Corporate Banking In 2021
Various financial institutions are looking at their development opportunities into the profitable commercial sector struggling with their set of complexities and difficulties as guidelines and cost regulations become the dominant focal point. In the 2021 year, the banks ought to be prepared to resolve the various general difficulties in the journey for SME business. The implanted extensive computerized capabilities also hold an important place to help in cost reductions and proficiency gains.
Bridging The Trade Finance Gap
The global pandemic of COVID-19 has caused an unprecedented global economic dislocation which could take many years to recover from. It had adverse effects on the supply chain across the world and short-circuited business activities. But these are not the only ones. The disruptions can also be seen through various industries and after joining them with the moving client interest, it caused cash flow complexities for SMEs around the world. Many businesses are struggling to recover from these unpredictable effects of the economic crises caused by the global pandemic, many other factors are blocking the chances of success.
First, there is a global trade funding gap of $1.5 billion which has its extreme impacts on businesses, especially the smaller firms or those in developing nations. In November 2020, it was explained by the International Chamber of Commerce (ICC) that finance aids 80-90 percent of the worldwide trade.
Additionally, ICC estimates that it will need an extra $1.9 to $5 trillion in trade finance to bring the business activities back to 2019 levels. Meanwhile, the quantity of dismissed trade finance applications expended 26 percent over the six-year time frame between 2013 and 2019 due to the number of banks who were involved in trade finance tumbled from 92 percent in 2014 to 71 percent last year. The cost of regulatory compliance holds an influential position in this dropping.
Apart from this, Know your customer (KYC) or anti-money laundering (AML) regulations joining with the huge capital demands and presented after the last worldwide financial emergency has forced many financial institutions to get out of the global trade market. According to a study conducted by Risk Management Association in 2018, it was demonstrated that half of the financial institutions used their 6 to 10 percent of revenue on administrative costs. And this high administrative striker price frequently decreases the number of services a bank or credit union can offer.
However, those financial institutions that have the capabilities to handle the regulatory situation cost-effectively in the upcoming years will cash their opportunities in trade finance.
Digital cash management
The procedure of gaining consciousness from this adverse impact as significant as the COVID-19 pandemic is going to require various firms to organize their liquidity management to boost cash flow. As a result, plenty of companies will seek their digital path to simplify the cash flow predictions as well as estimate and manage risks. You can take the example of HSBC’s collaboration with HKTVmall to facilitate digital trade finance services to e-commerce merchants.
Digital solutions in this situation will enable more centralized access to information to further aid both efficiency and accuracy, but it will also consider real-time data with advanced cash flow predictions to determine the available liquidity and boost cash visibility. The real-time data will be helpful for receivables management.
At present, only a few businesses possess a total perspective on their accounts receivables and face a lack of basic perceivability into the processes such as invoice management, payer reconciliation, and invoice matching, etc. This real-time data access will enable them to have up-to-the-minute visibility of the records as well as help in optimizing receivables such as collections or cash applications, decreasing the quantity of days sales exceptionally.
Financial institutions that have a good grip on digital liquidity management solutions can help various businesses to overcome the present financial crisis while constructing ways into the corporate banking markets.
Integrated working capital
In the year 2021, businesses will be looking forward to balancing their liquidity distress with integrated working capital solutions. According to the World Trade Organization, 90 percent of the worldwide trade looks for a form of bank intermediation to help products, funding, or payments. Similarly, at the same time, technologies are completely changing the whole processes of trade finance as well as bring opportunities to other areas such as logistic firms to enter into the market.
Unrestricted by banking regulations, these trade finance service providers are facilitating a quicker and more efficient operating ambiance as well as offering other services at the best rates in comparison to traditional financial institutions.
To maintain their competitiveness, the banks are in need to bind together the total set-up of exchange and working capital finance solutions under a solitary, smoothed-out computerized arrangement. For example, as per the report published in August 2020 by Western Union and Oxford Economics, the service-based exports are expected to grow $2 trillion over the next five years.
Another key area is supply chain finance that is ready for development. These services are being offered by only 64 percent of global banks as per the ICC survey from July 2020. For local and nearby banks, this number drops to 38 and 13 percent respectively.
The absence of market infiltration is fine concerning the complexities associated with implementation. SMEs expect that these supply chain finance solutions will fit flawlessly into the financial institution’s general working capital set-up of administration. However, the task of integrating the multiple legacy systems can be a little daunting for financial institutions to get the smooth results that SMEs expect.
Another roadblock to entering is the associated cost. Many SMEs have limited budgets and when it comes to financial institutions, these products are helpful only when they are advanced at high volume. Luckily, the increasing use of cloud-based APIs is transforming the scenario for banks and credit unions, making it possible to bring together a set-up of working capital arrangements to cater to an entire range of business requirements.
At the point when organizations can join a total domain of services under a solitary umbrella, they are more prone to stick with a financial institution, carving paths for cross-selling as well as the advantages associated with customer dedication. As a result, consideration of open API-enabled solutions should increase in 2021 as businesses manage efficiently and look for the more prominent adaptability and capacity from their financial institutions.