6 minute read 28 Jul 2020
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How to accelerate FI transformation in the post-pandemic world

By Adam Girling

Principal, Financial Services, Ernst & Young LLP

Advises US and global banks on enhancing business performance. Helps them improve financial planning, resource optimization, and risk management capabilities.

6 minute read 28 Jul 2020

Reimagine the path to long-term growth and increased stakeholder value while supporting the economic recovery in a socially responsible manner.

The financial services industry is undergoing a profound transformation, rooted in data and powered by emerging technologies. The COVID-19 pandemic and its fallout provide an opportunity to accelerate the customer-centric strategies and efficient business models that will define future success, while also leading today’s economic recovery efforts in ways that reflect a sincere sense of social responsibility.

Quickly adopting new technologies is more crucial than ever to creating long-term stakeholder value and fulfilling social responsibilities.

The S-curve that defines technology’s path from idea to strategic adoption has been compressing rapidly in recent years, and the changes inspired by the pandemic will shorten it even more.

To generate long-term growth and value in this environment, financial institutions (FIs) must embrace a “future-back” approach to planning that identifies a variety of potential futures and works backward to create a sense of shared strategic purpose and buy-in among stakeholders.

That means harnessing large volumes of real-time data to better understand customers’ needs and using those insights to forge deeper emotional connections. At the same time, FIs must improve financial performance by elevating enterprise efficiency and resiliency and effectively managing risk, while supporting the economic recovery.

Emerging technologies are key to achieving these and other data-driven objectives. Moving forward, cloud-by-design architectures and connected platform ecosystems will be strategic necessities for managing data volumes and costs, strengthening security and improving the employee experience.

Reimagining how to achieve long-term growth and increase stakeholder value, while also supporting the economic recovery in a socially responsible manner, will require FIs to concentrate their efforts in five areas:

  • Adapting to changing customer preferences and needs
  • Elevating enterprise efficiency and resilience
  • Driving differential business performance
  • Redefining the sustainable workplace
  • Managing risk effectively through the cycle

Accelerating digital enterprise transformation is not without challenges. But now more than ever, the path to growth and long-term value creation lies in making critical decisions in the current economic cycle.

Provide personalized customer experiences

 The world has shifted dramatically for most customers. Being attuned to those changes and acting proactively to meet their emerging needs is more important than ever.

Our NextWave (pdf) consumer research, compiled in the first quarter of 2020, identified three profound changes that will impact how FIs interact with and serve customers:

  • Customer trust is more important than ever. Customers will leave if the information they share with their FIs isn’t secure, and if they don’t receive value in exchange for sharing it
  • Customers are hungry for financial advice. FIs that provide AI-driven financial health platforms to satisfy that appetite will hold a central place in customers’ lives
  • Customers are ready for subscription-based models. The platform economy is transforming consumers from owners and buyers into renters and users

The pandemic and its by-products – the greater customer use of digital channels, the economic insecurity and financial confusion it inspires – have made it even more important for institutions to understand customer needs and shift from product-driven engagement to customer experiences.

Elevate enterprise efficiency and resilience

The stress of recent months strengthens the rationale for boosting investments in digital technologies that can enable more flexible operating models and reduce the dependence on manual processes and legacy systems. FIs must strive to be “resilient by design.”

The stress also creates greater momentum to redesign approaches to worker locations and third-party relationships and create more resilient contingency solutions.

Going forward, FIs must rethink business strategies and operating models with an eye for efficiency and a myriad of new “what-ifs,” devise new KPIs to support the vision and make hard investment choices. The means might be different today, but improving efficiency has always been central to delivering value.

Differentiate business performance

As FIs seek new sources of growth and value creation, they must re-evaluate business models and metrics, and invest in emerging technologies to create more differentiated and sustainable value propositions.

For many, these investments have been slow to take root.

Consider that the typical FI today devotes 20%–40% of its budget to transformative technologies, while the rest goes to maintaining older, less efficient legacy systems.

The lasting effects of the pandemic on society and the economy mandate that FIs redirect more capital to transformation. For some, that might mean using M&A to bolster scale, distribution capabilities or digital technology portfolios. For others, it could be about prioritizing investments in digital and cloud-based applications over old legacy systems to enable more effective data use.

Institutions must also look to spur organic growth by creating more agile earnings models through improved operating leverage and enhanced dynamic planning and stress-testing tools. In the end, FIs must accelerate their own strategic transformations to improve performance.

Reimagine the work experience

The wholesale shift to remote work has gone more smoothly than anyone could have expected, inspiring changes in how we think about where and how people work. But what are the long-term implications for talent management and its role in the broader theme of strategic transformation?

Going forward, institutions must reimagine their facilities, with an eye for both safety and sustainability. Look for workspaces to leverage everything from nanocenters, worker badging and parallel analytics to contact tracing. They also must envision operating models that provide workers with the flexibility to select the workplaces that most effectively enable them to fulfill their roles.

New ways of working will likely upend the entire talent lifecycle, from recruiting and onboarding through performance management, learning, coaching and career pathing. Matching practices with the desires and aspirations of today’s workforce will become a competitive differentiator. Now is the time to modernize and become the employer of choice.

Manage risk effectively through the cycle

COVID-19 has exposed FIs to a variety of new operational and credit risks that must be managed with refined risk appetites, controls, processes and models.

The risks of government stimulus and lending programs must be managed carefully, with an eye for compliance through the full lifecycle of the pandemic.

As the financial stress of customers evolves, FIs should tailor early warning indicators to the unique economic impacts of the pandemic across sectors, regions and stimulus effects. They also must develop decision tools and processes to accommodate new and more compassionate collections practices.

Finally, enhancing operational resiliency will require paying greater attention to non-financial risk triggers and frameworks. In the coming months and years, managing emerging risks will be more important than ever.

Future-back thinking

FIs have a social responsibility to support economic recovery efforts and their customers. They also must protect and enhance their brands by managing capital with agility in the face of uncertainty. The way they interact with stakeholders is changing and demands a new, more dynamic, future-back approach to developing strategies and business models.

The path to recovery and growth in the coming months and years lies in accelerating digital enterprise transformation. It’s a shift powered by the cloud, new connected ecosystems and building enterprises at scale. But just as importantly, it must be insight-driven, innovative and built on trust. At this pivotal time, FI leaders must step up to embrace the opportunity. 

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FIs must embrace a “future-back” approach to planning as they evaluate their resilience, growth and key business objectives in the effort to generate long-term growth and value. This requires FIs to concentrate on adapting to changing customer preferences and needs, elevating enterprise efficiency and resilience, driving differential business performance, redefining the sustainable workplace and managing risk effectively through the cycle.

About this article

By Adam Girling

Principal, Financial Services, Ernst & Young LLP

Advises US and global banks on enhancing business performance. Helps them improve financial planning, resource optimization, and risk management capabilities.