The Digital Future of Commercial Banking

Digital transformation isn’t only about retail banking. Commercial banks also need to transform.

Let’s face it, most of the conversation about digital banking transformation is dominated by retail. Perhaps that’s because retail banking is generally more familiar. Almost everyone knows something about retail banking, and it’s easy to compare a digital banking experience with other services, such as online shopping or ecommerce. With Big Tech constantly redefining and elevating retail service standards, digital retail banking has the limelight.

But let’s be clear: The future of commercial banking is just as important.

Market Trends and Dynamics

Commercial banks are caught in the eye of the storm with the global pandemic. Many are working full‑tilt to help businesses stay afloat, and also scrambling to ensure their own continuity. While the pandemic may change short-term initiatives and require unexpected pivots, the importance of developing and delivering a modernization strategy must be a clear and present priority.

Disruptive forces are creating new threats and opportunities, and modern technologies are a key driver of change. As with retail banking, commercial customers are constantly demanding more. One distinction is that commercial banking relationships tend to be “stickier” because they require greater commitment from both bank and customer, and there is often more at stake. The upside of higher stakes is a greater opportunity for banks to add more value.

In the context of their fundamental purpose, commercial banks seek to attract and retain customers by facilitating five fundamental functions: making payments, receiving payments, obtaining actionable information, borrowing funds, and investing funds. Just like their retail counterparts, commercial banks must provide their customers with easy-to-use services that add real value. Commercial banking can learn a lot from retail banking, which is generally more advanced in terms of digitalization.

Give the Customers What they Want!

So, what do business customers want? The dynamics are multi-faceted, but there are some universal commercial banking requirements that are of great benefit to business customers:

• Liquidity management – Help to manage funds for operations, financing, and investment
• Cash management – Easy to buy, easy to use solutions for payments, collections, information reporting, lending, investing, foreign exchange and letters of credit
• Risk management – Intuitive tools to help monitor a range of ever-changing risks related to credit, currency, interest rates, information security, operations, and regulatory compliance
• Data management – Tools that support partnerships with the chief financial officer, banks, creditors, investors, and technology service providers

As a financial partner to businesses of all sizes,  commercial banks must address these requirements via a business model that eliminates customer pain points. Furthermore, commercial banks must deliver innovative and integrated services for the full span of the corporate customer journey. A robust commercial banking digital platform encompasses:

• Onboarding – Opening accounts and implementing products for customers 
• Processing – Receiving and clearing transactions from customers
• Servicing – Maintaining, supporting, and closing accounts for customers
• Reporting – Real-time reports, analytics, customer communications, alerts, and notices

From Bank Perspective to Customer View

Commercial banking is increasingly about having a keen understanding of the customer journey and providing an engaging experience for customers. To deliver this, commercial banks must shift from a bank perspective to a customer view.

Historically, many commercial banks have viewed the customer from the bank’s perspective. Under this arrangement, financial products were “pushed” into the market and, over time many computer processes simply replicated the manual processes they replaced. But in the digital age, customers expect bespoke financial products that meet their exact business needs and strategic objectives. How should banks proceed?

Banks need to build a constructive dialog with their commercial customers across multiple lines of business, technology and treasury groups. Banks need to understand not only who is using their services but how. This requires a mindset that considers commercial customers as business partners who can influence and shape product development.

In reality, many commercial banks have been slow to adopt new digital technologies. There’s a pressing need to reinvent the customer journey to address customer pain points and help customers overcome challenges, reducing friction in all aspects of processing and service.

Embracing Digital to Achieve More with Less

Most commercial banks have begun to transform, but few can offer end-to-end digital processing where all of the traditional banking activities and services can be provided online. The aim of digital transformation is to build a fully digital bank that can deliver better solutions to customers, faster.

A successful modernization initiative must:

• Provide as good or better of a customer experience as offered by retail banks
• Implement real-time solutions for our real-time world
• Enable customer self-service for onboarding and support, including e-signature
• Support application program interface (API) connectivity to the bank and third parties and to participate in the open banking ecosystem
• Transform legacy core banking systems to boost agility, reduce costs and align spending with business benefits
• Embrace modern technologies, such as robotic process automation, artificial intelligence and machine learning to boost automation and integration
• Adopt new ways of working, including Agile methods and DevOps to deliver new functionality quicker and with no interruption to business as usual

With global transaction banking and commercial lending showing strong growth, incumbent banks have everything to play for. But fintechs and challenger banks are also eyeing the growing small business and large corporate market as their next targets, so now is the time to act.