The financial services industry was already undergoing a transformation in business model. The pandemic will now accelerate the process
Towards the end of March, when coronavirus had triggered a near total lockdown across the world, and things were looking really bleak, not everything was gloom and doom in the financial services industry. Besides taking big managerial decisions while operating from different locations, financial institutions started finding expansion opportunities in the crisis. Several public sector banks launched emergency Covid loans as well as various kinds of personal loan products to help customers. Similarly, insurance companies, including Star Health, ICICI Lombard, Bharti Axa General Insurance and a few others, launched Covid-specific health policies. Some even launched a Covid health product offering income support by way of a fixed sum (not actual hospitalisation) for people without health insurance.
Considering that the risk and fear of a future lockdown are set to change the savings behaviour of people, the industry is looking at ways to cash in on this change too. Also, with the migrant population heading back home, banks are looking at more opportunities in rural and semi-urban areas.
In the last week of February, when China was under a lockdown and the World Health Organization was assessing whether to declare the coronavirus outbreak a pandemic, Mumbai-headquartered Axis Bank started mock drills with two possible scenarios of partial or full lockdown. The biggest focus of the bank - considering that a big chunk of back-office work had to be done at homes of staffers - was cyber security and data privacy.
The country's largest private sector lender, HDFC Bank, has also been quick to adopt a new business model that is more flexible post-Covid. It is now looking to put in place a more concrete plan once the lockdown is lifted and studying technology options for data privacy and cyber security in case core work has to be done from remote locations.
Axis Bank and HDFC Bank are not the only financial services players taking the lockdown challenge head on. Every bank is now realising the potential of exploring new ways of using technology to their advantage. Digitalisation was transforming the ways of banking even pre-Covid. But the virus outbreak has brought new ideas to the table, including work from home (WFH), use of cloud services, more focus on cyber security risks, creating a bond with customers virtually and preparing a business contingency plan for epidemics/pandemics.
"Covid-19 will accelerate the digitalisation drive. Today, most retail banking services can be offered digitally," says Ashutosh Khajuria, Executive Director, Federal Bank. The branch model will see big changes as video interface reduces reliance on branches. "With Zoom or WhatsApp meetings, people are now more comfortable talking through video-conferencing," says a banker.
"Banks are using cloud for various applications through single or multiple sources. But cloud services have to be customised optimally for best use," adds Khajuria of Federal Bank. "However, if you compare the cost benefits of WFH and higher productivity with cloud costs, the business proposition will certainly change in favour of the former." Clearly, the old order is changing.
SBM Bank, for instance, conducted its board meeting last fortnight over video calling where the CEO, the company secretary and the directors were at different places. "We have to use technology and also find a way of socialising with people," says Sidharth Rath, MD and CEO, SBM Bank in India.
Customer is King
Financial services players are also finding ways of reaching out to customers in these times. Jana Small Finance Bank is writing to customers above 60 to avail banking services at home. Around 40 per cent of its customers are senior citizens. "They are the most vulnerable. They won't step out even if lockdown restrictions are lifted," says Ajay Kanwal, CEO, Jana Small Finance Bank.
Some small banks are planning to use videos for collection strategies. "You don't need to visit customers in the early-stage default period. The interactions can be done over videos. Face-to-face meetings should be reserved for more serious cases," adds another banker. In the financial technology space, SME lending firm NeoGrowth has started a communication series for customers, where it provides essential tips on how to manage cash flows more effectively.
WFH is also helping banks serve customers better. When the nationwide lockdown was announced on March 25, Axis Bank quickly set in motion its plan. "The lockdown has taught us how WFH can be more productive and convenient," Amitabh Chaudhry, Managing Director and Chief Executive Officer of the bank, said recently. The bank is exploring options to include WFH as part of its work culture in the future.
At HDFC Bank, relationship managers, serving over four million customers under preferred and personal banking, took to WFH quickly. In fact, productivity jumped from two-three calls a day to 8-10 calls. This will help the bank spend less on infrastructure (space and office systems) and people.
Clearly, the financial services space is set to change for the better.