The Coronavirus pandemic is posing significant challenges to the banking sector, forcing financial services providers into contingency mode and already driving cost-cutting initiatives and branch closures.
What damage will the coronavirus crisis create in banking? Margins will be squeezed, credit losses will increase and, for banks in an unfavorable position, it could take years to recover.
Despite the high uncertainty and distress today, and as difficult as this is to conceptualize given the current situation, banks have opportunities to emerge stronger and better able to address rapidly evolving customer needs.
In a recent survey conducted by INV Fintech of more than 100 industry participants, 92% of respondents agreed that the pandemic will drive increasing demand for digital channels, potentially altering customer acquisition and servicing models going forward. As a result, 78% of respondents expect financial institutions will increase spend in innovation and digital transformation in the next couple of years. In fact, the fintech age was similarly born out of the credit crisis.
There are still a number of unknowns about how the pandemic will impact financial services, but there appears to be broad consensus around increased adoption of digital across segments, as well as a need for banks to provide tools that allow customers to transact in simple, frictionless, and safer ways.
Below we describe six areas across servicing, payments and acquisition where fresh data from FI Navigator shows banks across the asset spectrum — especially smaller community and mid-size regionals — have opportunities to address. These relatively straightforward examples are only a few of many options banks should consider.
1. Servicing — Online Live Chat
Live chat functionality has now become table stakes as more customers expect their financial institutions to provide remote servicing channels. There are several options for banks to enable this functionality, including partnering with fintechs that have “out of the box” solutions that can be rapidly implemented. Nevertheless, data shows that fewer than 50% of banks below $50B in assets have rolled out this servicing channel, highlighting a significant opportunity and an unmet customer need.
2. Servicing — Interactive Teller Machines
With social distancing and branch closures, ITMs could emerge as an important servicing channel to efficiently and safely serve segments that value human interaction. ITMs could benefit banks that are seeking to expand their footprint or reduce branch traffic while also making customers feel safe in conducting day-to-day transactions. Most banks, including larger regionals and national players, have not yet adopted ITMs as part of their network strategy. These banks should now start looking at ITMs as an option to optimize retail networks going forward.
3. Payments — Contactless Cards
There is anecdotal evidence of supermarkets and businesses encouraging customers to use contactless cards to mitigate contagion. This very immediate need may shift customer behavior and increase adoption of contactless post crisis. However, as data shows, a majority of banks, both large and small, haven’t yet rolled out this product feature. They should consider doing so, given a potential uptick in demand.
4. Payments —Digital Wallets
Like contactless cards, digital wallet adoption will increase both during and after the crisis. An analysis using Apple Pay shows that most banks above $10B in assets have already enabled this functionality. Those that haven’t done so should consider it, as digital wallets will become increasingly important.
5. Acquisition — Online Account Opening
Despite mixed success rates, online account opening has rapidly become table stakes and an important driver of retail deposit growth, but even a few larger regional banks haven’t fully rolled out this acquisition channel. The opportunity is even greater for smaller community banks. With less branch traffic, offering a seamless online account-opening experience will become key for those who seek to emerge stronger from this crisis. Banks that do so will be poised for growth, others could fall further behind.
6. Acquisition — Automated Account Switching
With increasing digital adoption, automated account switching could also become a major advantage for banks that have a more compelling offering to acquire and serve customers in simpler, faster, and safer ways. While this may sound opportunistic and somewhat irrelevant now, banks that are able to effectively switch dissatisfied customers over the medium term will be on a more stable footing post crisis. The opportunity for those that can move fast is there: data shows that fewer than 6% of banks across the asset spectrum currently have automated switching tools in place.
For most banks, digital transformation is not a short-term priority. Growth initiatives will likely take a back seat as more pressing issues are addressed. As we come out of this crisis, as hard as that is to consider these days, banks should think pragmatically and find opportunities to accelerate their digital transformation journeys. The six areas described in this article cover a few of many examples where banks could find ways to strengthen their value propositions.
At INV Fintech, we believe addressing gaps and identifying opportunities to innovate will allow banks and others in the fintech space to be in a stronger position once the pandemic is over. The current situation has caused distress at a level we had not seen in generations. We expect industry leaders will respond in creative ways to overcome these challenges.