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APPs 05 May 2016

Fintech beyond the frontiers of retail banking

When we talk about the digital banking and fintech revolution, the first thing that springs to mind are the thousands upon thousands of apps developed for retail banking customers: Means of payments, funding, microcredit… However, digitization in wholesale banking is also becoming a reality, especially on the side of the development of digital channels aiming to offer more products and functionalities to business, corporate and institutional customers.

Digitization helps drive operation automation levels, ultimately benefitting customers by allowing them to operate in safer and faster ways. This automation is sometimes visible for customers, such as when they are allowed to take or make payments directly online, regardless of the format and the platform of the customer originating the transaction. In other occasions, it is a bit less visible, because the automation affects back-office/operating processes, reducing manual operations, speeding up processing, improving internal reconciliation mechanisms… and therefore helping boost the level of service offered to the end-customer, always within banking environments, with top-level security for our customer’s operations.

Wholesale and retail banking products differ in that the former entail a higher level of complexity than the latter and allow offering tailored solutions to meet each customer’s needs. The level of digitization will depend on the type of wholesale product.In advisory products – such as M&A or IPO advisory services – this level may range from low to non-existing. However, there are other products where digital progress can be more significant, such as in currency purchase-sale or FX (foreign exchange) products or the trasnactionality of company payables and receivables.

Digitization is already a reality in investment banking

Up until now, the fintech industry, which stands out for its level of executing dynamism and flexibility, has remained largely focused on retail banking. In fact, according to some estimates, up to 92% of fintech investments since 2014 have gone to projects catering to the retail banking customer, the remainder 8% to the corporate and investment banking customer. However, we are already starting to see some disruption on the wholesale side of banking. Some examples are focusing on customer experience. Such is the case of alternative lending, which grants loans of up to two to three million euros to companies, with a focus on the automation of the origination and management process; and regtech, which offers solutions to ensure regulatory requirement compliance and the onboarding of corporate or institutional customers. On the other hand, we are also seeing innovation in the underlying technology supporting banking operations, such as blockchain, which may, in the future, enable real-time clearance of all international payment operations and an “automatically scheduled” management of all sorts of contracts.

From a purely technological standpoint, some functionalities are also being developed that should help banks offer better services to their customers, and which apply to both customers of the most commercial side of banking and large corporations. This is the case of the development of cloud technologies that help improve communications, as well as open platforms that, through API developments, make it easier to offer value-added services to customers. The world of big data has also opened a new world of digitization possibilities, yielding more accurate information indicators by juggling large volumes of aggregate behavior-related data, thanks to which banks can anticipate customer needs, identify market patterns and issue more reliable forecasts.

Without a doubt, the banking sector as a whole is facing significant challenges and opportunities. It will be a fascinating journey to see how financial institutions learn how to navigate, secure their place and define their fundamental purpose in the new digital ecosystem.

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