6 minute read 28 Jul 2020
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Three ways COVID-19 is changing how banks adapt to digital technology

6 minute read 28 Jul 2020

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  • Accelerating digital transformation while grappling with credit and reputational risks (pdf)

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Financial leaders discuss how accelerating digital transformation is changing operational risks even as credit and reputational risks grow.

Bank Governance Leadership Network (BGLN) participants convened for two virtual meetings on 2 June and 8 June to explore how banks have responded to the pandemic and implications for the future. The discussions focused on three key topics:

  • As digital transformation has accelerated, new risks emerge.
  • Persistent uncertainty continues to challenge forecasting.
  • Banking models and reputations will be tested.

1. As digital transformation has accelerated, new risks emerge

Banks must break down barriers in their rapid move to scale technology.

The COVID-19 crisis has forced banks and their customers to use digital tools and processes to compensate for branch, office and call center closures. Participants shared some of the ways banks are using technology to confront the challenges and emerging risks posed by the COVID-19 crisis.

In many cases, the move to scale technologies was made possible by an increase in internal decision-making processes. A director said: “Suddenly the impossible became possible. Solutions that used to take 18 months to deliver are now happening in 18 days.”

Many participants believe that the digital acceleration taking place today will have a permanent effect on the industry. As one observed: “Every organization in financial services had a digital strategy of some kind, but this situation has become an accelerant. ‘Some day’ or ‘one day’ has become ‘today.’” The result could be more agile firms delivering “more projects and moving from project phase to production a lot faster.”  Other participants see the current environment as a positive use case for future investment in technology, including further migration to the cloud.

People are breaking down barriers and moving at speed. As the pessimist, what I hear is people are working with inadequate sleep and analysis and taking on more risk.
The cyber risk landscape is evolving

Bank leaders face the difficult task of balancing the traditional approach to risk management with the need to respond quickly to a crisis that has created massive changes to their operating environment. Criminal cyber activity, including fraud and phishing attacks, has increased as more employees work remotely. However, as one participant said: “We have not yet seen the massive increase in sophisticated, advance persistent threat cyber attacks that we normally associate with events like these.”

As banks shift from crisis mode, their boards need to address new emerging risks, such as video and voice communication surveillance with everyone using Zoom and other platforms, data security controls for the use of personal equipment, and cases of third and fourth parties falling victim to cyber issues.

Firms should track and assess the risks they have accepted

Participants stressed the importance of reviewing decisions made early on in the crisis, particularly in cases where the firm may have temporarily accepted greater risk. “It’s critical to look at the areas where you may have been rushing things and had to accept some risk. Now is the time to look back at those choices,” said one executive.

2. Persistent uncertainty continues to challenge forecasting

Assumptions change daily, prompting banks to stay ahead of the curve.

Participants question precisely how government lending programs will unwind and what kinds of risks their institutions will ultimately realize. The unprecedented steps taken to control the pandemic, the delayed effects on some sectors, and the continuing uncertainty about global economic recovery compound the challenge for banks trying to model the impact on their customers and portfolios.

Banks are assessing balance sheets and risk models with an eye to the future

As the economic impacts of the pandemic become clearer, banks are updating risk models and stress scenarios in an attempt to stay ahead of the curve. However, uncertainty in the operating environment continues to pose challenges. A lack of regulatory harmonization may further complicate benchmarking among peers across countries, though there is hope that this will improve soon.

Uncertainty is challenging traditional credit risk analyses

Some participants stressed the importance of continued due diligence around credit and fraud risk, even where government programs do not require stringent oversight procedures. Several participants are convinced that governments will ultimately take equity stakes in businesses such as airlines, while others are skeptical and seek further clarity on governments’ role.

The swiftness with which these programs were put in place left uncertainty about where we’ll end up when the grace period ends.

3. Banking models and reputations will be tested

What worked in the past may not be as successful in the future.

Participants discussed the risks for banks as government programs to support individuals and companies through the pandemic expire and the financial impact of the COVID-19 pandemic and economic shutdowns catch up with more customers.

A greater need to oversee reputational risk

The central role that financial institutions played in responding to the crisis may have been a boost to morale and to bank reputations. “Banks have proven to be critical infrastructure to the population and that is good for the image of our industry,” said one executive.

How you act and behave in the next 12 months will determine how you are perceived for the next 12 years.

As government lending programs unwind, how banks handle the collection process – and deal with distressed customers – presents significant reputation risk for lenders. One director predicted difficulties as government-provided funds and other easements, such as moratoriums on mortgage payments, come to an end. It will also take time for companies to rebuild balance sheets – at a time when litigation risk has become an inevitable consequence of government response programs.

Consumer credit challenges will place a massive strain on the system

Working through collections and debt solutions in this environment will stretch bank resources. With many economies confronting a potential extended recessionary period, some participants noted that banks may need to explore ways to enhance customer wellness assessments.

Some banks are turning to intelligent automation to support these processes. However, there are limitations.  “It’s not like you can just solve this by moving everything to cloud or just using bots. A lot of this needs to be a real conversation and a real understanding,” a director said. One participant said the use of technology for issues like this might be worthy of increased attention and perhaps clarification from regulators.

Culturally, I think in some ways customers and employees have changed permanently, so some of this is here to stay no matter what happens with the virus.

As bank leaders consider the best path forward for their institutions, a key challenge will be determining which operational, cultural or societal changes resulting from the crisis are temporary and which may have longer staying power.

For more, download the full report (pdf).


Digital transformation is accelerating, new risks are emerging and banking models and reputations are being tested. The COVID-19 crisis is placing greater pressure on banks to improve their technical capabilities at a time when they are also more vulnerable to cyber attacks and consumer credit challenges. Global financial leaders discuss these issues and their implications for the future.