The new normal.
A phrase which has been ingrained in the national psyche as people figure out how to adapt to the changes and challenges that we have all lived and worked through over the past few months. But what does new normal mean for those businesses like financial services providers that found themselves almost overnight leading the vanguard on adapting to this unprecedented change? Let’s take a quick look at this through the prism of the banking sector.
Most banks responded with Herculean agility to set up remote teams, embrace new ways of working and quickly bring new FinTech products to market to meet the immediate and ongoing needs of a growing digital customer base. As they now move into the recovery phase, they are busy defining what the new normal means to their business and customers. They are planning how this new reality dovetails with digital transformation road maps, how to keep agile and how to lock some of the positive gains into operating models.
Unwieldy and sluggish banks will struggle to keep competitive
Rapid consumer uptake of online tools means the laggards that had already derailed or stalled the digital transformation of their business pre-crisis will quickly lose more ground to competitors. McKinsey’s European banking customer survey in May found that found that digital engagement levels climbed up to 20% over a month, while 30% to 40% of consumers said that they needed more advice and 20% to 40% said they wanted products to help them through the crisis.
Digital banking customers now need to do more than just the basics like keeping tabs on their account and transferring money. They need to run their finances in a virtual world and have hassle free access to financial products and services, new accounts and advice to see them through the pandemic and beyond. And as FT Adviser cautions, for some financial services providers, their data, processes and systems are heavily reliant on legacy systems and on-premise servers and delivering agile products to meet customers’ evolving needs is difficult, especially when their teams are working remotely. These businesses will need a plan.
Planning for agility and speed in the months ahead
McKinsey identified six key areas to help banks consolidate the ‘speed and ambition’ that they embraced during lockdown, and return to profitable growth. This is sage advice for most banks.
- Innovate new products and propositions – strengthen advanced analytics skills to create a personalised offer to meet customers’ new financial needs.
- Leverage the shift to digital sales and service – as customers shift en masse online there is an opportunity for banks to turn digital channels into real sales channels, moving beyond seeing these channels as self-serve tools.
- Build a leaner and scalable cost base – an unprecedented 25% to 35% cost improvement over the next three years could help banks free up resources to invest in digital capabilities and offset spiralling risk costs and sluggish income. A move from fixed cost to pay-as-you-go projects could help drive down cost and make it more scalable.
- Hard-wire an agile mindset – reset the organisation for agility and speed and move from a siloed approach to a customer-centric model.
- Strengthen risk and capital management – banks will need to take control of unperforming loans, prepare for a recapitalisation wave, and convert the rapid loan-origination process seen during the crisis to business as usual by leveraging complex digital credit decisioning.
- Targetted M&A deals – M&A could be a long-term path for banks to acquire new capabilities or drive down costs.
What else? Are large-scale banking infrastructure projects likely?
While many banks recognise that they need to innovate and strengthen their technology to adapt to the new reality, facilitate seamless remote working and meet the needs of their growing digital customer base, costly, large-scale new core banking infrastructure projects are most likely off the table short-term. However, AltFi predicts that traditional banks will make major investments in the space in the months and years ahead to accelerate digital transformation projects.
What are the tech challenges ahead for your business as you adapt to the new normal and plan for the post-pandemic future? We’re here if you need our help.