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One size fits all?

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Speech by Lorenzo Bini Smaghi, Member of the Executive Board of the ECB,
at the 16th Annual Conference of the German-British Forum „The European Central Bank in a global perspective – Central banking and the challenge of rising inflation“,
London

Ladies and gentlemen, [1]
It is a great pleasure to speak at this German British Forum on the important issue of ‘The European Central Bank in a global perspective – The challenge of rising inflation’.
I would like to address an issue which is raised time and again, namely, can the monetary policy implemented by the ECB fit different underlying economic performances in the Member States of the euro area? And in the current situation, the question is often asked whether the ECB’s monetary policy doesn’t risk hampering the recovery in the euro area periphery and jeopardising the implementation of the adjustment programmes.
As I said, the issue is not new, but it is certainly topical. I am sometimes tempted to answer that this is not the right question, or at least that the question comes too late, given that we now have had a monetary union for more than 11 years and there are no alternatives in sight. But I realise that some more structured answers have to be given at some point, and that’s what I would like to do today.
As you all well know by now, the ECB has been assigned the primary objective of maintaining price stability in the euro area. The ECB therefore has no choice but to take a euro area perspective: its policy decisions aim at area-wide price stability. Those decisions draw on all available information, including that deriving from national indicators, but they cannot be tailored to the specific needs of a single Member State.
As we have seen, economic divergences can emerge and persist across countries and regions within the euro area. In principle, there are several reasons why such variations in growth or inflation may emerge within a monetary union. Initial differences in the level of development or income may lead to some countries catching up with the area-wide average through a period of faster growth, associated with relative price changes. [2] Certain economic shocks may affect the economic performance of one country but not another. [3] The transmission of monetary policy may differ across countries and regions because of variations in economic and financial structures. [4]
Although the economic literature prior to the introduction of the euro emphasised the importance of asymmetric shocks, the cross-country variation in growth and inflation in recent years has been driven by differences in the impact and diffusion of a common shock, namely the financial crisis.
The crisis has been a global shock that affected all countries in the euro area – and others, of course. It started with the emergence of market tensions in mid-2007 associated with uncertainty about the valuation of US mortgage-backed securities and escalated sharply in September 2008 with the bankruptcy of Lehman Brothers. The varying impact of this shock on financial conditions across countries has led to a potential for dramatically different transmission of the single monetary policy stance determined by the ECB’s Governing Council. This is especially the case in the most recent phase of the crisis, when sovereign debt concerns and their interaction with the strength of bank balance sheets have been central.
In those euro area countries where government and banking sector balance sheets remain sound and access to external financing has been maintained, the transmission of monetary policy continues in line with historical regularities. But in those countries where the sovereign debt and bank funding markets have virtually seized up, its transmission is threatened.
The interest rates on corporate loans and on mortgages, which ultimately affect real economic activity, will be higher in countries where banks are having funding problems. The increase in bond yield spreads experienced by the countries hardest hit by the sovereign debt crisis is likely to be passed through, in large part, to the cost of financing for the private sector. Indeed, the latest data on bank interest rates show that mortgages and corporate loans are significantly more expensive to service in those countries with sovereign debt tensions. For example, while lending rates on loans to non-financial corporations have tended to fall in all euro area countries since October 2008 – following the reduction of ECB policy rates – the fall has been less pronounced in Greece and Portugal. In December 2009, lending rates on loans to non-financial corporations in these two countries were approximately 1 percentage point higher than in Germany. Similarly, long-term rates on bank mortgage loans to households have increased in Greece, Ireland and Spain since the eruption of the sovereign debt crisis in May 2010, while they continued to fall in France and Germany until the end of 2010.
Considering the scale of the underlying problems and thus the time it will take to resolve them, the potential for cross-country variation in monetary policy transmission will persist. So the single monetary policy may have different effects in different parts of the euro area, leading to persistent differences in economic performance, even with the single policy stance established by the ECB’s Governing Council.
We are already seeing greater variation from country to country than in the pre-crisis period. While the German economy appears to have recovered quickly from the recession – growing 1.5% in the first quarter of this year – in those countries most affected by the sovereign debt crisis growth remains sluggish. As a result, current cross-country growth differentials are significant compared with the pre-crisis period.
To some extent, these differences are a mirror image of those before the crisis. Those countries which had more buoyant growth during the pre-crisis period are also those that have accumulated large financial imbalances. In the middle of the past decade, the strong growth in household loans fuelled housing and construction booms in countries such as Spain and Ireland. Loan growth rates there peaked at annual rates of around 25%, compared with an area-wide peak of 10%.
As a result of the crisis, these countries have been undergoing a painful adjustment, unwinding the imbalances created during the boom. The recessions affecting them have sometimes been much deeper, with GDP growth several percentage points below that seen in the euro area as a whole. [5] Consistent with this, loan growth has fallen significantly. For example, household loan growth has turned strongly negative in Ireland and has remained stagnant in Greece and in Spain over the past 2 years, while it returned to positive growth rates in 2010 in the euro area average.
