Seizing the Apac corporate banking opportunity

By Imad Abou Haidar | 31 October 2018

There is no doubt that the Asia Pacific (Apac) region now dominates the global banking landscape, with 43% of total global bank profits generated in the geography. It’s also a highly competitive segment of the corporate banking sector, with the largest corporate clients in APAC often working with 20 or more banks.

For banks able to deliver comprehensive, tailored, and connected corporate banking products, the rewards can be substantial. According to Oliver Wyman, worldwide global transaction banking revenue was $290bn in 2017, with an overall CAGR of 3% from 2010 to 2017.

However, growth in the Apac region was double that figure, with 6% growth and a larger share of the revenue pie than either EMEA or the Americas. Looking forward, Oliver Wyman forecasts continued growth of 6% CAGR from 2017 to 2022.

In a sector ripe for transformation, four trends are compelling Apac banks to invest in their corporate banking technology solutions to take advantage of the high growth market:

  • Socioeconomic factors, including multiple languages and currencies

  • Regulatory and industry initiatives, notably real-time payments and open banking

  • Customer experience, focusing on design thinking and servicing the next generation CFO

  • Emerging technologies, such as blockchain, artificial intelligence, and robotic process automation (RPA)

Being successful at serving larger commercial clients requires a commitment to investments in technology, business model changes and more complex operational processes. In the battle for revenue share, technology is both an opportunity and a challenge for differentiation.

Banks looking to capture a greater share of the global corporate banking wallet must consistently invest in updating and enhancing their corporate banking solutions to meet client demands for ease of use, flexibility, and convenience. The days of implementing a new solution and only applying mandatory maintenance patches or regulatory requirements are long gone.

Integration and collaboration are the lynchpins that support “connected corporate banking”, and the convergence of corporate banking products is fundamental to support the working capital objectives of clients. The banks that excel at integrating business and technology silos will win market share.

As banks craft their strategies and set out to invest in differentiated capabilities, we see increased collaboration — between banks, with traditional financial technology firms, and in partnership with fintech start-ups.

However, many banks struggle to move from the incubation stage, whether driven by an emerging technology or fintech partnership. Some of this struggle can be attributed to a lack of the right skillsets.

Common pitfalls include the inability to adopt design thinking and agile approaches at scale, resulting in projects being run using traditional, slow, siloed development models. Designers, agile leaders, data scientists and data security administrators are in high demand.

Compounding the problem, much of the “change the bank” spending is focused on enhancements to existing products and services, in contrast to using disciplined and focused execution to drive investment in areas of high strategic, cross-functional importance. The effectiveness of innovation and technology spending should be the key focus.

One approach to foster innovation is what Celent refers to as “platformication”, as discussed in Platformication: How Banks Can Transform Their Innovation Efforts:

“Platformification can be defined as a new ecosystem model that allows multiple participants (producers and consumers) to connect, interact, create, and exchange value with each other. For example, a vendor can offer a suite of product capabilities that is open, enabling any third party to build new products and services.”

The platform approach dovetails neatly with open banking, which is being driven by regulations such as the European Union Second Payment Services Directive (PSD2). This means banks need to make data available in a secure, standardized form to anyone the customer wishes to grant access to.

Realizing the value of such data, and the inevitability of having to make it available to the customer, banks and vendors in countries outside the EU are also examining how they can make use of the data, especially through application programming interfaces (APIs).

Open APIs provide the hook between cash management, treasury, trade and lending. They also provide the ability to connect with a wider ecosystem of technology that includes Fintechs in key areas like AI – as well as processes such as host to host evolution, exposure of new data sources, for example Swift gpi, and the opportunity to create an innovation layer around core systems to ensure they can remain current while the bank embraces new technology.

Finastra’s FusionFabric.cloud enables banks to open up APIs to legacy systems and create a new platform for innovation. Banks can deliver new levels of customer service and avoid losing customers to competitors because they can innovate by bringing functionality to market in weeks, instead of years.

The corporate banking revenue pool is an attractive one, and high-performing banks have an opportunity to grab an outsized share of the corporate banking wallet. But it will only be those institutions able to provide differentiated, connected services that will win in the long run.

To read the latest Connected Corporate Banking in Asia Pacific report from Finastra and Celent, click here.

 

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