16 minute read 7 Aug 2020
A woman climbing in Hoettingen quarry Austria

How banks can successfully emerge from COVID-19

Jan Bellens

EY Global Banking & Capital Markets Sector Leader

Passionate leader on innovation in financial services, especially in emerging markets. Global citizen. Keen traveler.

Keith Pogson

EY Global Assurance Leader, Banking & Capital Markets and EY Asia-Pacific Financial Services Senior Partner

Financial services advisor. Thought leader. Public speaker. HKICPA and ICAEW Fellow. Active advocate for gender equality.

16 minute read 7 Aug 2020

Banks must look beyond the pandemic and use this crisis as a basis to reimagine their role in the new reality that awaits.

In brief
  • Banks must continue to focus on customers’ needs to help them recover from the impact of COVID-19.
  • Equally, banks must adapt their operating models to drive efficiency and resilience.
  • Risk management thresholds need to be reflective of broader economic changes, and greater attention must be given to more challenged customer segments. 

The banking sector has successfully navigated the immediate pressures of the COVID-19 crisis. As thoughts turn to a world beyond the immediate crisis, a strong banking sector will be needed for a strong recovery. In a low interest rate, low profitability world, where the risk of a “second wave” remains, banks will need to focus on customer needs, while driving efficiency and building resilience.

As the initial crisis measures to respond to the COVID-19 pandemic begin to slowly ease, financial institutions are starting to examine lessons learned from how they have adapted their operations in recent months. Many banking employees made a success of working from home during lockdown, with technology sustaining critical business activities from trading through to financial advice services.

Moreover, the banking industry continues to fill an enormous credit gap: offering forbearance and giving customers greater access to loan facilities. The banking sector has also played a crucial role in distributing various governments’ fiscal packages. 

However, further challenges lie ahead. The global economy is facing extreme hardship with widespread unemployment – the jobless rate in the US stood at 11% in July 2020 – soaring government deficits and businesses struggling to survive.

Banks are experiencing a growing tension between supporting their customers and increased concerns about the rise in non-performing loans (NPL), which will lead to capital depletion. Three major US banks recently reported that they put aside a total of $25b in loan loss provisions in Q2 2020.1

While joint action with governments and regulators is likely to be required to address the immediate NPL overhang, the repercussions for businesses and individuals are expected to be longer lasting.

The EY Future Consumer Index shows that nearly a quarter of respondents think it will take years to regain the level of financial security they had before the crisis. This points to the challenge many businesses may face with consumers saying it will be years before they feel comfortable going to sporting events, the theater, or flying.

With some countries gradually opening up but others contending with fresh outbreaks, how consumers react to these changing scenarios will correlate directly to global economic activity.    

Looking beyond the immediate threat and ongoing effects of the COVID-19 pandemic is difficult. However, it’s necessary for banks to continue playing a significant role in shaping the recovery and helping their customers rebuild their financial security and business health.

This will require banks to refocus on really understanding their customers’ needs, and in parallel, adapting their operating models to ensure the best efficiency and resiliency measures, to help them weather the recovery.

Looking ahead, there are three areas of focus that will reshape the sector and support a stronger recovery: serving customers better, through the right channels, with dynamic and relevant products and services; adapting to new ways of working; and building more resilient and agile organizations.

Young girl looking through window at sunset image
(Chapter breaker)

Chapter 1

Harnessing customer digital adoption

Customer preferences will continue to shift, and banks will have to adapt to meet expectations.

Helping customers and businesses recover from the economic impact of COVID-19 means helping them focus on productive economic activity. Banking must be a seamless enabler of that activity. This means enabling customers and businesses to manage their financial needs in the right way. Increasingly, that means digitally.

For a long time, banks have tried to drive digital adoption, due to its benefits for both consumer and banks. Some markets have showed greater success than others. The closure of branches and offices in the wake of COVID-19 has forced a shift to digital services, from account opening to mortgage applications.

Processes demanding physical signatures now allow digital signing. Importantly, customers have adapted well to these changes. The EY Future Consumer Index shows that nearly 60% have changed the way they bank.

The question for banks is how they keep their customers on digital platforms after the COVID-19 pandemic and how do they achieve the human touch and a greater personalized service through digital channels.

Meeting customer needs

There are two considerations in driving and sustaining the adoption of digital banking. One is the customer experience and need (or desire) for human interaction, the other is digital access and literacy.

Our latest consumer financial research highlights that to truly connect with and gain the trust of consumers in a fully digital world, banks must shadow the evolution of the online e-commerce giants that have now built out entire connected ecosystem experiences and value propositions. To create this, banks need a sophisticated understanding of their customers’ context and needs.  

Banks now have an opportunity, as they enhance their digital capabilities to adapt during this crisis, to systematically collect relevant data and create connected experiences. This will provide a more personalized and intuitive relationship through all channels.

