Pandemic has had an enormous effect on almost every aspect of our lives. Perhaps no industry, big or small, traditional or innovative, managed to avoid the effects of COVID-19 and what it has done to the world.
When it comes to banking, the effects were real, strong, and long-lasting. They didn’t, however, bring anything qualitatively new to the banking sector ― all the trends were already there. What the pandemic did was accelerate those trends and add urgency to the discussion.
So what has happened to banks in the two years since the infection took over, and how are banks adapting? Which novelties and solutions are here to stay now that the restrictions are easing up or disappearing whatsoever and the economy is getting back to a (new) normal?
Let’s find out.
In a survey by EY consultancy, forty-three percent of respondents say the way they bank has changed because of COVID-19. Due to lockdowns and personal safety concerns, plenty of customers turned from trusted local branches to new fintech products and tech-fin offerings. The number of fintech services increased, and their user base continues to grow. Fintech is more convenient, more user-friendly, with plenty of options to choose from.
Traditional banks had to digitize their solution momentarily not to lose customers. And so they did. In what is objectively a very short period of time, they created financial software to compensate for branch, office, and call center closures. As the bank director told EY consultancy: “Suddenly the impossible became possible. Solutions that used to take 18 months to deliver are now happening in 18 days.”
Of course, the advanced banking solutions that they created were far from perfect. For traditional banks to catch up properly, their banking apps should reflect all or most of the features fintech solutions offer. At the moment, they don’t. Likhit Wagle, general manager for the global banking and financial markets at IBM said that the pandemic exposed the digital divide. This is very true. For example, banking mobile apps often lack crucial features such as spending statistics, cashback, integration with wearables, and other services fintech solutions are proud of. Banks also lack digital solutions that meet the needs of small businesses, senior citizens, and other unbanked populations.
Mobile banking is growing and improving. A 2020 study concluded that mobile banking is expected to grow at a rate of 12.2% CAGR, effectively doubling by 2026. For banks to survive in the post-pandemic, digitized, and transformed future, they’ll have to bring their services up to the fintech level.
With the changes that banks have undergone in the past few years, security has become one of the main issues, which has been enormously exacerbated by the pandemic. More employees started working remotely, which increased criminal cyber activity, including fraud and phishing attacks. With a shift to digitization ― moreover, urgent digitization ― the risks of having security holes are more serious than ever.
Now, that the situation is more stable, it is time to reassess the state of data security and emerging risks. Which mistakes have been made, which risks were deemed acceptable in the name of urgent and advanced banking solutions? For example, the risk could lie in video and voice communication surveillance now that everyone uses Zoom and other platforms for communication. The use of personal equipment, which also became widespread with the introduction of home offices should be also taken into account when assessing for security risks.
AI for customer centricity
In order to compete with competitors, banks now have to offer solutions that go far beyond simple, albeit convenient, transactions. Banks should strive to do more for the customers ― meet them where they are already. And they are in a world of online everything. Online shopping, ordering online, booking online. For banking apps, this means an integrated and consistent experience across every channel. The services should be personalized and accessible from anywhere.
In other industries, customer personalization is powered by AI. At the moment, banks struggle to introduce AI for customer centricity is the future that is already hard to ignore. AI tools cal analyze each individual customer’s financial behaviour and circumstances and offer solutions based on this data. This will make banking experience just as personalized as almost all other consumer experiences in 2022.
Banks as financial consultants
The COVID-19 pandemic highlighted the importance of having an emergency fund. It showed how life and work security can be absoluetly unpredictable. Saving, which has always been important, became even more crucial in the post-pandemic world, when many acquired an accumulated debt. In 2020, 64% of Americans called themselves savers, and 80% said they planned to continue to save more than they spend in 2021. It’s a universal advice that is still very valid in 2022.
For banks, this is an opportunity to be helpful to their customers and act as financial consultants. And now, when they are loaded with data, they can help customers save in a thorough, data-backed way. Which, of course, means that they have to play this carefully. Banks shouldn’t abuse data, but use it for the most noble cause of helping their customers. Transparency and trustworthiness should still lie at the core of financial consulting.
It is also worth pointing out that AI relies on historic data, which means that unintended biases might emerge, which will have to be carefully considered and overcome.
A trend that is showing no sign of going away is open banking. Pandemic accelerated the cashless future, and open banking is a natural next step for those using multiple bank accounts. In 2021, the growth was enormous with more participants and end users discussing the benefits and possibilities of open banking. According to Statista, the number of open banking users in Europe was 18.8 million in 2021, and is expected to reach 63.8 million in 2024. January 2022 marked four years since the birth of open banking, and many believe it’s the best year for open banking we’ve ever seen.
Open banking allows banks to integrate third parties in their processes and enhance the user experience. Third parties let banks to use financial software that will help the latter remain competitive in the post-pandemic future. Some of the features they add allow users to split payments between friends and family members, as well as offer customers discounts, benefits, and better exchange rates.
Banks are now embracing open banking and exploring the opportunities beyond simple account aggregation and innovative payment services. For example, open banking could enable a digital identity system as a public service for UK citizens. This will allow users to use their existing bank account data to prove that they are who they say they when transacting online in the most simple and safe way. Similar systems already exist in Belgium, Norway and Sweden.
The global pandemic showed weaknesses of every industry out there. For banks, it was that their ways were too outdated. They relied on offices, on people, on tradition to some extent. Digitization hasn’t happened in time. At the same time, fintech reached the new hights and made all kinds of operations possible. They focused on the needs of the consumers, creative approach to finances, and discovering new ways one can bank.
To adapt to a post-pandemic future banks must, to some extent, become tech companies. They must reassess digital transformation they’ve gone through during the pandemic, improve technical capabilities, collaborate with third parties to provide the best possible service, engage with AI, and not forget the risks ― both technical and reputational ― that come with all that. The road ahead is long but inspiring and full of new inventions.