Has the single monetary policy exacerbated these cross-country differences? The answer depends greatly on the counterfactual scenario you choose.
It is certainly possible to construct a theoretical counterfactual within which credible and independent national monetary policies would have ensured price stability in every country now in the euro area, rather than only at the average euro area level. In this scenario, cross-country inflation differentials would have been reduced, although I should emphasise that these have remained small in the euro area, even when compared with those in different regions of the United States, which is a currency area typically seen as being closer to the optimum size and structure.
However, a more realistic counterfactual would envisage euro area countries being connected by some version of the old Exchange Rate Mechanism (ERM), with the policies of several countries being in some way related to the policies implemented in particular by Germany and the respective currencies linked to the DM.
Arrangements like the ERM imply a strong interdependence of national monetary policies, not a free float with complete monetary independence. In practice, because of the importance of the German economy in Europe and the stability of its currency, the ERM accorded a central role to the monetary policy implemented by the Bundesbank, set on the basis of German macroeconomic conditions.
If we think about how such a system would have worked prior to the crisis, we would get to the conclusion that it would have made the divergences between countries more acute than those we have actually seen within the euro area. For example, policy interest rates determined by the Bundesbank on the basis of the outlook for price developments in Germany alone would probably have been lower before the crisis than those determined by the ECB for the euro-area as a whole. Within an ERM regime, lower German interest rates would have been transmitted elsewhere in Europe, including to countries such as Spain or Ireland, where domestic inflation and house price developments would not have warranted such an easy policy stance. The resulting lower real interest rates and easier financing conditions might well have exacerbated the accumulation of financial and real imbalances by supporting even bigger asset and credit bubbles and ultimately have led to a larger crisis as these bubbles burst.
During the crisis, Monetary Union has also helped to contain cross-country heterogeneity in bank credit conditions and supported the availability of loans to the private sector. Not only have standard and non-standard monetary policy measures served to ease financial conditions on average, they have also helped to limit the dispersion of bank interest rates across countries. For example, the range of long-term rates on bank mortgage loans to households across euro area countries has been limited to around 1½ percentage points in recent years, which is similar to the dispersion seen at the end of 2006, before the crisis started. While the spreads between interest rates on bank loans to non-financial corporations in Greece and Portugal have increased by up to 2 percentage points over the euro area average, the equivalent spreads for Ireland and Spain have remained modest over the entire crisis period.
Another theoretical argument can be made suggesting that independent national monetary policies could be more expansionary when national fiscal policies turn restrictive in the pursuit of fiscal consolidation. In principle, national monetary policies have the advantage of being able to counter the negative pressure on inflation produced by the fiscal tightening. In practice, however, countries in urgent need of fiscal retrenchment do not necessarily experience lower inflation. At present, inflation is higher than the euro area average in Portugal, Spain and Greece. In a counterfactual without the euro, the national monetary authorities responsible for monetary policy could not implement a more expansionary policy stance than is currently the case in the euro area as a whole without endangering their credibility and the maintenance of price stability.
These observations are broadly supported by the experience here in the United Kingdom. Despite the extra degree of freedom offered to policy-makers by remaining outside the euro area, economic activity in the UK remains further below its pre-crisis peak than either in Germany or France. In relative terms, the depreciation of sterling against the euro has not cushioned growth but rather led to a higher rate of domestic inflation in Britain than in the euro area.
In sum, I would maintain that there are no clear reasons for believing that cross-country variation in economic performance within the euro area has proved larger than would have been the case if national monetary policies had been retained and the euro not introduced. But, at the same time, I do not think that cross-country differences in Monetary Union, which raise the potential for persistent divergence of economic performance, can or should be ignored.
Looking forward, the financial crisis and its impact on the functioning of financial markets in some countries has led to a situation in which cross-country heterogeneity owing to differences in monetary policy transmission may be more pronounced than before the crisis – at least if effective remedial measures are not taken.
This new environment has posed, and will continue to pose, challenges to the single monetary policy. How is the ECB dealing with these challenges?
Since the start of the financial crisis, the ECB has implemented a set of non-standard measures, taking advantage of the range of instruments available within the Eurosystem’s framework for the implementation of monetary policy. Foremost among these measures has been the adoption of a fixed rate tender procedure with full allotment in the ECB’s monetary policy operations. In conjunction with the flexible nature of the Eurosystem’s collateral framework, these measures allow banks to obtain funding even in the face of market dislocation. [6] This has avoided a disorderly deleveraging of bank balance sheets and the associated potential for a fire sale-driven, vicious downward spiral in asset prices and bank capital.
In the face of the sovereign debt crisis these non-standard measures, supplemented by targeted asset purchases under the ECB’s Securities Markets Programme, have addressed and contained the country-specific impediments to monetary policy transmission. The Eurosystem has provided – and is still providing – support to those national banking systems which face liquidity needs. I would like to underline that the key precondition for such a support is that the country concerned sticks to the EU/IMF adjustment programme and are on track. In other words, the responsibility for ensuring the conditions for the Eurosystem to support the banking system of the countries under stress is with the authorities of the countries themselves. There should be no doubt about it.
