Five Ways the Pandemic has Changed the Playbook for Financial Institutions

December 8, 2020 | Article

Financial institutions have been among the most greatly impacted organizations in terms of the COVID-19 pandemic. They were subject to the same health safety measures as other businesses, yet most of their services remained essential—even more so as relief and loan initiatives went into effect.

They had to continue operations, adapt to new customer demands, keep up with new loan information and processes, and improve their digital capabilities and communications, all while managing the internal impacts of the pandemic. Now, along with those efforts, they must prepare for all possible variances of the financial impact of bankruptcies, credit loss, etc. And they must reframe their relationships with their customers. As the dust settles, it’s clear the pandemic changed the playbook for financial institutions.

1. Technology Can't Wait

Whereas before the pandemic financial institutions were either on board with technology, considering it, or leaving it for another day, new restrictions imposed to stop the spread of the virus made digital capabilities essential. For some institutions, small changes were enough. Others had to adopt multiple advanced tools to support their customers.

Customer communications were of top concern, as many institutions were inundated—and continue to be inundated—with calls from customers with questions and requests, particularly around new loan information. Many were working with insufficient call center staff or struggling to transition staff to work remotely. To better meet customer needs, financial institutions sought solutions like chat bots, virtual assistants, new or improved mobile banking, and adjusted digital payment options.

Further, financial institutions had to update internal technology to enable remote work and/or operate with reduced staff. Many implemented new software and automated workflows where possible, and those new initiatives will help them sustain operations should disruption continue.

New software and automated workflows don’t just help organizations fill in the gaps. They create efficiency improvements that save time and money. The right combination of technology can stabilize your operations and instill greater agility through uncertain times.

2. Scenario Planning Needs a Revision

This pandemic hasn’t just shown us we need to scenario-plan for the most extreme worst-case scenarios. It has changed the landscape for all the scenario planning we’ve done in the past. The world has changed and continues to change. Financial institutions need to revise their scenario planning with this new landscape as a base and spin out potential outcomes from there.

Scenario planning will be particularly challenging and complex for financial institutions because they’re at the crux of the financial outlook, and they stand to see significant credit loss in the coming years. If you’re scenario planning for a financial institution, lay out a number of possible outcomes based on the current state of your organization and your current data, then develop plans for each. Be sure to include one-off worst-case and best-case scenarios that don’t follow a traditional trek. Ask yourself:

  • What could happen globally?
  • What could happen at my institution?
  • What could happen with my customers?
  • What if there’s an outbreak in my region?
  • What about new loan relief plans or government initiatives?
  • How might the way people use financial institutions change and how can we get ahead of that?
  • What if people’s sentiments about debt change and how can we get ahead of that?

With each scenario, determine how your revenues might be affected and which actions you can take now to be well prepared in the future. Financial modeling is a type of scenario planning that can help you determine the right cost containment measures and lending initiatives moving forward.

3. Data-Driven Agility is Integral

Being able to monitor activity and behavior in real time wasn’t a sink-or-swim capability before the pandemic. Now, however, it’s clear that any business needs to have their finger on the pulse of all key functions of their operations—as well as an eye toward the future. Financial institutions have realized they need strong data analytics so they can respond to changes quickly, discover patterns and make qualified decisions based on historic and real-time information.

For example, with analytics, you can find patterns in customer behavior that would indicate they’re on track for bankruptcy or delinquency. You can then act to get ahead of this, extending terms or offering financial consultations, while also planning for the potential financial implications at your institution. On an individual customer scale, this might seem inconsequential. But if you forecast this pattern for dozens of customers, consider how significant the impact could be.

Data can also inform new parameters for terms with and acceptance of new customers. And it can help you stay in-tune with customer needs as they change, so you can better meet them and remain competitive. Further, you can apply operational analytics to improve internal efficiencies, contain costs and run strong through a downturn.

4. Empathy Comes First

Moving forward, any financial institutions’ claims that they’re “customer-centric” will be tested more rigorously than ever before. The impact of the COVID-19 pandemic on individuals, businesses and organizations is global and remarkable, and it has created a demand for greater sincerity and empathy in even the most rigid arenas. With financial institutions at the center of a most challenging aspect of this pandemic—finances—they need to focus on empathetic initiatives and position themselves as support systems.

Leaders within your financial institution should be meeting to consider the following questions:

  • What tools do we have in place to better understand our customers’ needs and how can we improve them?
  • Are we equipping our employees to communicate with customers who are under duress?
  • Can we modify our terms and policies to accommodate new challenges our customers face, such as with collections and fees?
  • What materials, support and consulting can we provide to help our customers successfully manage their finances and understand their options, even in uncertainty?
  • How can we reframe our marketing to meet customers’ needs and deliver those materials?
  • Can we proactively identify customers who are at risk and perform outreach to assist them?
  • Are there opportunities for us to support and lift our communities, as in donating or participating in community initiatives?
  • Are there initiatives specific to the pandemic we can participate in?
  • How do we want to be perceived moving forward, and how will we deliver that messaging?
5. Business Continuity Demands Massive Change

For most financial institutions, this pandemic left no corner of their businesses untouched. And the evolution going forward will have to be substantial if they want to sustain operations. Scenario planning, data analytics, new technology and the need for empathy all factor into this massive evolution. Beyond these, institutions will have to modify how they operate their locations, ATMs, internal systems, employee relationships and contracts, customer communications, and internal and customer-facing digital capabilities.

In the near-term, immediate cost-cutting initiatives were pursued, such as halting inessential initiatives, waiting on capital expenditures or business expansions, and reducing staff hours or furloughing employees. In the long-term, customer expectations will continue to change, and financial institutions must innovate to meet those expectations in order to remain competitive.

Is your financial institution having these discussions around massive change? If you want to gain customers’ trust moving into the new normal, you must plan to meet their changing demands and get proactive about being a source of support and understanding.

Containing costs and maintaining a healthy cash flow is as essential as exercising empathy and planning for the future. Without these efforts, you can’t be that strong source of support your customers need. Getting it right looks different today than it did before the pandemic, so we put together a cost containment guide specific to the times.

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