Elevating commercial banking experience

Navigating Uncertainty, Digitisation, and Competitive Pressures during a period of turbulence

Commercial banks are facing multiple challenges in 2023 – tighter monetary policy, macroeconomic uncertainty, growing digitisation, and heightened competition, among others. Many commercial customers are demanding frictionless digital experiences, integrated services, innovative offerings, and efficient processes to make it easy for them to bank. Therefore, commercial banks must redefine their future and implement strategies to defend their turf and deepen wallet share.

***Figure 1:*** *Factors affecting the commercial banking business; **Source:** Deloitte*

The Deloitte Survey

In this regard, US consulting giant Deloitte conducted a survey of over 100 corporate executives between May and June 2022 who were either main decision-makers or decision-makers on banking relationships. About 70% of the executives were in C-suite roles, and they came from companies of various revenue sizes and more than 13 industries, with technology, media, and entertainment being the most represented. The following factors stood out:

Macro Forces and Uncertainty: According to the survey, 41% of cross-industry North American CFO respondents were pessimistic about their company’s financial prospects quarter over quarter, while only 20% were optimistic. The new 15% minimum corporate tax rate on domestic income in the United States and the global push toward a 15% minimum corporate tax rate on multinationals’ foreign income could further dampen corporations’ after-tax profits in 2023.

***Figure 2:****Pessimism on the rise; **Source:** Deloitte*

Growing Digitisation: Corporate customers are often demanding frictionless digital experiences, integrated services, innovative offerings, and efficient processes to make it easy for them to bank. Nonbank lenders are increasingly funding leveraged buyouts by private equity firms, taking away shares from banks in the syndicated leveraged loan market. Therefore, many banks are implementing strategies to defend their turf and deepen wallet share.
Competitive Pressures: For pragmatic reasons, many corporate customers tend to spread their banking relationships across a number of institutions, thereby adding to the competition for wallet share. Adding to the competition, nonbank lenders are increasingly funding leveraged buyouts by private equity firms, taking away shares from banks in the syndicated leveraged loan market.

***Figure 3:*** *How commercial banks can address customer issues; **Source:** Deloitte*

Strategies for Banks: To elevate commercial customers’ banking experience, banks must meet their current and latent financial needs and support them through macroeconomic uncertainty. Banks should focus on the following four levers: digital experiences, integrated services, sophisticated advice, and efficient processes. For instance, JPMorgan Chase has instituted a dedicated direct lending team to strengthen relationships with commercial customers, especially those in the middle market. The bank is committing capital to fund new loans in the private credit space and hold them until maturity on its balance sheet rather than passing them over to investors.

Commercial banks must navigate uncertainty, digitisation, and competitive pressures in 2023. They can implement strategies to elevate commercial customers’ banking experience by meeting their current and latent financial needs and supporting them through macroeconomic uncertainty. This will allow banks to bridge gaps in customers’ expectations and banks’ service quality, mitigate competitive pressures, and strengthen trust.