A search for calmer waters
As we continue to fight this crisis worldwide, no aspect of everyday life has remained untouched.
The economic impacts of coronavirus (COVID-19) are enormous, and we still have a long way to go in understanding the full set of risks we face, not least the epidemiological catastrophe that continues to unfold at an unpredictable rate.
For financial services firms, we’ve seen huge amounts of volatility in the markets, a desperate need for short term liquidity, and investor and shareholder confidence shaken to its core. In the midst of a global recession, it’s a worrying time for the industry, but there are steps that can be taken to mitigate the impact and prepare firms to emerge from this crisis on a more stable footing.
Businesses across all industry sectors will face three stages over the coming months: recover, renew and regroup.
Recovery and short-term survival
In the most part, the immediate focus has revolved around managing the crisis and ensuring that continuity plans are updated and applied. For specific verticals, emphasis must also be placed on the following:
- Retail Banks
Servicing the needs of the customer remains the clear focus, and a clear and decisive communication strategy to its customer base should be a key priority. With unemployment numbers still expected to continue to climb and businesses large and small struggling to make ends meet, retail banks are under political and societal pressure to fulfil their social obligations and provide the necessary liquidity to keep the economy afloat. So far, we have seen positive signs in this area but as the recession plays out, it is important that this continues as pockets continue to tighten.
Supporting current debtors remains the priority, and by utilising short-term amendments to loans, like repayment holidays or relaxed default criteria, lenders and consumers can better weather the storm. Efficiency is paramount to this; an enormous volume of requests must be prioritised, and help provided where it is needed most. If it isn’t essential right now, then it needs to stop.
- Capital markets
Although volatility has somewhat calmed since the initial outbreak, it is still vital that firms continually analyse and strategise their position in the market. Repeated and iterated modelling of stress test scenarios will go some way to understanding the full impact. Firms should have established collaborative and cross-functional teams that are empowered to action directives from the top, will allow institutions to be fleet-footed in their approach as the situation continues to evolve.
In a similar vein to retail banks, communication remains the priority for Insurers, particularly those in the life and health insurance markets. Customers need to be able to distinguish the vital information amongst the myriad of other information that is flooding their inboxes. For insurers at large, understanding what contracts are impacted and the financial implications of this will ensure that solvency requirements are met.
The most pressing issue for fledgling firms continues to be cashflow – especially if we see a consumer shift towards seeking shelter and security with established and more familiar brands. We have already seen a number of most established fintech firms be forced into layoffs and pay cuts just to stay afloat. However, there is a tremendous opportunity for fintechs to deliver to and capture new customers. Branchless banks, digital mortgage applications and streamlined mobile offerings were a saviour for consumers in more restricted lockdown conditions. Firms who recognised these opportunities at the outset will be the ones who reap the long-term benefits, particularly as COVID-19 has forced the biggest acceleration in digital transformation in history.
Regroup – moving out of a crisis
In spite of chaos and panic, financial services firms have always been remarkably efficient in redeploying employees and resources so they can continue to function. Even traditional brick-and-mortar branches can operate in the virtual space. Organisations will need to understand whether this resource redeployment requires a more long-term solution. Papering over the cracks will not aid recovery.
New technology is already being deployed, and new ways of working are being trialled in rapid and complex situations. This will advance the industry by 12-18 months ahead of the curve, with businesses innovating under pressure to make progress. Pre-existing technologies such as AI have seen a massive increase in use during lockdown, with 80% of daily moves in the US stock market now made by AI-led machines.
Learning what works internally, as well as understanding how the needs of consumers and clients can be met efficiently, must be a primary target during this period. The institutions that can do this are those who will come out this crisis more resilient and geared to leverage opportunities moving forwards.
Renew – opportunity and growth
As we begin to ease out of lockdown and see physical branches and stores reopen, a new form of normality will be established. Firms need to ensure they hit this new normal in stride and capitalise on the opportunities identified and renewed customer engagement they are going to see.
Proactivity will be the key here. Eventually markets will calm and employment will rise, and by this time firms need to have a strategic approach in-place, ready to meet renewed market demands and with the infrastructure established to support this.
It is worth keeping in mind that in the wake of the last financial crisis we saw a huge boom in new, innovative and now enormously successful companies, including Uber, Slack and Square to name but a few. Even in dark and turbulent times, there are success stories and opportunities to be found. There is no reason to think this time will be different.