For the last several years, bankers throughout the Latin American and Caribbean region have been talking a good game about their digital transformation efforts. Many believed that they were moving quickly to transform their legacy institutions into agile organizations and were ready to meet the fast-moving digital expectations of consumers and the increased competition from upstart Fintechs.
Then Covid-19 (Covid) hit like a meteor.
Looking back, the reality was that collectively, the industry was moving slowly and tentatively as many organizations grappled with significant institutional doubt and resistance as to the need for digital transformation and whether the ROI would ever justify the sizable investments required. Besides, the old business model worked, and it was profitable, even if nearly 46% of the region’s population remains unbanked.
Overnight, banks centralized model of operations was upended as workers were required to work remotely from home, branches became ghost towns that needed to be retooled to meet new social distancing guidelines and previously manual work processes needed to be reimagined and reengineered to keep operations moving.
Institutions that had invested in digital transformation found that they were well positioned to seamlessly continue operations, employees proved they could be very productive working from home and that when push came to shove, bankers could be innovative in reengineering business processes.
Revisiting Your Playbook
As economies begin to reopen, banking leaders are facing a defining moment for both the industry and their institutions. Will they seize the transformational momentum to accelerate their digitalization efforts or simply return to business as usual? As they evaluate their next steps, here are some points to consider:
· Where is your Customer Post Covid – The pandemic accelerated bank customers move toward digital channels. As Angelo Caputi, CEO of Banco Guayaquil in Ecuador recently noted in LinkedIn “more and more of our customers are using our digital channels. In the last year, the number of users of our App Banco Guayaquil has grown by 49%, and with the improvement of our application, between the months of April and May, we grew by 54% in bank transfers”. The question now is for bankers to understand where their customers are and what to do to engage them through their preferred delivery channels.
· Rethink your workforce structure – The remote workforce has been a revelation for many banks. Fears of distractions were unfounded as employees rose to the occasion and proved to be responsible and productive at home. As Daniel Kennedy, Scotiabank Chile’s Vice President of Digital pointed out, his “team’s 127 employees were working remotely and managed to deploy 39 new products and services since March, including an MVP to help customers in hard delinquency to digitally renegotiate the terms of their loans, demonstrating the banks culture of accountability and its ability to pivot from selling products to a focus on helping customers navigate the financial challenges they face.” The question now is whether banks will return to their old ways or adopt a more flexible work-from-home structure for its teams. As banks do the cost-benefit analysis, many are finding that it is much cheaper to have an employee work from home in comparison to the costs of getting them to their desks, especially with new Covid requirements.
· Rethink your physical Infrastructure – While banks will always need to have some physical locations, the Covid disruption has shown that the reality is that they can effectively get by with much less. In the Dominican Republic, Steven Puig, President of BHD Leon, pointed out that “transactions at branches dropped to 20%, down from 42% only two years ago” as digital channel adoption grew. Banks will now have to do an analysis of what to keep and what to let go and whether the savings from having a smaller physical footprint can be poured into modernizing its technology infrastructure.
· Regulation – While compliance and regulation requirements have not changed, how they are implemented and managed have. Today, regulators must contend with a variety of factors stressing the industry and are collaborating with banks on how best to adapt to this unprecedented challenge. Now is a good time for banking leaders and associations to come together to work with their local regulators on analyzing lessons learned and codifying some of these new approaches and shepherding in a new era of digital banking and industry innovation.
· Look for opportunities to bank the (un)der-banked – The health and social dynamics of Covid lends itself to the opportunity to close the banking gap throughout the Americas. The regions persistent reliance on cash, and its notoriously filthy reputation, coupled with governments search for ways to “keep the curve flattened” could help see a surge of new, cashless payment opportunities throughout the region, providing a unique opportunity to bring millions into the banking sector. Banks should explore ways to work with government to accelerate efforts to digitize cash wage payments, which, according to The World Bank’s Global Findex report could expand bank account ownership to 30 million unbanked adults, in the region: a win – win – win!
If there is an overarching lesson to the wholesale disruption of banking and finance operations brought about by Covid, it is that being agile is not a “nice to have”, but a must. While the first wave of the pandemic seems to have passed, it is pretty safe to say that we face an enormous amount of uncertainty in the months, if not years ahead. Leveraging the disruptive shock to accelerate digital transformation efforts, retool employee skill sets and rethink physical in infrastructure will help prepare banking for a new normal and ensure its continued viability as an essential industry.