The Future of Corporate Banking
In the last few decades a lot of attention has been paid to optimizing chains from a logistics point of view: i.e. standardizing pallet sizes, automation of information streams by the introduction of EDI and introducing just-in-time processes. The next area of the modern value chains to be optimized is the financial supply chain.
In the near future, entire value chains will compete - not just the individual components. Value chain integration is top-of-mind for corporates, and the inter-dependency of the different chain partners and actors is becoming increasingly important.
This development provides insights into the entire chain’s financial and transportation risks, creating different levels of financial needs throughout the value chain. This vertical integration has been happening for the last ten years and is a major driver for corporates.
Within a value chain, companies manage their internal financial logistics. However, they are not benefiting from efficiencies to be gained from working more closely with other parties within the same value chain. The value chain needs to become more efficient, stable and competitive.
It is not unusual that one single flow of goods, from the start of the production chain until delivery of the finished goods, is financed multiple times simultaneously. As value chains become longer and more fragmented, the aggregated amount of credit facilities in the chain grows to a multiple of the value-added in the chain. This is a far from an optimal situation and impacts the supply chain’s competitiveness.
How should banks respond to this development?
The financial services industry has undergone radical technology-driven changes in the past few years. Yet, when it comes to new technology, traditional financial service companies, and banks in particular, are far behind the curve, recognizing the rapid speed of technological advancements and industry transformations as the biggest concerns for industry leaders.
Data is the new black and predictive and intelligent (digital) services will be dominant in the new banking scene.
The old banking services have become a commodity and are replaced by technology. And as digital is going mainstream, the banking industry is the next one on the disrupted list, facing an uncertain future powered by the growing line-up of actively innovating FinTech companies. Data is the new black and predictive and intelligent (digital) services will be dominant in the new banking scene.
A new FinTech wave is here now, where not only the front-end applications, as has been the case in the last 5 years, but also the back-end ones are changing. This wave will act on an infrastructural level, where the current banks will no longer be a required participant in transactions.
The real opportunity is not in the transaction performed but in the information acquired. Through new services, (new) banks can help corporates in all market segments. In this new world, it’s all about “context selling”- understanding what corporates are doing, where they are doing it, and then seamlessly providing financial services whenever and wherever they are needed in the value chain.
Providing these new services within the corporates’ business processes is the key to success. Banks should start focusing on the natural “tension” between value chain partners, instead of on the individual corporates. That’s where the real value is. Any type of transaction, insurance and working capital need is to be provided seamlessly.
The real opportunity is not in the transaction performed but in the information acquired.
Blockchain technology will have its positive impact on value chain integration as well. Still, it will not change the world as fast as some might make you think: so, integrate blockchain solutions next to the traditional services and enable a smooth conversion to the blockchain over the next 10 years.
To be able to get insights in the value chains of corporates, banks should start with providing them with the most state of the art transaction platform. This will give financial partners an in depth information about the value network, enabling them to analyze these networks. The continuous analysis can help predict value chain needs like financing, currency conversion needs and risks. Which in turn enables financial services providers to deliver the right product or service exactly when a corporate within a value chain needs it.
There is no place anymore for financial service providers that only focus on single customers in a value chain. Only the ones that manage to deliver network banking technology will be able to survive: a giant step to be taken for the majority of the traditional banks and a huge opportunity for the newcomers without any legacy systems.
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