By Russell Bennett, Chief Technology Officer at Fraedom

The world of commercial banking is in flux. For years, it has lagged its retail counterpart in embracing innovation. Attitudes are changing, however, as shown by a recent study Fraedom commissioned into the views of UK and US-based commercial banking employees at middle management level or above. When asked about what they personally believed would be the biggest threat to commercial banking over the next five years, 17% of respondents said ‘competitive pressures’ while 14% cited ‘unwillingness to adapt or innovate in changing times’.


Competitive pressures are certainly a growing threat within commercial banking. There are so many new players bringing dynamic new technologies, services and business models to the table that commercial banks often find that they are continuously competing to gain and retain business. That’s why most commercial banks today face the stark reality that they must change to survive and thrive. The ever-growing expectations of commercial banking customers are making this need even more urgent.


These days, many are looking both for more automation and a greater focus on online banking. So, banks need to ensure that the innovation they are bringing in allows them to fend off the competition and address what their customers are looking for.


The other key area driving change is regulation. The advent of new open banking regulations like PSD2, make innovation and change a necessity for banks. After all, PSD2 stipulates that if customers authorise it, the banks must make relevant details of the account available to third parties through an open API.  Most commercial banks, however, do not have flexible enough IT infrastructures or sufficiently advanced systems and applications in place to do this today. And key data they need to access to comply is often unstructured and kept in isolated silos.


That is why when asked: ‘What do you personally believe will be impacted by increased regulation on commercial banking over the next five years?’, the top impact, highlighted by 45% of the sample, was ‘drive the adoption of new technologies’.


In line with this, the study highlights a growing understanding of the likely transformative impact of new consumer-focused technologies amongst decision-makers in the commercial banking space and a willingness to adopt and implement them.  In the survey, banking apps are seen as the technology area likely to have the biggest impact on commercial banking in general over the next five years. 64% of the overall sample cite banking apps among the technology areas they foresee having the biggest impact on their industry in that timeframe.


Banking apps are also predicted to be among the most disruptive technology areas in commercial banking over the same time period. Just under half (49%) of the survey sample said they expected these apps to play a disruptive role within the next five years. Cryptocurrencies (45%), whose potential impact on traditional retail banking has been well documented, and digital wallets (42%) were projected to be the next two most disruptive technologies.


What this highlights is that commercial banking is shifting towards a more consumer-focused approach. Business executives are increasingly used to leveraging the latest technology to gain a real-time view of their personal finances. Now, they are increasingly demanding capability within the organisations they work for.


We are also seeing commercial banks increasingly planning investment in key technology areas to make consumerisation possible. It is not surprising that enhanced IT security systems are seen as the main focus of future spending, with 65% of respondents saying that their organisation is likely to invest in enhanced IT security systems over the next five years in order to counter the threat to commercial banking.


Below that, we see data analytics (referenced by 55% of the survey sample overall), big data initiatives, including investment in AI and automated processes (53%) and enhanced mobility (41%) also featuring highly in likely investment strategies of respondent organisations over that timeframe. These are all technology areas which have been widely used in the consumer arena for years, but now commercial bankers are beginning to more clearly understand their importance in delivering the best possible customer service and providing competitive edge.


As we look to the future, then, change is in the air for commercial banking. With competition more intense, regulations more complex, and customer demand for easy-to-use technology increasing, commercial banks are shifting to a more consumer-focused approach – and that should position them well as they look to tackle the challenges the future will inevitably bring.


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