Dwight McKnight: Hello everyone, and welcome to Banking Blueprints, the Zafin podcast about building the future of banking. I’m Dwight McKnight, your host today. Today we’re talking about how corporate and commercial banking relationships come priced in one system, build in another, reported in a third, and what it takes to put them back together. Joining us, we have Colin Kerr. He’s the head of banking and payments at Blint, and then we also have Dan Gill one of our industry advisors at Zafin, who has spent years in corporate treasury before working on a bank side of the table. Colin and Dan, welcome.Dan Gill: Thanks.
Colin Kerr: Yeah, thanks for having me.
DM: Before we dive into the details, I wanted to ask a bit of an icebreaker question. So from my experience, rarely do people a ever actually go into banking by choice. They somehow stumble their way in. So I’d love to hear your story. Did you actually intend to go into corporate banking or did you stumble your way into it? Colin, why don’t you start us off?
CK: Definitely a stumble. I always wanted to design bridges, which is very different. And why I’m not, it’s another conversation for another day. But my first real full time job, if you like, was in retail banking operations at the Midland Bank in the UK. That was one of the big four high street banks back in the day, long since acquired by HSBC. So I’m dating myself a little bit. But during that time, beginning computerization in the branches, we just implemented debit cards, and I started to become more interested in how banks worked as much as what they actually do. So it led me to apply for a job that I saw posted for a business analyst for a software firm that was focused on wholesale banking and payments. We didn’t call him fintechs in those days. So I clearly wasn’t qualified for this job, but it’s but I learned a ton in that role.
DM: That’s great. How about you, Dan?
DG: I I don’t even know if if it was a stumble for me, more of a faceplant. I actually studied criminal justice in college, spent eight years in the US Navy. and when I got out of there, which was nineteen ninety-eight. Dating myself as well. Pretty much if you could spell the word PC, you could get a job in computers. So I started applying at different places and I landed at this place that did something called account analysis and corporate fee billing and things like that. And slowly over time got more and more into it. And so I’ve spent now the past almost 30 years, I describe it, living in the space between corporate customers and their banks. And now I’m here to help banks do that all better in a more modern way. And that’s what has me at Zafin.
DM: All right. Let’s get it started then. Colin, I want to start with you and just get a bit of an overview of what you see happening in corporate and commercial banking right now. What’s driving it? What’s happening with clients, costs, and technology?
CK: I mean, if you look at the digital experiences that are being built.
And I mean not just online and mobile for clients, but the API integration to ecosystems and to fintechs. And we’re talking about platform banking now. You talk about, you know, ten years ago there was still only checks, wires, and ACH as payment types here in the US at least. Now we got same-day ACH with all these windows. We got two real-time systems, plus things like Zell, more payment systems than you can shake a stick at. And with that moving to real time comes real-time treasury. And it’s really transforming the the nature of banking and banking relationships. So I think it’s really hard to separate that. Is it cost, is it technology, is it the client? It’s all of these things together. But what I would say is that there’s a real shift towards expectations on the experience of banking. And I don’t just mean the user experience. I mean kind of the end to end service delivery experience. and yes, when you’re using the online space it’s not just about product functionality, it’s how easy is it to use? How easily can I get help? and as we’ll get into this more, you know, the expectations of banks have so much more information than they used to about their clients. So how do they channel that to be more advisory in a relationship? So for me, it’s just a really exciting time.
DG: I would echo all of that. Part of what I see as the challenge to that, because I agree completely, we are in a time that we haven’t seen before.
But part of that is we’ve seen all of this transformation go on in banks, payments as a perfect example. But yet there are certain core functions within the bank that are still back in the Stone Age, right? We are still selling to pricing, billing our customers in the same way we did decades ago. And to be honest, it’s not just banks that have all of that information available to them.
Corporate treasury now has more information about their banks. So from a competitive point of view, you can’t afford to be behind the times on what you’re offering. You’ve got to be able to price aggressively. You’ve got to know what the market is doing. And honestly, you’ve got to have the tools that help you engage that throughout the whole customer life cycle.
CK: You’re totally right. And t when you were describing, you know, the transition between the bank side and the corporate side earlier, I was thinking, this sounds like no man’s land.
DG: It is. Yep.
DM: Speaking of what’s going on in the competitive advantage, so Oliver Wyman put a hundred to one hundred and fifty billion dollars of corporate banking revenue at risk from fintech driven value migration and margin compression. So I guess question for you, Colin. Why are these clients moving their business?
CK: Echoing some of the other things. I think as customers look for other banks, some of it I think is market dynamics, you know, in terms of risk management and who they want to have as their primary bank. But then underneath that, why why do you get to that? Right. So some of it’s that end to end digital experience. It’s certainly the breadth of payments product capability and being able to meet their transactional needs and, you know, to be able to better manage liquidity and have access to the credit they need. But servicing really matters too. And as I said, the end to end spirit experience.
