Caspar Herzberg |
This article was originally published in the Autumn 2019 issue of The Record. Subscribe for FREE here to get the next issues delivered directly to your inbox.
Digitisation in corporate banking has lagged behind retail banking in recent years for two key reasons. First, corporate banking systems are built with highly complex and siloed legacy platforms where it is difficult to make change in one area without impacting others. Second, investing in innovation has not been the biggest priority for institutions that are entrusted with large organisations’ funds and financial processes. Instead, security and stability have taken precedence.
However, the status quo is set to change. Corporate banks are increasingly looking for ways to use technology to reduce operational costs, improve efficiencies and build the user experiences their clients expect.
The good news is that open application programming interfaces (APIs) are making it possible for corporate banks to harness innovative technologies to interface with their traditional core processes. This means they can accelerate plans to improve operations and meet clients’ expectations for a better service, ultimately enabling them to win more business.
Doing so can have a significant impact on revenue. According to the Accenture Open Banking for Businesses Survey 2018, 54% of global banks predict they will derive between 5% and 10% of revenue growth from open banking services for small- and medium-sized enterprises and corporates in the next three to five years. A further 35% expect to secure between 10% and 20% of revenue growth from the same services over the same time period.
Revenue growth will also be driven by the development of new systems that add value to both banks and their customers. Opening up APIs allows banks to start co-creating data-rich microservices – such as account aggregation or foreign exchange sweeping and pooling – to gain greater control and visibility of factors like liquidity across multiple accounts and funding requirements. They can also track account balances and transaction information, use funding apps to originate loans, and initiate payments in real time.
At a hackathon in May 2019 which was attended by banks and their corporate clients, Finastra demonstrated how low code development tools, such as Microsoft Power Apps, can be used to build new Microsoft Azure cloud-based systems within just a few weeks rather than the 9 to 12 months that banks are used to. This allows banks to react quickly to customer needs and requests – whether they are building apps and services in-house or in partnership with trusted third parties.
“Azure enables the rapid development of new applications utilising open APIs and leveraging low code development environments,” explains Peter Hazou, director of business development for financial services at Microsoft. “It also reduces the operational costs of development while improving efficiency through agile and intelligent workload management.”
Corporate banks can also use business intelligence tools and artificial intelligence technology to capture insights and predict customer requirements. Recent regulation such as Payment Services Directive 2 is a springboard for new ways of working because it opens up data and removes silos between product groups. This means, for example, that banks’ relationship managers can work with corporate clients to understand and predict the need for loans or other financial products. Alternatively, when a corporate expands into a new geographical market, the bank can provide more efficient foreign exchange or cross-border payments and insights into local regulation.
Blended solutions containing elements of internal and external systems, combined with an evolved core, will become the norm. Banks will be operating at speed and will need to address any remaining cultural barriers.
The digitisation and innovation ship has now well and truly sailed. Corporate banks that have not yet got onboard need to leverage their existing core systems by opening up APIs and becoming part of the wider ecosystem. Plus, they must work with partners that follow open banking and bring corporates and fintechs together to consider the needs of end users. There are exciting, if challenging, times ahead for the corporate banking sector.
Finastra is ready to help – we have 61 open APIs, apps coming to our FusionStore soon, and over 8,500 financial services organisations worldwide have adopted our solid core systems. We’re also co-innovating with Microsoft to run the FusionFabric.cloud platform on Microsoft Azure and with Accenture to develop apps using our open APIs.
Torsten Pull is general manager for corporate banking and Mitesh Soni is chief evangelist at Finastra