How Do We Fix Corporate Banking?

For too long, corporate banks believed they could avoid massive digital disruption. No longer. What steps should they be taking now? 

June 7, 2018

by Percy G. Johnson, Jr, Vice President Agile Solutions

Image Credit: Shutterstock

Scanning through the Google News results when you search for  keywords like ‘Corporate ... Banking … Digital’ is an extremely revealing exercise. Page after page of stories appear which illuminate the many ways that corporate banks are embracing the digital economy and transforming their operations in the face of unprecedented challenges. 

From ‘a digital overhaul’ of an Indian bank, to a Norwegian finance house that is ‘heavily invested in new technology’, all the way to banks being ‘poised to lead a major digital drive’ in Ghana; the global banking sector is realizing the benefits and potential of the digital economy, and is harnessing data, cloud computing and mobile to transform the banking experience. 

But is it too little, too late?

The reality of corporate banking over the last decade has been sluggish returns derived from legacy systems, while fending off challenges from aggressive competitors and agile fintechs that are eating away at the margins. An approach that can re-invigorate the sector is long overdue.

For a long time, corporate banking believed that it would be spared the disruption that digital was imposing on retail banking. But those hopes ‘have been dashed’, according to a comprehensive study by the Boston Consulting Group (BCG) entitled ‘Global Corporate Banking 2018: Unlocking Success Through Digital.

Corporate banks are now being forced to innovate and adapt at an accelerated rate.

The report states clearly that “banks need to develop a clear vision of how the corporate banking industry will evolve, formulate a comprehensive strategy for their own banks, and then plot their digital initiatives accordingly.”

It all begins with Data

For many corporate banks looking to re-imagine a digital future, the first order of business is to gather all the data they have in multiple formats across multiple platforms, and transform the ways that companies access their big data, so as to inform the next wave of marketing, sales, and other business processes.

AI Foundry regularly works with financial institutions that need to find ways to capture, classify and extract data, from both unstructured and structured documents, in order to improve how they interact with consumers and partners. Very often, these financial institutions also need to delve back into their historical archives and convert much of the paper-trail to a digital format, using sophisticated data-capturing software. 

A well-oiled data capture and processing system is the foundation of a successful digital strategy.

Once the data is organized, financial institutions can move onto the next part of their strategy.

Four priority areas need to be addressed as a matter of urgency, according to the Boston Consulting Group.

  • Reinvent the customer journey: New customers expect a smooth and seamless onboarding process. Banks need to find ways to make opting-in a rewarding process to the consumer.
  • Discover the power of data: By integrating data analytics into the DNA of an organization, corporate banks begin to understand their customers better, reduce their costs and identify opportunities.
  • Redefine the operating model: Banks need to approach their relationships with their consumers in a more transparent and collaborative way. A process that is too closed and invisible to the consumer no longer works for a generation raised on sharing information. 
  • Build a digitally driven organization: Let employees know that there is no going back. ‘Clearly articulate that the digital transformation is a strategic priority and then support that strategy with appropriate funding and talent recruitment’. Reward innovative thinking.

Image Credit: Shutterstock

Declining revenues make change harder

The need to transform large financial institutions and digitize aggressively is complicated by the fact that corporate banks are, by and large, facing ‘declining profits’, particularly amongst the midmarket and large business segments.

Western European outfits were hit particularly hard in the last financial year, with 57% reporting a drop in profits, compared to 38% in North America, according to Global Corporate Banking 2018. BCG discovered that ‘nearly one-half of corporate banking divisions had returns on capital that were below the hurdle rate, even though they were operating in a mostly benign macroeconomic environment.’

Of course that’s not the whole picture. There are plenty of success stories pointing the way forward for transformation. 

In companies where innovation and digital-first thinking is being embraced, the results have been very positive. For example, an investment in a motivated, well-equipped sales force has been showing strong results for top-performing banks. Banks are equipping their salesforce with “digital tools such as mobile apps with customer information or real-time pricing to plan their days better, reduce administrative work, and target the right clients with the right products at the right price”, and it’s producing results.

The momentum is overpowering

At this stage, it feels like there is an inevitability to the digital transformation that will be very hard to stop. For one thing, most large and effective corporations have transformed their processes, and they expect to deal with corporate banks that are working in the same ways that they are.

Executives are acutely aware of the new technologies which are appearing with the potential to transform the landscape, particularly when it comes to Artificial Intelligence (AI) and to decentralized, blockchain solutions to solve age-old banking problems. If they do not get on board at this point and lay down the bedrock of a digital strategy, chances are they will not be able to reap the benefits of these emerging technologies later on.

Furthermore, it’s obvious to everyone studying the sector that fintech firms have the wind at their backs and are making large, incremental gains. ‘Awash with funding and talent’, the agility and growing clout of the fintech sector is forcing a response from larger corporate banking houses.

As corporate banking struggles to adapt to the new environment, more and more large institutions are finding ways to partner and collaborate with fintech firms and create new, integrated offerings that match the needs of the consumer.

Both the large financial institutions and the startups are well aware that any one of the global technology giants like Google, Facebook or Amazon, could fundamentally disrupt their business in the near future, and as such, they are trying to be proactive and anticipate where the threat will come from.

The push to overhaul corporate banking is well under way. Firms like AI Foundry are working in partnership with financial institutions to unlock value for their clients, create new opportunities and new processes built upon a foundation of reliable data at the centre of the decision-making process.

AI FOUNDRY works with financial service organizations to drive efficiency, use their data to extract actionable intelligence that can drive good decision-making and help financial institutions adapt to the new environment.

For more information on how to unlock the valuable insights contained in your data, and how to develop your own digital strategies, visit the AI Foundry website where we share our processes and solve problems for our customers.

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Sources:

https://www.bcg.com/publications/2018/global-corporate-banking-2018-unlocking-success-through-digital.aspx