This article was originally written by Avanade alum Colin O Brien

"You don't run a business hoping you don't have a recession." - Jamie Dimon, chairman and CEO of JPMorgan Chase

I recently watched an episode of RTE’s ‘Reeling in the Years’ in which it covered the year 2008. During the early part of that year, the Celtic Tiger had appeared to be still roaring on the back of a booming housing market. There were a few people who predicted what happened next. However, when the economic crash came, it came hard.

Back in 2018, Ed Sibley from the Central Bank of Ireland remarked how there where several decisions (large and small) that contributed to the crisis. He also referred to “inaction bias”, which was a term he described as failure to make any decisions to act that contributed to the crisis.

It wasn’t long before banks where seeing shoots of recovery from one of the biggest crises that they had ever suffered. Inevitably there was significant changes made to banking regulations, which led to an alphabet soup of regulatory terms being introduced including CRD/ CRR, BRRD, SSMR, MiFID II, EMIR, IFRS9, GDPR, TRIM, PSD2. 

In Ireland, there was also significant changes made to the mortgage approval process all aimed at ensuring the recovery was sustainable. The Irish banks recovered strongly, and their most recent results demonstrated that they had returned to profit, where strongly capitalised and dividends where expect to be issued in next 12-18 months... until a little thing called Covid-19 arrived!

Like all industries, the impact of the Covid-19 pandemic on the banking industry has been significant. In their own way, banks have become the frontline to many business and individuals, by offering financial support such payment breaks and short-term loans. All this is being achieved as many of their staff continue to work from their front room or kitchen table. 

So, what are the 3 next steps for the banks to consider as they look to recover from the latest crisis to hit their industry?

1. Avoiding “inaction bias” – investment in technology
The obvious instinct at this time would be to round the wagons, reduce investment and wade the crisis out until normality returns (in whatever form that takes). However, this crisis has demonstrated 3 levels of disruption.

 

 

1. Organisations that have made investments in their platforms and streamlined their processes have continued to operate without disruption to their day-to-day operations with limited impact on their ability to connect with their customers
2. Organisations that have adopted a tactical approach to their platform solutions will have seen some disruption as short-term fixes have resulted in difficulties moving to a remote working environment, impacts on customer response, etc.
3. Organisations that have not made the investments in the platforms and processes have struggled in the new way of working and has resulted in customers being lost or businesses being severely disrupted or closed

 

Very few organisations are at level 1 maturity. The positives for the banks are that they are heavily capitalised, and the current situation does present an opportunity to make investments in the right areas that will deliver both short term and long term return, as well as rethinking their business. 

Many banks have the technology foundation to support new way of working in these times. However, continuing to build on those foundations and optimising the investments made are a vital next step. This should include reviewing infrastructure, security and collaboration solutions.

2. Remote working is here to stay
The last six months has seen thousands of workers move from the comfort of their offices to working remotely from their homes. Those companies who invested in collaboration tools were able to continue to offer a service to their customers while allowing their employees to work in safe and secure environments. 

While restrictions have started to lift, it is very unlikely that there will be a full return to the office and many companies have laid out plans to keep their physical locations closed for the short and long term. This creates a unique opportunity for employers and employees to work in a more flexible way, create a better work/life balance and increased inclusivity and access to job opportunities. These new ways of working require structures, process and collaboration technologies like Microsoft Teams and Microsoft 365 to working seamlessly.

3. Rethinking the business
A key focus for banks since the economic crisis has been to reduce its cost base to protect its capital and profit levels. The Covid-19 crisis has forced many companies to accelerate their plans to be more digital and agile. The Irish banks have struggled to accelerate change due to over reliance on legacy IT Infrastructure and lack of access to vast amounts of data which could be used to inform decision making. Solutions such as Power Platform, AI, automation and robotics are now allowing organisations to access legacy data quickly and provide it to the areas of their business, which require it quickly. Having supported many of our clients through this crisis over the past months, Avanade has produced a guide on how banks can reduce its costs. 

When all is said and done, the episode of “Reeling in the Years for 2020” is going to be a very interesting one.

Learn how banks can drive down cost and protect profit in our new banking user guide.