The New Normal: 8 Ways Banking Will Change Forever Due to COVID-19

COVID-19 has turned banking digital practically overnight. In just a few days, the financial industry experienced more disruption than it’s seen in decades, from how employees do their work and redefining branch strategies to the delivery of products and much more. It’s clear that how consumers interact with their bank or credit union has fundamentally changed and will never be the same again. Prior to the pandemic, financial institutions were heading in the right direction with digital transformation and digital initiatives. But there wasn’t a big sense of urgency because things were still going well and profits were high. Now, with the tide changing so quickly and consumers having no other option than to rely even more heavily on technology and their mobile devices, financial institutions find themselves in a position where they have to act fast in order to sustain growth and succeed.

But what is the new normal in banking? What are some of the short-term and foreseeable challenges? And how will financial institutions rise to meet the challenges — now and in the future?

New Normal: What the Financial Industry Will Look Like

The new normal has brought about change in just about every area of our lives, from the way we interact with one another to how we shop and what we prioritize. It has pushed many of us to adjust to different ways of working, learn new skills, and rethink what we value and why. And the financial industry has felt this deeply. Not only have employees in the financial industry had to adjust to working in completely different conditions, they also had to quickly find ways to communicate to consumers in new ways. In turn, consumers had to adjust how they bank from a mix of online and offline experiences, to completely digital — all in the span of a few days. As we pass the initial shock and disruption of the pandemic, we’re quickly finding ways to accept this new reality. Now, months into this new normal, here are some of the ways we’re seeing the financial industry change.

1. Data will become more important than ever before

You can’t have a great experience with bad data — it’s that simple. Creating delightful experiences go well beyond UX and design. They start with the fundamentals of information. If your digital experiences are fed by fragmented data, the experience will be poor regardless of how beautiful the application looks or how smooth it runs. What really takes the customer experience to the next level is feeding those online interactions with timely and relevant information that goes beyond the task that people came to accomplish, making them feel like they’re informed about what’s happening with their finances overall.

Although using data is a new paradigm for a lot of banks and credit unions, it’s not an optional element anymore — it’s a key one. And to start, financial institutions need to get away from thinking that building functionality is enough. The focus should shift to how can we use data to anticipate the needs of our customers and prompt them to make the best financial decisions. Data is the foundation of building trust between consumers and financial institutions. For example, with data, financial institutions can help customers know when it’s time to put more into saving, or when they might need to transfer funds for an upcoming bill in order to avoid an overdraft fee.

2. Digital experiences will be at the forefront

We’ve all heard by now that digital transformation is the way forward. And while it’s true, we’re now seeing a sense of urgency among financial institutions like never before. But to truly execute on a successful digital strategy, you need to understand your customers on an individual level. Financial institutions can no longer simply be the place where customers come to deposit money or take out a loan. When we asked respondents in our Ultimate Banker’s Guide to User Experience what they consider most important when choosing a financial institution, 68% of them said a simple and easy digital experience. What’s more, 39% said they’ve reduced where they bank due to a poor digital experience.

Every customer has financial goals, something they’re building towards, and the goal for financial institutions is to help guide those customers at every stage in their financial life. And that’s exactly where the digital experience comes in. Digital experiences have the power to bring customer data points and interactions together in one place, giving financial institutions a holistic view of their customers. This information is critical for understanding not only what customers need today, but also what they’ll need in the future. It also gives the financial institution an opportunity to give their customers financial advice and guidance that keeps them on the right track to accomplishing their goals.

3. Branches will never look the same again

Before the pandemic, the average branch experience was based on transactional interactions. Customers come in to make payments, check balances, withdraw money, make deposits and so on. Looking forward, branches are likely to become more like wellness financial centers, where customers come in for guidance and advice on their full financial picture. The conversations will shift from explaining transactional based questions, to opportunities based offers and services that will enrich people's lives in fundamental ways. What’s more, because branches will take on such a different role, there won’t be as many of them needed, so geographical locations won’t be as important as they have historically been. In one of our recent surveys we found that 36% of respondents don't plan on going back to their branch as often as they used to once restrictions are lifted.

According to KPMG, this is something that financial institutions will actually be happy about because “the sweet spot for a branch is the sale of wealth management products, mortgages, auto finance, loans and credit cards, and the servicing of business customers with high volumes of deposits or payroll needs.”

4. The website will become critical to success

In most brand interactions, websites matter — and they’re about to matter even more in the financially industry. With digital fast becoming the basis for success, financial institutions’ websites are likely to be a key driver to conversion. This is where storytelling will take a front-and-center role, as the website becomes not only a tool for offering products, but also a way financial institutions can differentiate themselves amongst competitors.

