How the Pandemic Is Changing Banking

We all know the Covid-19 pandemic changed banking. But what will be the impact going into 2021? Recently I made a presentation (“The Big Picture of Banking”) as part of Bank Director’s Inspired By Acquire or Be Acquired digital program that is available now on our website. I identified several trends that I believe will impact banking in 2021 and beyond. I’d like to share three of them here that are specifically linked to the pandemic: consolidation, digital transformation and work culture.

Let’s start with consolidation. Bank acquisitions were down significantly in 2020 due primarily to the pandemic and its associated economic volatility. This was not an environment in which most banks were comfortable taking on the credit and economic risks of an acquisition. There were just 112 deals in 2020, according to S&P Global Market Intelligence, compared to 258 in 2019 and 254 in 2018. 

However, there were three deals in the fourth quarter of last year that may signal a shift in the industry’s consolidation trend going forward. First Citizens BancShares acquired CIT Group, creating a top 20 U.S. bank. PNC Financial Services Group acquired the U.S. arm of the Spanish bank BBVA, creating the country’s fifth largest bank. And Huntington Bancshares merged with TCF Financial Corp. to form the tenth largest bank. 

The participants in all three deals saw a need to get larger in part to help facilitate ongoing digital transformation, which has accelerated during the pandemic. Scale is increasingly important in banking because it allows banks to spread their technology investments over a larger base. It will be interesting to see in 2021 whether more regional banks go down the same path for the same reason.

A second trend follows the first. Digital transformation is a long-wave phenomenon that has been going on for several decades, but the amplitude of this wave has increased significantly during the pandemic. Most banks restricted access to their branch lobbies last year, which greatly shifted transaction volume to remote channels like online and mobile. Some of that branch traffic will return once the pandemic has been tamed, but it will be interesting to see whether a permanent shift has occurred in the behavior of bank customers. I suspect it has.

A third trend directly related to the pandemic is a likely change in the industry’s work culture. Most banks were forced to adapt to a distributed workforce in 2020 when stay-at-home and social distancing restrictions were put in place across the country. 

I think it will be fascinating to watch how employees react to the opportunity to return to their old offices. Some will no doubt welcome the opportunity – especially if they have had to manage school-age children while working from home. But not everyone will necessarily want to give up the freedom to work remotely, especially if they live in big cities like New York or Chicago and have lengthy commutes to their offices. 

Several bank CEOs have told me they plan on being flexible in how they approach repatriation. While there is still great value in face-to-face communication, the pandemic has shown that not everyone has to be in the office all the time, and a more flexible approach to office staffing could enable banks to make modest reductions in their space requirements while improving employee morale and job satisfaction.

If the pandemic has taught us one thing, it’s that “work” is what you do and not necessarily where you go.
Jack Milligan is editor-at-large of Bank Director, an information resource for directors and officers of financial companies. You can connect with Jack on Twitter at @BankDirectorEd.

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