The support provided to the banking system has been substantial. It is reflected in financing conditions at the euro area level, which have become more favourable of late, amid an ongoing gradual normalisation.
Recent euro area bank lending surveys show signs of improvement in credit conditions compared with the peaks recorded during the apex of the financial crisis. While in most euro area Member States we have seen broadly unchanged or slightly loosened credit standards over the past few quarters, in a few others the bank lending surveys point to constraints remaining in the supply of bank loans to firms and households.
On the basis of these and other data, recent analyses by ECB staff members suggest that the transmission mechanism of monetary policy is normalising. [7] The impact of a monetary policy tightening on economic activity – at almost all horizons – is currently not statistically different from pre-crisis regularities. The impact on inflation shows a similar pattern in terms of time variation. [8]
In sum, the monetary policy framework of the ECB allows policy rates to be changed according to macroeconomic and price developments area-wide, while its non-standard measures aim to maintain monetary policy transmission so as to make the stance of policy rates effective throughout the euro area.
The standard and non-standard measures thus complement one another. The standard monetary policy instrument has been used to pursue the ECB’s primary objective of price stability in the euro area as a whole. The non-standard measures have addressed the impediments to monetary policy transmission stemming from financial market dislocations and related threats to financial stability, and have thus helped to avoid cross-country divergence arising from discrepancies in the national transmission of the common monetary policy.
These measures have maintained the effectiveness of the single monetary policy in challenging circumstances. During the crisis, the credibility of the ECB has been instrumental in ensuring that medium-term inflation expectations have remained well-anchored around price stability. This, in turn, has significantly helped to ensure that lower nominal yields at various maturities translate into lower real interest rates, and thus support aggregate demand and avoid the spectre of a deflationary spiral.
Current challenges therefore do not call into question the primacy of the ECB’s objective of price stability. On the contrary, it is precisely in this challenging environment that the benefits of price stability for Monetary Union as a whole will be reaped.
The credible achievement of price stability reduces overall uncertainty in the macroeconomic environment and thereby keeps risk premia embedded in financial yields lower than would otherwise be the case. In turn, this will foster growth, and thus provide support to those countries facing financing difficulties. At the same time, price stability is a crucial element in restoring stability to financial markets and improving market access for distressed sovereigns and banks.
That said, we must be careful not to overburden monetary policy, in both its standard and non-standard incarnations. Obviously, monetary policy cannot take up the slack where fiscal or other authorities fail to live up to their responsibilities.
While central banks can, should and do provide liquidity support to financial markets, they cannot provide solvency support. That would represent an encroachment upon the domain of the fiscal authorities and blur the distinction between monetary and fiscal policy. It would threaten the independence of the central bank, on which the credible pursuit of price stability relies. In the face of a financial crisis, the fiscal authorities may be called upon to shore up capital in the banking system. The monetary authorities cannot and should not play any role in this area.
Structural reforms are also crucial. In those countries suffering from anaemic growth due to a lack of competitiveness, reforms to reduce unit labour costs have to be put in place. Foremost among them are measures to improve the flexibility of the labour market. Member States with large fiscal imbalances and debt overhangs must address them by adopting measures to achieve a primary fiscal surplus.
I recognise that implementing these measures is challenging. And the starting point is, in many cases, unfavourable. Disinflation to improve price competitiveness may serve to increase the real burden of a country’s debt overhang.
But there is no alternative to these measures if Monetary Union is to work effectively, and the countries concerned are to regain the stability and prosperity that they seek.
And, in all cases, convergence has to be with the best performer in the euro area. We cannot accept any weakening that would be implied by the averaging-out of the performance of all Member States. Indeed, all countries have homework to do: there is much scope for improvement even in the strongest countries if the benefits of price stability are to be fully reaped by the people of Europe.
The responsibility for fiscal and structural policies remains at national level. But we may need to consider some policy areas where, in order to ensure the stability of Monetary Union and the euro, more responsibilities should be assumed at area-wide level. The financial crisis has demonstrated that a lack of financial integration can complicate the implementation, and threaten the effectiveness, of the single monetary policy. Policy interest rates can only guarantee price stability when their transmission to the economy is effective and reasonably uniform.
To ensure such transmission, we need greater harmonisation in financial supervision and regulation. These are tasks that should be performed at euro area level.
Harmonised financial supervision and regulation will also support deeper financial integration within the euro area. In turn, such integration will foster risk-sharing and improve the shock-absorbing capacity of Monetary Union. Some of the vulnerabilities of the euro area we have seen in recent years stem – at least in part – from the fragmented nature of the European financial sector and the supervisory regime that supports it.
What we have witnessed over the past few years in financial markets represent the growing pains of the euro, not its death throes. With the necessary actions taken at national and area-wide level, I am confident the euro will go from strength to strength.
Thank you for your attention.

