Re-thinking, re-building, re-banking

The year 2020 will go down in history for many things. But one thing that has become clear through the current crisis is that the value of digital has taken on new and very immediate significance. 

As a mission-critical financial infrastructure provider, Banking Circle recently commissioned an in-depth study to understand the changing trends in the development, delivery and support of banking services for businesses. As the research got under way, Covid-19 became ubiquitous and, as such, its influence on the delivery of financial services quickly became a focal point.

Anders la Cour, Banking Circle co-founder and chief executive officer, explores the findings and the opportunities revealed by the research.

“Today we stand surveying an unpredictable future, a rapidly changing landscape and horizons of change that we cannot see clearly. However, one of the few things that seems to be getting clearer is that, through the trials of the current global crisis, the value of digital has taken on new and immediate significance. 

“We recently commissioned Magna Carta Communications to carry out an in-depth study among banks, payments businesses, fintechs and other financial institutions to assess the ongoing impact of the pandemic. Ready for the re-build? 'Re-thinking the value of digital infrastructure' is one of a series of white papers we are publishing based on the findings. 

“Examining the pandemic as part of a much bigger picture, the research set out to explore how financial services businesses are rethinking digital as a foundational technology to help them thrive in a digital world.”

“Respondents to the industry survey and the individuals interviewed were asked to comment on the biggest challenges they currently face. The results may come as a surprise. When ranking their three biggest challenges, less than a third (28%) included economic recession. Indeed, it came sixth on the list of top challenges.

“The challenges actually more urgently focusing the minds of the best in the banking sector are more aligned to a business-as-usual world. More than twice as many (58%) senior banking executives in key European markets said the impact of regulation was one of their top-three challenges. 

“Over half (53%) also considered the implications of constantly evolving expectations of customers as a top-three challenge. Regulation and changeable customer expectations are not new challenges, so it is not unreasonable to think that these two issues would have topped any similar poll in the past ten years or more.” 

“When asked directly about the impact Covid-19 has had on business planning, our respondents were optimistic. The most common response, at 41%, was that the crisis has had ‘a little’ impact, but recovery is expected to be swift. Around a third (32%) said that the virus will affect their business ‘quite a lot’ and confirmed that they were making changes to the business and reducing costs where possible. A quarter (26%) said the impact would be ‘significant and wide-ranging’.

“None of the participants felt the impact could be classed as ‘not very much’ or that their existing continual review of business continuity practices was adequate protection in the face of a global pandemic.”

The response to Covid-19 and post-pandemic recovery is not entirely in the hands of the financial service providers. But who will emerge stronger is very much a matter of opinion. 

Santander’s head of financial industry transformation, Juan Jiménez Zaballos, points out that: “Banks are better prepared this time. Regulators are being more favourable to financial aid being put together to avoid a slow recovery, and these mechanisms that are in place should help that.”

Georg Ludviksson, CEO of Icelandic digital banking solution provider Meniga, agrees: “Banks feel well positioned to deal with the crisis, they are well capitalized and have strong balance sheets. They feel ready for recession and can weather it better. They learned from the last crisis.”

But Alex Mifsud, founder and chief strategy officer of payments optimization fintech Ixaris, doesn’t see it like that: “The power of banks and governments has increased, but they’re not necessarily ready for this change. We don’t get the sense that banks are well tuned to the digital economy. Digital is about fast growth. Profitability is secondary. By design, fintechs are tuned to that.” 

The crisis has demonstrated, once more, the need for organizations to be adaptable, agile and prepared. It has been something of an accelerator for change.

Interviewees confirm that each of the businesses they represent had plans in place to digitize more processes, but many reveal that these plans were undeniably fast-tracked due to the crisis.

Dean Wallace, payment service provider ACI’s practice head for real-time and digital payments, says: “There has been a move to digital channels over traditional call centres, for example, that was already under way for most customers. The pandemic has accelerated that, making it less gradual.”

Santander’s Zaballos confirms that digital transactions and app downloads had already increased, pre-Covid-19, and that video conferencing tools are likely to affect the way some banking services are handled: “Digital service was already the new norm. Now it’s imperative. Anything without a digital expression is not going to remain as it is, especially where it relates to large numbers of retail clients.”

The picture is similar at Ixaris, as Mifsud comments: “It’s accelerating a trend that has already started, from deep digitization of payments process, to the entire supply chain.”

However, Thibault de Barsy, vice-chairman and general manager at Emerging Payments Association (EPA) EU, warns that Covid-19 is too blunt an instrument to effect change: “I don’t see much enthusiasm for the idea that Covid-19 will force change to digital. Change is really driven by making the customer experience smoother.”

La Cour concludes: “Banks must take time to understand the future, use the lessons of the past – including those learned during the pandemic – to determine longer-term thinking around the infrastructure that enables success.

“In the process, we can all regain the clarity and confidence that 2020 originally offered and see it as a time that really did lay the foundations for a bold new future.”