By FintechOS · May 05, 2020
8 minute read

Tackling the Fallout of CV-19: Banks and Insurers Look to Digital Tech

The CV-19 pandemic’s impact on the FS sector is still taking shape: no one can predict with much certainty what things will look like on the other side. But we can be sure of one thing –the clever use of digital tech will be essential for banks and insurers to weather the present storm and succeed in the post-pandemic world.

As life as we know it grinds to a halt, the growth prospects for the global economy are bleak. Many successful businesses now look unsustainable in the near term, and while financial services (FS) may not be as hard hit as travel or tourism, the CV-19 pandemic is still taking a serious toll.

But from the confusion some clear trends are emerging: banks and insurers are looking to digital tech to help them weather the CV-19 storm and set them on the path to success once normality returns.

The economic impact on the FS sector

Most countries may still be in the early stages of fighting the spread of CV-19, but the heavy damages to the FS sector are already clear.

Shares in insurance carriers have taken an average hit of 33%[i] worldwide, while in many countries market capitalizations for banks are worse than during the 2008 financial crisis.[ii] Investor confidence is clearly rattled: they’re worried about profitability and prospects as we head into a downturn that could be larger and deeper than what followed in the wake of the GFC.

Meanwhile, regulators have been weighing in on top of these market pressures, stressing the importance of maintaining services for banking and insurance customers and rolling out measures to support business continuity.[iii] Some of the UK’s biggest banks have put dividend payouts and share buybacks on hold until the end of 2020, following a request from the Bank of England to hold on to capital needed to support the wider economy.[iv]

But the simple truth is we just don’t know how all of this is going to play out yet. Banks across the globe have offered mortgage holidays, paused interest payments on credit cards and cut overdraft fees, but we won’t get an idea of the real impact on their bottom lines until these temporary measures run their course and customers start to default.

Insurers may have learned a few lessons in how to cope with global health scares over the years, but carriers have seen a massive drop in the number of new policies from highly affected industries like tourism, travel and auto.[v] Naturally, fewer new policies will hurt profitability in the long term, while the investment side of the business will be damaged by turbulence in the financial markets. And then there are direct claims related to the pandemic itself: life insurers look set to face the biggest challenges here and are closely monitoring mortality rates.

The next 12 months: what can we expect from banks and insurers?

While there’s plenty still up in the air, we can still set out what we expect to see from banks and insurers over the coming year. Overall, the options open to them and the strategies they’ll take will in large part be shaped by where they sit on the digitalisation curve.

When the dust settles and greater normality returns, banks, insurers and capital markets players will have learned a few useful lessons, from how to strengthen operational resilience and prepare for future pandemics to how alternative working arrangements could underpin new operating models. The CV19 crisis may even speed up the industry-wide shift to digital channels.

Business as Unusual: how FS players are adapting to the new normal

FS companies are currently innovating in ways that enable them to both continue providing critical services and play their part in slowing CV-19’s transmission. But this phase won’t last forever. Soon, they’ll have to innovate in ways that help them to meet the customer needs that emerge from ‘the new normal’.

Right now, banks have to provide essential services to their retail customers. That could involve continuing limited branch operations, as the more vulnerable members of society, such as the elderly, may be less likely to use digital banking services. But all customers should still be encouraged to use digital channels where possible.

To promote this shift to digital, banks can launch safety-focused messaging campaigns aimed at reducing reliance on branches for services that are available through digital channels, while also offering discounts, providing tutorials and upgrading remote support options. They could also enhance their digital offerings by identifying features that can be improved quickly, for example, speeding up the process of setting higher limits for online transactions and simplifying password reset.

Whatever the steps they can take in the near-term, digital experiences are going to be central to how FS players help their customers cope with the CV-19 pandemic. Demand for context, convenience and control in interactions with FS providers is increasing, forcing companies to rethink how they deliver contextually relevant and, in the current crisis, sensitive experiences. For most banks and insurers, this will require an evolution of both tech stack and culture aimed at enabling hyper-personalized experiences in real time for affected customers.

Of course, none of this will be possible without the right back- and middle-office supports, and that’s why FS players the world over have been strengthening their digital capabilities: from IT infrastructure and cybersecurity to video conferencing tools, investments are being made to minimize business disruption.[i]

Companies that had already embraced alternative working arrangements, especially remote working and distributed teams, have adjusted well to the demands of navigating CV-19. They’ve been able to fall back on a robust ecosystem of virtual resources, technology and already-established behavioural norms that support a view of work as a ‘thing we do’, not a ‘place we go’.[ii]

The New Paradigm: the long-term impact on digitalization

There’s a new paradigm taking shape across the FS sector. The crisis has forced banking and insurance leaders to question many aspects of ‘legacy thinking’ and take a hard look at where their organisations sit on the digital curve.

Firstly, a digital strategy for sales and marketing will never be thought of as a ‘nice-to-have’ again. When economies grind to a halt and face-to-face communication becomes impossible, having the digital capabilities to reach new customers could keep a company afloat.

The same goes for customer engagement. Digital transformation aimed at reinventing the customer relationship will rocket up the executive agenda. At times of crisis, communication is crucial. The ability to tailor it based on customer profiles will become a real differentiator, as FS players that can engage as individuals at scale will improve experiences, deepen loyalty and boost growth.

And all of this together will bring home the importance of digital technology – now, in coping with the immediate fallout of CV-19, and for the future. We could be dealing with this pandemic for months, perhaps even years, and it’s hardly going to be the only one in the future. If there’s one positive to come out of this crisis, it’s that FS leaders will have a stronger commitment to digitalization.

For banks, we might see a serious rethink of the drivers of brand loyalty. Neobanks could lose some of their appeal as customers turn to what are thought of as ‘safer’ institutions, i.e. the large incumbents. And how brands are thought of in the future could be shaped by their response to the crisis today, creating an opportunity for players of all sizes to strengthen customer relationships by demonstrating reliability, flexibility and understanding.

Adaptability will be crucial for banks, too. They’ll have to respond to the lasting social changes the CV-19 crisis creates, especially when it comes to how customers select channel preferences, products and banks for their financial needs. In this context, the ability to deliver hyper-personalized offerings over a customer’s channel of choice will be essential to meeting expectations, and so will become a strong competitive differentiator.

Widespread behavioural changes, specifically reluctance to visit a branch to carry out routine transactions that can be done digitally, could mark the beginning of a rethink of the branch concept as a more complex, high-value operation. We’re already seeing changes to how branches are run, with dedicated hours for elderly customers, so a redesign around serving more complex needs could soon be on the cards.

The CV-19 pandemic’s impact on the FS sector is still taking shape: no one can predict with much certainty what things will look like on the other side. But we can be sure of one thing –the clever use of digital tech will be essential for banks and insurers to weather the present storm and succeed in the post-pandemic world.


Disclaimer: This article was compiled based on publicly available information released by owners*. It is not intended to be viewed, nor treated as an official source of information.


[1] McKinsey










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