5. Financial institutions will take on a guiding role

COVID-19 has brought about a lot of behavioral changes and one of the biggest has been people’s microscopic focus on their finances. In turn, people are now turning to their financial institutions, more than ever before, for guidance. And financial institutions are in a great position to demonstrate exactly how they can lead our families, communities, and country to greater financial strength.

When we take a closer look, it’s easy to see that financial strength underpins so much of what’s possible in the world. And now that we have people’s attention is the time to help make lasting change. Consumers want to easily see where to go and what they need to do to manage their finances, and they also want to feel a sense of comfort and reassurance when doing so. In one of our recent surveys that covers how consumers are banking during COVID-19, we saw that 55% of respondents use their mobile app as the primary tool to check their account balance, followed closely by website use at 40%.

Furthermore, it seems that a lot of consumers have a hard time managing their finances. When we asked consumers how often they’re able to stay within a budget, 54% said sometimes. And when asked if they’re able to put part of their income into savings, 24% said they’re rarely able to contribute to their savings. But perhaps what’s most surprising, when asked if their financial institution helps them become financially strong, 53% said no their bank or credit union don’t really help.

A combination of educational programs coupled with technological innovation will create easier ways to break down, learn, and understand finances. Technology will also help level the playing field, so underserved communities with few or no branches will now have access to affordable technological solutions to manage their finances. With fear around finances subsiding, people will start to take control of their finances once and for all. Over time, we’ll start to see people with 6 months of savings, diversified investments, and healthier borrowers.

6. Fintechs and financial institutions will come together

The pandemic has brought to our doorstep what we’ve been working on for nearly a decade — creating better customer experiences. Not only do financial institutions and fintechs alike have to create engaging experiences, they also have to be easier and more delightful than human interactions. The truth is, as the world becomes increasingly connected, open APIs are critical to sustaining that connectedness in the financial industry. That’s why we’ll see a wave of fintechs and financial institutions working more closely together. As consumers demand more and more from their financial institution, the use of APIs will also increase. With an already heightened interest in their finances, consumers will now demand better and simpler ways to see and understand their data. That’s the new reality — and it’s here to stay. In one of our recent surveys about changes in consumers’ financial behavior since COVID-19, 71% of respondents said that they use technology companies such as Venmo and Paypal for payment services rather than their bank or credit union. The findings also showed that 25% use their fintech apps more often than they do the apps from financial institutions.

7. Cashless payments will be the new default

If we take a long hard look at cash, we realize just how inconvenient it is — it’s cumbersome, untrackable, and dirty. With such a high inconvenience factor, it’s easy to see why cashless payments will soon become the new default. The pandemic has made us all hyper-aware of everything we touch, and cash is probably one of the last things we’d want in our hands because it can pose a health risk. Furthermore, cashless payments make it possible to do virtually everything from your home, something that’s highly encouraged right now.

According to Square, “only 8% of U.S. sellers identified as cashless on March 1. By April 23, that number jumped to 31%. The rapid growth was way beyond what would be considered normal, but then so were widespread quarantines and lockdowns.” The report goes on to state, “cashless payments for beauty and personal care products jumped to 51% of purchases on April 23 from just 11% on March 1. Leisure and entertainment rose to 48% of purchases from 14% during that same period.” These findings indicate just how much of an impact COVID-19 has had on consumers’ behavior.

What’s more, because people are more aware of their finances now, they’ll be even more vigilant when it comes to knowing where their money is going, so they’ll likely look for solutions that allow them to track and understand their finances. That’s something that’s much more easily done with cashless payments than with cash.

8. The future of work will change, so will peoples skill sets

It’s undoubtedly true that how we work has forever changed. And the financial industry has had to adjust to this change quickly. With branch closures and limited person-to-person interactions, financial institutions had to quickly shift their culture in a huge way. Employees that once focused on the in-branch experience will now have to take those skills and transfer them to online experiences. Without the daily or weekly visits from customers who will often give details about their goals in simple chatter, now financial institutions’ employees will have to use data to glean that same information. The branch will no longer be seen as critical for building relationships with customers. It’s more likely to become just another avenue to do so. These changes will help employees in the financial industry hone in on their data and analytic skills to supplement their customer service skills. In turn, this will likely increase the urgency, awareness, and need for digital solutions and technological innovation that will greatly benefit financial institutions and transform the industry more quickly than anyone anticipated.

How MX Can Help

At MX, we provide financial institutions and fintech companies with tech-savvy solutions and innovative products that enable their customers to alway stay in the know when it comes to their finances. We help our partners undergo a successful digital transformation that’s founded on the best data. Now financial institutions and fintech providers will be able to leverage best-in-class data solutions to really know and understand their customers. With a holistic view of your customers’ financial journey, you’ll be able to deliver relevant and personalized experiences that resonate with them at every touchpoint and at every step in their financial journey.