Making sense of the uncertain: Covid-19 and Financial Services

By Elias Ghanem, Global Marketing Head of Market Intelligence, Capgemini

With reports mounting around future financial uncertainty as a result of the Covid-19 pandemic, financial services (FS) organisations are working hard to decode and navigate the challenges the predicted upcoming recession and subsequent mass unemployment will bring.

In accordance with government advice, a large proportion of the workforce has been working from home, while government mandates have prevented consumers from visiting brick-and-mortar locations to conduct their typical daily transactions. The World Economic Forum estimated that almost three billion people experienced some form of lockdown in March; these unprecedented circumstances have created a new normal.

The closure of businesses worldwide and societies being in ‘lockdown’ has meant that the virus has spurred the most abrupt and extensive stagnation of economic activity in record. The International Monetary Fund (IMF) stated in April that the economy is likely to face a sharper decline than that faced during the great depression, indicating a large-scale anticipated recession and alluded plans of recovery.

The changes catalysed by the pandemic have undoubtedly blocked the world’s ability to produce and consume. Social distancing rules that have been introduced globally have disconnected and disrupted families, co-workers, supply chains and governments. While some lockdowns are beginning to ease, one thing that is certain is that there will be a lasting impact.

Businesses, especially financial services, need to carefully consider its next steps. Analysts have predicted a high level of corporate bankruptcies and rising inflation, the damage of inaction in this moment in time is monumental to organisations and the clients they serve. As a result, businesses in the banks and insurers alike ought to ask themselves the following questions, to measure and mitigate the impact of challenging operating conditions.

How is customer engagement being maintained?

Navigating through the “new normal”, in the absence of physical, face-to-face channels, it is essential that organisations focus on ensuring that client needs are efficiently met through maintaining customer touchpoints such as through chatbots and increased telephone support. We have witnessed the reduction in physical channels – with Citibank and JPMorgan temporarily closing  700 and 1,000 branches respectively, and insurers no longer able to deliver services across brick-and-mortar outlets – outlets need to create robust digital options to minimise service disruption.

Getting customer engagement right during a crisis is top of the agenda for the banking industry, as it can make or break future customer relationships. Despite social distancing and a harsh business environment, providing better support to customers can be attempted through identifying ways to drive acquisition and engagement.

Capgemini’s survey, of more than 11,000 customers across 11 countries, found that despite the quick efforts of many banks and insurers, an assurance gap exists. Only 65% of customers reported that their bank is taking care of their financial needs in the present situation, and only 54% thought their bank/financial institution is taking the correct initiatives to assist them to overcome the current situation and stress. Although this is a good start, banks need to – and must – do better. By locating and addressing customer pain points, signposting customers to clear digital help-points – banks will be repaid by customer retention and loyalty further on.

How has business performance been adapted?

With the current state of financial uncertainty, banks and insurers need to ease the effects of an economic slowdown on growth and profitability. Major banks area already forecasting what Covid-19 means for profits, DBS Singapore said in its last quarterly report that the outbreak could affect its 2020 revenue by at least 2%. While at the time of writing, it has been reported that the UK economy has a record shrunk 20.4% in the past April.

By accepting that economic activity will slow, the FS sector must also focus on the related risk and slow-down of shareholder equity or returns. Awareness and adaptability are paramount in this period of ambiguity – especially with regards to managing risk and limiting the erosion of shareholder equity or returns.

As the scale of economic health is unknown, and while traditional banks can rely on their solid financial base, the longer-term resilience rests largely on organisational intelligence and strategic ability of executives to adapt.

What are you doing to ensure sustainability?

Despite major issues currently dominating the news cycle, the focus on climate change and its impacts have not been forgotten. We have seen this with financial services, with consumers remain favoured to environmentally conscious organisations.

During this time, the industry must continue driving an effective business continuity plan, restructuring operations, and safeguarding the health and safety of employees. However, they must also continue pursuing interests and targets to reduce the company’s carbon footprint and follow sustainable practices. This will ensure that the organisation’s values align with its customer base, which is increasingly environmentally conscious.

As a result, although some would assume that sustainability would take a back seat, the combination of customer engagement with environmentally sustainable investments can drive strong customer preference and advocacy.

The way forwards

With ongoing reports of what is to come, the price of inaction is too high. The most successful financial services providers will unravel today’s challenges and pursue long-term goals in a socially conscious and environmentally sustainable manner – while innovating to boost customer experiences that support profitable and maintainable growth.

Banks and insurers need to affirm that financial performance and profitability does not have to be a trade-off for honouring claims that drive trust and loyalty nor for meeting sustainability targets. Customer loyalty is an asset which banks ought to prioritise. While during a crisis, there is a tendency to fall back on familiar processes, the strategic ability of executives to pivot and strategically plan around the crisis, will mean that banks can adapt evolving risk landscape.