Blockchain Use Cases for Corporate Banking

Corporate banking has long been a relationship-based business, with large global banks having the distinct advantage of being able to provide clients with a comprehensive set of financial services delivered through integrated solutions. Distributed ledger technology, often referred to as blockchain, threatens to disrupt the sector with its potential to improve visibility, lessen friction, automate reconciliation, and shorten cycle times. In particular, corporate banking use cases focusing on traditional trade finance, supply chain finance, cross-border payments, and digital identify management have attracted significant attention and investment.

Traditional Trade Finance: Largely paper-based with extended cycle times, DLT could eliminate inefficiencies arising from connecting disparate stakeholders, risk of documentary fraud, limited transaction visibility, and extended reconciliation timeframes. DLT could finally provide the momentum needed to fully digitize trade documents and move toward an end-to-end digital process.

Supply Chain Finance: SCF is commonly applied to open account trade and is triggered by supply chain events. Similarly to traditional trade finance, the pain points in SCF arise from a lack of transparency across the entire supply chain, both physical and financial. DLT has the potential to be a key enabler for a transparent, global supply chain with stringent tracking of goods and documents throughout their lifecycle.

Cross Border Payments: The traditional cross-border payment process often involves a multi-hop, multi-day process with transaction fees charged at each stage. There are potentially several intermediaries involved in a cross-border payment, creating a lack of transparency, predictability and efficiency. DLT offers an opportunity to eliminate intermediaries, lowering transaction costs and improving liquidity.

Cross Border Payment Flows

KYC/Digital Identity Management: Managing and complying with Know Your Customer (KYC) regulations across disparate geographies remains a complex, inefficient process for both banks and their corporate banking customers. For corporate banking, the DLT opportunity is to centralize digital identity information in a standardized, accessible format including the ability to digitize, store and secure customer identity documentation for sharing across entities.

Both banks and Fintech firms alike are experimenting with DLT solutions for various corporate banking uses cases. In what seems like unprecedented collaboration between financial institutions and technology providers, consortias are working on accelerating the development and adoption of DLT by creating financial grade ledgers and exploring opportunities for commercial applications.

The maturity cycle for the various use cases depends on a number of factors, not the least of which are financial institution requirements for interoperability, confidentiality, a regulatory and legal framework, and optionality. We outline both capital markets and corporate banking uses in more detail in the Celent report, Beyond the Buzz: Exploring Distributed Ledger Technology Use Cases in Capital Markets and Corporate Banking. In addition to key use cases, the report discusses the key needs of financial institutions driving DLT architectural and organization choices, the current state of play, and the path forward for DLT in capital markets and corporate banking.

Increasing headwinds in corporate banking?

This week I’m in Singapore, which provides a beautiful backdrop for Sibos 2015, the annual conference that brings together thousands of business leaders, decision makers and topic experts from a range of financial institutions, market infrastructures, multinational corporations and technology partners.


This year’s conference theme is connect, debate and collaborate and takes place at a time of increasing headwinds from a slowing global economy, higher compliance costs, increasingly global corporates, and competition from both banks and nonbanks alike. I spent the past few months taking a deep dive into corporate banking performance over the past 10 years–a period of both tremendous growth and unprecedented upheaval. As expected, corporate banking operating income and customer deposit balances have experienced healthy growth rates over the past 10 years. But surprisingly, despite increases in customer deposits, corporate banking income was largely stagnant over the past few years.

Corporate Banking Income and Deposits

Corporate banking plays a dominant role for the largest global banks. In 2014, corporate banking was responsible for 33% of overall operating income and 38% of customer deposits across the 20 banks included in this analysis.

As outlined in the new Celent report, Corporate Banking: Driving Growth in the Face of Increasing Headwinds, this critical banking sector is shaped by four external forces: economic conditions, the regulatory environment, business demographics, and financial technology. These same factors are slowing corporate banking growth and creating an environment in which banks are overhauling client offerings in the face of regulatory pressure, re-evaluating geographic footprints in response to shifting trade flows, and investing in technologies to ensure a consistent, integrated customer experience.

