6 months after what seems like a lifetime and with entire sectors of the economy that have changed forever, the world continues to warily cope with the impact of an economic shock triggered by a global black swan event of epic proportions.
As regards financial services, notwithstanding the strange new normal, banks across the world are learning as they go and applying what they learn, to sustain the trust that customers have placed in them. On the upside, with consumers’ increasing comfort levels with technology, Covid-19 has been accelerating the pace of change, with indications that banks will be making a decades’ progress in half the time.
Here’s a quick look at 19 things that have been changing during the COVID-19 crisis.
1. New models for the new normal. Banks are responding to epoch-making social changes, including how consumers select channel preferences, products for their financial needs. Behavioral changes are hastening the shift from the transactional to more complex, high-value operations. Decisions across distribution and product relevance is proving to be key to this transition. Until now, most banks have marketed products using broad demographic segmentation. But with customers increasingly expecting individualized offerings, banks are making the most out of data to fine-tune customer, product and pricing strategy to deliver better on expectations.
2. New branch avatar. Even though the pandemic has impacted visits to the branch, a significantly large number of customers still prefer the branch for help with complex products or services (McKinsey). While branches are essential to have a physical presence, they are expensive to operate. With customers having adapted to spending less time at branches during the pandemic, banks are trying to sell more products via digital channels to compensate for reduced sales in branches. But several innovative banks have begun using their branches as a premium store to sell high-value products – wealth management products, mortgages, auto finance, loans and credit cards, and servicing business customers with large deposits or payroll needs – instead of being another channel for transactions.
3. Decline of cash. The pandemic has accelerated the already declining use of cash. With several businesses winding up brick and mortar channels, consumers are buying online, partly also due to concerns about physical cash spreading the virus. This has contributed to plummeting cash usage, while there’s a significant upsurge in payments via cards and digital channels. In cases of essential purchases from brick and mortar stores, contactless payments have become the preferred option.
4. From servicing to engaging. Banks have begun putting themselves in their clients’ shoes, crafting experiences rather than products. Technologies including AI and Machine Learning are making it possible to mine deeper insights into customers’ life goals and preferences and translate them into solutions that are more accurate fits. To enable customers to have convenient and customized experiences, banks are focusing on providing more choice via digital, rather than pushing only digital. This is helping create unique ‘segment of one’ experiences for unique types of people, including those who may not be digital-savvy.
5. Swifter delivery. The accelerated pace of digital competition is having banks deliver new enhancements and features (via their digital banking apps) and implement updates quickly and reliably. Banks will be soon adopting software development techniques such as agile and continuous delivery to reduce their time to market and to consistently bring newer digital services to customers to gain competitive advantage.
6. Remote, but closer. With remote access having become a key component of supporting customer needs, human-centered remote channels are evolving rapidly. Banks have begun improving digital service journeys, including decreasing agent time spent on activities of lower-value, e.g. ‘human-like’ IVR resolution acting as a substitute. Customers with more sophisticated wealth management needs, are doing web chats and video calls with their relationship managers about potential investment decisions, without having to visit a branch. Also, many consumers have gone directly to mobile banking, skipping the transition from branch to online altogether. For the affluent tech-savvy, digital banks are a natural fit for their needs.
7. Digital++. In the early weeks of the pandemic, banks with stronger digital strategies quickly tailored their products and services to help customers they could not service in person. Now, given the prospect of more branch closures and an increase in customers preferring to bank remotely, the shift toward digital banking has been at an extraordinarily rapid pace. Banks are seeing a surge in customers enrolling in online or mobile banking, especially older people who had been hesitant in adopting digital options, but are now paying bills online and transferring funds using their mobile phones. A recent survey reveals that 45% of consumers overall, and 49% of baby boomers, have changed how they interact with their banks since the start of the pandemic.
8. Contactless cards are increasingly becoming more popular among US consumers according to recent survey of 1,000 cardholders. 61% felt a contactless option is ‘a priority’ when choosing a new credit or debit card, Among those who used contactless cards, hygiene and speed were the primary factors.
9. Customer journey revamp. Banks are renovating their onboarding and product origination systems and processes, to deliver outstanding experiences to customers. Banking apps have begun offering better streamlined and simplified user experiences for lowering digital / financial literacy barriers. This is opening up banking to customer segments that are less tech-savvy. A leading Nordic challenger bank recently launched a simplified stock trading solution targeting new investors with a simpler, stripped-down stock-trading platform.
10. Handholding, educating. With so much having changed over the past months, banks are re-configuring how they conduct banking, as well as how they are serving their customers and prospects. This includes educating and helping customers shift to digital, by strengthening existing connections with their customers with more impactful one-to-one engagements. The decision by many banks to suspend overdraft fees and to give newly unemployed borrowers a few months more to pay back loans are other examples of thoughtful customer-centric approaches. Regulators too have been persuading banks to become stronger customer allies.
11. Small-business lending. After disbursing 22,000 loans in 9 weeks via the Paycheck Protection Program, a leading global bank realized the value of speed in small-business lending. Loans that used to take weeks to reach the customer are now being processed in a matter of days, thanks to an automated lending platform the bank launched to meet mounting demand. This initiative outpaced any small-business lending the bank ever did. This trend is being seen at several banks of all sizes, that held back from optimizing their small-business lending processes. Business owners, who were forced to apply for loans remotely, now expect loan decisions to be made quickly. If their existing bank can’t match the speed, they will switch to a rival bank, or even a nonbank fintech, that can.
