Consumers demand easy, digital banking, but this pressure for banks to deliver is also coming from corporate clients.
Take mobile banking, which has propelled the introduction of mobile-only banks to meet demand for better services on smaller screens. It’s not only for consumers, though: Alternative lending firm Kabbage recently found that mobile lending is on the rise among small businesses, with a more than 360 percent increase in the number of SMB loans accessed via mobile device between April 2014 and February 2018.
The entrance of non-bank FinTechs and alternative lenders, too, is adding new pressures on traditional FIs to up their digital games.
Josh Glover, EVP of the Americas at banking technology provider nCino, said that when it comes to corporate banking and lending, the end-user experience is just as much of a focus for traditional banks engaging in digital transformation as it is in the consumer banking market.
“There are a few things driving large financial institutions to think about digital transformation, but it starts with customer experience,” he recently told PYMNTS. “In this day and age, we’re in a mobile world, and things move quickly. Customers expect to have quick decisions for their loans, they expect transparency in the value chain, they expect to have a great digital experience, and banks are investing to keep up with those expectations.”
Analysts say the tangible benefits of digitization and a happier end user are clear. According to a recent survey from the Boston Consulting Group (BCG), profits among the world’s corporate banking institutions is significantly declining – but digitization could halt that trend.
“The financial stakes are very high,” said BCG senior partner Dr. Carsten Baumgärtner in a statement last month. “Over the next five years, we expect 30 percent of traditional corporate banking revenues to be accessible solely through digital channels.”
But a survey published last week, conducted by Unisys Corporation, suggests banks are struggling.
Researchers found that just 17 percent of retail banks rated their digital transformation strategies as “optimal.” Most said they were merely at the beginning or medial stages of their digital transformation processes, and that offering end users a streamlined experience was FIs’ top struggle.
In a statement, Eric Crabtree, global head of Unisys’ Financial Services industry, said that banks “understand the need to go beyond traditional banking services, however, many are struggling to modernize in the face of archaic processes or legacy systems.”
According to Glover, there is a lot at stake for commercial banks’ failure to make process.
“Another driver of this trend is competition for talent,” he said, adding that millennials and recent college graduates looking for work in the banking sector have different expectations for how the industry should operate. “They can’t attract that top talent if they’re forcing these workers to deal with, literally, carrying around paper files or legacy systems. Giving their employees cutting-edge technology with world-class tools will give them a competitive advantage.”
The rise in alternative finance, of course, has also played a role among traditional corporate lenders’ decisions to digitize, with FinTechs competing to provide a better (and more digital) end-user experience for borrowers.
“Online lenders and alternative players were a wake-up call to banks,” explained Glover. “They realized customer expectations have evolved to the point where they want an upgraded experience.”
But as the shock of alternative finance market disruption wears off, and the realization of the need for digital offerings sets in, Glover noted that traditional FIs are instead collaborating with alternative players.
“In the last year or two, we’ve seen a move toward partnerships,” he said, adding that as a provider of banking technology, nCino is familiar with the collaborative strategy that enables banks to enhance their offering without completely overhauling their business models.
According to Glover, that means banks in the U.S. are increasingly opening up to the potential of APIs to enhance the movement of data, with nCino itself using Salesforce’s API network to facilitate access to bank data, as well as third-party data like credit scoring solutions.
“This keeps the customer in one place, while they can still leverage all of that data and streamline the experience,” he said of the benefit of collaboration to the banks themselves.
As FIs continue to explore partnerships, the executive said they have a few key technologies in mind, mainly robotics process automation to facilitate data entry, artificial intelligence and machine learning to nix manual processes – and blockchain, though Glover said it is still too early to understand exactly how distributed ledger technology might disrupt the corporate lending space.
Overall, however, the largest technological disruptor to these FIs is the cloud, the adoption of which is still a relatively new phenomenon.
“The cloud really allows banks to take an agile approach to how they grow their business in a way that legacy, on-premise solutions can’t,” he said, adding that by adopting cloud-based solutions like those offered by nCino, the tools can grow and adapt as the bank does, supporting the easy addition of new products or modification to credit policies, for instance.
“Cloud allows banks to own their own destiny,” continued Glover, “whereas in the world of legacy software, they would have to bring in an outside vendor to rebuild that custom work.”
Overall, cloud technology addresses all facets of corporate lenders’ digital transformation efforts, from facilitating collaboration with alternative lenders, to easing the flow of data between systems and third-party platforms, to addressing borrowers’ demand for a digital, on-demand experience.
“Cloud-enabled vendors give banks the tools they need to provide a great experience, that smooth process, and to engage the customer digitally,” said Glover. “And as the cloud continues to become the norm in the banks of tomorrow, we see more expectation that solutions provide continuity of service via APIs. Banks are looking holistically at how they transform.”