And yes, cost is a piece of that as well. But I think all connected together, those things compound to drive relationship value. I mean, Dan probably has a view on the pricing bit that we’ll get to, but it I think all of those things weave in together to a greater or lesser extent. From my seat, at least nowadays, it’s not just about transaction execution. That is the baseline, right? That should be the non-negotiable bar that you can execute your transactions well. If that’s not the case, then we really do have a problem in the industry. But corporates want banks to help them run their business more efficiently. And that includes making sure they’re getting value for the services delivered as well.
DM: So how does a bank shift from a commodity vendor to an actual partner?
DG: I think first of all, they have to be able to do innovative things, right? Look, corporate banking is not the most exciting thing in the world, right? It is somewhat boring on purpose. Treasurers have a very specific mandate, right? Manage the liquidity. Do it at the best cost possible, if you will. Manage risk, right? And all of those things, if a bank focuses on what is it a treasurer is really asking of them, there are a lot of opportunities to transform, just like we’ve done on the retail side of the bank. And so the problem I think in most of it is that banks are not really even thinking in an innovation mindset in this. They’re like, Well, this is how we do it. This is how we’ve always done it. This is how we’ve always sold to these customers. And honestly, the treasury organizations I think are outpacing them, their adoption of AI and things like that. So that I can now compare two banks on service, on price, on everything.
Just like that, in the past I couldn’t do that. So I think it’s innovate or die, honestly, in this space.
CK: And when we talk about products here, I think we and most people in the space would think of products in that traditional sense, right? You have ACH is a payments product and there are two hundred bill points in ACH for whatever slice of the ACH capability somebody’s utilizing. But the history here has been that banks tend to define products
And bill points based on the operational function of how things get processed. And that gets pushed upstream to the corporate as this is how we charge you to leverage banking for banking operations basically. Yeah. Rather than what are the solutions that a corporate needs. And you talked about it, cash and liquidity. And if you look at the AFP surveys, cash forecasting, liquidity insights, the ability to move and manage money is always right up there at the top. So focusing on solutions that help that, not just a payments product per se.
DG: I think we can fix a lot of that simply by looking at what is it that the customer needs more and addressing to that. You know, when you look at stack ranked, where am I going to put my investments from a bank technology investment perspective? And it’s almost always going to be you know, I come from the digital banking platform space a lot of the time. It’s going to be in those kind of areas. It’s like the window to the bank for the customer and it’s kind of a competitive edge and it’s a pretty quick fall off once you get behind the things you have to do and the things that are the polish on the front before you prioritize some of the other things. But I do think that the recognition that that’s an incorrect way of or a low value way of looking at the revenue lifecycle management component is definitely shifting.
Yeah. Very true. And I will always take the look at it from the customer’s point of view. The customer is getting better. Looking at a bank and saying, Hey, Mr. Banker, here’s what I’m spending with you every year. Right. Meanwhile, the bank, because it’s all over the place, like Colin just mentioned, they may not even know how profitable or unprofitable a particular customer is to them. Meanwhile, they go chasing business that they’ve got no business chasing, right? Because the lending side almost always dictates the entire thing. And so, so for a bank to be successful, I think one of the things that they’ve got to take is this customer-centric view. I’m not saying the organization Colin just laid out is spot on. I’m not saying let’s blow that organization up and go to a single point of sale or anything like that, but we need to bring transparency to the various silos that are going on so that.
Number one, I can see a customer as a whole entity so that I can know their value to the bank, right? oftentimes I’ve worked with the poor guy who’s the treasury sales guy who’s not the RM. And oftentimes he’s told, you know, guess what? We’re giving away all your stuff because we gave them a great lending relationship or whatever, without totally knowing is that a good idea or not.
CK: Or being able to go back in the future and even backtrack and see did that did that plan
DG: Did it work? Did they do what they said they were gonna do? Right. I gave them all this pricing. They promised to keep five million dollars in this account every month. Did they? Who knows? Because we don’t have the transparency into like a 360-degree view of the customer. And that is something that in today’s data world should be solvable easily, regardless of where the billing’s happening for each of the different product lines, it should be able to be consolidated into a single view of what does this customer mean to the bank? Then I can make good decisions about how I’m gonna price, how I’m gonna serve them.
CK: Yeah. And for the purpose of this conversation, we’re talking about commercial and corporate banking, but depending on the size of the bank, there are elements of that client relationship are gonna maybe extend into markets or you know, other various elements of the investment bank, whatever it might be.
