There is a business cartoon that has been circulating around social media – a group of employees is holding court in a conference room. The manager at the head of the table declares, “Digital transformation is years away – I don’t see our company having to change anytime soon.” Meanwhile, outside the window just behind him swings a giant wrecking ball labeled “COVID-19.”
The term “bank” never appears, but there is no sector for which the message rings truer. While the migration of banks and credit unions to digital channels has been underway for several years, of course, the national brands have been the most aggressive, creating an online capabilities gap over most community financial institutions. Given the pandemic-prompted closing of most branches and the energetic push of customers of all stripes toward remote channels, those investments by the largest institutions seem more prescient than ever.
That said, the task at hand is not to wallow in, “I told you so,” but rather to determine how best to apply lessons learned.
Survey Says…
In late March, we polled our financial institution clients on their reactions to the rapidly evolving business environment brought on by the pandemic. Over four-fifths viewed their online and mobile channels as “vital” to ongoing operations. No respondent rated them “less than important.” Fifty-four percent are also doubled down on remote channel education and promotion to stay relevant to a greater share of their customers during the crisis.
Another survey finding indicates the digital infrastructure which has enabled institutions to serve consumers at a safe distance has also made it possible for banks and credit unions to redeploy employees to work remotely. More than 50% of the financial institutions in our survey have the greater part of their people working remotely. This would have been impossible just a few years ago since the tools needed for security, connectivity, et al. were not available.
The Power of Corporate Amnesia
As more states solidify plans to reopen their economies and financial services begins to settle into a “next normal,” we will field a follow-up survey to assess how these plans and behaviors are evolving. We expect the survey to uncover a regression to the mean as digital banking use drops and branch use increases again. The question remains: How much reversion to old habits can we expect?
What is expected is the rise of an entirely new cohort of pandemic-grade digital users. Some of them will like what they’ve seen and stick with their new banking habits, others will also continue these habits out of necessity or convenience. In either case, these customers are at elevated risk of attrition if their institution fails to offer a solid digital experience.
If the digital experience offered is consistent and relevant, these recent converts to digital delivery will likely continue using this option for their banking. In other words, we do not expect a regression to the mean – rather the establishment of a “now normal” in demand for digital delivery and branch access.
The area where we expect to see the most relapse is within the banks and credit unions themselves. Some level of corporate amnesia will take place. As we move further away from that moment in time when the digital channel was valued as vital or very important, the level of urgency for investing in digital to remain competitive will be deferred…most likely rationalized by the challenging economic conditions. For those banks and credit unions who put off the decision, it will be a death sentence.
The Bottom Line: A simple look at deposit flows illustrates how the digital divide between large and small financial institution capabilities has translated to market share loss. The COVID-19 pandemic has made such a trend a death sentence for those community financial institutions that do not understand the options they must leverage to decrease costs and the investments they must make to remain competitive in digital.