With virtually no warning, no comment period, no transition phase, America’s retail banking institutions have pulled off something that many would never have believed possible three months ago. They managed to serve the financial needs of the country in spite of a wrenching lockdown that hit most institutions virtually overnight and turned a technological walk into a run. Rough spots? Yes. But people’s payments went through, cash machines worked, drive-throughs fulfilled needs that could only be met physically — and digital channels caught on in ways still stunning the traditional-minded.
“I have been surprised, in a positive way, and impressed, both by how quickly most of the banks were able to respond — sometimes via brute force — to be able to push through massive amounts of change and to implement digital transformation in such a limited amount of time,” says Alison Hoover, Partner at PricewaterhouseCoopers in an interview with The Financial Brand.
In fact, Hoover says she was also pleasantly surprised, as the nation hunkered down, to see the overall willingness to adapt and the sheer goodwill among the businesses and consumers served by retail financial institutions to work through the rough spots and inconveniences.
Hoover says many banking leaders have told her and other PwC consultants that they feel as if they’d pushed through three years of digital transformation in six to eight weeks.
“That bodes well for banks’ belief in their own potential to continue the transformation journey through and after the COVID-19 period,” she continues. “It shows them the art of the possible, and that when they can break down their internal silos, they can get commitment in a united strategic direction. And then they can accomplish great things.”
2020’s Leap Forward Has No Reverse Gear
A recent PwC retail banking white paper poses the challenge that “long after the current pandemic passes, people are likely to continue to behave differently than they did in pre-COVID-19 days. How people meet, how we sit in offices, what they buy, and where and how they work could all change.”
It also poses this critical question: “As you prepare to operate your business in a post-COVID-19 environment, are you building based on what was, or what will be?”
Hoover believes that two key forces will tend to push institutions to at least hold the ground they unexpectedly gained in digital transformation, and maintain a good deal of the momentum built up during the coronavirus crisis.
The first force is customer expectations.
“As much as institutions leapfrogged two to three years,” says Hoover, “a large portion of their customer base also leapfrogged their own digital experience and comfort levels in just a matter of weeks. Having made that leap, those customers in all likelihood will continue to hold their banking institutions to a very high standard. There will be very little going back.”
“As you prepare to operate your business in a post-COVID-19 environment, are you building based on what was, or what will be?”
— PwC white paper
PwC’s preliminary research finds that nearly one in three current branch customers anticipate reducing their use of face-to-face channels. And the firm’s research also indicates that the percentage of customers potentially switching institutions has moved from about 3% to 8% — nearly tripling.
The second key force promoting forward momentum is competition. In light of the switching statistic, even if a bank or credit union wanted to throttle back its transformation, or simply to regroup, the market has more say over that now.
“This was a very competitive space even before COVID,” says Hoover, “and institutions need to push on the revenue side to grow their revenue base and their customer base.” That pressure plus the pressure to cut costs through automation and the growing preference for digital will all be “a tremendous motivation to continue their transformation effort.”
Earlier, Hoover used the term “brute force.” What does that mean in a banking context?
“Some institutions were able to implement and install technology solutions in less than a week, sometimes in a matter of days, especially on the Paycheck Protection Program,” she says. “But in other cases, a lot of processing was done manually and so it took repurposing staff and sometimes hiring third-party labor to make sure they were able to deliver.”
Brute force can accomplish a lot, but Hoover cautions against counting on it. “One potentially wrong lesson to take from these months of experience is that just throwing more labor hours at messy processes will get you through,” says Hoover. “I don’t think it was anybody’s ideal solution, but it was a common one. Throwing more people at a problem is not a sustainable solution.”
Having made it through a trial by COVID-19, says Hoover, institutions have to consider how to create a sustainable base going forward. One point of optimism is that, while the silos of banking have impeded progress on transformation in the past, COVID-19 was a uniting force that encouraged cooperation and collaboration. Staffers strove to do this in spite of their own issues in learning to work at home and, in some cases, their own family health issues.
