Corporate Banking at the Crossroads of Digitization and Margin Erosion
Corporate customers are a desirable object in the currently low-margin banking sector – but only if they have top credit ratings, do not hold high demand deposits, are not subject to seasonal fluctuations, and only invest in EU member states with very good country ratings.
Low risk and commission-based business is therefore the magic formula that many banks are urgently looking for in corporate banking. In addition to a positive impact on earnings, this would also be encouraged by the regulator, which rewards this orientation with a correspondingly low capital backing. Unfortunately, however, there is significantly less demand than supply for such commitments, so that fierce competition for corporate banking business has become established in some cases. The continuing low interest rate phase, with its high impact on the achievable credit margin, is doing the rest.
In addition, customers’ expectations of corporate bank services are changing, as the increasing digitization of value chains also includes closely linked financial flows. Consileon analyses assume that around EUR 5-6 billion in revenue per year in the corporate banking business is at risk from developments in digitization. That means around 25 % of total revenues. But here, due to outdated systems and evolved structures, banks are struggling to ensure the necessary flexibility and adaptability to meet the changing market conditions. However, the up-and-coming FinTechs are already waiting in the background, and their lean structures and modern, web-based systems mean that they are now also penetrating the corporate segment.
Find out more in our Corporate Banking 2020 study.
(The study is in German.)