The Future of Innovation in Commercial Banking

Digital experiences have become a growing part of the banking ecosystem in the last decade. While retail banking has generally been on the cusp of digital innovations, commercial banking faces pressure to catch up. A study from Fraedom revealed that 95 percent of commercial banking clients who use digital banking in their personal lives expect the same digital experience for business.
With the entire world undergoing a digital transformation that has only been accelerated by the pandemic, the future of innovation in commercial banking is critical and time-sensitive. What’s next in commercial banking? What role will big data, machine learning, and AI play in the future? How can financial institutions best service their business customers?

Today, we’ll break down the most critical aspects of digital innovation in commercial banking.

Client Expectations Demand Digital Banking

Commercial banks have been providing similar services for many years, but client expectations on how banks should address those needs have changed with digital transformation. According to Deloitte, “commercial clients expect the same speed, flexibility, and personalization they receive from their bank as a consumer.” The adoption of digital solutions in retail banking is creating an expectation of digital banking for commercial banks. Customers have come to expect a certain level of technological integration by all banks, including commercial banks. For banks to compete in commercial banking, they must meet client expectations when it comes to digital services.

Hierarchy of Emerging Technologies in Commercial Banking

Early investments in digital banking were first targeted toward financial institutions with customer solutions, but they have now expanded to include enterprise banks. The Mercator Advisory Group created a hierarchy of emerging technologies and categories taking hold in enterprise banking. The trending hierarchy in corporate banking innovation is as follows:

• Artificial intelligence: Artificial intelligence, especially machine learning, is being used to enhance products and services. AI is used for predictive analytics, allowing banks to make more effective real-time decisions that yield higher returns.
• Application programming interface: Application program interfaces (APIs) are essential for integrating new products and services.
• Digital systems: Digital systems include real-time payments and cash cycle automation
• Cloud: Cloud platforms and banking-as-a service through cloud-based services.
• Distributed ledger: Currency and trade services.

Critical Areas for Banks in the Commercial Space

Commercial banks are playing a challenging game of catch-up when it comes to digital banking. Here are five critical areas to focus on in enterprise banking:

• Fintechs: Fintechs were previously viewed as a threat to financial institutions, but they provide essential opportunities for beneficial partnerships. Commercial banks can collaborate with fintechs to offer agile customer experiences and digital banking services.
• Open Banking: While regulations drive open banking, it has promoted significant innovation in the commercial banking space. Currently, open banking is mandated in Europe, but not in the U.S. Banks in the U.S have begun to create API channels for corporate clients, offering services like balance inquiries and loan drawdowns. Through APIs, banks will be able to get more end-to-end data, improving decision-making for open banking.
• SMEs: Enterprise banks that work with small-to-medium enterprises (SMEs) previously offered diluted versions of products designed for larger corporations. Now, SMEs also demand automation, digital processes, and exemplary customer service. Commercial banks must incorporate digital banking and innovation-driven business models to ensure the best customer experience for SMEs.
• Payments: The world has rapidly moved to digital transactions, emphasizing blockchain to reduce transaction costs and expand real-time and cross-border payments. Many of the older internal hubs are not equipped for the proper data management capabilities necessary for transaction visibility. In the future of commercial banking, payment as a service (PaaS) will be a significant area for banks to focus on.
• Digital ecosystem: For commercial banks to provide an optimal customer experience, they must be able to intertwine digital technologies in the bank ecosystem. Digital banking for financial institutions is not about one-off innovations; it’s about combining vital digital strategies to create a convenient, secure customer experience.

Financial Institutions Must Better Serve Their Business Customers

The future of innovation in commercial banking is heavily connected to digital banking and technology. There’s a growing expectation from commercial banking clients that those financial institutions provide the same level of convenience, service speed, and digital innovation as the retail banks they use in their personal lives. Commercial banks will need to integrate digital innovations like machine learning, data analytics, artificial intelligence, open banking, and more into their financial services to serve enterprise clients best. Commercial banks should strategically partner with fintechs, respond to customer needs, and replace outdated infrastructure to remain competitive. While commercial banks have a long road of digital innovation ahead, they have the potential to offer an incredible customer experience to their business clients.