If there’s one thing the financial services industry knows and has endured many times over, it’s a crisis. The 2000 dot com bubble bust prompted a large-scale reevaluation of organization and business plans related to growth. The 2008 recession led to the formation of both the Consumer Financial Protection Bureau and the Financial Stability Oversight Council. More recently, a global pandemic led to a major industry pivot away from brick-and-mortar branches and in-person services, towards a digital approach. Fintechs were already on course to change the way we interact with our finances prior to the onset of the global epidemic, with adoption of the alternative services increasing regularly. According to EY’s 2019 Global FinTech Adoption Index, the use of Fintech services worldwide climbed steadily leading up to the pandemic, starting at 16% use in 2015, then 33% in 2017, and jumping up to 64% in 2019.
Fintechs showed additional adaptability in their quick response to gaps in the market, as many saw the opportunity the shutdown presented to attract a new customer base. In 2017 the Global Findex Database found that there were 1.7 billion unbanked adults worldwide, meaning 1.7 billion potential customers in need of a banking solution. Alternative fixes that those without bank accounts often used in place of traditional financial institutions were closed, such as check cashing and cash advance agencies, and many businesses stopped accepting cash altogether due to fear of exposure to the virus. These opened the doors for fintechs to welcome the unbanked with open arms, prepared for growth and to service an influx of new business.
A Smooth Fin-Transition
While no industry was entirely prepared for what COVID would do to them, fintechs were uniquely equipped to take the changes the pandemic forced in stride. Online-based services allowed for an easy transition to remote work for employees, leaving services relatively uninterrupted and no real question as to their ability to continue operations as usual.
However, these companies still needed to find ways to attract potential customers to their services and needed to update their offerings and benefits in order to do so. The 2020 Global COVID-19 FinTech Market Rapid Assessment Study, completed by World Bank, the Cambridge Centre for Alternative Finance at the University of Cambridge’s Judge Business School, and World Economic Forum, found that of all financial technology companies surveyed, 66% had implemented at least two changes to their existing platform in order to better serve existing and attract new customers. These included launching new products or services such as additional payments channels or educational services, increasing cybersecurity protections, and mollifying onboarding and qualifying requirements.
Closing the Bank
Things went a little differently for traditional financial institutions, however. Once the pandemic struck and stay-at-home orders were put in place, banks and other FIs needed to close the doors to brick-and-mortar locations and fast-track their digital services. While many were already beginning to ramp up their online options to keep up with fintechs before the pandemic struck, the health crisis accelerated all digital initiatives.
Specifically, financial institutions needed to increase convenience and ease of access for customers in order to keep up with their cloud-based competition. App development and updates were necessary to allow customers to continue to bank as close to how they were used to as possible and avoid frustrations and confusion, as well as assure customers that the transactions they were making were safe and secure. FIs were also seeking to replace the human element of banking in any way they could. Many introduced audio and video chat options that connected with the online experience for explanations as opposed to just phone calls. Bank of America launched a virtual financial assistant named Erica, providing a human name and element to a digital service.
Banks also needed to ensure they could keep the customers they had with other options materializing left and right, and many customers facing economic hardships due to the pandemic. Layoffs, furloughs, and reduced hours plagued workers around the world; the Organisation for Economic Co-operation and Development’s 2021 annual Employment Outlook estimated that 22 million workers in advanced economies lost their jobs due to COVID-19. Banks took note of what was happening and began changing fee structures and canceling fees associated with checking accounts to assist their customers. CitiBank, Capital One, and Ally bank were among the institutions to eliminate overdraft fees entirely in response to the crisis.
PPP Didn’t Protect Lending
Financial institutions faced another unprecedented blow during the pandemic: commercial loan demand taking a cliff dive. In past financial crises, businesses turned to the banks to support them, and the government had to step in and bail the banks out. This time, Uncle Sam got out ahead of COVID-related financial woes with the Paycheck Protection Program (PPP) loans. However, with government money aplenty and few willing to open a new business during a global pandemic, banks saw fewer commercial loan applications. The lending uptick that banks did see was for individuals making home purchases, and with commercial lending becoming virtually nonexistent, they needed to make loans as accessible as possible for the customers they had. But this did not only mean dropping mortgage rates to near-zero. Traditional lending practices often required in-person meetings to finalize a loan being offered, which was no longer a possibility with required branch closures. FIs needed to transition lending applications online to be able to service these customers in the format that the pandemic allowed, which required increasing online capabilities and increasing security to ensure applicants that all of their personal information was secure.
Many of the practices banks and fintechs adopted during the last two and half years have improved U.S. financial systems for the better. Customers are also benefitting from these changes. A 2020 digital sentiment survey from McKinsey shows that 75% of first-time users of various digital options introduced during the pandemic stated that they would continue to use these routes even when the option to return to the prior standards is reinstated. Consumers have adapted to the ease of access that digital solutions bring to the table. Now that the world knows we can operate without some of the norms we were used to, and sees the possibilities that digital solutions can bring, fintechs and FIs must continue to bring better banking options to the table to keep their current customers and attract new ones.
Fintechs are creating customer-oriented services by offering more personalized solutions that work to embrace individuals and their needs, creating customizable options and tools that use the customer’s data and preferences to suggest offerings and services. These include educational opportunities, savings programs, decentralized finance integration, and more. They are also offering similar options as banks have for years in order to make their solutions more accessible and increasingly similar to traditional banking without being a bank. Companies such as Chime and Venmo are offering users debit and credit card options to expand use to anywhere that accepts cards.
Banks and traditional FIs worked hard to embrace and quickly adopt digital solutions and see the value in continuing to expand and improve these options. While many feared that older generations would struggle with digital adoption, once they became familiar with the systems, Boomers quickly adapted to the new banking norms. According to Statistica, in 2018, Baby Boomers were the lowest sector of the population using mobile banking solutions at just 24% use, versus 70% of Millennials. However, Statistica also polled users in 2020 on use of new banking solutions since the pandemic, and 46% of Boomers said they had begun using new solutions since the lockdown started.
Changes for Good
History may view the pandemic years from the lens of a health crisis that sent the entire world reeling- families and friends were kept apart, beloved establishments were forced to close their doors for good, grocery store customers were wiping down bags of chips with sanitizer. However, for financial institutions and fintechs, it was also a period of innovation and digital transformation. It’s truly an example of how the industry turned lemons into lemonade, helped more people, and engaged with their customers in new ways. A refreshingly positive takeaway for the financial services industry and the customers they serve.