It might not always work, but there is some evidence to suggest that traditional banks are listening to their largest customers when it comes to how they develop their digital service offerings.
A recent report by Coalition Greenwich suggests that the largest US companies are allocating incremental business to banks with investments in digital platforms that streamline processes and make it easier for their clients to do business.
As companies gravitate toward the most innovative banks, the research firm reckons banks are also beginning to show a preference for digitally advanced clients. “In many banking relationships, it is the sophisticated clients themselves driving the innovation and pushing the banks to keep up,” says Don Raftery, Head of Commercial Banking at Coalition Greenwich.
Banks are increasingly stepping up to provide optimised, friction-free and digitised processes across all customer journeys, according to James Sankey, Financial Services Senior Manager at EY. “This ranges from enabling digital identity and verification for faster client onboarding, to offering seamless approaches for the origination and servicing of commercial credit and loans, to the set-up of cash pooling structures,” he says.
Corporates have tended to look beyond banks when focusing on new technology solutions, relying on the more agile and faster-to-market tech firms to deliver change and innovation. However, Sankey reckons the status quo may be changing and that banks appear to be playing catch-up with both fintechs and larger tech firms.
“There has been an uptick in digital innovation by banks – with some identifying opportunities to disrupt and do things differently – which is pulling them ahead of their peers,” he says. “This includes solutions such as virtual account management platforms. However, corporate customers also need real-time monitoring of cash flows, optimisation of working capital, and flexible financial solutions that can adapt to rapid macroeconomic change and banks have work to do to meet these demands.”
Building robust and quality services is also critical and this is nudging global banks to benchmark themselves against the architecture and mindset of ‘bigtechs’ in their digital transformation programmes and to take on digital initiatives that are less business-as-usual, but rather bigger, bolder, more future-forward and innovative, adds Sankey.
Singapore based treasury consultant David Blair agrees that it is in banks’ interests to maximise digital banking because this normally means self-service, which reduces bank costs. However, legacy manual processes can be very profitable and provide an avenue for relationship building that many banks still value highly so as long as the relationship is profitable, financial institutions may avoid rocking the boat by pressuring corporates to digitise.
“This poses a problem for banks because they end up supporting generations of legacy processes – which are generally more expensive and introduce operational risk – to mollify corporates who do not want to change,” he says. “Most banks spend much more on compliance (broadly defined) and to a lesser extent cost reduction than they do on digital platforms that streamline processes and make it easier for clients to do business.”
While co-creation with corporates sounds good, the risk is that the resulting products are too narrowly specified and become solutions unique to an individual corporate. More commonly, banks assemble groups of corporates to inform their product development plans, which is sometimes followed up with walking through ‘client journeys’ to validate high level initial designs, explains Blair.
“Banks typically follow fashion and hype with perceived must-have products and capabilities,” he adds. “In practice, the better banks seem to use a mix of all three. It is probably true that the most sophisticated and demanding (and potentially profitable) corporates drive some bank innovation – the problem for banks is to make sure they have properly understood what these corporates really want.”