By Jonathan Power, Managing Director, UKI & FST, Temenos
COVID-19 continues to have a profound human impact. Governmental responses to it have led to a wide range of knock-on consequences that will have major permanent ramifications for business sectors, including banking.
One of the most notable consequences we are seeing is the surge in digital engagements. Former bystanders of digital banking services have adjusted to using apps for the first time as their local branches closed during lockdown. COVID-19 has driven a rise in the use of fintech apps including a remarkable 72% increase seen in Europe by deVere Group.
Banks have endured much greater pressure on their workforces in recent weeks and months. Demand for non-standard requests have increased significantly as customers try to change terms of loans or mortgages, or access savings that are usually restricted.
As with other industries, banks have had to ensure business continuity and seamless business operations while dealing with staff working remotely and reduced staffing levels as employees fall ill or face travel restrictions.
The implications of COVID-19 are not just short term – the crisis has highlighted numerous, long-term challenges for banks.
They need to ensure their digital platforms are agile enough to cope with spikes in customer demand. They need to deliver digital services in a way that gives customers the level of user-friendly experience, personalization and integration between channels they have come to expect. They need to change existing products to cater to new customer needs such as payment holidays and loan restructuring as well as rapidly launch new products to address government initiatives aimed at supporting small businesses and financially vulnerable individuals.
Banks will also need to adapt to the likelihood of a much greater acceptance and desire from staff for remote working and digital communications in the wake of the pandemic. They need to ensure that their banking platforms are resilient and secure enough for both their customers and staff to use.
Finally, banks need to make sure they can continue to provide uninterrupted service through unexpected events in the future.
Banks will need modern digital banking platforms to communicate and respond to customers’ needs instantly. They will need scalable, resilient systems to move seamlessly to remote working, without impacting productivity.
The technology exists to enable banks to do these things.
The latest Explainable AI models, which are transparent in their automated decision-making and infinitely more trustworthy than their predecessors, are a vital tool for banks that need to onboard, perform eligibility checks and rapidly process loans in this climate.
As employees remain stretched, having to cope with illness and childcare, AI can increase efficiency and automation to ensure business continuity, while freeing up man hours to focus on mission critical tasks. Research from the Economist Intelligence Unit carried out during Covid-19 found that 77% of global bank executives believe that unlocking value from AI will be a key differentiator between winning and losing banks.
Cloud technology is another example. Using cloud technologies banks can scale fast based on demand and ensure business resilience and security.
Many banks have been talking about digital transformation for years, but for many progress has not been fast. A recent report from Forrester suggests that while 61% cent of global financial services firms are executing a digital transformation program, only 14% believe they have the right technology infrastructure and applications in place to deliver great and differentiating customer experience.
In the short-term, banks may be risk-averse and delay some digital transformation projects, but the current emergency has shown even more starkly that banks which fail to innovate and adapt will be left behind.
Digital transformation is a fundamental, long-term strategic imperative. Banks have a responsibility to operate 100% digitally while delivering the highest levels of customer experience. COVID-19 has highlighted even more clearly that if they don’t innovate and adapt to the digital world, they will not only fail their customers – they will fail to exist.
 The Evolution Of Digital Banking Platform Architecture, Jost Hoppermann, Forrester, 6/4/20
ECB stays put but warns about surge in infections
By Balazs Koranyi and Francesco Canepa
FRANKFURT (Reuters) – The European Central Bank warned on Thursday that a new surge in COVID-19 infections poses risks to the euro zone’s recovery and reaffirmed its pledge to keep borrowing costs low to help the economy through the pandemic.
Having extended stimulus well into next year with a massive support package in December, ECB policymakers kept policy unchanged on Thursday, keen to let governments take over the task of keeping the euro zone economy afloat until normal business activity can resume.
But they warned about a new rise in infections and the ensuing restrictions to economic activity, saying they were prepared to provide even more support to the economy if needed.
“The renewed surge in coronavirus (COVID-19) infections and the restrictive and prolonged containment measures imposed in many euro area countries are disrupting economic activity,” ECB President Christine Lagarde said in her opening statement.
Fresh lockdowns, a slow start to vaccinations across the 19 countries that use the euro, and the currency’s strength will increase headwinds for exporters, challenging the ECB’s forecasts of a robust recovery starting in the second quarter.
Lagarde saluted the start of vaccinations as “an important milestone” despite “some difficulty” and said the latest data was still in line with the ECB’s forecasts.
She conceded that the strong euro, which hit a 2-1/2 year high against the dollar earlier this month, was putting a dampener on inflation and reaffirmed that the ECB would continue to monitor the exchange rate.
The euro has dropped 1% on a trade-weighted basis since the start of the year, but is up nearly 7% over the last 12 months. Against the U.S. dollar, that number rises to over 10%.
Opening the door for more stimulus if needed, Lagarde confirmed the ECB would continue buying bonds until “it judges that the coronavirus crisis phase is over”.
