It’s Now or Never for the Banking Industry in ‘Year One’ of the COVID Era

“Nobody realises that some people expend tremendous energy merely to be normal.” Swap “be normal” for “adapt to the new normality” and all of us can relate to this quote by the famous French-Algerian writer, Albert Camus, author of the no less famous novel The Plague (which is also rather apt for present times). Indeed, these days, living a ‘normal life’ seems harder than ever.

One of the fastest, most significant and sometimes most forced adaptations has been that of the banking industry, a subject that we’ve often covered on this page and will continue to in the future. Today, we want to touch on a brief but important report produced by the consultancy firm Capita, with a title that barely needs any explanation: Banking in the New Normal.

It might seem patently obvious, but the first and most immediate impact of the pandemic on the banking industry has been the restriction of movement. With varying degrees of confinement and other restrictive measures put in place to protect both ourselves and our loved ones, everybody has been affected, from employees working in investments, transactions and support roles, to customers, intermediaries and service providers.

Despite the fact that we’ve been talking about the digitalisation of banking services for decades, it’s only now that there has been an urgent need to accelerate this transformation if banks want to stay relevant. But this isn’t unique to the banking sector; many other industries are facing this very same challenge.

What is more specific to the banking industry is the impact of restrictions on banks’ core business. In ‘Year 1’ of the COVID era, banks are truly being called to respond to the crisis on multiple fronts. Not only do they have to deal with the growing vulnerability of customers, but they are also obliged to stay proactive in identifying challenges and offer the most personalised solutions possible. They also need to achieve this whilst providing maximum security against the inherent threats involved in “remote working” (which in reality is simply, “working from home”). Because the banking industry isn’t just any sector; it’s very tempting for those who are prepared to try and get an illegal advantage using technology, and in the banking industry, mistakes are paid for and paid for dearly.

As much as this might already be an underlying trend, the report points out that a number of transformation programmes implemented in the last decade have “failed to improve efficiency ratios sufficiently” to the point that an increase in mergers and acquisitions was not just to be reasonably expected but inevitable. Some voices have even suggested that this pandemic is another banking crisis in the making. However, there are other equally if not more important voices that are urging banks to underline their role as “financial champions” in this critical “moment of truth” for the industry.

The Capita report, which focuses on the UK but has valid points for all of the world’s major economies, calls on leaders in the sector to consider at least four key things:

Branches and cash machines – Branches should be considered an essential service, and any temporary or permanent closures should depend on the flow of customers. Regarding cash machines, there’s no excuse for not ensuring that they always have sufficient cash.

Customer service – With staff likely to fall sick, banking organisations need to have planned for remote working so as to continue to attend to customers. Robot process automation and artificial intelligence should become important means of providing new solutions.

Financial risk management – As mentioned above, the new focus for banks goes beyond identifying risks and blocking the selling of services to suspicious parties. Now, it’s about identifying and anticipating vulnerabilities and proposing imaginative win-win solutions.

Compliance – As if all this weren’t enough before, the outbreak of the pandemic coincided with the approval of the strictest privacy and data protection regulations yet. Some regulatory organisations have been prepared to provide deadline extensions for their implementation, but this won’t last forever. It’s precisely because banking activity will become increasingly more remote that regulatory compliance is demanded not just by public authorities, but also increasingly by the market itself.

“When this is all over and Covid-19 is but a distant memory, things will not necessarily go back to normal”, the report warns. “People may no longer be willing to be deskbound in a large office, miles from home for 35 or 40 hours a week.”

Ultimately, it might be that these “great efforts” are currently going unnoticed, the study concludes, “but if banks can learn from this crisis and finally make the strategic digital changes they have been considering for years, the future is potentially very bright” for the financial services sector.