In one of the office discussions I heard a colleague say – “The bank you thought you would be in 2025 is the bank that you need to be tomorrow!”. This was such a ‘powerful’ statement that it got stuck in my mind. It forced me to think –can Banks use Covid 19 crisis to their advantage and advance the future for Banking? There have been some interesting changes that Covid 19 is forcing the Banking industry to make. But, can Banks convert this crisis to an opportunity and get on a transformation journey that has been long due? 

Remote working- Can it be the new normal?

No one ever imagined that banking services can be delivered working from anywhere to such a huge extent. Bank of New York Mellon has 96% of its work force working remotely and plans to encourage the practice in post pandemic world too (1). Barclays CEO Jes Staley said that skyscrapers built to house thousands of people might be a “thing of the past” (1). Synchrony Financial has enabled nearly 100% contact center employees in US and Puerto Rico to work remotely (2). Deutsche Bank enabled 80,000 employees with remote access (3). TD Bank said that “more than 90,000 TD bankers moved with speed and purpose to shift how we operate and adapt to ever-changing conditions” (4).

Banks’ operating models will never be the same going forward. This will add tremendous flexibility and has numerous positives. Employees can now work from anywhere, which not only means massive reduction in operating costs for Banks in long term, but also reduced pressure on metropolitan cities, lesser traffic on roads and improvement in air quality across cities. Banks and banking service providers now have a never before flexibility to hire from a vast talent pool instead of just depending on some limited hubs. I believe, in post COVID 19 world, remote working will be a great practice for the Banks to sustain for a reasonable proportion of workforce. Banks must leverage the learnings from current crisis to chart out a clear long term strategy and identify the functions that can be delivered effectively from outside office premises. Banks must start looking at a ‘Gig Workforce’ model where potential work (demand) can be made visible to multiple workers (supply) to accept the work and execute. It will be critical to go beyond the traditional areas and ways of remote working and look at it from a renewed vision to consider wider areas like contact centers, trading desks and other non-customer facing functions. 

Catalyst to ‘right size’ branch network

COVID 19 has led to some changes that has reduced the need for branches drastically. Huge cost pressure on Banks, employee and customer safety, change in customer behavior, surge in cashless transactions and reduced commercial activity are some of the factors that are forcing the banks to ask themselves- “Can we utilize current scenario to right size our branch network?”

According to S&P global marketing intelligence (5), in April 2020, 157 bank branches in US were closed for good, while only 17 new branches were opened. Siam Commercial Bank (Thailand) president Arak Sutivong said- after the Covid-19 crisis ends, many commercial banks would reduce the number of physical branches due to the changing customer behavior, which is considered an important catalyst.

I think, the footfall and usage of branches will see some increase when the virus is gone, but the reduction in number of branches is inevitable. Banks absolutely will not need so many outlets. We will probably see 15-20% of branches getting closed in post COVID world. In addition, as trends look today, there may not be a need to have massive cash in branches anymore. So, Banks can let go multiple layers of security, further reducing the cost of physical distribution.

 Digitization at unprecedented levels

I think, nothing can describe the situation better than the strip (6) below-

https://marketoonist.com/2020/04/digital-transformation-2.html

Indian IT industry body Nasscom, in a report title “COVID-19 – Tipping for automation", says the pandemic has acted as a catalyst for the development of automation technologies (7). According to Milan Sheth, EVP, Automation Anywhere (8), automation has picked up heavily due to pandemic. Banks are not only re-looking at the obvious areas like back office but have also started to look at newer areas for automation like contact centers and document management.

The writing is on the wall- “Digitize or Perish”!! Banks must not miss this opportunity to kick start massive automation projects lingering for years due to indecision, legacy systems, budget approvals and so on.  There has never been a better time to have such a strong business case for massive digitization-

