The impact of the COVID-19 pandemic on digital banking transformation and shaping

The COVID-19 pandemic has caused serious impacts not only on human health but also on the world's economy. In particular, a healthy and vibrant banking sector is the bedrock of the economy. When crises emerge, banks need to act to protect employees and customers, strengthen the resilience of supply chains and drive greater financial efficiency to deal with the economic consequences of the pandemic and act to shape customer behavior post-COVID.

The importance of digital banking distribution channels will increase in the aftermath of the COVID-19 crisis. There will be a significant acceleration of key digital trends, for example:

Transform the digital customer experience

Since the COVID-19 crisis, online banking activities have increased dramatically and trips to bank branches have declined. The high degree of infection has forced customers who are used to banking in-person to conduct banking activities online as the new default. The more these customers realize the convenience of digital banking, the less likely they are to return to physical branches. Banks will be unwilling to take on the risk of crowding physical branches post-COVID and also realize the cost savings and efficiencies that digital banking brings.

Because physical banking distribution will be less relevant post-COVID, the digital customer experience will be a key area of ​​difference and competition between banks. Digital distribution channels that provide a simple, customer-focused banking experience will be an important priority for all banks.

According to McKinsey, customers are very satisfied with the experience that digital banking brings. Digital banking has the potential to facilitate existing banking activities and provide access to new innovative digital financial products that can bring a true digital experience to customers.

In the near future, we may also see more digital banking applications that provide a simple and streamlined user experience and are designed to reduce barriers to digital and financial knowledge. This will open up digital banking for less tech-savvy customer segments.

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Move from servicing customers to connection

Another important trend that is likely to accelerate is the shift of digital banking from servicing to connectivity. During the COVID-19 crisis, customers became comfortable conducting banking services through banking applications, instead of conducting banking transactions in-person in bank branches. This means that banks will need to sell more products through digital channels to compensate for the reduction in sales acquired through branches.

In a world where sales and marketing business models will be virtual, banks will steer clear of pure transactional digital applications, e.g. applications designed to check balances and conduct payments and transfers to those that allow customers to engage more deeply with the bank such as tracking personal expenditure, making loans, purchasing insurance, etc.

To make that happen, banks need to develop personalization and digital marketing capabilities on par with e-commerce giants like Google or Amazon to build and design a customer-centric network that can provide tailored recommendations to cater to different customer segments.

By deploying sophisticated data analysis tools combined with real-time data collection and management, banks can turn their customers' data into meaningful insights to make informed decisions on the suitable recommendations for each customer. This will replicate online the experience of personalized connection that a salesperson in the bank branches provides to a customer visiting the branch - but better as it is informed by powerful data analytics to tailor the most suited approach and products for the customer. This will facilitate engagement and generate more revenue, both of which will be important for banks in a post-COVID world.

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Predict and apply high technologies to the process of distribution channels

With more people moving from banking in physical branches to online banking, banks will have to compete with each other on their digital banking products and services. This will increase competition and innovation in digital banking and require banks to adapt to changes and uncertainties at a dizzying pace to create innovative products and services. This can create a lot of strain on legacy technology infrastructure.

To keep up with changes demanded by digital banking, banks will need to shift away from legacy technologies to adopt fast and scalable digital technologies. This includes adopting cloud platforms and using AI. These technologies have significant scalability, are more agile and significantly reduce processing and storage costs. Such next-generation technologies will allow banks to better handle incoming queries (e.g. automated chatbot to handle easy queries and refer complex queries to customer service representatives), while adding new digital features quickly at scale.

The strong competition in digital banking will require banks to continually provide innovative features and service offerings through their digital banking applications and to provide those updates quickly and reliably. Therefore, we will soon see banks adopting software development techniques that can enable fast and continuous delivery. These will help reduce marketing time and bring new digital services to customers quickly to gain a competitive advantage.

There is no doubt that competition in banking is likely to intensify in the near future. These trends towards greater digitization of banking is not new - they are merely accelerated by COVID-19. Banks that are able to transform themselves into truly digital organizations and take advantage of the development and promotion of digital trends will not only continue to exist but thrive in the future digital landscape.

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