Along with so many other aspects of life and business, banking must prepare itself for the winds of change as we settle into a COVID-19 new reality. The pandemic and its ramifications will greatly accelerate trends that were already gathering in force: greater digitization as consumers embrace online and app-based banking; declining demand for branch-based services; card and contactless payments increasingly pushing out that old world concept, cash.
In short, the ‘face’ of banking in the future will be not so much branches and branding on the high street as an app on a customer’s tablet or phone. It feels like COVID-19 has stamped that with a seal of certainty.
A remodeling of branch networks
This leaves banks with some enormous questions that they need to rapidly consider and resolve. The most obvious is: if increasing volumes of business are moving online, what do they do with their branches? There has already been a pattern of branch closures in recent years in many jurisdictions in the world, and this could become accentuated now. That said, a physical presence will always be valuable and important – and in some countries such as the US, some larger banks are actually expanding their branch networks as they open up in more cities. They reason that having visibility helps when expanding into new locations or geographies. Others, however, are betting on a more digital-only strategy, anticipating that as the direction of travel.
Overall, we would expect branch numbers to fall in most countries and jurisdictions – but, just as significantly, what happens in branches will need to change. They will need to become places where customers go for advice on big financial decisions or complex products, rather than somewhere to deposit a check or make a transfer. Smaller, highly modern and digitally-enabled branches seem likely, staffed by advisors on hand to give customers value-adding help and guidance.
There are other possibilities too. For example, some banks such as in the UK and elsewhere are looking at whether they can turn branches - or parts of branches - into employee touchdown hubs where staff can come to work as an alternative to commuting all the way to their central offices (over which question marks also hang). There are benefits both for staff – shorter commutes and the alleviation of any health and safety concerns over going into large offices – and for the bank – higher productivity and the ability to derive more value and flexibility from what are expensive fixed costs on their balance sheets.
There are other knock-on effects. ATM networks and their locations will need to be evaluated if branches close or change. There will be lower demand for them in any case as cash usage falls, and for those that will continue, contactless functionality will be expected.
Contact centers – and ‘video financial advisors’?
Banks’ contact centers must also be thought about. As with branches, their usage will potentially shift to becoming more advisory rather than routine/transactional resulting from greater self-service functionality on the app and through the evolution of virtual assistants. One intriguing possibility is that, on the back of the massive growth in the use of video conferencing such as video conferencing during the pandemic, banks may increase the utilization of the technology as another channel for customers. Could we see ‘video financial advisors’ available in branches, at call centers or indeed accessible via a bank’s website or app? Clearly, for this to be viable, there will need to be rigorous cyber security and data privacy controls in place.
With no playbook to refer to, we are likely to see a phase of experimentation and creative thinking as banks model the possibilities. But decisions will need to be taken before too long so that a new template for the future can emerge.
In discussions with financial institutions around the world, an increasing numbers of customers appear to be taking decisions for themselves: they like and are embracing digital channels. Existing digital users have utilized around 50% more functionality, while new users have grown by around 20%. For those at banks who lead and drive digital banking services, COVID-19 has in fact created a sooner than expected accelerated adoption experience.
Refusing to return
The imperative now is to capitalize on this and keep – indeed, increase – the momentum (“refuse to return”). This means ensuring the digital infrastructure is in place such that new and better functionality can be created. The goal for banks should be that, for customers, human interaction becomes a choice not a necessity: they should be able to do almost everything online or electronically if they choose. Core banking platforms will need to be modernized and optimized to enable this, cloud capabilities will need to be increased.
With increasing digitization set to drive a massive increase in electronic data, another essential capability is having the data & analytical tools to learn from and utilize it. Banks will need to ensure that they are able to act upon what the data is telling them: how best to interact with which customers, when, with what frequency, by which channels? Mass personalization powered by machine learning and analytics has been an active focus for many banks for some time already – but, again, in the COVID-19 aftermath, this will be significantly accelerated.
This is an exciting time of opportunity and change. Banks need to grasp it now and begin to make clear strategic bets for the future.
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