I’m involved in a meeting and conference focused upon the future of banking.
This time it’s a question of the future of corporate banking, or commercial banking if you prefer.
The world of treasurers and a conversation that always returns to the same old things around working capital, supply chains, procure-to-pay, payables and receivables and so on and so forth.
I like this world as it’s the one part of the banking world where you see the financial wizards really working hard to serve the customer.
Forget investment banking, where some companies work on the basis of screwing the customer. In the corporate world, banks recognise that they have a squeezey relationship where many of their larger corporate customers’ demands are not being met and their requests for banks to change their behaviours are not being responded to.
That creates challenges for some banks and opportunities for others.
For example, throughout the development of SEPA there have been many tensions, where the requests for corporate inclusion in the development of the program have been resisted.
This has created opportunity for some banks to offer new, enriched services, but do the corporate customers really care?
Do they change their bank?
And, for banks, do corporates really count?
Are banks that bothered about them?
Maybe and maybe not.
You see there are lock-ins for the corporate client in their corporate world.
First, there’s a lock-in of attachment.
The corporate client is locked into some of their banks through historical point-to-point connections, for example.
These proprietary technology links are opening out, but the lock-in still exists.
This is due, in part, to corporates’ own legacies; in part, because the bank doesn’t want to release the lock-in; and, most importantly, because the lock-in exists in the mind of the corporate decision maker.
This is actually the second lock-in, history.
This lock-in is far more important than the first.
The historical lock-in is the corporate’s comfort with its bank, and their lack of motivation to move.
The lock-in works in two ways and, because it is so critical to the bank and corporate, it means that corporates will rarely leave their bank for another.
This is because the most important lock-in is the history of knowledge the bank has of the customer.
That knowledge is the most important thing the bank has over the customer, and is far more important than any legacy connections.
This is the key for the corporate to bank relationship: using historical knowledge to show you understand the customer, can deal with them well, have an interest in their needs and want to protect that long-term relationship.
It applies to individuals in consumer banking too, but is far more important in the corporate to bank world.
It is the bank’s historical knowledge of their needs that the corporate client values in this relationship.
The fact that the corporate client relies on the bank’s historical knowledge of their relationship that makes them accept that there is no point in moving to another bank.
In other words, the real lock-in is trust in the relationship.
This is where it gets interesting, as banks are being pushed through connectivity, open systems, transparency and regular communication to open up to more scrutiny in the trust of that relationship.
That’s a key part of future corporate banking: being honest, open, transparent and engaging.
It is also the biggest challenge as the more open the bank becomes, the more they will be challenged.
Again, this is true in consumer banking but is going to be a critical part of corporate banking.
It is also why social communications is a key part of that future relationship.
I can see this already, as there have been a number of dialogues about how the use of social media in bank to corporate discussions changes and improves the relationship. It is why there are good examples of trade-based social financial communities being built, with privately managed services such as SEB’s the Benche and Scotia Bank’s Get Growing for Business being good examples.
Nevertheless, some banks still don’t get it.
In this instance, it’s more to do with the trashing of those long-term lock-in’s of knowledge and connection due to new bank rules and issues with the credit crisis.
For example, a major headline hit the press recently, about a bank losing a key corporate client after a relationship of almost two centuries due to intransigence in their lending criteria.
The issue lay with access to credit which, in current climate, is a big issue.
However, I don’t see these headlines regularly and so maybe corporates generally don’t move because banks do value their relationship.
The real point here is therefore that if a bank does value those relationships, then they have to show flexibility and transparency in future.
If a bank is intransigent in its corporate relationships – whether it be over infrastructures like SEPA or lending criteria – then they are on a sure-fire long-term strategy to becoming a smaller bank.
Banks must be responsive to their corporate customer, and demonstrate that their proprietary knowledge of that customer deserves to lock them in to a long-term mutually beneficial relationship.
Otherwise, the future of corporate banking is not a future for that bank.