EP974: Banks Shift Focus from Client Growth to Value Chain Control

Deepa Santhanam, Partner & SVP - Business Consulting, Intellect Design Arena

In an era where growth is defined by ecosystem depth rather than customer count, Puja Sharma speaks with Deepa Santhanam, Partner & SVP - Business Consulting at Intellect Design Arena, on how banks can outperform by embedding themselves into industry value chains—leveraging APIs, AI, and platform models to drive stronger liquidity, resilience, and competitive advantage in wholesale banking.

Transcript

SPEAKER_00 0:03

I am Pooja Sharma of IBS Intelligence, and you're listening to the IBS IViews podcast. With me is Deepa Santhanam, partner and SVP, Business Consulting at Intellect Design Arena. Welcome to the podcast, Deepa. Thanks, Pooja. Thank you for inviting me. Today we are uh diving into industry value chain, a strategic wholesale banking opportunity for Middle East banks. Deepa, in recent years, we have seen wholesale banking evolve significantly. Why are industry value chains becoming such an important lens for banks to think about corporate banking?

SPEAKER_01 0:39

This topic is incredibly timely, especially in the Middle East, where we are seeing unprecedented changes and expansion of industry ecosystems. Historically, wholesale banking was pretty much product-led. We sold payments, trade finance, lending, liquidity, you name it, as standalone tools. But today, the lens has pretty much shifted to industry value chain. And you would obviously ask why. Because more than 70% of the global trade now moves through these interconnected chains rather than isolated transactions. For example, in the GCC, as non-oil sectors, and we know why it's going to get more and more important uh truly now, they already contribute over 50% of the GDB in economies like UAE. These chains are becoming very much complex and regional. So, what does this mean for a bank? This means we are just, as a bank, we are just not financing a company anymore. We are financing an entire flow. So, what this unlocks are three strategic levers. One is a sticky deposit growth. Any bank, a deposit growth is the critical part. Operating balances staying within the bank as they move from the buyer to supplier. So be into the entire value chain from the buyer to supplier or supplier to buyer, depending where your anchor customer is. The second strategic lever that I think is important is the network effects. Capture the entire lifecycle of receivables and payments. Truly, no bank wants to be just a payment bank, right? It's not about moving, helping your customers just move funds. It's all about retaining some of these funds with yourself. So that network effect of capturing that entire lifecycle of receivables along with payments is very, very critical. And the third strategic lever, uh, in my view, is the infrastructure partnership. Stop being a vendor to a customer or just a banker who's going to help them do some services to becoming the financial engine of any logistics or energy hub. The real shift is now moving from product centricity to industry centricity. So banks that really master this value chain, they don't just provide credit. They're actually providing the financial infrastructure that makes the ecosystem possible. In fact, I've seen this play out very quite clearly in the UAE. While I was interacting with teams at a large bank in the UAE, one of the interesting shifts was a conversation move from selling, let's say, a trade finance to a customer to understanding the full trade corridor, especially for clients operating between Asia, Africa, and GCC. The moment you understand the corridor, you stop pitching products. You're structuring the flows within these industries. Globally, again, especially in Europe, banks have anchored themselves in, let's say, an automotive or an energy value chain. They saw significantly higher wallet share, not because they had better products, but because they understood where the money moves next.

SPEAKER_00 3:52

What does it particularly mean for a bank to serve an industry value chain rather than just individual corporate clients?

