Connected corporate banking – how can banks seize opportunities for growth?
By Simon Paris, Deputy CEO, Finastra
A new report from Celent forecasts that global corporate banking revenue is set to grow 4% from 2016 to 2020, a doubling of the growth rate recorded between 2010 and 2016. The research highlights that transaction banking and commercial lending represent a $915Bn revenue opportunity for 2020 and also predicts that automation and deep digital adoption could save the wholesale banking sector between $15Bn and $20Bn from 2016 to 2020. But what does this all mean when you really get down to business?
More than ever, it’s clear that there’s a widening gap between the leaders and the laggards in corporate banking. In fact, leaders outperform laggards by a factor of two. And high-performing banks have an opportunity to grab an outsized share of the corporate banking wallet.
Three principles guide the highest performers:
• INNOVATION AND DIGITAL TRANSFORMATION
• CONNECTED PLATFORMS AND ECOSYSTEMS
This article explores some of the trends we’re seeing in corporate banking, including: the different strategies banks are taking in adopting digitalisation; the importance of breaking down business silos to make connected corporate banking a reality; and the need for increased collaboration – all to the benefit of the end customer.
Innovation and digitalisation
Banks are seeking a simpler model to better service customers across the end-to-end corporate value chain, an optimised model that can turn data into dollars and an open model that creates a platform for innovation and collaboration.
To better service corporates, banks must embrace digitalisation; streamlining operations, empowering cross-selling and, importantly, delivering the ultimate user experience. This is key to competing effectively in today’s marketplace.
Many of today’s corporate banking use cases fall into one of three approaches:
1. Targeted digitalisation
A focus on a specific element of the customer experience (e.g. onboarding), product area (e.g. online cash management) or the digitalisation of a particular role in the bank, such as the relationship manager. Example use cases include:
- Optimising the sales engine by delivering aggregated data and transaction based analytics across corporate banking silos to identify cross-sell and up-sell opportunities
- The digitalisation of specific complex loan servicing processes with Robotic Process Automation tools to digitalise selected workflows
- The delivery of self-service channels in areas like complex lending to alleviate the administrative burden and improve the customer experience.
2. Transformational digitalisation
A focus on cross-business workflows and client experiences to drive holistic transformation within the bank’s walls:
- Extending a unified view and ability to transact and monitor positions across all corporate banking products and services from multiple channels
- 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
- End-to-end workflow digitalisation, for example in supply chain finance to drive STP and the flexibility needed to scale and service supply chain finance programs.
3. Expansive digitalisation
A drive to connect the world beyond the bank’s walls through 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 and drive new business models:
- Corporate banking ‘in-a-box’ sought by those looking for wholesale transformation or launch of international banking entities and services to support rapid geographical expansion. Also the approach by pure-play ‘digital attacker’ banks. Hosted or cloud based deployment is increasingly the preferred route, except in emerging markets
- Digitalisation 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 into core platforms with open APIs
- Integrating transaction services with emerging decentralised transaction networks – e.g. blockchain networks, distributed ledger platforms or online B2B lending marketplaces.
Technology creates new opportunities for margin improvement and market share, but it must also be deployed strategically to ensure a competitive edge.
Connected corporate banking – breaking down the silos
What should banks choose – integrated corporate banking or standalone solutions for cash and trade finance? Buy versus build. On-premise versus cloud. In her Celent research report, Patricia Hines notes that: “At the end of the day, integration is the linchpin underlying ’connected corporate banking’. The convergence of corporate banking product segments is fundamental in supporting the working capital objectives of clients, and the banks winning market share in corporate banking will excel at integrating business and technology silos.”
So, where are banks beginning their transformation journey? There are really two broad categories of bank in this context.
Firstly, we see developed-market banks modernising their landscape, often focusing first on best-in-class, point solutions. Here we have seen the digitalisation of end-to-end commercial routines as a big driver for change. This is important in helping banks capitalise on cross-selling opportunities. For example, supporting banks’ ability to offer other corporate transaction services alongside lending, and to support payments, hedging and cash management services alongside trade finance.
At the other end of the scale, emerging market banks are experiencing high growth and feeling the pressure from more sophisticated, internationally-active corporate customers. For these banks, the promise of connected corporate banking, often led by the desire for deep and unified multi-channel digital banking solutions, enables them to rapidly launch or transform international subsidiaries to better service international customers and expand quickly in to new markets.
Connected corporate banking delivers the value of ‘best-of-breed’ components, but on a platform that enables open integration, cross-business cohesion and agility. More than simply a core banking solution with integrated modules, a truly connected corporate banking platform is in the level of componentisation. 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 – like iOS.
A platform-based approach, based on an open architecture, also enables greater collaboration – allowing banks, Fintechs and other third parties to innovate together.
Just as Celent considers major cloud providers to be systemically important, so too are connected corporate banking platforms in the drive to digital transformation.
Seizing the potential
Celent’s research highlights the opportunity for banks to delight their corporate customers and increase fee-based income at the same time. Whether banks are offering a ‘best of breed’ approach across each of their corporate banking services – such as lending, trade, cash management and payments – or adopting a ‘best of suite’ approach, providing a platform for connected corporate banking and a 360-degree view of their customer relationships is essential for banks of all sizes.
A true platform approach to connected corporate banking means that banks can continue to progress legacy and ecosystem transformation initiatives, embrace innovation and evolve. Putting the focus on the customer can also drive growth.