Since the end of 2019, a pandemic has swept the globe. The outbreak is an unexpected stress test on the banking industry, causing significant losses to the global economy. We need to have a deeper understanding of the situation and prepare for the future.
1. Impact of COVID-19 Pandemic
With global efforts to combat the pandemic, we have a deeper understanding, enabling us to take more targeted measures. Let’s take China as an example. Lockdown and quarantine measures were used to slow down the spread of the virus during initial outbreak, and nucleic acid tests were conducted when production resumed to find asymptomatic carriers and analyse public immunity. Pandemic detection, confirmation, prevention, and control measures are maturing.
Lockdown and social distancing have greatly affected the offline economy. According to Chinese economic data, in Q1, tourism and catering were down by 35.3%, and trade, construction, and transportation all decreased by 10% to 20%. On the contrary, with a solid foundation, the Chinese online economy (such as fresh food business, wealth management, and payments) has contributed to a 13.2% increase in the IT industry.
As of late April, most provinces and cities in China have resumed production. The government’s consumption stimulation, fiscal, and monetary policies are accelerating economic recovery.
China’s digital capabilities have played a critical role in this process. In Hangzhou, Zhejiang province, the local government issued consumption coupons worth more than CNY2 billion to residents, directly driving a 3.5% increase in consumption. Using this digital platform, the government can preset the distribution area, people, industry, and scale, and track coupon use, consumption growth, and industry recovery to optimise the next-round distribution strategy.
2. Measures and Reflections on China’s Banking Industry
Apart from transit and production, the banking sector has also been severely impacted. Customers have been unable to visit branches, placing a huge strain on individual customer acquisition, net interest income, and intermediate business income. Shutdown and slow recovery of factories have affected banking asset quality and corporate business growth both directly and indirectly.
Leading digital banks, however, have seized this opportunity to develop online wealth management and loan services through apps. For example, China Merchants Bank’s (CMB’s) online wealth management business has increased explosively. It issued online loans worth CNY23.7 billion to 896 merchants within 3 weeks through contactless procedures. Furthermore, CMB optimised the customer journey of visiting branches through their app, which meets most customer requirements, simplifies the banking process, improves branches’ service capabilities, and lowers service costs.
Based on the experience and lessons of such banks, it is clear that in China, digital maturity directly determines whether a bank can cope smoothly with the pandemic and quickly respond to change.
Digital infrastructure capabilities: The IT team can quickly expand infrastructure resource capabilities to support teleworking and handle surges in online business during the pandemic. In addition, it can support stress tests and service roll out during work recovery.
Teleworking capabilities: the pandemic has raised higher requirements on teleworking support and security hardening. As the working mode changes, security and internal control need to be enhanced through multiple technical means, such as authentication mode combinations, device security scanning, digital watermark, online behaviour detection, and information access detection.
Limited branch services: Only some branches are open, with limited functions available as staff work in shifts. To deal with this situation, banks use digital platforms such as apps to transform the customer journey of visiting branches. Customers can make reservations and fill in forms online, and scan QR codes to complete applications in a contactless manner. Account managers can stay in touch with customers through apps even after customers leave the branch.
Online customer operations: Chinese banks have digital channels to maintain closer contact with customers during the pandemic. Online convenient services such as wealth management promotion and service handling enable banks to promote their online platforms and cultivate customers’ habits, laying a foundation for cost-effective, lightweight operations in the future.
Asset portfolio management: The combination of economic cycles and effects of the pandemic have posed great challenges to banks’ asset portfolios. Regulators and banks have continuously performed stress tests on assets, industries, and products to predict future directions and agilely adjust business portfolios.
Digital business transformation: Banks with good digital foundation are planning digital business transformation. The digital trend of individual and corporate customers enables information interconnection. Leading banks are using emerging technologies such as cloud computing, big data, AI, 5G, and IoT to reshape their business operation models and build an ecosystem that integrates internal and external resources to make businesses more agile and simple.
