By the numbers, 2019 is a good year for corporate card innovation.
According to the Corporate Credit Products edition of the Innovation Readiness Playbook™, 74 percent of FIs offer corporate credit products and 94 percent are currently developing new products or planning to do so within the next year. Among top-performing financial institutions, 86.7 percent are already investing in corporate credit innovation. That compares to 68.6 and less than 30 percent, respectively, of those middle- and lower-performing FIs.
In short, i2c Executive Vice President of Global Sales Joe DeRosa told Karen Webster financial institutions — big and small, old and new — are embracing corporate credit products for a simple reason: It is in their long-run competitive and financial best interests to do so.
“Many of these FIs report that 60 percent of their total revenues are coming from corporate credit products, so obviously they are key to their strategy,” he said. The question is whether they have the systems and processes in place to develop, launch and scale those products.
But the bigger picture, he said, is that while there are a lot of new ideas and innovations emerging in the corporate credit space, it remains a relatively uncrowded “blue ocean” type of space, where the opportunity to grab new market share and customers is high. Players are primarily responding to an opportunity to grab some business before the field becomes as saturated as the consumer credit products space, DeRosa pointed out.
Opportunity, however, is almost impossible to take on without risk — and for FIs, even the relatively blue ocean environment of corporate cards can become quickly turbulent.
Navigating that, DeRosa told Webster, is both a strategic and technological challenge for both banks and FinTechs.
Navigating the Corporate Credit Seas
Corporate cards are unique from their consumer counterparts in that they are more complicated, simply because they are used in much more varied ways. They often need to be accessed by multiple users in an organization and are put toward diverse cases, like supplier payments, travel and expense or fleet management. Plus, the needs vary widely depending on the size of the organization.
Much is expected in the segment, DeRosa noted, and established banks and institutions can have difficulty in adapting to the multiple options and demands simply because their infrastructure wasn’t designed with that level of flexibility in mind. The importance of entering into and innovating in the corporate credit space is clear and present to all FIs, but some have more capability to live up to that priority than others.
“One of the things we are seeing with FinTechs, for example, is simplifying the process — many are streamlining their front-end process, which has historically been quite clunky,” DeRosa told Webster.
Simply eliminating items like personal guarantees and adding things like instant approval and instant digital issuing makes the corporate credit experience a bit more in line with the consumer experience. But over the last few years, banks have struggled with their infrastructure to get these sorts of improvements off the ground. The challenge is one of resource allocation, DeRosa said, and figuring out where investments are needed to provide the optimal experience. The question is how to take a task that is often complex today and transform it into a simple experience that is survivable “and perhaps even enjoyable,” he said.
In one sense, FinTechs are leading the charge by continually pushing the path forward, DeRosa pointed out. But what is pushing FIs is the customers themselves, and their growing expectations for digital services.
“We are seeing so much choice in the marketplace — there are literally a thousand financial apps out there today. There is so much more comfort today with apps, and that is driving this explosion in FinTech,” DeRosa noted.
The fundamental question FIs are now answering when it comes to corporate cards, he said, is how much do they intend to try and lead the field versus how much they end up following it?
Calculating Real Risk
Looking at the Innovation Readiness Index data, a study done in collaboration with i2c, Webster noted in her conversation with DeRosa, there is something of an unexpected result in FIs’ pace into the corporate card innovation market. There is a shift from wanting to be first in the market to taking more of a wait-and-see approach: 53.6 percent reported preferring to watch market trends a bit before unveiling new corporate credit products.
Why the sluggishness among so much of the industry?
The explanation, DeRosa said, likely breaks down into two main ideas. The first is that all FIs — big or small, new or old — have budget constraints, though obviously, those can vary widely. And secondly, platform constraints — either in-house or outsourced, that are inflexible and cumbersome to modify. Those constraints, combined with a host of other factors like their approach to risk, will influence how they “think about placing bets.”
“Part of this will come down to human nature and doubt,” said DeRosa. “ 'If I place my bet here, if I pursue this innovation rather than that one, what happens if I get it wrong?’ ”
On some level, he noted, every organization has to take some kind of risk, because doing nothing is not an option. The sea will continue to get more crowded as more innovators dive in — and that blue ocean window of opportunity will dry up as the environment becomes more saturated and “red.” The statistics and self-reporting from the industry make it clear that this day is coming: Interesting innovations in corporate cards, particularly among top performers, are on the rise.
“The reality is this is how the industry improves,” said DeRosa. “There are no guarantees except that the market is going to keep moving forward and the winners will be the players who are committed to pushing forward with it.”