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The New Normal for Delivering Financial Services

The New Normal for Delivering Financial Services
September 23, 2020

The COVID-19 pandemic has shaken things across all walks of life, including business-as-usual for various organizations around the world. Most countries started enforcing some form of restrictions from February-March onward before implementing stricter lockdown measures in April, May, and June 2020.

The lockdown measures have massively impacted frontline financial services with physical businesses such as bank branches and customer service centers remaining closed. Even face-to-face meetings with financial advisors have decreased, and ATMs have witnessed lower footfall than usual due to stay-at-home orders and closure of public transport. This has impacted bank reference rates for lenders and borrowers to a significant instant. For instance, Singapore Interbank Offered Rate (SIBOR) fell to around 1% in late March 2020 because of the fallout. The Ministry of Trade and Industry in Singapore predicts an unprecedented significant contraction of the economy. However, as the economy faces uncertainties, the financial system needs to remain stable to provide confidence to people and businesses.

Navigating the new normal

The new normal of social distancing has forced business leaders and strategists the world over to rethink approaches of executing traditional workflow without involving direct human physical contact. Similarly, the closure of bank branches and customer service centers has compelled banks and customers to interact via digital channels. While the younger generations are already well versed with digital platforms, the pandemic has also forced the senior citizens to adopt similar channels, even for important financial transactions.

On the service-side of things, financial advisors and relationship managers (RMs) have also had to depend on digital platforms such as video calls and chats to conduct high-value transactions such as long-term insurance policies, investments, etc. No wonder, this medium of interaction has opened up newer avenues for more digital-native investment channels.

According to a 2019 McKinsey research, customers that are highly satisfied with the digital experience offered by their bank are two-and-a-half times more likely to opt for more services.

For instance, every bank and broker have seen a jump in their online trading and investment channel usage. Insurance companies are witnessing increased usage of their online channels for buying. There has also been a jump in investments in Robo advisors and P2P platforms as people become more open to a digital-only paradigm.

Clearly, digital experiences have been extended to customer segments that were less technologically adept. Now, in order to adapt to the new normal, financial institutions will have to find ways to market their services and products through digital channels.

As a starting point, banks and other financial institutions will have to revisit their marketing and personalization capabilities, and ensure that they are connected with their customers more than ever before. One key aspect that will define the success of a digital engagement, going forward, is how well a bank leverages customer data to offer greater personalized services and products. In fact, Harvard Business Review reports data-enabled services as the key to several aspects of life in a post-COVID world. Advanced data analytics can generate meaningful and actionable insights on consumer behavior, which can be further utilized to generate appropriate financial recommendations for customers.

Countering digital challenges

There are, however, several impediments that stem from the financial sector’s traditional operational models. This is especially true for high-touch financial services, such as wealth management, where face-to-face interactions with financial advisors are critical in establishing trust with the customers. To address this, financial organizations need to re-engineer their standard operational procedures (SOPs) to embrace technology that offers a seamless digital experience to the customers.

Another point of contention is the security of customer and organizational data. The sudden mass adoption of digital channels has also given rise to several security/cybersecurity challenges across the financial system. The lack of adequate security measures has caused the financial sector to be targeted by threat actors. In fact, the financial services sector has reported a staggering 480% jump in data breaches between 2017 and 2018. Attacks like this necessitate the adoption of enterprise-wide cybersecurity technologies for financial institutions. However, implementing security measures is not enough. It is equally important to educate consumers to not fall prey to social engineering-based cyber-attacks.

How are regulators responding?

Many regulators have taken immediate steps to ensure banks and their customers comply with the safe-distancing measures introduced by the government.

The Monetary Authority of Singapore (MAS) has issued several guidelines to address operational, technology, and cybersecurity-related risks. To facilitate safe distancing measures, the financial sector has been encouraged to allow their employees to work from home. Financial institutions, too, have responded with quick changes to their technology to accommodate a secure large-scale shift to work from home. Following a similar trend, customers have also been encouraged to limit their interaction with banks via digital channels as far as possible. In fact, the lockdown measures have seen an increase in the degree of usage of digital platforms across the financial sector. In a way, the pandemic has fast-tracked the digitization of processes that have historically relied on traditional methods.

Moreover, to counter the impact of heightened security risks, the regulators have also stepped up surveillance of operational and cyber risks in the financial system.

Partnering toward the future

The path toward digital adoption can be challenging if not thoroughly planned. Financial service providers would do well to team up with technology partners who can help them navigate the complications.

The path toward digital adoption can be challenging if not thoroughly planned. Financial service providers would do well to team up with technology partners who can help them navigate the complications.

Going forward, open banking and digital will redefine the banking landscape by expanding offerings for financial services and enhancing customer engagement. The trend of secure data sharing with third parties through open banking APIs will give consumers greater control over the way they interact with their financial service providers.

The use of virtual assistants through WhatsApp (business process automation) or SMS is a convenient means that can offer round-the clock-banking support to the customers while reducing the load on websites and mobile apps. Banks should also be open to exploring agile and scalable digital technologies, including AI and machine learning to reduce data processing and storage costs. These technologies will enable banks to better handle customer queries while allowing them to add new digital features within banking applications—quickly, and with scale.