Charting the Path Forward

By Deborah Matthews Phillips

Community banks have always demonstrated courage and commitment in helping customers thrive in good times and in adversity. As bankers well know, with every crisis comes opportunity — and harnessing opportunities requires preparation. COVID-19 reinforced the imperative for strategic planning to attain future viability and resilience.

Boston Consulting Group defines resilience as “the ability to react to unanticipated opportunities or threats, weather shocks to the business and adapt accordingly.” For community banks, resilience is more than hardening systems and implementing IT business continuity plans. Resilience is achieved by adapting to the dramatic shifts catalyzed by the pandemic.

COVID-19’s impact will be dissected in retrospectives over the course of many months or even years. For community banks, now is the time to scrutinize the sudden changes in customer behaviors, analyze the effects of social distancing and economic uncertainty, and address the need for digital delivery channels that preserve personal service.

Four trends have emerged which create urgent calls to action for community banks:

1. A renewed sense of urgency in embracing digital transformation

An enduring legacy of COVID-19 will be a society that is increasingly reliant on digital communications and capabilities.

Pre-pandemic, some consumers hesitated to use digital banking solutions because they found them unfamiliar and intimidating. Sheltering-in-place has accelerated the need for easy and convenient digital financial tools beyond the basic account balance checking.

A recent study found a 72 percent increase in the use of fintech apps since the pandemic began as consumers seek alternatives for managing their finances. Banks must act decisively to expand their digital features to ensure that they remain central in the financial lives of their customers. One expert argues digital readiness has morphed from “important” to “existential.”

Multiple steps in the customer journey are ripe for digital transformation, including the ability to apply for loans and open accounts remotely within a matter of minutes. Banks must be able to handle complex customer support requests via digital channels while retaining the personal touch. Remote check deposit, person-to-person (P2P) and account-to-account (A2A) transfer capabilities are table stakes. These services must be convenient and easy to ensure that no customers are left behind.

Bankers may be pressed to reimagine the role of physical branches to serve customers. Novantas claims the branch network’s competitive advantage was eliminated overnight and for the unforeseeable future, if not forever. With social distancing as a lingering expectation, branches that doubled as cafes and neighborhood gathering places may need to be reconfigured.

2. Keeping pace with a changing payments landscape

Card networks reported decreased transaction volumes as consumers reined in spending, made fewer shopping trips, and gave up eating out in favor of cooking at home. With record numbers of Americans furloughed and unemployed, a new era of consumer spending austerity was ushered in.

Even as states begin phased reopenings, consumers may remain cautious as they face an uncertain future. Millions of Americans are skipping their credit-card payments, and some issuers are responding by lowering or waiving late fees and interest charges, or even forgiving portions of customers’ balances.

Banks should recalibrate their expectations for interchange revenue, combatting the shortfall by implementing measures to ensure cards and accounts are selected by customers as their default payment method.

Consumers are turning to contactless options for paying; merchants like Publix responded by adding digital wallet acceptance for checkout. More than a quarter of U.S. small businesses reported increases in customers using services like Apple Pay.

One expert expects contactless payments to grab an additional 10 percent to 20 percent of transactions at stores and ATMs as the result of the pandemic. In addition to certifying your bank-issued cards for Apple Pay, Google Pay and Samsung Pay, consider accelerating plans to issue contactless cards and virtual cards.

The need to move money easily and instantly has bolstered the justification for banks to prioritize faster payments. Banks can no longer afford to wait on the sidelines to add faster payments to their product offerings.

With neighbors helping neighbors to cope with social distancing and quarantines with tasks like grocery shopping and sewing masks, consumers are looking for fast, simple, and contactless methods to pay others.

PayPal reported payments tagged with the medical mask emoji — often to canceled service providers like babysitters and hairdressers — increased 375 percent in March. Adding real-time P2P to your digital banking app is a solid tactic for keeping transactions and deposits inside your bank.

Keep in mind, just as individuals are starting to clamor for real-time payments, businesses whose cash flow has decreased also want the ability to make and receive just-in-time payments. On-demand earned wage access is another faster payments use case growing in popularity. Employers view this as a differentiator for attracting qualified staff and to help their employees manage bills and unexpected emergencies between paydays.

3. Financial wellness tools for navigating a weakened economy

COVID-19 strained many households already challenged with financial insecurity. Before the pandemic, less than 30 percent of Americans were considered financially healthy. In 2019, more than 74 percent of employees said they would experience financial difficulty if their paychecks were delayed for a week. Over the past few weeks, record numbers of Americans—more than 13 percent of the workforce—have filed for unemployment, with many uncertain if or when they will be able to return to work and enjoy the safety net of employee benefits.

In addition to exercising tolerance for late payments, forbearance on loans, and forgoing account fees, bankers can provide educational tools to help customers navigate financial challenges. Consumers have increased the amount of time spent on mobile finance apps since the start of the coronavirus outbreak by 35 percent, in a trend forecasted to continue.

Digital personal financial management tools offer assistance to customers for optimizing their money and planning for the future. Financial management content boosts your bank’s website traffic and drives customer engagement. Providing virtual access to experienced staff for financial guidance will reinforce the high-touch nature of community banking.

Many small-business owners are facing significant disruptions and are anxious about the future. Even after restrictions are lifted and business resumes, many businesses may feel as if they are traversing a tightrope. Assure these customers that you are ready to stand by them. Some banks have added small-business experts to their staff to help coach their customers through the myriad challenges.

The pandemic has accelerated the need for cybersecurity awareness. According to the Federal Trade Commission, more than 18,000 Americans have lost $13.4 million since the beginning of the year in coronavirus-related fraud. Offer education to customers for safeguarding their money by avoiding scams. Deputize consumers in the fight against fraud with solutions like card controls. Help business customers remain vigilant about fraud by raising awareness about business email compromise and account takeover threats.

4. Social responsibility as a litmus test

As 9/11 was the defining event for the Millennial generation, this year’s pandemic is Generation Z’s defining event: shaping their views, creating shared memories, and altering behaviors.

Gen Z was already predisposed to judging businesses based on their positions on social issues. COVID-19 has sharpened a sense of societal responsibility as people embraced themes of “We’re in it together.” As survivors of the pandemic, Gen Z will scrutinize a company’s social responsibility history even more closely before becoming a customer. The community bank ethos of serving customers and communities is powerful ammunition for attracting this next generation of customers.

If there can be a silver lining to this crisis, it is that community banks continue to shine in supporting their customers and communities in this unprecedented national emergency. As essential workers, bankers worked tirelessly around the clock to help secure PPP loans for small businesses, keep services accessible and advocate for their customers’ financial needs. Every community bank has inspiring stories about these heroes that should be shared and celebrated.

Deborah Matthews Phillips is ICBA senior vice president of payments and technology policy and ICBA Bancard senior vice president of industry relations.