A report from consultancy EY argues that corporate clients will demand much more from their banking partners in the years ahead, and only those banks able to adjust will survive.
For corporate, commercial, and SME banks, the decade ahead looks very different to the one about to pass. Traditional revenue streams will be under threat and the competitive landscape will shift as corporate self-finance and tech giants expand their banking services. To survive, banks must reimagine their business models from the products and services they offer, to how they articulate their purpose and value proposition. In a new report, EY argues that only banks which embrace transformation and emerging technologies to meet rising client expectations will stay the course.
Banks face a squeeze from more large companies’ self-financing operations and offering credit to suppliers, and tech giants and large platforms expanding their banking services, argue report authors Matt Cox, Andrew Gilder and James Sankey, working across the consultancy’s banking and capital markets and corporate divisions.
It means traditional revenue streams and client relationships will be threatened as surplus liquidity and credit proliferate. Clients expect their banks to do more than just provide credit when they ask for it; the best banks will know precisely when and exactly how much credit their clients need. Laggards will lose market share to large self-banking corporates and access to cheaper deposits will be the only thing keeping them in the game.
To survive and thrive, banks must redefine client-centricity. Leaders will adapt their organisational structures and operating models to provide clients with the products and services they choose, particularly digital offerings, regardless of where they fit within traditional segments. These banks will also solve the age-old SME conundrum with a set of tailored solutions and a seamless experience for all clients. Banks which stick with rigid segments based on revenue and employee counts will limit their ability to react quickly to changing client needs.
Ecosystems
Banks need to increasingly harness the power of ecosystems, argues Cox, EY Americas Corporate, Commercial and SME Banking Consulting Leader. This means offering across-the-board services like “your corporate treasurer,” “your financial fisk manager” or “on-demand legal advice” to help firms planning geographic expansion, mergers or acquisitions, IPOs or funding rounds, or even bankruptcy, he explains.
Corporate clients want help with non-core activities, especially relative to key growth milestones and banks need to enable them to focus on the business, bringing legal, advisory, risk management, and other financial management capabilities to clients. Banks should serve as matchmakers, connecting like-minded and complementary clients, as well as a curated network of third-party service providers.
It could include carving out niches in specific areas, such as infrastructure project finance, healthcare, and travel and hospitality, he suggests. “Banks should consider different areas to provide not only banking services, but also the entire financial operating system to manage the business.” Elsewhere he advises banks to ensure their services are deeply integrated into corporate operations and supply chains. “Deep integration is a means to survival when dealing with large corporations with established provider relationships for certain services.”
Elsewhere the report authors argue that many businesses currently maintain relationships with multiple banking providers, because no one bank offers an integrated platform or a comprehensive range of services. In the future, a single interface for all banking needs will become a baseline. Tomorrow’s top-performing banks will be integrated, open and secure at the same time. Leading banks will create and operate their own platforms.
EY also predicts that the subscription revolution will come to commercial banking, as clients pay a set fee to access tailored products and services. Just as consumers have grown comfortable with subscription models, so too corporate and commercial banking clients want the ability to add or remove products and services quickly. It means banks need to provide customised solutions, comprised of interchangeable products driven by business flows and forecasts. Subscription offerings align with clients’ baseline needs and promote add-ons and enhancements. Laggards will struggle to move beyond product bundles, which are less customisable, cumbersome to price and even harder to deliver cost-efficiently.
Banks should also provide leadership on sustainability, inclusive capitalism and other critical issues, creating stronger markets and more interconnected communities. Articulating a clear social purpose is the first step to making a credible and high-profile commitment to helping businesses and communities. Leaders will realise that their performance is tied to sustainability achievements and broader measures of value than traditional financial metrics – particularly in ESG. Laggards will view ESG and inclusive capitalism like a public relations exercise and struggle to think beyond outdated modes of “corporate social responsibility.”
