2B or 2C is an eternal strategic question in the business world. For the banking industry, whether it is for business or retail has also constituted the main theme of transformation for decades. It can even be said that all the stories about strategy, management, culture, and competition in this industry can be attributed to the dispute between the public and retail. Within a bank, differences (conflicts) in operation and management were also caused by different business logics, which eventually evolved into the bank's strategic style and operating temperament. Generally speaking, since 2016, with the strict supervision of shadow banking and pan-asset management and the market clearing caused by the economic downturn, the "strategic pendulum" of the banking industry has begun to lean towards the C-terminal (retail).
The data tells us two things:
First, the strategic trend of retail business has taken shape, and its proportion has been increasing year by year. Most research institutions predict that by 2025, the revenue and profit ratio of the retail business will reach about 50%.
Second, the increase in the proportion of retail business is slow, and the "exponential growth" of a few banks does not mean that retail business will quickly dominate.
Under the aura of retail banking, doing a good job in corporate banking is still "the most important thing."
The Death of Corporate Banking
However, for a long period of time in the past, several types of obvious problems have been exposed by corporate banks:
One is strategic swing. It is mainly manifested in the "wind chase" in business fields such as transaction banking, investment banking, Internet finance, and small and micro finance, as well as the "swinging" of large, medium and small customers. Behind the strategic swing is “inseparable” for the platform and real estate business. The problem of "business opportunism" arising in a procyclical environment is the most serious in the corporate banking sector. As a result, banks always lack long-term strategies and a stable core customer base.
The second is the high risk. The bad cycle that began in 2012-2013 has continued to this day. The "main disaster area" is the corporate bank. This aspect is of course an inevitable economic cycle factor, but backward and extensive risk management is also one of the important causes. It is an indisputable fact that subjective risk management lags behind the overall development strategy and transformation requirements.
The third is the outdated model. The preference and reliance on major customers for infrastructure, real estate, platforms, credit and similar credit, has made the business form and business model of corporate banks "low frequency" and "shallow". The corporate banking of most banks continues to "shift up" in terms of customer positioning, while the seemingly tall investment banking, interbank and asset management businesses have in fact degenerated into simple and rude "credit-like" businesses, and the number of interactions with customers has been significantly weakened, where the number of capital flows and transactions is relatively small. For example, the number of transactions of a single non-standard business is 1-2 times a year, leading to weak data (inability to accumulate high-quality data) and weak relationships (fragile bank-enterprise partnerships based on price-oriented) issues, making corporate banks farther and farther away from the end users, the sensitivity to the real economy is greatly reduced. This is contrary to the general direction of the whole society towards network and intelligence characterized by high frequency and agility.
The secrets of corporate banking
One of the "secrets" of corporate banking is that although it is called a "wholesale bank", it is actually difficult to "wholesale" from a sales perspective because of its heterogeneous demand and rational decision-making. This is not the only banking industry. Some problems are the common features of the entire B-terminal market.
Another "secret" of corporate banking is ubiquitous risks. As a typical procyclical business sector, corporate banking has always been unable to avoid economic cyclical fluctuations, and risk management has become a key issue throughout the business.
The core business logic of corporate banking should be: value orientation + risk orientation.
Re-examining corporate banking business from the perspective of the "second half of the banking industry", we can draw two basic judgments:
1. Under the traditional spread model, corporate banks can only obtain the average profit of the market.
2. Under the new model (non-interest income), corporate banks can obtain excess profits, but they need very special "capabilities."
What is this ability? We can use a simple formula to explore.
From the perspective of products and services (supply), corporate banking is simplified into transaction banking (which also includes basic businesses such as accounts, payment, and settlement, and on-balance sheet credit) and investment banking. Therefore, corporate banking can be simplified as follows:
Corporate Bank (Value) = (Investment Bank + Transaction Bank) × Service
Decomposing this formula is:
Corporate Bank (Value) = Investment Bank × Service + Transaction Bank × Service
Obviously, service is the most important variable. According to the particularity of the B-terminal market mentioned above, the root cause lies in industry differences and customer group differences. Therefore, we need to take service as one of the variables, and substitute specific industries and customer groups into corporate banking services. The formula evolves into:
Corporate Bank (Value) = a certain industry × investment bank × service + a certain industry × transaction bank × service
Therefore, corporate banking essentially requires precise industrialization and hierarchical and categorized business operations.
Why do you want to do this?
In the final analysis, it is because different industries and different types of customers have extremely different needs for financial services. Standardized products are difficult to solve the problem of large-scale sales, which is the fundamental difference between public (B-terminal business) and retail (C-terminal business).
However, the above analysis still does not break out of the scope of the traditional spread model. A real breakthrough requires the addition of new variables and options to the formula.
Corporate Bank (Value) = (Investment Bank + Transaction Bank + Non-Bank Products) × Service
When the option of "non-bank products" is added, the track of corporate banking becomes wider and wider, thus having the possibility of breaking through the traditional model.
Redefining corporate banking
Following the "value formula", we were able to re-understand some important concepts related to corporate banking.
(1) Business- from bank to "non-bank"
With the upgrading and iteration of the economic system, corporate banks will move from "deposit, loan, and foreign exchange" to a richer supply side such as "financing, technical options, and leasing assets", from a single fund provider to a comprehensive resource integrator. Constructing non-bank and even non-financial service capabilities have entered the "ignorant coastline" of corporate banking. The challenge is huge, but this is the only way for corporate banking to transform. Because "the essence of 2B is the business process that goes deep into the entire life cycle of an enterprise", not just the financial process.
