©2014 Experian Information Solutions, Inc. All rights reserved. Experian and the marks used herein are service marks or re...
2©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Survey question
Do you know who
Kane Kra...
3©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
1,750,000,000
Who is Kane Kramer?
4©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
 1970’s: Designs a credit card sized
MP...
5©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
2014 trends
6©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Key themes in commercial banking
 Opera...
7©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Commercial banking business, strategic
a...
8©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Survey question
What is your top
commerc...
9©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Commercial loan growth is a top priority...
10©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Improve sales performance with technolo...
11©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Improve sales performance with technolo...
12©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Build a better onboarding experience
So...
13©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Integrate credit lifecycle processes
Ag...
14©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Identify new applications for analytics...
15©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Customer sentiment
16©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Low confidence in financial services pr...
17©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
North American business owners are most...
18©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Most businesses customers still prefer ...
19©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Quality of customer experience through ...
20©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
The new commercial
landscape
What does ...
21©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Healthy growth in U.S. commercial lendi...
22©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Average loan size rises
$400
$450
$500
...
23©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Credit demand remains strong
-40%
-30%
...
24©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Rates stabilize, but remain low
2%
2%
3...
25©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
Q1
20...
26©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Competition is driving strategy
5%
5%
1...
27©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
In addition to
stricter regulatory
regi...
28©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Survey question
Have you seen commercia...
29©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
What are your peers
doing?
What does th...
30©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Taking on risk to improve margins
$0
$5...
31©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Increasing investments in commercial le...
32©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
15% 13%
23%
50%
8%
16%
31%
45%
0%
25%
5...
33©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
10%
15%
31%
28%
10%
5%
9%
19%
30%
21%
1...
34©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Survey question
How are you investing
i...
35©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
35©2014 Experian Information Solutions,...
36©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
For additional information, please cont...
37©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.
Visit the Experian Expert Bar to learn ...
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Vision 2014: The New World of Commercial Lending

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Vision 2014: The New World of Commercial Lending

  1. 1. ©2014 Experian Information Solutions, Inc. All rights reserved. Experian and the marks used herein are service marks or registered trademarks of Experian Information Solutions, Inc. Other product and company names mentioned herein are the trademarks of their respective owners. No part of this copyrighted work may be reproduced, modified, or distributed in any form or manner without the prior written permission of Experian. Experian Public. The new world of commercial lending — optimizing opportunities and winning new customers Joanne Pollitt CEB TowerGroup Mike Horrocks Experian #vision2014
  2. 2. 2©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Survey question Do you know who Kane Kramer is? a)Yes b)No
  3. 3. 3©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. 1,750,000,000 Who is Kane Kramer?
  4. 4. 4©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public.  1970’s: Designs a credit card sized MP3 player – the IXI  1986: The IXI is hailed as the “the most radical system ever” by the audio industry  1988: Distracted from the business, he loses patents in 120 countries  2001: He buys his first iPod, along with eventually 1.75 billion other consumers Who is Kane Kramer?
  5. 5. 5©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. 2014 trends
  6. 6. 6©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Key themes in commercial banking  Operating efficiency  Risk management  Customer experience management  Optimization of data management  Analytics
  7. 7. 7©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Commercial banking business, strategic and technology priorities for 2014 Business drivers  Expectations for economic growth  Scope of regulatory change and growing intensity of enforcement  Evolution of customer needs  Expansion of the digital channels  Increasing competition Strategic responses  Modernize key technology and data management systems  Incorporate regulatory risk management and compliance reporting frameworks into operational processes  Deploy technologies that support complex relationship structures and service models that enhance the client experience  Leverage new analytical capabilities to create new sales opportunities and optimize product-level profitability Top-10 technology initiatives for commercial banking (2014) Rationalize payments infrastructure to improve processing efficiency and gain competitive advantage Optimize sourcing strategies to enhance business value of vendor relationships Centralize risk management to ensure compliance and mitigate enterprise-wide risk Increase liquidity management capabilities to effectively manage the balance sheet Implement commercial loan lifecycle management to improve customer acquisition and credit utilization Enhance the client experience to improve customer satisfaction and loyalty Enhance the digital banking experience to expand self-service capabilities Expand client/ bank integration (payables, receivables, B2Bank) to deliver enhanced relationship value and banking efficiency to commercial clients Formalize enterprise data and analytics strategy to improve enterprise business performance Improve sales enablement to identify customer needs and win new business
