The future of corporate banking will depend on the kind of differentiation banks manage to offer by leveraging technology better.
A bank’s bottom line relies heavily on its corporate customers, who contribute roughly 60% of revenues. Today, corporate banking stands at the cusp of digitization and innovation that banks hope will underpin the future of business and nurture high growth potential areas.
Historically, corporate banks have held the advantage over FinTechs in terms of their relatively strong customer relationships and deep industry experience. Forward-looking banks supported by technology have used this to elevate the banking experience for businesses by offering services such as virtual account management, liquidity management, and near real-time cash management. This innovative approach helped incumbents retain corporate customers while making it difficult for new entrants to breach their corporate customer stronghold.
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In the last few years, COVID-19 enforced the highest rate of digital adoption ever in corporate banking, resetting existing competitive advantages. However, even as the needs of corporate customers continue to evolve, these banks are still in the early stages of digital transformation. In comparison, retail banking is already gearing up for paperless, people-less, cashless, branchless modes of working.
Open APIs, mobility, advanced analytics, cloud computing, blockchain, conversational AI etc. are key technologies that have proved crucial in delivering superior business outcomes. In fact, after Goldman Sachs set up 100% cloud-based transaction banking, their corporate customers benefit from real-time data access. The bank benefits too in the form of horizontally scalable and resilient applications with 99.99% uptime.
However, the industry at large has lagged behind in adopting modern technologies. Even innovation-led investments have been rather narrow in scope and have focused on virtualizing account management and delivering real-time cash management. Important business lines such as trade finance, supply chain finance, remittances have been neglected.
It’s high time that banks focused on building a sustainable competitive edge in the form of differentiated offerings by extracting the full potential of their digital transformation.
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In our latest report titled, “Scaling Digital Innovation in Corporate Banking”, we found that by 2026, key differentiators for a corporate bank would be end-to-end digital self-service treasury offerings and superior customer engagement. Towards this end, progressive banks have already been proactive in their digital adoption and setting new benchmarks for the future of corporate banking. Being proactive helps them move faster than new entrants and solidify customer loyalty ahead of the competition.
Their best practices derived from retail banking parallels include:
Maximizing the Technology Advantage
Cloud and blockchain help automate the trade business and remittances that will, in turn, help eliminate process inefficiencies resulting in frictionless banking experiences. In particular, the trust-less and secure features enabled by blockchain will prove handy in applications involving digital identity management, payments and remittances as well as trade and supply chain operations.
Cloud adoption will not only bring down Capex but also help develop customer-centric solutions. By helping with fraud detection, growth and market risk forecasts, and timely preventive strategies, AI is poised to play a pivotal role here. For instance, Bank of America Corporation built a cashflow forecasting tool that leverages AI and ML capabilities and makes more accurate predictions without costly technology investments.
Banks can rely on open APIs to forge stronger collaborations and partnerships that can be path-breaking. Nigeria’s pan-African financial services group, United Bank for Africa (UBA), for instance, chose to embed core banking solution into the ERPs of their corporate customers. This move helped the bank call on RESTful APIs for transaction authentication and reconciliation for these customers.
Today’s corporate customers expect banking on the move, which makes mobility solutions an important area of investment for banks. It’s the reason why banks like Emirates NBD’s Bank PJSC are now moving to mobile-only banking solutions for entrepreneurs and SME businesses.
Differentiation Through New Business Models
Silicon Valley Bank, a high-tech commercial bank supports over 50% of all venture capital-backed tech and life science companies in the US. Their innovative solutions specially cater to the customer’s needs for market insights and networking. In parallel, their financial and banking services ensure cash flows are managed and customers have access to wider markets. This is a prime example of how banks can create differentiation by choosing to focus on a niche segment.
Banks are increasingly leaning towards a platform-centric approach that promises to create, capture, and deliver value across the larger ecosystem. The transaction banking platform set up by Goldman Sachs is an excellent example of banking-as-a-service offered to a host of digital savvy FinTech and e-commerce players.
Building on their stronghold of corporate customers
Digital transformation will deliver maximum impact when accompanied by systemic change rather than forcing digital elements, piece-meal into existing processes. The future of corporate banking will depend on the kind of differentiation banks manage to offer by leveraging technology better.
A host of opportunities to do so await banks in the areas of SME financing and bit market financing. The way forward will be for banks to proactively strike up partnerships with FinTech and software providers and build a collaborative ecosystem collectively aiming to serve corporate customers better.
