In 2015, Dave McKay, the chief executive of Royal Bank of Canada (RBC), warned that traditional retail banks were on a “collision course” with the likes of tech giants like Apple and Google.
Later the same year, Antony Jenkins, former group CEO of Barclays, predicted that within ten years, fintech players would “substantially disrupt” the traditional banking industry, possibly reducing employment in the sector by 50 percent.
These were threats that the consumer banking industry took seriously, as many financial institutions redoubled efforts to organize their offering around the customer and develop products and services with the flexibility, personalisation and convenience that disruptors were delivering.
To some extent, commercial banks — those that cater to small and mid-sized enterprises (SMEs) with revenues between $10 and $250 million — were unaffected by these trends because the needs and preferences of their clients, including medical professionals, consultancy firms and manufacturing companies, were vastly different from those of retail consumers.
Moreover, the perceived threat of fintechs taking over large share of assets under management (AUMs), deposits and assets on the commercial banking side had been virtually non-existent.
The reality is the relationship between commercial banks and their clients is one of symbiosis. Institutions serve clients who need the bank as much as the bank needs them. As such, the vast majority of the commercial banking industry remained focused on offering traditional lending and cashflow management tools to their clients.
While this strategy has been largely successful to date, long-term growth will require the commercial banking industry to embrace digital transformation in a way that benefits the institutions’ stakeholder base and satisfies the needs of its end-user clients.
There are three reasons why a commercial bank should consider transformation.