Three roles for banks to build trust and emerge better

By Hannah Scott on Wednesday, 6 May 2020

Global health crisis Covid-19 has already changed life as we know it. The virus and its tragic human impact has resulted in unprecedented government intervention, record unemployment and the biggest fiscal stimulus ever launched. Central banks cut interest rates and are lending amounts that dwarf those seen during the last financial crisis, to prevent an economic shutdown. Covid-19 caused the fastest bear market in history. On top of this, we’re are seeing shifts in the way that we work, educate and consume, with technology transforming industries.

For banks, it is very a different landscape from the financial crisis of 2008, when the sector was perceived to be responsible, rescued by the government and the taxpayer. Distrust of banks has continued: in 2018 a YouGov survey revealed that 2/3 of UK people don’t think banks work in the best interests of society. Recent research by Opinium also suggests that financial brands could improve their reaction to the current crisis.

In the short term, banks have taken a huge revenue hit, with fee and interest income falling sharply, and billions written off in bad debt, compounded by a low interest rate environment. Banks have struggled to mobilise their resources to meet the increased demands of the Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loans. Agile fintechs recently entered the race to distribute funds.

However, banks are in a much stronger position than they were in 2008. Governments expect them to fuel recovery, promising ‘whatever it takes’ support for their readiness to lend. With evolving regulation, disruptive technologies and competition affecting the sector, the focus of firms has turned towards the needs of their customers and the longer term, as seen in payment holidays and withholding dividends.

Ultimately, this crisis brings an opportunity for banks to rebuild trust with their customers and wider communities. There are three clear roles that banks can adopt to achieve this.

The engineer of recovery

Governments are already positioning banks as the engines of recovery. Banks with balance sheets which can withstand the immediate turmoil, and Fintechs with the flexible business models which can mobilise to readily support their customers have an opportunity to cement those important relationships. That said, there will be a delicate balance for banks to strike between being as supportive as possible, whilst maintaining their financial strength.

The architect of the New Normal

Covid-19 will be a catalyst for technological adoption, automation and customer centricity. We’ll see more synergies between banks and fintechs in aim of creating a flexible platform for personalisation at scale – across channels, products and processes. Key changes will include a reassessment of branch networks – focusing on fewer experience-led spaces – as well as an increase in digital partnerships, marketplaces as distribution networks, and use of artificial intelligence for both risk and customer experience. Winners will include banks who have invested in customer centric digital transformation, as well as fintechs – particularly aggregators and personal financial management platforms who have capitalised on Open Banking.

The driver of positive change

Banks have a crucial role to play in ensuring that their employees, customers and communities can emerge more resilient, through a focus on financial education and wellbeing, personalised through technology. Simultaneously, banks along with the the wider financial sector should recognise the critical role they play as the providers and users of capital – demonstrating the integration of environmental, social and governance considerations into their business models. Covid-19 will be an inflection point for finding tangible solutions to address our next global health crisis – climate change. The UN has stated that without a ‘step change’ in banks’ activities that it would be impossible to meet the Paris Climate Agreement goals.

These are just three ways that banks can emerge better in the New Normal. Immediately and structurally, as the engine of recovery; by accelerating customer centric digital transformation; and through adopting business practices that can help to transform people’s lives and our world for the better.