________________________________________
[1]I wish to thank Huw Pill and Oreste Tristani for their contributions to the speech. I remain solely responsible for the opinions contained herein.
[2]One explanation of these catch-up effects is the so-called Balassa-Samuelson effect, see: Balassa, B. (1964). “The purchasing power parity doctrine: A reappraisal,” Journal of Political Economy 72, pp. 584–596; and Samuelson, P. (1964). “Theoretical notes on trade problems,” Review of Economics and Statistics 46, pp. 145-154. For an application to the euro area, see: Honohan, P. and P.R. Lane (2003). “Divergent inflation rates in the euro area,” Economic Policy 37, pp.359-94.
[3]See: Bayoumi, T. and B. Eichengreen (1992). “Shocking aspects of European Monetary Unification,” NBER working paper no. 3949;  Obstfeld, M. and  G. Peri (1999), “Regional nonadjustment and fiscal policy: Lessons for EMU,” NBER Working Paper No 6431.
[4]An analysis of this issue made prior to the introduction of the euro is offered by: Dornbusch, R., C.A. Favero and F. Giavazzi (1998). “Immediate challenges for the ECB: Issues in formulating a single monetary policy,” Economic Policy 26, pp. 25-64.
[5]In 2009 and 2010, GDP growth equalled: -7.6% and -1.0%, respectively, in Ireland; -2.3% and-4.4% in Greece; and -2.6% and 0.8% in Portugal. These figures compare with GDP growth of -4.1% and 1.8% in the euro area as a whole.
[6]For further details, see Trichet, J-C. (2009). “The ECB’s enhanced credit support”, address at the University of Munich, http://www.ecb.europa.eu/press/key/date/2009/html/sp090713.en.html.
[7]See the analysis presented in Giannone, D., M. Lenza, H. Pill and L. Reichlin (2011). “Non-standard monetary policy measures and monetary developments,” ECB Working Paper No 1290.
[8]See the framework developed in Ciccarelli, M., A. Maddaloni and J-L. Peydró (2010). “Trusting the bankers: A new look at the credit channel of monetary policy,” ECB Working Paper No 1228.
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Banking

