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Evolving banking for the digital economy

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30 Sep 2022

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To deliver the efficiency, transparency and experience that new-age, digital-first and digital-only companies of the future demand, banks need to evolve in lockstep.

Around the world, financial services – from payments to credit, savings and beyond – are undergoing significant disruption as the advent of new technology drives a fundamental shift in how businesses operate. To deliver the efficiency, transparency and experience that new-age, digital-first and digital-only companies of the future demand, banks need to evolve in lockstep.

The world as we know it is undergoing dramatic change, and one of the fundamental drivers is digital transformation. In recent years, the way consumers interact with businesses has been revolutionised by an explosion of online sales, while cashless alternatives including mobile wallets and instant payments are driving new behaviours in cash management. Meanwhile, the advent of digital currencies and the growth of the decentralised internet are creating new channels for growth.

As buyer and seller expectations of a friction-free experience rise, banks must find their place in this new world, rethinking the underlying financial services ecosystem to support the economy of the future.

A seamless banking experience

In 1994, Microsoft Founder Bill Gates made the statement: “Banking is necessary, banks are not”, and today, new banking ecosystems often don’t look very bank-like at all.

We live in a digital age, and clients want their banks to be integrated seamlessly into their activities. Now, more than ever, businesses demand seamless, simple interactions, with their bank acting as their financial intermediary across the entire digital ecosystem – which means banks need to plug in to the systems that underlie all of their day-to-day needs.

To stay in the running when it comes to driving the next step of the digital revolution, banks are linking together their expertise and their clients’ aspirations to create rich and differentiated propositions. In this way, banks are no longer just banks, but platform facilitators.

“Through APIs, we offer banking services to corporates and non-bank financial institutions, allowing them to access both global and domestic banking services,” explains Michael Spiegel, global head of transaction banking.

One example is a solution combining virtual accounts with transaction notification APIs, which means treasurers and finance managers can set up as many virtual accounts as they need – for example, one to each customer or one to each subsidiary. Their customers make payments to the virtual accounts which are automatically routed to a single bank account, typically by currency, while the client receives real-time transaction notifications with virtual account information for automated reconciliation.

Another is Straight2Bank Pay, which tackles a key pain point for treasurers by minimising the number of merchant accounts and contracts with payment service providers.

It allows consumers across markets to make online payments in local currencies via various digital payment methods including QR codes and instant payments, transforming the bank into a one-stop digital collections gateway, enabling a multinational with a presence across several countries to accept a variety of payment options from their customers all through a single platform. API connectivity into the client’s ERP system enables treasurers to stay updated with real-time notification on transactions, perform auto-reconciliation and access standardised, consolidated reports. What’s more, it can be tailored to different business needs both online and offline, providing omnichannel e-commerce solutions across various business models.

“Solutions such as these bring all the advantages you’d expect from a bank, such as robust regulatory, financial, compliance and risk modelling frameworks, security and reliability, as well as many of the strengths you’d expect from a fintech such as speed, innovation and client experience,” says Spiegel.

The data opportunity

As banks adopt faster ways of building digital solutions for their clients, the use of data can help inform the development of solutions for the real economy of tomorrow.

“Today, corporate clients are also expecting real time access and visibility versus the traditional service levels in the market,” says Spiegel. “This challenges the traditional approach of banks, and raises issues such as how to manage compliance and risk in a real-time environment, and how to manage client service across new channels to meet both client and regulatory requirements.”

This represents an important consideration since banks operate in one of the most tightly regulated sectors on earth. Compliance concerns, plus laws such as Europe’s GDPR and the California Consumer Privacy Act of 2018, mean enormous care must be taken when leveraging data.

Within these protective boundaries, though, there is an exciting opportunity for banks and financial institutions to carry out advanced analytics to predict and serve the real needs of clients. Therefore, instead of offering a small set of one-size-fits-all products, banks can use all the data they have available to them to provide a truly personalised service, tailoring products to meet the requirements of businesses in the real economy and providing banking as a service at the point of need.

“We are also working to identify the data use cases our financial institution clients value,” says Spiegel. This can be something as simple as alerting a client when a transaction looks different to financial trends, such as unusually large transactions, new recipients, or new countries, or – as in the case of Trade Track-It – providing a window to near real-time data to enable end-to-end visibility of transactions, documents and shipments status.

Looking ahead

Banks also have a strategic role to play in facilitating the new economy and the next era of Web 3.0 through the thoughtful adoption of digital assets. This will likely take many forms, including integrating and embedding central bank digital currencies (CBDCs) – a new form of money – with business processes and lifecycles.

“If issued, CBDCs can have important implications for the banking industry. At Standard Chartered, we are working closely with regulators and industry players on the development of wholesale and retail CBDCs,” says Spiegel. “We have worked on multi-CBDC initiatives such as Project mBridge that is led by BIS and involves central banks in China, Hong Kong (SAR), Thailand and the United Arab Emirates. Such initiatives explore how interoperating CBDCs can improve the efficiency of cross-border payments where we are seeing an increase in demand for efficient, low-risk, instant or near-instant international payments. We see CBDCs gaining traction globally and look forward to bringing innovative solutions to our clients.”

As the digitisation of the real economy continues apace, profoundly changing the needs of businesses, the banks of tomorrow are ripping up the old playbook. The banking model of the past – conservative, unsuited to rapid change, and slow to react – is no longer fit for purpose, and through wide-scale innovation, banks have an opportunity to prove that transformation at a huge scale is possible.

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