Home Banking Time for Banks to Address ‘In-House’ Disruption

Time for Banks to Address ‘In-House’ Disruption

by internationalbanker

By Chet Kamat, CEO and Managing Director of Oracle Financial Services

Advances in technology and changing attitudes towards risk and regulation have inspired many large companies to create their own in-house banks, affording them greater control of their finances and the opportunity to create a service tailored just to them and their specific needs.

It is perhaps one of the most significant examples of digital disruption. The banking industry, once considered the impenetrable domain of relatively few, highly-specialized businesses with prohibitively expensive systems and infrastructure has been opened up and democratized by powerful but affordable technology that is enabling businesses to run tasks such as payments processing and liquidity management for themselves, subsidiaries and suppliers. 

The trend has even reached the ranks of mid-size and small businesses keen to exploit the power of sophisticated banking applications to de-risk their reliance upon third party financial institutions who they have come to regard as less relevant to their businesses.

In an age when businesses and consumers alike expect highly personalized services, tailored to their precise needs, this trend of establishing in-house banks has enabled businesses to create banking services that truly deliver what they need, when they need it. For businesses, the in-house bank is the zenith of personalization, while for banks it means a potentially significant hit to the steady flow of transaction revenues that was once such a reliable part of their business. 

What should banks do?

Banks do not need to concede defeat but they do need to review and refresh their offering to reengage businesses lost to the trend of in-house banking and prevent others from feeling the need to explore this option. 

Priority areas for banks must include a focus on helping businesses overcome the complexity and issues that turned many away from managing the multiple banking relationships they once relied upon. Banks must also improve their relationships with customers and demonstrate a greater understanding of each business’s industry and the unique financial needs that vary from sector to sector. 

It has clearly become a growing concern for businesses that the ‘off the shelf’ products and services offered by many banks do not meet their financial needs and are not as relevant or as tailored to their business as they could be.

Banks must respond to this dissatisfaction and gain greater domain expertise across multiple industries, to understand how products and services can better support customers. 

By gaining a more in-depth understanding of different and diverse businesses, from automotive to agriculture, from manufacturing to retail, banks can create services that meet the particular needs of each customer and ward off the risk of customers deciding they are better off going it alone. 

Customers want more say in the services they are offered and banks need to explore ways to consult with business customers and co–create innovative products that solve their complex financial challenges. 

By creating services which are tailored to customers’ specific businesses, banks will also open up potentially lucrative avenues to new customers as they enable a banking ecosystem that closely integrates with a customers’ buyers, subsidiaries and suppliers. This will bring power and simplicity to the task of managing working capital and gaining a detailed 360-degree view of liquidity, at a time when businesses are growing increasingly wary of instability in the economy and wanting greater control of their finances.

From art to science

In a challenging economy and in age of tightening regulations, businesses are aware there is value to be gained from paying for third party banking services. But they need to feel what they are paying does indeed represent value for money and they are paying a fair price for the right things. The move to in-house banking suggests many businesses did not feel this was happening.

The Boston Consulting Group suggests the change that needs to happen is a move from “pricing as an art” to “pricing as a science”. What this means is relationship managers must utilize the best possible tools to enable them to price products and services based on the business needs of each customer.

Those tools are available now and can not only help banks improve customer service through increased personalization, they can also assist by freeing personnel from heavy manual processes to focus on adding value to customer interactions. 

With automation at the core of many of those tools, repetitive manual tasks can be eliminated, increasing staff productivity and enabling them to focus more on complex tasks and refining the ways in which they tailor and target services for individual customers. Automation can also reduce the frustration some customers feel in their banking relationships by reducing processes that can take several weeks to just a few days, or hours. For example, the on-boarding of new corporate customers can take a bank up to six months due to the complexity of the task, but that can now be reduced to a matter of days, meaning there is less time for a customer to ponder whether they’d be better off looking for a solution entirely within their own control.

Addressing these issues is crucial for banks. They need to respond to the threat of digital disruption and the attractiveness of businesses taking control of many banking services they have traditionally paid banks to attend to. 


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