Banking has shifted from pushing products to servicing needs, as a panel of experts at NatWest discuss.
The far-reaching changes that have recently been seen in the provision of trade finance and working capital were the subject of a recent roundtable discussion held among NatWest staff.
Chaired by Mirka Skrzypczak, the bank’s head of working capital and trade products, the session focussed on the mindset changes that were likely to be necessary for finance providers to survive and thrive in a rapidly evolving business environment – one in which technological developments, changing consumer behaviour and geopolitical challenges are playing dominant roles.
At the start of the session, Skrzypczak asked: “Are we as banks comfortable with the status quo and the way we are doing things at the moment? Or do the new developments we are seeing in the marketplace require us to do things differently?”
David Salter, NatWest’s head of funded trade finance products, said that one of the key changes he was responsible for addressing was the fact that customers were shifting their focus away from the specific products that finance providers had to offer.
“Banks are notorious for being product-led. We organise ourselves into product-oriented businesses such as invoice finance or asset finance, and we have specialist sales forces – all with the best intentions,” he explained. “But I think this comes from an age where our customers valued product expertise above all else. But things have moved on now.”
Instead, Salter added, today’s businesses increasingly need their finance partners to help them identify and assess risks and other issues within their operations – and only then look at what products are required to address those risks.
“The traditional, product-led approach assumes that customers have a fantastic knowledge of the risks, the issues and costs and all the positive opportunities within their businesses,” he said. “But there is an increasing amount of evidence that this is not the case: for a start, the world is a lot more complex today, not only from a technological perspective but also in terms of increasing protectionism and geopolitical risks.”
He added that corporate treasurers were under growing pressure to provide strategic support to their boards, even if they may lack the insight or data to do so.
“They are expecting partner organisations to provide them with insight into the risks and challenges facing their own business, as well as into the wider business environment. So in the last 12 months I’ve been looking at new ways of being able to deliver those insights, by actually putting the information in the palm of the hand of the customers we serve, through a new digital capability that provides details of the risks, issues and potential opportunities that are hidden within these businesses’ supply chains – and which they perhaps can’t see.”
Skrzypczak added: “This approach means we are not talking to customers about specific products like letters of credit or invoice finance facilities: instead, we talk to them about the supply, the demand and the flow of goods and services and finances between the parties in their supply chain.
“It is a much more customer-led approach that gives businesses a much greater opportunity to get the finance solutions they really need.”
Collaboration in banking
Perhaps NatWest’s most significant change of mindset in recent times has been in collaborating with a number of rival banks on two major distributed ledger – or blockchain – technology projects. As Skrzypczak pointed out, even as recently as two or three years ago, the suggestion of this type of co-operation would probably have been greeted with considerable bemusement by the bank.
However, as James Bidwell, head of trade services product management, noted, there are several reasons why major global banks should work together in such circumstances. “There have been two key drivers for our involvement with project Marco Polo – the blockchain consortia in which NatWest plays a leading role, as well as other industry collaborations” he explained.
“The first is a historic issue, which is that documentary trade has always been a very paper-based industry, and it has been very slow to move into the digital world,” Bidwell said.
“Until now, efforts to address this have been on a bank-by-bank basis – with the result that the industry now has a lot of digital islands that don’t connect to each other, and which means global trade has probably been inhibited.”
The second factor is the technological nature of the blockchain: “Distributed ledger technology allows you to remove those digital islands, but only if you co-operate and behave in the right way. Banks are starting to realise they shouldn’t be afraid of co-developing what should be industry-standard solutions to make all our customers’ lives easier, while also having the bravery to distinguish themselves by developing their own propositions on the back of those global, shared initiatives.”
Skrzypczak added: “With distributed ledger technology, you need to have collaboration whether you like it or not: without it, it would be like trying to build the internet with only your own computer.”
As well as being able to develop commonly accepted standards, this collaborative approach also helps to share costs and resources.
“Also, when you are developing products in a silo within your own bank, you are only looking at the challenges and issues from your own perspective,” Bidwell pointed out.
“When you do it within a consortium, however, you are getting market verification from a number of banks across a whole host of regions. You are getting a much deeper and well-thought through business case. Plus you can identify your USP early in the process which finally enough allows you to keep your competitive advantage”
The group also talked about how larger trade finance customers in particular were beginning to demand greater levels of engagement – especially through digital channels – as well as transparency.
Natalie Harold, head of supply chain finance (SCF) product, said: “What we are hearing more and more from larger buyers on our SCF programmes is they want to know more about how their supplier journey is working. For example, it is no longer acceptable for the supplier on-boarding journey to happen behind the scenes. Our customers want more transparency.”
She added: “They want to know what we are doing to keep up with the market: it is not enough simply to have a standard offering. Customers want to know how we can improve the journey for suppliers, because ultimately that is affecting their relationship with us, but also with the businesses they work with.”
Speed is another item high on customers’ wish-lists, Harold said. “Keeping that on-boarding window as short as possible is a key challenge for us. And customers don’t want to have to engage with a number of different bank platforms every time they use this process. They want one route in, one connection. How do we do that? If we can participate and work with another bank (most of our large corporate customers are multibanked), for example, that can reduce the number of touch points businesses have.”
Speed and convenience
Technology is also playing an increasingly important role in how credit decisions are made, explained Andrew Taylor, NatWest’s head of non-personal risk decisioning. “We have been on a journey that started in retail banking – where traditionally we had people in branches making decisions – to a technology-supported model, where we pre-score customers with information we already have, so we are transaction-ready when people approach us.
“This is a philosophy we are looking to roll out increasingly through our commercial business as well… And
while I don’t think we will get to a point where human interaction is replaced completely by machines, technology will provide a major decision-support mechanism in a relationship-driven model. Ultimately, we don’t want to lose that human touch, that face-to-face connection we have with our customers.”
Taylor added that consumer expectations of speed and convenience – driven by the kind of same-day delivery service pioneered by Amazon – are feeding through into trade finance. “The world is moving faster and digital is taking over more and more – so we need to be on the front foot.”
Skrzypczak closed the discussion by asking the panel what other effects this shift in customer expectations was likely to have: “My sense is that customers don’t want products so much anymore; they want experiences.”
Salter said: “If you have services provided for you in your social or domestic life where you don’t have to wait, you are going to expect that in other areas as well. You don’t want to have to sit with a relationship banker going through a range of open-ended questions in order to work out what support you need.
“Instead, you want a system that uses, say, AI, and pulls in a lot of different data to almost predict your needs before you know them.”
“We certainly need to consider different demographics,” Skrzypczak said. “Today’s younger generation expects different things from banks. In a few years’ time, they will be the people running companies and bringing new sets of ideas into these institutions. That change is likely to be one of the biggest challenges we face.”