However, the human element still matters. Our customer research indicates that empathy and understanding need to be embedded into all interactions with customers. This concern is not so much about whether their point of contact is a screen or a human being, but whether they feel the bank understands their personal situation and is “human” in its treatment.

This means understanding how to embed an intuitive digital capability via telephone, video conferencing or chatbots, for generic advice and an understanding of when to use dedicated, specialist staff for specific customer segments or queries.

Inclusivity of digital channels remains critical, particularly for vulnerable customers and those without digital access or who lack digital literacy. Branch closures may also have implications for local communities and wider society.

Overall, however, reduced customer demand for physical channels is likely, and banks should look for opportunities to release or repurpose real estate where there may be an over-concentration. For example, by providing hubs for smaller businesses or communities, banks can use their physical networks to better connect with their customers. 

Spraying water onto cress plants in repurposed old shoes
(Chapter breaker)

Chapter 2

Designing new customer offerings for the new normal

Banks will need to reshape their products and services by providing a consolidated offering to meet shifting customer expectations.

Two years ago, our NextWave Consumer Financial Services research predicted that subscription models for financial products would begin to gain traction. We are already seeing this become a reality and expect an acceleration of these models post the COVID-19-crisis.

In the short term, gaining trust is likely to mean helping businesses and individuals regain financial stability. Our research points to a likely increase in demand for greater flexibility (for example, payment holidays) to be built into propositions as part of business-as-usual offerings.

Increasingly, banks should look to offer flexibility at a portfolio, rather than a product level, to help clients manage their finances more dynamically. 

  • Controlling credit risk — the story yet to come

    Government support to individuals and the implications of existing forbearance measures, may disrupt the efficacy of existing credit models. Determining whether borrowers are facing temporary or fundamental challenges in making payments is increasingly difficult.

    Banks are rethinking appropriate credit risk policies, levels of risk tolerance, and when is the right time to recognize that a customer will default. Banks need to re-calibrate existing early warning indications and key risk indicators across their lending portfolios to allow more effective risk management.

    Risk management thresholds need to be reflective of broader economic changes, and greater attention must be afforded to more challenged customer segments.

    Banks will need to focus on more effective use of data to understand in real-time how external shocks are going to impact customers’ financial stability and their ability to repay credit. They must use this information to proactively and transparently engage with customers to get the best possible outcome and avoid these customers falling into collections where possible.

    Banks are aware of the challenge large scale defaults present to themselves and the wider economy. Organizations need to view clients in the context of the value of a lifetime relationship, not necessarily just a point in time borrower.

Similarly, there is a real opportunity for banks to find innovative ways to help businesses rebuild out of the crisis. Banks are at the center of financial flows. With advanced risk management and analytical capabilities, banks can become trusted advisors for their clients.

They can help companies see their data in new ways: spotting anomalies and uncovering patterns that affect their business or by building integrated ecosystems of trusted providers to connect different customers and foster growth opportunities.

Equally, banks are well placed to offer real-time, integrated solutions including treasury, legal and risk management services, connecting directly to their clients’ infrastructure, reducing cost and enhancing efficiency. Such services will also help banks as they seek to pivot from interest to fee income models.

  • The future role of data

    According to Bank of England’s 2019 Future of Finance report, over 80% of customers surveyed trust banks to securely manage their data.

    For years, data has been the “heart of an organization.” With the rapid growth in both the volume and velocity of data, including real-time data, banks should ensure they are doing a better job of capturing, processing and using it to create insights.

    Now more than ever it is imperative that organizations use data to improve their customer experience, streamline operations and monitor their key risk indicators with regards to resilience standards.

    But the appropriate use of data is even more important. To retain customer trust, banks must make sure customers don’t feel their data has been used inappropriately. 

Banks will need to focus on how to use their data and insights to deliver a more customized, individual experience from content and insights, to the value proposition that a customer receives from their bank, at scale. This must be achieved while ensuring that customers feel their data has been used fairly, appropriately and transparently.

It’s about constructing solutions that help satisfy customers’ real needs. This is why data is so important – but it is also the greatest risk.

A man and woman with dog working at desk at home
(Chapter breaker)

Chapter 3

Managing people “in the cloud”

Banks are operating with a distributed workforce, and this may become permanent.

It’s not just banks’ customers whose needs and expectations have been changed by COVID-19 – so have those of their employees.

Notwithstanding the identification of some new areas of operational risk, most banking leaders agree that the move to remote working has been surprisingly effective. Further, the increase in remote working has also helped banks reduce their carbon footprint. This success has given rise to questions about the long-term need for physical office space, a key driver being the cost savings from exiting some of this real estate. 

Banks assessing the potential return to the office are looking at three main areas: what's critical, what's possible, and what's safe.

