the impact on Retail Banking
What is the impact of COVID-19 pandemic on Retail Banking and which practical steps should we take already now to minimize it?
Interview with an industry expert and Uniglobal’s
12th Global Banking Innovation Forum & EXPO
Founder & CEO of Internal Startup, Digital Banking Expert
Raiffeisen Bank International AG
Q: How has #coronavirus pandemic changed banking thus far? What do you think will be the 5 new trends in the industry in the nearest future?
We are indeed living in a time of rapid change. As a result of coronavirus pandemic, and the measures governments have been taking to prevent its spread, it has impacted almost all industries. With regard to banking, this impact is twofold.
“There is, no doubt, a negative impact of economic downturn.. However, there is also a strong positive impact..”
There is, no doubt, a negative impact of economic downturn, decreased consumption, special measures in a number of countries to protect consumers, such as loan repayment moratoriums. However, there is also a strong positive impact, which has already been discussed rather seriously. What I mean is the boost to digital transformation within the banks.
“The “new normal” helped even the most conservative bank executives make a necessary mindset shift”
Once a board meeting moved to video call format, it became obvious that digital is here to stay. And the technology is ready for many things. It had been ready for remote advisory, online KYC, online document sharing and signing, and much more, for years.
When it comes to major trends they are as follows:
1. Remote work. Banks will reimagine how teams work with a focus on remote and distributed teams. #Corona Crisis helped even traditional organizations to embrace remote work. Having seen the benefits of work from home /work from anywhere, people will be hesitant to come back to the “old normal”. And the organizations will have to adapt and leverage a new working mode.
2. Digital-first / Digital-only. Banks will put even more focus on serving customers through digital touchpoints. For banks with weak digital offerings, it might be the “now or never” point in time. In the upcoming year, traditional banks either retain existing clients and acquire more through proper digital touchpoints, or face the consequences.
“For banks with weak digital offering it might be the “now or never”
3. Digital transformation. Banks will effort in speeding up the digital transformation of internal processes and legacy systems. Preparing for an economic downturn on one hand, and making digital banking feasible process-wise on the other hand, will force banks to bring their systems and processes up to modern standards.
4. Customer centricity. Banks that were shying away or faking customer-centricity in recent years have already paid dearly by losing prominent customer segments. As banks will be forced to put a higher focus on digital touchpoints, they will also be forced to go really customer-centric. Understanding real customer needs and jobs to be done has become a real game-changer in many industries, and it will inevitably come to banking.
“One of the crucial things to navigate the organizations will be how fast leaders can adapt to “new normal”.
5. Leadership development. In times of rapid change of environment, like #CoronaCrisis, all of us need to learn new things fast. And leaders need to learn faster. One of the crucial things to navigate the organizations will be how fast leaders can adapt to ‘new normal’. Leaders will need to learn fast to make the best of an increased focus to digital transformation, and turn remote work, and a possibility to onboard experts from other geographical locations into their organizations’ competitive advantages. Majority of the banks with sufficient capital will, no doubt, survive the crisis. But, the banks that will come on the top in a post-crisis environment will be the ones led by infinite minded leaders that can adapt.
Q: Experts predict that banking customer behavior will potentially change coming out of the post-COVID crisis. Do you agree? What will be those changes?
I definitely agree that consumer behavior will change after #COVID19 crisis, especially with regards to money and banking. We already see it. I would split those behavioral changes into two groups. The first group, I believe, will be a long-lasting behavioral change. However, it still remains to be seen if changes in the second group will really stick.
“It’s important to mention that every behavioral change is easier if you are not doing it alone”.
The first group of behavioral changes when it comes to banking is basically an attitude to technology. In the months of ‘COVID’ crisis, we observed a dramatic increase in people interacting with the bank through digital touchpoints. People who previously were reluctant to use mobile banking, for instance, now had little choice. And what is great about it, people liked it.
It’s important to mention that every behavioral change is easier if you are not doing it alone. And in this case, the whole world needed to change its attitude to remote interaction. One more prominent example of the behavioral change, which I believe is going to stay also after the crisis, is people’s attitude to cashless payments. This goes for consumers as well as merchants. The card with contactless functionality or ApplePay/GooglePay was promoted as “contactless payment” in the sense that you are actually not touching anything, especially cash that is certainly carrying a lot of viruses and gems. Promotion of contactless payments was actually done not so much by banks, but by governments and by big retailers that, once reopened, needed to get people back in their stores.
“..People were locked in at home with their families, and many had a unique opportunity to rethink what actually makes them happy in life”.
