While banks may be seen as less agile than emerging fintechs, the truth is that they remain corporates’ main point of reference for technology innovation and inclusion. Even leading corporations often don’t want to be pioneers of something that is not core business, keeping a wait-and-see attitude to fintech innovation and seeking advice from banks, which are seen as the experts in assimilating technology innovation into tangible business cases that can actually drive working capital efficiency.
Financial institutions can meet this challenge by understanding their clients’ key pain points.
The technology solutions corporations want from banks is best answered by thinking in corporate language, about the value of the solutions that fintech innovation currently offers to banks. This extends to the use of technology from start-up tech firms and also in the context of the major fintech vendors that are well-entrenched in global financial institutions today.
On the corporate side of the bank, there are many client stakeholders to consider. Although the treasurer is the traditional counterpart of a bank relationship manager, other corporate executives (for example: procurement, logistics, sales, IT) act as influencers, and their needs should be represented in the advice and services that financial institutions extend to their customers.
Master the transformation
Corporate banks should be counting their cash and celebrating growing profitability with shareholders. With most analysis suggesting revenue pool growth of 7-8% annually through to 2020, there is ample opportunity. But there is a widening gap between the winners and losers. Challengers to the status quo, regulatory cost pressure, loan losses and the upward trajectory of capital requirements have made corporate banking ripe for transformation. Those improving their returns have balanced a need for leaner operations and robust data management, with an obsession on the customer. They have majored on strategic digitalisation that brings focus to the key segments, products and regions where there the bank can deliver maximum efficiency and optimise relationships.
Where only one in five banks had an enterprise digital strategy in 2015 according to McKinsey and Co, it is undoubtedly a top priority in 2017, with high potential for improvements, whether from a revenue, cost or risk lens. More touch points – and the right touch points – can drive cross-sell, give banks a better understanding of client transaction behaviours, and drive more strategic service. Key digital initiatives being led by corporate banking chief information officers (CIOs) are focused on:
- Digital lead generation: This means data driven relationship banking to deliver customer-centric propositions. By aggregating data and delivering cross-business intelligence around risk and profitability, banks boost cross-sell and deepen share of wallet. Digitally enabled sales and operational insights to identify – and then seamlessly turn around opportunities
- Focus on corporate connectivity: Truly multi-channel, online and offline banking to ensure the right connectivity with clients and their systems to reduce the cost-to-serve and extend client efficiency
- End-to-end process digitisation: Banks have automated disparate parts of the business but are now looking at holistic credit and transaction process digitalisation and robotics to boost efficiency and lower operational risk – whether for trade, lending or treasury products.
What corporates want
In such a complex ecosystem, Aite Group research identified the following business priorities, in a joint report with Misys, (The Killer Fintech Use Cases for Corporate Banking: Problems Waiting for Solutions) that companies are focused on to optimise financial operations. Where should banks look when trying to cross the chasm of corporate operational needs and working capital objectives? How can they put the digital initiatives mentioned before in context?
1: The need for speed
Operational efficiency is vital to the corporate value chain. Corporate banking technology can combine the value of best-of-breed solutions, but on a platform that enables integration and cross-business cohesion. They can leverage modern business intelligence tools and application programming interfaces (APIs) that draw on the latest database technologies, visualisation tools, and processing capabilities. All of this can optimise the user experience and enable the bank sales engine.
2: Optimised financial supply chain management and cash conversion
Banks should look to offer an expanded online window for trade and supply chain finance, allowing corporations an overall view of purchase orders, invoices, and asset-based financing to perform the full range of pre- and post-shipment finance, backed up by the automation needed to drive optimum cash conversion. On the latest platforms, paperless trade solutions marry up with traditional front-to-back trade solutions to digitise trade finance and drive the next level of working capital efficiency that corporates expect.
3: Real-time cash, liquidity, and payment management
Simple in theory, hard in practice. Banks need multibank payment, messaging, and cash management applications that can enable more open integration between enterprise resource planning programs, treasury management workstations and bank channels as well as downstream bank applications and payment and settlement networks.
4: Access to credit and better utilisation
Workflow-based applications and data driven credit management are compelling in the commercial lending arena today. Corporates will increasingly benefit from banks that can extend credit access, deliver pre-deal checks, and provide transparency to the corporate user. This will drive greater efficiency and better advice from banks on how best to access or utilise credit. In return this process digitisation gives banks the data aggregation, accuracy and control they need to reduce the cost of capital and maintain compliance.
5: Minimise risk
Comprehensive treasury services platforms with real-time and dynamic dashboards deliver a consolidated view of client limits and exposures across all corporate banking products, and – where possible – multiple legal entities, financial provider relationships, and accounts, including compliance tracking of sustainable business goals alongside know-your-customer (KYC) indicators and business intelligence tools. Treasury platforms will increasingly be deployed on a Platform-as-a-Service (PaaS) basis, enabling bank and external developers to design and publish innovative treasury services applications on top of the core treasury platform.
Monolithic, diverse or digitalised
Banks have struggled to make the transition having taken two, increasingly unsustainable approaches, to technology. Firstly, they have tried and failed with one-size-fits-all core systems that have attempted to scale up. These have been built out over time to support different flavours of specialised lending, cross-border trade and treasury services, or to deliver functionally-light portals. As banks grow, seek to adapt to client demands or change operating models, this approach is not fit for purpose. On the other hand, we see the delivery of ‘best-of-breed’ vertical solutions that have worked well in different and diverse areas of the corporate bank, but today, crucially don’t interact with each other. The result is a black hole for data and loss of control and efficiency. It means complexity and risk. Aggregating data to deliver the advice or financial agility needed by clients, or the transparency needed for regulators and investors is not a smooth process.
Connected corporate banking
To support clients in the most effective way possible, financial institutions are moving toward aggregated, real-time views of transaction, risk, counterparty and bank revenue/performance data – enabled by a connected, digitally enabled infrastructure and workflow. Connected corporate banking should retain the value of ‘best-of-breed’ components, but on a platform that enables integration and cross business cohesion.
Financial institutions must clearly understand that what a corporate procurement, supply chain, or information officer wants is not necessarily the same as what the treasurer wants. Advisory services, enabled by a unified view of the customer, can drive value-added service. Banks are articulating their innovation strategy by partnering with new-breed fintech firms and strategic software players instead of fearing disintermediation. More importantly and less discussed though is that they are re-imagining the architecture of the corporate bank to ‘be more fintech’.
Fintech start-ups, on the other hand also understand they can capture more opportunities when sitting side by side with banks in a collaborative manner. The next generation corporate banks will embrace this, but also learn how to harmonise emerging innovation, with established relationship banking principles.
A US study, based on the quick service restaurant chain Chick-fil-A, offers conflicting evidence on whether a TMS is the best option when upgrading from Excel-based forecasting.
The EU's updated Payment Services Directive (PSD2) is expected to heighten competition among the banks, open markets to non-banking challengers and foster vigorous innovation across the financial sector.
The geopolitical shocks of 2016 saw businesses understandably concerned about how the new reality of resurgent economic nationalism might affect cross-border trade and capital flows. Yet as this article explains, there’s no need for overreaction.
Banks which start to prepare now for the region to join the move to immediate payments can secure a major competitive advantage.