By RAJASHEKARA V. MAIYA Vice President and Head, Business Consulting Group, Infosys Finacle
While retail banking has seen a tremendous transformation over the last few years, corporate banking has remained relatively untouched by the fintech revolution. On their part, corporate banks have made several proactive efforts to protect their ground when it comes to corporate banking, digitization efforts being an important one. One key advantage that banks have over fintechs in corporate banking is strong customer relationships. While fintechs and big tech companies had existing databases that they could leverage to tap retail customers, this did not easily translate to the acquisition of corporate customers.
Banks have also leveraged their deep experience in corporate banking to create innovative products and improve overall customer experience, especially in the areas such as virtual account management, liquidity management, and near real-time cash management. On a global scale, banks have worked towards improving the banking experience for businesses, thus influencing them to stay loyal to traditional banks, over new entrants.
One reason is that corporate customers are pivotal to banks’ bottom lines, given that they contribute about 60% of their revenues. Therefore, they have certainly taken efforts to learn from the retail banking revolution and safeguard their corporate customer base.
Technology as a Competitive Advantage
The digital transformation journey can prove to be an important and sustainable competitive edge for corporate banks. They have been proactive, often pre-empting moves by new entrants. Being the first mover can give banks the advantage of locking corporates down since it is relatively difficult to switch banks in corporate banking.
In our latest report on Scaling Digital Innovation in Corporate Banking, survey respondents picked Open APIs, mobility, advanced analytics, cloud, AI, blockchain, conversational banking etc. as the key technologies driving superior business outcomes.
Banks have started investing in technologies such as cloud and blockchain to automate the trade business and remittances, bring efficiencies, and remove friction in the banking process. For instance, blockchain technology can be used for applications such as payments and remittances, trade and supply chain, and digital identity management.
Open APIs also form an important foundational layer for banks to drive collaboration. A great example is Nigeria’s pan-African financial services group, United Bank for Africa (UBA), which leveraged RESTful APIs for transaction authentication and reconciliation for corporate customers by integrating their core solution with their corporate customers’ ERP system.
Mobility is another area that is gaining importance given the expectations that end-users have based on their retail banking experiences. Emirates NBD’s Bank PJSC, for example, offers mobile-only propositions for entrepreneurs and SME businesses.
Similarly, investing in the cloud is important to reduce Capex and build advanced solutions that can promote better customer understanding. AI has an important role to play in reducing frauds, predicting growth trajectories and market risks, and taking corrective actions. For instance, Bank of America Corporation offers an AI and ML-powered solution for smart cashflow forecasting based on historical cashflows and other factors.
Reimagining Business Models and Processes
Banks are differentiating themselves by offering their corporate customers superior experiences through reimagining their business models. Digital transformation efforts must focus on bringing a paradigm shift in the processes rather than simply adding digital elements to the existing process. For instance, providing online services is pointless if customers must still physically verify their documents at a bank. Santander bank, for example, has automated its SME and corporate client onboarding experience by employing consolidated dynamic form functionality that catered to a wide array of banking products.
Another interesting trend is that banks are trying to move towards a platform model of business, in conjunction with the traditional pipeline business. One great example is BizCircle GlobalLinker, an online business networking platform for Small and Medium Enterprises (SMEs) and start-ups launched by India’s ICICI bank.
Traditionally, corporate banking has often lacked the inventiveness and innovations that retail banking has achieved. Trade finance, supply chain finance, remittance and corporate cash management have all remained largely unchanged since the start. Most innovation has been in the areas of virtual account management and real-time cash management.
Consolidating their Strengths
According our latest Scaling Digital Innovation in Corporate Banking report, over 90% of corporate banks believe that transaction lines of business such as cash management, payments, trade, and supply chain finance will be primary growth drivers over the next three years. In line with this, over 70% of respondents said they are increasing their innovation investments in the cash management and payments lines of business.
In the long term, corporate banks must look at differentiated offerings to find a sustainable, long-term competitive edge. For instance, rather than choosing to be universal corporate banking players, banks may choose to choose a segment or specialization to focus on. For instance, while 68% of survey respondents identified themselves as universal players, 43% expect this to evolve by 2026.
Banks also recognize the large scope of opportunities in the areas of SME financing and bit market financing. In addition, corporate banks are more willing to collaborate with fintechs and build an ecosystem to offer better services and products to customers, rather than competing with them.
Retail banking has become almost completely digital in the last few years, but corporate banking is still heavily reliant on paperwork in comparison. However, the future is certainly moving towards a paperless, people-less, cashless, and branchless environment for corporate banking too.
While corporate banks embrace the path toward digitization, it is important to keep in mind that digital transformation is a journey, not a destination.