This article forms part in a series on the impact of COVID-19 on the Swiss banking industry. Deloitte will be publishing on an ongoing basis its perspectives on key implications and potential solutions that banks should consider.
We will feel the effects of this crisis for years – both economically and socially – and it will have a lasting impact on how banks interact with their clients.
We believe that although it presents a challenge for banks, it will also open up opportunities. Instead of going back to the ‘old ways’ over time, banks and their clients can benefit by ‘locking in’ at least some of the new ways established during the crisis:
- Finally a breakthrough for online and mobile channels, not just for transactions but also for advisory and sales.
- With fewer physical interactions and less handling of cash, banks may be able to reduce their branch and ATM networks to save costs, while transforming the role of the branch towards higher value activities.
- Remote interactions (such as video) and home working can substantially improve employee productivity.
- Traditional barriers of rapid change – compliance and feasibility – have already turned out to be manageable given the rapid response to the COVID-19 restrictions.
- The case for change is strong: better client experience, better employee experience, lower costs, higher profit. And in addition, a major contribution to the sustainability agenda.
The COVID19 crisis is an opportunity to accelerate transformation of the Swiss banking industry
COVID-19 has completely disrupted our everyday lives and behaviours.
While the plan is for a gradual easing of restrictions over the next months, some will remain in place for years, or even permanently.
We shall feel the effects of this crisis for years – both economically (decline of specific industries such as travel, general recession, rise in unemployment, credit defaults etc.) and socially (e.g. heightened sensitivity around germs and hygiene, especially for older people). This will have a lasting impact on how banks interact with their clients.
However we believe that although this presents a challenge for banks, it will also open up opportunities. Instead of going back to the ’old ways’ over time, banks and their clients can benefit by ‘locking in’ at least some of the new ways established during the crisis.
Currently, we are seeing big changes in behaviours due to COVID-19, among consumers, employees and shareholders
With the sudden emergence of COVID-19 in Switzerland, banks were forced to introduce radical changes at very short notice
There have been radical changes in consumer behaviours , including a much greater adoption of digital services. Specifically in banking, this includes using:
- Card or digital payments, instead of cash
- Online/mobile banking and investments, instead of paper-based/in-branch transactions
- Phone or video advisory, instead of physical meetings
A current Deloitte study confirms a significant uplift in the adoption of digital banking services during the COVID19-crisis in Switzerland
- We surveyed 1’500 consumers of working age in Switzerland
- Survey conducted in mid-April 2020
- See our upcoming blog “COVID-19 boosts digitalisation of retail banking” for comprehensive results and further details
The workplace has also changed drastically with the increase in remote working
- Working from home instead of the office, with suitable workspace and technology
- Video communication instead of physical meetings, both internally and with clients
- Adoption of digital collaboration tools, electronic documents etc.
Company and shareholders
There is a much greater burden of responsibility on banks
- Greater responsibility to care about the health and safety of employees
- Social responsibility to support the economy, e.g. through rapid emergency loans, dealing with upcoming credit defaults, avoiding lay-offs etc.
Shareholders have already lost money in stock market falls, and dividend payments are being called into question. There is heightened sensitivity around sustainability and CSR
These recent developments contrast with the relatively slow pace of digital transformation in Swiss banking in the past
What we have seen in the past
Cautious staff reductions and few branch closures, despite a very dense branch network
- Compound annual growth rate 2008-2018; source: Swiss Banking Association (Swissbanking)
- Compound annual (negative) growth rate 2006-2018; source: Worldbank
Why transformation has been slow so far
Client behaviour: Swiss clients (and RMs too) are very slow to change their banking behaviours
Political barriers: It is notoriously difficult to close branches, especially in smaller communities
Lack of pressure: Swiss banking overall is still healthy and profitable relative to other markets
Relative distraction from innovation: In the past, regulatory change has overshadowed most other issues; typically very limited budgets have been available for innovation and ’voluntary’ transformation projects
Hence, we believe that this crisis creates an opportunity to accelerate the transformation of the industry
- Respond: Resilience until restrictions are removed
Further resilience in the current remote working mode
- How to stay close to clients (beyond the huge numbers of mass emails currently filling billions of mailboxes worldwide)
- How to maintain employee morale and efficiency without physical touchpoints
- How to scale technology to enable remote working (if not yet done)
- Recover: Game plan for gradual return to normal
Quick financial measures to weather the storm
- How to strengthen risk systems NOW to prepare for upcoming losses
- How to strengthen the balance sheet NOW to survive the downturn
Prepare a clear operational game plan for soon-to-be-expected easing of restrictions
- Preparing facilities/workspaces for bringing back clients and staff
- Prioritising which people to bring back first
- Stepping up relevant controls
- Thrive: Strategic response for post-COVID-19: Three theoretical scenarios
a) Same as before: React to easing of restrictions step by step until the business is 100% restored, with no changes to the client or employee experience
b) Revolution: Make the crisis mode the ‘new normal’. Try to preserve the virtual business model, and adjust all processes accordingly (sales, servicing, risk management, remote infrastructure, social considerations). Assume that clients and employees will ‘get comfortable’ with the changes.
