COVID-19 has dramatically changed banking behavior in a matter of a few months, driving digitization at unprecedented speed. To cope with this largely irreversible change, banks need to invest in the right strategies and platforms for digital transformation. John Dangoia, Finacle product management head, North America and Europe, Infosys, suggests that those getting it right will end up winning big.
Over the past decade, the banking industry has undergone incredible change as the expectations of the consumer and commercial client alike were reset by their experiences on platforms such as Amazon and Netflix. The newest addition to the list of events that have changed the financial industry fundamentally is COVID-19.Â
All businesses and, in particular, financial institutions were forced to adopt new models of working nearly overnight as branches were closed and work from home became a reality for many. There is still much uncertainty on how this pandemic will play out, when it will end, and what the long-term implications will be.
Many experts predict that post-pandemic, we will see a minimum of 15-25% increase in work from home. Some in the ecommerce space have recently been quoted saying that the industry advanced ten years in 6 months. The interesting thing is that although consumers were forced into increasing their digital transactions and doing many things online for the first time, they found the experience to be quite good.  Â
We expect that this will drive a permanent shift in the way consumers and commercial clients conduct their activities, including banking. As banks face more moments of truth each day, even the slightest friction inexperience could drive their customers away. This means the industry must urgently think about making the right investments to deliver even better customer experiences at scale, starting right now.Â
The flip side is that a great experience can bring enormous gains: take the example of Chime, a financial app known for its quality of experience, which recently secured a record valuation of $14.5 billionOpens a new window , making it the most valued fintech startup in the world1.  Â
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The Digital Divide Widens
The good news is that digitization is not new to financial services. Well before COVID-19unfolded, many financial institutions had already embarked on a journey of digitizing a wide variety of processes and customer touchpoints, focusing primarily on reducing cost, eliminating operational errors, and improving customer experiences.Â
However, none of those organizations would have imagined a situation where branches would be completely shut, branch staff would work remotely, cash transactions would virtually disappear, and almost every possible financial transaction would have to be performed through alternative channels. Now, the grim truth. Because financial institutions are in different stages of digital transformation, there will be clear winners and losers coming out of this crisis.Â
Banks, which have invested in digital transformation, are better placed to handle the new normal and pull further away from institutions that have not done so. One great example here is Marcus by Goldman Sachs. In 2016, Goldman Sachs introduced Marcus, the firm’s first consumer banking offering that included an online savings account and no-fee personal loans for retail consumers.Â
This digital-only consumer banking division of Goldman Sachs offers savings accounts, unsecured loans, and credit cards. Marcus has been enjoying a superb growth curve, with deposits through its retail channel at $92 billion, up to $20 billion in the second quarter. Taking this model across the pond, Marcus has attracted around £21billion from more than half a million UK savers, mainly to its easy-access account, meaning it has racked up around £1billion from savers a month since it launched the account in September 2018.
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Make the Right Technology Choices
There is little doubt that the banking business will have its challenges in the coming year with low-interest rates, increased credit losses, and overall global uncertainty. There is also concern that banks in the U.S. could see an increase in regulatory changes when Joe Biden becomes President in January 2021. Many of these issues are uncontrollable or, at the very least, difficult to control.Â
However, what the industry can control is its investment and focus on digitization and the effort towards improving customer experience. Ensuring business continuity became the top concern of every organization as soon as COVID-19 hit. Helping customers with short-term issues like loan extensions, loan modifications, and of course, the PPP (payroll protection program) became a top priority for banks of all sizes. While the pandemic is still far from over, most banks are now stepping back and looking to re-evaluate their strategic plans for the future.
As banks look at strategic alternatives, it is imperative to choose the right partners with the platform to support current and future requirements. This became painfully clear during the early part of the pandemic when the contact centers of U.S. banks of all sizes were completely overwhelmed by the volume of calls. The right platform, with capabilities, such as robotic process automation, chatbots, robo-advisors, and cop-bots, can ease the situation by automating the bulk of customer service operations. Â
Given that customers are very likely to stay with digital transactions even after the pandemic is over, banks should look at making every interaction as seamless as, say, Amazon’s payment process. By leveraging insights from AI and analytics, they can personalize and contextualize engagement to make sure they deliver the right product to the right customer at the right time on the channel of choice.Â
All this requires a robust core banking system in the background. A flexible and scalable system will enable banks to handle any sudden and urgent requirements – like having to implement the PPP almost overnight – that may emerge in the future.Â
From my conversations within the industry, it was plain that institutions with modern platforms that counted configurability, open APIs, and microservices among their capabilities, were much more successful in carrying out their business continuity plans. They were able to implement new products and services to help customers through the crisis in a matter of days, where other banks took weeks or even months.Â
The core banking platform also handled the sudden spurt of transactions through alternative channels, facilitated easy integrations with the new surround systems, helped in providing seamless customer experiences, and enabled bank staff to quickly adapt to the new normal by orchestrating new processes. Specifically, a large financial institution in the U.S. leveraged Nia DocAI, EdgeVerve’s IDP solution platform, to accelerate application processing and disbursement under the PPP-SBA (Paycheck Protection Program – Small Business Administration) lending initiative.Â
Even born-digital banks acknowledge the importance of the robust foundation that a modern core banking solution provides. Liv. Bank, the digital-only lifestyle bank operated and managed by the Emirates NBD Group, is one of the fastest-growing banks in the U.A.E. Finacle’s flexible product factory enabled Emirates to innovate rapidly and quickly launch Liv., with its unique lifestyle-led propositions and innovative features. The open platform has helped Liv. reduce costs and accelerate the development of its diverse partner ecosystem.Â
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The Path Forward
While we still have a lot to learn about the current crisis, the fact is that the most resilient and adaptive banks will certainly be in the winner’s column over the course of the next year. So what should banks do? Our view is that when faced with unprecedented volatility and uncertainty, it is best to go back to first principles – mainly to the bank’s purpose – for answers. This would help banks focus on the few things that are still certain and which matter the most, such as helping customers lead better financial lives.
Consumers and commercial clients alike will recognize this and stay quite loyal to such organizations, buying more products per household/ business to increase revenues over time. Hence banks should really be looking at where their organizations could be a year from now and making the right strategic investments in people, products, and technology to get there. This is the path to success – for not just surviving this historic crisis but thriving once it’s all over.
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