From Disrupted to Disruptor: Factoring COVID-19 For FSI Transformation

Photo credit: iStockphoto/Shahid Abdullah

Before COVID-19, traditional financial services institutions (FSIs) were locked in an epic fight with challenger rivals for relevance and survival.

Consortiums from different industries with no legacy infrastructure or red tape weighing them down faced off traditional incumbents. “These disruptors are digital by nature and design, and unlike traditional financial institutions, they don’t have to grapple with legacy technologies and rigid processes,” says Brian Thung, EY ASEAN financial services leader.

COVID-19 changed the battle lines. Yes, traditional FSIs faced sudden transition to remote working and digital services. Online activities soared, especially in commercial because of the volume challenge in delivering funds to businesses. But many became familiar brands that businesses and consumers can rely on during an uncertain economic landscape for much-needed assurance.

The reprieve will, however, be short-lived. Thung highlights three ways FSIs can use this time to hone their competitive edge and recalibrate their operating model.

1. Rethink your operating model

COVID-19 shows that traditional operating models that relied on extensive branches and physical presences are no longer relevant under quarantine or lockdowns. FSIs are no different. While business and consumers still rely on them for diverse services, they need to review their operating models.

“FSIs need to assess fundamental operating models, review location strategy, and revisit the work model. There is a clear opportunity to rationalize costs, especially around reduction in business travel, videoconferencing, real estate space, outsourcing and shared services,” says Thung. 

2. Adoption of emerging technologies

As COVID-19 shows the value of emerging technologies, it is prime time for FSIs to get on the bandwagon.

“New technologies such as cloud will help drive workforce transformation, including enabling a more dispersed workforce (Workforce in the cloud). Also, they will need to work on rapid workforce realignment to address new customer needs and set up more holistic cross-functional teams across business, risk, and compliance to address complex issues. There may be a move to offshore and reliance and shared services sectors,” Thung explains.

Artificial intelligence is also coming of age as it lowers the workload stress and takes over labor-intensive tasks. The recent EY study on AI shows that AI and ML techniques can streamline existing processes, improve operational efficiencies, and improve the onboarding experience. They also help FSIs to become better at scrutinizing for money laundering, fraud and terrorist funding during these times where transactional traffic are breaking records.

Meanwhile, blockchains, “which uses a centralized consensus-driven ledger to track and record all transactions in a series of sequential blocks,” is maturing fast. “We are now seeing real-world progress in blockchain-powered platforms and commercialization of applications, particularly within trade financing by corporate banks,” Thung observes. 

3. Fine tune your response to black swans

COVID-19 is forcing FSIs to re-look at business continuity plans (BCPs) in a more sophisticated way. Focus has shifted to maintaining operational resilience which is a more holistic way of looking at business continuity compared to the siloed approach used traditionally.

“From an operational point, this would mean managing backlogs of activities, reassessing resilience of critical business services and addressing gaps. From a people point, this would include supporting the return of those impacted by the crisis, managing increased expectations of remote working and taking steps to reduce key person risk,” says Thung. 

Going forward, FSIs will need to build more stress testing scenarios. “For instance, everyone had factored in a downturn but not one predicted a full-blown halt in economic activity. We need to factor in more black swan events. This is where new-age technologies like AI and cognitive computing will come in and support,” Thung observes.

Maximize your head start

The pandemic woes have made people realize the value of traditional FSIs in offering financial help. Governments and related agencies are also releasing economic stimulus initiatives through established FSI channels, turning current players into important lifelines for many businesses and consumers.

“FSIs have been incredibly sensitive to customer demands and are doing a good job in supporting customers and the economy during these challenging times. Rather than being admonished for their role in causing the 2008 crisis, banks are being called on by governments and central banks to help distribute an unprecedented stimulus program worth trillions of dollars to customers facing financial pressures,” says Thung.

This reprieve will be short-lived if FSIs do not transform. So, they should seize this opportunity to recalibrate their operating model and become more agile.

When the COVID-19 pandemic ebbs away, you can be assured that the FSI landscape will be very different.

Photo credit: iStockphoto/Shahid Abdullah