How is your organisation responding to the tide of digitalisation sweeping the industry? Rudi Collin highlights current trends and challenges.
Digital technology is triggering a profound change in business models and impacting the dynamics in many sectors. The financial services industry - corporate banking in particular - is no exception, although digital technology uptake here is less pronounced than in some sub-sectors, such as retail banking. Digitalisation is ineluctable and crucial for banks to continue to grow and remain competitive. A shift towards a more digitalised product and service offering will enable the industry to better cope with new regulatory and control requirements. More importantly, this will benefit clients, whose expectations and behaviours are also changing. Clients need better adapted and more relevant solutions. They are looking for financial services that provide more tailored products, enhanced services and reduced costs.
While it is impossible to predict what the future holds in terms of regulatory changes or what mix of incumbent and new players will coexist in the medium term, it is vital to take the deep technological transformation sweeping through the industry into serious consideration.
There are three areas in particular where technology will impact the relationship between the treasurer and the bank: data analysis, operating models and disruptive technologies.
Data analysis: a gold mine for corporatesData management is undergoing fundamental change. Today there is virtually no limit to storage capacity, and processing capabilities keep increasing exponentially. The immediate availability of a wealth of data on markets, combined with advanced analytics and fast processing capacity, will enable banks to provide near-realtime tailored information and services, automated alerts on specific operations, market developments, currency movements and hedging ideas. These developments are crucial for clients as improved analytics will enable significantly improved forecasting, leading to much more targeted offerings better suiting the requirements of the treasury department.
Conversely, treasurers will gain broader and faster access to financial services, enabling them to make more intelligent choices between different providers. As a consequence, we will see increased competition among banks and more transparency on prices and service levels, which all benefit the client.
The technology also means greater client expectations regarding data quality and data confidentiality. Banks have robust data protection and security systems compared to new entrants in the field, and the latter will have to address regulatory constraints and align service standards in order to attain similar service levels. Regulators will also increase their requirements in this space in order to further protect the interests of clients.
"Disruptive technologies will be the real game-changers in our industry"
Operating models: revisiting the rolesThe role of banks and clients in operational processes will also be reshaped. Responsibility for data input will shift, enabling realtime empowerment of clients for mandates management and access to financial statements and other documents.
Even for an important step like KYC (know your customer), the provision and validation of official documents (such as ID documents, company bylaws and employee mandates) will be possible through specific applications. Leveraging official and publicly available information on companies will also simplify the validation process and increase its reliability. Activities like these could also be performed by specialised service providers in order to address critical regulatory requirements more efficiently, and several industry initiatives have been launched to test such a model.
Some business models will be particularly impacted. Innovations in retail banking like crowd funding, peer-to-peer payments, new non-bank payment services providers and peer-to-peer lending will give rise to similar models in corporate banking and will bring about the modification of the role of banks in the traditional value chain, or even their pure disintermediation.
Emerging concepts and disruptive technologiesThe digital trend has paved the way for disruptive technologies and these will be real game-changers in our industry. One of the most interesting in terms of market innovation is Blockchain technology, which underlies cryptocurrencies. This emerging technology has the potential to be truly disruptive. It could have a great impact on the industry and provide significant new opportunities. But, like all fledgling technologies, it is important to look into it in depth in order to assess its true potential.
No area of banking will remain untouched by the digital revolution. Drastically improved user convenience, universal secure access to services through mobile and tablet technologies, further automation of internal processes; the list goes on.
But while digitalisation offers great opportunities, it is also important to consider the challenges it brings. There is a clear need for enhanced data security and fraud detection, the biggest concerns for banks. More than any other financial institution, banks attach the greatest importance to the protection of client data and the prevention of fraud.
The appearance of new business models often fosters the rise of new players. The drive for lower costs and greater efficiencies means consolidation and the avalanche of new regulations will only accelerate this trend. The organisations that not only survive but flourish are those that will be sufficiently agile, adaptable and forward-thinking to exploit new technology, explore new ways of working, and team up with innovative partners (the so-called Fintechs).
To optimise the significant investment required in technology and resources, the leading players will also co-develop with clients to ensure that tangible benefits (such as enhanced content, greater convenience, improved security and reduced costs) are delivered to them. The internal transformation that this necessitates represents a major implementation effort, and not all current industry players will have the means or the management will to lead the way.
For corporate clients, it means that the banking landscape will continue to evolve fast for the foreseeable future. The choice of a banking partner should therefore take into account the proactivity of the bank and its ability to adapt to and exploit the new digital technologies rapidly and successfully.