A digital blindspot – corporate banking
Challenger banks continue to leave corporate customers behind at their peril.
In just a few years, digital banking challengers have used technology to outperform traditional banks – burdened by outdated legacy systems – and serve consumers more efficiently and at a low cost.
That’s one reason why retail banking customers today can reach for their phones and easily transfer money, pay bills and open new accounts in minutes. Unfortunately, corporate customers can only dream of banking with the same speed and convenience.
Corporate customers have been left out of the digital banking revolution because, in short, their requirements are more complicated. Businesses, especial financial services firms such as asset managers and family offices, face thick red tape. Their needs can be exacting. But they are increasingly calling for more efficient digital banking services that reduce costs and address the operational and continuity challenges of the post-COVID-19 world.
The obstacles to corporate digital banking are not insurmountable. What has been lacking is the imagination to eliminate the roadblocks using the technology that challenger banks have already pioneered.
The consumer banking industry began shifting from its branch-based model to digital over the past decade as digital platforms became widespread and, later, challenger banks became disruptive forces in the sector. The COVID-19 pandemic only intensified the trend and our altered relationship with technology is here to stay
In 2020, banks, forced to shut down their branches, joined forces with third parties and financial technology companies to accelerate services such as digital payments to their locked-down customers.
These changes heightened expectations among consumers because the pandemic changed and deepened their relationship to their banks’ technologies. Many now expect to log in to an app to conduct financial tasks securely, including for services like loan applications that until recently have largely been a face-to-face process.
Retail consumers who are part of the corporate world feel the same way. They especially see initiatives such as the revised Payment Services Directive (PSD2) and Open Banking in Europe as potentially benefitting their businesses. Unfortunately, however, corporations rarely see these upsides.
Buried in paper
In the corporate world, the financial services industry from asset managers to private equity funds and family offices, is tightly regulated – quite rightly in our view – because of legitimate concerns over security, compliance and data privacy. That’s why know your customer, anti-money laundering and other financial crime rules exist. Some funds also must comply with more than one set of rules because they operate across multiple countries which are governed by different sets of rules.
So far, traditional banks’ legacy infrastructures and systems can rarely provide these customers with a full and flexible range of digital banking services like simplified onboarding and account setups. But waiting around for legacy banks to upgrade their operations could take years.
However, whilst still rare, purpose built, digital banks, are already using technological advances such as facial recognition, automation and digital checks that could help corporate customers comply with regulations. They could, for example, make it simpler to share and securely authenticate information during an onboarding process. They could use virtual signing to replace “wet” signatures, too.
Meanwhile, having access to these types of digital processes would also help financial services customers cut the number of trees needed for paperwork and take into account incoming environmental, social and corporate governance concerns that need to be documented and tracked over time.
Gaps and opportunities
The pandemic has already accelerated the pace of technological innovation for retail banking. That innovation is likely to become permanent and even more sophisticated in the near future.
For example, blockchain and distributed ledger technology will likely offer boundless opportunities – from financial transactions to automated contractual agreements – because it removes the need for authentication. Advances in artificial intelligence are already improving service and efficiency through chatbots for retail customers. Why couldn’t AI be used to defend funds against cyber-attacks and assist in other critical functions?
Of course, this new technology will require greater oversight, additional regulations and the strengthening of regulation. But challenger banks are not strangers to navigating rules – they have already successfully stared down thick regulations and tough barriers to entry into the banking landscape. But even though they had the vision to revolutionize banking, they have lacked it – and the will – to broaden this revolution to include corporate customers.
Now is the time. As the challenger banks fight for consumers and turn their attention to SMEs, there remains a gap in the market. A gap equals opportunity. Opportunity means a big potential windfall. But only if banks can see it.