The second group of behavioral changes due to the COVID crisis, all the lockdown measures, remote work, and remote social interactions, is an attitude to saving and consumption itself. First of all, people understood that they saved much less for the rainy day, as they should have. As a result, in several months more saving accounts were opened, than ever before. US banks have seen a record 2 trillion USD surge of deposits since the coronavirus crisis began. And when it comes to consumption, people were locked in at home with their families, and many had a unique opportunity to rethink what actually makes them happy in life. People had also a chance to realize the harm our modern consumption has on the environment, not in a theoretical way, but by seeing pictures and videos of how our earth is recovering from us, while we are at home. As a result, these reflections on the one hand, as well as decreasing incomes, on the other hand, the “corona” crisis might bring us to the second group behavioral change of more mindful consumption.
Q: Do you think pandemic aftermath might push early-stage fintech firms to shut down? What can they do to survive?
Post-COVID economic downturn will inevitably force out of the market the companies that have not yet created proper crisis cushion. And fintech companies are not an exception. In my view, Fintechs that actually help traditional banks to get better in understanding and serving the customers will have a much better chance of survival. The key reason is that banks as well will be going through tough times of economic downturn. And one of the most important things will be to speed up digital transformation to meet the evolved needs and preferences of the consumers.
Q: Is there any positive impact of coronavirus on Banking?
Yes, as I mentioned before, there is definitely a positive impact when it comes to digital innovations. Now banks have the opportunity to step up and to fix the things they were ignoring or faking for so long time.
On one hand, consumer demand for remote, user-friendly service has increased and has become even stronger than before the crisis. If before, some clients were still accepting the need to come to the branch to sign documents, now after it, seeing that the whole world can work remotely, they will demand to be served digitally, which before the crisis only most digitally savvy customers did.
On the other hand, the attitude toward digital functions has positively changed inside the bank too. Day after day, more and more digital teams become the center of retail business operations.
Additionally, I see it as a positive fact that the traditional banks’ business model is now being really challenged, and ignoring the need for change is not possible anymore. Not only the changing customer behavior, but also understanding where to earn, and who is willing to pay, become increasingly relevant questions.
Q: Weakening economies may force regulators to encourage the development and expansion of various fintech solutions. Do you think there might be a tendency to ease regulations on fintech worldwide?
Yes, and it’s already happening. In one of the CEE countries, for instance, regulator allowed digital signing of the documents. It was the same regulator that was persuaded for years by the banking sector to do this. I believe we will see even more such examples.
Q: According to some experts’ opinion, coronavirus has placed challenger banks at an advantage over incumbents. What are your thoughts on that?
Challenger banks have primarily digital-first offerings. And, from this perspective, yes, they are in a better position to serve and communicate with the clients. Especially, it was relevant for the lockdown period. However, there are also serious disadvantages to this model. I will just name two reasons.
- First, when communicating via app, email or chat was enough for the client, challenger banks were ok. In case when the client was more worried and wanted to talk to the bank, then in many cases it was not possible. The reason for that was that challenger banks often save costs on employing big contact centers and rely primarily on digital communication. On the contrary, incumbent banks have traditionally huge contact centers, which are used to handle massive communication via phone. In addition, since branches had very limited physical traffic, many banks have repurposed they branch staff to remote service activities. And this proved to be very successful when tension was especially high.
“..trust to challenger banks have not yet matched trust to traditional banks”..
- The second reason why challenger banks didn’t have such a big advantage in corona crisis times, is the issue of trust. Although it had significantly increased over the last couple of years, trust to challenger banks have not yet matched trust to traditional banks. And here I am talking about trust, as trusting to keep my money safe (not trust in acting in my best interest). When it comes to this type of trust, corona crisis has clearly demonstrated that this trust is still higher toward traditional banks. The evidence of this is the decreasing number of new clients for challenger banks, as well as decreasing valuations.
The crisis also showed the potential weaknesses of challengers in case of specific e.g. FX related focus – when no traveling is actually taking place. Then the challengers that have grown to big organizations are also challenged themselves to come up with new value propositions.
Q: What do you think banking professionals should focus on now? How to use this vague time profitably?
I would disagree that it is a vague time. I would say that it is an extremely dynamic time of change. And the most important thing to focus on right now is to get closer to the customer. It is a unique opportunity for traditional banks to reimagine their relationship with the clients in a digital way. There are clear expectations for this from the customers. What the banks should focus on is to speed up digital transformation in a customer-centric way. Moreover, as this is also a time of uncertainty, people losing their jobs, getting smaller income, etc., banks should act more as financial advisors that can help people get through hard times.
“What the banks should focus on is to speed up digital transformation in a customer-centric way”
Also, it is important to properly reflect within the organizations on what worked better in crisis and how to maintain that, which processes were renewed, how to lower the complexity and thus also cost base, or what are the smallest changes that can bring added value to customers and banks – fostering prototyping mindset and direct client feedback.