FSI Pandemic Survival: Navigating the Now, the Next and Beyond

Photo credit: iStockphoto/SiberianArt

COVID-19 is altering the global business landscape, and financial services institutions (FSIs) are not immune.

It has brought the global economy to a standstill. The implications for the macro-environment, financial markets, businesses and households/individuals will be massive,” says Brian Thung, EY ASEAN financial services leader.

While FSIs weathered immense headwinds, they have done well in becoming lifelines to both battered businesses and livelihoods. EY’s Global Banking Outlook noted that FSIs, especially banks, have showed their ability to outperform in challenging conditions. Part of the reason is the groundwork laid during the past years for managing economic downturns and financial crises.

Thung believes that FSIs “should not miss this opportunity to transform and boost profitability.” To seize this opportunity, he highlights what they should do now, next and beyond the pandemic.

Now: Living in the remote reality

FSIs’ ability to shift toward digital, while keeping essential physical services operational, helped. Immediate measures to redeploy staff, limit working hours, curtail in-person branch services, stagger appointment-only access for customers, restrict walk-in services and set up drive-through windows played a part in balancing convenience and reducing transmission. “In some markets, FSIs have been remarkably successful and efficient,” Thung observes. 

Thung believes FSIs need to optimize their use of digital services further, including internet and mobile banking facilities, while hardening their security by focusing on policies and procedures, cyber-awareness training, and cybersecurity packages to support personnel.

“FSIs need to ensure secure operational functionality and be vigilant to data protection and threat of cyberattacks in this vulnerable period. Also, understand vulnerabilities for outsourced services and related business continuity concerns,” Thung says.

Emerging technologies in FSI operations can help. “In terms of RPA and AI, we have already seen some activity going on in the banking sector. Many banks have already set up AI assistants,” Thung explains. 

As data volumes increase, RPA can allow FSIs to keep costs down and employ a larger part of their workforce in client-facing roles. Mortgage processing and loan restructuring, and performance-related tasks, such as compliance reporting, performance and financial reporting, can benefit immensely. Automating KYC requirements and transactions, which were being handled by shared services centers, can also improve efficiency.

Next: Understanding the new normal

As FSIs adjust to the new business normal of digital operations and less reliance on physical operations, it may be time to optimize various aspects of the current operations. “For instance, many bank staff have been moved to digital channels to support customers through calls, etc. However, there are still gaps and banks will need to work with non-bank partners to fill these,” says Thung.

Incumbent FSIs can now stress test operating on a limited physical presence (like branch networks). “And there may be the realization that there is no significant need for such a large physical presence. Hence, banks may look to optimize and rationalize branch networks,” he adds.

In addition, banks will need to strengthen pre-pandemic BCP plans and IT strategy plans through updated risk assessment, cybersecurity strategy and roadmap re-assessment and re-alignment, improved collaboration capabilities, aggressive analysis of moving more workloads to the cloud in view of performance benefits, better patching and upgrade strategies and revising sourcing strategies and agreements.

FSIs also need to recalibrate their focus on digitizing, which centered on the front-end customer services and employee collaboration. “While banks have invested time and money in digitizing and automating front-end operations, the back-end processes may still be ‘manual-ized’,” he adds. 

Many employees have also picked up technology skills under pressure during COVID-19. It is up to the FSIs to take advantage of this new digital awareness to sustain the momentum and widen the scale for transformation.

“There is huge operational and credit underwriting stress on banks to cater to enormous demand for loans. In such scenarios, banks can build their credit underwriting capabilities by building predictive models to determine the risk, repayment ability, ideal interest and repayment periods on the back of AI/RPA,” says Thung.

Beyond: Preparing for the pandemic aftermath

When the pandemic eases (which it will), FSIs need “to re-align its cybersecurity strategy and roadmap, security governance, management and operational structure, revise risk assessment methodology to reflect revised operational requirements and add new KPI and KRI for business stakeholders to reflect cyber performance in this new world,” says Thung.

That said, FSIs are more agile now because of their digitization. Many have looked inward into their own resources to address key challenges, reducing their dependencies. For example, “some are even looking at their innovation teams to build tools that mitigate cyber-risk pressures better and offer analytical insights to counter future attacks,” Thung notes.

But all these will count for little, if FSIs do not build on their digital transformation efforts fast. They will need to consider working with partners “and increase dependence on holistic ecosystems.”

“From a commercial standpoint, looking at the ‘beyond’ aspect of transitioning out of the COVID-19 crisis, corporates will need advice on restructuring. This will need FSIs to seek support from non-banks, such as lawyers and consultants,” says Thung.

Forward-looking FSIs may see this as an opportunity to catch up with challenger banks looking to usurp them before the pandemic. “As some FinTechs and challengers struggle, banks may speed up the move toward digital sales and service catching up with customer experience of these new-age players. And one way might be through increased partnerships and collaborations with challengers,” says Thung.

It may also be an excellent time to buy. “Incumbent FSIs are further evaluating their acquisition strategies and good assets can be picked up at decent market prices,” says Thung. 

Building a resilient future

As FSIs play the role of central defense against the ravages of COVID-19, a new level of trust is growing. But it is not a time for careless optimism.

From Thung’s perspective, FSIs, especially banks, appear to have passed the first test: “a pronounced period of market mayhem and a transmission of enormous amounts of credit to corporates/SME businesses feeling the strain.”

But whether these FSIs can maintain the newfound trust depends on their ability to transform themselves and prepare for the COVID-19 aftermath.

“From a long-term perspective, FSIs have to combine restructuring and transformation, and shift their business model to a more client-centric setup for the future,” Thung concludes.

Photo credit: iStockphoto/SiberianArt