The future of offshore banking

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By Granville Turner, Director at Turner Little.

Despite its misconceptions, the popularity of offshore banking is growing. Not only is it a perfectly legal way of holding your money, but with the right professional advice, it is also reassuringly simple to open an account.

This ease-of-use is prompting many offshore banks to change their offering to compete and make overseas banking even more accessible. No longer is it limited to just the super-rich.

So, what does the future look like for offshore banks? We’ve compiled a list of the top fundamental changes happening in the realm of offshore banking.

Catering to niche markets is the future

Rather than managing account holder’s money in general, offshore banks are tapping into how they can best serve different demographics. Essentially, it is about taking a more bespoke approach to managing money at various stages of life.

But catering to a variety of markets doesn’t just stop there. Many overseas banks are now accepting crypto as a form of currency to appeal to digital, tech-savvy generations.

Cryptocurrency is also attractive for those who see the security benefits it can offer.

Paper chains are fast becoming a thing of the past

As banks move away from paper in favour of digital, security is on everyone’s minds. This is because information is an important asset to many businesses, so protecting it is vital. As such, banks are securing data with the most vigorous encryption security standards.

For account holders, this means digital bank transfers and communication become less of a risk and the smarter thing to do. Paper chains are fast becoming a thing of the past.

Instant access, day or night

In today’s digital world, you don’t need to travel overseas to open an offshore bank account; everything can be done online or over the phone. And like most UK standard current accounts, many offshore accounts now offer online and mobile banking features. So account holders can manage their offshore finances and investments while transferring funds with ease.

Branchless banking

Offshore banks are following the same route of challenging onshore banks by going branchless. This offers substantial benefits for account holders, as branchless offshore banks don’t pass on as much overhead costs to the customer. Ultimately, this means customers can earn better interest rates and other returns on their investments.

Happy to help

At Turner Little, we work closely with offshore banks to provide you with quality service tailored to your needs. With over 20 years of international banking experience and specialist expert knowledge, we will assist you with your enquiries, no matter how complex. And every account we arrange comes with internet banking, card facilities and the ability to transact internationally.

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Banking

Hong Kong’s First Multi-Cloud Challenger Bank Goes Live with Temenos

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Hong Kong’s First Multi-Cloud Challenger Bank Goes Live with Temenos 2
  • WeLab Bank designed, built and launched using cloud-native Temenos Transact in less than 10 months
  • WeLab offers next generational digital services for the 7.5m people in Hong Kong to access from their mobile phones
  • Customers can open accounts remotely in just 5 minutes with bank reporting 10,000 account openings within 10 days of launch

Temenos (SIX: TEMN), the banking software company, today announced that WeLab Bank, Hong Kong’s first homegrown virtual bank, has publicly launched using cloud-native Temenos Transact to provide a range of next generation digital services for customers to enjoy 24/7 from their mobile phones. Designed, built and launched in less than 10 months, the fully digital bank has seen rapid take up with a reported 10,000 account openings within the first 10 days of launch.

