COVID-19 Impact on Commercial Banking Technology

Introduction

The events of the last 30-60 days have had a profound impact on life and business the world over. The need for smooth functioning of essential services for saving both life and business has stood out in clear focus.

Most banks and Financial Institutions were ready for emergencies of a different kind viz. financial crisis, terrorist attack, political unrest in a country, but few had prepared for a global pandemic like what we are seeing in COVID-19. This silent killer has highlighted several shortcomings in our current processes and hopefully, put us on a path to handling such situations better in future.

Banking as an Essential Service

In a pandemic like this, the earliest casualties are always business and the economy, both of which always stall from two different ends viz.

a) Lack of demand owing to loss of jobs, and

b) a ‘systemic freeze’ that prevents profitable, liquid businesses from performing the functions required to stay afloat.

As technology providers to the banking industry, we can make a significant impact on mitigating the freeze through our products and services.

What do we see in unprecedented times like these?  How can we support our clients better?

Credit Impact

Lack of product demand impacts sales and collections forcing businesses to draw on their credit lines with banks. Amidst so much disruption, it is sometimes difficult for a business to assess its cashflow position or liquidity needs, without which it cannot decide the scale of borrowing required.

Information management

Banks need to ensure that they provide accurate and reliable information on cash flow to clients in the first place so those businesses can take the right decisions.

Just after 2008, banks invested in building stronger credit monitoring capabilities and systems in order to limit exposure. The same banks today are working on partly loosening the stringent procedural requirements to ensure faster credit flows to businesses with fewer hurdles.  As an example, Banks struggled in handling the volumes generated due to the Payments Protection Program (PPP) in the US even for existing customers. This was partly due to the processes that were created in the system for more and more safeguards – which in some cases proved to be bottlenecks.

Rejigging of credit processes

Banks need to be able to tweak the underwriting and fulfillment processes in their systems to ensure that transactions do not get held up in regular hoops and hurdles. This is a delicate balancing act for banks, who must manage credit quality while supporting the needs of the clients in these extraordinary times. Banks that cannot be agile and support their clients in this time of need will struggle to retain clients when this blows over. The ability of larger banks to support businesses from customers that were not their clients earlier has also come under close scrutiny.

Digital Channels, Client Onboarding, Customer Service

The need for effective use of digital banking channels was never felt more strongly than in the last 60 days. While most large businesses have shifted to sophisticated connectivity channels, small businesses that still rely on branch banking have been impacted.

Customer onboarding:

Banks need to invest in commercial technology platforms that can onboard new customers quickly and efficiently. Once on-boarded, customers need to have access to all the regular products they would use in normal times over digital channels.

Further, those customers who have been onboarded recently on the digital platform – especially first-time digital users – will need support which must be planned for. Banks experienced a massive spike in call volume and wait times of hours immediately as local government ordered a shutdown. They must find a way to handle such a surge in volume in these difficult times.

Customer training

The customer service teams/ helpdesks of banks that invested in online training artifacts for their clients – with step by step processes/ “how-to” videos – faced less pressure. Online support tools are now a necessity for channel solutions.  We expect to see a strong demand for “training tools and technology” capabilities around the digital channels in the near future.

Data privacy issues

While banks may hire temporary support staff or contract with other agencies to support the high volume of service calls, they would still need to ensure they do not violate data privacy, customer data sharing agreements etc.

Advanced data protection capability

Enhanced focus on features like “co-browsing” / “selective sharing” whereby customers can browse alongside their support executive, but still have the option of hiding sensitive / confidential information.

Products and Services

Remote Deposit Capture (RDC) / Check 21 impact

Imagine how much credit would have got stuck in the pipeline if business in the United States did not have Remote Deposit Capture capability.

In future we expect these:

a) in countries where checks are prevalent, there will be a move to adopt “check truncation” related regulations to digitize those operations;we also expect these features to become a norm in all channel solutions in future.

b) more commercial payments to shift to digital and check usage to decline further.

Focus on Digital Payments

Big corporates will ramp up investments in digital payments, akin to alias payments on the consumer side.

Customers view these payment types as fast, cheap and easy to execute. Besides higher adoption, we also expect to see a broad framework of standards to evolve for high volume commercial digital payments.

Operational convenience to risk management

With the COVID-19 experience, RDC capability changed from being an operational convenience to an operational risk management feature overnight. We expect to see the digitization of receivables gather a strong momentum in the immediate future.

Bank Connectivity

Host-2-Host (H2H) connectivity or API channels

Most large corporates have a seamless Host-2-Host (H2H) connectivity or API channels between their application environments and those of their banks. This facilitates straight-through transactions on both sides with–minimal human touchpoints, which is the need of the hour. But, the cost of such dedicated connectivity can be high, which is an important reason why mid-sized businesses have been slow to adopt, and continue to depend on traditional non-automated channels.

Tighter connectivity

We expect to see a much higher interest within the mid-sized corporate segment in integrating closely with the bank’s application ecosystem.  Even within the large corporate segment, H2H adoption outside of the U.S. and other advanced economies remains relatively low / exclusive. We expect this will change as larger businesses in all parts of the world are forced to look at these options more closely.

Impact on Payments and Branch Banking

Currency transactions

Would employees feel comfortable handling cash from customers?

What seems very likely is that the demand for hard currency will drop significantly due to fear of infection.

So, should branches and ATMs carry less cash?

Maybe!

We expect to see the transition from cash to digital to speed up in developing economies – something that many governments have been trying to do for years. Wallets, contactless payments, virtual cards etc. will be the preferred mode of payment. We expect banks that still do not support these payment forms to make substantial investments to get quickly to maturity in these products.

Commercial branch banking

With the same rationale, we expect branch banking processes, such a steller operations, which involve physical paper / currency / cards etc. to adapt to new guidelines and safeguards, if not actually a drop in volume. Will branch banking therefore get less personal?

We do not know!

It was the relationship that drew commercial customers to branches and kept the branch banking alive in the digital age; how that unfolds remains to be seen.

Blockchain payments

Forbes magazine reported that stimulus checks sent to all U.S. citizens as part of economic impact payments could take months to reach the recipients.

With the government looking for speed, accuracy and reliability in such mass payments, is Blockchain technology better suited to this kind of situation?

Banks that have undertaken the Blockchain payments related projects observe that the platform gives them a significantly higher level of visibility and control besides just speed.

Additionally, the flexibility to add new covenants for identification in order to the payments from falling into the wrong hands or attestation for use of funds makes it that much more versatile than traditional payments.

Could this be the turning point for Blockchain?

Only the time will tell.