Commercial banking’s new frontier

There is no doubt the past year has seen a significant shift in the mindset of commercial banks towards digitisation, largely driven by customer demand (and necessity) in the wake of the COVID-19 pandemic. 

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At the outset of the pandemic, governments around the world began paying out more than $12 trillion in economic stimulus. This prompted banks to implement digital end-to-end capabilities to rapidly enable efficient transfers of cash to businesses in need – all the while finally demonstrating effective digital transformation is possible. 

"In Australia, the digital investment pendulum continues to swing. While some progress has been made, commercial banking is still very much in its digital infancy.”

Despite this, Accenture’s 2021 Commercial Banking Trends Report reveals while there are many compelling reasons for commercial banks to adopt a digital-first mindset, such as increased client engagement, faster loan processing and significant long-term cost reduction, digital maturity of commercial banks is still lagging.

In Australia, the digital investment pendulum continues to swing. While some progress has been made, commercial banking is still very much in its digital infancy and Australian banks have not yet translated the incredible effort of last year into their existing technology, capabilities and culture. In 2021, the banks that can maintain their digital momentum and ensure digitisation remains a key strategic priority will be the ones to successfully pivot to the post-pandemic future.

Key trends

But how do they do this, exactly? Accenture has identified two key trends that will shape the Australian commercial banks landscape in 2021.

The first - and one of the most significant - revelation is how Banking-as-a-Service (BaaS) is fast becoming the hottest ticket in town and a game-changer for the industry.

Non-financial digital brands are realising being a customer’s first landing point has huge advantages as they can address the full spectrum of a customer’s needs. These brands are increasingly embedding financial services into their offerings.

Shopify, a Canadian e-commerce business, enables small-to-medium enterprises (SMEs) to finance purchases through buy-now-pay-later loans, obtain debit cards and accept payments from customers—all on the Shopify platform. This was enabled by Shopify’s partnership with a commercial bank which uses open APIs to provide the underlying banking products and services. While on the surface, Shopify is an e-commerce business, on the balance sheet it is a fintech.

This trend is expected to grow as businesses recognise lucrative revenue streams from BaaS models and offer financial services right at the point of sale. Banks using BaaS as a distribution channel achieve two to three times the industry average return on assets. The days of customers coming to banks are numbered and open-APIs and ecosystem-based financial services structures are the future. Every business is becoming a fintech business.

The growth of diverse banking offerings brings us to the next trend, driven by demand from customers for tailored services that cater to their specific needs. 2021 will see the rise of the ‘business of experience’ in which banks will be expected to provide differentiated offerings and adopt a mindset of everyday innovation that constantly enhances and evolves the customer experience (CX).

To do this, Australian commercial banks must get serious about data and analytics to better engage customers and create hyper-personalised products and services.

Banks provide the same level of service irrespective of the value of the customer. Utilising data effectively can help to segment customers according to their preferences and determine the most appropriate and cost-effective method of engaging and servicing a client. Capturing value trapped within the huge stores of data within the bank’s environment, and leveraging external open data sets, can help commercial banks chart a new course to help business customers optimise cashflow, compare their performance and get access to credit quicker. These are all services business customers will pay for.

While Australia’s big banks all have digital transformation programs under way, very few have end-to-end digital capabilities in place. The future of commercial banking in Australia lies in the ability of banks to digitise their offerings, differentiate their experiences and define the role they will play within an increasingly complex ecosystem.  

With Australia’s economic recovery progressing faster than other leading world economies, local banks have a rare opportunity to drive transformative change towards a digital-first banking culture.

We must reap the benefits of the progress we have made in the last year and continue to scale these investments to make 2021 the year where the power of digital banking is fully embraced.

Chris Jaggard is Commercial Banking Lead in Australia & New Zealand at Accenture

The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.

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