SPEAKER_01 3:59

So, Pooja, practically it means just moving from relationship banking to ecosystem orchestration. So we're talking about the entire ecosystem. If you want to serve the industry value chain, it's the entire chain that you need to talk about, right? For example, take GCC energy sector. A single export project involves the producer, EPC contractors, specialized logistics, global traders. If it was the old and traditional legacy models, the banks will just try to go and win each of these clients individually. In the value chain model, the bank looks at the white spaces between them. So what can we really offer? Maybe a programmatic financing automatically trigger liquidity for subcontractors when a milestone is hit by the anchor corporation. A good centralized visibility, giving the anchor, which is the main corporate to whom you're servicing, a real-time visibility into the financial health of the entire supplier base. Basically, in UA and Saudi construction booms, this approach allows bank to sit in the center of the cash flow rather than just waiting at the end of the pipeline for a loan application, right? For example, in a Middle East construction ecosystem, I've personally seen banks, and there's some large banks like you know first Abu Dhabi Bank or a Mashrug Bank, Emirates Bank, they're all experimenting with their supplier ecosystem financing. But the real unlock happens when this becomes programmatic, not really just one episode at a time, right? So let's say one uh EPC client that I interacted, and EPC in this um market means the engineering, procurement, and construction industry, they mentioned something very interesting. They said our biggest problem isn't funding, it's the timing of the funding. So that's exactly where value chain banking wins. Financing triggered by events, not by applications. So at Intellect also we have identified that these events are the trigger for financial value chain, and that's where that entire uh part of our cognitive architecture, emac.ai, comes in.

SPEAKER_00 6:09

How does this industry-focus approach resonate, particularly in the Middle East, especially given the current geopolitical situation like we discussed early on, also?

SPEAKER_01 6:19

Yeah, of course, I mean this uh this was an unforeseen geopolitical situation that we are in, but still, the Middle East is in a very unique position. It's always been, and I believe it will definitely be a pivot point of global trade. With nearly 12 to 15 percent of the global trade passing through these corridors, the region is highly sensitive to geopolitical shifts, and we have seen how. When the true when the trade routes actually get reconfigured or supply chains face shocks, it's just not anymore a logistics problem. It ends up being a uh highly a liquidity problem. So if a route is diverted, receivables are delayed, if commodity prices spike, working capital needs to explode. By having visibility into the industry value chain, a bank can be pretty much proactive rather than reactive. We can see the stress in the chain before it hits the balance sheet. Uh, in a volatile world, industry-aligned banking transforms uncertainty into structured visibility. And that actually means that we need to, as banks, we need to really start looking at uh what areas would impact us, some knowns, some unknowns. So we have patterns, we have anti-patterns. And we have seen this very recently with supply chain disruptions. All of us have seen it, right, in the region now. We need more of working capital, we have to have liquidity in the shipping routes have changed. Banks that had visibility across the chain could actually respond faster. Uh, discussion I had with another bank in uh UAE highlighted this very well. They were less worried about the credit risk and isolation and more focused on where stress is building upstream in the ecosystem.

SPEAKER_00 8:09

How important is technology, APIs, AIs, and banking as a service in enabling banks to support industry value chain effectively, particularly in such a volatile environment that we are in right now?

SPEAKER_01 8:21

Finally, all said and done. Anything gets enabled by technology. The technology is the enabler, right? Uh and now that with a lot of API, AI, banking as a service, that's all come in. Um, we need to understand that uh tech is just not a feature or not a basic enabler. It's actually the glue that holds these ecosystems together. How do you connect with each other, especially in a high-volume trade hub like the UA? Manual processes just don't scale. Um, obviously, the tech uh stack, and we have seen this grow in the years, right? I mean, AI is the boom now. Uh, APIs have been long there, but APIs are these bridges that embed the bank directly into the corporate ERP system or a shipping platform to do any kind of real-time reconciliation, uh, no more waiting for end-of-day reports, everything is real time, right? And then came in this AI boom. AI is more of a recommendation, forecasting engine, and of course ensures that a lot of data uh which was manually read is now understood effectively. So AI can look across an entire supply chain and predict where a liquidity gap might occur. In fact, 30 days before it can happen. And the last one is the third layer, as I would call it, is banking as a service. So this actually allows us to put our uh lending or payments engine into a third-party procurement platform. So I think banks, and I'm sure they are doing this, but they have to stop viewing APIs and AI as IT projects. These are no longer IT projects, these are the enablers that allow a bank to disappear into the industry's workflow. Um, if I can be really honest, a lot of banks say they are API enabled, but in reality, many are still file upload enabled. So they connect to ERP and they say, okay, I can download a file and I'm being real-time. But really, that shift to a real-time integration is still a journey. Now, and to be fair, banks are huge, uh, they have huge tech debts in itself, so it's not easy for them to go ahead with that. For example, in certain banks, especially in the UA, you would see an Emirates NB or a Mashrip bank, etc., there's been a very strong push towards API banking. But the real value comes when APIs are not just offered, but they're actually consumed deeply by clients. So globally, most successful BAS models I have seen, and they've I've seen them working in Saudi. We've been actually uh, you know, we've we have partnered with one of the large banks in Saudi and enabled BAS, practically making the bank invisible. The client doesn't even realize where banking ends and where their workflow begins. That's true.

