Corporate banking, or business banking, caters to the banking and financial needs of corporate customers, from small businesses to large conglomerates, governments, and other institutions. Corporate banks offer a wide array of solutions to their clients such as loans and credit products, deposits and transactional services, treasury and cash management and capital market services.
The Function of Corporate Banking
For corporate customers, banking solutions are tailored to meet specific business and organizational needs. As such, corporate bankers tend to focus on different industries, developing niche areas of expertise, like those focusing on mining or energy. This sector-driven support ensures banks can provide bespoke support to help their clients meet their needs within particular industries and across their relevant value chains.
For banks and financing companies, further segmenting the market by customer size helps them to provide more targeted and appropriate services than by industry segmentation alone.
The middle market is typically focused on the range of $10 million to $1 billion in sales (though this distinction varies by bank). This target group is incredibly competitive, but notably, many firms that fall into this range have a strong loyalty to their primary bank. However, as their needs grow (as their business grows) many are looking for more specialized expertise, including those from nonbanks, including private equity firms, hedge funds, business development companies, and marketplace lenders.
The corporate banking space has been slower to innovate, and traditionally less agile than the consumer banks have. In recent years, the rise of virtual and digital solutions for corporate customers has increased, allowing banks to help drive digital transformation. Corporate customers are increasingly looking for solutions that reflect their personal banks’ digital solutions, like having more of the customer journey digitized, enhanced security (including biometrics), and real-time intelligent data integration. Banks are having to be responsive to changes in customer behaviors, with a greater focus on being more mobile, social, and analytical, as well as being open to a broad view of what their customers expect.
Digital disruption, a driver in the transformation of retail banking for years, has finally begun re-shaping the corporate banking space in response to clients’ changing expectations. Not only have new competitors entered the market, but cutting-edge fintech firms have been able to offer low-cost international transfers and supply-chain financing solutions as standalone products. New firms like Lending Club, the peer-to-peer lending platform; UiPath, which is utilizing robotic process automation (RPA) in credit applications and fraud detection; and those embracing Blockchain innovations are revamping the way in which traditional bank operates. More and more corporate customers are seeking out banks that offer efficient operations, with greater connectivity, and faster delivery of innovative products.
Customization and flexibility are essential in meeting the diverse needs of business clients given the diversity of their requirements. Tailor-made financial services and efficient service are what corporate banking customers are increasingly seeking in this fast-paced digital world.
Many corporate banks still fall behind their retail counterparts in providing digital tools and platforms that improve customer experience. One of the gravest fundamental issues is that many banks have yet to reinvent their customer journeys by incorporating digitization and personal service and increasing access to convenient online tools. Allowing more services to be automated allows for relationship managers to focus on the essentials their clients actually desire, rather than also managing services that could be automated.
As technology and services drive innovative products that are more intuitive, faster, and more responsive to customer needs, corporate banks must continue to be proactive adopters of the tools that meet their clients’ needs. Over the next five years, it is expected that new and ground-breaking digital platforms and channels will attract 30% of traditional corporate banking revenues. To stay competitive, corporate banks need to undertake front-to-back digital transformations in order to maintain and continue to secure new clientele.
The need for greater digital tools and platforms is especially prevalent for the middle market segment, where businesses themselves are looking at nimble and scalable approaches and solutions that support their growth.
Traditional ways of banking are going extinct, and as more and more digitally savvy executives climb corporate ladders, the more corporate banking customers will be seeking alternate and creative financial solutions that best support their businesses’ interests. However, corporate banks have to wrestle with wider arrays of compliance and regulatory issues that make revolutionary approaches and digital prowess often insurmountable tasks. To be competitive, corporate banks have to reinvent and transform their processes, technology, and human capital in order to foster the customer-centric focus that is needed to empower and deliver end-to-end solutions and a premier digital experience for their clients.