Six areas of opportunity for corporate and commercial banks

The increase to net interest margins that rising interest rates brought over the past two years has started to diminish, while the related inflation impact has increased human and technology costs, and credit risk remains heightened. And yet, we’re optimistic about the opportunities available for forward-thinking organisations who anticipate the risks and grasp the abundant technology-related opportunities. Here are six of the best:

1. Generative AI and the evolution of relationship management

Deployed effectively, generative AI technology represents the largest opportunity to drive down costs, while improving client experience and value, since the digital era began. Digitisation has opened up new channels for businesses to engage with banks – from SME banking to the large corporate and institutional client segments. Generative AI offers banks a way to accelerate this evolution, enabling a new layer of client insight and streamlining burdensome operational activities where humans and technology intersect. These changes will transform the role of frontline sales and coverage professionals in corporate and commercial banks, allowing them to become increasingly specialised and effective in identifying and meeting client needs.

2. Consumerisation of corporate and commercial banking services

Finance and treasury managers increasingly expect the same level of convenience and personalisation from their corporate and commercial banks as they experience from their retail banks. The traditional banking boundaries are also blurring, as even smaller businesses expect their banking and accounting information to be available from a single digital platform. Banks should embrace the opportunity to offer insight-driven journeys, using analytics and AI from multiple sources to personalise services, offer new product recommendations, and customise reporting. Chatbots and AI-powered virtual assistants can find personalised information, resolve issues, and perform routine banking activities. So, it’s increasingly possible for banks to offer clients self-service.

3. Getting ahead of regulation

The collapse of Silicon Valley Bank in 2023 rang alarm bells for regulators around just how quickly confidence in banking operations eroded. This, together with evolving regulatory agendas around conduct and capital adequacy, will mean corporate and commercial banks need to continue to evaluate their models. From impending Basel 3 changes to areas such as the UK’s Consumer Duty regulation and, for non-domestic banks, the regulatory considerations to approving a branch over a subsidiary operation, will require careful analysis, close liaison with regulators and industry bodies, proactive decision-making, and excellent execution.

4. Greener banking

We expect to see an increase in sustainable solutions, with a particular focus on banks ensuring credible transition plans are in place, more green financing options for smaller clients, and solutions to address other challenges such as biodiversity loss, water scarcity, and pollution. Disclosure and regulatory drivers such as the Corporate Sustainability Reporting Directive and Taskforce on Nature-related Financial Disclosures are likely to accelerate efforts. Banks should invest in adapting credit risk and asset financing models to capitalise on maturing transition technologies. And we expect to see more embedded carbon-related considerations in pricing and capital models. Banks have also begun to monitor the emissions associated with portfolios, steering decisions, and strategies towards low-carbon alternatives. Some have implemented carbon fees, which fund green initiatives or offset emissions. The opportunity for all banks in this area is to demonstrate leadership in harnessing reliable data against which to make these adjustments.

5. Adapting to the ‘higher for longer’ interest rate environment

As central bank interest rate increases have plateaued, treasury and portfolio management considerations have become more complex. A higher interest rate environment has triggered significant changes in how businesses manage their cash, leading to greater volatility in deposit balances. At the same time, the emergency funding provided by many governments via the banking sector during the pandemic period to incentivise the flow of credit to businesses is ending, leading to higher cost of funding and increased competition for deposits. We expect this trend to continue. As a result, banks should invest in their cash management and payment platforms, and broaden their range of product options to ensure they attract and retain the cash and investments of their clients.

6. Evolving KYC & onboarding

Technology, regulation, and customer experience expectations will drive further investment into banks’ Know Your Customer (KYC) and onboarding processes for business clients. Data analytics and AI can enhance the efficiency and accuracy of KYC processes. For example, data mining can be deployed to identify anomalies, augmenting customer due diligence. There are also opportunities for increased collaboration and information sharing among banks, industry peers, and regulators. This should be combined with a focus on client experience: providing personalised communication, reducing documentation, and offering self-service options to streamline the onboarding journey while maintaining the highest standards. Perpetual KYC is widely regarded as the goal, moving away from periodic reviews to continuous monitoring throughout the relationship lifecycle. It facilitates better risk management, a more holistic view of client activity, and has the potential to significantly reduce costs.

Amid a backdrop of transformative technology and a volatile economic environment, there are significant opportunities and reasons for optimism in corporate and commercial banking. Those that use potential headwinds to their advantage by adjusting to evolving client expectations, embracing change, and making bold decisions will benefit from reduced costs and improved client experience.