Transformative innovation amid adversity

These are challenging times for the financial sector, with the interconnectedness of economies, rapid technological advancements, and geopolitical uncertainties contributing to complexities faced by global banks. Yet despite many headwinds, which is meaning a need to rein in investments, incumbents must continue to focus on transformative innovation.

It's great to see vanguard corporate banks navigating through the complexities to revolutionize businesses and enhance returns, manage expenses, and continually elevate themselves above the competition.

They are transitioning from legacies toward newer organizational structures to trim their technical debt; reorganizing to simplify operational structures and their cost bases; forming ecosystem collaborations to access advanced technical capabilities and incorporate specialized tools and solutions; and demonstrating commitment to promoting sustainable and responsible business practices.

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Banks must fortify competitive positionings

Nonetheless, with benchmarks for innovations nudging higher, even more is required to ensure resources are aligned to “change-the-bank” aspirational-type projects. In my post last year, I mentioned how progressive corporate banks were showcasing novel developments around embedded finance, advanced AI, and private stablecoins. In particular, the groundswell of interest in buzzy AI tech continues with first-mover banks already fine-tuning generative AI prototypes to deliver on use cases ranging from enhancing loan underwriting processes to augmenting fraud detection strategies.

As vectors of innovation continue to expand, two other recent developments have caught our attention: corporate payments and cross-vertical technology, quantum computing:

1)??? Corporate payments: Rising urgency to innovate within this lucrative ecosystem

Banks are cognizant of potential revenue opportunities from enhancing their global payment and liquidity management services. Innovations within this sub-segment continue to proliferate with corporate banks:

??????? Offering more advanced payment instruments, for example through integration as digital wallets

??????? Modernizing international payment networks that may be sub-optimal in terms of speed, transparency, and cost

??????? Expanding into less penetrated areas within the payments value chain, such as capitalizing on the trend toward embedded payments using Open Banking connectivities

??????? Benefitting from the implementation of favorable regulations (e.g., the launch of the Federal Reserve’s FedNow real-time payment rails).

I would callout Italy’s Intesa Sanpaolo partnership with European PayTech Nexi to launch SoftPOS solution for merchants to receive contactless payments from their customers using Android devices via an app, without needing a fixed physical point of sale terminal. This collaboration is part of Intesa’s focus on functional innovations around digital payments and mobile channel enhancements.

UK FinTech Revolut is seeking to bolster international payments efficiencies with its ‘RevTag for Business’, offering free, instant cross-border payments to potentially compete with payments network SWIFT. This is a laudable move given that only 10% of businesses surveyed mention being able to conduct instant cross-border payments, and with most paying fees of over 3% for these.

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2)??? Quantum technologies: Experimenting not just to prepare for the future, but to shape it

While a quantum revolution might still be at the horizon, a few institutions are forging ahead to get quantum ready. Potential benefits for financial services include providing enhanced cybersecurity solutions to safeguard customers’ financial data using next-generation cryptography; proactive detection of fraudulent activities via quick recognition of customers’ behavioral patterns; and optimization of portfolio management of assets with interdependencies.

Sharper insights into these domains could in turn support better decisions, improve customer service, and generate a competitive edge. Quantum computing's current global value has been estimated at US$866 million, with that expected to grow at a CAGR of 32.7% to reach US$5.3 billion by 2029.

As corporate banks begin to access the hardware to develop quantum algorithms, more are announcing breakthroughs with their Proof-of-Concepts. One of the biggest proponents of quantum technology is HSBC. They recently initiated a quantum protection for AI-powered foreign exchange trading, exploring how quantum cryptography can safeguard highly sensitive trading data against possible cyber threats.

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It is paramount to continually push the tech frontiers

The commercialized use of leading-edge tech is already beginning. With some like GenAI taking off exponentially quicker than others, early movers typically only have a narrow time frame to gain their competitive footholds. For corporate banks wanting to stay ahead of the technological curve, they need to:

??????? Determine which of these novel technologies to add into their tool kit, and what their overarching strategies should be

??????? Build upon intellectual properties, and/or scout for potential investments/joint ventures with external parties

??????? Start small, ensure adequate governance, and address new or elevated risks from these new delivery models.

For those that don’t want to lead in adoption — understand that some of these could gather momentum rapidly, after which the window of opportunity for gaining bankable competitive advantage won’t remain open for long.?

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As always, my team and I are happy to discuss themes highlighted above or collaborate to fortify your institution’s competitive positioning. Do also?access our latest thinking and learn about our capabilities here.

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With thanks to @Li-May Chew

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The views reflected in this article are the views of the author and do not necessarily reflect the views of the global EY organization or its member firms.

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