“The new players will be tested now on their robustness and their ability to continue to be the innovators in the industry. It’s a challenge for them but with the silver lining of the opportunity when truly innovative digital services can now be offered”, expressed financial service industry expert from Europe, Middle East and Africa, Erwin van Helden, during an exclusive Q&A session with our Editor in Chief on the impact of COVID-19 outbreak on the overall financial industry and shared his insights on what major changes have been brought about in the market space globally.
1. What major changes are happening in the financial industry and how this crisis is impacting the ecosystem?
Here we see several aspects. You can see the banks having a business impact themselves, due to the challenges their corporate, SME and private clients are going through. The banks will see the need for financial support and bridging loans. Banks will see several of the clients in payment difficulties as revenue has dropped and the forecast for certain industries seems somber. The chance on recession is high. The elasticity of some economies are high, but some economies will be slower with their recovery. Banks will also need to share ’support loans’ and relieve the pressure on those organisations which need support.
On the other hand the start for contactless payments and the digital banking activities which were already presenting themselves are being pushed much harder. COVID-19 is a catalyst for digital banking and contactless payments. The push to avoid cash due to the fear of the virus spreading via the money which passed many hands has resulted in higher levels of digital payments and credit card payments. The online ordering of food and good while we were on lock down also pushed the online payments environment.
On the other hand we have also seen that funding for the smaller FinTech firms has been put on hold, or even dried up. The challenger banks globally have seen a significant reduction on the growth of their customer base. The incumbents have received the trust of the consumer, while the NeoBanks need to see if their growth will be restored when the COVID-19 crisis is over.
2. Do you believe this crisis is offering opportunities for digital businesses and FinTechs?
Digital business and FinTechs are not necessarily the same. Those FinTechs who have secured guaranteed funding will find a market with the need for further optimization of digital banking solutions. From Wallets, to (hyper) personalisation with the help of artificial intelligence, towards integration of payments in service execution without the need for cash. As several of the FinTechs show signs of struggling with their funding, the move towards the traditional players is the short term expectation.
The legacy banks have the chance to pick up where the NeoBank are currently put on the brakes.
I would expect this to be a temporary status. The agility and quick responses and the demands of customers towards their banks will return. The big banks now have the opportunity to show their customer engagement and actually put their actions towards putting the client central. We have heard a lot about customer experience and optimal customer engagement in the period before COVID-19. The time to make it happen, is the time of need.
I believe that when you are able, as a bank, to reach out to your customer in the times of crisis, you earn the long term loyalty. This is a chance to show that customer centricity is true.
3. What is your take on traditional financial institutions? Are they keeping pace and offering right solutions to their customers?
As discussed above right now the crisis seems to have an impact on the rise of the NeoBanks while FinTechs are struggling for their survival. The traditional banks have a responsibility to take up. Their responsibility has always been about serving the customer. It has not always been experienced by the customers, but large institutions in Europe, such as ING, have pushed hard for innovation and customer engagement. The first true Digital Bank was ING direct. A separate bank outside of the legacy applications, IT, infrastructure and Data centres, but fully owned, funded and developed by ING. ING Direct was, till the financial crisis, a flag ship of ING Group. I would expect that the traditional banks push forward their digital solutions, helping their customers in times of need and showing that they can provide what is needed in current time. Both in their products, with quick access to relief funds, but also with the digital means to provide these funds. This would fit well in the SME segment. While at the same time the retail part of the industry needs support in ease of payments, simple loyalty solutions, online payments opportunities and further seamless payments.
The market needs relief funds, the market needs digital distribution and the market needs contact less payments. The players who can tap into these needs, while having the trust and build forward on loyalty have the opportunity.
4. Do you think that explosion of e-Commerce can be an opportunity for payment players to tap when travel related transactions have dropped significantly?
The combination of travel expenses and the e-Commerce payments is not necessarily linear. Travel will continue to be reduced in the coming 2 – 3 years when listening to the large airline CEO’s and their predictions. Travel restrictions will remain till vaccination has been proven. This has impact on the business as well as the tourist segment of travel.
E-Commerce has exploded, due to the lack of chance of people to leave their homes. People have ordered items they might not actually need when they can’t allocate the time anymore, while others have identified the support e-Commerce can offer. There are two potential reasons why e-Commerce growth might find a marginal decline when moving to normalcy. The ‘opportunistic buyers’ will reduce when people will have less spending power. On the other hand people will not be able to receive goods anymore at any given time. The addressable market for e-Commerce surely has grown and a large part will be sustainable, but not all.
5. How do you think the industry will change post COVID-19?
The biggest variable which will decide on how the industry will be shaped is who will come out of this crisis as the stronger player. Customer centricity and customer engagement, with seamless operations and optimized easy of operations were the industry terms before the COVID-19 crisis.
We seem to come out of the crisis not long from now. The shorter the impact of the crisis, the less immediate change we can expect. We have learned that working from home is a potential change, we have learned that ordering and banking online or mobile is supportive while staying at home but we see industries dealing with challenges due to the ‘world taking a break’ for a few months. When we see the traditional banks stepping into the market needs mentioned above (relief funding and distribution, optimal digital channels, personalisation via IA and seamless payments, etc) I believe the game changing capabilities of the NeoBanks will be put under pressure. The traditional banks can take the opportunity now to push for their Digital only banks and initiatives considered and planned already before COVID-19 to grab the market share. Just like ING Direct they could take advantage of the market demand created by COVID-19 by quick roll out of their own digital banks and defend their market share against the NeoBanks before they have recovered.
The mantra will remain and needs to be ‘Customer Centricity’. Market change and demands change. The players who are able to be resilient in challenging times and remain or gain the trust, while adapting to changing market circumstance and demand will be winners. ‘Right now I put my money on the traditional banks, but only when they invest now into their digital banking and contactless payments capabilities
Some really good insight from the industry expert. Thank you for sharing.