In most commercial banks, relationship managers (RMs) have built their client portfolios the old-fashioned way. They cultivate relationships with business leaders, supported by traditional middle- and back-office services. But increasingly, many banks are seeking to stay competitive by transforming their business development practices. They are placing analytics and digital at the top of their strategic agendas.
Still, many have yet to gain full value from their most precious data asset: their clients’ daily transactions. The institutions that have made progress are what BCG calls bionic banks. They have mastered the integration of advanced technology with human ways of working.
A bionic bank uses technologically enabled solutions to gather a broad variety of data about clients’ transactions and behavior. And it gives RMs access to advanced analytics tools so they can distill that data for their sales teams daily, providing insights into clients’ current needs and future ones.
By using these insights to guide the efforts of their sales teams, RMs can not only increase their bank’s bottom line by 10% to 15% but also solidify their role as a client whisperer—someone who understands clients’ needs and background well enough to gain their full loyalty and trust.
The job of a commercial RM is complicated. Finding new clients and anticipating their needs are very important parts of it. But the most profitable aspect of the RM role involves existing clients: continuously engaging with them, developing and personalizing new solutions for them, and managing and pricing those services correctly.
A bionic approach to relationship management helps RMs work more successfully with their clients. Using advanced data and analytics tools, RMs can uncover timely, accurate, data-driven insights about clients’ behavior that may signal opportunities for them. These analytics tools can also warn RMs of potential portfolio risks, including indicators of client attrition or credit deterioration and relevant changes in client behavior. RMs can then be proactive in several areas:
Taking the bionic approach to relationship management helps commercial banks establish leadership positions in their markets. It’s particularly apt for small business clients and midmarket companies (typically, those with annual revenues of $250 million or less). With the right implementation of data-driven tools and approaches, commercial banks can significantly grow their revenues by about 20% to 35% within two to three years.
Many banking leaders are aware of the potential value of the bionic approach, but few seem to feel a sense of urgency about adopting it, and time is running out. Growth in the commercial banking industry has become more difficult, challenging the economics. Although most banks have kept their heads above water during the pandemic and generated positive value, they need to grow faster and faster every year just to stay in the same competitive position. And the need to diversify revenue sources and generate fee income have taken on renewed importance.
There are several different sources of pressure. One is general economic uncertainty, exacerbated by the pandemic. For example, the current low interest-rate environment and the low demand for loans is constraining the financial services industry, most notably in the US. Revenues in core US commercial-banking middle-market segments ultimately declined from 2015 through 2020 by about 4% in five-year CAGR each year. (See Exhibit 1.) While revenue from fee-based cross-selling has grown by as much as 1% per year, it is largely offset by the effect of compressed loan margins, which are responsible for up to 2% annual reductions in CAGR. And there has been barely any growth from noncredit products, such as deposits, treasury management, trade finance, merchant and card services, risk management, and investment banking.
Another source of pressure are indirect costs. They grew 2% per year from 2015 through 2019. These include general overhead and uncontrollable costs such as those for regulatory compliance. Many banks have responded by cutting where they can: closing branches and reducing front-office head count. They have also upgraded their technology and started digital initiatives, with the goal of reducing costs in the long run, even if it means higher upfront expenses.
In addition, commercial banks are feeling increased pressure from outsiders. Digital challengers such as fintech firms and nonbank lenders are entering the banking space. They serve the market in creative ways, chipping away at profit pools once well protected by traditional banks. They also have more facility with new technologies and advanced analytics than most banks do. This enables them to scale quickly and set new standards for excellence for clients and employees.
Perhaps the greatest sources of pressure are the banks themselves. Many established practices and habits, so ingrained that they are nearly invisible, have made it difficult to grow. For example, although RMs universally recognize the need to cultivate existing clients, when an opportunity for a new client presents itself, it tends to seem more urgent. This is one reason why we see, for instance, US banks capturing only about 70% of their clients’ potential banking wallet and losing about 10% of their clients each year to attrition. (See Exhibit 2.)
Other counterproductive commercial-banking habits include operating with a one-size-fits-all credit process, having RMs monitor simple credit cases at length, and allowing an RM’s time to be highly fragmented across various sales and relationship management activities. For example, RMs in US commercial banks often can spend up to 60% of their time on internally facing administrative tasks. (See Exhibit 3.) Activities such as assembling information from different sources of data, or keeping up with administrative reminders, have little to no impact on client satisfaction or revenue generation. With more and more clients to manage, and more data available for analysis, it’s more important than ever that sales teams receive the most relevant, up-to-date information on their clients as seamlessly and automatically as possible.
To address these challenges in a holistic way, banks need to integrate technological advances with changes in everyday activity. RMs, in particular, can make the most of data-driven insights by incorporating them into their routine practices. Our research has found that only 30% of the impact from the bionic approach comes from analytics (including algorithms and data engineering) and technology (including data and computation platforms as well as visualization tools). Seventy percent of the impact is due to shifts in RMs’ behavior as well as that of other employees throughout the bank. These shifts include designing new business processes, embedding the data-driven operating model in those processes, and changing the way people work.
This is the kind of change that a bank can’t get from the top-down implementation of a massive platform or from the isolated introduction of new tools. It ideally takes place in an almost viral fashion, spreading through the bank from one sales team to another. The job of senior management is to create the conditions that lead RMs to adopt organizational and individual changes and set an example for others. To create these conditions, five elements need to come together:
These five elements need to be supported by two more:
Much of the analytics technology involved in this bionic approach is new. AI, for example, may seem unfamiliar at first. But according to banks that have adopted the bionic approach, the changes seem very natural before long. In a sense, this approach brings banking back to its roots: to a world in which each client’s situation is more manageable because more is known about it. The banker is a provider not only of funds but also of perspective. RMs have the time to build the judgment that makes each exchange worthwhile.
RMs who are learning to operate with these new tools will find that much of the tedium and minutiae of their role will fall away, erased by the seamless infrastructure that is created. And in their place will be the opportunity to engage with entrepreneurs and business leaders, develop working relationships with them, and help them realize their ambitions—which are most likely the reasons RMs went into banking in the first place.
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