Much of the discussion at Sibos is on exploring transformation in the face of disruption. As they look to an unsettled future, corporate banks that are flexible, adaptable, and creative will be the ones that succeed. Changing time-tested ways of doing business is painful, but critical for future success.

Corporate banking in China: my crystal ball grows cloudy

I’m in the midst of writing a Celent research report on how corporate banking is faring amid increasing economic, regulatory, competitive, and technology headwinds. Part of my research includes looking at the performance of 20 of the top global banks over the past 10 years. Four of these banks are headquartered in China, a country currently struggling with a government-directed transition to a “new normal” characterized by a shift to a “real economy.” Perusing Chinese banks’ 2014 annual reports, in early 2015 the banks were looking forward to continued acceleration of growth in a stable and healthy environment. What a difference a few months make! China’s economy traditionally depended on expanding exports and massive infrastructure spending. But China’s move to a services-based economy, built on an expanding middle class and private entrepreneurship, is proving challenging. Looking back at the past ten years, China grew to be the largest exporting nation with $2.3 trillion in exports and a CAGR of 15%, the fastest growth rate among top exporting countries. China also weathered the global financial crisis dramatically better than the rest of the world, with its GDP growth rate only dipping to 9% at the same time as world output contracted by 0.5%. China GDP growth China’s growth into a global economic powerhouse and its resilience during the financial crisis contributed to a nearly 20% CAGR for corporate banking operating income across the top four banks from 2004 to 2014. Similarly, these banks enjoyed a 17% CAGR for corporate banking customer deposits. Chinese Banking Income and Deposit Growth Even as China’s economic growth decelerates, the IMF estimates that it will continue to outperform advanced economies. For the corporate banking sector, small-to-medium enterprises are expanding, increasing their need for more sophisticated trade and treasury banking products. This presents an opportunity for global and regional banks to expand transaction services, broadening the options available to corporations doing business in the region. What remains to be seen in my cloudy crystal ball is how China’s corporate banking sector (and its client base) weathers the current stock market shocks. Will China be able to grow its “real economy” into a “new normal”? Or will China finally experience its own financial crisis with a severely contracting GDP and bursting economic bubble?

Biometrics: the next generation of corporate digital banking authentication

Corporate treasury departments initiate and approve millions of dollars in high-value payments on a daily basis. As an example, in May 2015 the average amount of a US Fedwire transfer was $5.7 million. Because of the dollar value of these transactions, banks were early adopters of enhanced authentication for corporate online banking applications. Many banks continue to offer one-time-password authentication (on top of traditional username and password) using RSA SecurID or Vasco DIGIPASS hardware tokens at both login and payment initiation. When Celent published its report “Corporate Mobile Banking Update: Adoption Conundrums and Security Realities” in September 2014, it highlighted alternatives to traditional two-factor authentication for corporate online and mobile banking applications. Alternative methods include voice, pattern and biometric authentication methods. As discussed in the Celent Banking Blog “Logging Into Your Bank in a Heartbeat”, several banks have rolled out Apple’s Touch ID fingerprint authentication technology for consumer online banking login authentication. However, as quickly demonstrated by clever hackers, Touch ID is vulnerable to various hacking methods. For this reason, banks are turning to more sophisticated biometric authentication methods for its corporate online and mobile banking applications. The focus remains on layered, multi-factor authentication, but combines authentication technologies in unusual and unique ways. Barclays Bank’s offering combines biometric and digital signature technology in an offering called “Barclays Biometric Reader.” To overcome limitations with traditional fingerprint scanners, Barclays is implementing Hitachi Europe’s Finger Vein Authentication Technology (VeinID) which reads and verifies the user’s unique finger vein patterns. The latest authentication announcement comes from Wells Fargo who is combining facial recognition with voice biometrics. Wells Fargo is working with SpeechPro to pilot the new bi-modal security solution (VoiceKey.OnePass) and fine-tune the biometric authentication features. The solution uses a standard smartphone microphone and camera to capture a facial image and voiceprint. Wells Fargo is also working on authentication using eye vein scanning (as opposed to typical retina scans). Biometrics New authentication technologies, from a slew of relative newcomers to the financial services space, could eventually replace traditional hardware tokens and eliminate multiple authentication hoops throughout the digital corporate banking experience. Watch this space.