• With people stuck at homes, self-service is the only savior. Customers would go with FIs that have frictionless, seamless and end to end digitized self-serve options
• With fewer workforce on disposal due to restricted movement and limited connectivity, Banks have a strong motivation to make processes touchless and automated
• Dramatic increase in remote workforce requires Banks to enhance connectivity and provide access of applications to employees in a much wider geographical spread
• While employees work remotely, there is a huge security risk in handling Personally Identifiable Information (PII) and other sensitive data. Banks and service providers were forced to come up with innovative solutions to this problem overnight by masking sensitive data or monitor employees’ screens real time to get alerted if any sensitive information is being accessed. But, the problem is still far from over. Technology can be leveraged to find out permanent and long lasting answers to this challenge.
• With mounting pressure on revenue and margin, operational cost is becoming even more critical driver for business. Automation can obviously become an important tool to cut costs and gain operational efficiency 

Redefining the ‘Business Continuity Planning’

Pandemic took everyone by surprise. According to Gartner business continuity survey (9), just 12% of organizations are highly prepared for coronavirus. In words of Matt Shinkman, Vice President in the Gartner Risk and Audit practice “This lack of confidence shows that many organizations approach risk management in an outdated and ineffective manner”. (9)

Current pandemic has really tested the business continuity and disaster recovery plans of Banks across the globe. Its high time that Banks start re-looking at their business continuity strategy and planning. Banks must focus on creating diversified, geographically spread and ‘work from anywhere enabled’ workforce. Banks must work towards creating an ecosystem that enables seamless collaboration with employees and customers, creates an agile and flexible operating model with a mix of machine and human capabilities. Banks must start investing on designing command centers to control and govern virtual and remote workforce. Banks must definitely leverage the experiences from pandemic situation to be much more resilient and much better prepared for such black swan events in future.

A huge leap of ‘Empathy’

Covid 19 pandemic has hit humanity at an unprecedented and unexpected level. A recent McKinsey survey of US consumers found that 64% of respondents have felt depressed, anxious, or both over the past several weeks, and 39% stated that they would be unable to pay their bills after one month of unemployment (10).

Current crisis has led Banks to operate with a lot of ‘heart’ while carrying out their financial duties, which is a long awaited and pleasant development in case of many Banks. In a time when physical cash is considered a risk, mobile and digital payments have surged dramatically in a short span of time. Banks have been very quick to support this massive shift. Many Banks have offered suspension of mortgage payments and enhanced credit extensions. While there is surge in volumes for collections, Banks have started becoming a lot more empathetic and lenient in their collections approach.

It’s definitely a challenge to create the right balance between what will help customers and what is required from a credit risk or regulatory perspective. However, in my view there is more that Banks can think of when it comes to empathy. Bank’s credit underwriting models should have the flexibility to consider sudden fall in income or unemployment or reduction in cash flow for businesses while making lending decisions. Banks should allow changes in loan repayment plans for individuals and small businesses going through distress. Limits for digital payments can be re-looked at to facilitate frictionless transactions for customers without compromising on security. Analytics and AI can be critical tools that Banks can leverage to design intelligent models to suit the customers in current scenario. 

Summary

Covid 19 has undoubtedly created unexpected levels of disruption in Banking industry. But, has also forced the Banks to take a huge leap towards future as some of these changes are going to stay for good. What do you think? Are there any other areas where Banks can use current crisis to advance the future for banking?

References:

(1)    https://news.bloomberglaw.com/banking-law/bny-mellon-says-working-remotely-will-continue-after-pandemic

(2)    https://www.synchrony.com/coronavirus.html

(3)    https://www.peoplematters.in/article/technology/deutsche-banks-dilipkumar-khandelwal-on-tech-as-an-enabler-for-business-26179

(4)    http://td.mediaroom.com/2020-05-28-TD-Bank-Group-Reports-Second-Quarter-2020-Results

(5)    https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/shuttered-for-covid-19-some-us-banks-consider-closing-branches-for-good-58537195

(6)    https://marketoonist.com/2020/04/digital-transformation-2.html

(7)    https://www.nasscom.in/knowledge-center/publications/covid-19-tipping-point-automation

(8)    https://www.livemint.com/companies/people/is-covid-accelerating-automation-in-banking-automation-anywhere-evp-answers-11592063658209.html

(9)    https://www.gartner.com/en/newsroom/press-releases/2020-03-10-gartner-business-continuity-survey-shows-just-twelve-percernt-of-organizations-are-highly-prepared-for-coronavirsu

(10) https://www.mckinsey.com/business-functions/marketing-and-sales/our-insights/connecting-with-customers-in-times-of-crisis