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Changing Consumer Behaviour in the COVID Era : New Opportunities for Banks

by CIO AXIS

By Pradeep Benni- Digital Growth Leader, Altimetrik

The pandemic has brought about a tectonic shift in our general behaviour with social distancing, travel restrictions, and so on. One of the prominent changes was the move from Physical to Digital. Which, by the way, is not a temporary shift but more likely a habit of convenience that’s here to stay for good.

The effect of this has been felt heavily in the banking and financial sector, and most financial institutions have accelerated their Digital Transformation journey, desperately trying to move away from obsolete operating ways to faster and modern methods.

Key Behaviours Influencing the FI’s post- COVID are:

● Digital Retail Banking – Retail customers are migrating to digital channels to meet their regular banking needs. Social distancing and endless lockdowns are making the brick-and-mortar bank branches run empty. And if some customers do turn up, there are a series of restrictions on safe spacing, dedicated service hours, etc.

● End of Cash: Reducing physical contact leads to the increased usage of online modes of purchase, contactless payments, and subsequently less reliance on physical cash.

● Feeling the Financial Pinch: As per a Forrester study, when COVID struck, nearly one in 5 US Adults (approx. 18% of the population) felt a negative impact on income. This impacted consumer spending patterns. Any non-essential spending and financial commitments have been cut down or delayed, and nearly 16% missed out on bill or loan payments.

● Responsible Banking: Banks were concerned about the financial wellbeing of their customers and were responsible organizations in supporting them during this crisis. Some banks came up with repurposing Mortgage Plans so that customers who were impacted by job loss could plan to use their income for immediate needs. Banks also played the bridge between local govts and customers in facilitating the transfer of emergency funds provided by govts.

● Cyber Resilience: The changing dynamics also saw a surge in cyber-attacks, from phishing attempts to derive more information to sophisticated attacks like network and information flow. Amplifying cyber defense and educating employees and customers has come to the forefront for banks and FIs.

All of this has been a reality check for FIs of their resilience and adaptability to the new normal. This crisis is turning out to be a “do or die” battle for the financial sector. If FIs do not change themselves in terms of systemization of their processes, refining their product/service mix, and positioning themselves with the right product/service in the right place, they will become the Nokia, Kodak, and Blockbuster moment for traditional banking.

Data is abundantly available with FIs today that can help them understand customers better. By creating a 360-degree view, they can create various touchpoints and deliver customized services best suited to their needs. Leveraging AI, for instance, is a powerful way to create a unique experience and set a competitive edge.

Fintechs, so long considered by FI’s as competition, must now be accepted as the new reality with their low-cost base, and tech savvy teams are better able to exploit the latest technologies and are very much becoming the standard. They are better positioned to understand the new customer base and provide them with better services. Hence, it is better for FI’s to collaborate rather than compete with fintechs.

There are also the likes of FAANG, who have good insight about customer needs, with deep pockets, are poised to provide stiff competition to traditional FI’s in becoming go-to credit providers.

These are challenging times for banks and FIs, but with the support of modern technology, there is also a plethora of opportunities up for grabs that can help them become more efficient and ensure continued growth.

Below are some changes we can foresee:

• Branches becoming Service Lounges: Customers will henceforth visit physical branches only for major lifetime milestones, such as for seeking a mortgage/education loan, bereavement in the family, or taking a major financial decision that needs human interaction. Therefore, branches will no more be a service desk to support daily transactions. They will evolve as service lounges to help customers with special requirements.
• Collaboration between Traditional FIs and Challengers: There will be increased collaboration between established banks and challengers (fintech) to provide better platforms, where customers will be guided to take financial decisions/spends. In recent times, there has been an increased partnership with the aim towards co-lending, credits to MSMEs, expanding merchant acquiring a business, and more yet to come.
• New Revenue Streams: There will be increased opportunities for FIs to add new revenue streams by exploring newer services like Remote Authentication, Online Trading platform, Online Credit Platforms. In fact, some FIs might move away from full-fledged banking to Banking-as-a-Service, where they will support Challenger Banks with backend support while customer engagement gets managed by the Challenger Banks. Eventually, this will lead to many new business models.

In a nutshell, FIs need to fundamentally think about their traditional operating models, business models, and customer value propositions.

Optimizing internal operations and improving productivity using digital technologies is the parallel focus track that has come to the forefront. Using cognitive intelligence, cloud migrations, and several other digital technologies are coming into play to help move their Capex cost to Opex cost.

There is also the increasing pressure on FI’s to pay serious attention to ESG metrics and regulations. And not to be missed the importance of regulations around fraud and risk management which is another area to make cognitive intelligence work.

Amidst all these raging changes, some of the FIs have already embraced digitization.

One of the UK’s leading multinational investment banks and financial services has reported with COVID at least 71% of their customers are using the bank’s digital channel. Some of the initiatives the bank has taken include:

• Addition of new channels for interaction – new apps, websites, security platforms.
• Usage of biometrics like face, touch & voice to safely and quickly verify identity.
• Using digital signatures to sign and submit the document without visiting the bank.
• Emphasis on chatbots and instant messaging to provide a self-service channel for customer support.

In another instance, a lead Netherlands- based bank, for the first time, is in the process of closing branches because of the decline of in-person visits. They are now connecting with customers through an innovative video banking channel that lets customers seek advice from any part of the world.

Banks are also helping build a digital ecosystem along with the customer, especially in the case of SMEs that are plunging into digitization. In the case of a leading bank inSingapore, one of their initiatives – Propel Program -guides SME customers on which area of digitization they should prioritize. Another Initiative, UOB BizSmart, is a cloud-based platform from UOB, which helps SME manage their core process like sales, invoicing, payroll, accounting in real-time.

To summarize, although the transformation journey of FIs may have been abrupt and compelled by the pandemic, those who have understood the reality and quickly reshaped themselves are clearly at an advantage. These will be the ones who turn around their COVID-19 experience into building new capability and thereby thriving in the new reality.

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