BUSINESS BEYOND COVID
MARIUS VAN DEN BERG: Banks need to embrace digitalisation as the new normal
A cashless banking environment in a digital world is all but inevitable, as payment systems become more important than branches
In the Business Beyond Covid series, CEOs and other business leaders and experts in their sectors look to the future after Covid-19. What effect has the pandemic and resulting lockdown had on their industries and the SA economy as a whole? Which parts will bounce back first and which will never be the same again? Most importantly, they try to answer the question: where to from here?
Covid-19 continues to demand changes to banks’ established ways of working, as not only do they have an instrumental role in supporting all sectors of the economy through the crisis, but they are at the epicentre of the new demands of a more virtual world.
From the well-being of their own staff to ensuring business continuity and controlling costs, banks have been agile in managing their way through the crisis so far. Most have successfully navigated the operational transition to remote working. In the main, resilience plans kicked in effectively and banks are finding rhythm in the “new normal”. But much more is needed.
As SA eases its lockdown and moves away from the initial phase of the coronavirus pandemic, we are all experiencing a period of intensive activity, which includes how we will settle into new ways of business and working. After the initial sprint, banks need to take a look in the rear-view mirror to assess what they should leave behind and what they need to do differently in the future.
There are four areas that require attention.
The digital future
Banks that are already digital are far better equipped for the future: they have already understood the role of automation and how this brings better customer service and improved operational efficiency. The pandemic is an ideal opportunity to revisit what banks consider to be core to their operations and to further digitalise.
Many banking customers over the last few weeks have solely used digital services to interact with the banks and merchants. The hurdle that now needs to be overcome is how to retain customer interaction on these channels. In addition, with a large unbanked population in SA, banks have the opportunity to support these potential customers to use and trust mobile technology.
This may be the end of cash
Last year, EY, in collaboration with The Economist Intelligence Unit, released a white paper titled “The End of Cash”, exploring the aims and benefits of a cashless society focusing on three key points:
- Creating an environment to improve the ease of doing business for consumers, businesses, financial institutions and governments.
- Increasing financial inclusion of the underbanked and unbanked.
- Enhancing transparency in the financial system to reduce fraud, and crime and corruption.
The past weeks have helped this transition and may very well prove the catalyst for the general acceptance that what we really need is access to payment and banking systems, not banks and branches.
Operational efficiency and cost reduction are now non-negotiable
In the coming months the pressure on operational efficiency will be relentless. Questions will be asked as to how banks can reduce costs and navigate the social and societal impact of such decisions.
Banks have quickly learnt that, being offsite, they still rely far too much on manual processes. They have also realised more than ever that customer experience is central to digital commerce. As such, banks will likely review their digital investment strategies and reprioritise implementation of automation in key areas.
Credit risk management will also come to the fore because the pandemic has affected economic sectors in different ways. It has been particularly challenging for tourism, oil and gas, transportation, and the service economy. Banks have to take an in-depth look into their portfolios and understand the impact on potential future losses; and review their credit risk models for the new business environment. And as coronavirus-related lending starts to mature, banks will have to keep a keen eye on credit quality.
Liquidity is not an immediate problem due to different measures being implemented, especially by central banks and treasuries, but it could be in the coming months once relief measures end. It will be an important test of banks’ sophisticated liquidity systems.
New ways of working with less real estate and fewer resources
Remote working has already become the norm for most of the staff at SA banks. As the transition back to the office building starts and management grapples with issues of social-distancing and sanitising premises, the question becomes if and how we embrace remote working for the future. This will require a reduced real estate footprint as well as making many more operations remote and agile, not just people.
The ultimate cost of Covid-19 is yet unknown. However, it is clear that banks have an opportunity to help lead the response, ensuring that customers are successfully guided through this crisis, and staff equipped with the right technology to enabe the rapid adaptation to the new normal that lies ahead.
• Van den Berg is EY Africa banking and capital markets advisory leader.
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