COVID-19: a digital catalyst
Prior to the COVID-19 pandemic, many traditional banks were relying on legacy IT systems, involving local branches and nostalgic ways of working, and using lengthy paper and digital processes to onboard customers.
Following the pandemic, banks are re-evaluating the way they conduct their business out of a necessity to survive and can no longer rely on a too costly local branches network and on legacy IT systems, which are outdated and not fit for purpose in the current climate.
The pandemic has led to a dramatic increase in remote working both on the customer and bank side, strengthening the desire for digital services, and causing a shift in priorities for financial institutions to ensure they stay relevant to their customers – placing digitisation at its core.
Businesses across multiple sectors have found themselves relying heavily on digital technology to preserve everyday operations and business continuity through the pandemic. At the same time, banks are endeavouring to provision for the surge in requests for lending services – both from personal and business customers.
With the lifting of lockdown it is clear that these changes are here to stay post-COVID-19. So what do banks need to do to adapt to the new ‘normal’ and stay ahead of their digital-only neobank competitors in the future?
Embrace cloud technology for survival
COVID-19 has led to an increase in lending support; the difference between a business declaring insolvency or staying afloat. Customers across the world are requesting for additional credit facilities and alterations to the terms of their loans as a way of supporting them through these challenging times. Cloud native core banking is the key determining factor in being able to provision for these demands before it’s too late. Furthermore, the lack of cloud native technology is stunting global economies and will hamper business growth.
Cloud native technology is equipping banks and financial institutions with the technology to scale their business based on client demands, and to launch new products and services while keeping operational and investment risks low.
A digital response to online demand and contactless payments
The pandemic has seen a sharp acceleration in the adoption of digital payment solutions globally, as
they lower the risk of infection at the point of payment. In April, contactless payment limits were raised from £30 to £45, to further discourage the use of cash and make shopping safe for staff and customers alike.
Meanwhile, a recent survey by Link – the UK’s largest cash machine network – suggests 75% of consumers are using less cash, and 54% are avoiding cash. We will continue to see this trend in a post-lockdown world, as the virus has the potential to change people’s attitudes and behaviours to money and digital services for a long time to come.
The need for local branches under review
Lockdown measures have also resulted in a number of branches being temporarily closed in a bid to support social distancing and protect both staff and customers. Although some branches will re-open post COVID-19, the switch to digitised services will not be a short-term change. Many individuals who have been exposed (or sometimes even forced) to use technology to replace physical interactions with their banking providers, will think twice before travelling to branches out of fear for their health. Others will no longer find branches relevant when they can carry out the same services remotely. For those who wish to keep their in-branch experience, video calls could become the reality to retain a human touchpoint in their customer experience.
For traditional banks, COVID-19 has demonstrated how mission critical full digital processing from front-to-back office is, especially when many employees are working remotely. To adapt to the new environment and keep ahead of customer demand, they must harness digital transformation to provision for online products and services. Financial institutions need to champion satisfaction effectively across all channels, making changes to their technological processes and their operational structure for a post-COVID-19 world.
Navigating future pandemics
To prepare for the pandemics of the future, banks may need to change the way in which they model risk. Risk model assumptions and boundaries were developed in a pre-COVID-19 world, and banks will need to start thinking about the new variables and conditions to change their approach to modelling, or otherwise experience a loss of predictive power and suffer the consequences.
According to McKinsey, banks should develop a two-phase strategy. The first phase is a short-term crisis-operating mode for Model Risk Management (MRM), and the second is longer-term comprehensive enhancement of the MRM strategy to increase resilience and enable proactive adjustments to arising changes.
Financial institutions along with all businesses must act now to re-evaluate their processes within the context of the new ‘normal.’ To future proof for similar events, whether that be another pandemic or even natural disasters, it is clear that technology is the key component to ensuring business continuity.
As global pandemics could become more prevalent, financial institutions should move towards embracing emerging technologies such as ‘Open Banking,’ cloud native banking systems, artificial intelligence and machine learning. This will enable banks to expand their offerings and build business models that are resilient in the face of future disruption.