finance
monthly
Personal Finance. Money. Investing.
Contribute
Newsletter
Corporate

The Future of Private Banking in the Age of COVID-19

More so than most industries, the financial services sector has been heavily impacted by the COVID-19 pandemic – and the changes coming to these institutions are likely to be permanent.

Posted: 19th October 2020 by
Alpa Bhakta
Share this article

Alpa Bhakta, CEO of Butterfield Mortgages Limited, explores how large and small banks have responded to the disruption caused by the pandemic and how it is likely to shape the future of the sector.

No business or sector is immune to the impact COVID-19 has been having on society. Not only are there the immediate health implications to deal with; the introduction of lockdown measures and social distancing has completely transformed the way businesses, investors and consumers interact with one another.

There is a general acceptance that, regardless of how or when the COVID-19 pandemic is effectively contained, the changes brought about by the virus will be permanent. From flexible working patterns to the adoption of digital processes that reduce the need for physical interactions, businesses are slowly transitioning to what is now being termed as the “new normal”.

Of all the sectors adapting to the new normal, one could argue the financial services sector faces some of the biggest obstacles. Historically, large financial institutions have naturally relied on traditional practices and have been slow to embrace change. This is partly due to their size and the natural time it takes to reorganise teams, install new systems and pass the necessary due diligence checks.

Adapting to lockdown: how did banks perform?

The sudden rise of COVID-19 cases caught many of these organisations by surprise. When lockdown measures were announced by the UK Government back in March 2020, these companies were faced with the following challenges.

The first was overcoming the logistical hurdles involved in managing a company when the vast majority of employees were working from home. Unlike small, specialised businesses who were able to adapt to this new environment, big banks had to ensure the necessary systems and protocols were in place in order to continue operating whilst managing risks appropriately.

The second challenge was reviewing the current products and services on offer and deciding which needed to be temporarily withdrawn from the market. If we look at mortgages, the majority of high street banks decided to stop offering high LTV products. Others refused to process new applications, with stringent application checks put in place.

Unlike small, specialised businesses who were able to adapt to this new environment, big banks had to ensure the necessary systems and protocols were in place in order to continue operating whilst managing risks appropriately.

The decision to pull certain mortgage products from the market makes sense, particularly at a time when it was not known when social distancing would be eased. However, this also had a significant impact on homebuyers.

A survey of 1,300 homeowners and prospective homebuyers by Butterfield Mortgages Limited (BML) in late May revealed that over half of homebuyers had been denied a mortgage this year. This is despite having agreements in principle. Of those we surveyed, three in ten, or 31%, said they had lost their deposit due to delays in securing a mortgage as a result of the coronavirus.

These statistics are startling and bring me to the third and final challenge banks are indeed continuing to face. That is effectively engaging and supporting their clients so that these customers are in a position to confidently manage their finances and make significant investment decisions.

Responding to the changing needs of the market

Banks cannot afford to overlook the importance of effective customer engagement. After all, it is in these uncertain times that people are eagerly looking for advice and support. And based on separate research conducted by BML in the summer, it is apparent that some are not satisfied with their banks handling of the pandemic.

Indeed, some 19% of homeowners have lost faith in their banks this year because of the lack of financial support available during the pandemic. This is a concerning statistic and could signal the beginning of a bigger confidence crisis if not effectively addressed. What’s more, just under a third (31%) of customers said they were frustrated by their banks’ dependence on chatbots and automated services.

This is an interesting finding. At a time when people are more inclined to use digital services, it shows that banks cannot simply rely on a chatbot to meet demands for financial advice. In other words, banks need to see technology as an instrument that can be creatively leveraged to engage with their clients and networks. It is not a solution in of itself; rather a tool that will only be effective if part of a larger communication strategy.

[ymal]

Customer engagement is key

Over six months since lockdown measures were first introduced, it looks as though the country could be facing a new wave of social distancing regulations. This is without doubt a frustrating development. The UK Government has been actively trying to encourage spending and investment activity through targeted policies, and banks have been slowly putting products back on the market.

Regardless of what lies on the horizon, banks need to ensure they are doing everything possible to engage with their clients. This means creatively adapting to the new normal and not letting the other challenges they face overshadow their customer engagement. Failing this, they could risk losing customers in the long-term.

About Finance Monthly

Universal Media logo
Finance Monthly is a comprehensive website tailored for individuals seeking insights into the world of consumer finance and money management. It offers news, commentary, and in-depth analysis on topics crucial to personal financial management and decision-making. Whether you're interested in budgeting, investing, or understanding market trends, Finance Monthly provides valuable information to help you navigate the financial aspects of everyday life.
© 2024 Finance Monthly - All Rights Reserved.
News Illustration

Get our free monthly FM email

Subscribe to Finance Monthly and Get the Latest Finance News, Opinion and Insight Direct to you every month.
chevron-right-circle linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram