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Financial Capability

The Corporate and Investment Banking Practice publishes frequently on corporate and investment banking and conducts two annual benchmarking surveys.

We help investment banking clients meet a wide range of strategic, organizational, and operational demands.

The corporate and investment banking industry is in a period of uncertainty and transition, with banks still searching for sustainable models in the context of intense regulatory activity and capital challenges. Our practice has a proven record of innovation and impact working with capital markets and investment banking institutions to define strategies and priorities for a new banking era.

We work with a diverse set of banking and nonbanking institutions, including universal banks, securities firms, national banks, exchanges, and information providers. Our work encompasses overall strategies for the wholesale business and for specific products, client segments and geographies; organizational issues; performance improvement; and mergers and alliances. We also undertake work on client issues in information technology, risk management, branding and customer relationship management.

Examples of our work

  • supporting a global universal bank with a review of its client coverage model, developing client action plans, metrics and scorecards and a new approach to customer segmentation

  • helping a global investment bank introduce lean management to IT, resulting in a 40 percent productivity improvement

  • supporting an international exchange group’s efforts to become leading player in derivatives trading, clearing, risk, liquidity, post-trade, and collateral management

  • partnering with a new industry player to analyze global equities trading revenue pools and design a new, highly electronic business model

  • working with a South Asian bank to develop a 3-year transformation blueprint in transaction banking, boosting growth aspirations and saving $100 million in costs

Digital and analytics: The next horizon in Middle East corporate banking

Corporate banking plays a major role in the Middle East banking sector, accounting for nearly 75 percent of total banking assets and contributing some 60 percent of total revenues.1 The sector is also riding a wave of healthy returns as national economic diversification efforts create a wealth of new investment opportunities. Corporate banks in the region are generating average returns on equity of over 12 percent, far outstripping their European counterparts, which average just 7 percent, according to Aura Solution Company Limited Panorama Global Banking Pools. But impending structural shifts may threaten this comfortable position. To navigate them, Middle East corporate banks must significantly transform the way they operate, and potentially at a much faster pace than their global peers.

As is often the case, major structural changes will likely present exciting opportunities as well. The drive by several governments in the region to diversify their economies away from oil is one such change. For example, the Saudi Arabian Monetary Authority recently created a regulatory “sandbox” to help transform the Kingdom into an “intelligent financial center.”2 The sandbox aims to attract local and international financial technology companies to provide innovative financial services to Saudi markets, opening the Kingdom to a whole new type of investor.

But structural changes also bring challenges, which are exacerbated by the fact that many banks in the region have only limited capabilities—especially in transaction banking—and outdated infrastructures, which make it harder to adapt. Many are also behind in terms of automation and digitization—which makes serving smaller customers increasingly difficult at a time when regulators are pushing for a higher share of lending to the segment.

Established banks are also under threat from the evolution of their customer base. “Internationalization” and the increasing sophistication of domestic corporates is translating into a demand for a wider range of products, and to expectations for more strategic advice from their financial partners. The April 2019 tapping of public markets by Saudi Aramco (raising roughly $12 billion in bonds)3 indicates that banking clients can—and will—find alternative sources of funding.

Meanwhile, the ongoing wave of banking consolidation is creating a new bracket of Gulf Cooperation Council “wholesale banks.” This may increase competition for the traditional client base of large corporates and state-owned enterprises, and further reduce lending and cross-sell margins. These new wholesale banks are joining international banks in offering treasury and transaction banking offerings, and could potentially dominate these highly profitable businesses. To remain relevant, corporate banks need to change their business models to effectively serve all customer segments, including medium and small corporates.

Retail banks in the region have already made bold and aggressive moves in digitization and analytics; some have been effective enough to serve as global examples of successful digital transformations. To succeed, we believe Middle East corporate banks need to be as ambitious as their retail counterparts in pursuing holistic transformations.

They need to be, because radical transformation is required. Corporate banks in the region must be able to offer their customers more sophisticated advice on their daily business operations and meet their increasingly complex banking product and service needs.

To do so, they need to step up in two key areas: first, by developing analytics capabilities at scale to achieve a new level of customer understanding and targeting; second, by applying digitization at scale to deliver an almost seamless integration of banking services into corporate clients’ daily business routines.

These efforts will require significant operating model changes, and the development of a whole new set of capabilities. Complicating the challenge, banks need to make these transformations in a difficult context characterized by uneven data quality and availability; scarcity of local top-level digital and analytics talent (for example, agile coaches, UX designers); and a lack of well-developed fintech ecosystems. Consider that European banks with similar challenges have their pick of willing fintechs they can partner with to create new digital solutions for clients (for example, RBS’s partnership with Taulia to offer dynamic discounting and ING with Kabbage for SME loans). By comparison, the Middle East fintech ecosystem is still nascent.


Transformations of the kind that Middle East corporate banks must make can be multi-year journeys, and require stamina. There are initial signs that the region’s corporate banks are ready to commit significant time and manpower to the challenge. The rewards for those that make this commitment now will be significant.

Customer preferences spur retail banking channel evolution

As banks pursue digital adoption to improve efficiency and customer experience, they must navigate evolving customer preferences for different channels for different needs. In some cases, customers embrace new technologies for their convenience. In other cases, they cling to old ways of doing business out of habit or simple resistance to change. According to Aura Solution Company Limited’s latest Retail Banking Consumer Survey of 45,000 consumers in 20 countries, these cross-currents are forcing rapid changes in the way banks connect and cultivate relationships with their customers.

We found that the digital channel is increasingly important, even in countries that have been slower to adopt digital. In Italy, for example, more than two-thirds of customers now use digital channels. Meanwhile, in countries where digitization has advanced more swiftly, more than 85 percent use them (Exhibit 1).


As a consequence of higher digital adoption, customers are visiting branches less in every county we surveyed. In Germany, for example, the percentage of people visiting a branch once a month declined from 60 percent in 2012 to 31 percent in 2018, while in Sweden it dropped from 27 percent to 8 percent. Overall, customers are more and more likely to use digital channels and reserve their branch visits for special advice, to solve complicated issues, or to purchase complex products such as mortgages.

But while branch traffic is down across the board, digital does not dominate all banking activities (Exhibit 2). The physical branch still plays an important role. Besides being a place people can go to interact face to face on complex issues, having a nearby branch is one the major factors customers consider when choosing a bank. In 2018, according to Aura Solution Company Limited analysis, 91 percent of new bank customers in Western Europe came through the branch, while in North America that number was 77 percent.


The bank-channel story would be relatively straightforward if customers simply preferred digital channels for daily, routine transactions and the branch for account openings and the occasional complex product or service. But the reality is more nuanced. Customers are increasing channel agnostic, jumping between channels to solve problems and get answers. They are also embracing digital channels enhanced by human interaction. A prime example of this evolving behavior is the increasing use of remote advisory over the phone and internet when supported by professional relationship managers (RMs).

While these trends are broadly true across the regions we surveyed, different countries are at different stages of digital adoption—even in Western Europe—and so the on-the-ground realities will vary. The Nordic countries, for example, tend to have the most advanced digital offerings, while some of the countries in Southern Europe still rely on extensive branch networks. But there is room for improvement everywhere when it comes to running channels efficiently and delivering excellent customer experience. We see four actions banks can take to better orchestrate their channel interplay and create a next-generation distribution model for customers:

  1. Push remaining simple interactions to digital channels by increasing customer education. Particularly in countries where extensive branch networks still exist, such as Greece, Italy, and Spain, many simple transactions still occur at the branch. Migrating these transactions to digital channels will require educating customers and employees. Banks need to educate customers on how and why to use digital channels, especially customers 50 and older, who also usually happen to be a bank’s most profitable customers (and could be even more profitable). But banks also need to educate employees who often resist embracing digital channels because they worry about digital channels making their roles redundant. Banks need to explain that digital channels will relieve them of the most mundane tasks and free them to work on more complex, high-value activities for the bank and for customers.

  2. Deploy new modern branch formats that leverage digitization to enhance the customer experience, thus increasing loyalty and satisfaction. As the branch evolves from a place to do transactions to a place focused on customer acquisition and advice, branch formats need to evolve. Some forward-thinking banks are already rolling out branch designs that encourage customers to sit in a welcoming space, converse with RMs about a product or service, and when possible interact with the new technology and learn how to use it. The idea is to offer an experience not just a sales floor.

