Compared to the beginning of this year, the ways many of us live and work today are substantially different. The COVID-19 pandemic has not only triggered many significant changes in consumer behavior – some of which are expected to be permanent – but it has also impacted the way businesses will operate from now on.
COVID-19 pandemic: a change catalyst
Kasikorn Research foresees that COVID-19 will be a change catalyst in the banking business, by either speeding up disruption or fostering the creation of ‘new normal’ practices among financial institutions.
How will COVID-19 speed up disruption?
We highlight this from three main perspectives: technology familiarity, cashless society, and competition.
First, COVID-19 has accelerated consumers’ technology familiarity, especially as people now feel more comfortable accessing online systems and platforms for meetings during their period of working or studying from home, and in shopping for goods and food. Governments’ financial support during the COVID-19 period has also helped increase technology literacy in the lower-income segment, thus broadening financial access and the online customer base for financial institutions.
Second, increased online activity has sped up the migration to a cashless society, through mobile banking apps, e-wallets and QR codes. Online payment has also served people’s increasing hygienic awareness against COVID-19 infection by reducing or even eliminating the need to handle physical cash. Ninety-one percent of respondents in the Asia Pacific region are now using contactless payment, according to a Mastercard survey.
Third, competition will be even more intensified, with non-bank service providers, including e-commerce and platform operators, likely pursuing aggressive business expansion during the post-COVID period to capitalize on any business opportunities. In addition, these firms have access to online, big data records, giving them a competitive advantage.
How is COVID-19 creating a ‘new normal’? Banks – and, in fact, every other business – will experience troubling economic circumstances, for instance, low GDP growth for at least the next several years, worsening corporate and household balance sheets (due to sluggish business revenue, lingering unemployment and higher debts), plus limited room for additional fiscal and monetary policy stimulus measures.
Moreover, consumer behavior will differ in the sense that they will be more health-conscious and more isolated (as social distancing will remain in place to some extent), while increasing concerns towards job security and income stability will support the trend of ‘cautionary savings’, e.g., choosing to save rather than making any purchase.
The business sector needs to swiftly adjust its business models to ensure its resiliency in any circumstance. Notable options include the enhancement of cost-efficiency through measures such as introducing automation in replacement of labor. Businesses might also consider shortening their production supply chains and re-shoring to stay closer to end-consumer markets, which would help increase their flexibility to accommodate fast-changing consumer behavior and disruption.
For Thai banks to stay competitive after COVID-19, we highlight four major development trends:
- Contactless payment: Commercial banks will need to further improve their online channels to better serve customers’ changing needs. Some examples include the replacement of physical cards with virtual cards, via facial recognition e-KYC, in addition to greater efficiency of call centers and chatbots that will see increased usage.
- Review of credit policy: In light of the changing business landscape at home and abroad, business competitiveness could vary significantly, which would impact their debt servicing ability and thus require commercial banks to review their credit policy accordingly. In addition, commercial banks may need to speed up their acquisition and utilization of big data, as well as improvement of their data analytics capability, all of which would give them better and faster access to new potential customers and provide digital lending in the future.
- Cost efficiency: As commercial banks in the near term will continue to suffer from high cost-to-income ratio in light of pressure on income growth, cost control and work efficiency enhancement will remain crucial. In addition to the need for technology adoption – like automation and AI/machine learning – in some operational processes, service outsourcing could become a more prominent trend, allowing banks to reach their desired outcomes faster with less hassle regarding operational issues.
- New business opportunities: The new trends in consumer behavior after COVID-19 will provide new opportunities for commercial banks. For example, commercial banks may launch new types of investment products suited to younger generations who are now more concerned about their income insecurity. In addition, commercial banks may consider offering Banking as a Service (BaaS), in which they provide service functions matching the requirements of customers and partners in return for fee income.
For now, none of us know what tomorrow may bring, so we must prepare ourselves to stay resilient in any situation. Are you ready for your ‘new normal’?
