COVID-19 ripped up banking’s rule book – now what?
Digital-first, experience-driven banking is the future, and the institutions that don’t fully embrace this secular trend will likely not survive for long.
For all the business continuity planning banks had in place at the start of 2020, none planned for the as-yet untallied cultural and economic repercussions for that year. We identified some key banking trends for the coming years, but world events have turbocharged those changes, in particular the development of digital-first, experience-driven banking focused on shared values, connected ecosystems and a wider purpose.
The events since early 2020 have split the industry in three. Some banks that were left asking, “What happened?” Others continue to respond only to what’s happening in the moment. The third group have harnessed predictive insights to accurately anticipate what’s going to happen.
If they haven’t already closed their doors, the banks left asking, “What happened?” will not survive. These are the institutions born out of the industrial revolution, where customers receive product advertisements through the mail, wait in line at bank branches and endure lengthy application processes to get the money they need.
Early in the pandemic, most banks were in the “What’s happening?” group. They were immediately reactive, as the situation dictated — moving employees home, finding ways to make customer data secure, and hiring more call-center staff. These banks will survive, but they will not be significantly better off in the long term.
Some banks have managed to generate enough insights to say, “This is what’s going to happen.” Some of these are fintechs, born in the cloud and thus already prepared to deliver everything digitally. But others are more traditional banks that, for example, had been in conversation with cloud service providers and jumped to sign long-term deals.
These banks saw the opportunity to shift from a digital channel mindset to a digital core, and they are using history in the making as their burning platform for change. “By the time this is all over,” they seem to say, “we will be digital.”
In Genpact’s report, Banking in the Age of Instinct, we predicted that banks would need to make significant shifts to thrive in the future. The three macrotrends we predicted are here, and leading banks are responding to them today:
Banks must pull together technology and operational insights to break down product silos and become more customer-centric. Within this trend, customers expect banks to anticipate and meet their financial needs with digitally enabled, personalized services embedded in their everyday lives and experiences.
A few banks had started addressing this need, but COVID-19 forced most people to engage with their bank virtually, making such services pervasive and completely necessary. Banks began breaking down silos to deliver better experiences for their customers.
Banks need to increase the ethical impact they have on their customers and communities. Progressive banks and capital market firms are using technology to extend themselves for their customers in many areas — from offering forbearance programs to disbursing government loans.
Primis Bank, a fast-growing community bank in the southeastern United States, used a cloud-based solution to provide an emergency lifeline to small businesses as part of the Paycheck Protection Program. In the process, it transformed its business into a nationwide lender practically overnight and helped save many companies from closing their doors for good.
There is an increasing demand for systems and practices that provide protection from future threats through long-term, holistic thinking. For financial institutions, this means shifting from being impenetrable and complex to open and sustainable.
For example, to diversify risk, geographically distributed human agents and artificial intelligence-based agents must work side by side. Work-from-home recovery scenarios are now a reality, which means banks will need to take a wide view of security and create new ecosystems to boost safety. This will include diversifying models via partnerships and looking to new innovations to streamline compliance.
The most successful banks will use yesterday’s and today’s events as a catalyst to shift the culture toward the future. Forward-thinking banks are building management, measurement and reward systems around advanced technologies and collaborating with digital transformation partners for competitive advantage.
A creative few understand that the future is full of financial products that customers will invent themselves. Digital systems will help banks understand their customers better, and products and services will bifurcate out of genuine need. More banks are imagining a future where they handle the balance sheet, regulations and compliance, but technology companies provide the interface.
A single model for the digital bank of the future is unlikely, but the banks that flourish in the future will be those that understand that the change we have seen to date is permanent — and that more change is coming.
They will be the firms that break down internal silos and embrace external partnerships to easily share anonymized data, non-competitive intellectual property, skills and more to create seamless user and customer experiences. They will harness data and advanced technologies to anticipate customer needs, business opportunities and risks. They will organize their talent – human and machine – around the customer and use technology to empower employees to shift from functional roles to purpose-driven career paths.
They are the instinctive banks.