c) Evolutionary transformation: Take best of ‘same as before’ and ‘revolution’. Acknowledge the potential benefits of change for clients, employees, society and shareholders, and only shift the dial back as far as necessary to reassure clients and employees and maintain a stable operation. Realise financial benefits for shareholders and sustainability
What evolutionary transformation might look like – offering an improvement in the CIR by 5% for any Swiss bank!
- Many clients will change their behaviours permanently: fewer physical touchpoints (up to 40% of touchpoints replaced by remote interactions); less cash; heightened sensitivity to hygiene, particularly among elderly clients
- Banks should adjust their branch capacity and format: close realistically 20-30% of branches; remodel and/or relocate other branches (less square footage, more visibility); rethink meeting rooms, teller desks, touchscreens, etc. for the new interaction dynamic
- Digital channels need to be upgraded: improve the customer experience (CX) and reliability; expand functionalities; simplify for elderly clients; upgrade digital wealth management capabilities beyond robo-advisory
Ways of working
- Much more agility in product development: How to reduce product lead time by 50% (what product ideas could be winners given the upcoming deep recession?)
- Remote working: What if 40% of staff were to continue working remotely (e.g. 2 days per week) – higher productivity thanks to more efficient meeting schedules, reduced office space, less travel costs and commuting times
Compliance and feasibility
- Compliance already proved manageable: While some concerns remain, the main challenges have been manageable during the crisis. The introduction of enabling technology such as digital ID is likely to be accelerated
- Feasibility also demonstrated: Both clients and banks have shown themselves ready for remote interactions. Some banks need to upgrade their infrastructure further, to ensure capacity and security.
- CX and EX: Significantly improved Client Experience (convenience, security etc.) and Employee Experience (more flexibility, less commuting etc.)
- Substantial bottom-line benefits: Potential for cost reduction (greater staff productivity, less real estate) and shift from fixed to variable cost (incl. more possibility to use extended workbench near-/off-shore). For a typical Swiss retail bank, 10% personnel cost reduction and 40% real estate cost reduction, offset partly by 5% IT cost increase in IT costs, would improve the cost-to-income ratio (CIR) by around 5%
- Contribution to sustainability contribution: Huge reduction in carbon footprint possible due to less commuting, less travelling, less printing, less office space used
Once resilience measures are in place, we currently advise our clients to make time for a strategic assessment of the merits of more rapid change
Put a stake in the ground: What is the right vision for your organisation?
- Overall, how evolutionary could you be and do you want to be?
- What are the specific business drivers in your organisation (given business mix, clients, products and channel strength)
- How can you seize the opportunity from the crisis to seize a competitive advantage in an anticyclical way rather than following the pack
Define concrete operational targets
- Take a fresh look at KPIs (achieving renewed strength in the balance sheet; upgrading risk systems,; workforce flexibility; channel usage by your clients; front-to-back digitization: contribution to sustainability, CIR and shareholder impact etc.)
- Integrate revised objectives into your adjusted strategic plans for the post-COVID-19 world
Build a strong business case for change
- Better client experience, better employee experience, lower cost, higher profit
- In addition, making a major contribution to the sustainability agenda
- Change the shareholder mind-set from mere ‘recovery thinking’ into ‘thrive mode’
Develop a strategic post-COVID-19 roadmap: integrate it into your existing programs to make change happen faster
COVID-19 banking blog series
- 16.04.2020 - COVID-19 ‘back to the office’ plan for the banking industry
- 11.05.2020 - COVID-19: Emergency solutions worth keeping for the long term
- 18.05.2020 - COVID-19 related strategic scenario design and financial impact assessment for banks