KPMG — Responding to Consumer Trends in the New Reality: Banking

Banks were already undergoing cost reduction programs to cope with reduced margins in the sector.

As a result of the current environment, banks are considering new operating models (e.g. industry utilities, managed services, etc.) as well as potential consolidation to drive efficiencies. For customers, banks continue to offer payment holidays, to consumers who themselves face financial uncertainty.

One in six consumers who own a financial product (18 percent) have applied for a payment holiday in the last six months and of these, 16 percent feel they will struggle to pay it back. Banks are therefore very concerned about the level of upcoming debt and their potential exposure.

They will need to understand the personal circumstances of customers in order to help them navigate the coming months and years. Indeed, one in five customers are already asking banks to do more to accommodate them during COVID-19.

While there has been a net loss of trust in banks during the course of the COVID-19 situation, trust has not been eroded as deeply as other sectors.

Indeed, many banks have taken the opportunity to support consumers and engender trust through consumer loans and payment holidays at this difficult time.

But do banks have the back-office processes in place to handle such large volumes of loans and to avoid potential fraudulent activity? Can they ensure they will treat all customers fairly?

There will be a cohort of customers in significant financial distress — what strategies do banks have in place to manage these relationships?

Long-term reputational risk could arise should either of these factors prove to be a problem. In the future, however, could COVID-19 be the catalyst for open banking? And if so, could the banks be the trusted custodians of consumer data, taking the role of both financial advisor and protector?

As customers become more comfortable with using digital to accomplish their high-value complex transactions, as a result of COVID-19, banks are having to accelerate their digital investment.

Larger, established banks have benefited from the ‘flight to safety’ in these uncertain times with consumers looking for full-service banking both online and on mobile.

Such banks are in a relatively strong position to develop their own technology e.g. virtual assistants or AI credit decisioning, or to simply acquire this skill set.

We can therefore expect to see consolidation in the sector and also potential competitive pressure from tech firms who have the digital capability and customer base to compete.

Banks must not only focus on digitization, but also on differentiation. Those brands unable to do this are at risk of becoming commoditized — how will they stand out if not through their staff or in-branch?

Products and services need to be simplified to reduce cost. Personalization can be delivered through the point of interaction, making better use of customer data to help predict future situations and help inform decision-making.

It is widely expected that the banking branch network will continue to shrink overall. However, the re-orientation of life around the home is likely to lead to a new focus on regional distribution of branches.

Convenience for customers will need to be balanced against profitability. City center branches will need to continue to be full-service to deal with highly complex processes. While investment in infrastructure is likely to be seen out-of-town, perhaps via pop-up branches or multi-brand outlets for lower margin transactions.

Traditionally, branches were a source of cross-selling — digital channels will need to quickly rise to the challenge to close this gap. And with consumers sharing more data and increasing online purchasing, bank exposure to cyber threats mounts. Cybersecurity will therefore become an ever-increasing focus for this sector.