Banks are aiming to upgrade their banking infrastructure to improve their agility and enhance their competitiveness. The race to figure out what works the best in digital-only formats has just got intense with the economic impact brought on by the outbreak of COVID-19. The global health crisis has underscored the value of technology. A sudden change in terms of work, financial activities, and consumption patterns all create a lasting impact. So what are some of the leading banks doing to counter the COVID-19 setbacks?
The impact is perceived as one of the most severe economic setbacks the world has ever seen after the Great Depression of the 1930s. This “perceived” impact may become real if the predictions by various credit rating agencies prove right. For instance, Fitch Ratings expects the world’s GDP to decline by 3.9% in 2020 and calls it “a recession of unprecedented depth in the post-war period.” Fitch expects the Eurozone GDP to decline by 7%, the US by 5.6%, and the British GDP by 6.3% in 2020. Moody’s also predicted that the G-20 economies will experience an unprecedented shock in the first half of 2020 and expects G-20 real GDP to contract by 0.5%.
Almost all the entities, including FinTech companies and neobanks in the financial services industry, have taken one or the other measures to mitigate the risk and impact brought on by the global pandemic. Some of the typical measures pertain to cash flow and workforce. In this article, we cover some of the recent strategic COVID-19-related developments in the retail banking industry across both private and government banks around the globe. We have categorized these measures into the five areas listed below:
- Innovation
- Digital banking
- Marketing and product launches
- Financial support
- Cost control
1. A Push for Innovation
The competitive landscape in the retail banking sector is constantly evolving as consumer preferences are also evolving; and, it is imperative for the banks to keep themselves abreast of the innovation as almost every banking process and service is getting digitized. This need for digitization brings both opportunities and challenges in terms of pressures to cope with innovation. For the large banks with economies of scale and the capacity to invest in innovation, this scenario is an opportunity. For the smaller banks who may still be running with legacy infrastructure and with the modest capacity to invest in innovation, this scenario could be stressful.
Artificial Intelligence and Analytics: Banks are in need of emerging technologies such as analytics and AI solutions now more than ever before. These solutions help banks to automate their communication. With work-from-home policies in place, banks’ customer service operations have taken a beating. Ping An Bank’s artificial intelligence-powered customer service called “AI Banker” was enabled to offer 24/7 service when call centers were closed and face-to-face communication wasn’t possible.
Voice Banking: Recently, ICICI Bank provided yet another way for retail customers to connect with their bank. ICICI Bank launched voice assistance-based banking services for its retail customers enabling them to check balances, seek credit card details as well as ask other queries through this application. The bank stated that it had integrated its AI-powered multi-channel chatbot iPal with Amazon’s Alexa and Google Assistant. Now, its retail banking customers can undertake a host of banking services through voice commands. National Australia Bank’s “Talk to NAB” for Amazon Alexa and “NAB for Google Assistant” also offer customers to find out their account balances, recent payments, and more using hands-free, voice-enabled technology. At present, these voice assistants’ capabilities are limited to the extent of getting financial information. But, the day is not far away when a host of other banking activities will be increasingly done by talking to voice assistants and smart devices rather than talking to the real people at banks or chatting with banks’ chatbots.
Contactless Payments: National Australia Bank enables contactless payments with wearable devices such as Fitbit Pay, Garmin Pay, Google Pay, Samsung Pay, and Apple Watch to help reduce the customers’ physical contact with surfaces when they are shopping as these technologies don’t require the customers’ card or device ever to leave their hand. There are many other banks worldwide that offer this mode of payment. However, Australia is one of the leading countries with the highest contactless transactions. We believe that the COVID-19 concerns will boost contactless payments globally as public awareness about the importance of this payment option grows.
Biometric: Biometrics can be a game-changer in the payments space in these times. Given the fear of coming in contact with coronavirus, we expect a rise in both biometric-based transactions as well as a rise in biometric-based payment innovations in the coming days. There are already several biometric technologies in the market. These include fingerprint recognition, voice, facial, eye scan (iris recognition), and even vein pattern recognition. Given the right push, India has the potential to emerge as a leader in biometric adoption with its world’s largest biometric project known as “Aadhaar.”
Qatar National Bank’s (QNB) contactless Iris ID authentication in its ATMs, which was launched in late 2016, has now gained importance during the coronavirus outbreak. Asian Banker magazine recently selected QNB for having the “Best Biometrics Initiative, Application or Program in Qatar.” The feature enables QNB customers to access their accounts at ATMs without the need for a card or a PIN. The customers need only a second to look into a built-in reader to confirm their identity. Qatar National Bank is one of the largest financial institutions in the Middle East and Africa, with branches, subsidiaries, and associate companies in 31 countries across three continents.
