- Financial institutions must focus on the needs of their customers to fully recover and grow after the impacts of COVID-19.
- The business models and risk management thresholds of financial institutions must be adapted to reflect the broader economic changes that have emerged since COVID-19, with a focus on the more affected customer segments.
- Adopting Personal Finance Management (PFM) tools allows customers to manage their finances through exposure to behavioural insights and transaction analysis, which in turn enhances customer financial wellbeing and the overall customer experience.
The COVID-19 pandemic has left Australia in an environment of low interest rates and reduced stability in earnings caused by government-imposed lockdowns, strategic business changes such as operations, budget cuts and redundancies that affect daily operations and budgets and employment, as well as changes in economic trends; these trends majorly affecting sectors including travel, finance, brick and mortar retail and hospitality, with flow-on effects within the broader economy.
The past year has forced banks to identify areas where productivity and efficiency could be improved, to adapt to changes in consumerism, but more importantly to identify ways to help their customers who are suffering the adverse effects of COVID-19 including lay-offs, redundancies, reduced work hours and furlough. Pecuniary difficulties for banking customers not only affect their financial wellbeing but also has a direct impact on their mental health. Financial institutions must focus on the needs of their customers to fully recover from revenue drops and continue to grow in this current economic state. This is supported by the large percentage drops in statutory profit between FY19 and FY20 of the big 4 Australian banks, being 41.7% (ANZ)¹, 7.8% (CBA)², 40.8% (NAB)³ and 66.2% (WBC)⁴.
How banks can make a strong recovery post COVID-19
The number of people who are anxious about their financial situation has more than doubled, from 21% before COVID-19 to 46% as of April 2020, according to Forrester Research⁵.
The research shows older generations have more financial confidence due to less debt and less reliance on a salary for financial stability, while younger adults have seen the greatest spike in financial anxiety. The three areas that banks must focus on to reshape the sector and promote a stronger recovery include:
- Investing in a strong digital offering to add value to everyday banking for customers and increase brand sentiment and loyalty.
- Ensuring a personal presence. This includes keeping essential communication channels open to support customers with everyday issues such as online and financial support, dealing with disputes and managing lending products. This can be achieved via call centers, live chat and screen sharing sessions in the web banking channel as well as physical branches to a lesser extent now.
- Streamlining business operations and adapting to new ‘agile’ ways of working to build more resilient business models.
Adding value to the brand of a bank by building customer financial confidence and trust
When creating a digital banking experience banks and financial institutions must first understand the needs of the customer to drive an insightful and relevant experience that offers a level of human interaction, and innovation to provide a differential experience from the rest of the sector. A digital banking solution needs to build from the ground up and focus on these key product design areas.
The customer experience should offer a best-in-class mobile banking app with a sophisticated understanding of customer needs to build trust and brand loyalty with the customer.
Adopting PFM functionality can take transactional data, bill management and provide smart insights to facilitate the improvement of the customer’s financial wellbeing. Through our own internal research, we found that one third of Australian’s have paid a bill late in the past 12 months and $286M in fees have been paid by Australians in a consecutive 12-month period derived directly from missed bills. The majority of interviewees specified that managing bills was a pain point in their everyday lives if they did not use a PFM tool to keep on top of these recurring expenses.
In times of uncertainty, banks and financial institutions can offer comfort and support to customers in managing bills via automatically transferring funds to the bill paying account of the user from a nominated account, bill reminders, a wholistic timeline view of bills, and offer greater insights to promote financial wellbeing. By providing information relevant to the customer, it helps foster financial literacy to empower customers to make wiser and more informed financial decisions all while building financial confidence. Real insights derived from spending and transactional data can be tailored to the demographic, habits and goals of users in an endeavor to provide the most value to banking customers.
What’s next for banking?
Adapting business models to fit the new trend of working from home and running more agile and lean operations is a key for organisations moving forward. Therewithal the overarching economic recovery from COVID-19 has been led by tech giants globally, as evident by their enormous revenue growth of businesses such as Facebook, Amazon, Apple, Microsoft, Atlassian, Tencent and Afterpay since the March 2020 bear market. This immense recovery and growth can be attributed to tech companies’ agile operations and flexibility with working from home arrangements, during a pandemic where being remote from co-workers or customers does not negatively affect business operations.
Banks can adapt to a tech giant style of operations to similarly drive value across their business by empowering customers to stay on top of their financial wellbeing and provide innovative and relevant experiences, so that digital banking users are positively reliant on their platforms. Staying on top of, or even being at the forefront of digital and financial trends such as machine learning (ML), artificial intelligence (AI), cryptocurrency and the latest technology integrations are key to succeed in this current market, and growth in the banking sector is sure to arise when financial organisations embrace this.