Digitization Could Halt Corporate Banks’ Shrinking Profits, Analysts Say

The Boston Consulting Group (BCG) has released a new report that suggests corporate bankers may be able to halt shrinking profits through digital transformation.

Reports in Business Chief on Monday (March 19) said the BCG’s latest survey of more than 200 financial institutions (FIs) that service corporates found profits are significantly shrinking at about half of these institutions. The trend is even worse among Western European FIs, with shrinking profits prevalent among 57 percent of institutions in this region, reports said.

According to the BCG’s “Corporate Banking Executive Survey,” “front-to-back digital transformations” are essential to halt this shrinkage. The report highlights four areas of the financial institution in particular need of digital disruption: the customer journey, data management, operating model and “building a digitally driven organization.”

“Digital is forcing sweeping changes in corporate banking, and institutions will need to adapt or see their competitiveness and market share steadily spiral down over the next few years,” warned BCG Senior Partner Dr. Carsten Baumgärtner in a statement. “Now is the time to develop a more coherent digital strategy to decide where to play and how to invest.”

“The financial stakes are very high,” he continued. “Over the next five years, we expect 30 percent of traditional corporate banking revenues to be accessible solely through digital channels.”

Separate analysis released last September from Finastra and Celent found corporate banking revenues are expected to hit $915 billion by 2020, a 4 percent increase from 2016 levels and double the growth rate seen between 2010 and 2016.

They published their own report, “Connected Corporate Banking: Breaking Down the Silos,” which similarly highlighted the opportunity of digitization for the world’s corporate banking sector.

“In 2016, corporate banking made up 38 percent of overall operating income across 20 of the world’s largest banks,” said Celent Senior Analyst Patricia Hines in a statement at the time. “Banks that want to attract and retain this business must continue to invest updating and enhancing their technology infrastructure while embracing emerging technology.”