The past 10 years have dramatically altered the banking landscape. The rise of digital technologies, demand for faster payments, and growing competition for deposits are just a few of the forces compelling financial institutions to reassess strategies for attracting and retaining profitable customers.
So what does this mean for 2020 and beyond? We see three main trends driving commercial banking initiatives: the unification of siloed channels through ongoing digital transformations, growing customer demand for straight-through processing, and attracting and retaining small business customers.
Dismantling Silos through Digital Transformation
The scramble to keep pace with a changing business environment has left many banks and credit unions struggling to build new digital business models on top of a morass of disconnected legacy systems and work processes. The international consultancy EY reports that 43% of U.S. banks still use COBOL, a programming language dating back to the 1960s, and extra layers bolted atop those systems often cause unacceptable outages. Further complicating matters is a pervasive lack of institutional knowledge around systems and processes cobbled together over the last five decades.
Clearly, banks must move away from these antiquated systems and processes to survive and thrive.
Partnerships with financial technology firms can advance this objective. In fact, a recent survey by Finextra found 81% of bank executives believe collaborating with fintechs is the best strategy for achieving digital transformation. These partnerships allow financial institutions to future-proof operations by tapping into new pools of knowledge and experience, as well as technologies like artificial intelligence, application programming interfaces and cloud computing.
As EY explained, “Cloud computing has become central to [digital] transformation efforts.” Cloud technology has the potential to transform operational efficiencies by eliminating the need to invest in new technologies, since everything is available in the cloud.
AI, coupled with electronic signature technologies, can be deployed to streamline client onboarding, and in the back-office can be used to help better detect fraud, as well as to identify new opportunities across clients and markets. APIs, meanwhile, have application across FIs, as they allow for diverse software systems to communicate.
Without solid, forward-thinking technology foundations, FIs will miss out on critical opportunities, leaving them to remain irrelevant. Advanced technologies, like APIs and AI, coupled with cloud services, support swifter exchanges of information and collaboration. This in turn can pave the way for closer rationalization of digital services and backend operations, and allow for future scalability.
Straight-through Processing Demands Better Integration
Companies large and small suffer under the strain of omni-channel payment acceptance and the processing bottlenecks created when payments and associated data arrive through multiple channels.
Accurate and accessible insights into company cash positions is a critical success factor for corporate treasurers. Yet, as a recent survey by Aite Group points out, about a third of corporate treasurers use spreadsheets to obtain consolidated views of receivables.
Integrated receivables solutions provide a way out of this dilemma. The solutions can take payment information from any channel and associated remittance data regardless of how it’s presented (as paper invoice, email or electronic data streams) and using AI and other technologies match payments and related remittance details, and update a company’s accounts receivable (AR) and related systems. The process eliminates much of the human intervention otherwise required for remittance matching, and moves corporate treasury operations closer to the Holy Grail of straight-through processing (STP).
A survey by Aite found 73% of corporations consider a bank’s ability to offer integrated receivables to be important when selecting a new bank partner. Several fintechs have developed integrated receivables platforms and are partnering with FIs which in turn private label the solutions to their corporate clients. More of these partnerships can be expected in 2020 and beyond.
Small Business Market Not So Small
The small business market – at 25 million strong, according to federal government statistics – represents a greenfield opportunity for FIs that deliver solutions that can help manage and grow these businesses. In fact, a survey last year by Blue Vine Capital revealed that 69% of small business owners would consider switching to an FI that provided products and services they deem important.
External forces, such as technology advances and customers’ personal experiences, are driving much of the demand for innovative banking solutions for this market. But many banks and credit unions are dropping the ball, forcing small businesses to turn to fintech companies for capabilities such as accounts payable and receivables reporting, payment acceptance and processing, and cash flow forecasting tools –a trend that has led Aite to estimate the industry could be losing more than $1 billion a year in potential small business revenues to fintech solution providers.
Small businesses are a major growth engine for the U.S. economy. And many small companies grow to become large corporations. Lest we forget, Facebook and Amazon were both small upstarts not that long ago. But small businesses are not a one-size-fits-all type of market. That’s where smart investments in technology, and fintech partnerships, come into play. Linking to digital platforms like QuickBooks, for example, and using technologies like APIs, AI and mobile to simplify receivables reporting. These same technologies coupled with electronic signature technology can also help to streamline and expedite commercial lending.
Embracing Technology to Remain Relevant
Technology is the great enabler. And while the basics of banking – accepting deposits and making loans – remains the same, the channels through which these activities (as well as new products and services) get accessed are expanding. That’s why it’s critical for banks and credit unions to embrace new technologies, and new partnerships with fintechs, to address the needs of and remain relevant to tech-savvy commercial clients.
At Superior Press, we make it our mission to help financial institutions unlock the power of technology to delight their customers. Discover the Definitive Guide to Treasury Management Services by Bank Size with this resource on our website.