DG: We’re having a lot of conversations with banks, not so much on the large corporate side, but even on the wealth side, right? Where I’ve got high net worth individuals. Guess why they’re high net worth? Because they own companies that have corporate relationships with the bank. And so everywhere you look in a bank, you see these silos, right? You can’t cross over between retail and corporate. Well, guess what? Those individuals, when viewed as a whole can be more valuable to the bank when I’d have both their wealth relationship and their corporate relationship with the companies they own. So blur the lines is my mantra, if you will.
CK: It’s actually really hard as well for the bank historically to have a full picture of who the customer is. Yeah, yeah. You know, when you think about the hierarchy of the entities within that business that have typically also been managed on fairly archaic systems and not, you know, not very dynamic and allowing change with how their structures are set up and how accounts are associated with those structures and all the rest of it. So yeah. A lot of that’s been cleaned up because of continuous KYC type processes have helped a little with that, but it’s still a challenge. Yeah.
DM: So I’m curious. So account analysis or or treasury has a treasure trove of data. It it has a lot of cash flow, it has clear a lot of the day-to-day finances that’s happening in the company. Is the lending team actually using that to make better decisions and and recommend better products?
CK: So I think to be clear, there’s the expertise is still within the product groups in terms of what solution would fit the needs of the treasurer to help them manage their liquidity. it it’s more the overall management of the relationship. But absolutely this should be a collaborative exercise across everybody involved in the relationship. To do that means you have to have transparency into the underlying data and the ability to build to model what if scenarios looking forward, not just look at reports that are historical for the last two years. I think there’s a little bit of an additional dynamic, because a lot of that is looking at backward data. There’s kind of a bank treasury aspect behind the scenes. It’s clearly not what drives the corporate agenda.
But it’s not dissociated from it.
DG: Yeah. And in with the idea of attracting balances specifically, because you you’re right. It if you’re not doing that, you’re in pretty big trouble in today’s world. The the problem is is that that there’s so many the fintechs in a lot of ways, they can move so fast. Nobody will deny that we are in a very interesting rate environment, right? What’s gonna happen tomorrow? I don’t know. Nobody knows and and
That is part of the challenge, right? Because if I build my strategy today of how I’m going to attract balances tomorrow, and the Fed up and decides who knows what they’re going to decide, boom, there went my whole plan. So it my strategy can’t be I’m going to come up with this fixed program. My strategy has to be I must be nimble to survive and thrive in whatever the market is doing. And that means I need to have, not rules necessarily for how I’m gonna set rates, but I need to have a a machine that’s going to help me automatically determine rates based on what’s happening in the totally unpredictable market.
CK: You know, yet you have to look at the capabilities and the tools being given to these corporate treasurers now, you know, from the treasury management workstations, liquidity rules, whatever. So you take that, and we talk a lot in the industry about real-time payments, but not quite as much about real-time liquidity in treasury, intraday liquidity in treasury. And I know there’s some that that that’s one of the hurdles to adoption of real-time payments in some ways. But as treasuries get more sophisticated at managing that, funds are gonna flow around an awful lot faster and banks have to be able to recognize that and manage through that. Reuters counted two hundred and twenty billion lines of cobalt code running on the world’s financial systems.
And soon engineers who actually understand it will fit around one table. Why is this still around? You’re talking about the COBOL code of my fintech exactly in 1987. Exactly. The same one that was running on that compact computer. Right. It is a it’s an easy thing to for us all to poke at. but one of the things that you know agentic AI and generative AI has brought is actually the ability to learn and document and then actually write COBOL code. So you’re right about the knowledge and the people, but a lot of these undocumented systems all of a sudden now can be documented and it’s agents and Gen AI that’s doing it. But of course, and so you really do have to just look beyond what are the fun what’s the functionality of a vendor and what are the building blocks to get me to the bank I want to be in.
Five years, 10 years. Dan touched on this. You can’t have a rigid view of what the future is going to be. So so what are the technologies and what are the platforms that are the foundational building blocks that will allow you to be agile as you build along that journey? Because things will change and you’re gonna have to turn left instead of right. You don’t want to be starting from scratch with your platform again. So how do you how are you able to incrementally grow and move in that direction?
DG: That is the quote of the day right there. You can’t just be doing the same old thing on newer technology, right? Which oftentimes is the mindset when we’re talking to different people. And I can think of at least three implementations I’m working on right now where the mindset is, well, here’s how we do it. We’ve always done it that way, we’ve done it for 20 years that way. And we just want to keep doing that. And so if that’s your mindset, you’re gonna find yourself in trouble as the market and the and the situation continues to change. And I think on this idea of looking at the core, right? When you think back to what the core was originally, and you look at what the cores have become today.
