The enduring line about every crisis hiding an opportunity has never been truer than during this time of COVID-19. Rarely has a disruption touched so many areas of society, for businesses and consumers. If the size of an opportunity turns on the size of the crisis, financial services leaders can move this opportunity to the top of their agenda.
But there is more to the story. While crisis brings the knock of opportunity, it also demands that leaders answer the proverbial door. Taking advantage of today’s historic opportunity means that banks, credit unions, and mortgage investment corporations need to analyze the scale of the opportunity—and then gird themselves for the challenge ahead.
Remote work, the cloud, and digital transformation
As the pandemic began to spread, financial services organizations asked their employees to work from home to help contain the outbreak. But some organizations soon discovered that their IT systems couldn’t handle the extra load. While some financial services had previously implemented remote work, the unprecedented degree of remote work put a strain on their systems. It even jeopardized delivery of client services.
Remote work will continue for many financial services organizations—at the very least in the short term. In Toronto, for example, some of the country’s largest financial services organizations committed to keeping most of their downtown staff working remotely until September.
When opportunity knocks
COVID-19 has accelerated the timelines for large transformation projects, with cloud deployment taking centre stage. Long-term plans suddenly have near-term urgency. In some cases, financial institutions are building on previous investments. In others, they are embarking on exciting, net-new projects.
No matter the digital maturity and size of an organization, the primary goal is the same: IT agility and strategic flexibility.
The remote work supported by this digital transformation also fits today’s workplace values. Some organizations may see in remote work the opportunity to reduce their physical footprint and lower costs. Others may identify working from home as a way to support diversity—empowering mothers returning from maternity leave and people with disabilities who face accessibility challenges.
Opening the door
As financial services organizations deploy systems to the cloud, they need to secure their data. The scope goes beyond the cybersecurity needs that occupy most industry leaders. Government mandates that financial institutions observe a higher standard to protect Canadians’ personally identifiable information.
To secure their data, financial institutions need to tackle assurance with their cloud service provider and address contractual issues with those providers related to risk, security, and liability.
Credit risk: Why lenders should double down on core practices
As the economic downturn continues, lenders expect increases in their non-performing loan levels and in their credit risk exposure. Delinquencies and defaults on mortgages, loans, credit cards, and other forms of consumer borrowing tend to spike during economic instability.
Ultimately, loan performance will depend on the job numbers, which in turn hinge on the shape and speed of the economy’s rebound. Whether that recovery looks like a ‘U,’ ‘V,’ or ‘L,’ the economy will take time to return to its pre-crisis 5.5% unemployment rate. Canadian banks have set aside billions of dollars in loan-loss provisions.
When opportunity knocks
The credit risk triggered by the COVID-19 outbreak is an opportunity for financial services organizations to bolster their core practices and values.
This opportunity may require a balancing act. On the one hand, risk appetites may wane among lenders. At the same time, the COVID-19 crisis has underlined the critical role of financial services in the Canadian economy. Canadians—and their governments—are looking to financial services for support during this crisis. It is an opportunity to strengthen customer relationships.
Opening the door
To fully assess their credit risk, financial services organizations should conduct a detailed loan portfolio review. This review will identify not only current vulnerabilities but also potential areas of weakness for the future. In a fast-changing economic crisis, spotting these scenarios in advance can save time. The loan portfolio review often teases out trends from which to extrapolate.
Moving forward, financial services organizations should also take this opportunity to reaffirm their credit due diligence and assess their control systems.
As a group, these steps will help organizations develop a risk baseline as they prepare to shoulder a critical load in the recovery of the Canadian economy.
Analytics and its many uses
With their finances in turmoil, Canadians looked to the government and their financial institutions for assistance. Both have responded, but financial institutions noted one gap: analytics and artificial intelligence (AI).
COVID-19 crisis triggered a generational opportunity to personalize communications with customers. Messaging and offers could have been based on deep customer insights from which to proactively identify customer needs. However, many financial services organizations realized that they lack the robust analytics and AI capabilities they need.
When opportunity knocks
Analytics and AI can be used to personalize communications and offers—and also to ease customer intake at a call centre or online portal. Finally, financial services can use these tools to enhance security and prevent fraud, which has grown during the COVID-19 crisis.
Answering the door
AI outputs are only as effective as the system’s data inputs. Financial services organizations need an adaptive modern data platform to get the right insights from their data. As financial services leaders move their organizations forward, their role will include nurturing a data-driven culture.
To boost their data capabilities, financial services of any size first need to identify their current data analytics maturity and build a strategic roadmap toward modern analytics and AI.
Contact our team to capitalize on opportunity in the post-COVID-19 world:
Sam Khoury, National Financial Services Leader
Mike Gelesz, Client Engagement Director, Financial Services — Central & Eastern Canada
Rob Campbell, Client Engagement Director, Financial Services — Western Canada