We are spending a lot of time thinking through the near- and mid-term ramifications of the coronavirus pandemic, especially impacts to the financial services industry. SRM has already shared several perspectives on this topic, including similarities/differences between today’s downturn to 2008’s financial crisis and financial institutions’ latest wake-up call concerning digital channels. Now, our lens focuses on what adapting to post-pandemic consumer banking and spending behaviors might look like.
As branches begin reopening this summer and executives start to realign revenue strategy with the differences in how consumers manage their money, we asked our all-star cast of subject matter experts what they are seeing – and they did not disappoint. A shout-out goes to our contributors Michael Carter, Bob Koehler, Larry Pruss, Ginger Schmeltzer, Patti Wubbels and Simon Rose (SRM Europe). Here are some thoughts compiled for banks and credit unions to consider when adapting to the desires of post-pandemic consumers.
Re-Thinking the Branch…Again
Experts have been championing a “Branch of the Future” model for several years, transitioning from the legacy layout of ropes and teller lines to open floor plans staffed with roving tablet-wielding concierges. It is ironic that just as some banks and credit unions began to embrace this model, we discovered it runs counter to some basic post-COVID-19 needs (e.g., social distancing and protective barriers).
But there is a more fundamental development in play. Since the pandemic was announced, there have been few complaints about closed branches, especially at institutions with robust digital banking capabilities. Customers and members have found they are able to perform most necessary banking functions via their online and mobile applications. The sailing has been even smoother for those banks and credit unions that effectively rolled out e-signature capabilities.
Although there may be some regression to old habits if/when the pandemic subsides, it is clear the existing trend toward digital channels has received a forward jolt. A significant cluster of customers and members have been further trained on these tools, including Baby Boomers, who are often (incorrectly) perceived as the holdouts.
Given these factors, it may be time to take an additional step forward in branch transformation, treating it more like a doctor or dentist’s office. While walk-ins would still be welcomed, the majority of traffic could become appointment-based, allowing for better resource allocation and the assignment of focused expertise.
Long-Term Uncertainty, Long-Term Commitments
In another irony, a disproportionate number of bank and credit union card network agreements will be expiring over the next 12-18 months – many of which were struck in the aftermath of the 2008 financial crisis. These high-stake agreements decide how much revenue will be gained by the institution from debit or credit card transactions; the terms are set by forecasting cardholder transaction values and frequency.
Just as several of these contracts are about to begin to expire, COVID-19 happens. As such, while consumers’ post-pandemic payments behavior is not entirely unpredictable, banks and credit unions will be very reluctant to include volume commitments in upcoming card agreements without a clear line of sight to how consumer payment habits will evolve.
Long term, there could be fewer cash withdrawals due to cleanliness concerns, driving more card transactions as well. Meanwhile, consumer purchases are predicted to keep shifting to e-commerce – consider recent predictions of the world’s first trillionaire. Then, of course, there is the dramatic decline in spending volumes reported in March and April. Many questions remain unanswered, including whether spending levels and volumes will fully return to the pre-COVID trajectory, and how soon.
Click here for the latest SRM Academy report on the aligning of card network agreements to shifting consumer behaviors.
The Bottom Line: As people settle into new habits and the “next normal,” the future of banking means adapting to change. Besides these points around the social-distanced branch and changes in consumer banking/transaction behaviors, there’s no shortage of angles through which COVID-19 will continue to impact banks and credit unions.
For even more on this topic, watch Larry Pruss's recent town hall panel discussion on pandemic impacts.
Next week, we will continue this series with more observations about heightened cyber risks and the urgent need to reinforce legacy infrastructure.