Commercial Banking in Today’s Open Banking Environment

Playing Catch-up With Retail?

Open banking is more akin to a journey than a destination. Almost all retail banks have a roadmap for modernization, and many are making good progress, with innovative solutions that increase customer convenience and reduce friction. Unfortunately many commercial banks are lagging behind, possibly because the incentives were not always clear. This blog considers some of the many benefits of modernizing commercial banking for today’s Open Banking environment, and why banks should feel compelled to act soon.

Open banking has become a global initiative. What was initially regarded as a regulatory compliance requirement is now widely perceived as a valuable business opportunity. Forward-thinking banks have responded with technology strategies that are open to support data sharing and integration. This is of greatest benefit to customers who can share their data with third parties. Notable innovations (discussed in previous blogs) include the ability to view aggregated bank account balances; to effect payments directly from retail apps; and to take advantage of lending options where and when they are most needed.

However, open banking is not confined to retail customers. In fact, its potential impact on commercial banks and their customers is potentially far greater and sustaining. Progressive commercial banks are already harnessing open banking to reduce customer churn and build loyalty. How? While addressing regulatory concerns for openness, commercial bankers can build new links with customers using digital technologies, such as cloud and artificial intelligence (AI) – enacting strategies that drive innovation, create value and boost efficiency. The possibilities are without limit, but here are a few practical examples to illustrate the transformational power and potential of real-time open banking.

Just in Time Liquidity Management

Banks can help their corporate customers manage liquidity far more effectively. Payments can be made exactly when they are due, and the entire financial supply chain can potentially be orchestrated in real time or near real time. But, to enable this, many banks have work to do. Historically, financial supply chains often replicated the manual processes they replaced, with some processes requiring “wet signatures” to fulfil internal controls and approval processes. Moving to just-in-time liquidity management is about more than technology, it also requires fresh thinking – and banks that commit to these types of investments will be well rewarded.

With a holistic, real-time view across all of their bank accounts, corporate customers can manage liquidity more easily and with far greater precision. Furthermore, an open and real-time infrastructure empowers the bank to do much more for its customers. Harnessing the power of AI, corporates can make preventative liquidity shifts, avert shortages on individual accounts and optimize the use of surpluses. From a bank’s perspective, as well as the customer’s point of view, providing such capabilities enriches the customer experience and adds real value. Overall customer engagement is increased, which builds loyalty and strengthens relationships.

Real-time Treasury Management

Many banks already provide corporate customers with direct access to bank accounts via application program interfaces (APIs). After a long incubation, the idea of real-time treasury management is becoming accepted as a practical reality. In the future there is the real possibility of fully automated treasury processing, where the role of the corporate treasurer is elevated to strategy and exceptions handling. While that may be some way off, there are things that can be done now to reduce risk, improve efficiency and deliver enhanced customer value.

Innovative treasuries are already moving ahead. For example, intraday sweeps enable money to be managed more centrally. With an accurate, aggregated view of liquidity, treasurers can act more strategically and be prepared for the day when all treasury management happens in real time. Other areas where banks can prepare include foreign exchange (FX) management. Once again, AI can play a crucial role in improving automation and mitigating risk, for example, by triggering a hedge when a currency exposure exceeds predefined parameters.

As its name suggests, open banking is all about collaboration. The benefits of real-time treasury management will not be fully realized until there is universal adoption. However, uptake will be accelerated by the “network effect” and all banks should prepare now to ensure success in this new world.

Providing More Value-added Services

Much of the open banking discussion tends to focus on retail, with many of the benefits accruing to customer convenience and efficiency. In the case of commercial customers – particularly small and medium-sized businesses – there is even more opportunity to add value than in retail banking.

With the right partners and APIs, commercial banks can add value by providing a range of financial services, including bookkeeping and accounting services, among others. Providing expanded services in context is likely to become commonplace – and in line with customers’ increasing expectations – particularly with the evolution of new business models including Banking as a Service (BaaS).

From Theory to Practice – Time to Get in the Race!

Although commercial banking still lags retail in the adoption of open banking, the time is right to act. The traditional corporate banking model is being supplanted by a vibrant ecosystem where business customers are empowered to choose from an array of services offered by several banks. The good news is there’s about a 75% overlap between a retail banking platform and its commercial counterpart. While commercial banking has watched the progress of open banking in retail, now is the time to learn from it.

Commercial banks and their trusted technical partners need to explore how to effectively transform from a closed, vertically integrated model to an open horizontal ecosystem, one that thrives on innovation, partnership, connection and collaboration. Inevitably commercial banks will catch up with retail; it’s time to make your move and get in the race.