Changes in the world banking industry induced by the pandemic-related crisis

The newest technologies are changing many spheres of life including the banking industry. Today, almost everybody can bank with the use of his or her smartphone. The COVID-19 pandemic has made it especially clear that something needs to be done about the bankers’ conservatism. We discuss the recent as well as the expected changes in the banking industry in the text below. We are going to show the importance of a professional approach to choosing the bank or the payment system to service you and to managing your capital. 

Banking Covid

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All the bank offices in the province of Hubei where Wuhan is located were closed for a few months due to the coronavirus pandemic. However, most people did not even notice that! Because they were still able to bank online using payment systems such as Alipay or Wechat Pay, for example. For this reason, it is not surprising that people are starting asking themselves: Do we need banks at all?

FinTech is winning over the financial industry. Digital banks are coming to the front and they deserve close attention.

The coronavirus-induced crisis struck the financial sector like lightning. Suddenly, it has become clear as day that some things deemed indispensable before are becoming totally unnecessary today. The pandemic-related economic crisis is not the main reason why many habitual things and practices are going to disappear soon. Rather, it served as a catalyzer for the changes that had been awaiting the financial world for a long time. 

1. Mass layoffs in the banking sector

Bankers in all countries realize that great changes are coming. The banking sector in Switzerland in particular generates a large portion of the country’s GDP and it is especially important for the Swiss banks to adapt to the new reality fast. It is expected that many bank employees in Switzerland are going to lose their jobs in the near future. Most banks have superfluous staff, which reduces their efficiency. We are up for a recession that will make the bank managers make redundant staff… redundant.  

Thomas Gottstein, Director General of Credit Suisse hinted at massive job cuts a few weeks ago in an interview to «Neuen Zürcher Zeitung». A survey among bank managers in Switzerland has shown that most of them expect that up to 40% of all bank employees in the country are going to lose their jobs.

2. Less office space required for banking operations

When there are fewer employees, the banks are not going to need so much office space any longer. The pandemic has clearly shown that many job tasks can be successfully completed from home so workers do not actually need offices! Getting rid of office space is a tempting opportunity to save on the operational costs without doubt. Probably, the bank office as we know it is going to sink into oblivion soon.

3. Banking outlets close down

Some banks have their headquarters in huge skyscrapers but these are going to shrink soon. What is more, local branches of multiple banks are also going to start closing down. The process has already started in China. It has become clear to the top managers of Chinese banks that they do not need so many officers as a great number of banking operations can be performed with the use of digital technologies.

4. No formal dress code anymore

The coronavirus-induced quarantine has made everybody learn how to use videoconferencing applications. Board of Directors meetings are often held with the help of Zoom Sessions these days. And when you are at home, you do not feel like putting on a collar and a tie! Having a decent appearance would be enough. Bank clients seldom wear formal suits but now the dressing style is catching on with bank CEOs too!

5. Farewell to business trips

One of the most important lessons that the lockdown has taught us is that videoconferencing works fine in many cases. Of course, personal meetings are still required at times, but it has become clear that their number can be easily reduced. Business trips are not going to disappear but they will certainly be fewer in number in the future.

What is going to disappear, however, is reckless spending on travel and accommodation costs involved in business trips. If you can make a video call to practically any country of the world, why should you cover the airfare and the hotel bills, if you are a bank CEO? Airlines and hotel chains are going to feel bad about it but life is changing and they have to adapt to the changes too.

6. Towards a cashless society

National governments are not prepared to get rid of paper money thus far. However, the tendency is quite clear: less cash is used in the world day after day. Sweden can be a good example, as the country has been extremely successful in reducing the use of cash over quite a few years now. Taxi drivers in Sweden were the first to start carrying small payment terminals that allow the passenger to pay the fare with a bankcard or smartphone. The popularity of banknotes with a high nominal value is decreasing at an especially fast rate. The coronavirus-related crisis has only accelerated the progression towards a cashless society.

As the number of cash payments decreases, the number of digital payments grows. Debit and credit card issuers are increasing the limits for payments made via the Internet. Facebook is taking further steps towards creating its own currency, which is going to contribute to the de-cashing processes. Even middle-size retail banks have stopped ordering cash from large Swiss banks, «Zürichsee Zeitung» reports.

People in the United States are rather conservative when it comes to the use of paper money. Many of them will trust the money that they hold in their hand only. However, according to the survey taken in April 2020, 27% of American companies even report an increase in the number of contactless payments, which is attributable to the pandemic and the lockdown. Experts forecast that up to 74% of people are going to stick to cashless payments even after the pandemic is over. It is expected that the amount of contactless payments is going to grow from 10.3 billion dollars to 18 billion dollars by 2025. The Compound Annual Growth Rate is expected to be at 11.7% during this period.

Without doubt, banks clearly see the tendency towards an increase in the number of cashless payments. Forty-four percent of retail bank clients used mobile applications for business transactions in 2020. Both traditional banks and Fintech companies are designing new applications and modernizing the existing ones to meet the clients’ needs. For example, you can acquire state-sponsored food allowances or have your salary paid in advance by use of a mobile application. Even people in less progressive parts of the world such as Asia and Africa are using digital banking opportunities more and more often these days. 

It is reasonable to expect that the banking sector is going to continue to invest in modern payment instruments as well as promote the development of artificial intelligence and digital data analysis.

7. Number of assets under management is not a measure of success any longer

The changes that are in view and those that are already happening will make the banks reconsider their business models. There used to be two denominators of success before: the number of assets under management and the net profit. Today, bank managers agree that the growth of assets under management should not be an important objective anymore. 

Obviously, the more assets a bank has under its management, the higher are the maintenance costs. These costs reduce the overall profitability of the bank. Net profit is what matters. The amount of money that the bank can earn by using the assets under its management.

