Banks must adapt to survive: harnessing the payments ecosystem
By Pierre-Antoine Dusoulier, CEO and Founder, iBanFirst
How the pandemic has reshaped traditional banking
The COVID-19 crisis caught traditional banks off guard. Up until recently, they existed to serve the needs of a clientele built over decades, using traditional ways of working and a combination of paper and digital processes.
If a customer needed to facilitate a payment with a bank they had choices from in-branch support and telephone banking, to online and in-app banking. However, all of this was to change when COVID-19 reared its ugly head at the beginning of 2020.
At the beginning of the crisis, on the whole, businesses played down the impact of the pandemic – there were cases where banks were still running as usual and with no changes made to on-site working. This was until the governments across the world initiated a mass lockdown. For banks who had not acted previously, they now needed to tactically manoeuvre their traditional processes and transform their customer experience for both the front and back office as quickly as possible.
COVID-19 increased the necessity for remote working both on the customer and bank side, strengthening the demand for online services. At the same time, banks have found themselves relying on technology to preserve everyday operations.
In some cases, traditional banks are still reeling from the crisis due to the closure of branches. Telephone banking lines are jammed, digital banking outages are occurring due to the increased number of customers online, and data security remains a threat due to the nature of remote teams working off-premise. Many traditional banks won’t be returning to the office until 2021, and this will be a big issue if the right technology and processes are not in place.
Reviewing banking models
As we emerge from lockdown, now isn’t the time for banks to continue with nostalgic ways of working and risk modelling on historical events that were in place prior to the pandemic. The very nature of risk is that it is influenced by environmental factors.
Banks need to review their risk modelling strategies and future-proof their operations for further pandemics rather than resorting back to what they know. Remote working is here to stay, and the demand for digitalisation signals the end of analogue processes, well and truly ditching paper and in-branch services to save on overheads.
According to McKinsey, banks need to champion a two-phase strategy. The first phase is a short-term crisis-operating mode for Model Risk Management (MRM), and the second is longer-term comprehensive enhancement of the MRM strategy to increase resilience and enable proactive adjustments to arising changes.
Once the world has fully recovered from the COVID-19 pandemic, it is essential banks are planning for the next pandemic or potential crisis rather than becoming complacent. Who knows what tomorrow will bring. The threat of further localised lockdowns or a new strain of the COVID-19 virus, surely must provide the impetus for banks to stay vigilant and prepare a robust business resilience plan.
Embracing the payments ecosystem to aid recovery
For traditional banks to recover from the crisis, they must adapt to survive. Not only should they review their ways of working and risk modelling, but they must embrace partnership opportunities within the payments ecosystem.
By teaming up with leading financial technology specialists, banks are able to respond to the surge in demand for international, online payments while ensuring other products and services are kept running – helping to retain existing customers and attract new ones.
In order to access specialist knowledge through technology vendors, traditional banks will need to champion ‘Open Banking:’ opening up their APIs to third parties to provide a variety of payment options while delivering PSD2 compliance.
A secure FX payments platform will help banks to stay competitive within the world of international payments, and this can be set up instantaneously with the right know how. Meanwhile, if a bank attempted to build its own FX payments platform it might take them well over a year, wasting precious time and resources.
Industry partnerships are the only way forward for banks that want to get fit and remain fit in a post-COVID-19 world.