In this two-part series we aim to help financial institutions with corporate banking services to understand the impacts to their business of Brexit and changing market and economic conditions.
In this, our second blog, we consider whether or not when faced with Brexit and other market, economic and regulatory drivers, strong relationships alone are sufficient to maintain the status quo for a growing corporate bank.
Are relationships enough?
Building and maintaining long-standing relationships with their clients is the cornerstone of any successful corporate bank, and will continue to be so as clients look to their bank to know their business, their market, and provide tailored service. Corporate banks, however, need to evolve as technology, regulation, and globalisation add additional dimensions to the relationship-led model. To better service their own clients, and adapt to a post-Brexit world, corporate banks need to embrace these changes.
New entrants, challengers and third party providers, who have greater agility and speed to market, are offering more tailored products and services to corporate clients, and better customer experiences, as they do not face the same challenges of aging legacy systems as traditional banks. This is disrupting the traditional revenue streams such as structured debt and trade relied upon by traditional banks.
Regulatory drivers such as Open Banking and the Payments Services Directive II (PSDII) are expected to trigger a wave of innovation amongst mature corporate banks. As much as the new entrants and third party providers pose a threat to mature players, more innovative peers who can tailor to globally-focused SMEs or international corporates looking to mitigate against Brexit impacts, would have a competitive advantage.
The ability of corporate banks to service their clients across multiple locations, with depth of knowledge of local markets and meet their trade and invoice financing requirements will increasingly be an expectation by corporates. Risk management and liquidity management will continue to be a key focus for their clients, as they trade in new currencies, increase their currency exposures, or look to optimise on their cash placements.
Corporate customers are typically perceived to have relatively stable relationships with their corporate banks, however, they are becoming increasingly multi-banked meaning they have the ability to move revenue generating volumes (particularly Transaction Banking) between providers without needing to establish new relationships. Increased competition, ease of technology use, and cost pressures will, however, incentivise corporates to rethink existing relationships and use a number of providers vs. their core relationship banks.
Collaborate to get ahead
In light of the above, are Corporate Banks able to respond fast enough to meet these threats? Perhaps the answer to practically respond on the above is to run the corporate bank at two speeds, one to focus on the long–term progressive replacement of legacy systems and infrastructure and the other focused on more immediate change targeted at improving the client experience. Making such a step change requires looking at fintech collaborations and partnerships. Doing it alone, even in the advent of one’s own accelerator or innovation hub, is perhaps no longer an option, unless there is a clear path for integration of the accelerator or innovation solutions back into the organisation.
Making the transition to a digitally-enabled, and agile organisation is not an easy journey, however, a two-speed approach may help to address some of the more immediate challenges and mitigate some of the impending threats ahead.