WeLab Bank is powered by cloud agnostic Temenos Transact for core banking along with Temenos Analytics and Financial Crime Mitigation. Implemented on Amazon Web Services and Google Cloud, WeLab is the first multi cloud digital bank in Hong Kong. Operating on multiple clouds at the same time gives WeLab increased operational resilience and disaster recovery capability and is a regulatory requirement of the Hong Kong Monetary Authority for new digital banks. According to the Economist Intelligence Unit 2020 report for Temenos, 81% of global banking executives surveyed believe a multi-cloud strategy will become a regulatory prerequisite.

Developing a cost-effective and scalable core banking solution was paramount for WeLab. Temenos cloud native software is built for the digital age using API-first and DevOps principles and engineered to deploy in containers and microservices. This makes it easy for WeLab to scale for future business growth efficiently and eliminates the need to provision for peak processing volumes so that the bank only pays for its actual usage, yielding significant cost savings.

Critically, with NuoDB the solution delivers a cloud-agnostic, distributed relational database that enables WeLab to deploy an active-active on-demand database across multiple cloud providers with near zero downtime failover.

Temenos Transact is a preconfigured system and so requires very little coding and with Temenos model bank to address local practices and regulations, WeLab was able to bring its service to market faster and extend its innovation with more than 400 out-of-the-box APIs.

With Temenos, WeLab bank is set to transform banking in Hong Kong. In as fast as 5 minutes, customers can remotely open a WeLab Bank account with $0 monthly fees and start enjoying differentiated services such as time deposits with competitive rates, an interest-bearing deposit account with an instant virtual Debit Card, and real-time payments powered by Faster Payment System (FPS). Everything can be done on a mobile phone, simply and effortlessly.

Adrian Tse, CEO at WeLab Bank, commented: “WeLab Bank was born from an initiative to reimagine the banking experience for the 7.5 million people of Hong Kong. From the start, we knew this vision needed the most advanced cloud native technology and a partner that shared our vision for digital transformation. With Temenos we have efficiently built WeLab Bank from scratch, free from any legacies, with innovative features that proactively help customers to take control of their money and their financial journey.”

Max Chuard, Chief Executive Officer, Temenos, said: “Congratulations to WeLab Bank on the launch of their trailblazing new digital bank. Building and launching a licensed bank in such a rapid timeframe is a fantastic achievement and we are proud to have supported them in becoming the first multi-cloud digital bank in Hong Kong. Temenos cloud-native, cloud-agnostic strategy means we can satisfy the needs of the most innovative and ambitious neobanks like WeLab Bank to run on multiple cloud providers. We know this is just the beginning for WeLab and we are excited to be part of their story as they revolutionize banking for people in Hong Kong.”

Bob Walmsley, CEO of NuoDB said: “We are excited to be partnering with Temenos to help WeLab Bank achieve their aggressive launch timelines and deliver innovative banking services to its customers. We were inspired by the technical vision of WeLab and knew that executing an on-demand, multi-cloud strategy was a perfect fit for NuoDB. Our enterprise-class, distributed SQL database combined with Temenos’ cloud-native technology helps banks of all sizes around the globe migrate to the cloud to improve agility and reduce costs.”

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Banking

The Bank is Where the Heart Is

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By Nick Barnes, Practice Director, Financial Services & Customer Success at JRNI

When unexpected events occur, people turn to their banks to provide a sense of trust, security, and stability. They need to be available anywhere, anytime, and from any device. As it’s a business based on trust, one-on-one communication is key.

With the world still emerging from the COVID-19 crisis and endeavouring to avert a possible second wave, every country, state, and region has their own unique requirements. Plus, every customer or member has their own demands. Experts and pundits have discussed a new normal, but what’s normal for now involves keeping customers and employees safe while also providing the same sense of stability as before.

