As the COVID-19 pandemic continues to impact the economic landscape, financial institutions (FIs) are facing new obstacles as well as challenges that already exist in the market. To develop long-term relationships, they must understand and address these challenges.

New market competitors

The digital age has enabled new entrants to compete with FIs for primary financial relationships with commercial and corporate businesses. New market entrants are offering solutions that solve specific business problems with embedded banking functions that may make FIs generic transaction processors. In order to effectively compete, FIs need to provide solutions that go beyond traditional one-sized-fits-all cash management products and extend their digital platform to connect to the broader financial ecosystem. FIs must be able to demonstrate through consultation that they understand their customer’s business problems and align solutions to address the industry problems they face. If FIs lose mindshare to fintechs and other providers, they will face pressure on transactional product fees, which will significantly impact non-interest income.

Low-interest rate environment

With the current environment of low interest rates, margins are compressed on interest income products, increasing the importance of non-interest income for FIs. Decreased deposit interest rates will result in a reduced Earnings Credit Rate (ECR), making cash management fees hard charges for some customers and adding pressure to cash management fees. Increased visibility and hard costs associated with cash management products may push commercial and corporate customers to shop cash management services with other FIs or non-FI providers. Low interest rates will also compress interest margins, increasing the importance of pricing loan products more effectively to optimize value.

A growing preference for digitization of commercial lending

Even after the COVID-19 pandemic passes, face-to-face meetings may no longer be the default method for meeting with commercial and corporate business clients. Because in-person sessions often occur during the loan application process, a decreased ability to meet in person could delay the process and result in lost lending opportunities. Demand and urgency for lending will remain high through the pandemic, and will likely continue beyond the pandemic as businesses recover. Most FIs do not have digital lending processes, making them entirely dependent on staff to generate and decision loans.

Market segmentation

Many FIs have a product-centric go-to-market approach, focusing on product features rather than business solutions. Simultaneously, many businesses don’t trust their FI to understand their particular needs. Digital cash management offerings typically provide one-sized-fits-all functionality that fails to reflect a nuanced understanding of a business’s needs. Many FIs have created specialty sales groups focusing on government, healthcare, and property management, but haven’t necessarily aligned product functionality or digital experience with these segments. As the frequency of in-person interactions remains lower than the pre-COVID-19 environment, FIs will need to demonstrate their understanding of commercial and corporate customer needs through digital channels to remain competitive.

Time to value

The onboarding processes for most FIs are manual, resulting in revenue delays that can stretch on for weeks and jeopardize the quality of a customers’ first experience. Q2 research suggests that processing forms between FIs and their business clients comprises about 70% of the delay; the remainder occurs while setting up the client in the banking systems. What’s more, onboarding delays and bad experiences aren’t limited to new clients; existing clients experience similar delays when adding products and new accounts. Traditional paper-based manual processes associated with onboarding commercial and corporate clients and products is resulting in lost revenue and client relationships for FIs. To remain competitive, it is essential to modernize these processes with digital solutions that improve the client experience while decreasing time to value for the FI.

These common industry challenges are just some of the issues FIs are grappling with as they compete for commercial and corporate customers. Helping FIs address these challenges is a key component for informing our product roadmap strategies.

Additional Resources

Learn more about Q2’s commercial banking solutions.

Read the Aite Matrix report, “The Leading Providers of U.S. Cash Management Technology, 2020,” to see our vision and progress in creating an end-to-end, modern commercial banking solution.

Check out our Treasury Onboarding eBook and learn about treasury onboarding challenges and how they can be solved.

View our recent “The Commercial Customer Journey” webinar where we explain the importance of the customer journey when undertaking digital transformation in commercial banking.