29 Aug 2018
Corporate, commercial and small-to-medium sized (CCS) banking is on the cusp of a series of fundamental shifts set to dramatically reshape the sector in the coming decade.
A range of forces – from technology advancements and demographic shifts to unforeseen events like the current global pandemic – are driving the need for the creation of new business models. In this environment, innovations that seem almost unimaginable today may become industry standards by 2030.
To prepare, banks will need to reassess future strategies and redefine their purpose to set a course not just for modernisation but true transformation.
"Traditional products, services and conventional delivery channels are being questioned by clients and banks alike.”
The time is now
The case for fundamental transformation of CCS banking is stronger now than ever before. The sector is being impacted by the global economic slowdown, a continuing low interest rate environment and lower asset quality making growth opportunities harder to come by. Preference for, and use of, digital channels are at all-time highs – accelerated by changing consumer behaviours bought on by the COVID-19 pandemic. Traditional products, services and conventional delivery channels are being questioned by clients and banks alike.
Banks must articulate their value proposition more clearly and persuasively than in the past. Client demands for more value-adding services and richer experiences require banks provide not only financing but also the time, resources and knowledge to help their clients grow.
Looking ahead, banks will need to self-disrupt in order to better serve their CCS clients. Incremental improvements to legacy technology, minor changes to operating models, a singular focus on cost-efficiency and ad hoc or standalone digital experiences will no longer be enough for future market leadership.
Seven hypotheses for 2030
So how can CCS banking organisations move from the challenges of 2020 to growth in 2030? While every bank will need to undertake its own unique transformation, the way forward starts with a strong purpose and vision, a clear and client-focused strategy, a strong and flexible operating model and sophisticated technology.
Research by EY has identified seven key hypotheses for the future of this critical sector that will help banks build the next generation of businesses and find new opportunities to better serve CCS banking clients.
1. Tech giants and large platforms expand their banking services.
As large companies and tech players offer more banking services, banks’ traditional revenue streams and client relationships will be threatened. CCS banking organisations will need to nimbly integrate into their clients’ ecosystems to take advantage of direct data flows. This should help neutralise the competitive edge of large corporates that could lend to their supply chain partners with control and insight.
2. Banks redefine client-centricity in a segment-less world.
Clients expect a baseline experience driven by digital interactions and quick turnaround times. They also expect the option to pay more for faster or differentiated services. To meet these evolving expectations, banks will have to adapt their models to provide clients with the products and services they choose, regardless of where they fit within traditional segments.
3. Banks evolve to become trusted advisors, leveraging data.
Over time, clients will expect their banking provider to understand what they need to advance their business strategies and connect them to growth opportunities. Banks can respond to that expectation by serving as matchmakers, connecting like-minded and complementary clients and offering a curated network of third-party service providers.
4. Banks organise integrated networks of trusted providers to facilitate client growth.
To succeed in the ecosystem era, banks will need to honestly assess their strengths and weaknesses, and embrace agile working strategies and design thinking. Leading banks will still own client relationships but they will also build and oversee their own ecosystems via advanced and integrated platforms that bring together products and services for their clients. Excelling at chosen core competencies, attracting preferred third-party partners and innovating through open banking technologies and specialised software will help CCS banking organisations gain a competitive edge.
5. The subscription revolution comes to commercial banking.
Mass customisation will soon be a baseline and this represents an important shift in client relationships from primarily transaction-based to value-oriented. In this environment, leading banks will need to provide customised solutions for a set fee based on cost-effective and operationally efficient delivery. Subscription offerings should be aligned to clients’ baseline needs – such as corporate loans, lines of credit, deposit accounts and money movement – and promote add-ons and enhancements.
6. Clients embrace sophisticated corporate treasury, legal, risk management and other services.
Success for companies of all sizes demands relentless focus on core activities. As their clients increasingly look for help with non-core activities, banks can harness the power of ecosystems to develop and launch integrated services. This will be particularly useful for firms facing key growth milestones such as geographic expansion, mergers and acquisitions, IPOs and funding rounds, and even bankruptcy.
7. Banks provide leadership on sustainability, inclusive capitalism, and other critical issues.
CCS banking leaders must make a credible and high-profile commitment to helping businesses and communities address their biggest risks and challenges. Sustainability is a cultural mindset which necessitates bold change and living up to it will be an ongoing process. Performance will be tied to sustainability achievements and broader measures of value than just traditional financial metrics. Those who get it right have a real opportunity to enhance their brands and increase trust with key consumers.
These ideas represent a significant amount of change and, while managing change and transformation is not a new imperative for banks, they must be prepared to address difficult questions and ensure long-term strategies are supported with sustained execution. In many cases, it will require uprooting processes and structures which are built around a model that has been largely unchanged for 100 years.
Strategic planning and business case development are necessary but should not delay action. Tomorrow’s leaders in CCS banking will be those that take bold action in the near term while simultaneously shaping the right strategies for long term, sustainable growth.
Andrew Gilder is the EY Asia-Pacific Banking and Capital Markets Leader
The views expressed in this article are the views of the author, not Ernst & Young. This article provides general information, does not constitute advice and should not be relied on as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Liability limited by a scheme approved under Professional Standards Legislation.
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
29 Aug 2018
25 Nov 2019