3. Thoughts and Suggestions
The pandemic is evolving and changing, and our understanding is advancing. Its lasting and far-reaching impacts on the economy and finance motivate us to consider future actions to both cope with the crisis and seize opportunities.
Continuous stress tests with AI and machine learning: The pandemic has radically changed both the economy and employment. As a result, banks need to review asset portfolios by conducting multiple stress tests. With big data, AI, and machine learning, massive internal and external data from the market and industry is quickly collected and then analysed from multiple dimensions such as portfolio, product, industry, and regions to facilitate asset portfolio adjustment.
Reconstructing branch services through customer journey: The pandemic promotes contactless services. Banks use digital platforms to redefine the customer journey of visiting branches so as to improve customer experience and banks’ operational efficiency.
Online digital wealth management: Customers can obtain the latest information and products any time, talk with customer managers, and purchase product portfolios with one click on their app. This maximises the use of customers’ time, and ensures investment compliance and timeliness.
Online coupons: Banks change the app design concept so that non-customers can easily obtain coupons from bank apps. A simple user registration process and branch journey helps convert more users into customers.
Mobile office: Mobile office is a new trend which also affects the bank office mode. With a mobile app, bank employees can conveniently allocate and track tasks, maintain communication, and work remotely. In addition, the agile platform helps quickly expand the capabilities required by branches and third parties.
Digital corporate loan process: The pandemic drives digital corporate banking and generates scattered data from different sources. In response, banks need to collect and process data as soon as possible through tools and adopt templates to accelerate the corporate loan process.
Customer acquisition: The online trend makes target customers more aware of online products, processes, and experiences. Banks can increase the market share of digital channels by offering rich digital services and products, as well as optimise the customer experience process.
Customer services: By cooperating with Internet giants, banks can obtain and serve customers in the short term. However, these giants are evolving and won’t always be in cooperation. Therefore, banks also need to gradually build their own digital ecosystem platforms for direct marketing and higher customer loyalty.
Business agility: The traditional mode consists of requirement submission, scheduling, resource coordination, and rollout verification, which is clumsy in the online trend. Now, with the user-centred mobile platform and scalable technical architecture, business departments can quickly develop and test applications, quickly obtain market and customer feedback, and then push applications to end users.
Robust hybrid cloud architecture: With the development of agile services, a robust hybrid cloud architecture is adopted without compromising existing investments. Mobile and experimental services are deployed on the public cloud for flexible expansion and risk isolation, and then migrated to the private cloud after development.
Prefabricated modular data centre: The solution greatly shortens data centre construction time. GPS and 5G tools facilitate management and O&M through mobile phones.
Cyber security and internal control: As mobility and teleworking become popular, an important challenge emerges: cyber security and internal control management. In this case, banks need to upgrade cyber security and review their internal control systems based on business features.
5G and IoT: New ICT technologies are new trends to which banks must pay attention. In particular, the differences between them and traditional business call for innovation and better services. Furthermore, these technologies can be introduced into daily operations, customer services, and post-loan management, enabling better business operations through digital means.
Innovative technical applications: During the pandemic, an application based on Bluetooth and encryption technologies has been developed to track the close contacts of COVID-19 cases, attracting wide attention and inspiring banks. The latest tracking technologies can also be used by banks to establish relationships between customers, employees, and important data, without infringing on customer and employee privacy. This improves customer services, risk control, and internal control.
Smart branches: With IoT, smart camera, and AI capabilities, the system monitors branches, automatically identifies customers, detects security and internal control risks, as well as immediately sends issues to related personnel for processing via mobile tools.
The ongoing pandemic impacts not only the economy, but also our daily life. Therefore, we believe that digitalisation will be rapidly and widely used in this process. Banks should proactively think and prepare for the subsequent changes in life and customers, and make services more agile to address uncertainties of the future.
Huawei helps financial institutions go digital in the areas of inclusive finance, data-driven business innovation, and open banking, enabling them to provide customers with inclusive, stable, secure, and convenient financial services. By the end of 2019, we had served more than 1,000 financial institutions, including 47 of the world’s top 100 banks.
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