Lagarde also kept a closely watched reference to “downside” risks facing the euro zone economy, which has been a reliable indicator that the ECB saw policy easing as more likely than tightening.
But she signalled those risks were less acute, in part thanks to the recent Brexit deal.
“The news about the prospects for the global economy, the agreement on future EU-UK relations and the start of vaccination campaigns is encouraging,” Lagarde said. “But the ongoing pandemic and its implications for economic and financial conditions continue to be sources of downside risk.”
Lagarde conceded that the immediate future was challenging but argued that should not impact the longer term.
“Once the impact of the pandemic fades, a recovery in demand, supported by accommodative fiscal and monetary policies, will put upward pressure on inflation over the medium term,” Lagarde said.
Benign market indicators support Lagarde’s argument. Stocks are rising, interest rates are steady and government borrowing costs are trending lower, despite some political drama in Italy.
There is also around 1 trillion euros of untapped funds in the Pandemic Emergency Purchase Programme (PEPP) to back up her pledge to keep borrowing costs at record lows.
The ECB has indicated it may not even need it to use it all.
“If favourable financing conditions can be maintained with asset purchase flows that do not exhaust the envelope over the net purchase horizon of the PEPP, the envelope need not be used in full,” Lagarde said.
Recent economic history also favours the ECB. When most of the economy reopened last summer, activity rebounded more quickly than expected, indicating that firms were more resilient than had been feared.
Uncomfortably low inflation is set to remain a thorn in the ECB’s side for years to come, however, even if surging oil demand helps put upward pressure on prices in 2021.
With Thursday’s decision, the ECB’s benchmark deposit rate remained at minus 0.5% while the overall quota for bond purchases under PEPP was maintained at 1.85 trillion euros.
(Editing by Catherine Evans)
Bank of Japan lifts next year’s growth forecast, saves ammunition as virus risks linger
By Leika Kihara and Tetsushi Kajimoto
TOKYO (Reuters) – The Bank of Japan kept monetary policy steady on Thursday and upgraded its economic forecast for next fiscal year, but warned of escalating risks to the outlook as new coronavirus emergency measures threatened to derail a fragile recovery.
BOJ Governor Haruhiko Kuroda said the board also discussed the bank’s review of its policy tools due in March, though dropped few hints on what the outcome could be.
“Our review won’t focus just on addressing the side-effects of our policy. We need to make it more effective and agile,” Kuroda told a news conference.
As widely expected, the BOJ maintained its targets under yield curve control (YCC) at -0.1% for short-term interest rates and around 0% for 10-year bond yields.
In fresh quarterly projections, the BOJ upgraded next fiscal year’s growth forecast to a 3.9% expansion from a 3.6% gain seen three months ago based on hopes the government’s huge spending package will soften the blow from the pandemic.
But it offered a bleaker view on consumption, warning that services spending will remain under “strong downward pressure” due to fresh state of emergency measures taken this month.
“Japan’s economy is picking up as a trend,” the BOJ said in the report, offering a slightly more nuanced view than last month when it said growth was “picking up.”
While Kuroda reiterated the BOJ’s readiness to ramp up stimulus further, he voiced hope robust exports and expected roll-outs of vaccines will brighten prospects for a recovery.
“I don’t think the risk of Japan sliding back into deflation is high,” he said, signalling the BOJ has offered sufficient stimulus for now to ease the blow from COVID-19.
NO EXIT EYED
Many analysts had expected the BOJ to hold fire ahead of a policy review in March, which aims to make its tools sustainable as Japan braces for a prolonged battle with COVID-19.
Sources have told Reuters the BOJ will discuss ways to scale back its massive purchases of exchange-traded funds (ETF) and loosen its grip on YCC to breathe life back into markets numbed by years of heavy-handed intervention.
Kuroda said the BOJ may look at such options at the review, but stressed a decision will depend on the findings of its scrutiny into the effects and costs of YCC.
He also made clear any steps the BOJ would take will not lead to a withdrawal of stimulus.
“It’s too early to exit from our massive monetary easing programme at this point,” Kuroda said. “Western economies have been deploying monetary easing steps for a decade, and none of them are mulling an exit now.”
(Reporting by Leika Kihara and Tetsushi Kajimoto; additional reporting by Kaori Kaneko; Editing by Simon Cameron-Moore & Shri Navaratnam)
World Bank, IMF agree to hold April meetings online due to COVID-19 risks
WASHINGTON (Reuters) – The International Monetary Fund and the World Bank have agreed to hold their spring meetings, planned for April 5-11, online instead of in person due to continued concerns about the coronavirus pandemic, they said in joint statement.
The meetings usually bring some 10,000 government officials, journalists, business people and civil society representatives from across the world to a tightly-packed two-block area of Washington that houses their headquarters.
This will be the third of the institutions’ semiannual meetings to be held virtually due to the pandemic.
(Reporting by Andrea Shalal; Editing by Chris Rees
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