An evolving banking model: What can corporate banks learn from consumer finance?

The democratisation of the financial services – mainly due to the accessibility of information online – has introduced the notion of a ‘shared economy’. Customers have more trust in independent and niche companies more than ever before; we know how to do our own research and due diligence.

These consumer banking trends have had a knock-on impact on the corporate banking and investment market, but many banks have been slow in responding to market needs; the result is that some former market leaders are finding themselves under threat from challenger brands coming into this sector.

Loyalty for one single provider is diminished due to the ever-growing choices we are offered as individuals, and the same is true for businesses and corporations, irrespective of longstanding relationships with banks.

Michael Barrington Hibbert, CEO, Barrington-Hibbert Associates Explains that many of the corporate and investment banks that have continued to stick to the same traditional product offerings and service experience are now finding themselves under pressure due to changes in client appetite.

With continued and sustained low interest rates, de-risking and the threat of challenger brands eroding their market share, many of the corporate banks are now looking to define their own unique and differentiated strategy in order for them to remain relevant.

Recent research suggests that, by 2020, players in alternative banking will be worth seven billion euros, offering customers a suite of products and services tailored to their specific needs. Corporate clients will be able to cherry-pick services from multiple suppliers, just as we do as consumers.

In addition to new products and services, banks also need a new style of leadership to drive new and evolving business models, identifying new markets and delivering new services: The ideal candidates are hybrid bankers, who possesses not only leadership qualities, but a high level of experience in risk management and a broad understanding of the multitude of credit products, derivatives and enhancements.

Importantly, candidates must also have emotional intelligence and be willing to embrace change. This type of talent comes at a premium, which is evident in the aggressive recruitment strategies demonstrated in 2015 and highlighted in our Corporate Banking Review Study for 2015.

Each year we interview over 400 corporate bankers who work for the top-ten ranked UK corporate banking franchises in London.

The 2015 study shows that there is a direct correlation between a bank’s products and services and how it compensates its coverage bankers the study also highlights that Managing Directors of the top five banks are being offered, on average, a 38% increase on salary packages to join a challenger bank.

Our data demonstrates an increased competitive landscape on talent acquisition for hybrid managers and we predict that the war on talent in 2016 is only set to intensify.

The rise in executive pay is set against a starker backdrop of banks’ compliance demands. Banks are not only having to pursue robust systems and processes to grow profitability, but also to demonstrate greater accountability as a result of tighter compliance regulation.

Too much attention has been placed on ‘running the bank’ and maintaining the status quo rather than innovation and ‘growing the bank’ and its products and services.

Corporate banks are ready for increased debt market pressure throughout 2016. It is therefore critical that the hiring strategies of UK corporate banks remain robust to mitigate against increased stresses that human resource disruption will have on the business, particularly within such a competitive landscape.

As individuals, we have been much more willing to shop around for our own appropriate financing solutions; corporate clients and banks are now also finding that they can no longer wholly depend on longstanding institutional relationships.

The UK Government’s current focus is around financial inclusion for all; especially targeting lower income citizens. Financial inclusion not only helps individuals and their families, but it can also be a powerful driver of economic growth.

The banking changes we are seeing year-on-year, particularly around digital access and mobile banking, have the potential to usher in a new era of financial inclusion and enable mobile money, branchless banking and unimaginable innovation. These agile new providers are flooding into the market to respond to an as-yet unmet demand. Nonetheless, it is still the case that two billion consumers worldwide currently do not have a bank account.

Instead, they use on average 14 different financial services and a staggering 91% save via informal systems. Are the corporate banks ready to serve these new, divergent breeds of financial customer?

As banks continue to retrench from regions or sectors where they are unable to meet specific demand and revaluate their operational strategies, they will need to be able to rely on their personnel more and more to deliver evolving products and services