How banking has been changing as a response to COVID-19 – an introduction to a new digital era

Source: CIB Bank Hungary

We are all familiar with COVID-19 and its effects on our everyday lives, but not many people know about how banks were affected, how they reacted to this new situation, and the many uncertainties that came with it.

Of course, there were some steps that banks had to take immediately. In some cases, they had to shut down a few branches or shorten the opening hours, but in general physical presence has been maintained. It was necessary to introduce new safety measures, like keeping a distance, wearing a mask, and using plastic glass to protect both the customers and the banking advisors. But due to the new situation banks not only had to adapt very quickly to these branch-related changes but more importantly, they had to come up with several digital solutions as soon as they could. For example, many banks introduced home offices for people who were working in the headquarters, and they also had to focus on digital channels more than ever. This means they had to speed up the process and do the digital work of 3-4 years in months. From this point of view, the epidemic was rather useful because the developments that were already planned were coming earlier, and it became clear that even banking employees were able to work from home for complete working hours. This new working system has been with us now for a long time, and based on the rather positive experiences, it will most probably stick with us in the future too.

Banks also had to concentrate on short-term responses, which required reviewing their digital strategy and identifying which services they can do completely digital, or half digital. For customer acquisition the banks had to come up with a completely online account opening process, so they were able to acquire new customers without going to the branch. For existing customers, it was mandatory to provide a reliable online banking platform, where they can access multiple functions. Even though banks already had such platforms, now additional services were needed (e.g. bank card or insurance application with zero physical contact). This means that the “old type” of banking is over or getting over and for example, the customers do not want to go to the branches and sit down for hours and sign thousands of papers, so the service needs to be very quick and has to be customer friendly. But on the other hand, it is not enough to understand the customer’s needs, because the solutions still have to be cost-efficient and risk-cautious which is not a negligible requirement for financial institutions when it comes to innovation or product development since this precaution is what protects the interests of both the customer and the bank.

In the last years in the banking sector, a new service model started to form, and some changes are partly a result of the pandemic. For example, there are fewer and fewer branches all over the world, and this global trend also applies to Hungarian banks. The pandemic is likely to exacerbate this effect, as with the spread of digitization, less and less personal attendance is needed, and consequently, fewer and fewer bank branches are necessary. Another new trend is that the branches look different than before. Now they have a modern appealing shape, there is more space, and they are more comfortable so customers can negotiate and meet with relationship managers in a more open-spaced environment. Of course, the epidemic situation has further strengthened the need for more free space in the branches so that customers do not have to get too close to each other. Digital devices are also used more frequently in the branches, so there is less paper, and the main goal is to have a completely paperless process where it is possible. With more
digital services customers can also solve most of their issues from home, and they have to go to the branch if they need some higher value-added service or a tailor-made offer from relationship managers. It is no secret that even before the pandemic, digitization was a main strategic goal of banks, so there was already a high customer demand for digital banking, and branch usage was already declining before the crisis, but COVID-19 has accelerated this digital shift. Before, it was moving rather slowly, as it is a strictly regulated sector where banks have to comply with a lot of legal and compliance requirements. However, the pandemic had a significant impact on this because banks had to focus on digital solutions and the development of a new service model in a very short time, as banking services could not be shut down despite quarantine.

In conclusion, the COVID epidemic has brought a difficult period for everyone. While for some sectors this meant having to suspend their activities or reducing the intensity of their operation, in the banking sector significant changes and innovations had to be solved in a very short time. Banks were not only focusing on maintaining their day-to-day operations but they are still working hard to provide a wide range of online solutions so customers can bank safely from their homes while forming a new service model which also affects the branches. In addition to these resources and time-consuming developments and transformations, it is also very important that banks are taking on a new role in times of crisis by offering a rescue, and a solution for individuals and businesses with difficulties.

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