The world of commercial banking is in flux. For years, it has lagged its retail counterpart in embracing innovation. Attitudes are changing, however, as shown with a recent study Fraedom commissioned into the views of UK and US-based commercial banking employees at middle management level or above. When asked about what they personally believed will be the biggest threat to commercial banking within the next five years, 17% of respondents said 'competitive pressures' while 14% cited 'unwillingness to adapt or innovate in changing times'.


Competitive pressures are certainly a growing threat within commercial banking. There are plenty of new players bringing dynamic new technologies, services and business models to the table that commercial banks often find that they are continuously competing to achieve and retain business. That's why most commercial banks today face the stark reality that they must change to survive and thrive. The ever-growing expectations of commercial banking customers are making this need much more urgent.


These days, many are looking for both more automation and a greater concentrate on online banking. So, banks must make sure that the innovation they are bringing in allows them to fend off the competition and address what their customers are looking for.


The other key area driving change is regulation. The advent of new open banking regulations like PSD2, make innovation and change a necessity for banks. In the end, PSD2 stipulates that if customers authorise it, banks must make relevant details of the account available to third parties through an open API. Most commercial banks, however, don't have flexible enough IT infrastructures or sufficiently advanced systems and applications in place to do this today. And key data they have to access to comply is often unstructured and kept in isolated silos.


That is why when asked: 'What do you personally believe will be impacted by increased regulation on commercial banking over the next five years?', the top impact, highlighted by 45% of the sample, was 'drive the adoption of new technologies'.


In line with this, the study highlights a growing understanding of the likely transformative impact of new consumer-focused technologies amongst decision-makers in the commercial banking space and a willingness to adopt and put them into action. In the survey, banking apps are the technology area likely to possess the biggest impact on commercial banking in general over the next five years. 64% of the overall sample cite banking apps one of the technology areas they foresee having the biggest impact on their industry for the reason that timeframe.


Banking apps are also predicted to become among the most disruptive technology areas in commercial banking within the same time period. Just under half (49%) from the survey sample said they expected these apps to experience a disruptive role within the next five years. Cryptocurrencies (45%), whose potential effect on traditional retail banking has been well documented, and digital wallets (42%) were projected to be the next two most disruptive technologies.


What this highlights is the fact that commercial banking is shifting towards a far more consumer-focused approach. Business executives are increasingly used to leveraging the latest technology to gain a real-time view of their finances. Now, they are increasingly demanding capability within the organisations they work for.


We are also seeing commercial banks increasingly planning investment in key technology areas to make consumerisation possible. It is not surprising that enhanced IT home security systems are seen as the main focus of future spending, with 65% of respondents saying that their organisation is likely to purchase enhanced IT security systems within the next five years in order to counter the threat to commercial banking.


Below that, we see data analytics (referenced by 55% of the survey sample overall), big data initiatives, including purchase of AI and automated processes (53%) and enhanced mobility (41%) also featuring highly in likely investment opportunities of respondent organisations over that timeframe. They are all technology areas that have been widely used in the consumer arena for years, but now commercial bankers are beginning to more clearly understand their importance in delivering the perfect customer service and providing edge against your competitors.


As we look to the future, then, change is incorporated in the air for commercial banking. With competition more serious, regulations more complex, and customer demand for easy-to-use technology increasing, commercial banks are shifting to a more consumer-focused approach – and that should position them along with they look to tackle the challenges the future will inevitably bring.

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