Corporate Banking is just like the International Space Station
On Friday, January 19th 2018, the International Space Station (ISS) completed its 7,000th day in orbit – that’s over 19 years. Creating the space station was extremely challenging – considering that it circles the Earth every 90 minutes at a speed of 28,000 kilometers per hour. To make matters more complex the ISS was designed to be permanently occupied, a stepping stone for further space exploration and a working laboratory. Arguably the most complex international scientific and engineering project in history, the ISS is a superb example of what cross functional collaboration can achieve. Five space agencies representing 15 countries were actively involved in making ISS the success it is today. Over 18 years, 15 modules were assembled in space, one at a time to make the ISS the largest structure humans have ever put into space.
It is clear that strong collaboration between teams played a crucial role in this success but there is more to it than that – the design also anticipated the future with the first module launched in 1998 and the last one in 2011. These two aspects – collaboration and anticipating the future are extremely relevant in the business world, including corporate banking.
As corporates grow, so do their needs – evolving from simple payment and cash management services to a steady stream of new value-added services, especially real-time, analytics-based services. For example they are looking for improved forecasting, product comparisons and faster on-boarding. They are also looking at consumer-style access to their transaction banks, especially via mobile and digital channels since there is often an experience gap between the way they are served in their personal lives and the way they are served in the professional lives. In fact, in the 2017 CGI transaction banking survey, the chief factor considered by organizations while establishing new banking relationships was selecting the best-in-class providers of products or services. If their banks are unable to provide the personalized service they want, these corporates are more than willing to look elsewhere. 50 % of the corporates in the survey said they were already reviewing the relationship with their main banking partner.
It’s not that the corporate banks aren’t aware of the issue, but the problem is not easy to solve. Building and maintaining competitive offerings now while trying to anticipate the customers’ future needs can be a very expensive proposition especially for the smaller domestic banks. These banks are often forced to act as followers relative to global banks, who can invest heavily in new platform capabilities. Also, try as they might, it is extremely difficult for the large banks (and nigh-on impossible for the smaller ones) to provide services and products that are all best-in class and the predominant reason for that is the rise of the “uber-specialists”.
Today, the industry is filled with players whose sole focus area might be around big data and analytics or front-end or cryptocurrency or even payments for example. Would banks have the time and money to invest in building each of these capabilities in-house? Even if they do, would they be at a similar level to what is showcased by the standalone players? A general physician might be qualified to talk about heart diseases but in serious cases would a patient rather go to a general physician or a heart specialist? The answer is obvious.
Corporate banks should ideally look at a couple of things – investing in their own focus area with an eye on future requirements while collaborating with chosen Fintechs / Banks to fill the remaining gaps in their product suite so that their customers have the best-in-class experience throughout. Their ability to do so and capture opportunities arising out of the disruptive environment based on technology and external partnerships while also creating customer value will determine their success in the future.
In order to enable this collaboration, corporate banks need the right ecosystem – their operating platform needs to be modular, scalable, extensible and having the necessary open source APIs to allow their applications to be compatible with their partners.
State-of-art transaction banking platforms come with extensibility features through which banks can incorporate new capabilities or take advantage of any future upgrades to the existing functionalities whenever they need it. The key benefit from extensibility is that the bank can rapidly respond to changing requirements. The extensibility layer is kept separate from the core platform which allows the bank to take advantage of future upgrades, quickly and easily without interrupting extensions because they are isolated from the upgrade and can easily work with the new release. With an extensibility approach, banks can adopt different software solutions swiftly and enhance their business functionalities according to the bank’s needs. The focus areas could range from User Interface (UI) layout adaptation, business configurations, forms and reports, analytics, integration, custom fields, logic and customer specific terminology along with translation to customer specific applications. Some platforms also come with advanced tools like product workbench that allows the banks’ to design, maintain, adapt and launch highly personalized financial products swiftly and efficiently. The bank can, thus respond faster to changing market dynamics.
While APIs have been around for a long time, in the past few years there has been a lot of emphasis placed on open banking initiatives (for example PSD2 in Europe) which has elevated APIs from a simple development technique to a business model driver discussed in the boardroom. API solutions can help banks find innovative partners and, as a result, offer newer financial services. Some have already started outsourcing some of their non-strategic functions to specialist companies in order to improve speed, service and to save costs. Bank of America recently launched APIs for their corporate clients and have started collaborating with industry providers to give their clients an expanded and secure experience Capital One, Citibank and Mastercard have all launched API developer exchanges, enabling third-party developers to create innovative products and services to benefit their customers. BBVA has partnered with Dwolla (a bank transfer platform) to support real-time payments by leveraging the latter’s FiSync API. The CGI transaction banking survey had 66% of the banking respondents considering outsourcing open account supply chain finance and 58% trade finance services to their specialist partners.
Faced with an array of challenges, today’s corporate bank needs to modernize its business operating models and technology components if it is to profit from the next period of change. A state-of-the-art transaction banking solution with a modular architecture enabling extensibility, scalability and open APIs would go a long way in ensuring that the bank is not only prepared for the current highly competitive market but also be ready for the unpredictable future.