Banking After the Pandemic – Change and Continuity

Pay for takeaway coffee and social distance during COVID-19 epidemic. Young african american guy in protective mask and apron gives terminal and looks at client in dark interior of modern cafe

Nearly eighteen months into the COVID-19 pandemic now is a good time to look at the prospects for the future of banking. With a little bit of hindsight, we can see how the industry has had its hand forced on some issues and predict what changes might be permanent.

The global shock of the pandemic, with lockdowns, social distancing, and travel bans, has meant nearly every industry has had to change. Whether the changes will stick is up for debate. In terms of the banking industry, we’re going to look at:

  • The future of electronic interactions between customers and banks
  • Changing payment options and their implications
  • How branch networks will fit into the future of banking

The future of electronic interactions in banking

As banks introduced restrictions at branches, and even closed some entirely, electronic interactions became more common. Banks already had been focussing on digital transformation for years, but the pandemic forced them to speed things up and radically replace processes that required face-to-face interaction.

Some quick changes that have happened in the financial sector have included:

  • The creation and signing of deeds electronically
  • Using electronic signatures much more widely
  • Document witnessing being completed through video call
  • Digital mortgage processing

Now it’s been shown that these processes can work, and no one really has to be physically present for transactions, will these changes hold for the future?

Other transactions are increasingly being done online. 35% of Australians report that they are using banking apps more than before the pandemic. This is a trend that will likely continue for simple transactions like checking balances, moving money, and applying for new products.

Changing the way payments happen in the future

Along with the future of bank branches, which we’ll look at in a moment, the future of ATMs in Australia has been called into question. The RBA Banking statistics show that ATM use has dropped 24% whilst payment methods like NPP have surged by ~60%.

Lance Blockley from the Initiatives Group payments consultancy suggests, “instead of having around 30,000 ATMs, maybe the whole country could eventually be serviced by about half that number.”

In terms of contactless payments, in April the limit on transaction value was quickly lifted from $100 to $200 dollars. This was to help people avoid touching cash and pin pads.

Optional debit cards have also been offered to those still holding passbook accounts to help them avoid branch visits. As long as there is no uplift in fraud relating to these changes, there’ll be no reason to go back as the pandemic subsides.

Another way people found to avoid using cash has been to shift their shopping online. Although convenient, this has also gone hand-in-hand with an increase in online scams and fraud. Banks will need to work on their risk management, introducing analytics, and using AI to spot complex patterns.

What will bank branches look like after the pandemic?

Bank branches closed pretty quickly. at the start of the COVID-19 outbreak in Australia. In-person visits into those that remained open have fallen dramatically.

We’ve already looked at the solutions customers and regulators have found during lockdowns and social distancing measures. The question remains as to whether this will be a long-term shift or will people still want to visit their local branch.

The COO at HSBC’s Wealth and Personal Banking department, Kevin Martin, believes that bank branches will turn into “service lounges”. In a post, he said suggested, “Agents will be on hand to guide customers through transactions on their own devices, and space will be broken up into more casual seating areas for deeper private conversations.”

High-value transactions like wealth planning, property purchases, and probate will probably still be demanded in branches. This is likely to need more specialised staff as opposed to tellers and cashiers.

Banking after COVID

Along with the customer-led challenges, there will be financial struggles ahead. The RBA’s Head of Financial Stability Jonathan Kearns said that “banks have performed well so far through the pandemic, cushioning (rather than amplifying) the shock by continuing to lend and supporting households and businesses.” This has helped support customers through the initial shock of COVID, however, as we move forward some businesses are likely to struggle given the significant changes to some industries. It is likely that there are more lending losses to come.

Banks need to be sure that their customers are ready for further changes. Regulators have shown they are able to be nimble and responsive to market needs. As long as the underlying strength of the banks remains, the future is about adapting and spotting how the market expects banks to service customers.

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