While non-bank financial institutions (FIs) and FinTechs may be keeping traditional banks on their toes, banks still have the largest piece of the corporate banking pie.
The latest report from Finastra, the FinTech conglomerate recently formed through the merger of Misys and D+H, and financial research firm Celent finds that banks are poised to see a 4 percent growth rate in corporate banking revenue through 2020, double the growth rate seen between 2010 and 2016.
The biggest opportunities exist in transaction banking and commercial lending, Finastra said, but there is also a real opportunity in working with FinTechs (and the tech they offer) to help banks land a larger slice of the combined $915 billion in revenues FIs are expected to see at the end of the decade.
The report, “Connected Corporate Banking: Breaking Down The Siloes,” identifies the largest opportunities for traditional banks to make the most of a changing corporate banking landscape.
“In 2016, corporate banking made up 38 percent of overall operating income across 20 of the world’s largest banks,” explained Patricia Hines, senior analyst at Celent, in a statement. “Banks that want to attract and retain this business must continue to invest in updating and ‘connected corporate banking,’ and it is crucial to providing the efficient services corporate clients demand and providing the platform every bank needs to differentiate their service offerings in the future.”
According to Finastra and Celent, there are a several key factors at work driving corporate banks to shift their strategies: digitization and omnichannel platforms, FinTech innovation and transformation of legacy systems. The disruptors range from machine learning and blockchain to APIs and faster payment initiatives, and banks have a choice to make when pursuing these tools.
Analysts pointed to 2016 research from GTNews and CGI that surveyed corporate treasurers’ top areas under review that should guide how banks approach their corporate services strategies. Eighty percent of treasurers surveyed identified cash management surveys as the top area under review, followed by liquidity solutions, payables, FX and commercial lending.
Artificial intelligence and machine learning are particularly interesting, with their ability to enhance data and analytics capabilities for customer services, compliance and client onboarding and payment processes and fraud detection services, among others.
Robotic process information, also identified as a key emerging technology in corporate and transaction banking, can provide more robust automation from back-to-front office, while biometrics are similarly an in-demand technology, especially for customer-facing solutions to ensure security.
Regardless of FinTechs and the solutions banks choose to deploy, Finastra and Celent emphasized the importance of integration.
“The banks that will win market share in corporate banking over the next five years will excel at integrating business and technology silos,” they wrote in their white paper. “Whatever development approach, deployment architecture or packaged software solution a bank chooses, integration is critical — the ability to bring a robust, reliable and integrated set of products to clients is a key driver for profitability. Integration is necessary on the revenue side to enhance cross-sell and on the expense side to improve straight-through processing, for both the bank and its clients.”
Integration, the companies added, is at the center of the concept of “connected corporate banking,” providing clients the ability to not only use new tools like eInvoicing or global payments, but to have solutions integrated with existing offerings like supply chain finance or trade services.
According to Finastra Deputy CEO Simon Paris, the report reveals an opportunity for banks to not only improve satisfaction among corporate clients, but to boost income. Whether via the use of best-of-breed solutions or best-of-suite offerings, banks must be open to new technologies, like blockchain.
“A willingness to embrace this alongside other innovations, like AI, machine learning and distributed ledger technology supports future-proof corporate banking systems and stronger corporate customer relationships,” he said.