10 observations from bankers in a prolonged pandemic world
COVID-19 is still presenting significant challenges to the important goal of reopening the U.S. economy. In banking, the focus has been on how to adapt, survive and thrive in an environment with so much uncertainty.
Our firm conducted an initial survey in March focused on bankers’ early attitudes and actions in response to the coronavirus. With our second survey in June, we wanted to collect data that would tell us how those early attitudes and actions were evolving. What has become standard operating procedure that wasn’t in the plan at the beginning of 2020? Where would the focus be now and in the foreseeable future? How was the pandemic impacting the payment habits of customers? Here’s what we found:
1. Digital growth, as expected, is well above the pre-pandemic norm. This is thanks in large part to the closure (some temporary and some not) of branch locations nationwide. In fact, 62 percent of responding financial institutions noted an increase in digital users of between 10 and 25 percent. Another 11 percent stated this growth exceeded 25 percent.
2. Nearly half of the institutions reported decreases in credit card activity. At the same time, 49 percent saw increases across debit usage. This result aligns with the Federal Reserve report showing outstanding U.S. credit card balances falling below $1 trillion for the first time since 2017 as consumers revert to debit to better manage their finances.
3. Roughly two-thirds of responding FIs stated increases in Card Not Present transactions. And 76 percent reported the same for mobile payments. No respondents saw declines in either of these areas.
4. Half of respondents also noted a decrease in cash withdrawals. Growing consumer participation in the “delivery economy” and concerns about the cleanliness of cash impacted these trends.
5. More than a quarter noted an increase in transaction values across all payment types, while 22 percent noted a decrease in transaction values. More analysis is required to understand the dynamics here, but there could be geographical and socioeconomic factors in play. This need for further analysis notwithstanding, any bank that will be negotiating an agreement with a supplier of payments-related services will need to dive deep into these trends to gain a comprehensive understanding of how to shape that contract.
6. “Expand/improve digital channels” was listed as the most critical initiative. Two-thirds of respondents rated it their top priority among five areas of forward focus. Even if a portion of consumers revert to old habits, the digital channel has gotten a permanent forward jolt.
7. “Use automation to replace manual processes” was a clear (but distant) second. This may indicate that financial institutions are still in a due diligence stage when it comes to automation for operational improvements. It also may be the result of many institutions seeing automation as part of their overall plan around digital transformation.
8. “Decrease branch footprint” ranked last among the five proposed initiatives. It is clear that many banks are studying their commercial real estate footprint. However, more time is needed for decisions that have a more permanent mark since branch footprint is merely part of a much larger set of questions being asked.
9. Nearly half of respondents believed the pandemic’s impact on their institutions would be 18 to 24 months. Most of the remainder of participants fell within the 12- to 18-month range.
10. More than 20 percent of respondents believe the economic recovery will take years. This number likely reflects smaller communities more probable to be served by local businesses. Banks located in these settings should consider their role relative to supporting small businesses during the recovery, given their significant role in the health of these local economies.
The fact that banks have shown a deepening focus on critical areas, such as digital, reflects their determination to take the steps necessary to retain their positions in the market serving the needs of their customers in the “non-normal.” They’ve also begun a longer journey toward modifying their operations to function optimally within a business landscape materially altered by the pandemic. These are good trail signs for banking as our industry and lives now occupy a point in time where everything must be continually reimagined as we move forward.