Corporate banking: serving the needs of business clients

Last week I joined Celent’s banking practice as a Senior Analyst covering Corporate Banking. I join fellow corporate banking analysts, Gareth Lodge and Jim O’Neill. Gareth covers payments back office, payments infrastructures, and payments connectivity. Jim covers core systems modernization, the impact of cloud computing, and treasury management technology. My coverage will be focused on the technology impacts of meeting the financial management needs of business customers, ranging from global multinational corporates to small businesses. This includes global transaction services, small business services, commercial and small business lending, and the changing role of corporate treasury and its impact on meeting the needs of corporate banking clients. It’s an exciting time to return to the Corporate Banking analyst ranks. In the face of an uneven global economic recovery, evolving regulatory imperatives, and unpredictable supply chain disruptions, corporate treasury and finance teams have expanded roles and responsibilities. These developments are putting increased pressure on financial services providers in the areas of working capital management, liquidity management, external financing, payables and receivables, international trade, supply chain finance, merchant services and delivery channels. For the large global banks serving corporate and institutional clients, transaction banking revenues and deposits are holding up due to strong transaction volumes, despite a low interest rate environment. Looking across the largest global banks, transaction banking’s share of total bank revenue averages 13%, with its share of deposits averaging 36%.
Transaction Banking Revenue and Deposits

Transaction Banking Revenue and Deposits

On the lending side, US commercial loan outstandings have more than fully recovered from the 2008-2009 financial crisis. US commercial and industrial loans, particularly hit hard during the crisis, have rebounded almost 45% since their lowest point in 2010. Commercial lending in the euro area is another story. Since their peak in 2008, loans to corporations have declined 9%. As discussed in this year’s Top Trends in Corporate Banking 2015 report, banks are facing a complex new reality with disruptive technology, the changing role of corporate treasury and regulatory imperatives shaping corporate banking strategies in new and unprecedented ways. In order to maintain (and hopefully grow) corporate banking revenue and market share, banks need to address the top trends outlined in the report in the context of Celent’s three overall financial services technology themes:

• Digital and Omnichannel • Innovation and Emerging Technologies • Legacy and Ecosystem Transformation

If you have feedback on additional top corporate banking trends we should be covering, I would love to hear your ideas.  

So…what do you do all day?

Stick with me on this – all will become clear! So, I suspect we all have the same conversations at parties when making small talk with people you’ve just met – “…and what do you do?” There’s the standard work answer: “We help banks make the right technology purchases for their business. We start with a business driver, articulate what the best strategic response might be, and how that translates into a technology initiative”. Sometimes I simply say that I get paid to think, talk and write. Friends and family still don’t quite understand what this means though. My youngest daughter, at about the age of 7, in a Pythonesque twist of sense of humour, decided actually it was easier and better to tell everyone that I helped people to stop being afraid of trees! All workers tend to be better defined or at least understood by what we actually do on a day to day basis. Whilst some of the patterns may be the same, no one day is quite the same, but it will give you a good sense. The morning starts with going to my office. The majority of analysts work at home, for historic and practical reasons. An analysts coverage is topic driven, rather than geographic, so work patterns require flexibility to talk to clients who can be – and are – anywhere in the world. The flip side is that we have a great work/life balance, and the company actively tells us to protect that. The first hour at least is spent responding to email. With clients and colleagues around the world (Celent has offices in 14 countries, and colleagues are more wide spread still), I get as much email overnight as I do through my working day. Some of the emails are press alerts that I’ve set up, following particular topics or companies. Keeping up to date with events is key. Equally, they may come from the press, asking for my insights. For me, I tend to try to spend the rest of the morning doing writing. At the moment, that’s a very varied task, and an important one – as analysts, one of the key measures on which we’re judged is how many reports we write. Today I was:
  • Juggling 5 case studies from banks in 4 different countries for our upcoming Model Bank awards, including the “container” that 4 of them will be published in a paper commissioned by a client, trying to incorporate the ideas that they’d like to explore, but whilst making sure that I’m truly independent.
  • Preparing two presentations for upcoming webinars with clients.
  • Writing this blog post.
  • And consulting at various stages – one answering last few questions from the deliverables, another designing the agenda for a strategy day, and handful of others at various stages of proposals. It’s very much consulting with a small “c” – we’re applying our expertise and experience, rather than throwing lots of “bright young things” at a project. In fact, most projects are usually a single analyst.
At some stage, I also need to do more admin type things – thanking a client for allowing me to attend their customer conference, booking travel for some upcoming events, etc. But its not all sit at home. An important part is meeting clients, and creating visibility for Celent. I’ll be at most of the major conferences this year, often presenting, right around the world. The afternoons are when I try to arrange the majority of my conference calls. Some days there are none, but others I can spend at least 5 hours on the phone straight. Some will be client calls, whilst others will be supporting salespeople or internal projects. So why am I boring you with this? We’re hiring. We’re looking for someone with corporate/transaction banking experience to join our team. That person should know the industry well, most likely from a bank or consulting background – we want someone with first hand experience. It needs someone who is comfortable working on their own, coping with the discipline needed to get reports written, yet at the same time, have the passion to share that knowledge, be it on the phone, on a webinar or in from of an audience of thousands. I’m hoping having shown you what a great, interesting and rewarding job an analyst has. We can offer a good salary, intellectual challenges, the opportunity to build work own personal brand, and all whilst having an excellent work life balance. We look forward to hearing from you soon!

