The pandemic’s digital acceleration of banking, financial services and insurance sectors

In the pandemic, an overriding business objective has been to stay open while doors were closed. The byword for every employee is resilience (no matter the location in which they’re working). At the start of the pandemic, when bank branches were forced to close, it was clear that even processing loans and government assistance through them was a challenge as phone lines and other channels were overwhelmed with customers seeking help.⁶ 

Staying resilient has meant finding ways to enable their businesses to continue. As much as 40% of the world’s people have been forced to stay home, which has accelerated the rise of digital payments. Call centers across the world have seen call volumes surge fourto 10-fold due to shutdowns of branches and other field offices. And financial firms have beefed up their cybersecurity defenses in the face of a spike in attacks aimed at citizens’ stimulus checks and other pandemicrelated transactions.⁷

The byword for every employee is resilience (no matter the location in which they’re working).

While cyber security is one part of becoming resilient as well as futureready, welcoming new customers is another. Banks and credit card issuers have let customers open new accounts without in-person office visits. SBI Card (India’s largest pure-play creditcard issuer) developed a system by which it can sign up customers using videos and electronic signatures. For the institution, it’s a digital “know your customer” process that customers can complete in 15 minutes.⁸

Despite a depressed economy, mortgage lending has stayed strong in countries such as the U.S., as many inner-city Americans moved out to suburban and rural areas to escape the crowds. One mortgage lender’s automation initiative reduced credit decision cycles significantly, cut paper processing costs by 40% and enabled contactless processes through digital signatures and other technologies.

Insurance companies saw spikes in their customer contact centers, and many implemented bots that answer frequently asked questions using robotic process automation (RPA) and AI tools. Claims in life, business and health insurance have exploded. Insurers have used AI and machine learning tools to deal with them, as well as AI tools to get information from documents. Some financial services firms have provided personalized digital video messages to reassure customers about their annuities, pensions and other investments amidst the turmoil in financial markets. 

Increasing value invariably points to efficiency gained through automation initiatives that reduce costs. Bank of America has been relying on its Erica virtual assistant ever since the coronavirus outbreak occurred. Over three months (March through May), the $90 billion (revenue) bank added a million Erica users per month. By the third quarter of 2020, 16 million BofA customers were using the digital assistant to balance their checking accounts, make payments and get payment reminders.⁹

Efficiency is crucial to increasing value to customers while reducing costs. U.S. financial services companies like First Home Bank turned to robotic process automation (RPA) to process 6,000 pandemic-related small-business relief loans in the first few months of the pandemic. That was six times the number in a typical year.¹⁰ Insurers have also been cutting costs and the burdens of manual processes by using RPA, for example, to post payment transactions from spreadsheets and copy details from external applications.¹¹

Growth: The pandemic has created demand for a wave of new financial products. Financial services companies that responded fastest to these needs have grown during the downturn. Take the example of a Singapore insurance product. After the pandemic hit, a health insurance company went from design to launch of a COVID-19 insurance plan in four days—96 hours. What’s more, customers can buy and use the plan online.

The transition to a post-pandemic world will require financial institutions to keep a sharp eye on big changes in consumer behavior in the pandemic.

When the pandemic begins to recede this year, financial institutions are not likely to order all their people back to work. Many, in fact, may decide that certain jobs can be done as well, or even better, from workers’ homes. To support that, however, they will have to look for new technologies and new ways of motivating and managing the remote work force to spur productivity.

When this transition phase starts, financial institutions will be able to shift away from emphasizing business continuity and focus on reimagining the workplace, improving customer centricity and becoming more agile. 

The “near future” phase will also be a good time for digital experimentation. Some companies haven’t waited for that time. For example, U.S. mutual fund giant Fidelity Investments last May started testing a virtual reality system to bring more than 140 new employees on board its operations division.¹²

New growth opportunities will abound, and a number of insurance companies have already jumped the gun. Next Insurance, a venture capital-funded startup focused on small-business clients, acquired analytics provider Juniper Labs to expand its customer base through machine-learning technology that uncovers underwriting opportunities.¹³ (Next is partially funded by Munich Re¹⁴, one the world’s largest reinsurance companies.¹⁵) In May 2020, another U.S. insurer (Buckle) began offering coverage to rideshare drivers who deliver food, household items and other products.¹⁶

The transition to a post-pandemic world will require financial institutions to keep a sharp eye on big changes in consumer behavior during the pandemic. Notably, one global study found that the number of consumers using digital banking channels in the pandemic grew from 68% in 2019 to 71% in 2020.¹⁷ As a group, retail banks have taken note of consumers’ accelerated embrace of digital channels—by not only fortifying their digital banking services but also by using them to reduce costs. At the end of October, U.S. banks and thrift institutions had closed more than twice as many branches (2,664) as they opened (1,092).¹⁸ Such moves are critical to maintaining in-person services where they are needed the most and freeing up resources to support new online and mobile services.

This assumes that the pandemic has gone away and financial services companies are no longer worrying about COVID health risks. They can shore up their workforces, strengthen customer and partner relationships and address weaknesses in business process changes implemented in the pandemic and transition phases.

In the post-pandemic phase, financial institutions should continue emphasizing their digital channels for customers and enable remote service delivery. They should analyze data patterns to determine how to increasingly personalize services for customers. For example, banks and their business partners should explore combining forces in providing investment services, insurance, contactless payments and other digital services. Near the end of 2020, the majority of Americans were using touch-free payment devices to buy groceries, medicine, fast food and other products.¹⁹

Insurers face a separate set of challenges. They need to see themselves in the larger digital ecosystems in which companies from multiple industries collaborate to provide more value. The auto insurance sector is a great example. The pandemic has forced people to drive less.²⁰

A number of insurers have introduced usage-based car insurance, a market that is expected to grow in North America at 25% per year through 2027. But to better qualify their risks, insurers should be working with auto manufacturers, makers of chips and sensors and other entities in a “mobility” digital ecosystem that not only tracks how far customers drive but also monitors their driving behavior (i.e., too many panic stops) and their vehicles’ condition. That would enable auto insurers to better understand the risks they are underwriting.

In home insurance, Hippo, a startup that lets U.S. homeowners buy a policy in five minutes, attracted a $350 million investment from Japanese giant Mitsui Sumitomo. The Japanese firm also agreed to serve as a reinsurance company to Hippo.²¹ In our view, such partnerships are emblematic of the digital ecosystem opportunities for banks and insurers.

In the post-pandemic phase, financial institutions should continue emphasizing their digital channels for customers and enable remote service delivery.