For banks, building societies and credit unions, the main concerns include how to maintain personal relationships amidst social distancing; how to be available at any time on any device; and how to provide a sense of calm and security amidst the chaos.

Adapt or fall behind

Customers are quickly learning which of their service providers are adapting best to this new world. Are financial services providers like banks and credit unions adapting, or falling behind?

Finances are a highly personal topic, and often, illogical or emotional. Will I have enough? Will it be available when I need it? It is always a hot topic of conversation, but especially during a pandemic when unemployment rates are rising, and the economic landscape is unsettled. In the past, a customer could walk into the bank, have a reassuring conversation with a representative and move on.

So, how can banks help their customers through tough financial times during the current crisis, when in-person communication is nearly impossible? One solution is to provide helpful, personalized customer service through digital channels.

While in-person assistance will remain important after COVID-19, customers are looking for assistance now.   Banks are turning to remote video and voice appointments to boost customer satisfaction and meet customer expectations.

3 reasons to use remote appointments

1. To comply with social distancing

Our Modern Consumer Banking Report​​​​​​​ last year showed that when consumers visit branches, it’s primarily to talk face-to-face and ask questions/get help.  Research from Bain reinforces this, and emphasizes that “many retail banking customers think it’s easier to purchase through a human channel, or prefer to speak with an employee before buying a product.”

Due to social distancing measures, branches cannot be customers’ primary way of managing their finances during this pandemic. However, this doesn’t mean that customers aren’t interested in personalized attention that can be made available via video and voice.

2. To meet new demand 

Although spending habits may have changed, consumers are still making critical financial decisions during the COVID-19 pandemic.

Individuals: The financial effects of coronavirus are drastically different from one customer to the next. While some are counting down the days to receipt of their unemployment check, others may be taking advantage of low-interest rates to buy a house. Ultimately, banks and credit unions need to address each customer segment with a unique message and way of providing assistance.

Small business banking: Countless small businesses around the world have been forced to close their doors. Whether they’re needing loans, payment deferrals, or advice, small businesses are looking to their bank as a guide, and a comfort.

Investment management: A recession is upon us, and with that comes a new approach to investing. Financial advisors are fielding questions, providing recommendations, and staying up to date on the market. Beyond this, many are building entirely new strategies for their clients.

Regardless of customer type, it’s clear that each subset of customer needs help from their financial institution at this time.

3. To boost customer retention

​​​​​​​​​​​​​​Financial institutions cannot afford to lose customers during the pandemic, so customer retention is crucial.  Great customer service boosts customer loyalty, and research from Bain shows that loyalty is key to retention:

  • Customer loyalty increases revenue, and loyal customers are less likely to switch to a competing bank.
  • Customers who are a bank’s “promoters” recommend the bank to others as much as six times more than “detractors.”
  • A bank’s “promoters” spend one-quarter more than detractors on their primary credit card.

Ultimately, being able to connect with a customer in need using video or voice can give customers peace of mind and boost loyalty. Delivering personalized financial services without interruption is crucial.

Initial results from video banking show that consumers consider the service valuable. Phoenix Synergistics’ survey from December 2019 found that 17% of customers polled had used video chat through a website or app with their financial institution. Of those that had used video chat, 89% found video chat valuable.

Some suggestions for banks using remote video or voice appointments would be to: firstly ensure your solution is secure and doesn’t expose personal information outside of the conversation; secondly create a culture of consultation to alleviate outstanding fears; thirdly leverage appointment setting to allow customers to pre-schedule consultations and enquiries; finally include remote appointments as part of a wider suite of ‘touchless’ offerings.

The dos and don’ts for bank branches

Forty-three percent of banking customers have expressed their desire to change the way they bank due to the pandemic. As with retail and hospitality, several key customer segments have doubts about visiting physical locations and are transacting more remotely.

The challenge for banks is to make services available wherever customers want to bank – be it by phone, online, or in branch – and when it comes to any transaction, the key is to make customers feel cared for, heard, and secure.

