There is a widening gap between the winners and losers in corporate banking. Three principles guide the highest performers: a focus on connecting platforms and ecosystems, the desire to embrace innovation and an obsession with the customer. To increase the corporate wallet share, digital corporate banking strategies must keep the right balance between all three.
Headwinds remain but transaction services and commercial lending hold the key to a US$915bn revenue opportunity for 2020 according to the latest Celent research (Connected Corporate Banking: Breaking Down the Silos, September 2017). On the other side of the profitability coin, Oliver Wyman analysis in the same report predicts that process automation and deep digital adoption (i.e. a dramatic shift of the operating model) could save the Wholesale Banking sector from US$15-20bn between 2016 and 2020.
Growth is not a given. Bank returns on equity have risen to around 15 percent on average, but leaders outperform laggards by a factor of two. In the fight for margin improvement and market share, technology is a double-edged sword. It can carve out new opportunities but must be deployed strategically to ensure competitive differentiation.
In every business case the potential for digitsation depends on the strategy, but whether revenue, cost or risk is the driver, all banks seek more touch points—and the right touch points—with their corporate customers. They seek a simpler model to service the end-to-end corporate value chain more effectively, an optimized model that can turn data into dollars and an open model that creates a platform for innovation and collaboration.
The never-ending journey
Digital transformation is here to stay. Soon we might talk of cognitive transformation instead but let’s walk before we run. Digital initiatives in corporate banking can be seen through three lenses:
Targeted Digitsation: One tack is to focus on a specific element of the customer experience (e.g. on-boarding), a product area (e.g. online cash management) or the digitisation of a particular role in the bank, such as the relationship manager. Example use cases we are involved in include:
a) Optimising the sales engine by delivering aggregated data and transaction driven analytics across corporate banking silos to identify cross-sell and up-sell opportunities.
b) The digitisation of specific complex loan servicing processes with Robotic Process Automation tools to digitise selected workflows.
c) The delivery of self-service channels in areas like complex lending to alleviate administrative burdens and improve the customer experience.
These strategies focus more on cross-business workflows and client experiences to drive more holistic transformation within the bank’s walls. Here are just a few examples:
a) Extending a unified view and ability to transact and monitor positions across all corporate banking products and services from multiple channels.
b) The delivery of Artificial Intelligence and big data based lead generation to provide ‘next product to buy’ recommendations for Relationship Managers and win new business.
c) End-to-end workflow digitisation, for example in supply chain finance, to drive STP and the flexibility needed to scale and service working capital finance programs.
This relates to either the development of completely new corporate banking entities, or digital initiatives that seek to place a bank at the centre of the digital ecosystem by driving new business models that connect the world beyond the bank’s walls.
a) Digitisation driving collaborative business models and innovation—for example fintech applications like fraud detection tools developed externally via a developer portal, or the integration of third party fintech tools like Optical Character Recognition software, into core platforms through open APIs.
b) Integrating transaction services with decentralized transaction networks e.g. blockchain networks, distributed ledger platforms or digital B2B marketplaces.
c) Corporate banking ‘in-a-box’ and in the cloud, sought by those looking for wholesale transformation or rapid launch of international banking entities and services to support faster geographical expansion. Also this is the approach by pure-play digital banks challenging the status quo.
A platform for growth
Buy versus build? On-premise versus cloud? Integrated corporate banking, or standalone solutions for cash and trade finance? The consideration matrix is complex. In the recent Celent report, senior analyst Patricia Hines notes that:
“At the end of the day, integration is the linchpin underlying “connected corporate banking.” The convergence of corporate banking products is fundamental to support the working capital objectives of clients and the banks winning market share in corporate banking will excel at integrating business and technology silos.”
Connected corporate banking should retain the value of ‘best-of-breed’ components, but on a platform that enables open integration, cross business cohesion and agility—IT agility, service agility, product agility and market agility.
The difference between a core banking solution that provides integrated corporate banking modules and a connected corporate banking platform is in the level of componentization. On a platform each component is a separately maintained application. It can be upgraded alone but will always operate in unison with the other solutions. Think Apple iOS. Think of a bank’s digital channels solution as an app that sits on a connected corporate banking operating platform.
By this definition a core banking solution that provides corporate banking functionality is not a connected corporate banking platform. Upgrading one module means upgrading the entire infrastructure. There is also a compromise to be made as such a solution means making a compromise and choosing between ‘best-of-breed’ components or interoperability.
Systemically important corporate banking platforms
The World Economic Forum’s impact report, ‘Beyond Fintech— A Pragmatic Assessment of the Disruptive Potential in Financial Services’2 notes that:
“The rise of digital interfaces and data in financial institutions means that institutions increasingly focus on developing large tech capabilities, which is accompanied by an increased reliance on large tech firms”.
The report cites major cloud players as ‘systemically important techs’. Finastra’s corporate banking applications process 25% of US wire payments, 10% of daily trade finance volume, 43% of the world’s syndicated loans and 8% of daily FX trading.
Connected corporate banking platforms are systemically important too. They are the unsung heroes of digital transformation.
By thinking about a true platform approach, corporate banks can progress legacy and ecosystem transformation initiatives, embrace innovation and evolve by turning an obsession with the customer into the primary agent of growth. And they will be able to do so until the word ‘digital’ is replaced by something else.