Pandemic and protests: How the tumult of 2020 will forever change banking

By Laura Alix, Matthew de Paula, Allissa Kline, Brendan Pedersen, John Reosti and Kevin Wack

A global pandemic. Economic free fall. Hundreds of billions of government relief funneled through banks. A reckoning over racism and inequality.

We will not be the same after this — and neither will banking.

The coronavirus crisis hit a hard reset button for nearly every aspect of life, including how people and businesses bank.

And soul-searching across America and beyond — touched off by a Minneapolis police officer's killing of George Floyd and the widespread civil unrest it sparked — is taking that hard reset to a deeper level.

The disparity in society between the haves and the have-nots that the coronavirus threw into sharp relief already had the country, the banking industry included, checking its moral compass.

From the enormous death toll of COVID-19 to the enormous spike in unemployment, people of color suffered disproportionately.

"This crisis must serve as a wake-up call and a call to action for business and government to think, act and invest for the common good and confront the structural obstacles that have inhibited inclusive economic growth for years," Jamie Dimon, the chairman and chief executive of JPMorgan Chase, wrote in a May 19 staff memo.

Six days later, Floyd's death gave even greater urgency to the conversation around injustice.

The next 12 to 18 months will be critical to the massive reset that is underway.

The banking industry can expect to undergo a huge transformation much faster than seems possible — if only by virtue of the fact it is adjusting to an environment that is itself transformed by such vast disruption so quickly.

Banks that look beyond emergency stopgaps, invest in lasting solutions and translate ideology into action stand a better chance of thriving.

But how to figure out the specifics of what to do?

In trying to navigate the unknown, taking stock of what is known can help.

Some longtime trends — the decline of branch banking and the rise of digital everything and remote working — will accelerate. So will the proliferation of what the consulting firm McKinsey & Co. calls "a new social contract" that puts people over profits.

The decision by many banks to suspend overdraft fees and to give newly unemployed borrowers a few months off from paying their auto and home loans represents the beginning of this approach. Regulators may become a more powerful force in persuading banks to take this philosophy of being customer allies even further.

"I do think it's an opportunity," said Alan McIntyre, senior managing director for banking at Accenture. "If the banks choose to take it or not I think is a different matter."

Here is a look at some of the permanent changes experts say banks must reckon with quickly.

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Digital banking: Once-steady shift now moving at lightning speed
In the early weeks of the pandemic — as branches shut down and bankers moved their workspaces from their offices to their homes — banks with robust digital strategies tailored their products and services to meet the needs of retail and commercial customers they could no longer help in person. Those going into the crisis with less ambitious digital banking plans had to scramble even more.

Now, given the likelihood of many permanent branch closings and an increase in customers preferring to bank remotely, the once slow-but-steady shift toward digital banking is moving at lightning speed.

Banks are seeing a surge in customers enrolling in online or mobile banking, particularly among baby boomers who had been slow to embrace digital options, but are now suddenly paying bills online and depositing checks using their mobile phones. A recent survey from FIS found that 45% of consumers overall, and 49% of baby boomers, have changed how they interact with their banks since the start of the pandemic.

"What we're seeing is the greatest acceleration of digital banking in history," said Mike Mayo, an analyst at Wells Fargo Securities who covers big banks.

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Contactless payments: The future is here
If contactless payments were once a solution in search of a problem — as skeptics long maintained — their moment has finally arrived.

Before the pandemic, it wasn't much of a hassle for most U.S. shoppers to insert a physical card and type a few buttons on a terminal. Sure, some early tech adopters embraced Apple Pay. But most of us were content to pay in ways that, while a bit slower, were familiar, consistent and reliable.

With the coronavirus crisis, germaphobia is changing that calculus. "People don't want to touch the terminal," said Peter Reville, an analyst at Mercator Advisory Group.

He expects use of contactless payments — whether they take the form of a mobile wallet or a touch-free credit card — to rise by 10% to 15% as a result of the pandemic.

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Businesses stand temporarily closed in downtown Cartersville, Georgia on April 22.
Small-business lending: Digital is the new normal
After making 22,000 loans in just nine weeks through the government's Paycheck Protection Program, BBVA USA in Birmingham, Ala., has come to value speed in small-business lending.

Loans that once may have taken weeks to get into customers' hands are now being processed and funded in a matter of days, thanks to an automated lending platform BBVA rolled out to meet soaring demand. "This program has by far outpaced any small-business lending we've ever done," said Elizabeth Dobers, the executive director of business banking at the $94 billion-asset BBVA.

BBVA's experience has played out in one fashion or another at hundreds of institutions, big and small, that had held back from modernizing their small-business lending processes.

Behind that sense of urgency is a realization business owners, forced to apply for PPP loans remotely, have come to expect loan decisions to be made quickly. And if their existing bank can't meet their need for speed, customers will turn to a rival — or even a nonbank fintech — that can.

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Susan LaMonica, chief human resources officer at Citizens Financial.
Essential skills for today's bankers: Patience and empathy
When the pandemic struck, it threw the banking industry into a massive experiment it had little time to prepare for.

Within weeks, banks nationwide sent thousands upon thousands of employees out of the office to work remotely. Meanwhile, front-line employees became financial first responders, coaching customers through online banking options for the first time and helping newly unemployed borrowers navigate loan forbearances.

Both bank employees and customers were in unfamiliar situations and feeling heightened emotions — the results of which can be stressful and unpleasant but also, in the best cases, emotionally bonding.

Now, as banks cautiously start to reopen their workplaces, it's clear that remote work and digitization will continue for many employees. But what can't be overlooked is the need for so-called soft skills that bridge the best of the old and new worlds.

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Banking with purpose: A new social contract
With banks and consumers navigating a crisis they did not cause, their relationship with each other is more hospitable than it was 12 years ago during the mortgage market meltdown that kicked off the Great Recession.

"I think in the pandemic and its aftermath, the banks have an opportunity to be a source of stability," said Kevin Buehler, a senior partner at McKinsey. "They enter this crisis with much stronger capital and liquidity positions that they've built over the last decade."

A McKinsey survey in April indicated that banks have the benefit of public goodwill at least for now, with 87% of respondents trusting that their banks will "do the right thing" during the pandemic. About two-thirds also said they trust their banks more now than before the coronavirus outbreak.

"The real challenge for the banks is going to be in the fall where it's more down to them to decide how to react," he said. "That's where I think that the reputational risk really starts, which is foreclosing on mortgages that people can't pay, foreclosing on car loans, taking a harder line around the restructuring."

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A temporarily closed sign is displayed in the window of a Wells Fargo branch in an effort to stem the spread of COVID-19 in New York on April 10, 2020.
Supervision: Sharp focus on tech capability, customer well-being
The coronavirus crisis is certain to leave a mark on bank supervision both in terms of the way regulators conduct exams and the standards agencies set for how the industry serves customers.

The crisis has already supercharged existing trends in how bankers and examiners interface with each other. Before, examination work was split more or less evenly between personnel from the prudential regulators working physically inside banks, and off-site monitoring processes driven by the digital exchange of financial data.

When the pandemic began, that balance shifted within days to the regulators conducting basically all of their exam work remotely. In-person meetings with CEOs and bank boards were supplanted with virtual online meetings.

Others said that if the downturn resulting from the pandemic worsens, bank supervision efforts may become more focused on whether financial institutions are looking out for the economic health of their customers. As recent protests have highlighted, income inequality is a significant problem in this country, and it’s not hard to imagine future exams grading banks on their efforts to close the wealth gap.

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