SPEAKER_00 11:10

How does this ecosystem approach translate into stronger deposit franchises and better liquidity outcomes for banks?

SPEAKER_01 11:18

Okay, this is uh perhaps you know the most compelling part for the bank's CFO, right? Liquidity, money, obviously, float income, all of this is fundamental for their growth. Uh, and this model also fundamentally changes how deposits are won. Traditionally, again, if we look at the last few years, banks used to chase deposits through pricing or relationships. But when you are embedded in a value chain, uh say a massive infrastructure project in Saudi, the money never actually leaves your ecosystem. When the anchor pays the contractor, the contractor pays the supplier, they're all on your virtual account structure, the liquidity stays within the bank. So this actually creates low-cost operating deposits. And these aren't just hot money, right? They're essential working capital. And it also creates velocity, higher transaction volume through your own rails. So in the future, deposit growth won't just come from acquisition, it comes from participation in the flow. So the one CFO that I actually spoke to, put it quite bluntly, I don't care about the interest rate as much as I care about the predictability of cash. That's exactly what ecosystem banking delivers. Large banks have been very, very focused on building operating account depth, not just balances. And that's direct outcome of being embedded into the client flows. We are actually seeing that the best deposit franchisees are no longer built-in treasury departments, they are actually built-in transaction flows.

SPEAKER_00 12:55

Given the current geopolitical and economic shift, how do you see industry-aligned wholesale banking evolving in the region? And what should banks prioritize to capture this opportunity?

SPEAKER_01 13:07

Given the geopolitical situation, in spite of that, I think we are all being incredibly optimistic, and we should be. We're looking at trillions of dollars in planned infrastructure, energy transition products, um, government, SME growth, uh, uh, you know, um, the oil sector, manufacturing sector, the construction structure is of course going through a pain, but it will just all grow in the next uh over the next decade, right? There are going to be a lot of transition uh projects across the GCC, and we all look forward to it. The bank of the future in this region uh won't just be a place where you store money, it's gonna be a liquidity orchestrator. We actually will see banks evolving into embedded finance partners that scale alongside the industries that they serve. When they get into the value chain, they understand the business of the um of the industry that makes it more effective for the corporate that's operating with the bank, right? Because they they feel that you understand their business. Again, in our engagements at Intellect, we have seen the shift happening daily. Banks are really moving away from being transaction processes, typically to become ecosystem enablers, and they are addressing industries, vertical segments, sectors, as you would call it. And truly, the future of wholesale banking is justn't it's not about understanding the finance part of it. So understanding the pulse of the industry deeply enough to become part of its operating DNA. From again, what I have seen across the Middle East and globally, the banks that will win are not the ones with the most products, but actually the ones that become indispensable to an industry. The time when a corporate feels that this bank understands my business better than anybody else, that's when you become completely indispensable. And in conversation across large banks, it is a clear realization, whether GCC banks or global banks, the next phase of growth will not just come from adding clients, but actually embedding yourself deep into their ecosystems. So if I had to summarize this shift in one line from my experience, banks that follow the flow will outperform banks that just follow the client.

SPEAKER_00 15:23

That's a good uh thought to leave us with.