Although the approaches to dealing with the COVID-19 pandemic vary by country, as governments and businesses come to grips with it, one thing is imperative: we will get through this.
The question is how, when disruptions in day-to-day life and business abound. How will banks respond, rebound and reinvent?
In times of crisis, the preservation of key functions and services is critical, regardless of industry. Financial services is no exception, as payments, lending, and trade are the lifeblood of the global economy, even in challenging times. The good news is that this sector has always adapted to new ways of working.
With this in mind, below are some concrete examples of how the impacts of COVID-19 are affecting key banking areas, along with recommendations for turning those impacts into opportunities.
There is a need for more back-office staff. Now. Some outsourcing firms are now offline due to the lockdowns taking place. As a result, banks face the challenge of addressing impacted functions such as customer service calls, loan servicing, and even account opening.
Nearshore and onshore resources can improve resiliency. Offshore staffing outages have exposed a critical flaw in business-as-usual and business continuity planning models. Some banks are considering adding nearshore and onshore capabilities to the workforce mix to help restore key online back-office functions while creating a pathway to a more balanced workforce model.
Banks may seek to sell some business functions. A crisis often forces a business to reinvent how to manage and continue delivering certain functions. Because of the pandemic, banks looking for capital may seek to sell some of their business functions to third parties, helping them to not only deliver these services more efficiently, but also to modernize them (and their underlying technology) over time via a managed services IT model.
Banks are doubling down on digital. The current pandemic stands to forever change the way that bank customers receive information. With many countries on lockdown, which includes the closing of bank branches, customers seeking information about their accounts, as well as other banking products, will make heavier use of digital channels and the telephone. This will require banks to ensure both easy access and a consistent experience.
Interest in automation, chatbots and artificial intelligence is increasing. With the rise in digital channel usage comes the need to manage interactions more effectively. This dynamic will lead banks to consider the strategic use of automation to help them process mundane tasks more quickly and efficiently, along with chatbots, which will greatly aid in providing customers and prospects the information they need via the most cost-effective channels.
Teleconferencing and videoconferencing will increase, as remote interaction becomes the norm. One of the key reasons for having a face-to-face meeting is to build trust. With business travel curtailed, if not cancelled, for the near future, teleconferencing and videoconferencing will help keep customer relationships moving forward. This transition will require banks to ensure sufficient bandwidth to support audio and video conferencing, as well as virtual private networks, as more employees work from home.
Electronic payment volumes will decrease even as contactless payment adoption increases. The worldwide impact of COVID-19, combined with social distancing and the World Health Organization (WHO) recommendation to avoid using cash, likely will cause the adoption and use of contactless payment options to grow more quickly than usual. However, we also anticipate supply chain disruptions, as well as expected disruptions in recurring payments like salary, rent, mortgage, retirement and student loans, to cause electronic payment volumes to decrease in the near term.
Mobile payments will see significant growth. Given the advice to maintain physical distance, mobile payments (whether request-to-pay or direct payments to a merchant) stands to benefit by providing the ability to make a touch-free payment at point of sale and beyond.
There is finally a clear business case for real-time payments. Whether through stimulus payments or subsistence programs, many governments around the world are sending money to their citizens to help them weather the pandemic. Banks play a critical role in ensuring that citizens receive these funds as quickly as possible, as well as helping people to move money from one account to another in order to pay important bills.
Loan demand will increase across all segments, but for different reasons. The combination of record low interest rates, special lending programs (e.g., U.S. Small Business Administration) and pending job losses will drive activity for mortgages (new and refinanced), business loans, and unsecured lending, whether in the form of personal loans or credit cards. In response, banking business models also may change, moving to a more on-demand delivery approach than a main street/high street distribution model.
Defaults will surge, and creditors will put many loan and rent payments on hold. Although much of the world is on pause right now, interest continues to accrue, and rents continue to become due. However, paying these debts can be challenging when there are questions about job loss, healthcare, and the like. Many banks, government programs, and even landlords are looking at suspending payments for a set period of time to help those who are struggling, and are potentially suspending interest accrual for certain loan types.
Collections will become more compassionate. In a crisis like this, the financial welfare of many customers is seriously threatened. Banks will use the collections function to stay in touch with their customers and negotiate payment plans (including adding missed payments at the end of the loan rather than putting the loan into default) to give customers flexibility and help them avoid bankruptcy.
Financial crime and cybersecurity
Fraud attempts have increased already. Confusion and uncertainty create major opportunities for fraudsters, whether its phishing, telephone, or even CEO scams. Banks’ interest in artificial intelligence and machine learning will increase, along with efforts to protect customer accounts in response to this threat.
“Know Your Customer” will play a more important role across the bank. With online usage growing, the need to protect digital channels against misuse also grows. Bank protection activities will include the use of proof-of-life technologies to confirm that these are true customer interactions and not machine-generated attacks.
Hackers are testing the strength of cybersecurity programs. Again, confusion and uncertainty create opportunities—this time for hackers. Although lockdowns and stay-at-home orders make it more difficult for cybersecurity teams to do their jobs, banks will ramp up their efforts to protect their business and customers, whether from attacks to steal customer funds and information, or to take key systems offline.
IT projects and delivery models
Automation, cloud-based services, and data are top of mind. Automating repetitive tasks is cost-effective and scalable, freeing up staff to address needs that are more important. In addition, the flexibility, scalability, and power of cloud computing is immensely attractive to banks seeking to revitalize and reinvent their core businesses. Banks also are interested in making better use of data to unlock customer insights, support necessary adjustments, and drive a return to growth as quickly as possible.
Remote development and delivery capabilities will become key requirements. The timeframe for returning to face-to-face work remains uncertain. However, the need to deliver—and move forward—remains, so contracts and work environments will need to adjust to this new reality.
Banks may delay growth projects in favor of cost-cutting and optimization measures. This is a natural response to a financial shock; banks seek to become more cost- and process-efficient before devoting funds to growth again.
If there is a “silver lining” to all of this, it is that the shift to remote work may actually increase productivity in the short term. Meanwhile, data and digital improvements should make it easier for customers, and even employees, to self-serve, reducing response time for their requests.
Obviously, this is an uncertain and uneasy time for individuals, organizations, and industries alike. As with past crises, we always come out stronger, more innovative, and more productive on the other side. Personally, I look forward to seeing how the financial services industry responds, rebounds and reinvents. Feel free to contact me for further discussion.
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