The majority of financial institutions have healthy capital levels and are expected to weather the pandemic relatively well, despite having to fully utilize liquidity reductions in some cases, thanks to regulations enacted in the aftermath of the 2008 financial crisis (such as the Dodd-Frank Act, which went into effect in 2010).
Everything indicates that the sector is in a resiliency phase, with COVID-19 having a short-term impact owing to negative variables like low lending rates and higher credit losses projected due to expanding business disruption and unemployment. When markets and firms reopen, and the sector adjusts to new operational techniques, the recovery phase is expected to begin.
What challenges does the sector confront in this environment? The top six trends are as follows:
1. The creation of new routes of dissemination
Most financial institutions have changed their digital media creation and distribution strategies dramatically. Technology’s channels and services are more critical than ever in combating growing cyber threats. Customers are increasingly seeking self-service capabilities and increased product functionality, availability, and compliance, forcing businesses to rethink their goods and services. Due to the health issue, consumer behavior will continue to alter, and banks will need to focus on providing secure digital experiences.
2. Make the shift to a knowledge-based economy
To be current and responsive to changing client needs, banking and financial markets are expanding their dependence on risk and compliance technology. It has become the new normal to move fluidly between the virtual and real worlds. As the use of cash decreases, this includes using the opportunities given by growing electronic payment systems, digital currencies, and contactless payments. It will be helpful to develop techniques for promoting the intermediation of technology-enabled service providers, particularly the growing number of groups committed to this purpose.
3. New business models emerge when cost priorities are reinterpreted
Operating expenses are anticipated to be scrutinized more closely. Many financial institutions will look for ways to save money while laying the framework for future growth. To achieve this, increased use of artificial intelligence (AI), machine learning, and cloud capabilities will be critical. There may also be a rise in the use of innovative operating models, such as public services (owned by consortia or third parties) or managed service models that do not risk operational resilience.
4. Resilience, risk management, and compliance are all critical factors to consider
Banks will need to evolve from a reactive to a proactive manner of operation as regulatory and risk concerns grow (such as cybersecurity, merchant monitoring, digital identities, and accounting adjustments). Shareholders and regulators will want to make sure that recovery plans promote operational resilience and guarantee that company services are not disrupted in the event of a disaster. In conclusion, organizations’ operational models and controls will need to be rethought regarding heightened risk and regulatory considerations.
5. Management and growth of the workforce
Financial institutions must assess what worked well in the past, decide the best mix for the future operating model, and assess the purpose and use of corporate space. It will be vital to provide resilience in this next stage and to do so, job automation will need to be maintained and improved. Similarly, defining the future workforce will require new tactics for attracting new talent and keeping, training, and developing new competencies in existing personnel.
6. A focus on the company’s objective and environmental, social, and corporate governance (ESG) issues.
The health crisis has highlighted the importance of corporate principles and purpose and the environmental, social, and governance (ESG) agenda. Customers, investors, and other stakeholders will increasingly want to know about the company’s culture, values, and mission, as well as its financial health. Concerns about the environment and sustainability, ethics, governance, social responsibility, and inclusion will be significant issues in the new reality, which financial organizations, governments, and individuals will be aware of.
Moving in the right direction
Because they maintain liquidity and monetary stability, banking and capital markets are critical components of an ecosystem. During the pandemic, financial institutions will continue to operate, although the vast majority will maintain their headquarters in corporate offices rather than branch sites.
There is still uncertainty about who will recover faster; the outcome may be dependent on the exact strategies used by each (sales, mergers, divestitures, among others).
While various lines of banking and capital markets activity may recover at different rates (for example, consumer banking may recover more slowly than investment banking), the sector as a whole will recover when employment levels return to pre-COVID levels. 19 and consumers begin buying new houses, cars, and vacations, spending at amounts similar to those before the outbreak. The combination of these factors will impact the sector’s development. Despite everything, the global banking industry and capital markets are going through a time of challenges, recovery, and opportunity.
