Will COVID-19 reshape digital banking?

The COVID-19 outbreak has brought about drastic changes in our lives, and by every measure, we are going through a great crisis. It is natural to assume that the pandemic will be a turning point in modern history, and many experts argue that the world we are entering will be fundamentally different from the one we knew before. Will the pandemic change consumers’ digital behaviour in the long run, and will it transform digital banking as a consequence?

As a result of the COVID-19 crisis, we are likely to see a rise in online banking activity and a decline in trips to brick-and-mortar branches. The current pandemic has forced customers who once resisted online banking to adopt digital banking apps as their new default. The more these customers realize how convenient it is to bank digitally, the less likely they are to go back to physical branches.

And as the importance of digital banking distribution channels increases in the aftermath of the COVID-19 crisis, we are likely to see significant acceleration of key digital trends. The following is a list of those most likely to be affected.

1, Shifts in digital customer experience

Because physical banking distribution will be far less relevant in the wake of the COVID-19 crisis, digital customer experience will be a primary area of differentiation and competition for financial institutions. Digital distribution channels demonstrating simple, customer-focused banking experiences will be a critical priority for all financial institutions.

The benefits of outstanding digital customer experience will be quantifiable. According to McKinsey, customers who are highly satisfied with their digital experience are two-and-a-half times more likely to open new accounts with their existing bank than those who are merely satisfied; they are also less sensitive to price and generate more positive word of mouth.

COVID-19 is likely to spur a widespread and systematic revamping of high-impact digital journeys in the banking sector, such as customer onboarding and product origination, to deliver a truly outstanding digital experience to their customers.

In the near future, we are also likely to see more digital banking apps offering a streamlined and simplified user experience, designed to reduce barriers of digital and financial literacy. This will open up digital banking to customer segments that are less technologically savvy.

One noteworthy example is Lunar Bank, which launched a simplified stock trading solution in response to the COVID-19 pandemic, targeting beginner investors with a straightforward, stripped-down stock-trading platform.

2, Transformation from servicing to engagement

Another key digital trend likely to accelerate is the transformation of digital banking from servicing to engagement. Once the COVID-19 crisis abates, customers will have been habituated to spend significantly less time in branches. This means that banks will need to sell more products via digital channels to compensate for the reduction in sales acquired through branches.

In a world where the business model of selling and marketing will be virtual, banks will move away from purely transactional digital apps—i.e., those designed for checking balances and performing payments and transfers—to those enabling deeper customer engagement.

In order to make that a reality, banks must develop digital marketing and personalization capabilities equal to those of e-commerce giants such as Google or Amazon, and utilize the extraordinary amount of data to which banks nowadays have access to better understand their customers’ financial needs. According to the Harvard Business Review, one of the most obvious consequences of the pandemic will be the infusion of data-enabled services into more aspects of life than ever.

By implementing sophisticated data analytics tools combined with real-time campaign management, banks can translate their customers’ data into meaningful insights and act on those insights by delivering appropriate recommendations at the right time and place. This will generate engagement and revenue, both of which will be critical for financial institutions in a post-COVID-19 world.

3, Adoption of next-generation technologies

In the near future, banks will be dealing with an accelerated pace of change in the digital market. Post-COVID-19, digital banking distribution will be of central importance, as the pace of competition and innovation in digital banking between financial institutions is likely to accelerate. This will require financial institutions to adapt to changes and uncertainties at a breakneck pace, thus putting a lot of strain on legacy technology infrastructure.

In order to keep up with rapidly changing client needs, banks in the near future are likely to move away from legacy technologies toward adopting agile and scalable digital technologies, such as cloud platforms and AI or machine learning. These technologies are significantly more scalable, nimbler, and dramatically reduce the costs of processing and storage. Next-generation technologies will enable banks to better handle surges in incoming queries, all the while adding new digital features quickly and with scale.

The accelerated pace of digital competition will also require banks to continuously deliver new enhancements and features via their digital banking apps and to implement those updates in a quick and reliable manner. Thus, we will soon see banks adopting software development techniques such as agile and continuous delivery. These will be critical in enabling financial institutions to reduce their time to market and to consistently bring new digital services into the hands of their customers to gain a competitive advantage.

Conclusion

Competition in retail banking will likely intensify in the near future, requiring banks to increase their agility in execution. Given that the digital capacities required to handle the COVID-19 crisis align well with the digital transformation trends required for banks to capitalize on in the long run, the digital banking landscape after COVID-19 is unlikely to be radically different from the one that preceded it. In lieu of a fundamental change, key digital trends already in place will significantly accelerate as a consequence of the pandemic.

Retail banks that are able to transform themselves into truly effective digital organizations and capitalize on evolving and accelerating digital trends will not only survive but also thrive in the future digital landscape.

Ahmed Khidhir