How a Global Health Crisis Brought about a Revolution in Business Banking

When we think about a health crisis, we don’t naturally assume banking will change as a result. Nevertheless, the Covid-19 pandemic has triggered positive change within the financial services industry, as recent research by Banking Circle illustrates.

When the first wave of lockdowns hit in March 2020, businesses of every type and size responded to the Covid-19 crisis by moving quickly, adapting to changing demands and fulfilling their customers’ needs. Many small and medium-sized enterprises (SMEs) shifted their businesses dramatically, clearly demonstrating their versatility, creativity and tenacity.

However, regulation and legacy infrastructure, along with risk mitigation, meant banks struggled to respond quickly to customer expectations. Banks want to deliver both core and non-core services, but it is not simple to adapt, innovate and deliver across all product sets at once. Therefore, in crisis mode, banks rapidly changed their digital trajectory.

According to research Banking Circle commissioned in November 2020, the pandemic caused 58% of banks to change their IT infrastructure plans.  And to deliver new solutions to their customers quickly, more banks than ever saw the valuable opportunity offered by third-party collaboration.

We spoke to 300 C-suite executives from banks across Europe and their responses revealed a desire for collaboration, partnership and digitalisation that has the potential to deliver better services for businesses of every size. Half already have partnerships or plan to work with an external provider within a month, while another third have partnerships on the agenda for the next 12 months.

This collective consensus proves that collaboration is no longer a novelty. The new wave of specialist partners supporting and enhancing business banking propositions can play a significant role in helping banks to exceed the expectations of their corporate customers which, in turn, will help them gain market share.

In collaboration with fintechs and payments specialists, banks have been able to deliver new digital, accessible solutions to meet the needs of their retail and corporate customers. Now, looking ahead, the new challenge is to ensure the innovation and collaboration that became necessities in 2020 become the norm, rather than just a passing phase.  

Barriers to better banking

Our research, published in a white paper, Better business banking: Collaborating for success, reveals that existing IT infrastructure is the biggest internal challenge hindering banks 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 not thrown up their hands in defeat; instead, they have been changing their business practices, culture and technology to remain competitive and provide their customers with the solutions they require.

Banks have big ambitions. As separate Banking Circle research revealed1, 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 future-proofing their offering.

This year  hasn’t been a fresh start, as free from challenges as we had hoped. Most regions globally have continued to experience ongoing restrictions and lockdowns, with potentially devastating consequences for smaller businesses. Additionally, new regulation has come into force, much of which is focused on cross-border trade.

The UK’s exit from the European Union brings significant change, much of which was still to be determined at the time we surveyed European banks. Added to this uncertainty, Revised Cross Border Payment Regulation (CBPR2) electronic messaging requirements for card issuers came into effect in April, adding complexity and requiring compliance investment. 

Other UK-specific factors are the changes to VAT that came into force in January and July. These will have an impact on profit margins, affecting small businesses’ ability and willingness to pay traditional high fees for cross-border payments. 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  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.

Cross-border payment routes

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 begins to return 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-pandemic; it will also bolster international economies at a time when they are in great need.

Building for the future, together

As the pandemic continues to reverberate around the world, recovery feels painfully slow and uncertainty persists. Now more than ever, banks need to find cost-effective ways to support corporate customers whatever the future brings. And the support needs to be convenient, accessible and, above all, valuable.

Over the past 18 months, banks and payments businesses found the fastest way to deliver essential new solutions to their customers was to work with an expert that had already developed the solution from end to end. 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. 

Working with a third-party payments bank such as Banking Circle, banks and other financial institutions can provide their customers with faster, cheaper banking solutions – including multicurrency banking accounts, local clearing and cross border payments – without the need to build their own infrastructure and correspondent banking partner network.

Through Banking Circle, the financial services provider can offer their clients access to working capital and bank accounts, on a global scale, as fast as possible and at low cost. This provision is reducing the cost of banking and transfers, improving cash flow, enabling businesses to grow and levelling the playing field to allow fair competition between SMEs and larger players. In turn, this will help businesses reach their potential and benefit the wider economy.

The pandemic brought with it unprecedented challenges for businesses, but we should not forget the positives. In its wake, the crisis has left what must become the 2020 legacy: better, future-proof business banking.