2. Re-emphasis on Digital Banking
With the ongoing coronavirus pandemic, banks worldwide are batting for the use of digital services and are encouraging their customers to use digital banking solutions. With lockdown in place, some of the banks have responded to the tech challenge posed by the COVID-19 outbreak by enhancing their IT processes and offering their customers digital banking solutions across multiple e-channels.
Very recently, ICICI Bank in India announced the launch of its ‘ICICIStack’ In March 2020. ICICIStack is a set of comprehensive digital banking services and APIs to ensure uninterrupted banking experience to customers of both retail and business, including retailers, merchants, FinTechs, large e-commerce firms, and corporates. According to the bank’s announcement, ‘ICICIStack’ offers nearly 500 services that cover almost all banking requirements of customers in one place. The list includes digital account opening (instant savings and current account opening), loan solutions (instant personal loans, instant credit cards, instant home loan sanctions, instant car loans, instant overdraft facility, instant business loans), payment solutions (digital payment solutions like UPI, bill payments using Bharat Bill Payment System), investments (instant FD, PPF, NPS, and AI-led robo-advisory for other investments), insurance (term and health insurances digitally), and care solutions (protection for life, health, car, and home). The bank also launched banking services on WhatsApp to enable its retail customers to check their savings account balance, last three transactions, credit card limit, get details of pre-approved instant loan offers, and block/unblock credit & debit cards using this service at a time when they are advised to stay indoors in the wake of the coronavirus outbreak.
Opening a bank account remotely: In an official statement released on April 1, 2020, the president of the FATF (Financial Action Task Force) encouraged the adoption of digital onboarding during the COVID-19 crisis. The Hong Kong Monetary Authority (HKMA) has also encouraged Remote Onboarding and simplified due diligence to address the current coronavirus crisis. In line with these recent FATF and HKMA guidance, more than 10 Hong Kong retail banks have already introduced remote account opening services since the beginning of the pandemic, while many more financial institutions are actively considering or testing similar approaches. For instance, Citibank and HSBC bank in Hong Kong offer this option to open a bank account remotely.
3. Marketing strategies and product launches to keep them hooked
As part of their marketing strategies, several banks are focusing on reassuring their customers of support, sharing relevant information, and encouraging them to use digital banking solutions through a variety of content such as videos and step-by-step guidance images. Several banks have created a dedicated web page to publish their COVID-19-related content. Some of the banks are also keeping their customers engaged through running charitable campaigns to support local communities. For instance, DBS recently launched the “DBS Stronger Together Fund” across its key markets to support local communities affected by COVID-19. Similarly, Barclays also launched a 100-million-pound COVID-19 Community Aid Package to charity organizations working towards supporting vulnerable people impacted by the COVID-19 crisis.
Standard Chartered Bank (Hong Kong) announced the launch of “My RM” – a new personalized wealth management tool. This brand-new function, embedded in the bank’s online banking and mobile banking platforms, allows customers to interact with their relationship managers and access the latest market information remotely from homes, offices, or on the road. According to the bank, this new function supports document & file sharing, screen sharing, text chat, and audio call functions. These features enable customers to get detailed market updates from their relationship managers without visiting the branch.
COVID-19 Insurance: In India, DBS Bank India partnered with Bharti AXA to roll out a COVID-19 health insurance product exclusively for DBS customers with a yearly premium starting at INR 499 ($6.55) with insured options ranging from INR 25000 to INR 2,00,000 ($330 to $2600).
Free COVID-19 relief insurance: As part of the bank’s overall community support efforts during the coronavirus pandemic, DBS Singapore announced to offer 30-day free COVID-19 relief insurance coverage for all its five million DBS/POSB customers and families. The cover provides a daily cash benefit for hospital confinement and a lump sum payout for ICU confinement if an insured person is infected by the novel coronavirus. This offer became so popular that the bank had to extend the sign-up cutoff period from March 15 to March 30. Driven by a strong response from the customers, DBS Singapore, at its peak, recorded more than 52,000 sign-ups in a day. AIA Singapore also offers free COVID-19 insurance cover for its individual life policyholders up till December 31, 2020. Several other players in Singapore have come forward to offer free COVID-19 insurance cover to their customers. They include NTUC, AXA, HSBC, Manulife, Great Eastern, Prudential, and Maybank, and Etiqa Singapore with their own terms and conditions.
