Banking in the new reality

There is no question that the banking industry will be significantly changed as a result of COVID-19. Given the rise of mobile money in Zimbabwe and the uptick in electronic money usage in light of hard currency challenges, many banks were already transforming to become more digital by default and increasing their digitalisation drive to reduce costs and to improve the customer experience. But COVID-19 has vastly accelerated the drive to this new operating model; in a very real sense we have seen 3 years of digital advancement in about 3 weeks.

Zimbabwean banks have had to adopt new ways of working, upgrading both back-office and client-facing digital capabilities, and driving paperless approaches and automation. It's expected that a portion of Zimbabwean bank employees will continue to work from home indefinitely, as the effects of vaccination programmes are yet to be seen, and as some of the largest users of corporate real estate, banks will be revisiting office configuration and work locations. In addition, banks will need to develop new distribution strategies that take advantage of increased digital client interactions.

COVID-19 has also highlighted the need for the banking 'risk playbook' to be rewritten. Going forward, Zimbabwean banks, along with the rest of the world's banks will need to define new approaches for tracking and reporting liquidity metrics, different approaches to valuation, and new ways of monitoring obligors – just to name a few.

We have identified six key trends against which bank's performance will be critically important as they position themselves for the future:

New distribution channels reconfiguring the landscape:

As society becomes more cashless and digitization accelerates, banks will need to evaluate their branch networks and ask themselves fundamental questions about what their physical outlets are actually for. Are they sales points or service centres? Core to the brand or nice to haves? In a much more digital model, products and services may need to be reframed, allowing greater degrees of self-service, enhanced product functionality and fulfilment, and a new approach to selling and advertising to attract customers.

Harnessing the shift to a digital economy:

As we accelerate to a global digitally connected economy, banks must operate across virtual and physical domains seamlessly. They will need to harness the potential of new electronic payment mechanisms, digital currencies and contactless payments as use of cash rapidly declines. But as much as this creates opportunity, it also poses threats – with a generation of new technology-based service providers such as mobile network operators coming into the market, banks may need to devise strategies to prevent themselves from becoming disintermediated. They must find ways to remain relevant to their customers and create new use cases for payment revenue opportunities.

Cost priorities reimagined, new operating models emerging:

In an environment characterised by interest rates lagging behind inflation rates leading to negative real interest rates, operating expense will likely become an ever-greater area of focus. Banks will need to find a way of decreasing costs while also building capability to support growth – 'smart cutting'. A focus will fall on leveraging technology to achieve both of these aims, through greater use of automation and AI. Simultaneously, banks can more aggressively evaluate their operations by moving to greater use of shared service utilities owned by consortiums or third parties, as well as managed services and outsourcing. Everything could be up for debate as banks look for the operating model of the future.

Writing a whole new risk management playbook:

If there is one thing that COVID-19 has taught us, it is that almost anything can happen. Banks will need to fundamentally re-evaluate their resiliency across the complete spectrum of risk – operational, liquidity, capital, market, and credit risk – to model for the next unforeseen event. As we enter a likely recessionary period, regulatory requirements could rise. How much capital should banks hold over and above regulatory mandates? Are their customer portfolios sufficiently diversified? Meanwhile, as banks increase the use of AI and digital technologies, are they cyber secure? New risk models and strategies need to be developed as well as processes and protocols to accompany them.

New ways of working becoming the norm:

COVID-19 has seen a cross-sector working from home 'revolution' – including in banking. Going forward, banks should identify the optimal mix for the operating model and ensure they have sufficient infrastructure to facilitate long term mass flexible working. In turn, this means that the purpose and use of corporate real estate will need to be re-evaluated. At the same time, the labour force is likely to become ever more automated, with resiliency paramount. Organizational culture and leadership, on-boarding, training, upskilling, and the attraction of new talent – together with Tax implications due to reduced Global Mobility and higher levels of remote working – all need to be factored into a complex set of dynamics.

Values and purpose front and centre:

As governments, businesses and citizens start to look towards the new reality of life after COVID-19, considerations related to environmental, social and governance (ESG) issues are central to the agenda. The days when financial institutions were almost exclusively evaluated by their growth, profits and go-forward prospects are receding. Today, what customers, investors and stakeholders increasingly want to know about – alongside financial strength - is the company's culture, values and purpose. Societal responsibility, ethics and support for progressive climate related products and services are paramount. Much progress was already being made pre COVID-19 – banks need to retain these gains and build on them for the future. At the same time, as banks become more digitized and the world moves towards a cashless society, banks may need to ensure that no one gets left behind.