Corporate banking gets a digital edge

International visitors exchange ideas with Chinese representatives about the mobile banking of China Merchants Bank at the 2016 China Financial Expo. LEI KESI / FOR CHINA DAILY

Technological innovation is transforming the business models of commercial banks' corporate clients, thus driving changes in their demand for more flexible supply chain financial services, working capital financing, and consulting services relating to mergers and acquisitions, said The Boston Consulting Group in a latest report.

More than 70 percent of corporate clients identified digital capability as one of the key factors to evaluate the quality of commercial banks' corporate banking services, according to a 2015 survey conducted by BCG, a US-based global business consulting firm.

"As a result, leading institutions in the banking industry are stepping up the efforts to provide corporate financial services online and on mobile devices," said BCG partner and managing director David He.

Commercial lenders are now offering digital transaction banking services through the integration of corporate payment, trade financing and custody business.

They are also designing online supply chain financing products by connecting the information on upstream and downstream trade, logistics, purchases and payments through cooperation with e-commerce companies.

That's not all. They are also providing innovative solutions for foreign exchange transactions and cross-border payments by adopting the blockchain technology.

"Commercial banks are making a digital transition of their own businesses. In the mean time, they could also actively explore cooperation opportunities with fintechs (financial technology companies) to strengthen the collaboration in the areas like asset custody, joint loans, credit investigation and risk control, or even turn fintechs into their clients," He said.

Over the last couple of years, many new fintechs have entered the transaction banking market, seeking to position themselves as alternatives to traditional banks. They offered solutions that optimize specific elements of the transaction banking value chain, said a global survey. The survey covered 750 treasurers and chief financial officers at multinational corporations with consolidated annual revenue of more than $500 million.

While treasurers like the specialized value propositions and the often-cheaper price points that fintechs provide, 90 percent indicated that fintechs are not yet capable of meeting the full array of corporate treasury needs. They cite the small scale and relatively young businesses and perceive the fintech environment to be less secure.

"One trend that we expect to gather momentum is for fintechs and large transaction banks to partner with each other for their mutual advantage," said the 2016 survey conducted by Expand Research, a wholly owned subsidiary of BCG.

Banks can advise and help treasurers to understand and mitigate their risks and improve foreign exchange hedging strategies. They can also help treasurers better assess counterparty credit risks and navigate the complexities of the local regulatory environment.

Roughly 30 percent of treasurers are willing to pay for such advisory services, according to the survey. BCG forecasts that corporate banking revenues will increase to 3.5 trillion yuan ($508 billion) in 2020.