In an 1882 letter to his art dealer brother, Vincent van Gogh pointed out that, “Great things are not done by impulse, but by a series of small things brought together.” That sentiment of meaningful progress being achieved through the accretion of incremental improvements is a good analogue for the current emergence of connected corporate banking.

Large, medium and small businesses are increasingly looking to their banks to make full use of the capabilities offered by Open Banking and faster payments to enable them to better manage their businesses. The traditional model of batch transaction cut-offs at the end of the day, multi-day international payments, and the endless reconciliation of physical, monetary and data flows is clearly coming to an end. In its place will be a world where transactions of all types clear, settle and self-reconcile within minutes. The benefits for all types of businesses from this compression will be lower costs, improved transparency and reduced working capital. However, the risk in shorter receivable and trade life cycles and 24/7 liquidity management is increased volatility and hence there is a new need for an ‘always on’ mentality from both corporate treasurers and the banks that serve them.

This change isn’t happening all at once. Instead, we are seeing a mosaic of process innovations like faster Swift GPI international payments, shared DLT-based trade platforms, international KYC utilities and a burgeoning network of domestic and regional real-time payments systems all come together to enable connected corporate banking that is seamless, flexible and real time.

Connected corporate banking isn’t going to arrive with a big bang. Instead, it is emerging from a series of incremental improvements and innovations that, when taken together, will radically change the customer experience and the competitive playing field for the banks that serve them.

The strategic question arising from this evolution is who gets to orchestrate the ensemble of new tools and capabilities on behalf of the customer? With treasury workstations, complex cash management and account reconciliation products, commercial and corporate banks have traditionally been the key partner for corporate treasurers and small-business operators looking to get a handle on their financial management.

However, with the array of tools and services now becoming available, the competitive landscape is becoming a lot more complex. In one corner are the ERP software players like Oracle and SAP who can leverage their privileged position in supply chain and business process management to layer on a range of banking and financial services offerings that are fully integrated and disappear behind the curtain of day-to-day business management. In this world, the banks become a supplier and vendor; an instrument in someone else’s orchestra. In the small-business world, the accounting software providers like Sage, Xero and Intuit are also vying to be the business management dashboard that consumes financial services data and presents it to business owners wrapped in advice and optimisation services.

Within the traditional banking world, we are also seeing the green shoots of disruption with Goldman Sachs announcing that it is planning to enter the corporate cash management business and hoping to disrupt it in the way that Marcus has successfully heralded their entry into retail banking.

Whoever wins the battle for the customer interface, the direction of travel is clear: We are moving from disconnected silos and batch processing to a world in which all corporate and commercial customers will expect their lending, payments, trade finance, treasury and capital markets services to be integrated into a single, seamless, flexible and relevant experience anytime and anywhere. As transactions get quicker and easier, volumes will rise. When an international payment takes five days and costs $50, you only do it as necessary. When it can be instantaneous and cost mere cents, the volume will be driven up by network effects and improved interconnectivity.

While Van Gogh may have had the luxury of starting with a clean canvas each time, corporate and commercial banks are often faced with an intimidating array of legacy transaction banking systems that were never designed with real-time interoperability in mind. Rather than be tech-led, banks need to be customer-need-led and understand the connected corporate banking business case from the clients’ perspective. Where are the pain points and value creation opportunities by sector? Where are innovative non-bank services pushing in and getting traction because they solve one of those pain points? The banks need to ask tough questions like, where does the bank need to provide a service rather than simply being the integration point for a service that can be quickly and easily delivered by a third party through Open Banking connectivity? In scale-driven services like FX trading, the market is already trending towards a network of utilities that should benefit everyone by offering better rates. On the other side of that equation—where can banks leverage third-party distribution and customer management by being a low-cost, ubiquitous provider of product services that someone else integrates? Finally, where can the bank go it alone to create competitive advantage vs. where—for example, in areas like trade finance—does a consortium model offer the best opportunity for innovation and collaboration?

Some banks and non-bank newcomers are making progress in creating the new world of connected corporate banking. For example, Santander’s nationwide Lockbox Network accepts and provides same-day processing of and reporting on electronic or paper payments, thus improving the speed of its clients’ cash cycles by taking advantage of real-time reporting.1 Starling Bank’s Banking-as-a-Service enables businesses to offer their own retail banking services and cards, turning a B2B business into a B2B2B model with a common back-end.2 Along with many other banks, Fremont Direct Connect allows its corporate customers to securely download their account information through QuickBooks®.3 Xero, Sage, Intuit and other leading accounting software platform providers offer integrated banking services4. In addition to the Open Banking data sharing mandated through regulations like PSD2, we are also seeing the emergence of sophisticated data sharing platforms like Data Republic, which allows transaction-level information to be shared in controlled and secure ways between networks of corporates.

Connected corporate banking isn’t going to arrive with a big bang. Instead, it is emerging from a series of incremental improvements and innovations that, when taken together, will radically change the customer experience and the competitive playing field for the banks that serve them.

1Santander Bank
2 Starling Bank
3 Fremont Bank
4 Software Advice, “Banking Accounting Software” 2019

 

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