By Venky Srinivasan, Group Vice President, APJ & MEA Sales, Oracle Financial Services.
The pandemic contributed to the acceleration of everything digital in retail banking. It spurred businesses and large corporates to digitize at a much faster pace than ever before. Collaborations between banks and corporates are reaching new heights with fail-safe plans being built directly into the banking lifecycle, driving the need for connectivity within the financial ecosystem. Regulators have also played a pivotal role. On one side, strides have been made to enhance consumer safety. On the other side, the need for more accuracy and faster turnaround has resulted in the crystallization of several ISO 20022 and real-time payments’ deadlines.
To leverage the shift to digital, banks will need to invest in the latest capabilities and technologies. Challenges from non-traditional players including fintech and Big Tech companies will further drive banks to ensure that they deliver enhanced levels of service and value to their customers. According to a Forrester report, growth in technology spending by banks will reach double digits by 2022. The fallout of this increased spending will lead to large-scale changes, not just in corporate and retail banking, but also amongst regulations and payments.
Retail banking is witnessing an unprecedented digital shift. Customers expect innovative and ubiquitous financial services. Competition is intense from peers to challenger banks, fintechs, and technology giants. Agility and speed are critical to tapping new opportunities and staying ahead in the constantly evolving environment.
- Platform Play: Customers seek financial services at their point and time of need. A strong digital ecosystem of banks, fintechs, and other firms have evolved to embed financial services directly into different value chains and customer journeys. Successful banks will not just participate in these ecosystems but drive them, and banks that can become platform providers are best positioned to do so. Digital-ready systems with high agility, interoperability, and scalability will be critical to their success.
- Point-of-Purchase (POP) Finance: As economies bounce back and consumption recovers, finance at the POP is another hot space. Customers expect timely and seamless finance options. Retail and e-commerce firms should look to embed easy and no-frills Buy Now, Pay Later (BNPL) short-term purchasing options. With access to customers’ financial data, banks can play a pivotal role in driving effective credit assessments and offering customized and attractively priced BNPL/embedded finance functionality into digital purchase journeys. Innovative credit assessment and pricing models coupled with capabilities that facilitate rapid integration with partners will be critical.
- Financial Wellness: There is a renewed interest in reassessing financial wellness, security, and stability to ensure that customers are inherently better prepared to handle future crises. Tools and insights that help customers easily understand their financial health will become increasingly more important. Next-generation financial planning services that help automate payments while sweeping excess funds into goal-based investment or savings avenues will help drive financial wellness. Efficiently scaling innovative financial wellness products and services across the customer base is now essential.
Corporates are constantly evolving to stay relevant to their customers. With the recent upheavals in business, corporates are now extremely careful in managing their financial health and business relationships. There has also been a drastic change in the corporate customers’ expectations from the bank. This means banks should also go through a paradigm shift in the way they deliver their offerings to corporate clients.
While the traditional need of maintaining an excellent relationship remains, other requirements have become critical to servicing corporate customers. Success factors that have become intrinsic to how corporates and banks collaborate effectively include:
- Efficiency: This age-old metric always remains extremely significant. However, the contributing factors keep changing as the banks and corporates constantly try to up their game against their competitors. AI, machine learning (ML), and Natural Language Processing (NLP) are major game changers in this category. This can start from something as basic as KYC automation, which 41% of banks are currently investing in, to more complex technologies such as chatbots and predictive analytics leveraging the benefits of AI and NLP. These will enable the corporate to drive up their efficiency either by reducing the time to market and total cost of ownership or by increasing precision.
- Connectivity: Connectivity with corporates and the speed of response have become competitive differentiators for banks. The need of the hour is a well-structured digital backend with a robust set of APIs built on top of it. All business-as-usual activities will happen through APIs without any intervention.
- Transparency: Transparency between banks and corporates has been one of the major impacts of the current digital revolution. With a real-time view of all operations and products using customized dashboards, every customer has access to mission-critical data points and records. However, this is going to evolve further, enabling faster, automated decision-making based not only on rules but also through AI.
- Trade ecosystems: With corporates and banks quickly recovering from the impact of the pandemic, trade ecosystems are beginning to re-stabilize, thus opening new avenues for international trade and supply-chain finance. Digital engagement with their own and the corporates’ ecosystems allows banks to offer an improved experience in their trade and supply-chain finance processes.
Globally, the payments business is undergoing significant transformations due in part to emerging technologies and evolving regulations.
The rapid globalization of businesses further complicates payments processing. The transition towards real-time payments and processing is not just limited to retail and small and medium enterprise payments, but also corporate payments.
A large portion of global high-value payments are expected to migrate to ISO 20022 by 2023 as the transition is mandated by major payment schemes and networks, such as SWIFT, Fedwire, and TARGET2, to name a few.
- Real-time payments and request-to-pay: Today, more than 50 countries offer real-time payments processing and settlement, a significant increase from just a handful of countries in 2019. Countries like India and China, including Hong Kong, have developed networks that account for a lion’s share of the total global real-time payments volume. The emergence of request-to-pay (RTP) also has the potential to accelerate the adoption of real-time payments. RTP allows payees to confirm payment details, value, and mode of payment to the payer, and enable them to accept or reject such payments. This provides the payers better control and visibility of participant information, thereby minimizing risks of fraud.
- ISO 20022 adoption: The emergence of ISO 20022-based payment networks is expected to drive the adoption of standardized payments messages. This can enable improved analytics and the availability of data for businesses to make decisions while enhancing payment transaction throughput times and harmonization across clearing systems. Banks need to be cognizant of the demands this transition places on their existing back-end applications and processes, such as risk management and KYC, customer onboarding, payments message transformation, and conversion.
- Corporate payments and the impact on the CFO: The finance offices of all corporates will see a dramatic shift in countries where instant and ISO payment schemes come into play, demanding more responsive cash and liquidity. This will also lead to management offerings from banks and dramatic improvements in the quality of insights.
The year 2022 has the potential to be an important milestone for the banking industry. Investing in the right capabilities and technologies to leverage effectively this shift to digital will separate the leaders from the rest of the pack, and set up a strong base for success in the coming years.
Global Banking & Finance Review
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