Banks serve Consumers and Corporates. (Banks don’t know how to service Small Business but that is another story).
In this post I want to focus on Corporates (Global 2000). This includes;
- Debt (and maybe equity but that is more the domain of high growth ventures). Banks lend from their own Balance Sheet and are the conduit to the capital markets.
- M&A. Last week I looked at disruption hitting M&A but the conclusion was that this was restricted for now to the Mid Market.
- Treasury Management services.
- Foreign Exchange.
This is a hyper competitive market. Corporates have a lot of clout so they get good prices and service by getting banks to compete. This is the opposite of what has traditionally been true in Consumer and Small Business markets where the Banks have had all the clout – and abused that clout – which is why Emergent Fintech ventures are doing so well in those markets.
In Corporate Banking there are three possible plays:
- Provide technology to Banks, which Banks use to service Corporates. This is Traditional Fintech and it is a huge and mostly consolidated market, but the Banks are always on the hunt for 10x better faster cheaper solutions enabled by new technology.
- Provide technology to Corporates that help them get better prices and service from Banks. An example of this is 360T, which does this with great success in Foreign Exchange.
- Provide technology to Corporates that enable them to bye-pass Banks. This is the bleeding edge. There are few examples as yet. It is difficult because Banks offer bundled deals that are a disincentive to Corporates who look to cherry pick a better price from some disruptive venture. These C Suite golf course relationships are powerful because the ability to pull all the threads together to make something big happen quickly is so valuable to Corporates – and today only Big Banks can deliver that.
However nothing withstands Moore’s Law forever and the disruption may come from a mix of Regulation (for example Dodd Frank mandating transactions via Exchanges versus Over The Counter) and Blockchain systems.
Blockchain systems are natural for cutting out intermediary costs in complex inter-enterprise processes where no institution needs to be trusted.
Smart Contracts can be programmed to whatever level of functionality is needed. Escrow agents that are Distributed Autonomous Corporations can hold money until conditions are met. This means that an Enterprise does not need to trust to any other Enterprise or any Institution; they trust in code which they can review to the hearts content. Corporations like being in control and Blockchain systems put them in control rather than having to trust to intermediaries.