“I see that focus on culture and community collaboration continuing,” says Hoover.
Begin with a Blank Slate Before You Move Forward
PwC’s paper suggests that financial institutions find themselves with a rare gift, the closest thing you get in business to a do-over.
“So many nonstrategic and nonessential activities are already dormant,” the report states. “Don’t restart them.”
COVID-19 forced such situations on the industry temporarily, but it doesn’t mean that they can’t be permanent. The report cites one PwC client that stuck to “wet signatures” for years, never quite able to pull the trigger on going over to electronic signatures. The exigencies of the coronavirus pandemeic rolled through remaining reluctance and the transition was done in days.
The report suggests that institutions emerging from the COVID cocoon adopt a “zero-based” attitude to retail banking projects, planning and spending. This will help focus attention and spending in a time when money is going to be tighter.
“They have to prioritize their abililty to perform end-to-end processing entirely through automation, and make sure that they get the manual ‘bump’ out of that process,” says Hoover. “They have to jettison the things that are no longer working and prioritize the investments and opportunities that will drive momentum.”
Hoover believes the result of that zero-based review will be increased concentration on digitization, but not in the way some would have expected.
“We’re seeing increasing prioritization on the back office processes,” says Hoover. “That’s because that is where the pain was felt over the last six to eight weeks, as institutions had to come up with manual workarounds. These areas are less glamorous, but fixing them can be higher impact.”
As institutions move forward with digitization and innovation, Hoover warns that they must keep compliance in mind in the retail area. She says in the nation’s current social situation, institutions must prioritize consumer compliance and bias prevention. One example is the adoption of more artificial intelligence in the lending decisions. A longstanding concern is that lending AI, designed to learn as it goes, can inadvertently pick up biases as time goes on. Thus Hoover says that institutions will have to take care as adoption of new technologies proceeds.
Get Ready to Change Some of Branch Banking’s Stripes
One of the most interesting wrinkles Hoover is seeing, as financial institutions reassess their branch footprints, is how they will run their branches. The expedient that many adopted during the height of the COVID-19 affair was the appointment-only format for in-branch visits. Hoover says a number of client institutions have talked seriously about moving to an appointment-only model, at least for the foreseeable future.
“Bankers are beginning to see themselves as professionals, much like doctors or lawyers, who operate not with walk-ins, but by appointment.”
— Alison Hoover, PwC
“They are beginning to see themselves as professionals, much like doctors or lawyers, who operate not with walk-ins, but by appointment,” says Hoover.
Making a shift like that plays into something else that came out of the COVID lockdowns: the move away from the branch as the center of the sales process.
This has been occurring for some time, but now that evolution is hastening as customer acquisition becomes more proactive —relying on accumulating and analyzing data and then acting on the intelligence. Instead of building passive digital elements like websites with digital account opening facilities, says Hoover, advanced competitors are going to be finding prospects and reaching out to them — all digitally.
This will be assisted through partnerships with fintechs, she adds, some of which sprouted during the pandemic. Many community banking institutions and some larger institutions added fintechs to the mix when they were reaching out to prospects for Paycheck Protection Program financing, for example.
Marketers’ Heads Shouldn’t Be On the Block This Time
As this process of retail rethinking continues, against a backdrop of tougher times for consumers, businesses and financial institutions, PwC’s report has one encouraging point for financial marketers.
The report acknowledges that in such times chopping marketing expenses is typical. But today’s circumstances are very different from the past. For one thing, some large key industries, such as airlines and physical retailers, shut down their marketing as they cut back activity. This means financial marketing messages can gain a bigger slice of people’s attention — not the time to cut marketing muscle, then.
And then there’s this to consider: “Topline growth is strongly tied to marketing spend, and cutting that spend indiscriminately could cede ground to competitors that are making different choices.”