New dawn rising on corporate banking: The increasing adoption of virtual accounts

The customer is always right, yet in the corporate banking space – where there’s a widening gap between service level and customer expectation – you’d be forgiven for thinking that this mantra had slipped down corporate banks’ priority list…

The banking industry has changed fundamentally at the hands of technology. Nowhere is this more evident than in the retail banking space, where disruptive fintechs and challenger banks like Revolut and Monzo have transformed the idea of what a bank can be. This dynamic and fast moving sector has forced traditional, larger banks with legacy infrastructure to innovate – all in order to survive.

It’s perhaps no surprise then that the banking experience we receive in our personal lives is informing what we use, and how we operate, in our professional day to day.

However, the corporate banking space has traditionally been less agile and slower to innovate than the consumer sector. As such there’s an increasingly widening gap between what corporate banks are offering and the service their customers’ receive.

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Corporates are calling the shots

To this end we recently conducted independent research with Ovum Consulting to examine  the pain points corporate customers currently face, the disconnect on service level expectations and, most importantly, how banks aim to innovate in order to address this. What was clear was that corporate banks need to evolve; not only if they want to win new business, but in order to retain their existing customers. In fact, half of the European corporates we surveyed said they have considered moving their main banking relationships in the last year whilst nearly two thirds (62%) of the banks stated that retaining and winning new business is more challenging now than a year ago.

Corporate customers are now calling the shots and to survive corporate banks need to make meeting the needs of customers their number one priority. Anupam Majumdar, Management Consulting Manager at Accenture Payments commented: “The wave of digitisation that is happening in banking today, with retail banking being at the forefront, corporate customers are realising they need to be empowered and be in control of their treasury functions.”

Open up – how opening banking is changing the corporate landscape

In addition to heightened customer expectations, corporate banking is also being transformed by the advent of Open Banking. Under new regulations banks will be required to give customers control of their transactional data upon request – allowing agile and innovative fintechs to build new services over the top of this data. Change is a constant and once customers become accustomed to the capabilities of such tools and the speed of their delivery, they will demand more of their corporate bank. If they don’t receive the service they’ve come to expect they’ll simply vote with their feet and change provider.

One of the key priorities for customers, irrespective of industry, is having a single view on holdings across all banking relationships and real-time cash forecasting. Services enabled by Open Banking will include streamlined access to multiple bank accounts. In this increasingly competitive market, corporate banks will need to focus on delivering services quickly to their customers to maintain loyalty and enhance customer experience..

Going virtual to drive digital transformation 

Corporate banks are already starting to see virtual accounts as a powerful enabling tool. From driving digital transformation to addressing the cash management challenges faced by their customers, virtual accounts offer improved analysis of receivables, real-time cash forecasting and self-service banking.

Virtual account management works by consolidating a number of bank accounts into a single pooled account with a number of underlying virtual accounts supporting the customers’ requirements and typically mapping to their ERP accounts.

Virtual accounts should be fully bank active and streamline efficiency for corporates by providing a quick and easy view of cash and liquidity management. This enables businesses to have full control of all their accounts, both internal and external, across multiple geographies. Additionally virtual accounts offer full alignment of corporate customers’ ledger systems with their real bank accounts.

Our research proves that virtual accounts software gives banks a way to help close the service gap with their customers. This customer demand for innovation is highlighted by Andy Young, Head of Finance, LVFS: “Virtual accounts have transformed the way we do business and shows that banks can’t stand still when faced with innovation. It mimics the low cost airline industry. Things will inevitably change, it’s just whether that change will be too quick or slow enough for you to keep up. Fintech companies are generating new ideas all the time. When someone has that great idea an entire industry can be wiped out overnight unless it adapts.”

The turning tide

It is clear that banks that listen to their customers, innovate and provide the services, tools and functionality that create a seamless experience will remain ahead of their competitors.

The question is how? It’s telling that our research revealed that 94% of banks claim that providing virtual account services will enable them to win new business. Moreover, 99% of the banks we spoke to either currently offer or plan to offer a virtual account solution to their customers in the next 18 months.

The tide is turning, and banks are starting to see the immediate advantages that virtual accounts offer in retaining customers in a market where switching has become the norm.

The advantages of virtual accounts is evident to David Bannister, Ovum’s principal analyst of financial services technology, who comments: “Corporates are asking for new functionality that solves their problems. Banks are cottoning on to this, and realizing that virtual accounts are a tool to solve client problems.”

The old adage that the customer is always right still rings true. It’s obvious that the entire banking industry is being transformed at pace by technology, and those corporate banks that take advantage of this, embrace change and offer virtual accounts to satisfy customer demands, will have the competitive edge. Not only that, but they will be able to close the current service gap – ensuring that what corporate banks offer, and the wider expectations of their customers, are are in perfect harmony.

–       Tim Martin – Product Manager, Cashfac

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