That is actually reinforcing the problem, right? Because as I acquire a new customer and I need to do some new feature, what did we do? We bolted it onto the core and then we bolted something else. And when you look at it, you know, there’s a concept of the Rube Goldberg machine, like, like how many steps or how complex can I make a machine to do, you know, the one thing, a better mousetrap? And it has left banks where they’re just handcuffed.
Right, because no you can’t unwind all of that. And so a big part of it has to be if I were ever even going to replace the core, a high risk way to great way to lose your job sort of endeavor is I’ve gotta start thinning some of that stuff out so that the core is doing what the core is meant to do. You know what? Credits, debits, balance.
You know, it’s like and let’s start taking the ancillary stuff and putting it on more modern technology because that’s where the speed and the agility can come in.
DM: When we’re talking about you know modernization, so of course core is a big part of that, but if we’re looking at corporate treasury, that’s one of what two hundred systems that they’re dealing with. How do we address that?
CK: An institution I worked with, had something like 650 applications supporting the corporate transaction banking line of business. not all of them client-facing, obviously. Some of them just had very small role in the whole thing. But so over time you can start to clean up that architecture and remove a lot of those systems in the in the background in particular. But it actually comes back to this lasagna that we talked about earlier a little bit. And how do you simplify the layers of banking? Beyond those big investment block priorities we talked about, kind of a third priority that we’ve really seen rise up in the last few years is what we at Celem loosely call client lifecycle management. And traditionally that’s been onboarding and KYC and perpetual KYC and CRM platforms.
But right now I think that extends further into the whole revenue management lifecycle as well. Even while these longer running three, five, whatever year core transformations happen. They can be done outside of that in the in the corporate and commercial line of business.
DM: So McKinsey put the value of generative AI in banking up to around $350 billion a year in value. I think that most people tend to associate that with retail and maybe wealth use cases. I think that there are plenty of corporate use cases. So a question for you, Colin, is you know, when people are thinking about AI, they’re usually just bolting them onto process. And should AI actually be used to improve the corporate bank?
CK: Yeah. I mean, I think there are also a lot of operational efficiency type areas in in the back office as well, that may have been very manual process intensive or very document intensive, where AI is definitely helping from a cost reduction efficiency perspective.
And you know, when we think about the role of AI in transforming to the bank of the future, I think it’s still a pretty big leap, you know, for banks with legacy technology to suddenly think they will become an AI first bank, right? That that’s still a journey that’s got a ways to play out. And I think that also comes back to w what we were talking about in the previous section around modernization. What do you want the bank to be in the future? And to me, I think you still have to have some core vision core.
Or where you want to be, or at least the kind of capabilities you want to be able to deliver, and recognize the technology building blocks to do that, that will support AI being infused and embedded all around that. And so I think that I think I think that’s a grand vision and the technology decisions are very important. But I also think it’s important to think about the roles that can be transformed by AI.
When you think about the role of the relationship manager as an example. And this is an area we see a lot of focus on right now, because typically they’ve been underserved with technology solutions in the past. It’s been fairly basic, you know, spreadsheets and a CRM platform and PowerPoint decks and you have a an analyst on hand to run all the and a BI platform. But reimagining, you know, what that role can be with these new tools and and and think about that as a part of that. AI enabled future vision of the institution to the end user, to the corporate, to help them better understand how their activity within the bank is positively or affecting their b the ability to run their business.
DM: I have one final question for both of you, which is if there’s one thing that a banking leader should do in the next ninety days, what would that be?
CK:There’s so much energy right now around product innovation, digital, mobile, real time payments, real time liquidity. Those things are obviously very important. People should still do that. But I think for people on the front lines, people in contact with customers every day, whether it’s the sales organization and relationship manager or the servicing team or even the onboarding teams, reimagine. Start to reimagine what those roles would look like. Knowing what AI can do today and knowing what additional value you could bring to the organization by having better workflow, better transparency, you know, digitizing some of these legacy processes, you know, thinking about that layer of lasagna we talked about, you know, how do you cut through the vertical components of the organization with something that’s nice and clean goes all the way through? And so I think taking a step back and rethinking how do we redefine that role? What do we want the people in these roles to be doing?
And then think about what are the tools and the platforms and the technology to help them do that. And just as a broader takeaway, right, we talked about modernization too. I firmly believe that the technology decisions a bank makes today are more important than they’ve ever been before for all of the reasons we’ve talked about. And if you step in the wrong direction, you can leave yourself in handcuffs for a long time.
DM: Thanks everyone. That’s the episode. Thank you, Colin. And thanks, Dan, for your great contributions. Yep. Thanks, guys. Thanks.
And there’ll be more Banking Blueprints episodes at Zafin.com. Follow the show wherever your podcasts are live and bring the argument to LinkedIn. See you next time.
