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Banking Technology as Competitive Advantage

Why innovations such as AI, the blockchain, and APIs may replace credit as the glue holding corporates in their banking relationships.
As banks seek to develop new business opportunities and maintain relationships with corporate clients, while answering the industry mandate of moving toward real-time payments, technology has become the driving strategy. The tactics: to improve customer interfaces while developing new capabilities that utilize artificial intelligence, the blockchain, and application programming interfaces (APIs).

The stakes are high. Corporate customer satisfaction is at a nadir, according to the results of the 2016 Transaction Banking Survey published by GTNews in connection with CGI. The survey found that just 38 percent of respondents planned to stay with their primary bank. That’s down substantially from a year earlier, when 52 percent of respondents said they would remain with their bank. Why? According to the survey, the desire for better digital products and services is one reason corporate banking customers are jumping ship.

“There is a distinct difference between what corporates want and what banks are giving them,” said Jerry Norton, head of financial services strategy at CGI. “That is the message we’re hearing. Corporates are saying ‘We want this,’ ‘We want that,’ but they’re not getting it from the corporate banking sector.”

Don Raftery, managing director, banking, and head of the commercial and corporate banking practice at Greenwich Associates, agreed that AI has the potential to “significantly improve the quality of advice that [treasurers] get from their banks.” He added, “Banks are going to be able to leverage AI to help bankers come up with smart recommendations for their clients.”

Raftery cited cash management as one “pain point” that AI machine learning technologies might help soothe. These systems could be used to quickly analyze how a corporate uses cash around the globe, facilitating recommendations for improvements in timing and execution. “While each one of those little inputs may only be $5,000, $20,000, or $50,000,” Raftery said, “you start making smart decisions around the globe with your cash, and you can have meaningful impact.”

By enabling financial counterparties to share information securely through a distributed ledger, blockchain technology may spur a significant shift in how banks, and their corporate customers, do business and interact with one another, said Martha Bennett, principal analyst at Forrester Research.

“When you look at some of the characteristics of where things are going in terms of how business is being done, how customers relate to the companies from whom they’re purchasing, with whom they’re interacting, we’re looking at multi-stakeholder relationships, we’re looking at dynamic ecosystems that are replacing existing ways of doing business,” Bennett said in a Forrester podcast about blockchain.

Focusing on the Front End

Still, one risk for banks is that with open APIs, clients may no longer see the bank’s role in a transaction, said Greenwich Associates’ Raftery. “They can get disintermediated from the front end,” he said. Companies such as PayPal, and Betterment in the wealth management area, may become the visible entities in transactions even though they are not owners of the data. “What it does is turn banks into commodities,” he said.

That is why banks are also working on their user experience and interfaces, to try to maintain that visibility by being the best and easiest to use. “It’s a question of who is going to own that customer front end,” Raftery said. “Each of the major banks is fighting to create a terrific digital client experience.”

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