How Covid-19 is changing the operations of UK banks

08 October 2020 4 min. read

The UK banking sector has had to adapt quickly to cope with the challenges of the coronavirus pandemic, with three-quarters of financial sector leaders saying their organisation has become more innovative as a result of the crisis. According to a new survey, almost 80% of banks surprised themselves with how agile they were in making changes such as cost-cutting and digitalisation.

According to a survey of 250+ senior banking executives in the UK conducted by the Financial Times and Appian, the Covid-19 crisis is spurring incumbent banks to shed costs and increase automation at speed, leading to surprising breakthroughs in agility and innovation nous.

The report cited HSBC’s COO of Digital Technology, Ritesh Jain, who claimed the scale and speed of transformation of the last five months were unlike anything he had seen.

To what extent has your organisation been challenged in these areas due to the impact of the COVID-19 pandemic?

Illustrating just how widespread change is in the banking sector at present, of the banking executives polled in July 2020, 78% of banks said they had “proven more agile than previously thought” and 72% “have grown more innovative in 2020.” This, despite the respondents also noting a significant increase in difficulty regarding many of the key processes of banks.

Making sales and winning new business was understandably the most difficult process for banks to maintain amid the massive recession exacerbated by Covid-19. Only 25% of banks said they had the normal level of difficulty regarding this area, while 34% said they faced major additional hurdles as investors became more cautious.

While customer services and risk management saw the highest spikes in major challenges – at 29% and 28% – cost efficiency and trading operations were least likely to see business as usual. Only 25% of banks said they were seeing normal levels of difficulty in each sector respectively. Each of these functions has subsequently warranted a hefty response from banks, in terms of ramping up digitalisation, cutting costs, or both.

Which of the following were major changes driven by the COVID-19 pandemic, and which are here to stay?

This is particularly the case with banks looking to permanently downsize the physical space their businesses spent money on. Around 30% of respondents told the researchers that they had increased their support and options for remote working permanently, while a further 25% said this had enabled them to reduce office space requirements and their physical footprint.

Through enabling more home working via their digital offering for staff, banks can cut costs relating to their office environment, while the digitalisation of other banking services means customers need fewer physical locations through which to manage their money.

This supports a recent study from Kearney, which suggested that as many as 40,000 branches – 25% of all branches in Europe today – could close across Europe in the next three years as customers move online to use their services.

Beyond the pandemic

With banks now aware of their potential agility, and having become aware that they can successfully transform their operating models for the longer term, many seem to have determined to continue their transformations beyond the pandemic. In particular, the majority expect to invest more in automation – something which has spiked as a result of Covid-19.

Does your organisation expect the following to increase or decrease over the next two years?

The study found that an overall average of 65% of banks were planning to ramp up spending on automation to boost operational austerity over the coming two years, but this had jumped to 72% as a result of the pandemic. Similar five and six-point changes were registered in investing in innovation and technology, but interestingly this does not seem to mean  that banks will be using automated processes to lower their headcount.

Indeed, there has been a slight uptick in the number of banks expecting to boost headcount in the following period. This may be because banks see an opportunity to use automation to free up their employees for value-adding activities, such as improving personalised customer service – treating the addition of technology as a chance to boost income rather than cut spending.

Commenting on the findings, Mike Heffner, a Vice President at Appian, said, “Covid-19 has forced the banking industry to rapidly adapt to new challenges. The survey results prove that banks are able to be agile, innovate and implement new technologies when the market demands… Although cost cuts are on the horizon for a significant number of UK banks, finding new ways to stay efficient and deliver compliant, effective service has probably never been more of a priority.”