One major underlying issue is that maintaining outdated legacy systems, combined with the cost inherent in correspondent banking, is holding banks back from developing and delivering the services that their corporate customers now desire in the increasingly digitalized landscape.
Banks have a significant cost base to maintain which adds a huge financial burden. According to a McKinsey study, the cost of making a cross-border payment for a bank is around 25-35 USD for each payment. Faced with new entrants, they have little appetite for extending their services with the limited margin available. The traditional correspondent banking network is another deterrent. Connecting with several other banks to complete payment – sometimes across several jurisdictions – adds to the cost and time delay for the end-customer, making the bank proposition less attractive.
Banks want to deliver both core and non-core services that their customers require – a fundamental to growing revenue and profitability. But how do banks adapt, innovate and deliver across all product sets at once? 2020 did little to help in that respect. The focus was on the ‘here and now’ with innovation for anything beyond core services going on the back-burner and product launches delayed.
Now, however, with COVID-19 soon hopefully a vision in the rearview mirror, attention is returning to how corporate customers can be effectively served across all their needs. And the C-suite executives of the banks we surveyed across the three regions said that working with third-party service providers is an important part of their business planning, even though the pressures of 2020 put a pause on collaboration being widely adopted.
Half already have partnerships or plan to work with an external provider within a month, while another third have partnerships on the agenda for the next 12 months. This collective consensus proves that collaboration is no longer a novelty. And the new wave of specialist partners supporting and enhancing business banking propositions can play a significant role in helping banks to exceed the expectations of their corporate customers which, in turn, will help them gain market share
Banks face some significant internal and external challenges to future-proof their organizations; they need to enhance their customer propositions and ultimately provide a better customer experience. Those challenges are not insurmountable with a collaborative vision.