Macro-Economic Trends, Regulation, Fintech Changing Corporate Banking: Report

Major change drivers, including macro-economic trends, regulation, more demanding customers, digitalization and fintech, are transforming the corporate banking ecosystem, according to a new research paper from Finextra produced in association with Oracle.

The paper, called Digital, Connected, Client-Centric: A New Model for Corporate Banking, sheds light on how corporate banks are evolving their businesses in this current climate and change. It is based on in-depth interviews with a range of corporate banking leaders and brings together their views on some of the critical issues facing corporate banks today.

Partnerships are essential

For corporate banks to stay relevant and grow, they must partner with the right fintech companies and find the right role within emerging ecosystems, leveraging both their native strengths and the latest technologies to deliver what customers need.

“In commercial banking, fintechs are often solving very specific painpoints, and can deliver more value in the context of a relationship model,” says Vivek Ramachandran, Head of Growth and Innovation, Commercial Banking, HSBC.

Unlike retail banks, corporate banks face less of a threat from fintech new entrants and have a stronger natural franchise in emerging ecosystem economics. They also have more time to experiment with and work out how to leverage new technology innovations, the report says.

Marc Delbaere, Head of Corporates and Supply Chain, Swift, agrees that fintech companies don’t represent a direct threat to corporate banks. Instead, their presence “is keeping the banks honest and making them think about how they can innovate.”

The Asian opportunity

Asia presents specific opportunities to corporate banks, the report claims, and for Patricia Hines, Senior Analyst, Corporate Banking, Celent, the region “continues to be a key driver.”

“The region is growing and its banks are growing,” she says.

Yet, there are still many challenges, including regulation, which is very fractured. “Initiatives like ASEAN are trying to pull it all together and make the environment better, but, at the moment, that fragmentation makes it difficult for banks to on-board corporates in the region,” Hines says.

“We have seen some banks pull out on the basis they think it is too risky, while others are stepping up to the grab the opportunity.”

But more interestingly, a critical element of developments in Asia is the growth in intra-Asia trade. This has implications for the capabilities of corporate banks looking to capitalize on the region’s buoyancy, the report says.

“A lot of trade in Asia is among Asian companies, often smaller corporates, so to participate as a corporate bank requires presence not only in the mega trade flows, but also a local presence,” says Carsten Baumgaertner, Global Leader, Corporate Banking Practice, Boston Consulting Group (BCG).

“To be able to participate in local trade flows, banks need to get deeper into the respective countries to participate. This favors banks with real networks in the region and leaves those with a limited regional and local presence struggling – because to be present in a country like China, you have to be really present.”

The report advises corporate banks to align their technology strategies and leverage their core strengths to achieve financial excellence and remain a valued partner to their corporate customers.

But most importantly, corporate banks need to continue to respond to the changing needs of their customers and continue the process of bringing their own technology shops up as cutting-edge technologies including Big Data, the Internet-of-Things and blockchain are rapidly entering the corporate banking world.