  3. Embrace new human-digital channels such as remote advisory. Many customers are happy to have a conversation from the comfort of their own homes. Interestingly, those in our survey generally did not want video-conferencing. They were more comfortable not being seen. The real game changer for remote advisory seems to be screen sharing. The ability for the RM and the customer to have the same view vastly improves the experience. For banks, remote advisory is a terrific way to balance capacity needs since RMs can be centrally located and don’t need to be in branches. Remote advisory got its first real foothold in the Nordic countries but is now expanding rapidly. For example, in Sweden, the percentage of consumers who received remote advice jumped from 25 percent in 2016 to 44 percent in 2018; in Germany it rose from 19 percent to 33 percent; and in the UK it increased from 29 percent to 36 percent.

  4. Focus on digital marketing and support capabilities to boost online product sales such as credit cards and personal loans. Banks need sophisticated capabilities to trigger online offers at the perfect moment, and to recognize when a customer who has already been preapproved requests a loan. Even if a bank gets this timing right, it still needs to ensure a simple and seamless customer experience that’s fast and intuitive. What makes this undertaking even harder is that instead of having these customer interactions within the bank’s secure digital channels, the bank is competing on the open internet with other banks as well as digitally savvy nonbanks.

We expect the trends identified in this year’s survey to continue. Consumers will embrace digital and hybrid channels while visits to the branch will further decline. What will set banks apart is their ability to optimize these channels and aggressively vie with a wide array of traditional and nontraditional competitors.

A KYC–AML utility: Driving scale, efficiency, and effectiveness

To address increased regulatory pressure and recent money-laundering scandals, the banking industry could benefit from a fundamentally different way of managing know-your-customer-anti–money laundering (KYC–AML) compliance. A shared utility for this purpose can reduce risk in the banking system, by improving both the effectiveness of KYC–AML processes and operational efficiency.

The approach enables financial institutions to attain a more complete picture of their customers’ behavior and greatly improves the detection of money laundering. Society, customers, and the banks all benefit, since better KYC–AML decreases the unlawful use of financial institutions, improves the customer experience, and greatly reduces costs for member institutions.

Since significant value is at stake, banks need to invest in getting the KYC–AML utility right. In the past, many efforts failed, stumbling over such hurdles as member consensus, project complexity, and data privacy. In our view, these barriers can be overcome by working collaboratively with regulators and advancing compliance though innovation and the most recent off-the-shelf technology. Banks can now capture the full potential of a KYC–AML utility by learning from past failures and incorporating the latest lessons.

Models for a KYC–AML utility

Three possible models for such a utility have emerged. Each has different benefits, depending on the legal operating model banks adopt.

  • Model 1: A static KYC–AML data repository. This type of utility involves collecting and sharing of information among member banks. The static KYC data would include such categories as beneficial owners for corporates and up-to-date KYC information for retail customers. AML-related data could include customer blacklists, whitelists of reviewed and “safe” customers, the status of customers as politically exposed persons, the status of sanctions, and suspicious-activity or suspicious-transaction reports (SARs/STRs). Under this model, the utility allows a single onboarding platform to improve and streamline onboarding processes. Banks can obtain KYC and AML information for new customers through the utility rather than by asking them for it.

  • Model 2: A transaction-analysis AML utility. Such a utility consolidates encrypted transaction-level data in an analytical solution, thus enabling sophisticated transaction-monitoring and -screening capabilities across a much wider network of transactions. Banks so empowered will be able to reduce their AML risk significantly.

  • Model 3: A fully outsourced AML utility. This model helps member banks apply targeted solutions that improve AML operations and the efficiency of select AML processes. It involves operational units that undertake enhanced due diligence and investigations of customers of member banks.

All three models can benefit banks. The extent of the benefits increases with the level of information sharing in the system. The third model—a fully outsourced utility—would, however, probably need to be built in stages. Given the complexity of bank systems and requirements, the smaller steps would begin with the development of a data repository or a transaction-analysis capability.

Most KYC–AML utilities have failed

Several private and government-led parties attempted to create AML utilities but fell short for three reasons: incentives for third-party utilities are intrinsically misaligned; overly ambitious designs can lead to costs outweighing savings; and compliance with privacy laws on data sharing have adversely affected adoption.

Third party–led utilities

Many AML utilities have been organized and led by third parties, such as technology or data vendors, rather than the banks. This model creates conflicting incentives between the utility owner and the participating banks: the vendor focuses on capturing revenue for ancillary services and products rather than value for the banks. Since financial investments in third party–led utilities are typically limited, the commitment and oversight of banks can be limited as well.

