REDIFINING BANKING AFTER COVID 19 PART 1

INTRODUCTION

The surprise advent and the negative impact of COVID 19 is not anything large, medium and small economies planned for or rather none expected this Pandemic to visit us around this time when economies are struggling to manage climate change, rolling out new technologies and redefining standards and processes to enhance lives of people and eco-systems.

Now, more than ever, the financial strains of households are becoming political, personal and institutional issues. The Global pandemic has exposed major weaknesses in the ability for many financial institutions to support digital banking products and services.

Well before the current coronavirus crisis, one can point to less than 30% of Ghanaians who could be considered financially healthy, with millions of households not having enough money in savings to get through a month.

This highlighted that the majority of Ghanaians were unprepared for short or long-term financial shock. These are the people who are the most at risk given today’s COVID-19 crisis.

We already realize that the longer this crisis continues, the more loan payments will be missed, the more savings will be depleted, and the less money will be available for retirement.

Underneath the obvious impact will be the reality that protracted and dynamic pandemic conditions will also draw out anxiety and financial stress impacting relationships and creating underlying psychosocial behaviours.

Unfortunately, things will get worse before they get better.

To get a better perspective on the impact of COVID-19, and the response required by both the banking industry and government to address the needs of households, small, medium and large businesses, the Chartered Institute of Bankers has compiled this article to make more individuals and organizations aware of the impending crisis what needs to be done immediately and going forward to promote the financial wellness of all consumers, financial institutions, regulators and financial stakeholders.

The economic impact of the pandemic has affected the World’s economies and more especially the financial sector. Ghana is no exemption. There is no gain saying that Ghana has a large informal economic structure. It leaves the economy volatile. Ghana’s estimated GDP growth is set to plummet from a target of 6.8% to about 2.6% in 2020. (Thus if we can correctly forecast the impact of the Pandemic on human capital).

IMPACT OF COVID 19 ON THE FINANCIAL SECTOR IN GHANA.

The financial services sector of the Ghana economy comprises of the following: Universal Banking, Insurance, Investment Banking and Pensions.

Banking, the major player in the financial sector will obviously not be the same after this World Pandemic.

According to Mathieu Vasseux, Head of Financial Services MEA at Oliver Wyman “The ongoing coronavirus epidemic may lead to reduced borrowing and lending, impacting banks that work in corporate and personal finance in Dubai and the Middle East”.

Mathieu made this statement after the Central Bank of the UAE (CBUAE) requested that banks implement measures to counteract the effects of Covid-19, including rescheduling loans, offering temporary deferrals on monthly loan payments and reducing fees and commissions.

MITIGATING MEASURES BY CUSTOMERS, REGULATORS AND OTHER STAKEHOLDERS

Changing customer behavior, increasing expectations, alternative channel experience and the digitization of business and society, in general, have brought along what some people call the digital era in banking.

The above digital era therefore sets the tone for some steps which needs to be taken by the banking sector going forward as enumerated below;

TECHNOLOGY, CORE BANKING AND ESSENTIAL SERVICES PROVISION

Core banking is a banking service provided by a group of networked bank branches where customers may access their bank account and perform basic transactions from any of the member branch offices.

Core banking is often associated with retail banking and many banks treat the retail customers as their core banking customers.

Businesses (small, medium and large) are usually managed via the corporate banking division of the banks. Core banking covers basic depositing (and its processing and management) and lending (and its processing and management) of money and credit management (salary processing and management).

Other core banking functions will include transaction account (and its processing and
management) loans mortgages and payments (internationally and domestically Banks must make these services available across multiple channels like automated teller machines, Internet banking, mobile banking and branches).

Banking software and network technology allows a bank to centralise its record keeping and allow access from any location.

Core banking became possible with the advent of computer and telecommunication technology that allowed information to be shared between bank branches quickly and efficiently.

Before the 1970s, it used to take at least a day for a transaction to reflect in the real account because each branch had their local servers, and the data from the server in each branch was sent in a batch to the servers in the data centre only at the end of the day (EOD).

Over the following 30 years, most banks moved to core banking applications to support their operations creating a Centralized Online Real-time Exchange (or Environment) (CORE).

This meant that all the bank's branches could access applications from centralized data centres.
Deposits made were reflected immediately on the bank's servers, and the customer could withdraw the deposited money from any of the bank's branches.

This is excellent but not enough. How do we process loans and credits in our branches with technology?

How do we do our syndications and send out the letters of credits etc.

We must improve it and enlarge its usage.

ALTERNATIVE CHANNELS ENHANCEMENT

Alternative channels such as SMS alert, USSD, internet banking is no more an option for customers. Customers will rather want to see the fully blown Financial Services IT infrastructure being activated. From human interface, through enhanced processing, standards, software and fintechnology.

