Pub. 8 2018 Issue 2

22 www.azbankers.org Figure 5: Mobile at the epicenter of customer experience – past and present A strong mobile offering can also make the customer a partner in compliance. Banks can use rewards or discounts to incent customers to provide consent or verify information on an app, for example, to speed up compliance and drive down costs. Verifying customer identity with facial recognition technology is another application that can enhance experience and reduce onboarding costs. 30 The question, again, is how? US banks in particular appear to be lagging in adopting more mobile centric and agile delivery models, but they can make the transformative leap if they redouble their efforts to rebuild their institutions around digital (see figure 6). Retail banking incumbents in Europe and Asia seem farther along this journey, and are creating radically different business models that may even cannibalize existing businesses. Regulation appears to be playing a key role in driving this change—PSD2 in Europe, and particularly the Open Banking Standard in the United Kingdom, have transformed rules on access and use of customer data, as well as lowered entry barriers. 31 These shifts are causing both banks and fintechs to also reevaluate how data are leveraged to reimagine customer experiences in an interconnected digital ecosystem. The confluence of regulatory, technology, and balance-sheet strategies is important to this digital transformation. To adapt to these deep shifts, institutions are making what appear to be surprising strategic choic- es. Some examples are storied investment banks—such as Goldman Sachs 32 —now creating competitive, digitally driven retail banking franchises. Corporate banking: Prioritizing customer experience, technolo- gy, and targeting markets In 2018, corporate banking divisions will likely target growth in select markets and make technology investments that enhance customer experience and simplify operations. Figure 6: Rebuilding institutional structure anchored on digital Global commercial and industrial (C&I) lending has been a mixed bag; Europe has witnessed caution as nonperforming loans (NPLs) hit new highs, 33 while in China historically high NPLs have been curtailed as authorities force banks to improve their balance sheets. 34 In the United States, despite tepid loan demand, rising rates have benefitted C&I lending. However, C&I NIMs could be impacted by rising US corporate deposit rates. A slowdown in commercial real estate lending could further dampen margins, although regulatory proposals to simplify capital rules for real estate lending by small and regional banks 35 could boost loan growth. In 2018, it would be wise to target prudent loan expansion in the expanding middle market, with revenue projected to increase 6 percent in the next 12 months. 36 In the United States, JPMorgan Chase is already seizing the opportunity, making middle market lending a centerpiece of its growth strategy. 37 Similarly, National Australia Bank has announced it will cut down the length of contracts and processes by one third for small business clients. 38 Fee income also presents mixed growth prospects. Improved economic growth in the United States and Europe, the Middle East, and Africa (EMEA) should support commercial and transaction banking, and international payments revenues (see figure 7). Yet risk from the backlash against globalization could impact volumes in trade flows and international payments, for instance. Otherwise, fol - lowing several solid years leading to mergers and acquisitions's (M&A) deal volume remaining elevated and corporate debt issuance crossing the $1 trillion mark in 2017,39 primary issuance and the M&A advisory businesses could stabilize in 2018 (see figure 8). 2018 Banking Industry Outlook w Continued from page 21