Corporate Banking Modernization:
Why Now?
A shift driven by two main factors
Corporate banking is one of the biggest growth areas within most Financial Institutions (FIs). With the corporate loan market now standing at over US $5trn1 and the global trade finance market at US $9trn2, it provides a healthy proportion of the FI’s balance sheets. Despite this, it is still one of the most manual areas of the financial markets, relying on outdated technologies and paper-based operations.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 organizations 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:
• The lack of human capital within the corporate market – during the pandemic, many incumbents left the sector while the new workforce became used to digital banking in relation to their own personal needs and experiences. Now, they expect a digital working environment to match those experiences, with technology capable of dealing 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, while leaving humans to focus on the more complex ones. Corporate banking needs to be more attractive, and digitization is the first step.
• 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 realized.
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 address these challenges, FIs are turning to technology providers for more efficient and streamlined, leaner solutions.
The current corporate environment is still very manual, relying on fax, email, and SWIFT as the dominant forms of communication, with the need for wet signatures still very common. However, as personal and business banking rapidly embrace digitization, leading participants in the corporate banking market are starting to catch up.
The most pressing use-case is to remove the need for an individual to input a single piece of data across 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 by embracing Application Programming Interfaces (APIs) and create a connection between disparate systems, enabling data to reach multiple people in a real-time environment. This real-time environment also means that organizations can make quicker decisions using data that is equally, 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 additional types of data that currently (and realistically), cannot 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 costs 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 gains such as faster settlement & quicker decisions.
- Increase liquidity across the corporate bankinspace.
Coming out of the COVID era, it has also become clear that the overall cost of maintaining on-premise software is unnecessary and often unsupportable in the longer term. This realization has accelerated many FI’s journeys to the cloud and their transition 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 appear more conservative and slower to adopt new tools compared to other banking segments. However, changing expectations from both clients and staff, along with the availability of newer technologies are both driving and enabling the pace of change.
1. “Private Credit Firms Build Cash Hoards to Gain Share of $5.2 Trillion Consumer Debt Market”. Bloomberg UK, August 2023
2. “Trade Finance Market Size | Growth Forecast Report, 2023”. GMI, Global Market Insights, October 2023