The turnaround time for the processing of CUSTOMERS request through alternative channels should be enhanced now.

It is time the banking sector accelerate its speed towards electronic banking and the use of advanced technology to serve both its internal and external customers.

Covid-19 has brought in force an idea of banks hosting CUSTOMERS’ meetings, Management and Executive Committees through virtual means going forward. This should be a central part of banking now and not used as and when.

Banks should begin to pick customer’s requests including loan applications through mails and process everything without physical contacts.

Collateral monitoring and verification should be done seamlessly.

DIGITAL BANKING

Since the start of the coronavirus, consumer demand for digital banking has never been greater. Unfortunately, many banks that were delaying digital transformation efforts have been caught flat footed, without the ability to deliver a positive digital experience.

The good news is that, with overall transaction volume low, the opportunity to build improved digital platforms has never been greater. COVID-19 has become a digital banking ‘reality check’ for both financial institutions and the regulators.

Despite all of the talk over the past several years about becoming a ‘digital banking ecosystem’, many basic digital banking deliverables are falling far short of expectations at a time when the consumer has few options.

From the opening of a new account, to the application for a loan, or even the cashing of a
check or authorizing identities, the system is woefully inadequate to support banking without branches.

Of greater concern is that the internal policies of many financial institutions will be tested over the next several weeks as desperate consumers try to get access to their government support funds, only to find out these funds may not be quickly available.

Customer enquiries which at the moment can be done through call centres should be enhanced going forward through video means for verification purposes.

Banking apps should be upgraded to be part of our day-to-day life.

A study reveals that for example in the U.S. the banking apps are being used to the same extent as social media and weather apps.

Ghanaian banks should invest more into such technological framework and educate their customers with its usage consciously and not passively.

With the help of digitalization, banks can now provide enhanced customer services.

This provides convenience to customers and helps in saving time.

Digital banking reduces human error and thus builds customer loyalty.

More customers are getting used to round-the-clock access to banks due to online banking. Managing large amounts of cash has also become easier.

Digitalization has also benefitted customers by facilitating cashless transactions.

Customers need not store cash anymore especially in the urban areas and can make transactions at any place and time.

Cashless societies have existed from the time when human society came into existence, based on barter and other methods of exchange, and cashless transactions have also become possible in modern times using digital currencies such as bitcoin.”

Between 2008 and 2013, the estimated share of payments done by cashless methods in Singapore stood at 61%, 60% in the Netherland, 52% in the United and 45% in the United States of America.

The first African country to appear in the first 20 was South Africa with 6% of their total payments done by cashless methods.

Covid-19 which spreads largely through respiratory droplets from coughing and sneezing means the pace of the banking sector towards cashless system should be enhanced.

Payment system though internet banking needs to be enhanced to reflect real time action.

ACH transactions with internet banking should be direct and not routed through an internal bank system. Such a delay discourages customers from its usage.

The obvious challenges going forward for most universal banks is how to serve its customers seamlessly without physical contacts with deposit mobilization, asset classification and its related scope, technological framework etc.

FINTECH PARTNERSHIPS

Financial institutions will have to deepen their collaborations with their fintech partners. The aim for collaboration should be to bring strengths of both banks and fintech firms together to create a stronger entity than either unit could bring on their own. Institutions like the Ghana Interbank Payment and Settlement Systems (Ghips) should be well resourced to play a more middle man and collaborator role for the banks.

Jim Marous, in his Forbes Article intimated that the primary advantages for fintech organizations are an innovation mindset, agility (speed to adjust), consumer-centric perspective, and an infrastructure built for digital.

These are advantages that most legacy financial institutions do not possess.

According to the World Fintech Report 2018 from CapGemini and LinkedIn, in collaboration with Efma, “Most successful fintech firms have focused on narrow functions or segments with high friction levels or those underserved by traditional financial institutions, but have struggled to profitably scale on their own. Traditional financial institutions have a vast customer base and deep pockets, but with legacy systems holding them back.”

The future sustainability of the banking industry will depend greatly on its ability to leverage the power of customer insight, advanced analytics and digital technology to provide services that help today’s tech-savvy customers manage their finances and better manage their daily lives.

Banks should use their research department with the aid with the Chartered Institute of Bankers to enrich its customer knowledge base. Customer taste and preferences will be shaped continually by technology, hence the need to act now.

Covid-19 is telling the banking industry to do more with innovative means.

