Covid-19 Pandemic: Does the Time of Digital-Only Banks Come?

The outbreak of the Coronavirus has changed the whole world, including the financial market.

Photo by Jonas Leupe on Unsplash

Before the pandemic

The development of digital-only banks is still a question. The reason is that, although digital-only banks have the technology to develop and expand their business and market, the competition in the market is still high. Additionally, customers tend to prefer traditional banks with on-site data storage rather than giving their personal data to the cloud of digital-only banks that is uncertain to secure their privacy.

In the era of digital transformation, traditional banks, especially giants in this banking sector, forced themselves to change and catch up with the digital transformation, not to be left behind in the race with FinTech and challenger banks.

Commercial banks research and develop their technology and system to provide clients with the best experience and services, besides the traditional form of transaction. Some banks even applied the newest technology, such as blockchain to increase the efficiency in their operation. For example, BBVA, the Spanish banking giant, signed the first blockchain-based syndicated loan agreement with their client since 2018.

Situation Changes

However, the appearance of the coronavirus changed the game. Governments encourage people to conduct cashless payment more frequently. Banks have to close their offices, like many other companies.

Some large banks decide to cut down the number of employees. According to the most recent news, HSBC chose to reduce their staff number of around 35,000 starting from the mid-June. That was a tremendous job cut for a giant bank in the world. Profits of traditional banks plunge during the raise of the virus. For instance, in the Netherlands, ING profit dropped by 40% in the first quarter of 2020, and ABN Amro recorded a 395-million-euro loss in the same period.

One more point to note is the number of bank branches closing due to the pandemic. During the Covid-19 time, several banks had to close a part of their bank branches. For instance, JPMorgan Chase closed about one-fifth of their offices by March 2020, while Commonwealth Bank had to close temporarily 114 branches by early May 2020. Although banks stated that the closure of their branches is temporary, there will be no guarantee that their operation will be back to normal, especially when the pandemic is still ongoing and happens more complicated.

The situation leads to the fact that governments should consider issuing the policy to encourage cashless payment. If that happens, digital-only banks can take this chance to grow and expand their business. Offering platform-based services without any physical branches, digital-only banks have a competitive advantage during this difficult time. They can think of a strategy to attract new customers and encourage them to conduct more online transactions, such as fee discount, rewards, vouchers, gifts.

Digital-only banks also need to concern about the profit, like what other companies have to take into account. Nevertheless, with the advantage of having no brick-and-mortar offices, digital-only banks do not have to think of high team management cost. It is also a time for them to headhunt talents from former bank staff to build their team successfully.

Traditional banks will not stand still to wait for the growth of digital-only banks. In the digital transformation race, change-nothing means death, and the traditional banks understand it the most. They will build a business plan to improve their technology and digital banking services system to compete with the new business model like digital-only banks.

The world has been going through the most challenging time in history. Companies, financial institutions, organizations are all facing the challenges arising from the pandemic. In this era, platform-based companies can have a better position to grow their business. With the technology advancement advantage, it is an excellent opportunity for digital-only banks to rise and reach customers with the right business strategy.

Although digital-only banks are still facing other challenges from people such as doubts of data privacy protection and cyber threats, their chance is still bright in the next few years, when I think it may take a long time to come back to the pre-pandemic normal life.

Final Thought

The development of digital-only banks after the pandemic is a motivation for traditional banks to change themselves to catch up with the rapid change of technology. At the end of the day, the one who reaps the most benefits from these changes is us, the customers, who can have opportunities to enjoy the innovative banking products and services.

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