, Japan

Tech-Driven Next-Gen Corporate Banking: Trends and Implications in APAC and Japan

By Eiichiro Yanagawa

Corporate banking is at a critical juncture of accelerated change

External factors are driving disruptions and opportunities in corporate banking. Banks are at risk of falling behind in their response. Players in the corporate banking arena need to assure that they keep pace and take significant strides to compete effectively with financial institutions at the vanguard of technology as well as digital giants and fintech firms. Companies need to cease product- centric approaches and embrace a customer-centric approach, one that reimagines and improves
the customer journey. Banks need to digitize paper-based processes and put top priority on shifting from intuition-driven decision-making to data and analysis-driven decision-making.

The Asia-Pacific region has been generating 43% of global market banking revenue with the Chinese market positioned firmly at the center of many growth strategies. However, future growth will be driven not only by China. The global situation is characterized by uncertainty stemming from factors ranging from negative interest rates, the emergence of trade protectionism to US-China trade friction, Brexit and now COVID-19. Against this backdrop, the future of corporate banking growth can be expected to be heavily dependent on performance in digital economies where technology plays a prominent role.

Now more than ever, as technology iteration continues to move ever faster, banks should seek to evolve in the corporate banking arena.

Corporate Banking in a Time of Transformation
A confluence of forces is reshaping corporate banking.

On the demand side, corporations increasingly rely and expect the support of bankers to help themovercome challenges and seize opportunities. Baseline expectations are being established and rising based on the digital giants and fintechs that provide services.

Corporations are facing numerous pressures, threats, and opportunities, ranging from globalization 2.0, new economy challengers, increasing regulation, increasing risks, and cybersecurity threats. As a result, treasurers are facing expanding roles, which is increasingly strategic and technology-focused with expectations to handle rising complexity and risk, hedge and make forecasts, and ultimately do more with less.

On the supply side, banks have a great opportunity to build stronger relationships, position themselves as advisers, and generate new revenue streams if they can respond to the companies growing and shifting needs. But most banks are underprepared to respond to corporations’ dynamic needs and demand for real-time information flows.

Traditional clients, for the most part, are grappling with the transition from batch to real-time and from paper to digital. Meanwhile, some banks at the vanguard are scrambling to meet the needs of lean new economy companies with data-driven, nimble, cloud-based infrastructure.

Currently, third-party providers including e-commerce platforms and fintech have been the early movers working to bridge the gap between large corporate customers and corporate banking. Many existing players in corporate banking have started competing against each other, while collaborative initiatives with new players have yet to get off the ground.

Historically, corporate bankers have expanded corporate banking services by sharing and supporting the concerns of corporate treasurers. The novel pressures that are being felt by treasurers are ostensibly a business opportunity for bankers and feature many different elements driven by a multitude of factors.

The new roles expected to emerge are an opportunity for evolution and innovation in corporate banking:

  • Advisor support offering real-time data and analytics tools
  • Role as a partner facilitating workflow digitization, especially in financial supply chain and optimization of operating capital
  • IT and financial technical advisor including business case support
  • Provider of IT services
  • Cocreator of innovation

Toward Creating a Virtuous Cycle

Indeed, the biggest challenge may be persuading top executives to put the priority on a comprehensive and inclusive approach to fostering organizational excellence across corporate banking operations. In many instances, it is difficult for all of the business units and support units to embrace a wholesale paradigm shift. Attachment to internal organizational silos, new team dynamics, and modifying control functions mean that making the necessary change is never easy.

At the same time, by taking the lead in the shift to digital, cutting-edge corporate banking operations can establish a superior position versus other challengers and new entrants. Some pioneering banks have already carved out comparatively large customer bases and are steadily accruing expertise related to data gathering, remittance processing, conflict resolution, and payment making. Notably, some banks are already making pioneering efforts in data analysis and AI. Moreover, banks are offering advanced services including financing options related to operating capital using credit products and risk analysis.

Leveraging their assets may help these banks, which excel at enrichment, empowerment, and enhancement, to secure an overwhelmingly dominant share of the nearly $1 trillion global corporate banking revenue pool. In other words, in these areas as well, there are signs of digital disruption (a global winner-takes-all scenario). The timing for Japanese banks is one in which they should learn from best practices and recreate their own value chains that fully leverage their strengths—and as Jeff Bezos writes in his annual shareholder report, these institutions should start by listening to their customers.

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