The Digital Future of Corporate Banking

The pandemic has pushed corporate banking into a digital overdrive. In this article Sriranga N Sampathkumar, VP and General Manager - MEA, Infosys Ltd, talks about several key trends and focus areas that corporate banks must prioritize to enhance their competitiveness.

Why this research

In the past, disruption in financial services was mainly associated with retail banking. But in recent times, corporate banking has also experienced unprecedented turbulence. The business, which was already grappling with geopolitical and macroeconomic uncertainty, increasing regulation and next-gen competition, had to also contend with the impact of the pandemic. Almost overnight, corporate banks were forced into digital overdrive.

To understand how corporate banks were coping with digital transformation and its challenges, Infosys Finacle, in partnership with Strategic Treasurer and Red Hat, recently released a corporate banking digital innovation research report. The research covered more than 125 senior corporate banking executives working in all areas of finance, from institutions with operations around the world.

The timing of this research is significant, coinciding with the start of a post-pandemic era where innovation and digitization are more crucial to a bank’s success than ever before. Covering key trends, emerging customer needs, innovation focus, competitive landscape, new business models and digital transformation maturity, this report helps banks benchmark their progress versus others, and drive change within their organizations. Here are some key findings:

Corporate banking differentiators are changing

While continuing to rely on face-to-face client relationships to build the business, corporate banks will also use “digital” to differentiate in the future. Three-fourths of survey respondents said that their existing client franchise and strength of relationships was their biggest differentiator at present; but a sizeable 66 percent also said that come 2026, the presence of a full suite of digital self-service treasury offerings, as well as superior customer engagement, would provide the greatest differentiation. This is a natural consequence of the rapid digitization of corporate customers, who are demanding digital self-service in cash management and other treasury operations. With even small businesses following this trend, UAE’s RAKBANK has gone all out to differentiate itself through digital engagement by offering fully digital account opening facilities for SMEs. The vision is to provide fully digital account opening to cater to the surge in digital engagement.

New business models are emerging

Corporate bankers acknowledge that the universal banking model – make and distribute own products through own channels – will not work in the digital age. An overwhelming majority of 72 percent banks said that the future of their business lies in the platform model, and in leveraging diverse partner networks within their external ecosystems. This will come at the expense of the universal model. Besides offering their own products, banks will enable access to complementary partner products such as insurance, joint products such as syndicated loans, and even third-party rival products.

Emirates NBD’s mobile-only banking facility for SME businesses, E20, is a leading example of a digital bank. It is UAE’s first digital business bank that targets SME business, start-ups, Fintechs, insurtechs etc., allowing them to perform their everyday banking requirements on their smartphone and an array of digital tools to assist the business owners in managing their businesses.

Who is innovating where, and with what success?

Incumbent corporate banks are likely to innovate within their comfort zone of traditional services, such as lending, deposits, and trade and supply chain finance. The risk is that they could end up ceding the advantage in lucrative segments, such as cash management, foreign exchange and payments, to fintech firms who are focusing on these opportunities. As open banking takes hold, it will help rivals build connectivity solutions – 45 percent of respondents said that fintech would lead innovation here – and create new business propositions across cash management, payments and financing solutions. Respondents also believed that these were the growth areas – more than a third anticipated growth of 11-25 percent in these segments, while some felt it could even top 25 percent, in the next three years.

But not all banks are moving forward at the same pace. There are many whose outdated infrastructure is impeding the innovation agenda. In the survey, a very substantial 64 percent of respondents said that legacy technology and system integration challenges remained the key barriers to innovation.

The state of modern technology adoption

Overall, the research found that corporate banks had achieved only modest success in deploying digital technologies – for example, though 85 percent of participants understood the importance of advanced analytics, a scant 12 percent had successfully leveraged the technology. This is a significant finding because analytical insight is imperative for corporate banks to understand customers, identify new opportunities and improve cost efficiency.

The story repeats with APIs. 84 percent of respondents acknowledged its importance, but only 10 percent had deployed it with success. Without APIs, the vast majority of banks will not be able to transition from universal banking to platform and ecosystem models. Corporate banks must progress their strategies by orchestrating a suite of APIs for sharing data and collaborating with partners and customers. Here, the example of United Bank for Africa (UBA), a Nigerian pan-African financial services group, may be useful. By leveraging RESTful APIs to authenticate and reconcile corporate transactions, UBA consolidated the transactions of 700 branches in a customer database to facilitate tracking by printing a transaction number on depositors’ acknowledgment slips. This also helped customers to reconcile sales and inventory online.

Looking ahead

As corporate banks embrace digital technologies, they recognize that they must also reimagine customer journeys, innovate business models and partner with their ecosystems to complete the transformation. This is easier said than done and will take years of commitment and resolve from institutions that are still quite traditional in their setup and operations. But they have no choice but to adopt. For the future of corporate banks is about finding new ways of creating and delivering value for their organizations and their customers by embedding banking services in customer journeys, generating new, data-led revenue streams, and curating ecosystems of services for customers.