As large U.S. companies review their banking relationships ahead of a potential economic downturn, they should use any shifts as an opportunity to address pervasive service issues. If history is a guide, large U.S. companies will start consolidating their banking lists if and when they see signs of a recession in the year ahead. That’s the strategy companies have followed in the past as a means of buttressing relationships with their most important credit providers in deteriorating business and economic environments.
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As large U.S. companies review their banking relationships ahead of a potential economic downturn, they should use any shifts as an opportunity to address pervasive service issues.
If history is a guide, large U.S. companies will start consolidating their banking lists if and when they see signs of a recession in the year ahead. That’s the strategy companies have followed in the past as a means of buttressing relationships with their most important credit providers in deteriorating business and economic environments.
Half of large U.S. companies expect to shift some of their banking business from current providers in 2023. That share is likely to increase if an economic recession drives companies to fortify their access to credit. At present, however, the No. 1 reason companies say they are planning to increase or decrease the amount of business they do with banks is customer service. Nearly a third of large U.S. companies that expect to reduce or expand the amount of business they do with their current banks cite customer service as the reason for the change, making it far and away the biggest driver of business migration.
Complaints about service have become endemic in U.S. corporate banking. Since the global financial crisis, new know your customer (KYC) and anti-money-laundering (ALM) regulations and other compliance requirements have complicated the business, creating headaches and delays for companies. The impact of these burdens can be seen in the consistently low ratings companies give to their banks for “ease of doing business.” These issues have become so prominent that, when it comes to picking providers for key services like cash management, “ease of doing business” is the leading factor considered by large companies, topping even the size of a bank’s credit commitment and pricing.
Banks are working hard to address these issues, and they have rolled out a series of innovative solutions to do so. But customers are far from satisfied. In fact, some companies perceive their banks as losing ground. For example, in 2021, 70% of large corporate cash management clients rated their providers as either outstanding or good for their account opening processes. In 2022, that share plunged to 44%. Here’s how one cash management client described his company’s recent experience: “We just recently opened a bank account. It took 35 banking days to get the account completely open and ready to go, which is absolutely ridiculous. The main cause of the timeframe was KYC.”
Solving Serious Service Issues Requires High Tech and High Touch
Ultimately, the solution to the ease of doing business problem will come from digital solutions that streamline processes and automate the redundant workflows that now give companies headaches. However, as shown in the following chart, companies think the industry’s progress on these issues has slowed since the digitalization boom during COVID-19.
As companies review the allocation of their banking wallet, they should understand that some banks are doing better than others at resolving these issues. Some of the highest-performing banks are improving ease of doing business scores by adopting a high-tech/high-touch service model. Banks using this approach are building out technology applications while also deploying relationship managers and customer service staff to help facilitate a more seamless experience for customers.
Approximately 40% of companies say their corporate banking providers have been good or outstanding when it comes to digitizing the KYC process. Roughly half of large companies give those same positive ratings to the effectiveness of their banks’ RMs and other staff at helping to streamline KYC and onboarding. This high-tech/high-touch approach is a way for banks to make life easier for their clients and differentiate themselves from rivals until the arrival of effective implementation of end-to-end digital solutions.
The Real Differentiator: Innovation
Efforts by banks to streamline KYC and onboarding processes highlight the importance of innovation in modern corporate banking. In particular, the digitalization of the implementation process from end to end is seen as a rare standout capability much appreciated by corporates. Overall, fewer companies are citing digital banking as an important factor in picking a provider for cash management and other services. Instead of focusing on banks’ general digital platform capabilities, which are seen as table stakes, companies are now looking for bank innovation in areas such as predictive analytics and digital relationship management enablement tools as a means of differentiation. For example, in 2021, only 40% of companies cited innovation in product capabilities as an important criterion when selecting a cash management provider. In 2022, that share jumped to 48%.
The bad news for companies and banks alike is that only about 1 in 5 companies view their cash management providers as “outstanding” when it comes to product innovation. However, additional findings from our research suggest that banks might be doing a better job at innovation than those ratings would indicate.
U.S. banks are investing hundreds of millions of dollars in digital transformation. A huge portion of that is being devoted to customer-facing applications and technology that make banking easier and more efficient for clients. In many cases, these investments are paying off in terms of improved experiences for users. But some banks are just not getting credit for these improvements from their corporate clients.
One important example of this phenomenon can be found in analytics. Nearly 70% of large companies say they are not getting any added value from their cash management providers’ investments in predictive analytics and artificial intelligence. However, when we asked the same companies to rate the analytic platforms and insights on payments and receivables provided by their cash management banks, a different picture emerged. About 70% of companies rate their providers as above average in these features, with one-third grading their banks as “outstanding.” What these findings suggest is that companies are experiencing real improvements in service, but in some cases, they are not aware of the innovation and investments banks had to make to achieve these gains.
One explanation for this situation is that banks are not doing a good enough job informing their corporate clients about their investments and rollouts of new products and services. Based on that conclusion, Coalition Greenwich is advising our banking clients to build healthy allocations to marketing and client communications into their IT development budgets and plans. Clear communications can increase client utilization rates, helping to scale both client benefits and ROI.
