By Simon Wilson, Director, Payment Solutions, Icon Solutions
What's next for banks within this strange new world we find inside us? Forget the forecasts and predictions, we are in unchartered territory and the only honest response is that no one truly knows exactly what is decreasing the road.
But what we do know is the fact that accelerating payments transformation initiatives to become more cost effective, resilient, innovative and flexible when confronted with uncertainty is key to delivering for purchasers and establishing a leadership position.
Build foundations to lessen costs and deliver for customers
An immediate and demanding priority for banks is to offset the impact of squeezed revenue streams, that are under pressure all sides.
The threat of second waves and local lockdowns means that transaction volumes will remain volatile within the short-term. As recessions begin to bite, cross-selling opportunities will be limited as overall demand for banking services and products reduces. Margin pressure is compounded by historically low interest rates, and record rises in delinquency and defaults increasing exposure to non-performing loans. The worldwide transaction clients are prone to belong to added pressure as trade corridors become much more local and extra disruption from US-China relations starts to bite.
Yet simultaneously, banks must also be ready to respond to changing rapidly customer requirements and supply all of them with greater control. Customers will have to be able to manage their money in different ways, instant access to credit and liquidity will still be essential, and instant>But expensive and outdated legacy infrastructure is a roadblock to those requirements, making it difficult to reduce operating costs and support innovation. Prioritising and accelerating strategic payments transformation initiatives will mitigate long-term revenue constraints and, if executed correctly, reduce total price of ownership by factors. It will likewise enable the development of differentiated, personalised, value-added services and products for customers and protecting profitability and positioning for share of the market capture as growth returns.
The time has become to overhaul legacy infrastructure
There is little resource, and even appetite, for high-risk, expensive long-term migration projects such uncertain times. This really is understandable, although it is uncertainty which should make payments transformation initiatives important.
Consider that many banks have struggled to cope with the increased load on digital banking services, that have pushed the resilience and stability of legacy architectures to breaking point. This has crystallised the significance of an ‘antifragile’ method of risk, with systemic contingencies and buff-ers to satisfy demand surges. Ensuring operational resilience will be particularly important considering that don't be surprised renewed regulatory focus on the potentially catastrophic impact of outages during crises.
Banks must also contend with the difficulties of enabling secure, efficient remote interactions at a previously unimaginable scale. Including the large redistribution of workforces, keeping customers safe from fraud, and enabling effective digital service provision through artificial intelligence and machine learning.
Given the sheer scale and immediacy from the challenges, over-engineered and monolithic solutions cannot deliver the flexibility required. The good news, however, is that banks do not have to look far for a low-risk, low-cost alternative.
Cloud-native, agnostic challenger banks have been in a position to taking action immediately and flexibly with these uncertain times in a way that incumbent banks have not. This will provide a best-practice model and roadmap for that industry. Investing in open-source, Cloud-native infrastructure is how banks secure their devote the digital era, enabling them to operate and deliver in more agile, scalable and innovative ways.
Embrace purpose in change economies
Banks must also get ready for radically altered economies and a new position within them. Governments around the globe, no matter political persuasion, have necessarily embraced socialist policies, with banks facilitating the distribution of massive government stimulus, relief and requisition packages straight to corporates and consumers.
Simon Wilson
With the potential risks of counting on global trade for essentials exposed, economies will probably be autarkical. After many years of industrial decline in some countries, don't be surprised a significant uptick in investment and output to shore up supply chains. Banks, along with governments, have a critical role in financing and supporting this domestic growth.
Conversely, there are stark questions about commercial viability. 'Non-essential' businesses over the hospitality, travel and beauty industries are being hit the toughest, precisely because they are considered 'non-essential'. Yet, it is a haircut, a stiff drink along with a holiday that a lot of us most looked forward to while locked down. Relaxed liquidity buffers and capitalisation requirements provide flexibility for banks to provide economic stimulus until good times return.
In addition, to some large extent some of the lowest-paid and least-appreciated parts of society are now rightly recognised and valued as key workers. Which is often the workers who can not afford a home loan deposit, for who credit is pricey and whose savings are limited. Requires fairer, more sustainable economies may push banks to advertise financial inclusion and provide use of financial products and services on better terms.
It is clear that banks cannot be prepared to continue with business-as-usual approaches. Indeed, there is a generational opportunity for banks to re-shape public opinion for the industry.
Leading in a strange new world
The recession we are entering, and the longer-term 'new world', will have nuances not seen before. While defaults on loans will unfortunately rise, unusually banks will enter the situation with rising deposits as customer find it difficult to spend or are merely hesitant to risk normal amounts of spending. This provides chance of investment and change in approach. We do not know what can come next. But there are clear steps that banks can take to enhance their ability to effectively react to the unknown. In the face of significant uncertainty, banking institutions accelerating transformation to lessen costs, deliver innovative new customer experiences, and increased agility and resilience can establish leadership positions inside a strange new world.