FAST PACE INTERNAL PROCESSES WITH TECHNOLOGY AND OUTSOURCING

Another critical thing worth considering in the use of enhanced technology going forward should be quick decision making. Credit papers, sensitive, or high-profile issues which ordinarily required excessive review by senior management through sit down meetings will have to be conducted swiftly now. Banks may consider to introduce Artificial intelligence systems, Machine Learning technologies to support manual decisions.

Banks will need to craft any effective communications tools like Video Conference, telegram meetings to mention to reduce the prolonged bureaucracy associated with the current norm.

The Harvard Business Review in their latest article titled “CORONAVIRUS + BUSINESS” added that assembling a small trusted team which is this case Competent Senior Management and giving them enough leeway to make rapid tactical decisions is critical in the post Corona Era. Enhanced communication with technology will therefore aid quick decision making.

While larger global and regional financial institutions may implement their own custom core, local banks and NBFIs are struggling to bear such costs. They could consider to outsource aspects of their core systems operations to system providers. Today, the core banking software solutions are even more relevant, especially given the need for an urgent transformation of the existing legacy core systems itself.

Large banks and financial institutions are increasingly realizing that they need to be hyper-agile in focussing on customer delight strategies but unfortunately, remain slow to respond or adapt to emerging technologies due to their existing legacy core systems that are not trained do the heavy lifting and cost considerations.

One of the key approaches in such a scenario is the need for a decoupling that supports this constant change or innovation and can also reduce the risk of failure that could be fatal
and very costly.

There are few providers that help leverage the existing legacy systems itself, by hollowing out customer engagement functions from the core system and managing it as a horizontal cross-enterprise layer. This layer provides banks with enhanced product innovation capabilities, sophisticated customer data management, partner ecosystem, and revenue
management and pricing.

With this approach, banks can quickly adopt new technologies, add more functionality and capabilities, offer customized products and enhance the customer experience. The goal is to transition from a product-based to an agile, customer-first organization.

ALTERNATIVE FINANCIAL SERVICE (AFS)

An alternative financial service (AFS) is a financial service provided outside traditional    banking institutions, on which many low-income individuals depend. In developing countries, these services often take the form financial inclusion, Microfinance, Microcredit and Micro insurance. These could be expanded to include payday loans, day workers credits, labour card credit, rent-to-own agreements, pawnshops, refund anticipation loans, subprime mortgage loans and car title loans, furniture and home improvement and non-bank check cashing, money orders, and mobile money transfers.

It must also include traditional moneylending by mobile technology collection with traditional banking rates and subsidies. We could also consider check-cashing mobile technologies (where the check number will represent the unique identifier key/ID), and they must be legally exempted from the traditional momo percent and “criminal” usury cap. We could also consider person-to-person lending and crowd funding to  casual workers and daily labourers.

These alternative financial service providers must be allowed to process transactions for the unbanked.

REGULATOR INTERVENTIONS

The Pandemic has started having a toll on all financial institutions globally and it is significantly impacting the global economy. That notwithstanding, Central Banks in all jurisdictions, have taken measures to mitigate the negative impact of the Pandemic.

Whiles, we fight to eradicate the virus, and revive the banking sector, The Central Bank of Ghana is working hard to assess the possible impact of the Pandemic on the domestic economy and is taking the necessary steps to mitigate its impact, to ensure financial and economic stability.

In the interim the Central Bank has directed that all Banks, Savings and Loans Companies, Finance Houses, Microfinance Institutions, Rural and Community Banks and Foreign Exchange Bureaux, are to act on the following directives:

• To activate their business continuity and disaster recovery plans proportionate to the current circumstance and to review these plans as the situation changes.
• To abide by the public notices and advisory issued by the Government of Ghana, the Ministry of Health, the Ghana Health Service and other relevant authorities, in relation to the COVID-19 Pandemic.
• To enhance protective and safety procedures for all Staff namely:

1.  Ensure that all Banking Halls, Automated Teller Machines (ATMs), Counting Machines and other relevant equipment are sanitised on a regular basis;
2. Ensure that Staff and Customers comply with the social distancing practice;
3. Ensure that critical and front line Staff are provided with protective equipment and gear, for example, gloves, face masks, etc.;
4. Provide hand sanitising dispensers at entry and other vantage points.

• To ensure all electronic channels are fully functional at all times and ATMs do not run out of cash.

FINANCIAL INSTITUTIONS INTERVENTIONS

It can be confirmed that the financial institutions in Ghana to a very large extent have all complied. Many of the banks have also gone the extra mile to reduce their service fees and charges on the use of their electronic channels and other banking services. Some have increased the daily limits on their electronic channels to allow customers to access funds seamlessly. Some have created virtual and secured platforms to interact with their clients virtually.

These steps and more are commendable and the Chartered Institute of Bankers will like to commend all stakeholders in the financial services space.