Banking Beyond the Pandemic

By Anindya Roy, SVP & Head – Financial Services, UK&I, HCL Technologies

Retail banks have displayed remarkable resilience and agility during the COVID-19 pandemic, moving many parts of their operations online. They have successfully enabled their employees to work from home, and have been able to serve their customers with very little disruption through digital channels. Providing a critical service that has kept our society functioning, these banks have ensured that payments are processed and loans are disbursed, that supply chains continue to function, and that customer information is protected. A recent survey by McKinsey found that the expectations of almost nine out of ten consumers were met, or exceeded, by banks during the COVID-19 crisis.

As many countries emerge from lockdown and economic activity slowly resumes, resilience and agility in retail banking will be needed more than ever. So what can banks expect in the coming months, and what do they need to focus on to continue supporting customers?

What lies ahead

Firstly, credit losses will increase dramatically, a result of the huge economic decline and potential bankruptcy facing corporate and business customers, as well as a sharp rise in unemployment. Revenues are also likely to fall, because there may be reduced demand for services such as mortgages. Interest rates at central banks will probably remain very low for a long time.

Secondly, customer behaviour is set to change dramatically, as people and businesses rely on digital channels rather than face-to-face interactions in bank branches. A recent study showed that digital preferences amongst the over-65s, an age group traditionally reluctant to adopt online banking, are now converging with younger demographics. This is driven by the need to minimise in-person interactions in light of social distancing. Areas such as payments, or business lending, are likely to go digital at a lightning pace.

Thirdly, remote working has become a major part of the new normal, even for customer-facing staff. This is not solely down to the need for social distancing: employee preferences are changing too, as many staff are growing accustomed to homeworking and appreciate the time gained by avoiding the commute.

Finally, banks will be keen to take advantage of technologies that help them engage customers and employees remotely, and simultaneously reduce costs. These include modernisation of back office

Anindya Roy

and front office technologies, widespread cloud adoption, scaling up automation in combination with AI, increased use of data analytics, and blockchain technologies – but these are not new ideas. The advantages they offer in terms of cost efficiency were clear before the pandemic. However, this crisis is the perfect catalyst for banks to accelerate the technological transformation of their business models, particularly in light of the changing customer experience.

Focus areas for the future

Having considered what the future of the sector may look like, what steps should retail banks be taking?

• Rethink digital apps: As branch banking declines, a key priority should be the simplification of digital customer experience. Banking apps must aim for maximum accessibility and ease of use, as less technologically savvy demographics are engaging with banks through digital channels for the first time. Digital apps will need to incorporate features that facilitate more complex services, such as changing mortgage terms. New functions that allow banks to empathise with customers in financial difficulty will also be required.
• Personalise customer engagement: Data should be used to understand a customer’s unique situation, allowing banks to respond to their needs in a specialised manner. BCG estimates that the personalisation of customer interactions can improve net interest income by 0.3%, which, for a bank with £100bn in assets, translates to £300m of additional income.
• Scaled up automation and technological modernisation: Before COVID-19, automation and modernisation projects were viewed as medium-term initiatives, but now banks need to significantly accelerate and scale up these plans to ensure sustainable, structural cost reduction. Banks clearly have to reduce their operational and technology costs to mitigate the impact of the crisis, but this is only possible if automation and modernisation go hand-in-hand.
• Resilient and secure by design: A future where a significant proportion of employees are working from home, with clients interacting through digital channels, will involve greater use of public cloud and increased use of APIs to access banking services. Resilience and security will become more important than ever. Whilst in the past, security and resilience were “end built” into the design of applications and overall architecture, these will now be critical considerations “in built” into every single element of a business process or a technology stack, and embedded into ways of working.

Retail banks may have weathered the storm of COVID-19 relatively well, but their future will be determined by their ability to rapidly scale up the adoption of digital services and bring them into the hands of the consumers. Fortunately, the building blocks for the new banking architecture were laid in the years running up to the pandemic. A holistic approach to transformation, with customer experience and needs at its heart, will ensure continued success and allow retail banks to capitalise on economic recovery.