Genome: Banking in H2 2020 – challenges and possibilities
By Daumantas Barauskas, COO at Genome
Some things change the world so rapidly and drastically, that no amount of statistical data and research can predict it. The COVID-19 pandemic proved to be one of such things. Due to it, the global economy may shrink by 5,2%, as shown in The World Bank’s recent report, meaning it would be the biggest global recession since World War II. The forecast is based on the assumption that the countries would lift domestic mitigation measures by the mid-2020, and global spillover effects would be mostly dealt with in the second half of 2020. And in a worst-case scenario, the global economy is to reduce up to 8%.
Now, when we have a global picture, let’s turn to the banking sector. In 2018, global payments revenues reached $1,9 trillion and were expected to hit $2.7 trillion by 2023 with continuous growth. Needless to say, the pandemic had a devastating impact on the revenue, as the industry can lose from $165 billion to $210 billion, even though before the pandemic it was forecasted to gain $2.1 trillion this year.
In the middle of March, the average global bank stock prices underperformance grew to a rate of the industries that are most vulnerable to the lockdown. If we use our baseline of 100% for bank stock prices on 19 February, then by the third week of March the prices dropped to 60%. At the end of April, the situation has improved a bit, as the index passed the 70% mark.
European banks might suffer one of the worst impacts of the pandemic, as the Eurozone economy is forecasted to decrease by 9,1%. The muted-recovery scenario, which will result in GDP shrinking by 11% across the Eurozone, is what every third executive believes will happen. The scenario may result in the banking sector revenue drops as severe as 40%, prompted firstly by increased margins and government stimulus packages, and ultimately by the rise in risk costs. Thus, the negative effects could be more damaging than during the 2008 financial crisis, and the European banking industry will need four years to recover.
Right now, some of the countries are reducing the lockdown regulations with businesses and shops opening and employees returning to their offices. However, it doesn’t mean that the world is ready to return to its previous state, as most of the companies need to adapt to a new reality, and financial institutions are no exception.
First of all, businesses need to be ready for another possible wave of the coronavirus outbreak. For instance, doctor Anthony Fauci, director of the American National Institute of Allergy and Infectious Diseases thinks that the COVID-19 will not be eradicated due to its widespread. Meanwhile, the director of the Centers for Disease Control and Prevention Robert Redfield voiced the concern that the second wave, which is expected to hit this fall or winter, will be even more dangerous, as it might coincide with the start of flu season.
Secondly, a lot of people have changed their day-to-day habits to protect themselves and their families: they use e-commerce services to buy products, minimize cash payments, and want their banks to provide online services. A survey conducted in April showed that more than half of customers prefer digital channels for banking with 52% and 54% using mobile and online banking during the pandemic accordingly. The attendance of bank branches, which wasn’t even high pre-pandemic, dropped from 22% to 15% during the lockdown.
Now, when we have covered the bleak economic forecasts for financial institutions, as well as the new preferences of banks’ clients, we can point out the main changes that banks and PSP are expected and required to make and strategies they should implement in the second half of 2020 and beyond that.
The need for digitalization is as strong as ever. Without a doubt, banks should bring at least some of their services online, as the demand for internet and mobile banking grows. Otherwise, traditional banks will face the sad reality of their clients switching to digital FinTech services. According to the Capgemini Consumer Behavior Survey, around 30% of customers are going to start using FinTech companies instead of banks after the pandemic, if the latter won’t be able to deliver proper customer experience.
Redeployment of employees and branches. The obliged relocation of staff due to the lockdown proved that bank employees can successfully work from home. And right now, not all banks are ready to allow their staff members back to offices. And considering the possible second pandemic wave, this return may be short-lived. Thus, the financial institutions better to use this situation to their advantage – some of their employees might start working from home permanently, but will need to be provided with technical and security means to do so. This, in turn, will allow to redeploy the remaining staff among the branches and, potentially, close some of the branches to cut rent and maintenance costs.
Customers’ convenience and safety are the top priorities. The lockdown led to the overwhelming number of customers using support chats, phones, and emails to communicate with their banks. The situation shows the demand for diverse usage of banks’ digital channels to always keep in touch with clients. Social media, push-notification, emails, apps, online chats, and call centers – all is fair game to keep the people informed. But to keep up with all these channels, financial institutions should make sure the support team (which can also work from home) has enough employees for the challenge.
But having digital communication channels open is not enough – banks and PSPs need to reach out to clients themselves, inform them about each new update or service, show the support to pandemic-vulnerable customers and warn people about potential COVID-19 risks.
If banks are deploying new online and mobile services, they’d better have detailed tutorials on how to use these, so that the clients will go through the process easily. And also, the online channels are great for quick surveys, with feedback allowing banks to improve the services if required.
The mutual support of businesses. Banks and companies need each other’s help to overcome the effects of the pandemic. To do this, financial institutions should analyze their clientage to determine, which groups of people or businesses require the support the most. Taking this into account, banks can make personalized offers to these groups to help in dealing with severe economic losses. In return, banks and FinTechs will get loyal clients, that are more likely to thrive again, when the pandemic is over.
For instance, Genome introduced the COVID-19 initiative in the middle of April to help all our current and potential low-risk clients. We have canceled all monthly account fees for three months, and believe that this offer will be especially beneficial for food and entertainment services, electronic and home appliance goods, toys, educational platforms. To find out more about this initiative and other services visit Genome’s website.
By Daumantas Barauskas
COO at Genome
September 22, 2023
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