8. Mid-level managers are going to become extinct

Most experts believe that mid-level bank managers are going to be made redundant in the first place. Swiss banks in particular used to be overstaffed before. Of course, having a large number of people on the staff helps keep everybody specialized in a narrow field but employees need to be paid salaries! With the development of new digital technologies, computer applications emerge that can take on many functions of mid-level managers.

Top managers of Swiss banks are reconsidering their staffing policies. They are looking for ways to automate some processes and optimize their operational costs. A few years ago, Credit Suisse, for example, took some serious steps in this direction.

9. Banks have no fixed working hours today

Many people have had a chance to appreciate the beauty of working from home due to the lockdown regulations. However, working from home has some downsides too. If you are not tied to an office, you can be contacted at any time of the day, even if you are on vacation. Most bankers are constantly online these days, which means that they can be reached easily. We have to admit, the new reality brings some psychological challenges to the working people.

When a large number of bank managers work from home, their working network requires special attention. Everybody will have to be given remote access to the instruments that are needed for performing their tasks. Traders, for example, need a high-speed Internet connection, analysts need equipment with huge computation capacities, and retail bank officers need user-friendly applications to service the clients.

The bankers currently face the task of reconsidering the working environment of their collaborators. They have to use a combination of digital applications, mobile opportunities, and efficient hardware to provide for the remote work possibilities. In particular, cloud technologies look promising for integrating multiple business processes (see more below).

10. No more extravaganzas or office parties

The so-called ‘representational expenses’ used to amount to impressive sums of money with some banks. UBS, for instance, used to sponsor Formula 1 events but not anymore. Banks used to throw parties and sponsor various social events but where do they stand now? Most large social events have been cancelled due to the pandemic. The good news, however, is that the banks can save on entertainment costs now.  

11. Migration to cloud platforms

The new cloud technologies look very promising to banks and mastering them is going to remain one of the highest priorities for them, according to experts. The year 2020 literally pushed the banking industry into the digital environment. Many banks are trying to adapt to the new reality by applying a larger number of cloud solutions.

Celent Company made a survey in December 2020 asking the respondents about the main advantages of migrating to cloud platforms. Eighty-eight percent of the respondents pointed out the following advantages:

  1. Improved maneuverability;
  2. Reduced operational costs;
  3. Virtually no investment expenditures.

Cloud solutions allow computing in a virtual environment. The servers, the databases, the analytics, the software – everything is virtual when you use cloud technologies.

Moreover, many cloud platforms allow the user to enter his or her own identification code and use the applications that he/ she wishes to use. This feature will let the banks optimize their digital presence depending on the tasks.

The following three key factors make migrating to cloud platforms highly attractive for the banks:

  • Centralized location: all the financial information is stored at one place. However, the cloud exists in the digital environment, not in the physical world. This allows the authorized bank personnel to gain access to the information from any place and at any time, which can certainly improve the efficiency of banking operations.
  • Scalability: using office hardware to protect confidential financial information is expensive. When the business expands, new hardware is required, which entails additional costs. Cloud platforms, in their turn, can be scaled automatically: the larger the volume of operations performed, the larger the cloud grows.  
  • Round-the-clock accessibility: Because the cloud platform exists in the virtual space where time is irrelevant, it can be accessed day and night. This opportunity is especially valuable for the banks involved in international operations. Both the bank officers working from home and the bank clients in different countries lying in different time zones can access the cloud platform at any time of the day.

Shortly speaking, migrating to cloud platforms allows the banks to reduce operational costs and it allows the bank managers to work from home. No office space (and thus, no rent) is required while the banking services remain at the same level. Perfect!

12. Artificial intelligence is winning over the banking sector

Artificial intelligence (AI) is a very useful technology for the banking industry. The uses of AI in banking include the following ones:

  • Client identification and validation: AI allows automating client identification and authorization. Passwords or biometric data can be used for secure access purposes.
  • Front Office Banking: AI helps create responsive dialogue interfaces. Chat bots are beginning to be very helpful to bank clients. They help the customers navigate through the website and find the required products and services. When a person can easily find the product that he or she needs, the chances that he/ she will buy the product grow considerably.
  • Risk and fraud management: AI offers analytical and predictive tools in addition to automation opportunities. These tools can be used to avoid possible fraud and assess the risks in a thoughtful manner.

A recent report shows that 56% of financial companies use AI for risk management. This is probably the most widespread application of artificial intelligence in banking. Some other applications include the following ones:

  • Increasing the income potential;
  • Servicing the bank clients;
  • Automation of various processes;
  • Attracting new clients.

Because the banking industry has dramatically changed recently and it keeps changing, applying for professional assistance in applying for banking services is even more important than before. Please seek professional advice on the matter from International Wealth experts.

To start with, we suggest that you should apply for a free consultation on choosing a foreign bank account. Working together with an expert in this area, you will be able to make the optimal choice.

Please bear in mind that opening a bank account is indispensable if you would like to incorporate a business company. If you want to register a company abroad, you will need a foreign bank account too.

Please contact us if you have any questions related to opening accounts with foreign banks. You are welcome to write to info@offshore-pro.info or use our live chat or a messenger.

What are the main changes in the banking industry occurring at the moment?

The banking industry is digitizing at a rapid pace. The coronavirus pandemic has boosted the digitization process as the bank employees have to work from home. But this process started some time ago anyway. Besides, the lockdown has shown that it is quite possible to continue to provide high-quality banking services even when the bank officers are not actually present at the office.

When is cash going to disappear?

It is hard to say when exactly there will be no paper money left in the world but the tendency is quite clear: fewer cash transactions occur day after day. So eventually, we will get there in all likelihood.

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