(2) Income- from interest income to net non-interest income
The ultimate test result of the transformation of corporate banks from scale contributors to value contributors is the substantial increase in the proportion of net non-interest income. A very distinctive feature of net non-interest income is the "return to zero principles". This important feature determines that there are three prerequisites for maintaining sustainable and stable growth net non-interest income, namely, a large and growing customer group, innovative products that create demand, and a high-quality and convenient service system. Excluding the net non-interest income derived from investment or credit-like business that is accompanied by risks, the real net non-interest income in the form of "handling fees, commissions, consulting fees" and other forms is like a huge pool. In order to obtain a steady stream of living water income, it is fundamental have a large and growing group of corporate customers with special needs. Simply put, it is-more customers, more products, and better services.
(3) Customers- "Big is small"
The traditional approach is to classify corporate customers hierarchically according to their scale. There are significant differences in internal resource allocation, risk approval, and performance appraisal between large customers (strategic customers) and small customers (basic customers).
Under the 20/80 principle, this management model is reasonable, because the benefits, costs, and value returns of customers of different sizes are different from the perspective of financial accounting. For different banks, the ranking of micro-sized customers, small-sized customers, small and medium-sized customers, medium-sized customers, large-sized customers according to the value contribution of customer groups is also different. However, this kind of "customer view" is not only the source of "large-scale business" and "business opportunism" for a long time in the past, it has also pushed corporate banks into a "growth corner". The more and more unprofitable and even the need for subsidies, small customers are afraid to do it because of the high risk and high cost. However, the reality of "big customers earning face, small customers earning money" will force banks to break the traditional customer classification rules and the business model behind them, bind the size, consider the integration, and build a new customer management paradigm.
(4) Model- from single customer wallet to industry wallet share
To break through the dilemma of "difficulty in making money for a single large customer", corporate banks need to change their thinking: a single enterprise has a limited share of wallets, but its leading industrial chain (supply chain) has a huge share of wallets.
In essence, the general resources required for financial business development, such as funds and credit, are exclusive. If one business of a financial institution is occupied, other enterprises and other businesses cannot be used at the same time. For example, in the financing, the credit line of a single enterprise is limited. Direct financing (such as the issuance of inter-bank debt financing instruments) and indirect financing (liquid capital loans, medium and long-term project loans) is a competition and substitution relationship. For this reason, the acquisition (occupation) of general resources by financial institutions is firstly to obtain scope economic effects and secondly to diversify risks. The integration effect between these resources is relatively poor and it is difficult to build an ecosystem.
The core capabilities and resources (credit creation and liabilities) mastered by giants (large financial institutions) form strategic "potential energy" and thus possess extremely strong horizontal expansion capabilities. But within an industry, a "small ecology" can be realized through the form of supply chain and industrial chain. Only this kind of "ecology" can make corporate banks become "high-frequency" and build a foundation for digital operations. Therefore, vigorously developing supply chain finance and designing financial services based on the integration of the industrial chain will be the only way for corporate banks to break through the dilemma of "single customer wallet share is limited" and "single customer risk concentration".
(5) Sales- from financial "1+N" to financial and non-financial "1+N"
The traditional corporate bank sales model is "sell products first, then provide services." And it is to sell banking products first, and then provide banking services. For example, after a bank provides a loan to an enterprise, it can then provide services such as account opening, payment and settlement, and cash management. The action of "selling products" has become the basis of everything, and the premise of this model is standardization-similar to the Ford Model T, one color and one model package can be used in the world, or similar to insurance sales. A well-designed product can be widely copied and promoted throughout the country. But the disadvantage of this model is that the sellers (first-line institutions) only care about the conclusion of the transaction (the sales are concerned with the knack and skills of getting people to exchange cash for the product), and not the value behind the product. This model is effective under certain market conditions. However, as the market gradually matures and becomes saturated, it becomes increasingly difficult to meet the needs of enterprise-level customers with a single product and single solution. Both financing and financial intelligence will be based on " "as a service" appeared in the form-"service is the beginning of sales", so the new corporate bank sales model became "service first, then configure products on demand", and the connotation of the service does not extend to the bank.
In fact, Internet technology companies' dimensionality reduction attacks on traditional industries began with this sales model. For a certain type of demand and scenario, provide a minimalist free and trial service, as well as directly deliver it online and in the cloud. Huge traffic is realized through these rich services, and a huge scale effect is formed. In the digital age, this sales model will gradually become the mainstream, and the bank's sales model on the B-terminal will also usher in several changes: First, "do not do business properly", explore and create a wealth of scene, including financial and non-financial. Where the scene is, there will be services. The second is to learn to land and expand in the enterprise scene, and replace the traditional "one-shot business dealing" method with experience, trial, free, subscription, and other modes, with more diversified, open, and convenient ways.
Bank2B
For most commercial banks, what they pursue is not to maximize the return on the value of a single business (for corporate or retail) and a single customer group (large or small customers), but to maximize the value of the entire bank (total business and customers). The mainline issue of strategy and management is actually an issue of optimal structure. Therefore, there is no issue of choosing between B and C. Both corporate banking and retail banking are mandatory options, and the difference lies in the ratio.
The duck knows first when the river becomes warm in spring, the real economy will always be ahead of financial changes and lead innovation. The B-terminal trend has been surging in the Internet industry. When the consumer Internet gradually becomes saturated, the focus of business begins to shift to the industrial Internet. This trend from C to B will surely drive the financial industry to pay more attention to the B-terminal business again, that is, the development of corporate banking.
Do the right thing, but also do the thing right at the same time. The new market environment and new technological means have given commercial banks a new path to develop their corporate business. For banks, in order to maintain the sustainability and growth of corporate bank value contributions, the key lies in the ability to grasp the laws and characteristics of corporate bank operations, and only by changing from a profit contributor to a value contributor, its status and role If it continues to be maintained, the room for growth will be broader.
