The time is now for corporate banks to become truly digital
New-age competition and changing client expectations are putting pressure on the current business model of corporate banks. Nikhil Shah, a Manager at Elixirr, outlines why embracing digital holds the key for maintaining an edge, and why the time is now to act.
Corporate banking is far more complex than retail banking. With services that are less productised and tailored, processes can have numerous permutations and require ongoing position and portfolio management.
Large corporate institutions have ‘forever’ had a culture of success being driven by in-person relationships. Therefore, a seismic shift to digital will inevitably be met with reluctance, as it goes against the grain. The costly relationship model and high fixed costs have also meant that corporate banks are very selective in who they provide services to. This is based largely on profitability, meaning a lot of business are turned away.
Yet, the biggest issue facing traditional banks is outdated legacy technology. This inflexible technology acts as a barrier to innovation, meaning traditional banks are unable to keep up with consumer demands and industry pace of change. So, why don’t they just invest in new technology? If the answer was that simple, the large global banks would have done this years ago.
The reality is that layer upon layer of legacy technology, spanning across numerous functions and business lines, is entangled and needs buy-in from countless stakeholders. Coupled with trying to understand all the dependent processes, this seems like an impossible task, and a problem to delay as long as time allows.
Unfortunately, time is up for these large global banks.
Below par client experiences are unacceptable
Corporate institutions should not need to put up with ‘old school’ processes. Individuals wouldn’t put up with it in their personal lives and, after all, it is individuals that run these organisations. It currently takes between 90-120 days to onboard corporate banking customers. 85% of corporates have poor know your customer (KYC) experience, and 12% are already changing banks as a result.
Imagine being asked to provide countless paperwork (much of which is already publicly available or has been provided before), having to sign documents with wet ink, being asked for information sporadically with little context, and having no visibility on the status of your onboarding process – to the point even your Relationship Manager doesn’t know.
And, once finally onboarded, being faced with disjointed, time-consuming manual processes, limited transparency across all transactions, a lack of data and integrated digital experience, and limited innovation and customisable products to meet your evolving needs. Certainly, you would get the impression the big banks don’t really care.
Corporate clients are not asking for a superior digital experience, they are expecting one. A survey undertaken by Boston Consulting Group of 650+ companies globally shows that 95% of those who conduct their personal banking online expect the same capabilities for their corporate banking needs. Further, 90% would be interested in engaging with their Relationship Managers digitally – a fundamental step change from the traditional model offered by the big banks.
This, and the fact that 60% are willing to switch to a bank offering client-centric digital capabilities, highlights an opportunity for a truly digital corporate bank to take advantage.
A truly digital corporate bank?
Digital is a word frequently thrown around with little thought. A truly digital corporate bank is not just one that replicates existing processes and puts them online or on mobile, it goes beyond this. A truly digital bank considers its clients’ core objectives, how their products and services can provide seamless value end-to-end in an integrated client-centric way, and how they can constantly evolve based on client needs.
This includes everything from a swift onboarding process to straightforward processing, analytics to optimise cash management structures and liquidity, and tools to assist working capital management and employer services, etc.
The industry is already starting to see some first movers within this space, none more so than Apex Group. Apex Group has quickly understood the need to go digital – providing agile and responsive services for its corporate clients from an end-to-end perspective. It has built a leading digital onboarding platform that is paperless, successfully manages and collects AML data, and will onboard corporate clients within 5 days of receiving the necessary documentation.
Apex Group has also rolled out a client-centric digital banking platform with inbuilt security, transparency and flexibility that continues to evolve based on its clients’ needs. This demonstrates the advantage that smaller banks have; they can respond to clients in an agile, nimble way. Furthermore, they’re free from the burden of challenges and bureaucracy that the big global banks currently have.
Further reading: For CIOs in banking: Four steps to build a digital and IT strategy.
However, client-centric technology is only half the problem. Organisational structure and culture are integral to the success of any digital corporate bank and, as is clear, can’t be overlooked by leadership teams. In a survey of IT leaders involved in digital transformation, culture only came fourth in the challenges of executing a digital transformation.
Cultural change needs to be initiated from leadership with a clear vision, direction and goals set out firmwide. It is essential that employees embrace the vision and adopt the right collaborative- and data-orientated behaviours internally, and that the right individuals are hired where there may be gaps. If leadership doesn’t get this right, they may as well write off the technology investment as a sunk cost.
It’s time for corporate banking as a service
In today’s modern age, corporate banks can no longer be seen as benefiting from capitalism and making money. Instead, there is a pivotal role they must play if they are to prosper in the digital age and be seen as a ‘partner’ as opposed to a ‘headache’. Simply: to make the life of corporates easier. Within the retail space, we already see banks capitalising on this opportunity to provide integrated solutions to customers.
Take Starling Bank and Holvi, for example, who have opened up their application programming interfaces (APIs) to significantly benefit their clients. So, the question stands: why are corporate banks not able to do the same?
For example, a key pain-point for corporates is payroll. Here, corporate banks not only have an opportunity to provide an integrated service that helps with corporates’ financial health, they can go one step further, supporting them with transitioning to flexible pay; an increasingly popular and desirable employee benefit. By partnering with forward-thinking companies, like Cloud Play, corporate banks can effectively support their clients in this move. And that’s just one example.
Could this be the last straw for the big players?
For years, corporate banking has been the reliable powerhouse for large wholesale banks. It has helped to drive their return on equity and growth, with the exception of the pandemic where it sustained significant adverse economic impact that was counteracted by performances across markets.
Retention is key, due to corporate banks’ small clientele and the difficulties of new client acquisition. Clients will not move unless there is compelling reason to do so, as the process of unwinding previous bank relationships can be tedious. Corporate banks already lose about 10% to 15% revenue annually due to attrition. With truly digital banks entering the market, the ‘powerhouse’ that is so pivotal to wholesale banks is at risk. Hence, the viability of their current business model.
The time is now for corporate banks to act fast and become truly digital.
