Will COVID-19 drive the next wave of innovation in financial services?

As COVID-19 continues to reshape economic and consumer demands, Deloitte’s Joel Lipman explores how this will accelerate the digital transformation of financial services.

As the saying goes: necessity is the mother of invention. COVID-19 has forced radical changes in consumer behaviour, moved significant portions of the economy online and increased the comfort and willingness of customers to engage digitally – in mere weeks. The financial services industry is accelerating its own changes to match. 

While the digital evolution of finance was already moving at pace before COVID-19 – thanks to changing consumer expectations, evolving regulation and heightened competition – it was inconsistent across the industry. Driven by need, numerous barriers to innovation have now lifted. 

But there is more to do. COVID-19 will have wide-reaching impacts on the future of financial services. The actions taken today will determine your success in a new, more digital world.

Breaking barriers to digital transformation 

Working with the Institute of International Finance (IIF), Deloitte identified four fundamental shifts driven by COVID-19 that strip away many of the hurdles to digital transformation. These shifts are absolutely being seen here in Australia:

1. Forced adoption of online, mobile, and call centres: ANZ has seen ATM volume decrease 40 per cent compared to last year and branch traffic fall 50 per cent from February to April. However, contactless payments are up 65 per cent in value.

2. Overnight virtualisation of the workforce: NAB temporarily closed two of its Melbourne CBD offices as staff in Victoria continue to work from home.

3. Tipping point for digital and contactless payments: Research from CBA found that digital wallet use increased 17 per cent from February to March this year.

4. Evolution of underlying market structure and economics: $200 billion worth of loans have been deferred by homeowners and business customers during the crisis, while more than $30 billion has been released from superannuation in the early access scheme.

The financial institutions that invested – strategically, financially and culturally – in digital over the past decade have been better prepared to navigate these shifts. Conversely, the crisis has exposed gaps in technology for those still yet to kick-start their digital transformation. 

Digital initiatives often stall because of risk aversion, a lack of agility, or the need for greater leadership support. COVID-19 has not only proven the role of digital in reaching customers and maintaining operational resilience, but it has forced organisations to act, revealing their true capacity for innovation.  

Future implications 

Already, it’s clear COVID-19 will have lasting implications on the financial services industry:

 - As digital channels become “table stakes”, financial institutions need new ways to differentiate themselves in the eyes of customers. Digital services are likely to be the next battleground, as organisations look to make digital interactions          more personalised and human. 

 - A focus on cost-to-serve will become essential in adapting to new industry economics and thriving in the new normal. As the industry faces near-term challenges, such as a reduction in market size and increased margin pressures, digital transformation will be a key tool to improve efficiency. 

- There is a need to digitise and transform processes in the value chain. This includes greater focus on automation to improve efficiency and better modelling capabilities for core underwriting processes.

-  The workplace of the future will require a reimagining of people, operations and culture. Chief among these considerations will be the balance of human interaction and the function of the physical office as staff increasingly work from home.

- Remote working will also demand new approaches to tackling inherent cyber and compliance risks. The last financial crisis and the Banking Royal Commission severely eroded the trust Australians have in the banking system. It’s important to work proactively with regulators to ensure compliance and the right level of oversight. 

- COVID-19 has accelerated partnering discussions, allowing financial institutions to work more effectively with fintechs and other ecosystem players. The evolution of non-traditional, third-party risk management strategies will be key.

Seizing the moment  

Digital transformation is accelerating and organisations that do not embrace it – and adapt to new ways of working – risk being left behind. To position yourself for this future, there are 10 “no regret” actions you can take today:

The greater the disruption, the greater the opportunity. COVID-19 is not only a digital accelerant, but a catalyst to consider the value you want to provide in the future. By reimagining your business model, ways of working and consumer offerings, you’ll have the right foundation to thrive through this challenge and beyond.

This article draws from Realizing the Digital Promise: COVID-19 Catalyzes and Accelerates Transformation in Financial Services, a report produced by Deloitte and the IFF. To access all reports in the series, visit www2.deloitte.com/au/digitalpromise.

Joel Lipman is a Partner in our Deloitte Digital practice, with more than 20 years’ experience in delivering large-scale digital transformation programs, building innovation capabilities and customer centred strategies.