Are Banks Ready for the Coronavirus-Driven Demand?

April 28, 2020

Is it possible to find anything positive in the coronavirus pandemic? As cynically it may sound, it’s possible. Forced switches to remote work and online solutions push digital transformation better than previous moderate stimulus. Particularly, it’s typical for banks. Earlier, a mobile solution for banking was a matter of choice, but now these apps and sites are vital elements, literally. Banks that refuse digitalization will vanish.

Yet, both innovative FinTechs and digital-focused traditional companies face threatening challenges today. They want to continue working. But are they ready?

The Idea Behind Digital Banking

To start with, we should understand how modern FinTech solutions work. There are three types of services that rely on digital technologies more or less. Partially, their models intersect, but they also have unique features:

Mobile banking – a service that users can access through mobile applications via smartphones, tablets, wearables.
Online banking – a service that users can access through websites. Usually, companies combine physical and online functionality.
Virtual banking – a service or a financial institution that is available remotely only. Virtual or direct banks have no branches at all.

For all these types, experts often use the term digital banking. In other words, they provide financial services based on digital solutions like mobile apps or websites. The rise of digital banking is inevitable as it comes with great flexibility and convenience. However, the coronavirus crisis speeds up this digital disruption even more.

COVID-19 Drives FinTech Adoption

Well, here’s the good side. Due to global lockdown, banks have to move to remote services. They close branches and limit cash usage to prevent further spread. It’s an excellent opportunity for large banking corporations that have native apps, as well as FinTech startups that finally can play on the same field.

Let’s check how financial businesses evolve nowadays.

Growing Demand

According to Forbes, with references to Liftoff and App Annie, consumer registrations in banking apps grew by 71% in 2019. This year may set new records. Researchers found that usage of these applications in South Korea and Japan increased by 85% from December to March. In the USA, this parameter reached 35%. In April, daily registrations exceeded the average norm by 200% and more due to the distribution of financial aid in America.

Generally, in 2020, registration rates for FinTech apps rose by 71%, while conversion costs dropped by 76%. It means that now banks can get much cheaper app installs, boosting registration or activation rates. As for the most popular solutions, they are as follows:

Cash App
Credit Karma
Google Pay
JD Finance
PC Financial

It’s interesting that startups are now in an even better position than larger banks. For instance, Deutsche Bank had to close more than 200 branches around the country to prevent the coronavirus spread. Simultaneously, a famous German branchless bank N26 is preparing to welcome new users. Representatives of this startup say that they focus on gaining more customers in existing markets and even launching in Brazil.

Evolution of Africa

Let’s also look at one of the most promising regions for financial innovations. Africa has the largest share of the unbanked and underbanked population, so FinTechs are the kings here. They can deliver financial services to people and entities not covered by banks. With new limitations regarding cash and branches, Africa becomes even more FinTech-friendly.

Just look at a few countries that praise digital banking:

Ghana. The central bank eased KYC requirements for digital money accounts and ordered mobile providers to remove fees on all transactions below 100 GHS.
Kenya. M-Pesa, the largest Kenyan digital money transfer system, waived fees on all transactions under 1,000 KES for three months.
Nigeria. Digital money platform Paga allowed merchants to accept payments without fees and enabled free transfers up to 5,000 NGN.
South Africa. The local startup Yoco encouraged customers to use contactless payments and started working faster on its new remote payment solution.

Nevertheless, the digital finance sector should address the issue of higher volume to grow. And we aren’t sure that the solution will be simple.

COVID-19 Leads to Bank Outages

And here we have a bad cop. Mainly, the most significant issues are in the USA now, where the government gives free financial stimulus to citizens. Considering that it’s impossible to get cash, millions of customers started sending requests to mobile apps and bank sites. CNET reports that Capital One, Chase, Navy Federal, PNC Bank, and US Bank all report outages or problems with access. The volume of customers is unprecedented, according to spokespersons.

Traditional banks face new challenges, too. Clients who prefer personal communication are making tons of requests through call centers. This leads to massive volumes that force banks to hire more operators or switch roles of other employees. Still, the waiting times rise as clients can’t figure out how to complete routine tasks that were recently handled in branches. Some companies even encourage customers to use mobile/online solutions instead of calls.

As a result, we see that at least one country fails to handle the rising demand. Further, it’s likely that the volume will increase. Other regions should think about their banking infrastructure, remote payments, and digital finance to be able to meet the new needs of users.

Closing Thoughts

The impact of COVID-19 is clear. It changed our world and continues changing it at all levels. Talking about finance, the ideas of social distancing and self-isolation shaped a new attitude to services. Now, remote digital banking isn’t a matter of convenience or efficiency. It’s a matter of personal safety. Digital banks became the new norm already.

But what about the current load? As you can see, people around the world switch to remote banking. They get apps, check websites, and call operators. On the one hand, it looks like the beginning of a significant digital era for banks. On the other hand, companies have yet to solve the issue of scalability. Not all banks are ready to handle the rising demand.