The future of corporate banking is here, and it’s wearing jeans and trainers. Traditional corporate banks are under more pressure than ever to transform. Reduced barriers to entry (e.g. PSD2) and new technologies (e.g. blockchain) are leading to increased competition in a rapidly evolving ecosystem of new banking services and providers. Challengers in the retail banking sector are all around us such as Monzo, Revolut etc. and banks are increasingly facing up to the fact that their corporate banking businesses are just as ripe for disruption. Indeed, we have seen this with the arrival of Esme Loans and Oaknorth in the SME lending space. To survive they must change, now.

All banks want to transform but legacy technology, working practices and traditional cultures make it very difficult for existing banks to respond to the emerging opportunities and threats. Well-embedded reporting structures, programme funding rules and lengthy release cycles with strict controls make it difficult to do anything rapidly in a large corporate bank. For many, testing cycles for minor updates to existing systems can be longer than the typical new product development and release cycle of a new entrant.

To survive and thrive in the new landscape banks will be forced to change the nature of their relationships with their corporate customers. The banks which do this successfully will feel very different to the organisations we are familiar with today. They will employ flatter, more dynamic, structures to enable empowered cross-functional teams driving innovation on the fringe. The organisations which don’t succeed in changing will lose. The bank of tomorrow will put customers at the heart of their operating model and incubate a culture that encourages innovation to thrive. 

Corporate banks are complex beasts, realising this change will not be easy. The best approach to successfully transforming is to empower a small team to start behaving differently. The goal should be employee-driven innovation, focused on customers, with the organisation playing the role of facilitator rather than employer. A true measure of success must be adoption of these new behaviours rather than delivery of a particular solution, with leadership prepared to be patient and experiment with different approaches. Over time, other teams and groups within the bank will observe and learn about this new team, building excitement and encouraging a natural diffusion - the new way of working and culture. The traditional corporate bank starts to act like the challenger. If only it were that easy.

The observer effect holds as true here as it does in quantum theory, simply observing a situation is enough to change the state. The biggest barriers to success are existing management and project reporting structures impinging on the team’s ability to work in a new way and shift the cultural dial. This is particularly true in corporate banks where the need for customer centricity isn’t necessarily as intuitive in other areas of banking. Combatting this requires the insertion of cultural champions who sit between the project team and wider organisation, insulating them from the established organisational and cultural norms. Typically, these are well-networked individuals who are familiar with the organisation and bought into the new approach, but not necessarily senior or from existing ways of working teams. They have a vital role - translate the new language of working to the rest of the bank and insulate them from barriers such as existing reporting and governance. Pinstripes are dead, long live the denim.