And suddenly, everything was different. Having taken hold of daily life worldwide, the Coronavirus has pulverized almost all annual planning and economic forecasts within weeks. Now it is important to keep a clear mind and purposefully navigate through these uncertain times. Banks and financial services providers must and can contribute significantly to eventually overcoming this global economic crisis in the best possible way.
COVID-19 has taken the world into a state of emergency. The economy is losing its balance and countless once solid entrepreneurs and companies are sent into a tailspin. The stock market has also gone mad, resulting in an urgent need for consulting among the many alarmed investors. Quick solutions and immediate support measures are now required. Governments have already reacted and put together comprehensive rescue packages that must now reach those businesses and freelancers who urgently need them.
Banks are now the safety net that will have to catch the economy in free fall. Although the full extent of the corona pandemic cannot yet be predicted, there is no time to lose in preventing the worst. It is therefore crucial for banks to reach out to their customers now and guide them through the difficult times with as little damage as possible. After all, the primary goal is to get the majority through this extreme situation and then return to a normal state. Whatever 'normal' may mean in the future.
The Financial World Now Needs to Be Able to Provide Coronavirus Aid Quickly
It is now a major task for banks to play their part in stabilizing the economic situation as soon as possible. To be able to do this, however, they must first and foremost be able to provide companies with the necessary support promptly to ensure their survival.
The applications for development loans (e.g. KfW loans in Germany) from countless small and medium-sized enterprises need to be processed and checked as quickly as possible, and the money from dedicated funds (e.g. the German economic stability fund) needs to be distributed. When granting loans themselves, banks need to balance security on the one hand and fast, efficient help on the other. Dynamic financing models and the suspension of mortgage payments, the deferral of loan repayments, as well as the implementation of further support and stabilization measures by the government will be topics financial institutions need to address. A mammoth task.
COVID-19 Will Dramatically Accelerate Digital Transformation in Banking
To be able to cope with all this, financial institutions face the additional challenge of maintaining their own normal operations. After all, the financial sector is also heavily affected by the measures taken against the spread of the Coronavirus. Branches are being closed for safety reasons and personal contacts between bank advisors and customers are currently hardly possible. Entire departments are temporarily working from home, which confronts banks with unprecedented administrative challenges – well-established, often paper-based processes suddenly no longer do the job. For an extended period, many internal and external services will be available exclusively online.
The necessity and urgency of digital transformation, especially in financial institutions, becomes more than obvious in the current situation – now things have to get moving fast. Due to the far-reaching restrictions of public life, banks are forced to immediately create appropriate offerings with which they can reach their business partners under the given circumstances and encourage and support them to use these. The logical consequence is to reduce dependence on the branch by quickly extending the digitally available services. Therefore, it is now important to understand the essential processes and the effects of the crisis on them and thus identify the most important online functions that can be offered or improved quickly. Customer service is the decisive factor in proving that financial institutions can be relied upon, especially now.
Customers Rely on Experience in Times of Crisis
In economically challenging times, trust is a key factor in business. Indeed, the current development could help traditional banks to take the lead now after several difficult years in direct competition with fintechs and neobanks. While in recent years, investors and experimental bank customers have been increasingly willing to entrust the up-and-coming digital natives in the market with their money and business, the tide will now turn in favor of security and experience, that is the established financial players. An additional obstacle for fintechs in the current situation is that many of the new digital banks do not have the necessary accreditation to provide their business customers with the respective emergency aid (such as KfW loans in Germany).
In the securities sector, too, many investors will focus primarily on safe investment opportunities after the big crash, which could have a negative impact on the venture capital of new financial start-ups. In addition, the economic recession will lead to fewer transactions, causing a lack of fee revenues in balance sheets of many fintechs.
For banks, this is a great opportunity act quickly and purposefully during the crisis and thus regain the trust lost through hesitancy in the digital change.
Coronavirus as a Nutrient for New Ecosystems
In order to meet this global challenge, fintechs and banks will now have to engage in new collaborations. This will enable them to complement each other with their specific strengths and jointly take effective action. For, despite all the security requirements, the demand for digital solutions is currently growing rapidly – and fintechs have gained a lot of experience in this area over the last few years.
As in many contexts, Corona can also be the impetus in the financial world to tackle the upcoming challenges as a team. In recent years, farsighted companies have already begun to realize the potential of banking ecosystems as a means of bundling the strengths of specialized service providers. Now more than ever, the right strategy will also determine the success or failure of a financial institution’s own portfolio.
As control centers for payment transactions, deposit collection and lending, banks play a central role for the health of the global economy. Yet they are not only trading companies, but also provide important services to individuals, businesses and communities. Their own health, the continuity of their operations as well as their safety and stability are therefore of crucial importance in overcoming the Coronavirus crisis with all its economic consequences and ultimately in stabilizing the global economic system.
It is now important for financial institutions to make the right decisions quickly. On the one hand, to keep up their own operations, on the other hand, to help those whose economic existence is massively threatened. This is a challenge we can only master together.
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