Critical Predictions for the Post-2020 Banking Landscape

future of banking

Whether you believe that the COVID-19 crisis has radically reshaped the world or simply accelerated existing trends, it has inarguably thrown the future of banking into doubt. While banking itself will remain vital in every economy, the role of individual banking institutions in their communities and in their users’ lives will evolve rapidly and unpredictably in the post-pandemic environment.

While the details remain necessarily uncertain, financial industry researchers and thought leaders have identified some big-picture trends that will almost certainly affect how your institution adapts from now on.

Uncertainty Will Dominate for the Next Few Years

Scores of clinical trials are underway, but it’s too early yet to know when, or whether, a safe and effective vaccine for COVID-19 will come to market or an effective treatment will be developed. We also don’t know yet whether exposure to the disease will result in immunity to further infections, or — if so — how long that immunity will last.

In a best-case scenario, those questions will be answered over the coming months, but it’s prudent to expect uncertainty, and correspondingly cautious user behavior, for at least a few years. While your institution’s long-term strategy and principles won’t necessarily have to change, your approach to them might. 

An initiative that sounds good in the boardroom today may register with users as tone-deaf or out of touch tomorrow or next week. Agility and responsiveness will become crucial survival skills, if they weren’t already, and will determine how well you can continue to meet your clients’ needs. 

Distancing and Hygiene Will Be Here to Stay

Like seatbelts in cars and sneeze guards at the salad bar, the emergency measures you take in 2020 to limit transmission of the virus will become a visible part of the “new normal.” Even after the virus is brought under control, if indeed it ever is, your users’ newfound awareness of sanitation and distancing will be a factor that affects their perception of your institution.

You’ll need to rethink user flow through your branches, minimizing points of contact and creating more space for distancing. You may even have to budget for some physical renovations, especially in smaller branches. Wherever your digital platform can eliminate the need for in-person contact, it should, and drive-through or curbside options should be available even where a physical meeting or signature is still needed. 

Digital Options Will Grow in Importance

The virus has greatly accelerated acceptance of online transactions in general, so in many ways, the future of digital banking has become the here and now. Institutions whose digital platforms aren’t up to date and fully integrated might struggle with functions like account opening and acceptance of digital signatures. Data that are segregated into different “silos” on your platform don’t lend themselves to on-the-fly aggregation and analysis. You can do it, but it requires time and effort.

You’ll also have to find ways to incorporate digital interaction into your workflow. The pandemic-driven rise in videoconferencing is a good starting point, with even tech-averse users learning how to use Zoom and similar tools from other providers. This applies to your own staff and operations, as well. Where staff can effectively do their work remotely, that should be encouraged: It means fewer people in your branches, which means more flexibility in managing your physical space.

It’s important to remember that your digital contact options should remain just that: options. Some of your end users will simply never be comfortable enough with technology to abandon in-person banking. Others may lack reliable internet access, or be unable to bear the cost of a data plan for their phone or possibly a smartphone itself. Finding reliable ways to meet disadvantaged users’ needs will be a significant issue, especially for community banks and credit unions whose business model is predicated on putting users first.

Precarity Will Be a Growing Part of the “New Normal”

Even before the pandemic, a large and growing portion of the population — and therefore, of your users and potential users — lived precariously, relying on varying combinations of earned income, self-employment and “side hustles” to make ends meet. That’s only going to increase in the wake of the economic impact of the virus: One recent study by the National Bureau of Economic Research estimated that 42 percent of recently laid-off workers will never get their jobs back.

A sharpening of existing divisions between “haves” and “have-nots” is already becoming clear, with affluent workers more able to isolate and telecommute, while lower-income workers and ethnic minorities are disproportionately affected by COVID-19. Those who can work face greater likelihood of contracting the illness, while those who can’t work aren’t necessarily benefiting from government-led relief programs.

Not all of your end users are at risk of being left behind in the new economy, but many will be. You’ll need to be both proactive and creative in finding ways to support them. 

Data Will Drive Engagement and Responsiveness

If your digital banking platform is fully integrated rather than “siloed,” and has the necessary analytical tools to interpret the data you collect, your users won’t have to tell you about their needs: You’ll be able to see them evolve in real time.

Your analytics tools can (or should be able to) flag users whose incomes have faltered, whether in the form of a regular paycheck or multiple irregular streams. You can also flag users who may need a helping hand by monitoring current balances vs. recurring payments, or by correlating a drop in income with a spike in credit usage.