Top of the Year Coming Soon

We’re coming to the end of the old year and the top of a new one, and that means it’s time for top trend reports from Celent. These are typically some of the most downloaded reports of the year. They represent the collective thinking of the entire Celent banking team. There will be four coming out in short order: Actually the first report is now available for download now and the second one will be available by the end of the year.  These reports give you a quick idea of what Celent sees gaining momentum today, on the horizon for tomorrow, and what is trendy, but not meaningful to bankers. I hope these reports inspire you for a productive 2013.

Top Trends in Corporate Online Banking

There is a lot going on in the cash management space, and numerous banks are steadily working on plans for up to date portals, solutions, and experiences. I published a new report last week, Top Trends in Corporate Online Banking. The report examines and analyzes the top trends in online cash management, and provides recommendations for financial institutions. Some of the trends are in full swing; some are nascent; others are expected to impact the space within the next three to five years. I encourage you to take a look at the report, and explore some of the trends. Mobile banking, social media, portal development, fraud prevention, the role of the tablet, and much more are covered in this report. I also recommend that you read this report in conjunction with, Corporate Mobile Banking: Revolutionizing Cash Management. I look forward to hearing your thoughts, and please feel free to weigh in here with online cash management trends and observations that are top of mind.

Corporate Banking in Asia is Heating Up

The press seems to focus a lot of its coverage on competition for retail banking business in Asia, but from where I sit it looks as though the corporate banking side is at least as hot, if not more so. One reason is that retail products and services are already fairly well developed in the region, leaving much of the action on the retail side to the marketing and branding of increasingly commoditized offerings. Corporate banking services, on the other hand, are still developing. There is a lot of room for improvement in the way banks in Asia are packaging and delivering their corporate banking services. This is particularly true for transaction banking services, including cash management, treasury, trade finance and supply chain management products and services. The large global banks have been investing heavily in developing comprehensive suites of services, often on a worldwide basis; many banks in Asia are now starting to see the value in developing a full range of transaction banking services for their corporate customers. I was recently invited to speak at an event in Hanoi, Vietnam for Asian banks organized by Citi, where this trend was readily observable. The venue was packed with managers from banks throughout Asia, large and small. They came to see what Citi had to offer in the way of web-based delivery, global payments solutions, trade finance and supply chain finance services, etc etc, and to think about how to offer these services to their corporate clients. Many banks in the region are likely to use the white labeled services of global banks such as Citi, ABN AMRO or HSBC, to name a few. Banks will be faced with choices in what mix of services, both outsourced and home grown, to offer in their particular market. I was struck by the number of banks I spoke with at the conference that were feeling challenged in developing their strategies for corporate banking services. Celent has followed developments and strategies in transaction banking for some years, and is now covering the market from the corporate side as well with our new corporate treasury research service. I look forward to working more closely with banks in Asia as they consider their options in this rapidly developing area.