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The Digital Transformation of Wholesale Banking and its Future Trends


Wholesale banking digital trends

The global wholesale banking industry is evolving at an unprecedented pace, driven by technological advances and a more demanding customer base. Fortunately, new technology not only enables a customer experience that is more closely aligned with expectations but also helps bank back offices enjoy greater automation, efficiency, and cost savings. Banks that ignore legacy systems and focus only on the client-facing front-end systems can not be a part of true digital transformation. In order to accommodate today’s challenging times, front-to-back technology replacements are required. When it comes to digitization, wholesale banking has traditionally lagged behind retail banking. Yet, several factors over the years have spurred a greater focus on innovation and digital transformation in this space. Let us take a look at the facts that spurred the digitization of wholesale banking and its future trends.

The Road from Legacy Systems to Full-Scale Digitization

Ever since the 2008 banking crisis, there has been far more emphasis on minimizing NPA’s (Non-Performing Asset) through a stricter regulatory framework. Fintech has witnessed the addition of innovative offerings that, in turn, have increased the competitiveness of traditional banks. A difficult macro-economic environment has added strain. On the other hand, with the proliferation of technology across enterprises of all sizes and sectors, wholesale banking customers have been vocal in their push for more convenience, smoother transactions, and a better experience overall. They demand and expect their banks to provide the same experience that they are now accustomed to in their retail banking transactions. 

In the last few months, the COVID-19 pandemic has added a greater sense of urgency to this transformation effort as enterprises grapple with a completely new environment with social distancing becoming the new normal. The pandemic has also presented banks with an opportunity to support their customers and manage and mitigate risks. Wholesale banking will transform, employ digitized practices, and develop new methods to improve customer experience. Another predicted trend is the inclusion of a new approach that will align services with business plans and address customer needs. Considering that fintech providers are providing a competitive presence, merchant banks will be on an endeavor to revamp their roles in the financial aspects of the business.

A recent study by Boston Consulting Group (BCG) also predicts a paradigm shift in digital disruption, with new competition from digitally nimble fintech offering stand-alone commercial solutions such as supply chain financing solutions or low-cost cross border wire transfers. The financial stakes are high for commercial banks.

In the medium term, namely, in the next five years, these new digital platforms and channels are expected to attract 30 percent of traditional corporate banking revenue.

Commercial banks must undergo an end-to-end digital transformation as markets are dynamic, and so are customer’s expectations, and hence there is no place for slow or lazy banks. The technology is available like never before and to the advantage of commercial banks, which can help them jumpstart their digital transformation journey. The BCG recommends a road map for digitization built around reinventing the customer journey, discovering the power of data, redefining the operating model, and building a digitally-driven organization.

The eight areas where wholesale banks must invest to remain in the race are as follows:

  1. CRM & Mobility
  2. Billing and Pricing
  3. Credit and Documentation
  4. Transaction Banking
  5. Banking Services With APIs
  6. Enabling paperless onboarding and processing
  7. AI/ML Enablement
  8. Cybersecurity

Leveraging Digital Transformation for Enhanced Customer Experience

The traditional lending process is cumbersome and time-intensive (with underwriting decisions often taking two to three months), and commercial banks are looking forward to effective digital transformation to automate different aspects of decision-making.

  • The primary focus will be on enabling paperless onboarding and processing.
  • Wholesale/Commercial banks are augmenting digital capabilities to identify plausible early loan losses and to mitigate risk through real-time monitoring, thereby providing greater transparency.

Contracting banking margins will enable corporate banks of the future to focus on creating a presence in various digital channels and managing a strong relationship with customers.

  • Leveraging digital transformation will enable banks in augmenting customer experience, streamlining processes, and increasing cross-selling opportunities
  • With effective digitization, wholesale banks can improve revenue streams, reduce costs, build strong client relations, and compete with non-traditional firms.

Artificial Intelligence and Wholesale Banks

There has been a substantial increase in the amount of structured data collected and used by banks over the last few years. Operational and strategic banking business decisions are being driven by the use of unstructured and structured data, and artificial intelligence (AI) and machine learning are playing vital differentiating roles. Wholesale banks are beefing up efforts to streamline corporate client accounts’ receivable and payable processes.

  1. In the case of front-end activities, AI is used to mimic bank employees, secure customer identities, engage customers, and deepen digital interactions.
  2. AI enables banks to provide corporate clients’ frictionless onboarding and streamline processes.
  3. AI is used to detect fraudulent activity and money laundering.
  4. AI can help Wholesale banks identify new opportunities across clients and markets and increase conversion rates.
  5. AI creates a revenue-driving synergy by combining both external and internal data.
  6. AI-based virtual assistants will start with standard reporting and answers to basic questions, and it progresses to provide insights and enable payment initiation.
  7. With AI, banks can improve their risk profiles while reducing costs and can overcome the challenges presented by AML and fraud detection.

Wholesale Banks and their increasing Investments in Cybersecurity

Banks have increased their investment in cyber-security to protect customer trust and retain client confidence. The assessment of risk profiles and fraud prevention processes have been improved by emerging technologies. The financial impact caused by cyber-attack is a great challenge to banks, along with the risk of compromising customer data. Generally, complying with regulations has been the primary reason for investing in cybersecurity, but wholesale banks will need to prioritize cybersecurity strategies to thwart growing cyber threats. In order to be well prepared for cyber threat mitigation, banks require strong governance and operational planning focused on cyber-risk.

Banks are leveraging technologies such as machine learning and data analytics to combat security issues in wholesale banking. These technologies enhance security and help detect potentially fraudulent activities. Banks are also hardening up defense strategies through new techniques and tools such as strong identity and access management programs. Wholesale banks have begun to focus on data recoverability by implementing secondary systems to sustain operations during a cybersecurity breach.

In the future wholesale banks will have to focus on two major areas to stay updated and succeed in the competitive market. They are Artificial Intelligence and Cloud Adoption. Simply referring to AI in marketing materials is no longer sufficient, and AI development is increasingly critical in terms of product development and back-office efficiencies. Partnerships and talent development will remain critical for everyone.  The cloud allows Wholesale banks of all sizes to experience greater flexibility, quicker speed to market, and operational efficiencies. Banks that are not exploring the value of the cloud will find themselves at a competitive disadvantage as technology solutions become more accessible to even the smallest banks.

“It is inevitable that banks must increase their share of investments in the digital arena for wholesale banking before they become marginalized or extinct.” 

Anand Babu
Senior Business Development Associate, RapidValue

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