How Do You Become A Digital Bank?

By Daragh O’Byrne

Rapid changes in technology and growing expectations have created tremendous opportunities across all industries including financial services. Customers now demand products and services that are customized to their individual needs, and the ability to transact at a time and a place of their choosing. In the shift to digital, corporate and transaction banking has lagged behind retail banking. Despite the fact that corporate banking clients generate 56 percent of global revenue for banks, they have been presented with a relatively meagre digital banking menu. With new financial technology players (fintechs) creating a paradigm shift in the financial sector through digital innovation and regulations such as PSD2 pushing banks into the API economy, banks need to step up in order to remain relevant and reposition themselves as digital enterprises. This would help them reap significant benefits including higher growth rates, improved customer loyalty, and reduced costs. The destination is well known, the key challenge is how to get there.

Corporate banks can capitalize on the opportunities by creating tomorrow’s transaction bank today in 4 key ways:

1. Use digital insights to take more informed decisions:

Today’s customers interact across a much wider range of channels and touchpoints than their predecessors. In doing so they generate a digital footprint which banks can use to learn more about them, and crucially the data provides banks with tremendous opportunities to leverage the information to make better decisions. While Aite Group found relatively low adoption rates for predictive analytics among corporate banks, some have been more proactive in leveraging digital insights to improve business. By analysing their customers’ 12.4 billion debit and credit card transactions JP Morgan Chase and Co was able to tailor their future strategies and offerings. Bank of America used analytics to understand why many of its customers were defecting to smaller banks. Citibank went one step further and offered their corporate customers transaction data aggregated from its global customer base, which helped them identify new trade patterns. Analytics can help corporate banks in many ways, including predicting payment flows, proactively managing their customers’ working capital requirements, providing trade advice and generating additional financial services like invoice financing.

2. Provide an omnichannel experience to their digital customers:

It has now become imperative for corporate banks to deliver a customised yet consistent digital experience to corporate customers across all points of interaction. The corporate customer expects to be able to move seamlessly between different channels – perhaps initiating a wire transfer through the banking portal and then approving it on a mobile device. There is also a preference for specific channels for specific transactions – for instance low volume high value payments can be conveniently done through mobile, whereas for high volume, low value payments, desktops are preferred. With corporates sometimes using multiple channels concurrently, banks need to provide real time information and consistent data across channels. An integrated omnichannel solution – supporting cash management, payables, receivables, trade services, financing, and investments – can help the corporates in navigating through the various banking services easily and optimize their cross-channel experience by building on the strengths of each channel.

3. Make their Back End Digital-ready:

Corporate banks will have to reorient their internal processes to enable a truly ‘straight through’ experience. It is not enough to create a digital façade at the front end when the back end legacy systems do not have the capability to integrate with the data which comes through. In order to be more market responsive and to tackle the challenges of the technology backed fintechs, the legacy systems need to be transformed into more scalable platforms using service-oriented architecture (SOA) and made accessible to the external world using APIs (application programming interfaces). Demand for both these technologies are significant – the SOA market is forecasted to grow to over USD 16 billion by 2020 whereas according to Forrester predictions, US companies alone will spend nearly USD 3 billion on API management over the next five years. SOA backed transaction banking systems can help banks respond rapidly to changing market requirements and provide a seamless customer experience.

4. Digitize the supply chain finance ecosystem to augment client partner collaboration:

Paper systems drive $18 trillion in transactions per year. While banks were already working towards automating and facilitating supply chain finance transactions, critical supply chain documents such as bills of lading, purchase orders, and invoices needed to be digitised. Since digitization removes the need of physically transfer of documents between trading partners and banks, the process becomes much faster. However, the current digital documents have been easy to forge; and most of the bank systems in use today simply track the logistics of physical documents for trade finance. The emergence of Blockchain has revolutionized the supply chain finance industry. By streamlining processes previously spread across multiple parties and databases on a single shared ledger, Blockchain provides visibility across the entire financial supply chain. This reduces risk while also amplifying fiscal liquidity across the chain for all participants, including small companies, banks, and non-banks.

Not only are corporate customers willing to transact and liaise with banks over digital platforms but many are willing to switch—and even pay a premium—to work with banks capable of delivering the type of integrated, omni-channel service they’ve grown accustomed to in other spheres. In order to consolidate their position as their customers’ principal bank, banks need to jump the digital bandwagon swiftly or risk losing further ground to the already digitally-enabled Fintechs.

About the Author
Daragh O’Byrne,
Vice President, Global Head of Marketing & Alliances, Nucleus Software
Daragh O’Byrne is responsible for driving business transformation through integrated and strategic marketing initiatives. He brings over 20 years’ experience in the Financial Services application software sector. Daragh’s key focus area has been ensuring that software provides tangible business benefits for customers and that these benefits are explained in a clear, concise and compelling way. His industry experience and in-depth understanding of technology drives his passion to ensure that value is delivered to customers.

Leave a Reply

Your email address will not be published. Required fields are marked *