12. Transactional to Long-term. With selling and marketing becoming increasingly virtual, banks are moving away from purely transactional apps (built for checking balances and making payments and transfers) to those enabling deeper customer engagement. A few progressive banks have begun developing personalization capabilities like those of e-commerce giants, and utilize the vast wealth of customer insights that banks have, to understand customers’ financial needs much better. In fact, one of the outcomes of the pandemic is the entry of data-enabled services into more aspects of life (HBR). Advanced data analytics combined with real-time campaign management, is helping banks transform customer data into meaningful insights for actionizing them with apt recommendations at the right time and place.
13. Fraud risk. Over the last decade, the banking industry was subject to increasing regulatory scrutiny triggered by several incidents of financial crime. But banks have received an unexpected reprieve from regulators during the pandemic. During the crisis, banks have been vital allies to regulators and policymakers working to prevent a full-scale economic depression. Regulatory supervision has been considerably relaxed to allow banks to focus on the more critical mission at hand. But lighter supervision could result in heightened financial crime risk as it is likely that heightened socio-economic anxiety can spur opportunistic financial crime. With most banking staff working remotely, outside the realm of standard internal risk control frameworks, there is already a clear and present threat. Banks are therefore exercising added vigilance to prevent newer types of fraud as well as avoid regulator ire, should there be any untoward incidents.
14. Next-gen tech. With the accelerating pace of digital, digital banking distribution has gained importance requiring banks to adapt to changes and uncertainties at a fierce pace, straining legacy technology infrastructure. To keep pace with rapidly changing customer needs, several banks have begun shifting from legacy technologies towards agile and scalable digital technologies, such as AI and Machine Learning as they are decisively more scalable, nimbler, and dramatically shrink costs of processing and storage. These technologies have been enabling many banks to handle surges in incoming queries better, while adding new digital features quickly and with scale.
15. Cloud and SaaS have been seeing renewed interest both from established banks and new entrants. With advantages such as low infrastructure costs, enabling products be created and changed quickly, and offering resilience, scalability and security, more banks have begun believing that Cloud technology will be transformative. Cloud features in the top 3 technology investment priorities for banks, with more senior executives citing it as a primary focus. During the pandemic, Cloud and SaaS have been enabling banks to operate with an agility and speed usually seen in their fintech competitors. In just 3 weeks, a leading US bank used a cloud-based SaaS solution to disburse over $1.4 bn in Paycheck Protection Program loans for 6,500 businesses. Meanwhile Canada’s first digitally-born bank leveraged on the scalability of Cloud to meet the surge in digital demand and touch $3 billion in deposits.
16. Repurposing staff. With limited cash availability at the counters, given the decline in usage, branches are stepping up the use of self-service. There has been a drastic reduction in basic banking needs and this has in turn impacted the mix of branch staff competencies, giving them more flexible role responsibilities. With many banks having repositioned their front-line employees to supporting roles, often working from the same place, this may change the action of branch closures. Banks may be able to keep more branches open for customer-related tasks, in a more productive manner.
17. New alliances. New holders of virtual bank licenses are partnering with multiple lifestyle providers such as telecom companies and travel agencies to be a part of their clients’ daily lives. Banks have also been exploring partnerships and strategic M&As with other banks and fintechs. Targeted proactive investments, including partnerships that offer scale, talent, and complementary assets, strengthen the banks’ position. Given the declines in global fintech funding in excess of 50% since December 2019, several banks have been alert for acquisition candidates capable of generating new revenue streams at reasonable valuations.
18. Cultural shifts. The banking industry has begun gradually moving from a control-based towards a purpose-driven culture. There has been a realization that a culture based on strong values supported by smart controls is more effective in moving towards a more stable position, especially during turbulent times. With a majority of customers under 55 preferring to engage with banks that are guided by values, this is seeming to be an essential trend. There is also a wider uptake of ‘a new social contract’ that puts people over profits (McKinsey). From providing mortgages to growing households and loans to growing businesses, banks have historically been one of the vital pillars of socio-economic success. A crisis sometimes brings out the best, and the banking industry now finds itself in a unique position to play a pivotal role in restoring communities, economies and society.
19. Rebuilding resiliency. COVID-19 has expanded the scope of operational resiliency beyond preventing threats to being prepared to function during periods of unprecedented disruption. In the new normal, resiliency plans are being recrafted and are looking radically different.
The pandemic-triggered crisis has been creating major structural shifts and radically altering operations of the banking industry. It is changing conventional dynamics, and questioning bonds that have historically held financial institutions together, while creating new models where new and old capabilities are being combined in unexpected ways. Even as the difficult phase continues and newer trends develop, enduring factors including customer centricity and responsible banking, will emerge stronger than ever.
Harvard Business Review:Digital transformation is about talent not technology
The Economist: Changes Covid-19 is forcing on to business
Forbes: How Bank Closures Could Be Giving Rise to Digital Currencies
EY: 3 ways Covid-19 is changing how banks adapt to digital technology
EY: Why the potential end-of-cash is about more than money
PwC: Coronavirus impacts retail banking
Fortune: Coronavirus bank fraud risk prevention
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