Community Banking Institutions Must Skip Ahead in COVID-19 Script

Clearly much about banking will evolve in the wake of the coronavirus pandemic. Smaller financial institutions will often be hit harder than larger ones. The best way to counteract the trends is to look at them squarely and come up with a realistic plan. Wishing for the past won't help.

During the coronavirus crisis, I’ve written articles and given talks about the impact of the pandemic and the government’s reaction to its spread. When I wrote the first one, a few states had begun sheltering in place, the total number of cases was less than 10,000, the death toll was about 100, and total unemployed was around 5 million workers.

Now, the world has in many ways been closed for business. The unemployed count has hit nearly 33.5 million, as of early May. Total COVID-19 cases will reach 1 million before the end of the month, and deaths attributed to the virus have hit 73,000.

Sobering statistics. And yet, I continue to read and hear about people who want to immediately go back to the way things were before, many people in our government both locally and at the federal level. I understand the desire to close your eyes and wish all this didn’t happen. I too long for a simpler time when things were less chaotic — say three months ago.

Wishing won’t make it happen.

Financial Institutions Must Accept How Conditions Have Changed

In my opinion, the business world will never be the same. Bank and credit union leaders need to begin planning accordingly. I’ve spent over 40 years studying market conditions, the behavior of bank and credit union customers, and how people deal with change. Here are three things to consider:

1. Demand for financial services will be crushed for some time to come. The only exception will be for the limited efforts of the government to stimulate spending and lending.

Unemployment has skyrocketed in a matter of weeks and will climb further, perhaps to 50 million if not more. Even once states open up as the disease recedes, there is no way 50 million people will suddenly go back to work. Many industries seem damaged or broken for a long time to come — restaurants are just one example.

Even if the virus doesn’t return in the fall, unemployment will likely stay high for many, many months. These factors will lead to lower levels of loan demand and lower revenue growth for all community banks and credit unions. The big banks will be less affected.

My educated guess is that it will take three years or more to get back to the economic levels of 2019, and that’s assuming no recurrence.

2. Customer behaviors will change forever, drastically reducing teller volumes further. Because stay-at-home orders have been put in place, we’ve all had to adapt in many ways. The industry and necessity are retraining consumers in how to conduct financial transactions. In the financial services industry, research indicated that about 70% of customers still used branches in some manner at least once every few months. But those folks who had not yet adopted online and mobile channels are doing so now. They have few options left today but to change. Many are finding how easy it is to do safely, and to manage their accounts digitally as well.

Once we reach a place that society can get back to the new normal that will come post-pandemic, some of consumers will likely return to their old ways. More likely, though, is that most of these folks will reduce branch usage and stick to the e-channels.

3. Your workforce will demand more permanent work-from-home opportunities. Tens of millions are now working remotely. Many are finding they like it. Companies will soon learn that it can be a less-expensive way to run business, and that includes banks and credit unions too. In a post-pandemic world, surely many businesses will go back to the old way, but not all. Smart business leaders will recognize the great benefits of having a largely remote workforce.

The impact of these workforce changes will be felt broadly. It might be easier to change jobs if you don’t have to move. But on the flip side, employers will find it less expensive to recruit new talent if they can work remotely.

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5 Ways to Prepare for the Post-Pandemic World

Here are paths your institution could take:

1. Do nothing. That’s always an option. Go back to the old ways of doing business and see if you survive.

2. Go digital. Today, digital banks and credit unions have an advantage as their customer bases are already weaned from branches.

3. Go hybrid. Strip back your branch network to a smaller size, and increase investments in online and mobile services, reflecting new consumer behaviors.

4. Redesign your business. Do a top-to-bottom business redesign to build a new version of your institution that reflects the needs of your markets, customers and staffs.

5. Merge. Combine resources to gain scale. Being a small player in the financial services industry will grow even harder in the next several years. After merging you can still choose options 2-4 too.

Darwinism isn’t about “survival of the fittest.” It’s about “survival of the species that can best adapt.”

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