When lockdown was announced more than 12 months ago – an entirely new concept that brought with it a multitude of unknowns and an unpredictable, unstable future – businesses barely stopped for breath before they adapted and pivoted to the new landscape. Small businesses, in particular, responded to the global crisis with a clear demonstration of their versatility, creativity and tenacity.

Restaurants offered take away for the first time. Retailers launched Click and Collect services. GPs switched to telephone and video appointments. Gin distilleries halted production and adjusted their production line to make antibacterial hand gel. Textile factories began producing scrubs and face coverings to protect front-line workers. Tech firms invested in building medical ventilators to help save lives. After a very long 12 months, this level of quick thinking and innovation, as inspiring as it was, already seems a rather distant memory.

However, while agile businesses made big changes to support customers and the wider community, some parts of the financial services sector found it difficult to keep up. Regulation and legacy infrastructure, along with good old-fashioned risk mitigation, meant some banks, in particular, struggled to consistently respond to changing customer needs and expectations.

However, they did not stand back and accept defeat. In fact, in crisis mode, banks rapidly changed their digital trajectory. According to research we commissioned last November, the pandemic caused more than half (58%) of banks to change their IT infrastructure plans. And to get new solutions to their customers quickly, more banks than ever saw the valuable opportunity of third-party collaboration.

Tackling the banking challenges together

Working closely together with FinTechs and financial utilities, banks have been able to deliver new digital accessible solutions to meet the needs of their retail and corporate customers. Now, looking ahead to what 2021 and beyond holds, the new challenge is to ensure the innovation and collaboration that became necessities in 2020 become the norm, rather than another distant memory or passing phase.

In November 2020, Banking Circle spoke to 300 C-Suite decision-makers at Banks across the UK, DACH (Germany, Austria and Switzerland) and Benelux (Belgium, The Netherlands and Luxembourg) to discover the specific challenges they face - internal, external and COVID-induced - in future-proofing their organisations and enhancing customer propositions. Published in a white paper ‘Better business banking: Collaborating for success’, the research reveals that existing IT infrastructure is the biggest internal challenge holding banks back from achieving their business objectives.

Unencumbered by such legacy systems, FinTechs have been able to serve consumer and corporate customers efficiently and at low cost in many areas, often competing with traditional banks. But banks have been quietly preparing to fight back - they have been changing their business practices, culture and technology to remain competitive and provide their customers with the solutions they need for today and tomorrow.

Barriers to better banking

Banks have big ambitions; as previous Banking Circle research revealed in 2020[1], most already had digitalisation plans in place, pre-COVID. However, having been built in very different times, with vastly different technology available, not to mention almost unrecognisable customer requirements, banks now face a multitude of challenges in futureproofing their offering.

Here are a few take-outs from our November 2020 research:

  • 42% said existing IT infrastructure is one of their three biggest internal challenges.
  • Lack of integration with customer-facing departments was a key issue for 40% of banks.
  • High customer expectations are the most common externally focused difficulty faced by banks, with 39% saying this was one of their top three external challenges.
  • Working from home operations, an area where COVID-19 has changed priorities for individuals, businesses and banks across Europe, came in a close second, with 38.7% of banks placing it in their top three.
  • Regulation is challenging 34% of banks, but less than a third (30.7%) say impending recession is a top challenge.

2021 has brought with it many new regulatory challenges, particularly regarding cross border trade. The UK’s exit from the European Union has resulted in significant change, much of which was still to be determined at the time we surveyed European banks. On top of this uncertainty, CBPR2 electronic messaging requirements for card issuers have now come into effect, adding complexity and requiring compliance investment.

These and other operational challenges are sure to impact profit margins, affecting small businesses’ ability and willingness to pay traditional high fees for cross border payments. And with the global digital economy now vital to many enterprises’ survival, this could drive a push towards more affordable solutions from alternative providers. It is unsurprising, therefore, that 70% of the banks we surveyed consider cross border payment provision to be a core banking service. This rose to 90% among UK banks, perhaps reflecting the anticipated consequences of the country’s exit from the EU.

As the pandemic continues to call the shots around the world, recovery feels painfully slow and uncertainty persists. Now more than ever, therefore, banks need to find cost-effective ways to support business customers whatever the future brings.

Clearing the way for cross border trade

Just over half of the banks in our study confirmed that they use direct clearing through central banks to process cross border payments. A similar number use the correspondent banking network, and around one in three use the SWIFT network.

As global trade levels begin to pick back up to pre-COVID levels, banks must be ready to support businesses in their bounce-back. Access to affordable, friction-free cross border payments will be essential to that recovery, and banks able to provide this can empower even the smallest merchant to serve customers in any geography. Not only will this help small businesses and start-ups to thrive post-COVID; it will also bolster international economies at a time when they are in great need.

Working with third-party service providers is now an important part of banks’ business planning. Half of those surveyed already have partnerships or plan to work with an external provider within the next month. An additional third have partnerships on the agenda for the next 12 months.

As the pandemic continues to call the shots around the world, recovery feels painfully slow and uncertainty persists. Now more than ever, therefore, banks need to find cost-effective ways to support business customers whatever the future brings. And the support needs to be convenient, accessible and, above all, valuable. Solutions need to be investment-light yet deliver strong innovation, flexible enough to meet rapidly shifting expectations and needs.

2020 brought an increasing trend towards collaboration. Now to meet these evolving business needs, collaboration must be embraced to bring benefits for all sections of the financial services sector. Through partnerships with infrastructure providers banks gain the agility and innovation of a FinTech, while FinTechs gain compliance and security processes, enabling them to focus on building strong customer relationships.

The 2020 legacy

In the past 12 months, banks and payments businesses alike found the fastest way to get essential new solutions to their customers was to work with an expert who had already developed the solution from end to end. And to see how the banking industry stepped up and responded to the crisis was truly inspirational. Priorities and budgets were shifted overnight, digitalisation plans were dramatically fast-tracked to deliver the solutions customers needed, support staff set up call centres at home. It was far from easy, but the pandemic helped banks find the motivation they needed to future-proof their processes and solutions through collaboration.

Now is the time to reap the benefits. In the face of unprecedented challenge, banks stepped up and set the precedent for future-proofing banking. And that must be the legacy of 2020: better business banking. 

To download the Banking Circle white paper, go to https://www.bankingcircle.com/whitepapers/better-business-banking-collaborating-for-success. 

[1] Source: Banking Circle white paper: Bank to the Future - https://www.bankingcircle.com/whitepapers/bank-to-the-future