  8. 8. 8©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Survey question What is your top commercial initiative in 2014? a) Commercial loan growth b) Improved sales technology c) Operational efficiency d) Enhanced analytics
  9. 9. 9©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Commercial loan growth is a top priority Primary commercial banking business focus for 2014 Percentage of credit bureau executives citing driver as “critical” or “high importance” 79% 78% 70% 52% 36% 0% 20% 40% 60% 80% n = 113 Source: CEB Business Banking Leadership Council 2013 Agenda Poll Maximizing credit application Protecting credit portfolio Building efficient portfolio management Reducing back-office expense Reducing sales expense
  10. 10. 10©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Improve sales performance with technology 32% 41% 35% 44% 0% 25% 50% Identify needs Make a sales pitch Build solution Close deal n = 1,215 (Sales Managers); 39 (Banks). Source: CEB 2013 Sales Environment Readiness Assessment. Support across the sales cycle Percentage of sales managers selecting “describes fairly well” or “completely describes” Identifying customer needs was most often cited as an area where sales managers do not feel supported with the right technology
  11. 11. 11©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Improve sales performance with technology 29% 20% 12% 56% 60% 65% 15% 20% 23% 0% 50% 100% Lagging Standard Emerging Low Performers Core Performers High Performers n = 1,215 (Sales Managers); 39 (Banks). Source: CEB 2013 Sales Environment Readiness Assessment. Sales team index composition as technology score increases Sales team performance composition as technology-enabled sales score increases Commercial banks with a high technology score have a larger population of high- performing sales staff Technology-enabled score
  12. 12. 12©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Build a better onboarding experience Source: CEB TowerGroup Commercial Banking Applicant New customer The challenge of using disparate onboarding technologies Front-end channel platform Customer relationship management Enterprise content management Electronic signature Compliance system (KYC, AML, fraud) Challenges  Disjointed systems  Manual processes  Multiple data entry  Missing / omitted data  Errors and exceptions  Compliance risk  Long onboarding time  Customer dissatisfaction  Slow product utilization
  13. 13. 13©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Integrate credit lifecycle processes Aggregate data on individual credits to monitor portfolio health  Understand risk concentrations  Stress-test portfolio  Adjust credit standards  Ensure sufficient capital and liquidity  Optimize pricing  Improve risk adjusted returns Consolidating loan origination with monitoring improves process efficiency and risk management 4. Servicing2. Underwriting 3. Closing1. Application 5. Credit monitoring ORIGINATION SERVICING Monitor borrower’s financial health Review credit line utilization Review new financial statements Track financial and non-financial covenants Rescore borrower risk Automate for renewal or escalate for review
  14. 14. 14©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Identify new applications for analytics Source: CEB TowerGroup Commercial Banking Evaluate the feasibility for improving commercial lending with data and analytics initiatives Analytics in commercial lending Needs identification Market analysis Credit underwriting Complex approval workflows AML / KYC FATCA Reporting
  15. 15. 15©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Customer sentiment
  16. 16. 16©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Low confidence in financial services providers among business owners (40%) (41%) (45%) (46%) (48%) (49%) (52%) (46%) 21% 20% 20% 19% 18% 15% 15% 18% (60%) (50%) (40%) (30%) (20%) (10%) 0% 10% 20% 30% Keeping their customers' money safe Ensuring reliability and consistency of transactions Providing helpful guidance and advice Keeping their commitments and promises Caring about their customers Sharing their customers' values Offering clear and simple policies and fees Overall confidence Little or no confidence Complete or a lot of confidence n = 2,075 Source: CEB, 2013 Business Owner Sentiment Survey Confidence in financial services providers Percentage of global business owners who feel confident in the capabilities of financial services providers, Q3-2013
  17. 17. 17©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. North American business owners are most satisfied with their financial products 31% 13% 8% 18% 40% 21% 0% 25% 50% n = 2,075 Source: CEB, 2013 Business Owner Sentiment Survey Satisfaction with financial products or services Net percentage of business owners who are satisfied with the products and services of their financial provider, by region, Q3-2013 Asia Pacific Europe Latin America Middle East & S. Africa North America Global
  18. 18. 18©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Most businesses customers still prefer face- to-face channels 49% 20% 11% 20% Proximity to banker Closest Farthest Face-to-face Over the phone Balanced multichannel Virtual n = 619 Source: CEB, 2012 Business Owner Survey Channel preference typology Percentage of business owners’ main channel preference
  19. 19. 19©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Quality of customer experience through service channels Average customer assessment of the service quality of channels, 2013 n = 699 Source: CEB TowerGroup 2013 Financial Services Technology Investment and Adoption Survey 2.75 3.46 3.94 4.17 1 2 3 4 5 Mobile device applications Online Phone In person, face-to- face 5 = Excellent 4 = Good 3 = Fair 2 = Poor 1 = Awful To improve customer satisfaction, banks can look to improve the service quality of the digital channels by expanding both the capability and usability of those platforms  Online and mobile channels are ranked consistently lower than traditional methods in terms of overall service quality by bank customers Improve quality of digital channels
  20. 20. 20©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. The new commercial landscape What does this mean to you?
