The commercial banking world is undergoing reorganization and 2019 has been full of evolving trends. Branch (and bank) closures, shrinking employee numbers, new non-bank financial institutions encroaching on market share – these are just some of the forces leading banks down the path of change. Let’s look at some of the changes in 2019 and how they could play out in 2020.
Quick(er) adaptation to market changes
The entrance of non-bank financial institutions into the European banking services arena unnerved many of the old guard, but the changes brought in by the EU with the Payment Services Directive 2 and similar regulations means that banks will have to adapt to a new landscape.
To survive in this new world, we expect commercial banks to try and keep up with the breakneck pace, adapting their own offerings to compete with thopse of 3rd-party providers. They have no other choice. Research by Raddon found that 32 percent of businesses were likely to use an alternative lender to meet their financing needs. More worrying for traditionally minded banks is that 51 percent of millennial-led businesses have already applied for a loan from an online lender. This kind of change cannot go unnoticed.
Quick(er) commercial payments
Same-day or even real-time payments are a growing need of many commercial clients. No wonder, when in private life these same people can enjoy these benefits when transferring over Europe’s SEPA network. The pace of business is accelerating and global payments will have to catch up. SWIFT recently conducted a US-Singapore payment test, clocking it at 13 seconds. Banks will have to sign on to SWIFT’s gpi fast payments network or develop their own solutions. The world is not going to patiently wait much longer.
Automation and AI
Financial institutions of all varieties are moving away from paper. This isn’t borne out of environmental concern. Manual, paper-based processes are slow. Infuriatingly slow. But digitization is not only a way for humans to access material faster. It’s a means to developing automated processes that can eliminate the human factor altogether. We expect the use pf AI to steadily increase over the next few years, and the trend has already begun.
Integration with corporate clients
If speed is the question, integration is the answer. The theme of 2019 is speed, and commercial clients are tired of waiting for banks to catch up to the pace of businesses. A solution can be found in closer integration between banks and their clients. Commercial banks are developing custom solutions that can directly interface to their clients’ IT systems, facilitating more efficient enterprise resource planning and use.
Streamlining of payment services
Unlike retail banking, corporate banking is slow. It can take days or weeks for payments to be processed, with lengthy back-and-forths between the clients and the compliance and operations workers at a bank. The reams of paperwork exchanging hands for each payment accumulate quickly, and taken as a whole, the amount of information exchanged semi-manually is simply mind-boggling.
The regulatory requirements of record keeping are not likely to ease any time soon, but this does not mean that the processes for the collection of records have to be so rigid. Commercial banks have started teaming up with financial technology providers to streamline payments for commercial clients.
Increased focus on non-lending services
The historically drawn out period of low interest rates since the financial crisis has severely impacted banks’ ability to generate growth and revenue through this traditional bastion of banking income. Moreover, commercial bank clients are increasingly engaged in businesses with irregular payment schedules (such as freelancers and online retailers), making it harder for banks to count on a steady stream of repayments to sustain revenues.
In this climate, banks are likely to focus more on non-lending services, such as transaction banking, risk management and advisory services in order to bolster profits and diversify revenues.
Even more cybersecurity investment
This trend didn’t start recently, but it shows no sign of subsiding. Cybersecurity investment is a growing item on banks’ balance sheets and we see this trend continuing long into the future. Some of the changes we see focus on increased cybersecurity training for employees, upgrades to aging cybersecurity infrastructure and increasing use of AI machine learning technologies to improve security.