These cost savings are a longer-term goal. It may be difficult to exit leases, and in any event, social distancing requirements may mean banks need more space in the short term, not less. In the short term, banks, like other industries, are embracing different return to work models, with some planning a staggered return to the office starting with 10% of staff, then 30%, and then possibly 40% over a 6- to 12-month period – with a substantial percentage of personnel likely to continue working remotely permanently.

This approach would mean that banks need to address the feasibility of a “hybrid” working model. At present, everyone working remotely is using the same platforms and equipment to stay connected, and good working practices have been formed. With some staff returning to the office or branch, banks will have to confront the need to maintain this.

While potential technical challenges such as extending cyber-perimeters and controls to employee’s homes, may be easily overcome, creating a new dynamic that enables working relationships to flourish, is a different matter. Most banking leaders agree that because most employee relationships were established pre-COVID-19, this has made it easier for people to trust and communicate with their colleagues in the current environment. 

Workforce of the future


of US workers who have been working from home during the pandemic would prefer to continue to work remotely as much as possible once public health restrictions are lifted according to a recent Gallup poll.

Concerns are now arising around the depreciation of these relationships and whether corporate cultures, on-the-job learning, monitoring and governance, performance management, and how people interact with each other more broadly may erode over time. It is still unclear as to whether instant messages and video conferencing will add up to a complete substitute for the traditional office experience, and there are concerns for employee wellbeing.

Working remotely, without the traditional boundaries of a work or office life, is taking a toll on personnel, leading to concern about burnout and increased stress levels. The business case for greater homeworking is clear, and there is a strong sustainability case too, but there is less certainty about the “human” case.

Banks don’t fully understand the long-term effects on culture, teamwork, training, and managing risk in a COVID-19 world. The ramifications haven’t reared their heads yet. 

Any new approach is going to require a different type of leadership and a new set of virtual skills. Banks will need to optimize remote working for the long-term by scrutinizing new issues around productivity and risk as they become clearer and consider how to maintain and propel advances in sustainability and diversity.

Undoubtedly it is a difficult task, but banking leaders must take this opportunity to reimagine how their people can perform successfully beyond this period of uncertainty. Regardless of the outcome, the banking workforce will not come back to the same situation as pre-pandemic. Homeworking has shown there are other ways of operating – and this will have permanent implications for how employees think about their work, no matter what industry they are in. 

Mechanic working on bicycle
(Chapter breaker)

Chapter 4

Planning post-crisis operating models

Banks’ operating models are working at a sprint, but a marathon looms ahead.

The low margin operating environment banks face puts restructuring and cost optimization high on the agenda.

The response to COVID-19 has put enormous pressure on bank’s operating models, as many have extended their credit lines and continue to distribute various government stimulus packages directly to hundreds of thousands of customers.

This live “stress test” has identified areas of operations that have struggled to scale in response to demand, particularly in areas that have relied on extensive manual intervention. As the immediate crisis fades, banks shouldn’t revert back to business as usual, but prioritize investment on end-to-end digitalization and modernization to automate key processes, creating productivity gains and strengthening resilience. Critically, this period offers banks an opportunity to challenge themselves and ask how they can achieve zero latency, zero touch, zero paper, across the board.

As new ways of working with colleagues, and of interacting with clients, become embedded, the redesign of the control environment will be a key component of this too. COVID-19 has highlighted where controls are still manual and detective. As banks modernize and automate processes there is an opportunity to embed preventative, automated controls.

Relationships with third-party providers will also be an area of focus. The disruption of the pandemic exposed the degree of supply chain and third-party risk that many banks have, especially around business process outsourcing arrangements in low cost locations. Banks need to balance cost, service and resilience in their decisions, and it is an area which will continue to face regulatory scrutiny.

This is likely to drive a flight to quality, with critical processes moving towards third parties that are resilient and able to withstand surge demand and manage location exposures. Applying the lessons of COVID-19-related concentration risk, for example, may help firms future proof against climate-related risks.

The pandemic has left no industry, economy or society untouched. Its effects will lay a permanent mark on how financial services evolves over the coming months and beyond.

Banks must brace themselves for continued turbulence and uncertainty. But the opportunity to improve how banks can serve their customers, while improving their own resilience and efficiency – and contribute to repairing the damage done by COVID-19 – is one they must grasp. Their actions now and over the next few months will determine how they will emerge from this crisis, into the new reality that lies beyond.  


Banks will have to contend with an unprecedented number of challenges in the months ahead. How they respond will determine their survival in a world changed by the COVID-19 crisis. 

About this article

Jan Bellens

EY Global Banking & Capital Markets Sector Leader

Passionate leader on innovation in financial services, especially in emerging markets. Global citizen. Keen traveler.

Keith Pogson

EY Global Assurance Leader, Banking & Capital Markets and EY Asia-Pacific Financial Services Senior Partner

Financial services advisor. Thought leader. Public speaker. HKICPA and ICAEW Fellow. Active advocate for gender equality.