By Kevin Martin, Global COO and Head of Digital Transformation, Wealth and Personal Banking, HSBC
Life for many of us has changed beyond recognition compared to just a few months ago—and one of the biggest changes has been the need to do electronically what we historically did face to face: it’s now video conferencing for meetings, shopping online, restaurant delivery, day-to-day digital banking and so on.
The question is: How much of this change will prove to be permanent versus how much will be temporary? If COVID-19 were to end overnight, would old patterns of behaviour return, or would new habits become permanent?
For the banking industry, the answer is probably more towards permanent change. There is a lot of news coverage—including featuring HSBC—about how COVID-19 has driven established banks to accelerate their digital programmes. There’s some truth to this: We’ve had to prioritise services and journeys that enable customers to complete their high-volume service journeys remotely, and this can be as simple as resetting PINs (personal identification numbers), changing loan terms, paying for groceries or filling in forms electronically.
According to research by RFi Group, 71 percent of consumers globally are now, in the midst of the pandemic, using digital-banking channels weekly—a 3-percent year-on-year increase—while daily use increased 6 percent during the same period. Comparatively, 73 percent of consumers in the United Kingdom are using digital-banking channels weekly, higher than the global average. Meanwhile, the UK also saw a steep five percentage-point rise in monthly users of mobile banking between the second half of 2019 and the first half of 2020—jumping 52 percent to 57 percent of respondents.
But it is also clear that COVID-19 alone hasn’t suddenly caused the shift to digital in banking; in most cases, it has simply accelerated it. Customer behaviour patterns have been shifting for years as more and more people use digital ecosystems to shape their lives. The shift away from cash towards digital payment methods has been building gradually for years. According to UK Finance, just 23 percent of all purchases made in the UK in 2019 involved cash, and more than 70 percent of the population shopped online last year. The pandemic has created a surge in contactless payment and remote banking, but this trend was set to accelerate across the next few years as consumers have shown an increasing reliance on this technology. A recent report by the World Economic Forum (WEF) predicted that 50 percent of goods consumption could be made online in many developed markets by 2030; this helps to explain UK Finance’s forecast that by 2028, only 9 percent of all payments in the UK will be made using physical currency.
The banking industry has been part of this change, but in most cases, not a leader historically.
So if we were to make some predictions about what banking will look like post-COVID-19, they might look like this:
- Even more day-to-day banking transactions will be completed via digital channels.
The transition towards digital was inevitable for routine activities—checking balances, making payments and transfers, paying bills, even completing credit-card applications. Many of these activities are habits, and once habits are embedded, they are unlikely to change. Post-COVID-19, even more people will bank this way—routine activities will stay digital.
- Customers will still go to branches and turn to people for important life moments.
Even as the pandemic fades, people will still have a psychological need for human interaction at important life moments. People need to feel reassured when it comes to life events, such as sending a child overseas for education, managing generational wealth transfers, establishing a wealth plan, coping with bereavement or buying a home. This means we can expect to see some return to “normal” post-COVID-19—and touching base with bank branches will continue to make up a significant proportion of this type of activity. What remains to be seen is how far people will be willing to use video platforms as part of this interaction, which may, in turn, depend on factors such as how long social distancing persists. People will value the convenience of a nearby branch compared with a scheduled video call for different reasons, but the ubiquitous use of Zoom Video Communications is likely to accelerate the frequency of virtual “face to face”.
- Bank branches will become more like service lounges.
The way branches look and feel will change. Branches will become less about rows of tellers managing daily transactions, which can now be completed online, and more like service lounges. Agents will be on hand to guide customers through transactions on their own devices, and physical space will be broken up into more casual seating areas for deeper private conversations. Changing the layout of branches in this way will also support any ongoing social distancing.
- Regulatory collaboration on digitisation will accelerate.
The pandemic enabled regulators and banks to work together to rapidly help customers to keep banking during the early days of the outbreak—examples of which include collaboration to increase the availability of video banking services in some markets. We predict that this cooperation will accelerate further as increased digitisation persists and evolves into new areas, such as artificial intelligence (AI) and machine learning (ML).
- Established banks will become more like challenger banks beyond their home markets, and partnerships will accelerate.
Increased digitisation for customers will also drive increasing partnerships between banks and platforms, such as online retailers and social media, so that they can bank where they spend or socialise. Separately, we’re seeing new digital entrants into retail-banking markets around the world, but we also predict that as digital platforms become more scalable, established international banks will begin to challenge them with digitally centric offerings, both inside and outside their home markets. The benefit of both changes for consumers will be clear: more choice. For the established banks, it’s an opportunity to compete in new markets, segments and marketplaces.
Looking ahead, AI and data analytics will play a central part in the banking industry’s focus on investing in digital capabilities to serve customers better. In the next 12 months, banks will increasingly shift from monitoring transactions to assisting customers through “conversational banking”. Banks such as HSBC will merge human and digital channels to help customers get the assistance they need more quickly and at lower cost. For example, customers can begin a conversation in the HSBC mobile app via an AI chatbot, which is capable of answering simple questions immediately, effectively automating a large proportion of incoming chat volume. More complex questions are then handed off to frontline colleagues. With the growing popularity of instant messaging and demand for 24/7 banking services, conversational banking or AI chatbots are important for banks to engage with customers more promptly and effectively. At HSBC, the use of chatbots has become more prevalent—we held 10 million chat conversations in 2019 across personal banking, and we expect to reach 10 million chat conversations a month by 2024.
It’s unlikely that normal life after COVID-19 will be exactly the same as life before it. The virus has made us focus as a society collectively on a range of new solutions to familiar problems in order to help us live our lives during a pandemic—and some of these will be permanently embedded. But while some parts of service industries such as banking will change, the human element will persist—particularly where complexity is involved and reassurance is needed.