Proactive marketing about innovation will also help clients make the direct connection between the money their banks are investing in technology and improvements in their client experience. Some banks are already doing this. One company had this to say about its cash management provider: “We feel like they do a good job at sharing with us what’s in their pipeline from an innovation perspective.”
For their part, companies should press their banks to provide regular updates. Periodic information about bank development programs will ensure companies aren’t missing out on new features and functionality, and will help them make more accurate assessments of their banks’ commitment to relationships and overall performance.
Implementation: Where the Rubber Meets the Road
There is another reason why companies might not be impressed with their banks’ level of innovation: they might not be using the new products and services their banks roll out.
Even the greatest new banking products don’t add value to companies if the products are too difficult to implement. Here’s what one large company had to say about its cash management provider: “They’re always bringing fresh ideas and, in a lot of cases, we can’t implement those ideas because of system constraints or some other reason.”
Overall, companies give their banks strong ratings for basic digital product and service offerings. In cash management, for example, almost 90% of companies rate their banks’ security, fraud prevention and user authentication as above average, with half rating their providers as outstanding. Companies also award strong grades for banks’ systems for real-time payment execution, systems integration and overall digital functionality. However, there is one area where companies see their providers as falling short: end-to-end digitalization of the implementation process that would make it easier for them to adopt and integrate new products.
These low ratings could be a function of rising expectations. At a time when fintechs are using cloud computing and API connectivity to provide modular system construction and “as-a-service” functionality, companies could have unrealistic expectations about the process and timetable for integrating core cash management and corporate banking functions. Regardless, Coalition Greenwich is advising its corporate banking clients to increase their focus on integration and connectivity in development, marketing and implementation. For their part, companies should be asking their banks to adopt a collaborative approach to product development, and seeking out banks that have a history of partnering with clients to create new solutions that are both effective and easy to implement.
Banks Puzzled by Lack of Demand for ESG
The world’s largest corporate banks have devoted millions of dollars and countless workhours to develop environmental, social and governance (ESG) capabilities. European banks have invested the most in ESG offerings, but global banks based in the United States are not far behind. All these banks understand that they need robust ESG platforms to compete for corporate banking clients in Europe. And all these banks believed that the ESG products and services they were assembling would soon be needed to meet growing demand from large companies in the U.S.
That demand has not yet materialized, much to banks’ surprise. About 80% of U.S. companies have established some organizational ESG goals. However, despite the widespread adoption of ESG standards, ESG currently plays little to no role in companies’ selection of providers of corporate banking services like cash management and trade finance. In cash management, only 2% of companies say a bank’s level of commitment to ESG plays any role in provider selection. That’s actually down from 9% last year. In trade finance, only 4% of companies include expertise in sustainable financing as a criterion when picking a provider.
That situation could change soon. Regulators in Europe have already put together tougher rules on ESG reporting that U.S. companies with international operations will eventually be forced to adopt. In the U.S., the SEC has likewise proposed enhanced disclosure rules about climate change and greenhouse gas emissions.
It’s not just regulators putting pressure on companies. In the past proxy season, companies faced a raft of shareholder proposals that would direct them to increase disclosure on environmental issues, as well as on diversity, equity and inclusion (DEI) and other ESG-related topics. A sizable number of those proposals passed, and companies and proxy experts expect more to come in 2023.
Market forces are also pushing U.S. companies to become more ESG-focused. As consumers become increasingly conscious of environmental and social issues when making purchases, companies are coming under increased scrutiny for the sustainably of not just their products, but entire supply chains. If growing shares of investment dollars continue flowing into ESG funds, ESG factors will have an increasing influence on share price and company valuation.
For these and other reasons, U.S. companies at some point will accelerate the integration of ESG standards throughout their organizations. Banks that have made the investment in ESG should stay the course. They should be working to help companies in their ESG journeys by providing financial incentives for adoption, overall education and advice, counsel on future regulatory actions and their impacts, and specific ESG products and services. Just as importantly, they should continue communicating to their clients about the growing importance and potential benefits of ESG, and reminding clients that they are there to help. Meanwhile, large U.S. companies should be asking their banks and all other external partners for advice and assistance in integrating ESG into operations, treasury and all other aspects of their business.
Greenwich Share and Quality Leaders, and Greenwich Excellence Awards
The following tables present the complete list of 2022 Greenwich Share and Quality Leaders in U.S. Large Corporate Banking, Cash Management and Trade Finance, as well as the 2022 Greenwich Excellence Awards.
Dr. Tobias Miarka, Chris McDonnell, Don Raftery, Matthew Noujaim, Amos Welder, and Kassie Krivo specialize in corporate banking, cash management, trade finance, and digital banking.
MethodologyFrom May through December 2022, Coalition Greenwich conducted 265 interviews in large corporate banking, 307 interviews in large corporate cash management and 130 interviews in trade finance at U.S.-based companies with $2 billion or more in annual revenue. Participants were asked about market trends and their relationships with their banks. Trade finance interview topics included product demand, quality of coverage and capabilities in specific product areas.