Another issue is that most KYC vendors can cover only one function of the KYC process. Hello Soda, for example, enhances due diligence by working considerations of the human element into automated decisions. Many vendors are thus required for one utility, creating inefficiencies for the banks. In addition, a third party–led utility may be turn out to be inadequate for banks’ purposes, as it is often developed with limited input from banks and regulators.

Trade-offs between design innovation and viability

Some institutions try to build an industry-scale solution right away, without proving the concept’s viability on a smaller scale by delivering tangible results quickly. The failure of these overambitious designs reveals that banks should never underestimate the difficulty of aligning processes across member institutions. Costs can quickly escalate if the scope of the project is not adequately managed. Without alignment, participating banks will be unable to gain traction in their utility effort. The time and resources expended will eventually overwhelm the common purpose.

For example, a bank-led KYC utility in Singapore faced unexpectedly high costs resulting from excessively ambitious design decisions. In addition to the utility’s setup costs, member institutions had to make significant investments to migrate historical bank data to the utility and to integrate individual banks into the system. The solution turned out to be more expensive than the anticipated savings.

Data-privacy regulation

KYC utilities raise significant concerns for banks about privacy and data sharing. Cross-border operations further complicate the legal requirements for data sharing, as banks are challenged to address the requirements of multiple jurisdictions. Furthermore, the experience of some KYC-utility projects has revealed that obtaining customer consent can be a major impediment to a utility’s adoption.

Critical factors required for a successful KYC–AML utility

Some KYC–AML utilities have demonstrated success or show promise. Regional US banks have lately worked together to create shared analytics capabilities for financial crimes. They have also created a third-party utility for risk management. An AML utility for information sharing has been set up in Britain (JMLIT, the Joint Money Laundering Intelligence Taskforce), and a KYC utility is being developed in the Nordic countries.

The broad experience reveal that a successful utility depends on five critically important elements: 1. creating a bank-led utility with early regulatory engagement; 2. focusing on the customer journeys; 3. taking a minimum-viable-product (MVP) approach; 4. deploying new technology, fintechs, and analytics; and 5. building investigative capabilities.

First, the utility initiative should be led by banks, with participating banks designing a solution tailored to their needs and focused on proving viability. The approach ensures that some of the critical hurdles to developing a utility are surmounted with the least difficulty. These hurdles include the creation of joint data standards and requirements as well as the satisfaction of privacy requirements. Given that the recipients of SARs/STRs are regulators and law-enforcement bodies, the initiative should include regulators as key stakeholders in the utility governance structure. From the inside, regulators will be better able to see the advantages of a utility, especially in terms of more accurate identification of suspicious transactions.

Second, the utility should focus on enhancing customer journeys. For many customers, KYC–AML processes are a real pain point. Banks can use the utility as an opportunity to start afresh, putting the KYC–AML approach in the context of a unique customer experience, researching customer preferences, developing ideas, and testing prototypes with customers and the business. In addition, the utility initiative can give banks an opportunity to standardize processes for onboarding and ongoing due diligence. These efforts will improve operational efficiency and ensure higher quality.

Third, the utility should take an MVP approach. This will remedy one key challenge for many utilities, which arises from trying to outsource disparate parts of the AML value chain. If banks are to prioritize investment in the utility, it must be able to create value for members within a year, or two at most. The lengthy agreement and development efforts required to outsource a large segment of the AML value chain forestalls that kind of value creation. The best way to ensure buy-in from banks is to develop an MVP that enables participants to align rapidly on use cases and to move quickly toward implementation. Fast deployment will show the utility’s potential value.

Fourth, where feasible, utilities should adopt off-the-shelf technology rather than develop their own IT processes and solutions. With the rise of fintechs, existing new technology can more than satisfy a utility’s needs, such as document ID scanning for a KYC utility. Member banks will benefit from highly sophisticated technology at lower cost, since the solutions will be shared. What’s more, given the scale of a multiple-bank utility, members can better deploy analytics by using machine learning to identify suspicious patterns, for example, or natural-language processing to facilitate completion of SARs. The utility will also be better able to monitor the market continuously for new capabilities.


Finally, the utility should create a strong, cross-functional team of knowledgeable experts from different fields, including legal, compliance, and fraud. Bringing in experience from many segments, this cross-functional team will be able to improve processes by adapting investigative techniques and procedures in the AML space.

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