Model Bank 2017: Small Business and Corporate Digital Innovation Themes

Model Bank 2017: Small Business and Corporate Digital Innovation Themes

This is the fifth article in a weekly series highlighting trends and themes from Celent’s Model Bank submission process. For more information on how the Model Bank Awards have evolved, see the first two pieces from Dan Latimore and Zil Bareisis. This particular article is focused on innovations in small business and corporate banking:  two critical market segments for financial institutions as they seek revenue growth and relevance in the evolving digital B2B marketplace. 

When evaluating this year’s Model Bank submissions that are targeted at small business and corporate clients, we identified a number of excellent initiatives in each of the five overall categories:

    Customer Experience

    Products

    Operations and Risk

    Legacy Transformation / IT Platform Innovations

    Emerging Innovation

For these two segments, the Model Bank award candidates come from Europe, North America, the Caribbean, Asia Pacific and the Middle East. Despite the wide geographic spread of the submissions we received, certain common themes became evident that are important to highlight, 

Enhancing client experience is paramount: Banks are intensely focused on how to deliver solutions to clients in ways that are convenient and easy to use in order to meet the emerging expectations of business users based on their consumer experiences with technology. Creating a consolidated point of access for all corporate banking services using portal technology that eliminates the need for multiple logins and security procedures was just one of the types of initiatives that were submitted.  Mobile and tablet access are becoming mainstream channels for employees of business and corporate clients to effectively manage their daily workload no matter where they might be located.

Improving digital channels is not enough to succeed: The initiatives that demonstrate significant quantifiable benefits to banks and clients are those that address the inefficiencies in the way that bank employees interact with their clients but also involve the elimination of paper-intense, manual workflows both for the client and the bank. From the use of videoconferencing technology to access experts in trade finance for advisory services to the replacement of faxed instructions with digitally signed transactions initiated on mobile phones, banks are finding innovative ways to contribute to their own efficiency while also improving client productivity. Another critical element of the digitization of these processes is speed. Automation enables faster decisions (for example for credit approval) and this provides business with a superior service and the ability to manage their businesses rather than managing their banking relationships. These initiatives drive revenue growth and loyalty because the bank’s services provide quantifiable benefits to clients that are seeking to leverage technology advances in order to more effective manage their working capital.

Reinvention in Small Business Banking: I was struck by several of the initiatives that represent an entirely new way of thinking about how to enable entrepreneurs and small business owners to succeed. Rather than tweaking traditional banking solutions that are designed for consumers or larger businesses, several of the banks submitted initiatives that reflect an entirely different way of meeting the needs of small business clients. Recognizing that the needs of entrepreneurs and start-ups fall well beyond the services that a bank traditionally offers (i.e. credit, payments, cash management), a few innovative banks have attempted to reinvent business banking by offering a complete, integrated package that combines traditional banking activities with non-banking services that extend beyond even the adjacent types of solutions that banks typically make available through partnerships (e.g. payroll services). The goal of these packages is to offer a business owner every piece of business functionality and technology they would need to grow their business. What makes these solutions especially impactful is that they are designed from a business owner’s perspective and don’t reflect a bank-centric view of how the client should manage their business. 

I hope this brief description whets your appetite for more discussion on our award winners in small business and corporate banking at the 10th annual Innovation and Insight Day on April 4th in Boston. I look forward to seeing you there.

Blockchain Use Cases for Corporate Banking

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.

Top trends in corporate banking webinar

Top trends in corporate banking webinar

Please join me on Thursday, April 21st at noon EST for an overview of the 2016 edition of our Top Trends in Corporate Banking report, which was published in March.

2016-04-18_15-40-50

Corporate banks continue to place an enormous focus on investing in digital channels to meet the ever-increasing demands of clients for enhanced tools while boosting security and fraud prevention. Despite this investment, corporate banking has lagged in terms of adoption of innovative technologies. To improve that performance, corporate banking lines of business are undertaking a broad set of initiatives to overcome the inertia that has left clients behind in terms of innovation. Among the top trends, we will examine the opportunities in trade finance and customer onboarding for improving efficiency and enhancing client satisfaction.  Other top trends include fintech partnerships, distributed ledger technology and open APIs and adapting liquidity management strategies.  I look forward to having you join us on Thursday! 

Click here to register

 

 

 

Regionality and Trade Finance

Regionality and Trade Finance
My latest research report –Thinking the Unthinkable: Banks Relinquishing Control of Their Payments Infrastructure seems to have struck a chord for many banks, with some great press coverage, and sparking some very interesting and timely discussions. The opinion does seem to be varying region by region, which I did expect. But whilst turning the report into a presentation and adding in some support material, I did come across something quite curious which I hadn’t expected. I used the survey on Global Transaction Banking that my colleagues Axel Pierron and Dr Neil Katkoff ran late last year, to paint the picture of some of the drivers for change. The survey itself reflects the views of 30 of the largest transaction banks globally, with a more or less equal split of banks between Europe, Asia and North America. Not only are all the banks multi-national, they are equally multi-regional. I was therefore somewhat surprised to see the follow results: upcoming priorities
(click on the chart for a larger version).
For certain activities – and in particular, supply chain finance and trade finance for imports and exports (bars 5,6 & 7 in the chart above) – it was almost exactly split between Europe seeking to do in next 12 months, Asia in the 18-24 month timescale and North America with longer term plans or no plans at all.
Bearing in mind that the this refers to the region of origin, but, being multi-regional, not necessarily where the solution is being implemented, this clear split is somewhat surprising. We believe that this may be as a result of more acute dynamics for European banks around liquidity management, particularly of their suppliers, through working capital optimization, and through enabling lower financing costs for suppliers. We’re certainly digging deeper to better understand the nuances, but we’d love to hear your take on it!

Corporate Banking in Asia is Heating Up

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.