Financial institutions were in a unique position at the outset of the COVID-19 crisis. Here’s how they responded and what the implications are for an industry slow to change.
The COVID-19 crisis has brought about a uniquely devastating mix of challenges for the global consumer, governments, and for businesses around the world. Financial service firms found themselves at an interesting moment of transition at the outset of the crisis. They simultaneously faced continuing digital disruption, ongoing changes to an evolving regulatory landscape, new consumer needs and expectations, and the need to modernize the traditional role they play while staving off disruption. Let’s explore how financial services firms have responded to COVID-19, the steps they have taken to meet this crisis head-on, and the lasting implications these steps could have on a legacy industry facing immense change.
Communication and support in a time of need
Financial institutions are often viewed as partners that offer help and support, not only when things are prospering, but more importantly – and perhaps critically – in times of need. This crisis was no different. Financial institutions were viewed immediately as a source of relief as the early aftermath of the shutdown unfolded, whether it was customers looking for ways to defer their mortgage or credit payments if impacted financially by COVID-19, or getting access to a small business loan to pay rent and keep their employees working.
Despite these questions, some banks missed an opportunity to leverage their digital channels to inform and educate customers of the financial relief or fee waiver options available to them immediately after the crisis began. In fact, as of early April 2020, every one of the ten largest U.S. retail banks had yet to complete this vital step for its customers. And while some financial institutions offered quick relief to customers, like deferring mortgage payments in Canada for six months or issuing low interest credit, the fine print on these offers can cause long-term financial pain for customers once the economy enters recovery.
Behind the scenes, financial institutions had to quickly adapt operationally to tackle on-location challenges to maintain, and in some cases increase, the level of customer care and engagement among employees so that the right services were offered to customers and clients to create a seamless continuity during the early days of the crisis.
Differentiation through empathy
At the start of the crisis financial institutions, like many other industries, began to significantly pare back ad spend and general messaging to their customers as they determined impact and the best path forward. Communications were quickly refocused to highlight the work financial institutions are doing in local communities through loan programs and other assistance for those in financial difficulty.
For the segments of the population who find themselves in vulnerable positions, how financial institutions responded was (and remains) critical to how customers and even employees will view them on the other side of this crisis. For financial institutions, which at their core represent trust and stability, actions will resonate much louder than words throughout the recovery.
Part and parcel to this, now is the time for financial institutions to leverage their data to better understand customer sentiment and mindsets, and to drive more meaningful and relevant experiences and products in a personalized way. Whether to a customer with a young family and a mortgage or someone who is planning for retirement and seeing their savings diminished by an economic collapse, each of these individuals will need to be communicated with differently and with a great deal of empathy. Transparency and authenticity will go a long way for financial institutions to not only differentiate themselves, but also earn active participation among their customers and employees coming out of the crisis.
How financial institutions and banks operate as economies begin to reopen will also be significantly impacted. For example, pre-pandemic visits to bank branches will see a drastic shift as more customers choose to bank online, ushering in widespread adoption and delivering an additional blow to the retail banking experience. Many financial institutions will be forced to rethink how to manage interactions that were traditionally done in person. From simple account openings to higher-value transactions like mortgages and investments, the transition to an online experience will require careful consideration. This will put pressure on front-end experiences and customer expectations as digital touchpoints replace offline interactions; web, mobile, and even voice will become more commonplace. For many traditional banks and institutions, current mobile apps and online experiences have limitations on what customers can do, whether that’s gaining transparency on accounts and transactions or more complex things like applying for a loan. Digital transformation efforts, once slow to mobilize, will become a number one priority.
This coming trend will be true of the financial institution workforce as well. The modernization of IT infrastructure, business practices (not to mention significant spikes in calls to customer care centers), and data management will require investments in training, technology, and the closing of skill-set gaps among employees—many if not all of whom are adapting to new work arrangements. This while expectations around increased security and privacy become even more heightened for online banking customers.
Blurring of lines
The 2008 financial crisis doesn’t feel that long ago – in fact it’s still in our collective memory, which paved the way for a more resilient industry and structural reforms. It also bred the opportunity for new players and disruptors to take form, the momentum of which is still strong more than a decade later. In many cases, the current crisis is having a similar effect, seeding further competition and pulling market share away from traditional financial institutions towards Fintechs.
Already-blurred lines between traditional financial services organizations and non-traditional disruptors will continue to blur post-pandemic. Customer preferences like ease of use, personalized and digital-first experiences will reign supreme, while faster and more nimble services will allow customers to get their needs fulfilled in a more efficient way. Things like lower cost offerings on products such as mortgages, loans and credit cards, and better rates on high interest accounts and other growth products will become more enticing—and feasible.
A push towards the future
Ongoing implications for the financial services industry will take shape in a variety of ways. A decline in cash usage in the short-term, due to its potential transmissibility of COVID-19 between exchanges, may lead to paper currency becoming a long-term casualty. Mobile payments have been consistently on the rise in Europe and the U.S., and China’s WeChat, both a communication platform and digital wallet, makes up 40% of China’s $8.6 trillion mobile payment market—a market more than 50 times the size of that in the U.S. Use of ATMs and chip and pin transactions may suffer as well.
Digital payments may become so prevalent that mobile carriers will end up competing with financial institutions for control of consumer payments. Banks and credit unions may need to partner with some of these carriers or tech companies to meet customer demand. And with Amazon and Google already offering payments and lending, they are a significant threat to traditional banks.
While no one can predict the future, one thing is for sure: this current crisis will only bring focus to the central principles that have guided financial institutions for 150 years—value, trust, and a sense of purpose in society. And that customer-centricity, delivered through experience-led transformation, is the pillar on which the financial institutions of tomorrow will be built.