  21. 21. 21©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Healthy growth in U.S. commercial lending $1,000,000 $1,100,000 $1,200,000 $1,300,000 $1,400,000 $1,500,000 $1,600,000 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Source: Federal Reserve; CEB analysis $1,584,500 Outstanding commercial and industrial loan assets at U.S. Banks Millions USD, 2010 – 2013
  22. 22. 22©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Average loan size rises $400 $450 $500 $550 $600 $650 $700 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 $620 The average commercial and industrial loan size grew from $513,000 in 2010 to $619,000 in 2013 Source: Federal Reserve; CEB analysis Average commercial and industrial loan size Thousands USD, 2010 – 2013
  23. 23. 23©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Credit demand remains strong -40% -30% -20% -10% 0% 10% 20% 30% 40% Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Large and Medium Firms Small Firms Linear (Large and Medium Firms) Linear (Small Firms) +16% +14% Higherdemand Seasonal drop in fourth quarter Source: Federal Reserve Senior Loan Officer Survey; CEB analysis U.S. demand for commercial and industrial loans Net percentage of senior loan officers reporting stronger demand, 2010 – Q1-2014
  24. 24. 24©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Rates stabilize, but remain low 2% 2% 3% 3% Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 2.25% Source: Federal Reserve; CEB analysis Commercial and industrial loan rate Weighted average effective loan rate for all commercial and industrial loans, 2010 – 2013
  25. 25. 25©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. -25% -20% -15% -10% -5% 0% 5% 10% Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Large and Medium Firms Small Firms Credit terms continue to loosen Source: Federal Reserve Senior Loan Officer Survey; CEB analysis (14%) (4%) Trend line EasierCredit Supply of commercial and industrial loans Net percentage of senior loan officers reporting tightening credit standards, 2010 – Q1-2014
  26. 26. 26©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Competition is driving strategy 5% 5% 11% 16% 21% 26% 37% 6% 5% 5% 11% 5% 16% 58% 0% 25% 50% 75% 100% Improvement in bank's capital position Improvement in bank's liquidity position Increased liquidity in seconardy markets for commercial loans Increased tolerance for risk Improvement in clients' industry-specific problems More favorable economic outlook More aggressive competition from bank and nonbank lenders Somewhat Important Very Important Source: Federal Reserve Senior Loan Officer Survey; CEB analysis Factors driving decision to loosen credit standard Percentage of senior loan officers citing as “somewhat” or “very important”, Q1-2014
  27. 27. 27©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. In addition to stricter regulatory regimes, the global banking landscape is being transformed by a new set of competitors  Technology companies are pulling ahead of banks in offering innovative mobile payments and banking services  Banks in emerging markets and other strong regional players are rapidly expanding their market share in both their home markets as well as overseas  New competitors are filling the void left by traditional banks in corporate lending, primarily in the SME space Source: CEB analysis Emerging market banks Mobile payments New competitors are reshaping commercial banking Non-bank business lending Real Estate Investment Trusts (REITs)
  28. 28. 28©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Survey question Have you seen commercial or small business loans go to competitors that were not around five years ago? a) Yes b) No
  29. 29. 29©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. What are your peers doing? What does this mean to you?
  30. 30. 30©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Taking on risk to improve margins $0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Minimal Risk Low Risk Moderate Risk Source: Federal Reserve; CEB analysis Weekly commercial and industrial loan issues by risk type Commercial and industrial loan issue in first full week of second month during each quarter, millions USD, 2010 – 2013
  31. 31. 31©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Increasing investments in commercial lending technology 32% 45% 23% 34% 41% 24% Commercial loan origination Commercial loan monitoring n = 22 (CLO); 29 (CLM) Source: CEB TowerGroup 2014 Financial Services Technology Investment and Adoption Survey Expected spend on commercial lending technology Percentage of respondents, 2014 Significantly increase Moderate increase No change
  32. 32. 32©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. 15% 13% 23% 50% 8% 16% 31% 45% 0% 25% 50% Not yet adopted In process of adopting Adopted, in process of replacing Adopted, no changes planned Commercial Loan Origination Commercial Loan Monitoring Strong interest in replacing / adopting lending platforms n = 47 (CLO); 48 (CLM) Source: CEB TowerGroup 2014 Financial Services Technology Investment and Adoption Survey Commercial loan technology state at global banks Percentage of respondents, 2014
  33. 33. 33©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. 10% 15% 31% 28% 10% 5% 9% 19% 30% 21% 14% 7% 0% 10% 20% 30% 40% Financial return on investment Functionality Process improvement Competitive advantage Ongoing costs and maintenance Enhancement of Client Value Commercial Loan Monitoring Commercial Loan Origination Value drivers for investments are process improvement and competitive advantage n = 39 (CLO); 43 (CLM) Source: CEB TowerGroup 2014 Financial Services Technology Investment and Adoption Survey Primary value of commercial lending technology Percentage of respondents, 2014
  34. 34. 34©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Survey question How are you investing in commercial lending? a) New or upgrading commercial lending systems b) Consultative changes to the process c) Enhanced analytics d) Improving / expanding data sets e) Other
  35. 35. 35©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. 35©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Take steps to view risk by individual factors, e.g., duration, convexity or yield to maturity Aggregate those views into a portfolio level to better understand and control the composition in order to optimize returns Invest and stay focused on technology that can enhance decisioning, delivery and risk management Call to action
  36. 36. 36©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. For additional information, please contact: Mike.Horrocks@experian.com | @mikehorrocks Hear the latest from Vision 2014 in the Daily Roundup: www.experian.com/vision/blog @ExperianVision | #vision2014 Follow us on Twitter
  37. 37. 37©2014 Experian Information Solutions, Inc. All rights reserved. Experian Public. Visit the Experian Expert Bar to learn more about the topics and products covered in this presentation.
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