COVID Will Accelerate the Shift to Digital Banking
Crises and recessions tend to punctuate and accelerate trends that were previously unnoticed. Unemployment numbers are up by at least 22 million in the last month, consumer spending was off over 8% in March, and trillions of stimulus dollars are now flying (or failing to fly) around the country. This crisis is going to change things farther and faster than prior ones did. Today, let’s talk about the impact to digital adoption in banking.
I’m trying to remember the last time I visited a bank branch as a customer rather than as an employee or consultant. I think it was maybe four or five years ago. I needed to replace a lost ATM card and there was a branch in my building. The experience was fine, but the fact that I’ve managed to do all my banking digitally since then says a lot.
Customers are able to open accounts, manage them, close them, apply for loans, and do a remarkable amount of self-service today with institutions that have invested in good digital services. Mobile deposit has removed one of the last reasons for visiting a branch for many consumers. And scandals around cross-sell have made generating revenue out of branches harder for banks. In spite of all of this, branches have surprisingly endured. Just look around you – there doesn’t seem to be many fewer. Chase is even opening several new ones in my neighborhood. But below the surface, that was already starting to change.
Source: Wall Street Journal
And all of that data is well before COVID. Disruptions to traditional servicing models are starting to starkly highlight the difference between branch, phone, and digital servicing experiences. In some areas, branches are closed and in many more, they are operating on reduced hours and staff. One of our clients is struggling to meet even today’s much-diminished demand for new loans. With COVID, many customers don’t want to risk an in-person interaction for a transaction that they now realize can be done on a phone.
At the same time, call centers around the world have been massively disrupted. Shutdowns in the US, Canada, India, the Philippines, and elsewhere have slashed capacity even with aggressive work from home efforts. The result is that we are talking to several banks that have four hour or longer wait times for phone service that used to be routine. This is a horrible customer experience.
But the digital world is working largely as it did pre-crisis, with the outages of April 15 when stimulus checks first appeared in online accounts having been quickly recovered from. Banks that invested smartly and aggressively in web and mobile capabilities are serving their customers much better. And the customers of banks that didn’t invest well are starting to see that exposed and are becoming unhappy. We believe that most of the millions now looking to digital bank services will not go back to branches and phone the way they did pre-crisis once they learn how to do it, and once they find a bank that facilitates it.
“Once customers overcome the inertia of digital adoption, they’re not going back to analog easily. It’s irrevocable.”
— Nigel Morris, QED Investors
Further, what digital servicing needs to look like will change. Digital services were about transactions, not relationships. If people are going to be living much more of their banking digitally, they don’t just want to apply for loans and see statements. They want to be able to access all of their accounts on their phones, and they want access to all the services that they could have in a branch or through a call center. And these changes will be enduring. As Nigel Morris, Managing Partner of QED Investors, said, “Once customers overcome the inertia of digital adoption, they’re not going back to analog easily. It’s irrevocable.”
Collections has remained woefully uninvested in digitally. In a low loss environment, banks didn’t want to spend scarce digital dollars on customers that weren’t paying them back. Now, most would kill for the ability to perform mobile hardship adjustments or to make text-based collections offers.
We believe that these trends will be one of the major drivers of banking winners and losers in the crisis, and a lot of that has already been decided. No one is able to muster the resources to build world class digital banking overnight. In the immediate term, moving and repurposing people is faster than building tech, but that will change. There is still time for a very intentional digital strategy with good execution to bend the curve and improve lenders’ outcomes.
Which side of the digital do you think you’re on? And how can you make the most of what you have? If you still have in-person capacity, could you use it to verify income and employment? That is one capability that is rare online and valuable in uncertain times. How can you repurpose assets? How can you mitigate the downside if you’re on the wrong side of the curve or maximize the benefit if you’re on the right side?
These are the kinds of questions that we at AQN help great organizations grapple with every day. We use our wide experiences and proven methods to help our clients solve their toughest and most pressing problems. Please reach out so that we can discuss how we can help you.