The ‘new normal’ for financial services

The Covid-19 pandemic has made the world accustomed to the idea of a ‘new normal,’ where society had no choice but to learn to live with the pandemic as an obvious life-fact. It is a challenging scenario for any sector, and the financial services—mainly banking and insurance—is no exception.

At their respective industry levels, both these financial services subsets were in the throes of a major transformation, and the pandemic only added even more pressure. According to a recent Capgemini Research Institute (CRI) report, the pandemic led to sweeping changes in customer behaviour and how organisations operate—a process which usually takes years to evolve, materialised in a matter of months.

The report—which is based on a November 2020 survey conducted by CRI with a goal to understand which trends are being sustained over the long term and which emerging trends are critical for the future of financial services firms—argues that many of these firms found themselves ill-prepared in the face of the pandemic and, as a result, had to face significant disruption.

According to CRI, consumers are increasingly switching to online channels for both banking and insurance, with the frequency of interactions expected to rise even further after the pandemic is over. However, at the same time, consumers in the survey also indicated that they are still very much inclined to resume the use of physical channels, such as bank branches, as soon as conditions are favourable. In fact, 40% of the respondents made an in-person visit to a bank or insurance branch when lockdown restrictions were eased in key markets.

Among the key survey takeaways, CRI highlights that customers are switching to online channels—mobile apps, websites, and internet banking—both for banking and insurance. “And the frequency is expected to rise even after the pandemic is over,” it says.

Upon decoding the numbers, the report reveals an interesting fact: Mobile use is mainly driven by younger age groups, especially those in the 24-45 age bracket, whereas internet use is driven more by consumers who are over 60 years of age. “This is indicative of the fact that younger consumers are leapfrogging internet banking and find mobile banking more convenient,” the report adds.

CRI cites examples of American banks shutting over 750 branches across ten key metro areas in 2019, and likewise, more than a third of branches in the U.K. were shuttered in four and half years —from 9,803 in January 2015 to 6,549 in August 2019. “The acceleration that the industry has seen in customer adoption of digital channels, even in traditional segments, raises questions about the relevance of the branch,” the report notes.

While the use of physical channels dipped for both banking and insurance during the crisis, however, consumers did point out that they were keen to resume use when pandemic effects subside. “Customers don’t want to say goodbye to branches altogether.”

This continued relevance of branches is a reflection of multiple factors, such as branches allowing face-to-face interactions being best equipped to address complex customer needs. “This is particularly relevant in the relationship-driven world of commercial banking,” the report says. Also, branches contribute to local brand building and enhance customer relationships and sales opportunities. And, they are vital differentiators for incumbent banks versus new players that focus on a digital-only model.

It is perhaps not surprising that consumers, who responded to CRI, expect to engage with branches even more after the pandemic as compared to pre-pandemic levels. And, contrary to what could be expected, it is the younger consumers who are keen to resume branch interactions.

CRI revealed that 37% of consumers aged 25–35 years expect to have high branch interaction after the pandemic, as compared to 20% or less of consumers aged 56 years and above. “This jump is likely driven by a need for human touch after the prolonged isolation and consumers’ need to engage in the real world again,” CRI argues.

The ‘new normal’ clearly entails that face-to-face interaction will continue to hold significance with consumers in the post-Covid-19 world. However, CRI is of the view that consumers will expect a hyper-personalised approach to their needs, however complex. “Banks that ready their branches for this need can wow customers and reinvigorate the customer-branch relationship,” CRI adds.

Here’s a peek into the key findings of CRI’s survey at the global level, as well as the responses from financial services’ consumers in China and India. Out of the 11,200 total respondents across 11 countries, respondents from China and India accounted for nearly 10% and 9% of the total.