Mind the service gap: Why 99% of corporate banks plan to offer virtual accounts by 2020

Tim Martin

Product Manager at Cashfac

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Mind the service gap: Why 99% of corporate banks plan to offer virtual accounts by 2020

08.08.2018 05:45 pm

The way we interact and engage with our banks has transformed in recent years as a result of advances in technology. In the retail space, the increasing trend of customers banking online coupled with the rise of digital disruptors such as Monzo and Atom Bank have reshaped expectations of what effective banking means to consumers. In the corporate space however, banks have typically been slower to innovate and keep pace with increasing expectations as their corporate customers seek a similar service level in corporate banking to their own personal banking service.

We recently launched the findings from independent research with Ovum Consulting which highlighted a significant service level expectation gap between banks and their corporate customer base. Half of the European corporates we surveyed said they have considered moving their main banking relationships in the last year. Almost two thirds (62%) of the banks reported that retaining and winning new business is more challenging than a year ago.

With the corporate customer now in the driving seat, banks must focus on shaking up their service propositions and matching their more innovative consumer counterparts. Anupam Majumdar, Management Consulting Manager at Accenture Payments commented: “The wave of digitisation that is happening in banking today, with retail banking being at the forefront, corporate customers are realising they need to be empowered and be in control of their treasury functions.”

(Open) Banking on increasing corporate demand

This era of increased competition and service transformation has been further triggered by the emergence of Open Banking: regulations which have re-written the rule book on modern banking. Where corporates have historically been used to slower innovation cycles compared to consumer offerings, Open Banking has the potential to provide corporates streamlined access to multiple bank accounts, meaning corporates will start to ask for more capabilities from their bank. It is perhaps no surprise that a recent PwC report suggests Open Banking could quadruple in size by 2022 and be worth £7.2bn.

In a competitive market corporate banks will need to focus on delivering the products and services that are most important to their customers. Our research suggests virtual accounts software provides them a way to help close the service gap.

94% of banks say virtual accounts help win new customers

Virtual accounts software provides a single view on holdings across all internal ledger systems and external bank accounts, acting as an umbrella layer that connects all existing accounts and systems. It provides corporate banks the opportunity to match - and better still exceed – their corporate customers’ expectations, and crucially help change a culture accustomed to switching banks. In this way virtual accounts can help corporate banks to both prevent existing customers switching and act as a tool to win new business.

Our research found that 94% of banks say virtual accounts help them win new customers. Moreover, almost all banks surveyed (99%) claim they either currently offer or intend to offer a virtual account solution within the next 18 months. David Bannister, Ovum’s Principal analyst of Financial Services Technology commented: “Corporates are asking for new functionality that solves their problems. Banks are cottoning on to this and realising that virtual accounts are a tool to solve client problems.”

The research also found corporates are concerned with the improved analysis of receivables and real-time cash forecasting. Virtual accounts enable these, meaning corporates can control all their internal and external accounts in one platform and across multiple geographies.

A “win-win” for both corporates and banks

Whilst not all corporates may be aware of ‘virtual account platforms’, there has been a notable rise in corporate clients including virtual account capabilities in their tenders; highlighting how they can solve the cash management challenges firms face every day.

It’s a win-win for both corporates and banks, as increased flexibility for the corporate simplifies the requirements on the bank’s systems because fewer real accounts are required. Nick Morrissey, Director, Client Integration, Digital Client Access, Barclays Corporate, commented: “A virtual account approach allows banks to offer customers control, visibility and workflow integration benefits and a lot more besides whilst also allowing banks to reduce costs by removing the need for businesses to set up multiple real bank accounts.”

What’s clear is that corporate banks simply can’t ignore virtual accounts, and thankfully they don’t intend to. The banking industry is an increasingly competitive market where the customer is king. Those banks which offer virtual accounts will have the edge over their competitors and will be able to fulfil expectations and close the service gap, not only with their existing customers, but also enabling them to win new business.

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