Banks have faced relentless pressure over the last few years. Long-term low interest rates, high cost-to-income ratios, and a full risk, compliance and conduct agenda – driven by increasing financial crime and data breaches – have all been key concerns. The sector has also seen FinTechs and digitally native businesses enter the most lucrative parts of the banking value chain.
The coronavirus pandemic has further complicated matters, bringing worries for workforce and customer safety, branch closures, and operations challenged to a degree not seen in our lifetimes. We’re living through the largest trial of digital and remote working in history, with a lack of certainty on the way forward.
Banking leaders’ primary focus should, quite rightly, be on protecting the wellbeing of their customers and staff through the lockdown and beyond. But they also need to stay focused on the future. Pivoting banking business models to respond to these demands and challenges is a must. The winners will be those able to adopt the digital-by-design and customer-centric models that consumers demand. But choosing the best new model isn’t easy. Much depends on a bank’s specific operating models, technology infrastructure, product sets, governance arrangements, and core purpose.
We believe there are three key areas banking leaders need to consider today, to redefine success for themselves, for their customers, and to thrive in the future – regardless of the path our recovery takes.
The sense of vulnerability brought about by COVID-19 will cause society to re-evaluate its priorities and examine the role played by key institutions. Customers will ask whether their bank helped rebuild society, or did they look after themselves by prioritising a return to the status quo and promoting new products?
Banks have spent the last decade rebuilding their reputations and societal standing after the 2008 crash. Now they must demonstrate their role as positive actors to help a struggling economy get back on its feet and re-connect with their purpose across every engagement with staff and customers.
There are many ways they can do this. Such as, by supplying vulnerable customers with the technology they need to engage remotely, or proactively supporting those members of staff with key workers in the family via flexible working arrangements or childcare support, going further than the government by offering flexible terms on lending to smaller, local businesses, or by working with struggling customers to meet debt commitments and reviewing their charges for dormant products while we’re all at home.
On an operational level, it’s important for banks to change the way they communicate with staff and manage performance, moving away from drivers such as hard KPIs and remuneration – which seem out of step with today’s environment - towards empathetic drivers such as appreciation, storytelling and through example setting. This will help offer support to staff and instil a sense of mission in the organisation.
Most banks are already embarking on digital transformation journeys aimed at delivering new, hyper-personalised digital propositions that meet the needs of users (consumers and producers). While many banks had plans in place, we’re seeing many clients use the current crisis as the catalyst to accelerate their digital transformation plans, so as to secure those customers previously unable or unwilling to engage digitally.
Reports from Italy and China have seen digital engagement rise by between 15-25 per cent during lockdown, as those previously resistant to digital financial service engagement have dipped their toes in the water for the first time. With UK Finance estimating 13 per cent of the UK population don’t use the internet, we could expect to see a similar uptick in new digital banking users as a result of social distancing.
Additionally, this group are often within the category of ‘vulnerable’ customers who are most at risk as a result of COVID-19 – that, is, in lower socio-economic groups and/or aged over 65, making it even more vital that they can easily access their bank and financial support.
If easy to use digital channels aren’t in place now, they need to be, and soon. Giving customers digital access to products and services as standard will be necessary to maintain commercial and operational performance. The main areas to focus on are digital services supporting payment holiday requests for credit cards, loans and mortgages, making insurance claims, and the management of bad debt, but all services will need to be rolled out in time. We have already seen clients invest in webchat, chatbots and automated income and expenditure tools as they attempt to find a better and more cost-effective way of dealing with the unprecedented volume of calls to their contact centres for example.
Digital tools that simplify operations and cut costs will also be critical for banks to maintain their own performance. Fully enabling remote working through remote desktops, collaboration software, video conferencing and cloud-based workforce management tools are all available to allow banks to become “remote as BAU” and maintain performance at a lower cost.
Operational leaders have undertaken what history will remember as the largest experiment in remote and digital working in history. And this experiment has shown many financial institutions that, although there are significant challenges in mobilising an operation to work remotely at pace, it is possible. Leaders are seeing the potential benefit to the organisation, its staff and customers if certain elements of this experiment are maintained and made permanent.
If banks can accelerate digital transformation and maintain performance while working remotely, then they can better influence how, and when, they return to normal – if they want to. Amid the uncertainty, leaders have a unique opportunity to shape the future of their organisations. Banks can review their location and sourcing strategies free of legacy constraints, deciding which elements they want to retain. This is a huge opportunity to cut costs and become organisationally agile and more resilient in the future.
Banks may choose to federalise central operations, for example, to release cost from operations in the regions; or to enable mass digital and remote working for back office and customer contact operations, removing huge physical infrastructure costs from the operation and allowing for improved resilience and flexibility.
As banks shift forward from their immediate crisis management positions, the focus should turn to the opportunity to thrive beyond the present.
This is a once in a lifetime opportunity for banks to re-focus on their purpose, to accelerate digitisation to become more accessible, inclusive, and efficient, and to re-think both their technical and physical infrastructure. Most importantly, it is a chance for banks to undo the reputational damage of 2008 and become the pillars of trust, security and resilience society needs right now.