How banks can reflect on the pandemic to reinforce strategies that create more resilient systems

We are currently living through one of the most difficult times in recent memory. The impact on our lives, including our financial lives, has been profound. However, once the storm passes, there will be a time for reflection and reorganising the way we do things. For banks, this will be a perfect moment to reinforce strategies that create more resilient systems.

COVID-19 has dramatically changed the way we shop. In lockdown, people and businesses are relying on digital payments to keep things moving. Research has revealed a 209% increase in online retail sales during April, compared to the same month last year. But it’s not all about consumer spending; as supply chains become stretched, cashflow and processing business-to-business (B2B) payments faster is also of concern.

Meanwhile, businesses are relying on banks to quickly scale up and disburse government-backed funds to keep them afloat. Figures from UK Finance show UK banks nearly doubled the number of business loans for those impacted by coronavirus in a week, but it’s not nearly enough. The pressure to quickly process loans and transactions has never been higher, but two things, in particular, can cause a hold up: controls and capacity. An effective way of addressing both lies in the public cloud.

Control Concerns

Many tier one banks, operating with outdated systems and facing a heavy compliance burden, have become overwhelmed during this time. Many are already feeling the need to do things differently, and not just for the short term. Cloud-first fintechs are liberated from legacy to focus on agility, navigating market trends and, fundamentally, their customers. However, they don’t service the majority of customers in either business or retail banking, yet.

The pandemic has highlighted the limitations of the status quo. For example, in the UK, rigid controls around communication and confidentiality mean most banks’ customer call centres cannot operate from home. Anyone with an offshore team is now struggling with the fact they can’t access networks. It makes them ask, ‘are our operational control processes fit for the world we are living in when we need to react in a rapidly changing environment to provide us the ability to effectively innovate and better serve our customer’s needs?’.

A renegotiation of these complex and lengthy operational control checklists – which have mushroomed out in an on-premise, siloed world and not the hyperconnected environment we currently find ourselves in – is therefore required. Banks now realise that they need to reconsider their thinking around control, with many staff having had issues in getting access to their networks, particularly those with offshore teams where VPN may not be great, many are looking to revisit how these operating models will work.  These, in turn, allow for greater workplace flexibility which may allow Banks to reassess their costly real estate footprints as they search for a more nimble and agile model. Turning to cloud deployment on the basis you can access it from anywhere is a natural solution and allows business process to catch up with the technological advancements of the last few years.  This is the first step in a wider shift likely to be accelerated post-pandemic where banks reassess the roles and responsibilities of operating their technology stacks shifting towards more consumable services which allow them the ability to focus on customers and not maintain technical infrastructure.

So, what could current, on-the-hoof changes mean for customers long term? A more agile, Cloud-based and digitally informed approach could have a massive impact at street level – literally.

We have all seen the long queues of people at cash machines, many of whom have received a government credit payment. As a consequence of the pandemic, we will see banks improve their controls to disburse money more effectively so that people don’t have to queue up to check if their funds have arrived. In today’s digital-first world where the majority of people have smartphones, there is no reason why you can’t issue them with prepaid cards or prepaid accounts. This goes back to data, leveraging insight analytics, machine learning and artificial intelligence (AI) to segment data better and figure out ‘who’s in most need of X, Y, and Z?

Capacity Issues

Linked to control is the battle for virtual space. For years, data storage and compliance headaches have gone hand-in-hand. Issues around confidentiality and security (not to mention compliance teams being busy with pressing frontline work and time-sensitive audits) meant that, for many, Cloud got side-lined. While investing in virtual storage is a compelling time and money saver long term, it hasn’t been the top priority.

Now, many banks are searching for more effective backup, storage and hosting solutions. If they are seeing more transactions but don’t have the capacity to monitor them, there’s more chance of the system failing to work. A Cloud solution can help prevent this; it doesn’t use additional resources, and banks have what we call a ‘sleep-at-night-ability’ when experts handle their Cloud infrastructure. Managed solutions providers invest on the client’s behalf in reserved instances – the data providers’ way of forward-selling capacity as insurance against the kinds of data volume spikes seen in recent months. Reserved instances are crucial because, during a spike, everyone tries to push functions into the Cloud and everyone wants to access the same computing at the same time, resulting in a slow response. Reserve instances ensure we can scale up solutions in the Cloud quickly, avoiding any drop in response times.

While coronavirus has created a plethora of new challenges, it has also highlighted problems that have long needed fixing. In supporting efforts to save businesses and individuals from financial ruin, banks have discovered their limitations. Perhaps there is a silver lining. Cloud gives you, at its simplest, a clearer focus on customers and the ability to more scientific in how you target them and win business. It also ensures organisations have time to think about customers, as opposed to all the other distractions they have in running their infrastructure. For me, the biggest benefit of the Cloud is that it allows you to get closer to customers and focus on what matters.

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Ciaran is an expert in both the issuing and merchant acquiring space of global payments, with a focus on how banks, processors, fintechs and merchants can navigate the evolving payments ecosystem to generate new revenues. From nearly a decade's experience with one of the UK’s largest issuers and acquirers, Ciaran has developed a strong belief in the monetizing the customer experience, and is passionate about supporting our customers to look beyond creating margin in traditional products, and helping them to navigate the rapidly-changing consumer payments market.

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