June 29, 2021 | Stamford, CT — A rapid transformation of bank operating models is remaking wholesale banking into a more efficient and much more competitive industry.
A combination of historically low interest rates, technological innovation and the COVID-19 crisis accelerated the re-engineering of bank operational models and the “next-gen” operational model for corporate and transaction banking is already underway.
To be ready for this profound shift, bankers need to move quickly. A new report, Future of Corporate & Transaction Banking Operating Models, from Coalition Greenwich examines the forces driving this rapid evolution and identifies the defining characteristics of the new operating model emerging from these changes.
“In many ways, high switching costs created by the legacy operational model served as a cornerstone of the wholesale banking model for a generation,” says Gaurav Arora, Head of APAC & Middle East at Coalition Greenwich and co-author of the report. “This dynamic is about to be turned on its head, with low switching costs and the new open environment ushering in a new era of competition.”
In the span of just a few months, the COVID-19 crisis swept away most hesitations among corporate clients about using online tools, as well as any inertia to switch to digital solutions. Using new data analytics capabilities and client segmentation techniques, banks will leave behind one-size-fits-all approaches in favor of “nimble” operating models that calibrate service levels and channels to meet the needs of clients efficiently and at the lowest possible cost.
Open Architecture Will Transform the Industry
Perhaps the biggest change will be the transformation of the bank-operating model from a closed system to open architecture, and the elimination of the high switching costs that have defined both client relationships and bank business strategies.
The transition to an open environment will create a competitive market and allow companies to rationalize their banking needs and find the optimal allocations of business to receive the highest levels of bank credit, service and support. For their part, wholesale banks will be pushed to lean more heavily on fee-based revenues—with a special focus on new revenue streams from data and data analytic products.
“In this newly competitive environment, technological capabilities will be a powerful driver of bank selection and an increasingly important point of differentiation among banks and bank providers,” says Eric Li, Head of Transaction Banking Research at Coalition Greenwich, and co-author of the new report.
Meanwhile, automation and virtual communications will have profound implications for bank staffing, potentially lowering overall headcounts and forever altering the role of coverage bankers. In addition, the banks’ growing need for technological innovation will fuel the fierce competition for tech talent and evolve the role of fintechs, as both clients and competitors for banks, as well as regulations for disruptors.