Transformation opportunities exist amid disruption

Expect to see Australian and New Zealand banks continuing to invest in areas such as technology, process automation, digitisation and process simplification, to help reduce costs and enhance the customer experience into 2021 and beyond.

When it comes to managing credit risk, banks will need to make greater use of management judgement, stress testing and new modelling approaches. Banks can build greater strength across the enterprise by expanding testing for scenarios around cyber, third parties, technology, operations and regulations, while developing new performance metrics. The pandemic has shown you cannot predict all risks but building resilience means building an organisation that can respond with agility and flexibility when they occur.

By investing in advanced data analytics, banks will be better able to measure and monitor credit risk and identify at risk customer segments. Banks should also be focusing on overhauling their collections models with a large number of customers likely to need customised payment strategies and solutions over the coming months.

Opportunity from uncertainty

However the wide-scale disruption, globally, has also led to new possibilities. In 2021, as we move further into the recovery phase of the pandemic, banks can take steps to position themselves for future growth by seizing this once-in-a-generation opportunity to transform, accelerating their investment in technology and embedding more agile and scalable business models.

Banks must build new revenue streams and, to do this, they need to find ways to give customers the products and services they want in a post-pandemic world and deliver these in the ways they demand. The rapid acceleration in digital adoption by both retail and small-to-medium enterprise customers, bought on by the pandemic, is an opportunity for banks to rethink their models and reimagine the customer experience.

The last few years have seen new entrants and non-traditional players lead the race to banking innovation, showing outstanding customer experience and agility can be achieved at a low cost. But the COVID-19 crisis has exposed some weaknesses in parts of the challenger sector where, despite rapid customer growth, many have yet to achieve the scale and profitability that help build resilience in tough market cycles.

Traditional banks, which already have the scale to help insulate against the current tough conditions, should be using this opportunity to take the lead on the innovation front. To do this, they will need to take a customer-centric approach and proactively engage with consumers to design and offer alternative digital products and services that are more customised and better suit their personal and business finance requirements. Platforms and ecosystem models that allow for seamless interaction between customers, banks and third parties should also be considered as part of the broader business strategy.

While the past year has shown us that no one has a crystal ball view of the future, those banks that take the opportunity now to accelerate their digital and customer transformation will be better positioned to weather whatever new challenges lie ahead in 2021 and beyond.

Tim Dring is Banking and Capital Markets Leader for EY Oceania

The views expressed in this article are the views of the author, not Ernst & Young. This article provides general information, does not constitute advice and should not be relied on as such. Professional advice should be sought prior to any action being taken in reliance on any of the information. Liability limited by a scheme approved under Professional Standards Legislation.