How the banking sector can transform in the post-Covid-19 era

During the pandemic, drastic modifications were initiated by banks in terms of technology and business model. Demand for digital solutions and stable work-from-home structures skyrocketed. The entire industry was stretched like an elastic band, and there may be a coherent choice to permit the band to loosen up and return to "normal" as quickly as the situations permit. 

But while stretching an elastic band, you furthermore might generate energy that can be termed potential energy. That energy can be transformed into swift forward motion in a slingshot. In the case of banks, this event induced a sustained burst of innovation and improvisation. 

The conundrum they are facing now is whether to let the elastic relax and ease the strain of 2020-21 and where the experience and pent-up energy from last year can be used to propel the organisation headfirst. Now, let us look at some of the possible changes that we might face in the post-covid era as the banking sector embarks on its road to redemption.

The 'winner takes all' phenomenon is now embryonic in retail banking. As the big get bigger, 'too small to succeed' will substitute 'too big to fail'. While the best traditional banks and the neo-banks will win customers, at the same time the weaker incumbents and undifferentiated challengers will undoubtedly struggle. 

As soon as the banking sector completes its exodus from street corners to virtual screens, we might see the rivalry between the retail and commercial banks heating up to the extent that it will squeeze the standalone apps. 

Subsequently, 2022 could prove to be difficult for conventional retail strategies because some banks will lean into radically translucent products to generate a more captivating pitch. Smart credit quality management exploiting micro-segmentation and demonstrating efficiency in recovering from Covid-related losses will become a prevailing differentiator. 

Blockchain innovation is upsetting the financial arena by aiding in complying information with numerous guidelines like KYC or Anti-Money Laundering proficiently. 

This pandemic will be a turning point for digital payments in countries which are racing to become cashless. Besides, we might see the rise of cryptocurrencies as the next generation payment method; however in the majority of markets, nixing cash will endure a long-term project. 

Additionally, in the case of sustainable green financing, 2021 will be an inflexion point because the regulators will contemplate the macroeconomic consequences of environmental change and act decisively. 

Finally, cloud computing and artificial intelligence is turning into a spectrum - a sky bursting with cirrus rather than isolated cumulus clouds. Siloed thinking will become more perilous. 

The crisis offers banks an opportunity to fundamentally transform themselves and implement a strategy based on three key dimensions of resilience, value leadership and growth to future-proof their business. 

The duration of the pandemic and industrial and administrative response will influence the bank's response, which can be divided into four overlapping and dynamic phases. To emerge stronger from the crisis, banks will need to take specific actions to deal with the impact in each phase.

• Crisis: Covid-19 spreads, peaks and recedes
• Transition: As restrictions reduce and usher in a slow return to business as usual
• Post Covid-19: As economies revive possibly from 2021
• Future-proofing: Beyond Covid-19 for the long term

Holistic restructuring across the four phases of the pandemic, crisis, transition, post-Covid-19 and future-proofing typically align with seven themes. They are adaptive distribution, resilient enterprise, contactless experiences, products for a new reality, towards touchless banking, cognitive enterprise and purpose-driven ecosystems. Banks must follow a two-pronged approach: introduce quick fixes in the crisis phase and initiate course corrections for longer-term growth and sustenance.

Sayeed Al Mamun Anik has a Master's degree in Bank Management (MBM) from the Bangladesh Institute of Bank Management.

Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.