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Jul 14, 2020

Four months ago, things seemed good, right?  Banks in the U.S. and Canada entered the COVID-19 crisis with relatively strong capital and liquidity positions.  Long-term financial plans were in place, new initiatives and projects were humming along and the 1st quarter was looking to be a strong one.  Then the world changed course.  We were all forced to move into a new environment which would test the effectiveness of contingency plans that had been prepared and updated in the years after the 2008-09 financial crisis but with no expectation that they would ever be tested so extensively and dramatically. 

In that four months, many organizations have had to transform their operations with some faring better than others.   The Herculean effort to ensure people’s safety, security of systems, customer needs and business operations continue running effectively has exposed a multitude of gaps, some already known, others learned on the fly. 

Four months of adjustments have led to changes in product design, shifts in customer service, expansion in technology, and emergence of new ideas. Today’s environment requires the ability to harness data to understand what has and will continue to transpire.  It has also required the fortitude to enhance back office manual processes which appeared to have worked well when groups were collectively together under one roof but have frayed significantly when posed with virtual reality and the requirement to do most everything remotely. 

Where to go from here? 

Many organizations are still in some version of triage, but others are starting to see the future.  Many leaders are thinking about how to optimize where they are going and ensure strong growth as some sort of new normalcy develops.  You’ve read blogs on data, emergency preparedness, virtual staff and digital capabilities.  The need now is to harness all this information and push forward. 

Studies from IBM, McKinsey and others show financial institutions will need to find substantial cost savings, greater than 25% to address the economic shifts. These changes will necessitate rethinking how business is done, enhancing processes and creating even more efficiency. To do that investments will need to be made at the expense of something else.

In a recent interview, Tushar Morzaria, Group Finance Director of Barclays noted that “One of the effects of the current difficulties is to increase digital banking engagement and we remain committed to the digital transformation of the business.  But we are looking closely at phasing of investment plan given the income environment.”  

Shifts in Technology Spend -

Most banks look at their technology investments in two distinct buckets: ‘change the bank’ and ‘run the bank’.  In recent years, at major banks including JP Morgan, Barclays and Societe Generale, more than 50% of technology spend was dedicated to ‘change the bank’.  COVID has turned this upside down.    While digital capability and engagement projects are certainly even more critical today than they likely seemed only 6 months ago, the timing of these investments may be affected by the rapid pivot IT teams had to make to ensure support for a nearly universal work from home mandate driven by the spread of the virus. 

And, what we are hearing from our clients confirms both of these trends.  First, IT spend has been diverted to largely support Business as Usual activity including the work from home shift.  And, our clients definitely expect the share of work from home to remain high even as the effects of the virus recede.  One of our North American clients’ credit card business went from approximately 15% to 80% work-from-home in only a few weeks in March.  Going forward, they believe up to half of this shift may remain permanent which has enormous implications for future business activity, customer interactions, as well as capital investment priorities. 

Take Action -

At Profit Insight we are spending time with clients helping position them to recover FASTER from the business dislocations caused by the pandemic.  We have been working with our clients to identify opportunities to strengthen performance and create unique ways to self-fund the changes that will be needed to support their new environment.  We provide remote assistance regarding pricing, operational improvements and uncover hard-to-identify efficiencies which should help generate increased financial performance as business activity begins to normalize.  The last four months have taught us all much about our business, the next four can show what we’ve all learned.

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