Innovation in commercial banking: what’s the status?

Over the past decade, the banking industry has made great strides when it comes to providing customers with better digital experiences – thanks in part to the rise of innovations like cloud computing and APIs. Increased competition from startup fintechs has also motivated banks to offer a broader range of digital products and services.

Despite the strides being made, the banking tech revolution has been largely targeted only toward retail clients leaving commercial clients to deal with inefficient, paper-based processes. For example, commercial clients are often forced to send the same piece of documentation multiple times to different internal bank departments just to set up one account.

The lack of innovation in commercial banking is somewhat counter-intuitive because commercial customers represent billions of dollars in assets – far more than the typical retail customer. These billions of dollars are often crossing multiple siloed systems via processes that are cobbled together piecemeal. The end result is a sluggish and frustrating experience for some of banks’ largest customers.

Challenges in commercial banking

According to a 2018 commercial banking customer survey, more than three-quarters of company executives polled responded that commercial banks should make investing in new capabilities their top priority. But with the IT infrastructure that is currently in place – infrastructure that is older than the legacy tech on the retail side in most cases – it is nearly impossible for most commercial banks to deliver the kind of experience their clients have come to expect.

For commercial banking customers operating on a global scale, dated banking infrastructure poses a particular set of challenges when it comes to making cross-border settlements. To help chip away at these challenges, the industry needs to address the ways in which data is shared and how systems communicate with one another.

Another challenge is banks may not fully understand the cost of not investing in innovation. Ernst & Young notes that digitization is lacking in commercial banking in large part because of “management’s reluctance to consider strategies that will be costly in the short term, even if they will drive long-term success.”

Reimagining the customer experience &leaving legacy tech in the past

By investing in financial technology and implementing a system with robust digital capabilities, commercial banks can revolutionize the large-scale customer experience. More and more, retail customers currently enjoy easy movement of money and a seamless digital experience in their personal lives, so why make them revert back to the old ways of mailing in paper checks when it comes to corporate accounts?

Some banks are realizing this disconnect and are forging ahead with making investments in the digital experience for commercial clients. For example, JP Morgan Chase rolled out a new client portal a little over a year ago, with features like a color-coded dashboard and greater insight into payment status and cash flow. ING is another that has made commercial banking a priority, investing in technologies such as artificial intelligence and blockchain.

Improving the legacy architecture that powers commercial payments means looking beyond just the customer experience. Maintaining and constantly bolting middle-ware onto legacy architecture is costly and time consuming for IT staff. Some estimates say banks spend as much as 75% of their IT budget on maintaining legacy systems. Without the added internal costs and time spent making updates to dated tech, banks could shift their focus to becoming more flexible to adapt to future needs.

As Deloitte puts it, innovation and disruption will not only transform how established commercial banks service their clients, but it will also reshape what their clients come to expect. “Commercial banks that succeed will put retention of the client interface and delivering increased levels of client value through customized and tailored services at the top of their transformation agenda,” the consulting firm writes.

It’s hard to argue with that. Now is the time to invest in modern IT architecture for commercial banking to both meet customers’ expectations and eliminate internal inefficiencies.

About John Mitchell:

John Mitchell is the CEO of Episode Six and an expert in the payments industry, with decades of experience in leading and growing startups. Prior to co-founding Episode Six, John was the CEO of Rêv Worldwide. Prior to Rêv, John was at NetSpend Corporation where he was the primary architect and strategist of NetSpend’s sales and distribution strategy.