Armed with that knowledge, you can find ways to help your users prevent COVID-19’s transient economic disruption from causing needless long-term hardship.

Institutions Will Struggle to Balance Their Needs with Users’ Needs

Financial institutions, like many other businesses, will have to reduce their revenue forecasts for 2020 and possibly for a few years afterward. That presents a delicate balancing act for regional and community-centered banks, and especially for credit unions, because their business models typically revolve around a supportive, user-first ethos.

How do you balance your users’ needs and potential hardship, on one hand, against your own responsibility to stay in business and continue supporting your community on the other? George Hofheimer of the Filene Research Institute and Mike Higgins, Jr. of consulting firm Mike Higgins & Associates have created a useful tool to assess your current run rate, and to develop multiple “what if” scenarios for the coming months.

Tools like this — or your own versions, developed in house — can help you walk the fine line between helping your users stay afloat and staying afloat yourself. With such tools, you can model the outcomes of potential interventions such as deferring payments, forgiving interest on loans, or foregoing service fees/charges on select transactions or missed payments. 

Communication Will Become Even More Important

You should also find ways to reach out to your users — with their permission — through text, email, social media and other avenues, both online and off. In the boardroom or the C-suite, being “nimble,” “agile,” “adaptive” and “responsive” all feel like very good things. For your users, the resulting rapid changes in policies or offerings can be bewildering, confusing or downright maddening if they’re not communicated properly.

That should include a frank discussion of the reasoning behind any user-facing changes you make. Better yet, walk them through the process with you as it evolves — when practical to do so — and give them opportunities to be heard and provide input. Changes are easier to implement and garner less resistance when the reasoning behind them is clear and comprehensible. 

Learning from Others’ Insights Will be Invaluable

Although most banks and credit unions are direct competitors in many ways, they’re also colleagues with a shared interest in the ongoing health of the industry as a whole and the communities it serves. Accordingly, major players in industry and research such as the ABA and the Filene Research Institute have established information hubs to aggregate resources and current research you can draw on to guide your response to the post–COVID-19 environment. The major consulting firms like Deloitte and PwC, and the entire ecosystem of smaller consultants serving the banking industry, will also generate reams of information and insight you can draw upon.

The most valuable source of information is, and will remain, your own clientele. The better you can become at drawing actionable information from your client base, the more responsive, adaptive and — ultimately — user-centered you’ll be. While there’s always a place for direct feedback, the bulk of that data will come from your own digital platform and its analytics capabilities.

If the current state of your digital banking doesn’t make that an appealing prospect, contact Lumin Digital today and request a demonstration of our state-of-the-art banking software and its powerful real-time data analytics. Whatever the future brings, our platform will give you the tools you need to survive and flourish. 

References:

  1. https://www.foreignaffairs.com/articles/united-states/2020-04-07/pandemic-will-accelerate-history-rather-reshape-it
  2. https://filene.org/blog/digital-transformation-in-the-age-of-covid-19-what-should-credit-unions-deliver
  3. https://www.americanbanker.com/articles/coronavirus-accelerates-canadas-shift-to-electronic-banking
  4. https://www.pewresearch.org/fact-tank/2019/04/22/some-americans-dont-use-the-internet-who-are-they/
  5. https://www.thelancet.com/journals/lanres/article/PIIS2213-2600(20)30228-9/fulltext
  6. https://www.ohchr.org/EN/NewsEvents/Pages/DisplayNews.aspx?NewsID=25798&LangID=E
  7. https://www.nber.org/papers/w27137
  8. https://filene.org/blog/inclusion-matters-the-impacts-of-the-covid-19-crisis-on-black-and-latino-a-americans
  9. https://filene.org/assets/images-layout/COVID-19_WebinarSlides_MeaureImpact_050620.pdf
  10. https://filene.org/blog/helping-members-in-response-to-covid-19-first-steps
  11. https://bankingjournal.aba.com/2020/03/five-social-media-moves-banks-can-make-in-the-covid-19-crisis/
  12. https://www.aba.com/member-tools/industry-solutions/industry-solutions-coronavirus-response
  13. https://filene.org/resourcehub
  14. https://www2.deloitte.com/global/en/insights/economy/covid-19/banking-and-capital-markets-impact-covid-19.html
  15. https://www.pwc.com/us/en/library/covid-19/coronavirus-impacts-retail-banking.html