4. Financial support to customers
Providing financial support to the customers in these difficult times not only serves as a mechanism for supporting customers’ financial well-being but also serves as a key relationship strategy. When compared to neobanks or challenger banks, the incumbent banks generally enjoy an advantage when it comes to customer relationships. Given the constantly evolving competitive business environment, it becomes imperative to preserve these relationships. Besides, providing short-term or temporary customer relief measures also serves as an opportunity to manage customer perception and brand image. Let’s take a look at a few selected use cases relating to this topic:
1. Westpac Banking Corporation, also known as Westpac, based in Australia, announced a slew of Covid-19-related support measures to all its customers, including home loan customers, credit cards, and Flexi Loan customers, and deposit and transaction account customers.
2. Spain, which saw the most severe impact amongst all the European countries and stood second globally after the US, also saw a huge list of COVID-19-related financial measures for customers and businesses. Banco Santander, based in Spain and one of the largest commercial banks in the world in terms of total assets, announced a set of key measures to fight the coronavirus outbreak. Following the European Central Bank recommendations, Santander canceled its 2019 final dividend and its 2020 dividend policy to ensure as much flexibility as possible to allow it to maximize lending and support both businesses and individuals. This represents 90 billion euros of additionally available loans.
- Up to 12 months mortgage repayment holiday and up to 6 months for personal loans.
- During the state of alarm, withdrawals are free in the country. Also, a QR code facility is available to withdraw money without touching the keyboard.
- Three months of free senior service to make it easier for seniors with remote assistance, technological "handyman," and 24-hour telephone assistance.
- Closure of some branches and reduction of branch opening hours.
3. Bank of America also allows payment deferrals with no negative credit bureau reporting for up-to-date customers through its Client Assistance Program (CAP). Some customers may qualify for multiple payment deferrals as well, provided their account payment is not currently past due. They have also temporarily paused foreclosure sales, evictions, and repossessions. The bank’s website also features tips on how to recognize potential coronavirus scams. These security-related resources are also available in multiple languages.
4. HSBC in mainland China is waiving all fees for remittances associated with donations and medical purchases and partnering with healthcare providers to offer virtual and telephone consultation services to ease the pressure on hospitals and reduce cross-infection. HSBC in the UK is supporting customers with an overdraft with some temporary measures such as no interest charge on the first £500 from April 9, 2020, for a period of three months. The bank’s COVID-19 related measures are available in multiple countries, but probably, the bank’s largest slew of COVID-19 measures are available in the USA. These measures range from fee waivers covering ATM, overdraft or unavailable funds, and monthly maintenance fees, including the waiver of early withdrawal penalties for CDs (Certificate of Deposit) if the funds are needed due to impact from the virus. Besides these fee waivers, there is payment assistance for loans and credit card customers.
5. Bahrain Islamic Bank, a commercial bank based in Manama, Bahrain (and also listed on Bahrain Stock Exchange), has announced a few measures for its customers to help them reduce their financial burden. The bank’s retail customers who have already applied for personal, mortgage, and auto-financing solutions as of March 19, 2020, will automatically receive six months deferral of installments without any fees, no profit on profit, and no increase in the profit rate. There is an option as well to cancel this offer for the customers who do not wish to avail of the deferment service. Other than this, for the credit card customers, the bank has also set the required minimum monthly payment to zero from March until August 2020.
5. Cost efficiencies
The coronavirus outbreak presents an altogether different set of challenges to the banks. The most profound of them is the lockdown-driven operational challenges in terms of running customer service and branch operations. With the growing customer shift from banking at branches to banking digitally, several banks are planning to restructure their branch network. Already, banks are working on a limited scale and timings, and they have temporarily removed non-essential services provided in the branches in view of social distancing and the safety of their employees. In India, the Indian Banks’ Association (IBA) announced that only essential services would be made available at bank branches from March 23, 2020, due to the coronavirus outbreak in the country. These essential services include cash deposits, withdrawals, remittances, clearing of checks, and government transactions.
Several banks across the world have either initiated branch closure or have already started the process. For instance, HSBC is set to close 27 branches in the UK this year. Similarly, Lloyds Banking Group has announced that it would be closing 56 branches this year, and TSB also outlined plans in November last year to close 86 branches. These moves are helping banks to cut costs.
Although it is easy to assume that reducing the number of branches will lead to cost efficiencies, there are other factors that may pose a dilemma. It is a known fact that banks are the main channels of distribution of insurance products through their typically large networks of financial advisors and branches. This is partly because the banks enjoy the trust factor fostered by face-to-face interaction. They rely on the customer footfall in the branches to cross-sell other financial services such as insurance and wealth management products. Hence, any decision to restructure the branch network should take these factors into consideration and come up with a restructuring plan that is sustainable for the business to thrive.
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