Corporate Banking Modernization – Why Now?
Corporate banking is one of the biggest growth areas within most financial institutions and with the corporate loan market now standing at over US$ 5trn and with the global trade finance market at US$ 9trn it provides a healthy proportion of the Financial Institutions (FI’s) balance sheet. Despite this, it is still one of the most manual areas of the financial markets, relying on outdated technologies and paper based operations. Whilst the pandemic caused many organisations to accelerate their digital strategies, corporate banking is still lagging behind many other areas in relation to digital innovations.
However, we are now starting to see a shift in attitudes driven by two main factors:
1. The lack of human capital within the corporate market
During the pandemic we saw many incumbents leave the sector and with the new workforce used to digital banking in relation to their own personal experiences they also expect a digital working environment to match, with technology able to deal with the everyday processing. For many the word “fax” is a word from a by-gone era and yet it has not entirely disappeared from some current working environments. In order to attract new talent into the corporate banking world, more modern technology needs to be used, removing the mundane repetitive elements of the process and leaving humans to focus on the more complex. Corporate banking needs to be more attractive and digitisation is a first step.
2. The continuing rise in human and technology costs
This is driven not only by direct workforce costs but also by the continuing relative rise in the cost of technology. This second point is in part driven by the continuing use of on-premise technology deployment options, where the cost and agility benefits of Software as a Service (SaaS) delivery cannot be realised.
In addition, the increasing need to share data from a single source to multiple participants and multiple vendors is leading to a need for an interoperable market. However, the costs of providing this are rising, and most interfaces are point-to-point which require a high level of ongoing maintenance. There is much to be gained by reducing the costs associated with this.
Approaches and Solutions
To meet these challenges Financial Institutions are looking to technology providers to provide better, leaner solutions.
The current corporate environment is very manual with fax, email and SWIFT being the dominant forms of communication, with the need for wet signatures still very common. However, as personal and business banking rapidly embraces digitisation, leading participants in the corporate banking market are starting to catch up.
The most pressing use-case is to remove the need for a person to input a single piece of data within multiple applications, one for each different part of the process. Addressing this would remove the mundane re-keying that plagues the corporate market.
One way to achieve this is to embrace Application Programming Interfaces (APIs) to create a connection between disparate systems enabling data to reach multiple people in a real time environment. This real time environment also means that organisations can make decisions quicker, using data which is both more accurate and complete. This is driven not only by automating the data flow between different processing systems, but also by allowing easier access to other kinds of data which cannot currently realistically be included in the process, resulting in a more rounded view of the corporate borrower.
By investing in an interoperable environment through the use of APIs, Financial Institutions also start to lower cost by removing point-to-point integrations and thus creating a more sustainable, low maintenance operation. Not only does this provide immediate commercial benefits, but it also helps existing participants to effectively address new “FinTech’” competitors who are seeking to enter the market. The overall benefits are clear:
- Allow the FI’s to reach a wider market
- Realize efficiency gain
- reducing headcount
- faster settlement
- quicker decisions
- Increasing liquidity across the corporate space
Coming out of the COVID era, it has also become clear that the overall cost of maintaining on-premise software in unnecessary and often unsupportable in the longer term. This has produced an acceleration in many FI’s journeys to the cloud and a move to a SaaS environment. This is also driven by the desire to achieve faster time to market for new solutions and services.
Barriers and Challenges
SaaS often implies an increasing standardization of how technology solutions operate. In the corporate banking market this can be seen as a challenge, since one of the underlying realities is the non-standard nature of the basic offering. The ability to add additional terms and conditions is often key to making a proposition attractive and viable. In the past, this has made it difficult to introduce technology across the entire value chain from origination to servicing. This has only increased with the new complexities of Sustainable Finance and the complex pricing structures that can be associated with these types of credit.
Newer technology is, however, making this progressively less of a problem. Capabilities which are open to configuration, together with the rise in open integration technologies, are making it easier to maintain agility even when using standard technology solutions.
The corporate banking market may seem to be more conservative and to be slower to adopt new tools than other banking segments, however changing expectations from both clients and staff and the availability of newer technologies are both driving and enabling the pace of change.