How Covid-19 is Transforming Digital Banking

EVP North America Sales & Distribution, Jeffery Kendall, identifies the largest impact Covid-19 will have on the future of banking with results from reports across a number of industry thought-leaders.

Blog, August 17, 2020

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For years, Temenos has helped financial institutions grow and prepare for rapidly changing consumer behavior and provided tools to help organizations transform in the digital age. However, we never could have expected the overnight changes in banking that COVID-19 has wrought across the world.

In his recent report, Michael Perito, a regional bank analyst for Keefe Bruyette & Woods in New York City, predicts that as a result of the pandemic, 30-40% of bank branches could close. If his analysis proves correct, that could mean 20,000 branches in the U.S. alone will shut its door in the near future, which will have a profound impact on how banks interact with their customers for decades to come. In this blog, we discuss the impact the coronavirus will have on the banking industry and suggest ways that financial institutions can stay ahead of the curve.

Branches Are Closing at an Unprecedented Rate

Despite banks being considered essential businesses in most counties across the United States, traffic has dropped considerably in branches. Teller transactions have dropped 30-40% and banks are making drastic changes as a result. For example, PNC announced it will close 1% of its branches by the end of July, with another 1% closed in August and 1% more in September. It’s easy to imagine that this trend will continue unless a viable cure or treatment is found in the near future. And even when the coronavirus is slowed, banks may find that their digital capabilities are strong enough to warrant keeping these branches closed forever. It’s time for banks to prepare for a future when bank branches are no longer the primary way in which they interact with their customers.

Digital Customer Experience Will Define Bank Winners and Losers

According to McKinsey, highly satisfied customers are 2.5x as likely to open new accounts and products with their existing bank than those who are merely satisfied. As COVID-19 discouraged bank visits, J.D. Power reports that 30% of consumers have increased usage of their mobile banking app, and 35% are using online banking more than before coronavirus. The only problem is that digital-only customers still score significantly lower than their branch-dependent counterparts in overall satisfaction. This means that banks who have prioritized creating great digital customer experiences stand to make significant gains over their unprepared competitors. Exceptional digital and omnichannel customer experiences are no longer an option in 2020.

Mobile Will Take Center Stage

According to Wells Fargo, mobile deposits increased 81% from April 2019 to April 2020. That is a staggering increase in just a year, and is further proof that branch-dependency is declining. In addition, person-to-person (P2P) payments are growing by 9% per month, with new user growth up almost 20% since Covid-19 began spreading across the globe. Analysts also predict that perception of cash as a vehicle for coronavirus will increase usage of credit cards and digital payment options.

Rapid Evolution Will Be Critical

COVID-19 is causing widespread and rapid changes across the financial world. The Fed and European Central Bank both cut rates to zero. Governments rolled out massive loan programs for businesses and direct payments to offset lost income for citizens, though banks must be prepared for the rising tide of bankruptcies that will come from extended lockdowns and a potential second or third wave of the virus. Meanwhile, criminals are exploiting vulnerabilities created by the lockdown and are increasing rates of cyber attacks, money laundering, and terrorist financing. Given how quickly the financial world is changing, banks must be ready to evolve quickly and meet the mounting demands of their customers and regulators.

How Temenos Can Help

In April, we announced the launch of 8 solutions to help banks respond to the Covid-19 crisis including:

Explainable AI (XAI) models that banks can use to assist their small business and retail customer with fast approval for loans and other financial products
Temenos Infinity Engage that helps banks build personalized digital communications channels
Tools to help banks rapidly process loan applications from small businesses under the U.S. government Payment Protection Program
Financial-crime mitigation solutions to help banks combat cybercrime and manage AML and KYC regulations