And it's all because of slow, outdated processes according to CLM solutions firm
There have been several reports recently highlighting the slow adoption of technology in the global banking sector.
But a new report goes a step further by warning that traditional banks could be the authors of their own downfall if they fail to address slow and outdated processes.
The painful outlook for banks would be exacerbated by an economic slowdown according to Fenergo, the client lifecycle management (CLS) solution firm that has published the report.
It found that slow and manual onboarding processes could lead to commercial and business banks individually losing $4.5bn in revenue if they don't bring their technology and systems up to date.
Onboarding times increased by an average of three weeks in the last 12 months and if this trend continues customers could be facing a six week wait to be onboarded by 2020.
That is unacceptable to clients, who are seduced by simpler processes from digital challengers and in the last year alone, the global commercial and business banking market has lost $3.3 trillion because of abandoned applications during onboarding.
"With more and more digital-first challenger banks entering the business banking market, customers now have the ability to sign up to a new bank within minutes,” says James Follette, Global Head of Commercial, Business and Retail Banking, at Fenergo.
He added that business and commercial customers are naturally going to switch to those financial institutions that offer the same ‘low-touch’ experience that they are familiar with.
But even as digital-first challengers such as Canada’s Mogo and EQ Bank bite into the market share of traditional banks, established players can fight back.
“It's not too late for more traditional commercial and business banks to bring their processes up to date and adequately compete,” says Follette. “If they don't make these changes, money and customer losses will be such that they're unlikely to survive a downturn."
Traditional banks are moving to digital solutions but 18% still rely on manual processes for Know Your Customer compliance (KYC) - including telephone, email, letter or in-person meetings.
The report found that 14% of respondents revealed that 20 or more people are involved in the onboarding process for just one complex client and 15% say that they had to get in touch ten or more times for data or documents to onboard new clients.
Most have lost customers
The report resulted from a survey of decision makers at business and commercial banks across North America, Europe, and Asia Pacific.
It found that 78% of respondents said their organization has lost customers to digital-first, disruptive competitors.
The market recognizes that changes need to be made with 92% of CEOs agreeing that they need to transform radically to compete with digital-first neo banks.
Banks are facing increased regulatory challenges with 96% saying that slower onboarding of new clients is the result of tighter regulation.
The majority (93%) of those surveyed say increasing regulatory focus as a result of rising financial crime is a challenge and keeping up with evolving regulation is a top concern for 40% of banks. This suggests that almost all banks are at risk of incurring major fines, along with all the reputational repercussions that holds.
"It's essential for banks to keep pace with market-moving technologies and regulations, and support new business models, including digital client onboarding to meet the expectations of customers," says Sidhartha Dash, Research Director, Chartis Research. "Clients are demanding a frictionless, transparent and rapid onboarding experience, which they can easily find at challenger banks. It's time for traditional banks to up their game or risk losing out."
