The innovation imperative for corporate, commercial and SME banks

The need to forge ahead

It’s precisely in these times of adversity that the seeds of transformative innovation must be sown. Underscoring this imperative, we observed three recent themes that progressive banks have been addressing recently in their quest for growth:

1. Refinements in payment services

There has been a discernable surge in innovation within the payments sector, capturing approximately 40% of the advancements we've monitored year-to-date. Macroeconomic headwinds notwithstanding, banks are strategically enhancing their payment infrastructure and services to cater to the evolving needs of corporate and commercial clients that are expanding their global footprint. This expansion necessitates sophisticated cash management solutions that provide speed, transparency, and cost-efficiency, especially for cross-border transactions crucial to international commerce.

Leading institutions are leveraging cutting-edge technologies such as blockchain and real-time payments to provide seamless experiences, aiming to streamline processes, reduce transaction costs, and mitigate risks associated with foreign exchange and regulatory compliance.

For instance, BNP Paribas and Groupe BPCE of France are collaborating to develop an advanced payment processing software, targeting innovations such as virtual debit cards and instant transactions. Their goal is to create a unified processing platform that not only delivers additional revenue streams but enable them to compete against payments and transactional services industry providers.

On a non-commercial perspective, regulators are leveraging blockchain technology to explore tokenization of cross-border payment networks. These include Hong Kong Monetary Authority with Project Ensemble, and the Bank for International Settlements with Project Agorá to enhance transparency, improve transaction traceability, create an “always on,” programmable, and instant cross-border payments settlement system.

2. Ecosystem collaborations to deepen synergies

Recognizing that no single institution can be all-encompassing, forward-thinking banks are actively seeking partnerships to foster innovation and growth. By engaging in ecosystem collaborations, they can practically tap into a wealth of technical expertise and resources that may otherwise be beyond their internal capabilities.

These strategic alliances enable them to broaden distribution networks, enhance their product and service offerings, and create uniquely distinguishing value propositions. Collaborations range from integrating with FinTechs for nimble and innovative solutions, to joining forces with bigtechs for robust, scalable platforms. Beyond resource sharing, these synergistic partnerships are also about co-creating value to engender new market opportunities and a stronger competitive edge.

A recent example is BNP’s and Citi’s joint financing of United Fintech, an impartial digital transformation platform that invests in cutting-edge technology providers. Instead of competing to procure specialist FinTechs, this co-funding enables them to remain agile and responsive to market demands while sharing investment expenses.

Other use cases include partnerships with specialist firms to explore fresh, innovative ways to market. For instance, Standard Chartered is collaborating with Mastercard and asset tokenization tech firm Libeara on a tokenize deposits and carbon credits pilot in Hong Kong.

3.    Generative AI as a lever for innovation

And what is a LinkedIn post on innovation these days without an explicit callout for GenAI?

This tech has rapidly transitioned from a niche interest to an almost mainstream tool among corporate banks, potentially offering transformative solutions that go beyond incremental improvements. GenAI is emerging as a powerful lever for business innovation, with our estimates that adoption rates are nearing 50%, bridging the gap between early adopters and the early majority, and signaling a shift towards widespread acceptance.

Within the banking arena, corporate banks are employing GenAI for a range of applications in their value chain, ranging from tailoring loan underwriting processes, to enhancing pre-approval credit workflows, to identifying suspicious activities and bolstering cybersecurity measures, to helping them stay compliant with regulations more efficiently.

For example, JP Morgan Payments developed a prototype conversational assistant that allows treasurers to query their payments data conversationally in real-time and without coding. In initial testing, clients were able to complete information retrieval, reporting and analytics tasks that used to take days within seconds using the ChatGPT-like interface. This could eventually evolve into a self-driving treasury system that provides specific recommendations and potentially executes tasks to streamline workflows and improve time and cost efficiencies.

Meanwhile, some banks are working with hyperscalers (major cloud service providers) and developers to incorporate GenAI solutions and deliver personalized services. Here, BNY Melon and HSBC recently implemented a context-aware GenAI technology suite from intelligence software company Quantexa to enhance decision-making with contextual insights.