The Tremendous Opportunity Hiding in Plain Sight

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There is a tremendous opportunity for community and regional banks to enhance the international payments, receipts and foreign exchange services they provide their commercial customers.

In 2021, the total amount of U.S. imports and exports totaled $6.5 trillion. In fact, 27.9% of U.S. gross domestic product was imports and exports. What other “new” product line has such an addressable market? According to the census, 76% of U.S.-based companies that import or export have less than 20 employees; 97% have less than 500 employees. These are businesses that community and regional banks are already servicing. But these institutions are hindered by the belief that they lack the size, sophistication and resources to confidently capture the opportunity.

The good news for banks is that there are technology solutions that can enhance their offering to customers that require international payments, receipts and foreign exchange services. These solutions provide more opportunities for sales and service on the bank end and help their business customers mitigate risks more effectively.

Quantifying this opportunity will vary for each institution, and location and asset size alone are not accurate predictors. Cross-border activity occurs across the U.S., not just in the most obvious international trade areas. Financial institutions should start by looking at their existing volumes to determine the opportunity. Within outbound and inbound payments, banks need to examine the number of transactions that took place, the total notional volume, the U.S. dollar and foreign currency split, what origination and destination countries are included and whether these are commercial or consumer payments. This initial analysis leaves out the potential for future growth through enhanced capabilities.

Many financial institutions are surprised to see that this is an opportunity hidden in plain sight. Frankly, it doesn’t take much activity — as little as $1 million a month of international payments going in foreign currency — to make this an interesting capability for executives to consider. That’s because banks can leverage technology to capture it more effectively.

Enhancing international payments capabilities doesn’t mean banks have to give up cultivating the experience that their customers expect. Controlling the customer experience here starts with offering the capability via multiple channels while retaining flexibility and control on pricing. This can lead to capturing more of the customer wallet, which provides additional insight into customer activity and, ultimately, a stronger and deeper relationship.

Community and regional banks that enhance their international capabilities can sell with more confidence, better retain existing business customers and potentially attract new ones in the face of others competing for the same business customers. They can even extend the product offering by offering risk management solutions.

Once a bank decides to take more control over the customer experience in international payments, the defining characteristic of success is how quickly it can produce revenue from these enhanced capabilities. It starts at the planning stages. The foundation of any transition is a detailed implementation checklist and, as importantly, a timeline that maps out the process.

All bank areas need to be in full support and aligned on the changes. You need both an executive sponsor and a product champion as part of this. Once implemented, institutions that properly incentivize their bankers should generate significant improvements versus the rest of the industry landscape. But it is critical for banks to engage an experienced and trusted partner to accompany them during this journey and guide implementation.

The opportunity for community and regional banks to enhance their international payments, receipts, and foreign exchange services they provide their commercial customers remains one hidden in plain sight. Leveraging technology to capture the value associated with both existing and prospective activity provides benefits to the bottom line and the customer experience. Don’t be surprised by the size of the opportunity, the activity with business customers, and the relative ease with which it can be captured and enhanced.

Commercial Customers Want Fintech Innovation Too

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fintech-6-3-16.pngOnline banking, electronic bill pay, and mobile deposits are no longer seen as innovative offerings by consumers. They’re simply check boxes—a bare minimum set of tools and services that they expect their bank to offer. Despite the fact that this technology is considered table stakes in the battle to win consumers, business customers at most banks are still waiting their turn to benefit from this technology. And as the workforce skews younger and gets even more tech savvy, they’re going to get frustrated from waiting for comparable services—if they haven’t already.

Just last year, millennials surpassed Gen Xers as the largest generation in the U.S. labor force. This is the first digitally native generation that grew up with computers in their homes and came into adulthood with near ubiquitous access to the Internet, social networking, and mobile phones. As they take over the workforce, they’re going to want—and expect—the same conveniences they’ve become accustomed to in their personal lives. But when it comes to banking technology, they’re not getting it.

The stark difference between bill payment processes of accounting professionals at home and at work is just one example of how a lack of adequate technology is holding them back. A study last year by MineralTree found that 81 percent of respondents use paper checks frequently or exclusively at work, whereas almost half (48 percent) said they rarely use checks in their personal lives and 7 percent said they never use them at all.

If banks don’t start providing business customers with innovative tools to do their jobs more efficiently, they’re going to start looking elsewhere for the technology they want. As JP Morgan Chase & Co. CEO Jamie Dimon now famously noted in his 2015 annual shareholder letter, “Silicon Valley is coming.”

The Path to Business Banking Innovation
It’s not surprising that business customers have found themselves in this position. It makes sense that technology on the consumer side has paved the way for innovation in banking because it’s so much less complex to build and implement.

Take mobile deposits for example. Being able to take a picture of a check with a mobile phone and deposit it via a banking app is a significant advancement in mobile banking. But it’s much more realistic for a personal account holder to use this technology than it is for a business. For a company that might deposit hundreds of checks every day, taking photos of each of them with a mobile phone is simply not practical or efficient. Not to mention adding the complexities of a business’s need for increased security features like role-based permissions for different users, or integration with other enterprise systems.

Bill pay faces similar hurdles. On the consumer side, banks have proven capable of creating directories that include most of the vendors their customers regularly pay—companies like electric, cable TV or mortgage providers. But it would be nearly impossible for a single bank to create such a directory for all business payments because the size and scope of such a network is just too vast. And then there are complexities like supporting approval workflows, role-based permissions, and integrations.

Integration with other core enterprise systems is a major issue for business customers. Being able to seamlessly connect a bank’s bill pay technology with a company’s financial system of record—their accounting/ERP system—is a must have. But again, it’s a complex task that takes a high level of technical knowledge and expertise to achieve.

Innovations in consumer banking technology have made significant strides in moving the industry forward, but now commercial customers want their share of fintech innovation too. We’re at a tipping point where business banking technology needs to catch up, and the burden is on the banks to make it happen. They can either build the technology on their own or partner with companies who can. But if they don’t, they risk being left behind.