The transformation of business banking in 2019 and beyond

As another year draws to a close, we take some time to ruminate on what is in store for us, our clients and the financial services sector over the next few years.

Sustainability and ESG disclosure will become the norm, not buzzwords
As the ESG market continues to mature, the reputational positioning behind it has moved to a more balanced approach driven by the increasing need for these financial instruments to deliver commercially. Regulation will need to accelerate in order for an even, transparent playing field to emerge that ensures the sustainability of sustainable finance into the future.

Over the coming years we see sustainable finance and ESG criteria being applied to all areas of banks’ loan books with green lending becoming a core solution. Mandatory disclosure will become part of reporting for all enterprises and part of loan applications for corporates.

FX risk management becoming critical for all businesses
Business FX, the most fragmented and multi-banked commercial banking product, is set to continue undergoing the structural change currently occurring, trending towards more comprehensive risk management strategies and practices across all business segments. How providers meet this challenge and, importantly, how they manage these relationships to deliver on businesses’ FX and trade needs will determine who succeeds.

The development of bank-agnostic platforms which enable corporates to link related accounts will be a turning point in the industry. Having their trade, FX and cross border payment accounts available through one portal will streamline and simplify the lives of corporate treasurers, CFOs and business owners everywhere.

Risk & compliance is where businesses want tech-led improvement
As our first report on fintech and corporates in 2016 predicted China has become the leader in successful fintech enterprises and the market where its uptake by corporates is greatest. As fintechs are coming into their own across numerous developed countries, we see emerging markets as a key development ground, particularly those in South East Asia. Disruption is no longer the name of the game though with penetration into corporate and commercial banking more through collaboration and partnerships, providing a solution to long standing IT legacy challenges in a far more efficient way, both in time and cost.

While payments, and to a lesser extent lending, focused technologies have dominated the financial landscape, moving forward we see the treasury, cross border payments and risk & compliance areas as presenting the biggest opportunity for business and commercial banking institutions.

Going digital is the only way forward for trade finance
Internet of Things (IoT), robotics and big data analytics are at the core of the accelerating digitalisation of supply chain management, enabling businesses to better track their goods throughout the supply chain and improve inventory forecasting. The use of smart contracts and a single cloud-based platform will become more widespread as businesses shift towards paperless trade. How can banks stay relevant with the current trend towards open source technologies and vendor-neutral platform?

We will also see the rise of alternative finance, in particular peer-to-peer (P2P) lending, crowdfunding and supply chain financing, targeting specifically the under-serviced small and medium-sized enterprise (SME) segment.

Banks need to learn to add value to their corporate customers
Transaction banking – efficient and information-rich payments services, especially cross-border, along with managing cash for corporates – will be an increasingly important function for the banks, enabling them to enhance their relationships with their corporate clients and generate a more stable, capital-light, source of revenue. Considering the current propensity to change primary transaction bank, the highest in a decade, banks cannot afford to be complacent. In addition, non-bank financial institutes including fintech companies and specialist providers are all vying for the same share of the pie.

The questions for banks to ask as they rethink their role in transaction banking is, how can they add value to the corporate relationship, grow their fee-based revenues, link transactional offerings to their broader value propositions and drive cross-sell. The lack of cash visibility and the inability of treasury functions to accurately and quickly forecast their cross currency holdings remains a major pain point and opportunity for providers in 2019.

Data-rich cross border payments
Cross-border payments hold immense opportunity for financial institutions, as evidenced by over three-quarters of the total financial supply chain for Asian businesses being exposed to foreign exchange risk. The search for fast, secure and frictionless payment solutions without compromising on security is very high on the agenda for global corporates.

Data and business analytics are becoming as important as the payment transaction itself. More than half of all large corporates recognise clear commercial benefits flowing from additional payments data, such as simplifying the tracking of internal spending, streamlining reporting and accounting processes, and more importantly, generating valuable intelligence.

Card-not-present receivables to continue its exponential growth
Merchant Payments continues to feel the full transformative force of digital disruption and innovation. The current forefront of wearables and biometric payment types will arguably be eclipsed by yet to be conceived methods within the next decade as the rapid proliferation of eCommerce and payment acceptance methods drives card-not-present receivables volumes higher. The global eCommerce market is estimated to exceed US$2.5 trillion dollars within the next two years, serviced by an ever-growing array of providers totalling more than 300 individual payment schemes.

Key trends shaping the next generation of successful merchant acquirers includes instant payments integration, simplified cross-border payments, real time fraud and security detection, application programming interfaces (APIs), open banking data sharing and digital currencies.

Equipment finance to leave the shadows and stand as its own specialised product
Corporates face a wave of complexity when successfully executing new asset purchases. Balancing cash flow and liquidity concerns against the need to remain current with new equipment advances emerges as the most pressing concern for CFOs and corporate treasurers into 2019 and beyond. Energy efficient equipment, autonomous vehicles and the Internet of Things (IoT) are rapidly moving into enterprises sphere of influence with asset lives continually stretched beyond originally intended durations.

The trend towards asset financing as a specialised, standalone working capital solution as opposed to the traditional model of a transaction banking accessory will define the market in the next five years especially. Incumbent bank providers and nimble non-bank competitors are both tasked with navigating oncoming regulatory and technological challenges with voice of the customer insights at the heart of new product and service development.

Human touch to define customer experience
Business’ propensity to positively advocate their bank to friends and colleagues has been profoundly tested by grave misconduct and reputational damage over the past few years. Never has it been more important to closely monitor underlying drivers of customer satisfaction and brand perception, particularly at a time when intention to switch primary provider reaches record highs. Despite the shift towards digital processes making business banking faster, simpler and better value for money, relationship management is in fact defining customer experience.

In our view successful banks in the coming decade will be those that successfully augment innovation with a distinctively human touch. The business of banking is firmly returning to understanding and prioritising customers’ individual business and sector needs.

What do you think the industry will look like at the end of 2019 and further ahead?

Talk with us today about how we can work together to make sure you are at the forefront of change and capitalising on shifting dynamics.

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