With social distancing parameters in place along with other health and safety measures, there’s significant focus on the need to retool the branch experience. Here are a few suggestions as we move into that next stage of business and interaction:

DO: Have a plan.

Nick Barnes

Nick Barnes

Think about how customers will enter and exit each location. Plan for increased space between people in line, how to attend to at-risk customers, properly spaced lobbies, and waiting areas. Consider your employees and what they need in order to stay safe including break rooms with increased space between lounging areas, removal of shared snacks, availability of hand sanitizer and masks.

DO: Make sure you can effectively manage footfall.

Overcrowding will create fear and loss of trust. Make sure you have plenty of directional signage, crowd control measures, and staffing. Solutions including people counters, occupancy managers, and pre-booked appointments​​​​​​​ both allow for the throttling of traffic, and the ability to build in cleaning time.

DO: Hire the right team and staff adequately.

Being courteous and in control will be the most important ingredient to success. Have enough staff, you will need the extra hands to ensure that all staff is properly trained and ready to enforce new protocols.

Some customers will be understandably anxious going into branches, and some will want to feel that everything has returned to normal, so staff may need to be very firm and well-versed in a new operating style.

DO: Offer customers the ability to bank when and how they prefer.

We’re not suggesting that you remain open for 24 hours, but the goal is to make it easy for the customer. Adding the ability to set an appointment with a wealth manager or an advisor online will enable customers to bank from home, and will enable banks to provide the personalized service customers have come to expect.

Leverage online appointment confirmations to remind customers to have key documents available if they need them. Virtual solutions position the bank to serve as an advisor rather than just a financial institution.

DO: Demonstrate your commitment to a safe environment.

Use clear signage to convey the measures in place to ensure customer and employee safety. Make hand sanitizer or wipes available throughout the branch, and in all high-touch areas. Ensure cleaning supplies are visible, around doorways and ​​​​​​​near greeters to provide customers with an added sense of security. And make sure that employees are following every measure required of customers.

DON’T: Lose customer confidence.

If you are not prepared, it will show, and it will be very hard to gain back customer confidence once compromised. Social media will not be your friend. Forrester Research reports that 52% of US online adults prefer to buy from companies that demonstrate how they are protecting customers against the threats of COVID-19.

DON’T: Overcrowd or fill your branch to capacity.

Consumers are being trained to avoid crowds, so failure at the branch to comply could result in losing their business. Most physical locations are operating with fewer staff and accommodating 10 – 25% of the traffic once allowed. Keep in mind that you only have one opportunity to make a first impression on customers, and they’re looking to trust you have their best interests in mind.

DON’T: Understaff.

You will need to expect the unexpected and having more hands-on deck will prove to be beneficial in the long run.  Having the wrong staff, or those that don’t take the time to learn new operating procedures or feel comfortable telling that customer who won’t keep a mask on, may not be the best fit.

DON’T: Make it difficult for customers to do business with you.

Social distancing introduces a number of disruptions to the way you’ve traditionally done business. So limiting options to customers – providing no ability to bank online or via phone, not having a live customer service voice or chat option – is not going to help. In addition to making sure the services are available, it is imperative to communicate all options to customers.

DON’T: Assume someone else will do it.

Bank staff need to show that the branch is being tended to, cleaned between visitors, and before opening each day. It is important that staff jump in to help move customers safely through the branch, ensure their questions are answered and overall, take a proactive approach to service without assuming that a sign or another staff member will take care of it.  Customers will come to the branch, but gaining their confidence is everything. Don’t lose it by not being prepared. It will be very hard to win it back.

With the constant threat new restrictions in response to COVID-19 outbreaks, banks will need to take a long view on how they enable the operational flexibility that will be needed to adapt to fast-changing conditions.  As people prepare to live more risk-averse lives, banks will need to go the extra mile to ensure customers feel less wary about visiting in person whilst also offering a seamless experience for those customers who prefer to remain in the safety of their homes.  Those that manage to do so will emerge from the crisis with a sustainable advantage over their competitors.

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