Breaking away from the pack in the next normal of retail banking
In the not too distant past, retail banks in Ghana were largely branch-centered (bank’s share of customer deposits was tightly connected to the size of its branch network). This model strictly required in-person visits to banking halls for the completion of bank transactions and this to a very large extent, least attracted the unbanked majority.
However, retail banks are now faced with a new force to reckon with, to either innovate, or risk being left behind. Customers and/or consumers are becoming more sophisticated and aggressively expect smart digital banking that is readily accessible and tailored to their immediate needs.
The government’s move to digitalize the economy as well as consumers’ desire for simple, fast and reliable digital technologies have mounted pressure on banks to improve customer experience, reevaluate branch expansions and better streamline their processes. The COVID-19 pandemic has made it even more necessary for banks to accelerate the existing technologies and explore the addition of new ones.
Pre-pandemic times: Digital solutions & Innovations after the Banking Sector clean-up
Before COVID-19 surfaced, some banks were already breaking away from the pack with innovative solutions that met changing consumer expectations and facilitated banking service deliveries. Even so, some of these high-performing banks took advantage of the recent banking sector shake-up to streamline operations and lead the newly reconstituted market. The leverage one retail bank therefore had over another was the consumer-preferred digital services and innovative solutions in banking service deliveries.
A number of banking executives when asked about their views concerning the new banking reforms, especially regarding how they would use the new minimum capital, 75% of the banks mentioned that they would consider expanding their market through new digital product and channel development rather than brick and mortar branch expansion. For others, operational efficiency will result from introducing new technology-based products and channels.
Approximately 83% of the respondents said they expected to invest significantly in technology and create agile businesses over the medium term, which will be crucial to meet customer demands and grow profitability.
Accordingly, a number of banks indicated that innovation was growth-enabling, as such, they rated technology and digitally-focused companies (eg. Fintechs) as partners that could be tapped into to ensure bank growth.
There are quite a number of digital services which are commonly used in the retail banking that include: point of sale systems; partnering with Fintechs; integration of mobile money; electronic banking services.
The integration of mobile money in bank service deliveries was identified as having the most impact on banks. 80 percent of bank executives indicated that mobile money is having the greatest impact on bank’s growth.
Moreover, some 30 percent of banks interviewed noted that delays in integrating mobile money on their platforms cost them some retail customers. Also, 60 percent responded that electronic banking was having a positive impact on their businesses. Another 30 percent of bank CEOs said that point of sales systems had a relatively low impact on their banks whilst as low as 20 percent said that it had a high impact on their banks.
COVID-19 Impact on Banking
In this same context, the emergence of the COVID-19 pandemic has deepened the need for quick transformation among the yet-to-explore banks as well as the little-transformed banks. As it stands now, a “wait and see” approach would not suffice any longer.
Indeed, it is with no doubt that, the COVID-19 pandemic has adversely impacted on the banking industry. According to a PwC banking survey, one in every two bank executives (50%) interviewed adduced that credit operations have been hard hit by the COVID-19 crisis.
The COVID-19 era led to the closure of some bank branches as a cost containment measure in the midst of the partial lockdown and also, customer demand patterns were disrupted. Banks had to move beyond their comfort zones to offer reduced interest rates, defer interest payments, and in some instances, defer principal payments of their clients. As anticipated, banks’ non-performing loans (NPLs) shot up and bank operating costs also increased beyond sustained levels.
“Considering the sudden disruption in economic activities and uncertainties that the country faced after the first two cases of COVID-19 were reported in Ghana, it is not surprising to note that 68.8 percent of banks in Ghana reported a fall in patronage of banking services while 18.8 percent recorded an overall increase. The increase, according to these banks was driven by association with customers whose businesses were boosted by the pandemic.
“The bank executives interviewed asserted that although banking services were identified as essential activities during the partial lockdown, many customers avoided the banking halls and resorted to other mediums of exchange and store of value,” asserts PwC.
According to data from the Bank of Ghana, already existing distribution channels of banks (such as ATM and POS) increased in number during the COVID-19 crisis. Between March 2020 and October 2020, the number of ATMs deployed increased from 2,159 payment terminals to 2,222 payment terminals respectively. Also, more Point of Sales Terminals were deployed, increasing from 9,381 terminals to 10, 278 terminals between the same periods.
Furthermore, the value of mobile money transactions between March and October increased from GHS33.8 billion to as high as GHS58 billion. Thus, the share of banks’ transactions via mobile banking distribution channel most likely increased accordingly.
In the same vein, the main delivery channel of banks which received most patronage during the COVID-19 crisis was mobile banking (56% of bank CEO’s affirmed), based on the PwC banking survey. This notwithstanding, other innovations in digital banking platforms such as Automated Teller Machines, internet banking and corporate electronic banking also remained beneficial.
Beyond COVID-19: The Next Normal in Retail Banking
As earlier noted, the COVID-19 crisis has created a new course for banks: one that de-emphasizes the premium placed on putting up more branches to one that emphasizes maximizing banks’ capacities.
Banks that are going to lead the next normal of retail banking are those that keep on searching and thinking on creative solutions to make banking convenient, easier and affordable to the consumer. Such banks do not hold the view of “let’s wait and see,” as that would amount to losing out on the full benefits of innovating.
This is against the backdrop that, consumers’ quick adaptability to the COVID-19 restrictions that encouraged physical distancing and barred movements, will still be maintained as a new trend and adopted to encourage ‘less of in-person’ visits to banking halls.
Going forward, the fact that experts suggest that the impact of the pandemic would be felt in the economy for decades should also be infused in plans in order to better position banks to be adequately prepared for other shocks that may surface. Banks should be flexible by taking on a broader role of tracking consumer expectations and behavior changes so as to move in their direction and meet their needs as they arise.
Also, as banks identify innovative solutions and adopt the use of new digital services, they must be focused on bridging the information gap in terms of customers’ knowledge on the use of the service as well as strengthen cyber securities which may disrupt banks’ processes if not tackled.