Enabling B2B Growth in 2010: What role will banks play

The curtain has come down on 2009 and it's not a show that most of us would pay to see again. While we didn't see another giant like Lehman Brothers collapse, we ended the year with 140 bank failures in the US alone, unemployment that was above 10% in some countries and consumer confidence that although improving still with plenty of room to rise.  The best thing to be said by many about 2009 may be that it was better than 2008.  Fortunately things are looking up for 2010.  According to the 2010 Business Outlook survey 45% of finance professionals expect business conditions to improve.  Profits forecasts are also positive.   All around…good signs.   

Many believe that the driving force behind the recovery in 2010 will once again be small and mid-sized businesses rather than the large global corporations.  The U.S. Administration has made job creation a priority and the President has outlined plans to accelerate private-sector jobcreation in 3 key areas–energy, infrastructure and equipment.  However, all of these plans are contingent upon getting capital to small business owners. Which leads many to the great unknown; whether or not banks will be a help or a hindrance to B2B recovery and growth in 2010?

Every year, banks make decisions that impact operational, credit risk, compliance and market opportunities for the business sector. The banks' decision-makers rely in large part on the credibility of information and information sources presented to them.  So in early 2009, when these individuals saw that the default rate for small business loans had reached 12%, it was not surprising that banks that were already skittish were made  even more risk adverse. But if you believe as many do that small businesses will be the driver, then banks will have to find a way to mitigate this aversion by re-examining the tools they use to not only determine when to lend and to whom but also what tools they need to improve their awareness and visibility into B2B transactions. But visibility requires communication.

At the top of many corporate treasurers 2010 wish list is a desire for better communication.  Better communication with their trading partners and with their banks.  Given the upheaval and uncertainty of the past 24 months, corporates are looking for consistent and credible information from all of the participants in their global supply chain.  Particularly as it relates to the financial metrics of the bottom line.  Corporates are looking for just shy of the "truth, the whole truth and nothing but the truth" and in many instances they are looking to their banks to sit in the center of the community to act as the hub who can collect, analyze, advise and disseminate the truth. 

Last year's AMR Research study " ERP Projects Create Significant B2B Opportunities" included a question about the impact of the global recession on companies' B2B programs. A majority of the companies (70%) surveyed had experienced budget cuts and many (40%) reduced their IT staff.  Add to this information, the fact that many corporates are also working with a supply chain that is more diverse than ever—and it is not surprising that they need help.  Can banks–which have long had the reputation for moving at a glacial pace—provide the type of flexibility and connectivity that today’s market demands?  Can banks capitalize on the weaknesses of disparate technologies and disconnected trading partner communities to create value and stickiness for their corporate clients?  

Yes, although given the complexity of the global supply chain—its size, scope and the diversity of participants—it would be difficult  but  not impossible for a bank to file the role of  information hub.   The global nature of banking and the commonality of banking processes makes it easier for banks than for other strategic partners of the corporate to act in this capacity.  Moreover, banks already have experience in facilitating communication beyond the four walls of the organization and with working with global supply chains.  The question is how  can they leverage this expertise to enable better communication between their corporate clients and the clients supply chain partners to increase the transparency of B2B transactions and stimulate growth?

Well, first banks need to take a good hard look at the solutions they provide to corporates for on-boarding new suppliers and partners.  If their offerings cannot handle suppliers and partners regardless of size, location or technological sophistication, then they will need to figure out what cost-effective investments can be made to shore up limitations and decrease customer backlogs.  Second, banks need to move beyond their myopic view of the corporate.  It is not enough to understand the corporates’ IT environment; banks now need to be able to get a more holistic view of their customers’ entire community.  It is no longer enough to understand how the corporate buyer uses technology; banks must also be able to understand how the rest of their community uses it as well.  Banks must be able to understand not only how suppliers use technology but also the integration points between the supplier’s systems and the buyer’s.  To understand the relevance of these types of connections, banks must be able to answer and analyze critical questions about transactions that may not all be in the financial realm. In addition to questions of credit worthiness; they must also be able to advise their corporate clients with information such as:  Which suppliers are teetering on the brink?  Which ones consistently ship early?  Which ones are under-performing? Etc. This information while outside the normal scope of banking can help banks move from    Third, the bank has to be able to provide some form of business analytics that can help corporates to track and monitor the performance of their trading partners so that they can avoid unpleasant surprises like say…bankruptcy.  It is not enough to know who is under-performing; banks will need to be able to help their corporates understand how this information impacts their business. 

Overall, at the end of the day, the link between what information is important to the physical supply chain and what information is critical to the financial supply chain are becoming more and more blurred.  To enable the next stage of B2B growth, banks have a real opportunity to take a new role in the B2B process–a role that at its core is about communicating relevant timely information across the entire community.