Can banks retain their competitive edge as they race to digitize? Can banks retain their competitive edge as they race to digitize?

Authors
Gary Hwa

EY Global Financial Services Markets Executive Chair and EY Asia-Pacific Financial Services Regional Managing Partner

Passionate change-agent across the financial services industry. Avid golfer. Global sports fan. Father of two.

Andrew Gilder

EY Asia-Pacific Banking and Capital Markets Leader; Global Corporate, Commercial and SME (CCSB) Banking Consulting Leader

Banking and Capital Markets Leader. Over 20 years of experience in the field of auditing.

3 minute read 30 Jul 2020

The shift to digital banking was already well underway before the pandemic, but the pandemic accelerated the switch.

In the economic pressure test of the COVID-19 pandemic, the world’s banks have performed remarkably well. Even as lockdowns forced banks to shut their doors and send workers home, most continued to operate, responding rapidly to unprecedented conditions and offering payment relief as economic hardship set in.

Banks’ operational resilience is largely due to the implementation of digital channels. As the initial crisis eases and banks consider how to adapt operations for what comes next, they have an opportunity to maintain and sustain this digital shift, leveraging strengthened relationships with customers to build a competitive advantage against "Fintechs" and "Bigtechs".

The EY Future Consumer Index found that 59% of people are using contactless payments more during the crisis, while 54% are using smartphone apps to transact. Fidelity National Information Services (FIS), which works with 50 of the world’s largest banks, found that mobile banking registrations jumped 200% in early April while mobile banking traffic rose 85%.

The rush to online banking revealed that some banks’ digital capabilities were not as advanced as they may have thought. A 2019 EY survey of banks in Asia-Pacific showed that just 50% had begun digital transformation of their main bank’s business. Yet many banks in the region fared better than those in other parts of the world, due to higher levels of digital banking among customers. In China, for example, Fintech adoption is the world’s highest, according to EY research, and most consumers opt to bank via mobile channels. The impact of branch closures on consumers was much less severe than that experienced in some other markets.

In contrast, the rate of Fintech adoption is much lower in some European countries — in France, the rate is 35% while the figure for Italy is 51% — which may have created some challenges for both banks and their customers.

As lockdown measures ease, more people may prefer to continue banking online, but banks cannot assume new behavior will stick. Just 16% of respondents to an EY consumer survey said COVID-19 would change the way they bank over the longer term. Encouraging people to keep using digital channels requires banks to continue adapting them to meet changing needs, to drive awareness of these channels and to support vulnerable customers that struggle to use them.

In China, where post-pandemic recovery is further along than in other countries, but still volatile, established banks are moving fast to do this, realizing that creating better digital customer experiences is critical to competing with digitally based companies. But the country’s traditional banks know that their physical branches are a competitive advantage, and plan to adopt a dual online-offline customer service.

This strategic investment in digitizing the customer journey can help mature banks build a winning proposition that leverages technology and trust. Harnessing change will also reap bottom-line benefits from a more efficient, digital organization at a time when cost pressures are top of the board’s agenda.

Getting small and medium enterprises (SMEs) and bigger corporates to adopt online banking has always been more difficult. However, once the COVID-19 pandemic forced business customers online, many adapted quickly and discovered the advantages of being able to transact 24/7. Banks have a rare opportunity to make the shift more permanent. But doing so will require completely rethinking the relationship model – developing new digital tools that enable relationship managers to support customers remotely, while delivering a better, more personalized experience.

For example, digitalization supports rapid customer onboarding by extracting relevant data from client information files and automating credit approvals for low value loans. The use of advanced analytics also enables banks to better assess the impact of changing market conditions on customers’ credit risks and provide more accurate insights into which sectors may be most impacted by the economic downturn.

This article was originally published in the summer 2020 issue of The Bulletin by the Official Monetary and Financial Institutions Forum (OMFIF).

Summary

Mature banks may have been slow off the blocks in the race to build the best digitized customer experience, but the unprecedented conditions have delivered an unexpected opportunity – and a burning platform for change. To sustain this position, and leverage it for greater competitive advantage, they’ll need to move fast. The window is close – within just months, nimble competitors will be back at their heels.

About this article

Authors
Gary Hwa

EY Global Financial Services Markets Executive Chair and EY Asia-Pacific Financial Services Regional Managing Partner

Passionate change-agent across the financial services industry. Avid golfer. Global sports fan. Father of two.

Andrew Gilder

EY Asia-Pacific Banking and Capital Markets Leader; Global Corporate, Commercial and SME (CCSB) Banking Consulting Leader

Banking and Capital Markets Leader. Over 20 years of experience in the field of auditing.