercial advisors. And I just put in some new technology platforms, and we're good to go. Right? Done. You can say your business is transformed, and everybody is happy. Well, not so fast. What's next? What's the opportunity? I get it all transformed. I'm in a great place where the technology is all working. I've removed the silos. I've helped limit disintermediation opportunities. What's next? What really is the opportunity?

Basic product optimization, where you're looking at the product. What's the right product to get my customer into? What's the right loan for that customer? Doesn't necessarily take into account the customer lifetime value. Perhaps it's the right thing specific to the loan, because that loan is important, but doesn't take into effect all the other products and where they're going and what they're doing. We have data that says 90% of banks still at basic product optimization. So you all know it. You all know we're moving to customer-centric, and we want to move up the curve, and we're all working in that direction, and we're implementing technology that's helping us go there. And we want to be customer-centric. We get it. You're going to maximize the value of the customer, not just your individual products. We're all on that journey. And technology is now not the limiting factor. Technology is out there that's going to help us do that.

Then what's next? What's next is the real time application of data. So all our previous speakers have been talking about data. There is so much data out there. So imagine, if I'm an RM, and I have all the data that I'm driving to see my customer, and Alexa … I'm sorry I'm not as fancy as Jim I can't actually demonstrate this for you. But imagine that Alexa is in your car with you, and she's telling you all the new things that just happened this morning with your customer that you didn't know as you prepared for this big meeting about how you're going to talk to them about their positioning and their products and what loan products are new and exciting. And you get information from Alexa as you drive over there that totally changes everything. You get to your meeting, all that data is already incorporated, and you now know, oh, my conversation is going to change. Or maybe you get there and they tell you. X, Y, and Z just happened. You change a few buttons. Real time. I'm able to adjust on the fly. It's coming fast. And once I move into customer-centric, then I have the opportunity to do that. 

So we're gong to go home. I'll give you until Monday. We're going to be here all day tomorrow, so give you until Monday. What are you going to do on Monday that's different than what you're thinking about today? So what I would tell you is you can't change very piece like this. But you have to start. And you have to pick these are the things that I'm going to do in order to continue to move myself from that product focus to the customer focus. And then all that data, I will have the ability to use it, and we can all move forward as successful commercial lenders.

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