COVID-19 - Banks need to continue to respond in unchartered territory
COVID-19 -continues to demand changes to banks’ established ways of working, as not only do they have an instrumental role in supporting all sectors of the economy through the crisis, but they are also at the epicentre of the new demands of a more virtual world.
From the well-being of their own staff to ensuring business continuity and controlling costs, banks have been agile in managing through the crisis so far.
Most have successfully navigated the operational transition to remote working. In the main, resilience plans kicked in effectively and banks are finding rhythm in the new normal.
And much more is needed.
As South Africa starts to ease lock-downs and move away from the initial phase of the pandemic, we are all experiencing a period of intensive activity which includes how we will settle into new ways of business and working. After the initial sprint, banks need to take a look in the rear-view mirror to assess what they should leave behind and what they need to do differently in the future.
There are 4 areas that require attention:
1. The digital future
Banks that are already digital, are far better equipped for the future: they have already understood the role of automation and how this brings better customer service and improved operational efficiency. The pandemic is an ideal opportunity to revisit what banks consider to be core to their operations and to further digitise.
Many banking customers over the last number of weeks have solely used digital services to interact with the banks and merchants. The hurdle that now needs to be overcome is how to retain customer interaction on these channels. In addition, with a large unbanked population in South Africa the banks have the opportunity to support these potential customers to use and trust mobile technology.
2. This may be the end of cash
Last year, EY, in collaboration with The Economist Intelligence Unit, released a white paper on The End of Cash, exploring the aims and benefits of a cashless society focusing on three key points:
Create an environment to improve the ease of doing business for consumers, businesses, financial institutions and governments.
Increase financial inclusion of the underbanked and unbanked.
Enhance transparency in the financial system to reduce fraud, and crime and corruption.
The last weeks have helped this transition and may very well prove the catalyst for the general acceptance that what we really need is access to payment systems and banking systems, not banks and branches.
3. Operational efficiency, cost reduction now non-negotiable
In the coming months, the pressure on operational efficiency will be relentless. Questions will be asked as to how banks can reduce cost and navigate the social and societal impact of such decisions.
Banks have quickly learned that being offsite, they still rely far too much on manual processes. They have also realised more than ever that customer experience is central to digital commerce. As such, banks will likely review their digital investment strategies and reprioritise implementation of automation in key areas.
Credit risk management will also come to the fore because the outbreak has affected economic sectors in different ways. It has been particularly challenging for tourism, oil and gas, transportation and the service economy. Banks have to take an in-depth look into their portfolios and understand the impact on potential future losses, as well review their credit risk models for the new business environment. And as COVID-19 related lending starts to mature, banks will have to keep a keen eye on credit quality.
Liquidity is not an immediate problem due to different measures being implemented, especially by central banks and treasuries, but it could be in the coming months once relief measures end. It will be an important test of banks’ sophisticated liquidity systems.
4. New ways of working with less real estate, fewer resources
Remote working has already become the norm for most of the staff of South African banks. As the transition back to the office building starts and management grapples with issues of social distancing and sanitising of premises, the question is if and how we embrace remote working for the future. This will require a reduced real estate footprint as well as making many more operations remote and agile, not just people.
The ultimate cost of COVID-19 is yet unknown. However, it is clear that banks have an opportunity to help lead the response, ensuring that customers are successfully guided through this crisis, staff are equipped with the right technology enabling the rapid adaptation to the “new normal” that lies ahead.